-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BH1iJTKz9SbBMV9WuRjXucVvr8VD9vvvz1Sv5swPdlCAIo0T6VllOSpKLtjm/D4+ KuvPJeOJzF5QnRI0V97zcA== 0000950152-96-000702.txt : 19960301 0000950152-96-000702.hdr.sgml : 19960301 ACCESSION NUMBER: 0000950152-96-000702 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19951130 FILED AS OF DATE: 19960228 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: EAGLE PICHER INDUSTRIES INC CENTRAL INDEX KEY: 0000030927 STANDARD INDUSTRIAL CLASSIFICATION: MOTOR VEHICLE PARTS & ACCESSORIES [3714] IRS NUMBER: 310268670 STATE OF INCORPORATION: OH FISCAL YEAR END: 1130 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 001-01499 FILM NUMBER: 96527986 BUSINESS ADDRESS: STREET 1: 580 WALNUT ST STREET 2: P O BOX 779 CITY: CINCINNATI STATE: OH ZIP: 45201 BUSINESS PHONE: 5137217010 MAIL ADDRESS: STREET 1: 580 WALNUT ST PO BOX 779 CITY: CINCINNATI STATE: OH ZIP: 45201 FORMER COMPANY: FORMER CONFORMED NAME: EAGLE PICHER CO DATE OF NAME CHANGE: 19660921 10-K405 1 EAGLE PICHER 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED NOVEMBER 30, 1995 COMMISSION FILE NUMBER 1-1499 EAGLE-PICHER INDUSTRIES, INC. AN OHIO CORPORATION I.R.S. EMPLOYER IDENTIFICATION NO. 31-0268670 580 BUILDING, 580 WALNUT STREET, P. O. BOX 779, CINCINNATI, OHIO 45201 REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 513-721-7010 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: TITLE OF CLASS Common Capital Stock, Par Value $1.25 per Share Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of the voting stock held by non-affiliates of the registrant as of February 23, 1996 was $1,313,029 based upon the average of the bid and asked prices as of such date. On February 23, 1996, 11,040,932 shares of the registrant's Common Stock were outstanding. The registrant had and has no other classes of stock outstanding. DOCUMENTS INCORPORATED BY REFERENCE Excerpts from registrant's Annual Report for the fiscal year ended November 30, 1995 -- Incorporated in Part I and Part II. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 NOTE This copy of Eagle-Picher's Form 10-K for 1995 includes only Exhibits 13, 21, 23, 24(a), 24(b), 27 and 99. In accordance with SEC requirements, copies of the following exhibits will be furnished upon payment of a fee of ten cents per page. Please remit the proper amount with your request to: James A. Ralston, Vice President, General Counsel and Secretary Eagle-Picher Industries, Inc. P. O. Box 779 Cincinnati, Ohio 45201. Exhibits not included in this Form 10-K for 1995 have the following number of pages (see list of Exhibits in Part IV, Item 14(a)(3)): 3. (i) -- 10 4. (a) -- 99 10. (a) -- 6 (ii) -- 12 (b)(i) -- 120 (b) -- 6 (b)(ii) -- 5 (c) -- 9 (d) -- 4
TABLE OF CONTENTS
ITEM PAGE - ---- ---- PART I 1. Business........................................................................... 3 2. Properties......................................................................... 5 3. Legal Proceedings.................................................................. 6 4. Submission of Matters to a Vote of Security Holders................................ 13 PART II 5. Market for the Registrant's Common Equity and Related Stockholder Matters.......... 14 6. Selected Financial Data............................................................ 14 7. Management's Discussion and Analysis of Financial Condition and Results of Operations......................................................................... 14 8. Financial Statements and Supplementary Data........................................ 14 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure......................................................................... 14 PART III 10. Directors and Executive Officers of the Registrant................................. 15 11. Executive Compensation............................................................. 18 12. Security Ownership of Certain Beneficial Owners and Management..................... 21 13. Certain Relationships and Related Transactions..................................... 21 PART IV 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K................... 22 Signatures............................................................................... 23 Exhibit Index............................................................................ 24
2 3 PART I ITEM 1. BUSINESS. General Development of Business. Eagle-Picher Industries, Inc. (the "Company") was incorporated in 1867 under the laws of the State of Ohio as an outgrowth of a business enterprise founded in Cincinnati in 1843. It conducts its business through unincorporated operating divisions and separately incorporated subsidiaries, both of which are referred to herein as divisions. On January 7, 1991, the Company and seven of its domestic subsidiaries each filed a voluntary petition for relief under chapter 11 of the United States Bankruptcy Code ("chapter 11"). The chapter 11 filings were the consequence of a cash shortfall resulting from the Company's inability to satisfy certain immediate asbestos litigation liabilities. See Item 3.(a) below. Financial Information About Industry Segment. The Company's major industry segments are: 1. Industrial; 2. Machinery; and 3. Automotive. Industry Segment Data is incorporated herein by reference to Exhibit 13, the Company's Annual Report for the fiscal year ended November 30, 1995, pages 29-30. Narrative Description of Business. The Industrial Group, which is composed of three divisions and operations in three other divisions, produces a variety of products for industrial markets, principally manufacturers of consumer products. The Minerals Division mines and refines diatomaceous earth products used for high purity filtration primarily by the food and beverage industry and also for general industrial applications. The Fabricon Products Division produces printed packaging materials for the dairy and confectionery industries. The Specialty Materials Division refines rare metals, such as high purity germanium and gallium compounds, and is a major source of boron isotopes for nuclear applications. This Division also produces a wide range of super-clean containers, which meet strict EPA protocols, for environmental sampling. Other products manufactured in the Industrial Group include custom designed cast plastic parts, injection molded rubber parts and industrial chemicals. The methods of distribution and competitive positions of the divisions of the Industrial Group vary widely. For example, the Minerals Division is second to the Alleghany Corporation in the sale of certain filter aid products which are sold both directly and through distributors to many large and small customers. By contrast, the Fabricon Products Division conducts its sales through sales personnel and competes against many other firms in a highly price-sensitive market. Other products are sold under competitive conditions which vary widely from plant to plant. The Machinery Group consists of five divisions, which are involved in manufacturing products for various industrial markets. The Construction Equipment Division produces earthmoving equipment for Caterpillar Inc. and a line of heavy-duty industrial forklift trucks. The Electronics Division is a leading supplier of sophisticated special purpose batteries for aerospace and defense applications. The Cincinnati Industrial Machinery Division produces specialized high-volume metal cleaning and finishing systems. The Ross Aluminum Foundries Division manufactures complex aluminum castings in sand and plaster. Transicoil Inc. manufactures sophisticated electronic components for aerospace, shipboard, ground-based, and industrial applications. The principal products manufactured by the Machinery Group are distributed through various methods and in a variety of competitive environments. The Electronics Division bids competitively for numerous fixed price government contracts for special purpose batteries. The Division is a recognized leader in this business 3 4 and has a few competitors for some highly technological products, but many large and small competitors for other products. The Construction Equipment Division is the sole supplier of four lines of earthmoving equipment to its longstanding largest customer, Caterpillar Inc. The forklift trucks are distributed through a dealer network. The Automotive Group consists of ten divisions, which are involved largely in the production and sale of mechanical, structural and trim parts for passenger cars, trucks, vans, and recreational and sport utility vehicles. The Hillsdale Tool Division specializes in the manufacture of precision-machined aluminum and steel parts. Typical machined products include torsional vibration dampers and a variety of castings and forgings. The Division also produces the entire front pump assembly for Ford Motor Co.'s electronic four-speed overdrive transmission primarily used on one-half and three-quarter ton pick-up trucks, vans and sport utility vehicles. The Plastics Division is a major supplier of fiberglass reinforced molded plastic parts to automotive and other customers. The Division also produces the fiberglass reinforced plastic roof panels for General Motors Corporation's all-plastic body, all-purpose vehicle. The Wolverine Gasket Division coats steel and aluminum with elastomeric compounds and produces materials which are particularly suitable for high compression applications. The International Operations Division includes Eagle-Picher Industries Europe GmbH, with responsibility over three plants in Europe which manufacture sealing and insulating products, elastomeric extrusions, and injection molded parts for the European automotive market. The Division also includes a sales and engineering office in Japan that serves the Asian market. The Trim Division manufactures automotive interior trim including headliners, rear package trays, spare tire covers and door panels. The Michigan Automotive Research Corporation Division offers vehicle and vehicle system manufacturers a comprehensive range of testing programs for engines, power trains and power train components. The Rubber Molding Division manufactures small rubber precision-molded parts. The Suspension Systems Division, which was formerly part of the Rubber Molding Division, manufactures engineered rubber and rubber-to- metal products. The department of the Orthane Division which produces injection-molded plastic parts for automotive and industrial applications was sold in January 1996. Certain assets of the Orthane Division, related to the elastomeric extrusion process, were transferred to the new Fluid Systems Division. The Automotive Group distributes its products primarily to the "Big Three" automotive manufacturers, or to other suppliers to those manufacturers, directly through internal sales personnel. With respect to the hundreds of products manufactured by the Automotive Group, competition varies widely as to the number and type of competitors, the methods of competition and the Group's competitive positions. Divisions producing precision-machined parts, such as Hillsdale Tool Division, tend to have a few strong competitors (including among others the automotive manufacturers themselves) and compete on the basis of quality and price. Divisions such as Trim and Wolverine Gasket tend to have many competitors of varying sizes and compete primarily on the basis of price. Generally, competitive conditions for this Group are characterized by a decreasing number of competitors, an increasing amount of foreign competition (particularly from the Far East), an increased emphasis on quality and intense pricing pressures from major customers. No product accounted for more than 7%, and no customer accounted for more than 10%, of total sales of the Company for fiscal 1993 through fiscal 1995 except Ford Motor Co., for which sales were $166.8 million in 1995, $165.3 million in 1994, and $148.0 million in 1993, and General Motors Corporation, in 1994 and 1993, when sales were $81.4 million and $73.1 million, respectively. In addition, the Company is not dependent upon any individual raw material source for a substantial part of its business and believes that its sources of raw materials are adequate. In the Machinery Group, order backlog was approximately $182.5 million as of November 30, 1995, $190.1 million as of November 30, 1994 and $148.1 million as of November 30, 1993. The decrease from the prior year is due primarily to softer demand for capital equipment and heavy-duty forklift trucks and better efficiencies in producing forklift trucks which worked off the prior year backlog. A substantial portion of the order backlog outstanding at November 30, 1995 is expected to be filled within the current fiscal year. In no other segment is order backlog of significance, except in the Specialty Materials Division which had order backlogs of $34.4 million as of November 30, 1995, and $25.1 million and $19.9 million as of November 30, 1994 and 1993, respectively. 4 5 In fiscal 1995, the Company spent approximately $19.9 million for research and development and related activities, primarily for the development of new products or the improvement of existing products. Comparable costs were $21.1 million and $17.1 million for 1994 and 1993, respectively. The Company owns or is licensed under patents relating to methods and products in several areas of its business. Although these have been of value and are expected to be of value in the future, the loss of any individual patent or group of patents would not materially affect the conduct of the Company's business. In the fiscal years 1995, 1994, and 1993, for current operations the Company spent approximately $10.9 million, $9.6 million and $8.6 million, respectively, to comply with federal, state and local regulatory provisions relating to the protection of the environment. This level of expenditures has had no material effect on the earnings or competitive position of the Company or its operations during the period described. The Company expects these expenditures to be approximately $12.3 million in fiscal 1996. See Item 3.(d) for information with respect to various other environmental proceedings. As of November 30, 1995, the Company employed approximately 7,500 persons in its operations, of whom approximately 1,900 were salaried employees and approximately 5,600 were hourly employees. Approximately 20% of the Company's hourly employees are represented by eight labor organizations under twelve separate contracts. The thirteenth contract is currently being negotiated. The Company believes that its relations with its employees generally are good. Export sales totaled approximately $92.5 million, $76.9 million and $73.2 million in fiscal 1995, 1994 and 1993, respectively. The revenues generated by foreign operations do not exceed 10% of consolidated revenues, nor do their identifiable assets exceed 10% of consolidated total assets. The Company's debtor-in-possession financing expires on the earlier of December 31, 1996 or the effective date of a plan of reorganization. Should a plan not become effective by the end of 1996, the Company would expect to have the current facility extended as long as necessary. ITEM 2. PROPERTIES. Eagle-Picher Industries, Inc. manufactures at 57 locations a wide variety of products primarily for other manufacturers. Types of manufacturing include, among others, chemical processing, mining, metal fabricating, aluminum casting, precision machining, electronic and electrical assembling, and rubber and plastic molding and extruding. The plants are fully utilized for the purposes intended and generally have capacity for expansion of existing buildings on owned real estate. Plants range in size from 425,000 square feet of floor area to under 50,000 square feet and generally are located away from large urban centers. Information on the locations of all manufacturing plants is contained in Exhibit 99 attached hereto, which is incorporated by reference into this report. The Company considers the following plants to be its most important physical properties:
LOCATION GENERAL CHARACTER ---------------- --------------------- INDUSTRIAL GROUP Minerals Division........................... Lovelock, NV Processing facility MACHINERY GROUP Electronics Division........................ Joplin, MO Manufacturing plants (six locations) Construction Equipment Division............. Lubbock, TX Fabrication and assembly facility AUTOMOTIVE GROUP Hillsdale Tool Division..................... Hillsdale, MI Manufacturing plants (four locations) Plastics Division........................... Grabill, IN Manufacturing plant.
5 6 All of such properties are held in fee and none of them is subject to any major encumbrances. ITEM 3. LEGAL PROCEEDINGS. (a) Chapter 11 Proceedings. On January 7, 1991 ("petition date"), the Company and seven of its domestic subsidiaries each filed a voluntary petition for relief under chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the Southern District of Ohio, Western Division, in Cincinnati, Ohio ("Bankruptcy Court"). The subsidiaries that filed chapter 11 petitions are Daisy Parts, Inc., Transicoil Inc., Michigan Automotive Research Corporation ("MARCO"), EDI, Inc., Eagle-Picher Minerals, Inc., Eagle-Picher Europe, Inc., and Hillsdale Tool & Manufacturing Co. On November 30, 1991, substantially all of the assets of EDI, Inc. were sold pursuant to authority granted by the Bankruptcy Court. All of the chapter 11 cases have been 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. The Company and its petitioning subsidiaries, other than EDI, Inc., are operating their businesses and managing their properties as debtors in possession, in accordance with the provisions of the Bankruptcy Code. The filing of a chapter 11 petition operates as an automatic stay of all litigation against the debtor that was or could have been commenced before the filing of the chapter 11 petition and of any act to collect or recover a claim against the debtor that arose before the commencement of the chapter 11 case. While claimants or the Company may petition the Bankruptcy Court for a modification of the stay to permit such litigation or claim recovery to proceed, the Company believes that it is unlikely that the Bankruptcy Court will grant such permission except in certain limited instances to permit the liquidation of a pre-petition claim, but not any payment or collection efforts with respect thereto. Consistent with the provisions of chapter 11, the Company intends to address all of the pre-petition claims in a plan of reorganization. An Unsecured Creditors' Committee ("UCC"), an Injury Claimants' Committee ("ICC"), an Equity Security Holders' Committee ("ESC") and a Legal Representative for Future Claimants ("RFC") have been appointed in the chapter 11 cases. An unofficial asbestos co-defendants' committee has also been participating in the chapter 11 cases. In accordance with the provisions of the Bankruptcy Code, these parties have the right to be heard with respect to transactions outside the ordinary course of business. At the Company's request, the Bankruptcy Court established a bar date of October 31, 1991 for all pre-petition claims against the Company other than those arising from the sale of asbestos-containing products and other than those arising from any future rejection of executory contracts or unexpired leases in the chapter 11 cases. The bar date is the date by which claimants who disagree with the amounts recorded by the Company as owing to such claimants must file a proof of claim against the Company in the Bankruptcy Court. The Company notified all known or potential claimants subject to the October 31, 1991 bar date of their possible need to file a proof of claim with the Bankruptcy Court. Of the 5,600 claims filed pursuant to this bar date, 2,675 were general claims (e.g. vendor, note holder and other miscellaneous claims), 1,325 were litigation-related claims and environmental claims, and 1,600 were asbestos-related claims. Substantially all of the general claims have been reconciled by the Company. Such claims, as reconciled, have been allowed as pre-petition claims against the Company's estate. The impact of these reconciliations on the Company's financial statements was not material. The Company continues to attempt to negotiate settlements for the remaining unreconciled general claims. If they cannot be resolved by a negotiated settlement, the Company intends to have them resolved by the Bankruptcy Court. The Company does not expect that the impact of the resolution of these claims will be material. The litigation-related and environmental claims are discussed in subsections (c) and (d) respectively, below. The Bankruptcy Court also established a bar date of September 30, 1992 for all present asbestos-related claims. Approximately 161,000 asbestos-related claims were filed with the Bankruptcy Court pursuant to the bar date. Approximately 1,000 of these claims alleged property damage. The 1,600 asbestos-related claims referred to above filed prior to the October 31, 1991 bar date will be treated in the reorganization cases in the 6 7 same manner as the asbestos-related claims filed in connection with the September 30, 1992 bar date. The asbestos-related claims are discussed more fully in subsection (b), below. The Bankruptcy Court has approved five extensions of the periods during which the Company has the exclusive right to file and confirm a chapter 11 plan under section 1121(a) of the Bankruptcy Code ("Exclusive Periods"). The most recent order of the Bankruptcy Court, entered on May 23, 1995, provides that the Exclusive Periods are extended until further order of the Bankruptcy Court. On June 5, 1992, a mediator was appointed by the Bankruptcy Court to assist the Company, the ICC, the UCC, the RFC and the ESC in their efforts to negotiate a consensual plan of reorganization. On November 9, 1993, the Company reached an agreement ("Agreement") on the principal elements of a joint plan of reorganization with the ICC and the RFC, the representatives of the holders of present and future asbestos-related and other toxic tort claims in the Company's chapter 11 case. The Agreement was reached with the assistance of the mediator appointed by the Bankruptcy Court. As a consequence of the Agreement, the Company recorded a provision in the fourth quarter of 1993 of $1.135 billion to increase the asbestos liability subject to compromise to $1.5 billion. The Company also recorded a provision of $41.4 million in 1993 for environmental and other litigation claims. Throughout 1994, the Company, the ICC and the RFC continued to refine the details of a joint plan of reorganization. On February 28, 1995, the Company and its petitioning subsidiaries filed a plan of reorganization and accompanying disclosure statement with the Bankruptcy Court ("Original Plan"). The Original Plan was proposed jointly with the ICC and the RFC. The Original Plan was premised on the settlement of the Company's liability for all present and future asbestos-related personal injury claims and certain other tort claims contemplated by the Agreement. Pursuant to the Original Plan, these claims were to be channeled to and resolved by an independently administered claims trust ("Trust") and the Bankruptcy Court would issue an injunction with respect to such claims. The injunction would forever stay, restrain and enjoin actions against the Company for the purpose of, directly or indirectly, collecting, recovering, or receiving payment of, on or with respect to any personal injury claims resulting from exposure to asbestos-containing products allegedly manufactured or sold by the Company. In 1994, the Bankruptcy Code was amended to add, among others, new subsections 524(g) and (h), which authorize the issuance of a permanent injunction to supplement the existing injunctive relief afforded by section 524 of the Bankruptcy Code in asbestos-related reorganizations under chapter 11. The new subsections provide that, if certain specified conditions are satisfied, a court may issue a supplemental permanent injunction barring the assertion of asbestos-related claims or demands against the reorganized company and channeling those claims to an independent trust. The issuance of such a channeling injunction was a condition precedent to confirmation of the Original Plan. The Original Plan provided for the distribution of cash, notes, debentures, and common stock of the reorganized Company ("Plan Consideration") to the Trust and to holders of allowed unsecured claims on a pro-rata basis proportionate to their share of the aggregate amount of allowed pre-petition unsecured claims against the Company and the other debtor entities. The Original Plan also provided that claims entitled to priority in payment under the Bankruptcy Code and convenience claims (general unsecured claims of $500 or less or claims that will be reduced to that amount) would be paid in full, in cash. Under the Bankruptcy Code, shareholders are not entitled to any distribution under a plan of reorganization unless all classes of pre-petition creditors receive satisfaction in full of their allowed claims or accept a plan which allows shareholders to participate in the reorganized company or to receive a distribution. The Original Plan did not provide that all classes of pre-petition creditors would receive satisfaction in full of their allowed claims. Consequently, the Original Plan did not provide for any distribution to shareholders and their equity interests were to be canceled. The Original Plan did not have the support of the UCC or the ESC because neither the UCC or the ESC agreed with the amount of the aggregate asbestos liability which had been negotiated and which was used in the proposed Plan to determine the allocation of the consideration to be distributed to the unsecured creditor and shareholder classes. As a result of the dispute, the Company was unable to move forward with the Original 7 8 Plan. In order to resolve this dispute, the Company filed a motion in July 1995, requesting that the Bankruptcy Court estimate the Company's aggregate liability on account of present and future asbestos-related personal injury claims. The Bankruptcy Court ruled in December 1995 that the Company's estimated liability with respect to such claims is $2.5 billion ("Estimation Ruling"). The UCC and the ESC and two individual members of the UCC have filed notices of appeal of the Estimation Ruling. The Company does not know whether the appellate court will hear the appeals or, if it does, when any decision will be rendered. Following the Estimation Ruling, the Company recorded a provision of $1.0 billion to increase the asbestos liability subject to compromise to the amount found by the Bankruptcy Court. This resulted in negative shareholders' equity in excess of $2.2 billion. As a result, the Company filed a motion in the Bankruptcy Court in December 1995 seeking an order directing the United States Trustee to disband the ESC on the basis that existing equity holders do not have an economic interest in the chapter 11 cases. In January 1996, the Bankruptcy Court ruled that the ongoing activities of the ESC shall be limited to pursuing its appeal of the Estimation Ruling. In August 1995, certain entities that had, since the petition date, purchased claims held by certain trade creditors of Hillsdale Tool & Manufacturing Co., filed with the Bankruptcy Court a complaint seeking to preclude the use of substantive consolidation as an element of any plan of reorganization of the Company and its subsidiaries. Under the principles of substantive consolidation, the assets of all debtors are used to satisfy claims against all debtors. In its answer, the Company requested that the Bankruptcy Court substantively consolidate the estates of the Company and its subsidiaries. The Company believes that substantive consolidation is warranted in the chapter 11 cases. The Bankruptcy Court has scheduled an evidentiary hearing to commence on March 4, 1996. The Company intends to file with the Bankruptcy Court as soon as practicable an amended plan of reorganization ("Amended Plan") and an accompanying proposed amended disclosure statement. It is anticipated that the Amended Plan essentially will modify the Original Plan so as to reflect in the allocation of the distributions of Plan Consideration the effect of the Estimation Ruling. More specifically, based upon an aggregate amount of allowed pre-petition unsecured claims to share in the Plan Consideration of approximately $2.663 billion, it is anticipated that under the Amended Plan the Trust would receive approximately 94 percent of the Plan Consideration and the other unsecured creditors the balance. Each class of creditors and equity security holders that is impaired under a plan of reorganization is entitled to vote to accept or reject the plan. The Bankruptcy Code defines acceptance of a plan by a class of creditors as acceptance by holders of two-thirds in dollar amount and more than one-half in number of claims of that class that have timely voted to accept or reject the plan. The Bankruptcy Code defines acceptance of a plan by a class of equity security holders as acceptance by holders of equity interests that hold at least two-thirds in amount of the allowed equity interests in such class who have timely voted to accept or reject the plan. The Bankruptcy Code further provides that any class that does not receive a distribution under a plan is deemed to have rejected the plan, and, accordingly, does not vote. Thus, because the Amended Plan will not provide for any distribution to the Company's existing shareholders, that class will not vote on the Amended Plan and will be deemed to reject the Amended Plan. The Bankruptcy Court will confirm a plan only if all of the requirements of section 1129 of the Bankruptcy Code are met. Among the requirements for confirmation of a plan are that the plan is (i) accepted by all impaired classes of claims and equity interests or, if rejected by an impaired class, that the plan "does not discriminate unfairly" and is "fair and equitable" as to such class, (ii) feasible, and (iii) in the "best interest" of creditors and stockholders impaired under the plan. Additional information concerning the Original Plan, the Amended Plan and the chapter 11 cases can be found in Note B to the Consolidated Financial Statements in the Company's Annual Report for the fiscal year ended November 30, 1995, which is attached as Exhibit 13 to this Form 10-K and which is incorporated herein by reference. Additional information concerning the chapter 11 proceedings can be found in subsections (b) through (d), inclusive, of this Item 3. 8 9 (b) Asbestos. Prior to its chapter 11 filing, the Company had been named as a co-defendant in a substantial number of lawsuits alleging personal injury from exposure to asbestos-containing insulation products. As of the petition date, there were approximately 67,800 asbestos-related claims outstanding against the Company. The claims, which were pending in 48 states, British Columbia, Guam, the Virgin Islands, and the District of Columbia, alleged, in general, that the Company and other defendant manufacturers failed to warn of the potential hazard to health from the inhalation of asbestos fiber contained in their products. As a result of the chapter 11 filing by the Company, all of such litigation was automatically stayed pursuant to section 362 of the Bankruptcy Code and additional suits were not allowed to be filed against the Company. Since the first asbestos case was filed in 1966, the Company has disposed of approximately 73,500 claims through trial, dismissal or settlement. On average, the Company spent approximately $7,800 per claim, including attorneys' fees and other defense costs, to dispose of these claims. All persons with a pre-petition asbestos-related claim were required to file a proof of claim by the September 30, 1992 bar date. Approximately 160,000 proofs of claim were filed alleging personal injury. The Company believes that approximately 11,000 of these claims are duplicates or were filed by persons whose lawsuits were previously disposed of through trial, dismissal or settlement. The Company expects that additional asbestos-related personal injury claims will arise for several decades into the future. Such future claims were not subject to the September 30, 1992 bar date. The Company recorded a provision in the fourth quarter of 1993 of $1.135 billion to increase the asbestos liability subject to compromise on its books to $1.5 billion, as a consequence of the proposed settlement discussed in subsection (a), above. In July 1995, the Company filed a motion requesting that the Bankruptcy Court estimate the Company's aggregate liability on account of present and future asbestos-related personal injury claims. The motion was filed because the UCC and the ESC appointed in the Company's chapter 11 cases had not agreed with the amount of such liability previously negotiated for settlement purposes among the Company, the ICC and the RFC. Utilizing information available from the Company and from other sources, the Company's expert and the experts retained by the committees and the RFC appointed in the chapter 11 cases gave opinions as to this liability at the hearing before the Bankruptcy Court on this matter. In December 1995, the Bankruptcy Court ruled that the Company's estimated liability for such claims is $2,502,511,000. Specifically, the Bankruptcy Court found the value of the asbestos-related personal injury claims asserted prior to the petition date to be $478,000,000 and the value of future such claims, claims which will be filed after the petition date, to be $2,024,511,000. Appeals have been filed by certain creditors, the UCC and the ESC, seeking to have the Bankruptcy Court's ruling overturned. The Company does not know whether the appellate court will hear the appeals or, if it does, when any decision may be rendered. The Company, and numerous others, also were sued in both state and federal courts by various entities that own or operate commercial properties and public buildings, such as school districts, counties, cities, states, libraries and hospitals, based on allegations that asbestos or asbestos-containing products are or may be in the buildings. The typical demand in such suits is that the defendants compensate the plaintiffs for any costs incurred in identifying, repairing, encapsulating or removing the asbestos-containing products, or that defendants perform such remedial action. Many suits seek an injunction requiring abatement and punitive damages on the basis that the defendants allegedly knew of the hazards and, in concert with one another, concealed and misrepresented the dangers. Many such suits also seek indemnification from the defendants for all claims for personal injury brought against plaintiffs resulting from the presence of asbestos-containing products in plaintiffs' buildings. These suits too have been stayed as against the Company as a result of the commencement of the chapter 11 cases. One hundred forty-nine such lawsuits were instituted against the Company prior to the filing of its chapter 11 petition, including two which were certified as class actions. Two of such suits were consolidated into one. One hundred and one were disposed of through dismissals by the court following rulings on pre-trial motions, or voluntarily by the plaintiffs. The Company settled seven of these cases for less than $22,000 in the aggregate, prior to filing its chapter 11 petition. Forty of such suits remain pending, but have been stayed as a consequence of the chapter 11 filing. 9 10 The class actions that were certified pre-petition are a national school class action consisting of all public and private elementary and secondary school systems in the United States that have not excluded themselves from the suit; and a Michigan school class action consisting of all public and private elementary and secondary school systems in Michigan that have excluded themselves from the national school class action and included themselves in the state class action. In four lawsuits, class certification petitions were pending pre-petition. One of these suits has since been dismissed; one suit has been suspended; and the remaining two suits, one involving a class of colleges and universities and the other a class of buildings leased to the government, have been certified as class actions. Many of the claimants which voluntarily dismissed their individual claims as set forth above did so to pursue them in one of the certified class actions. Approximately 1,000 proofs of claim alleging asbestos property damage were filed in the chapter 11 cases pursuant to the bar date. Certain of these claims have been withdrawn by the claimants or disallowed by the Bankruptcy Court. The remaining, approximately 930 proofs of claim assert claims in the aggregate amount of approximately $11.5 billion. These claims include most of those asserted in the lawsuits described above that were pending as of the petition date. It is anticipated that the Amended Plan will provide for the establishment of a second trust to resolve asbestos-related property damage claims and alternative mechanisms relating to such trust. More specifically, if the class of asbestos-related property damage claimants votes to accept the Amended Plan, the Company will fund the trust with $3 million in cash, the trustees for the trust will be selected by the representatives of the claimants, and such trustees will develop claims resolution procedures. If such class votes to reject the Amended Plan, but the Amended Plan is nevertheless confirmed, the trust will be funded with its pro rata share of the Plan Consideration, based upon an estimate of the aggregate value of asbestos-related property damage claims by the Bankruptcy Court, and such claims will be resolved and discharged pursuant to claims resolution procedures contained in the Amended Plan. These procedures will require such claimants to prove by application of a scientific protocol that the asbestos-containing insulation products for which they are seeking damages were manufactured by the Company. In February 1996, after the close of the fiscal year, the hospital members of the American Hospital Association, which filed asbestos-related property damage claims against the Company in the alleged approximate amount of $300 million ("Hospitals"), filed a motion in the Bankruptcy Court seeking an order (a) estimating the aggregate value of all asbestos-related property damage claims against the Company, and (b) temporarily allowing such claims for purposes of voting on a plan of reorganization. The motion states that the relief requested is not intended to be a determination by the Bankruptcy Court of the Company's liability, if any, on account of such claims or to assign a permanently fixed value for such claims, but is sought in order to determine the appropriate distribution to creditor classes under a plan of reorganization. Because the motion was just filed, the Company has not yet made a determination as to how it intends to respond. On February 15, 1996, however, the Company filed with the Bankruptcy Court an objection on various grounds to the allowance of many asbestos-related property damage claims, including the claims filed by the Hospitals. Additional information concerning the asbestos litigation can be found in Note K to the Consolidated Financial Statements in the Company's Annual Report for the fiscal year ended November 30, 1995, which is attached as Exhibit 13 to this Form 10-K and which is incorporated herein by reference. (c) Other. In June 1989, the City of New York filed suit against the Company and others in New York state court seeking indemnity for costs New York had incurred and would incur because residents of housing owned by the city were allegedly injured by ingesting paint in that housing. Counts in this suit alleging negligence and strict product liability have been dismissed. Certain other counts are still pending. The City of New York did not file a proof of claim in the Company's chapter 11 case with respect to the claims asserted in such lawsuit by the 1991 bar date. In November 1993, however, it filed three proofs of claim with respect to the litigation each seeking $50 million in damages. The Company's objection to these claims, seeking to have them disallowed on the basis that they were filed after the bar date, was sustained in November 1994, and the claims were disallowed. As a result, and given the voluntary withdrawal of three other lead-related property damage 10 11 claims, the Company has disposed of all lead-related property damage claims that were asserted in its chapter 11 case. In addition to the foregoing, late in 1987, litigation was initiated against the Company and numerous other defendants, which alleged claims for personal injuries resulting from ingestion of lead-containing paint. Such suits have been stayed as to the Company as a consequence of the filing of the chapter 11 cases. One hundred twenty-eight (128) non-duplicative proofs of claim were timely filed in the Bankruptcy Court asserting liability for personal injuries from lead chemicals allegedly manufactured and sold by the Company. Four of such claims have been voluntarily withdrawn at the Company's request. One of such claims was dismissed by the Bankruptcy Court. The Company filed objections with the Bankruptcy Court to seven of such claims. Pursuant to the objections, the Company sought an order of the Bankruptcy Court disallowing such claims because the claimants' lawsuits asserting similar claims against other defendants which were not in bankruptcy had been dismissed. Prior to the filing of its chapter 11 case, the Company also had been a defendant in these lawsuits. In June 1995, the Bankruptcy Court disallowed all seven of such claims. Currently, there are 113 remaining timely-filed, lead-related personal injury claims that have not been resolved. The Company believes that it has valid grounds to object to the allowance of all of the remaining lead-related personal injury claims. However, in December 1994, the Eighth District Court of Appeals, Cleveland, Ohio, ruled that the plaintiff in a lawsuit filed in state court in Cuyahoga County, Ohio, may pursue certain claims against defendants, such as the Company, that manufactured lead pigment. The trial court had dismissed the plaintiffs' enterprise liability, market share and alternative liability theories pursuant to a defense motion to dismiss. The Ohio Appeals Court upheld the dismissal of the enterprise liability count, but reversed the dismissal as to the market share and alternative liability counts and remanded the case to the trial court. The case is currently proceeding before the trial court on the market share and alternative liability counts. It is not possible to predict how or when the trial court will rule on these counts or whether its rulings will be appealed. It is currently contemplated that all lead-related personal injury claims that were filed that are not disposed of pursuant to an objection filed by the Company, and all such claims which may be filed in the future, will be channeled to and resolved by the Trust that will be established under the Amended Plan for the benefit of holders of asbestos-related and certain other personal injury claims discussed in subsection (a), above. On June 18, 1993, the Company, together with its wholly-owned subsidiary, Transicoil Inc., commenced an adversary proceeding in the Bankruptcy Court against Blue Dove Development Associates ("Blue Dove"), the landlord for Transicoil's domestic manufacturing facility in Valley Forge, Pennsylvania, and against K-Jem, Inc., Blue Dove's general partner. The suit seeks to recover excess rent that the Company and Transicoil believe has been paid to the landlord. The landlord filed a counterclaim in the adversary proceeding seeking a determination that Transicoil has breached the lease and, therefore, the entire rent through June 30, 2005 should be accelerated and due. The landlord made similar claims in a suit filed against Transicoil in October 1993, in the United States District Court for the Eastern District of Pennsylvania ("Pennsylvania Action"). Prosecution of the Pennsylvania Action which seeks approximately $10.3 million in damages has been enjoined by the Bankruptcy Court. The parties filed cross motions for Summary Judgment in the adversary proceeding in the Bankruptcy Court, which the Bankruptcy Court denied in December 1995. The Company and Transicoil are seeking leave of the United States District Court for the Southern District of Ohio to appeal the denial of their Motion for Summary Judgment, which sought as a matter of law and without a trial an order requiring repayment of the excess rent that was paid, on the grounds that the Bankruptcy Court misread the lease in denying their Motion. The Company cannot predict when the District Court will rule on this request for leave to appeal the Bankruptcy Court's decision. The Company believes that the counterclaim asserted by the landlord and the claims asserted in the Pennsylvania Action are without merit and that the resolution of the dispute with respect to the lease will not have a materially adverse impact on the financial condition of the Company or Transicoil Inc. 11 12 Additional information concerning such litigation claims can be found in Note L to the Consolidated Financial Statements in the Company's Annual Report for the fiscal year ended November 30, 1995, which is attached as Exhibit 13 to this Form 10-K and which is incorporated herein by reference. (d) Environmental. The Company received 1,102 proofs of claim in its chapter 11 cases alleging a right to payment because of environmental matters. Many of these claims were filed in connection with environmental matters reported in Form 10-K reports for prior fiscal years. These include claims with respect to numerous waste disposal sites previously discussed. They also include claims with respect to the Tri-State mining district of Kansas, Missouri and Oklahoma previously disclosed: Ottawa County, Oklahoma; Cherokee County, Kansas; Jasper County, Missouri; and the Baxter Springs, Treece, and Galena Subsites in Kansas. The Company has resolved the majority of these environmental claims through negotiations with the EPA and the United States Department of Interior. Pursuant to a negotiated agreement, the agencies and certain states will be granted allowed pre-petition general unsecured claims in the Company's chapter 11 case aggregating approximately $43.0 million in full satisfaction of all of the Company's alleged liability at most of its known Superfund sites, including any liability for any natural resource damage. In exchange for these allowed claims, the agencies will release the Company from liability at such Superfund sites and the Company will be protected from contribution claims of other parties with potential liability at the sites. Accordingly, the Company's settlement should completely resolve all claims with respect to these sites. Further, the agreement provides a process which will permit any liability, which may arise with respect to a small number of sites as to which the EPA believes that it does not have sufficient information to negotiate a meaningful settlement at this time, to be resolved in the future when additional information is available. During fiscal 1995, following execution of the settlement agreement by all parties, the settlement agreement was lodged with the Bankruptcy Court and notice of it was published in the Federal Register as required by law. In April and September 1995, respectively, the Company and the United States filed motions seeking approval of the settlement by the Bankruptcy Court. Certain parties that may be liable at certain of the sites resolved by the settlement agreement opposed Bankruptcy Court approval of the settlement. Such opposition basically seeks increases in the amount of the allowed claims provided in the settlement agreement attributable to the sites where the objector may have liability. The UCC also opposed approval of the settlement, arguing that the potential repeal of the retroactive liability provisions of the Superfund laws could substantially reduce the Company's pre-petition liability, and, accordingly, the allowed pre-petition claims of $43.0 million should be reduced. The Company believes, however, that the terms and provisions of the settlement agreement are fair and equitable and that the objections raised have no basis. In November 1995, a hearing was held before the Bankruptcy Court on the motions seeking the approval of the settlement agreement. The Court has not yet ruled on the motions. Additional information concerning the environmental claims can be found in Note L to the Consolidated Financial Statements in the Company's Annual Report for the fiscal year ended November 30, 1995, which is attached as Exhibit 13 to this Form 10-K and which is incorporated herein by reference. (e) Summary - Environmental And Other Claims. The Company intends to defend all remaining litigation claims vigorously in the manner permitted by the Bankruptcy Code and/or applicable law. All pre-petition claims against the Company arising from litigation must be liquidated or otherwise addressed in the context of the chapter 11 cases. Further, all such claims against the Company will be addressed in a plan of reorganization. During the pendency of the chapter 11 cases, any unresolved litigation with respect to pre-petition claims can proceed against the Company only with the express permission of the Bankruptcy Court. The Company has resolved most of the litigation claims that were asserted pursuant to the October 31, 1991 bar date, other than those claims arising from the sale of asbestos-containing products. The Company has filed objections to certain of the unresolved litigation-based claims seeking to reduce the amount of such 12 13 claims or eliminate them entirely. These objections have not yet been resolved. The Company anticipates filing additional objections to other such claims if they cannot be resolved through negotiation. These objections will be litigated vigorously by the Company pursuant to the provisions of the Bankruptcy Code and applicable law. The Company expects that all such claims will be resolved without material adverse effect on the Company, its operations or its financial condition. In addition, the Company may have insurance coverage for certain of these claims and may have factual and legal defenses available to it. 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. 13 14 PART II CROSS REFERENCE SHEET TO ANNUAL REPORT FOR THE FISCAL YEAR ENDED NOVEMBER 30, 1995 MARKED AS EXHIBIT 13 EXHIBIT 13
PAGES CAPTIONS ------ -------------------------------------- ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS (a) Market Information 18 -- Quarterly Data (b) Holders of Common Stock -- 5,932 holders of record at February 23, 1996 (c) Dividends 35 -- Selected Financial Data 32-34 -- Management's Discussion and Analysis of Results of Operations and Financial Condition 20-21 -- Note B to the Consolidated Financial Statements ITEM 6. SELECTED FINANCIAL DATA 35 -- Selected Financial Data ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 32-34 -- Management's Discussion and Analysis of Results of Operations and Financial Condition ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 13 -- Consolidated Statement of Income (Loss) for the Three Years Ended November 30, 1995 16 -- Consolidated Statement of Cash Flows for the Three Years Ended November 30, 1995 14-15 -- Consolidated Balance Sheet as of November 30, 1995 and 1994 17 -- Consolidated Statement of Shareholders' Equity (Deficit) for the Three Years Ended November 30, 1995 19-29 -- Notes to Consolidated Financial Statements 32 -- Report of Management 31 -- Independent Auditors' Report 18 -- Quarterly Data
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 14 15 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. (a) Directors. The name and age; the positions and offices held with the registrant; principal occupation during the past five years and present employer; other boards of directors on which he serves; the year in which he first became a director of the Company and the committees on which he serves, follow for each director:
PRESENT FIRST TERM BECAME OF OFFICE DIRECTOR EXPIRES -------- --------- PAUL W. CHRISTENSEN, JR., 71.............................................. 1969 1996 Retired, 1987; Chairman of the Board 1978-87, and President prior thereto, of The Cincinnati Gear Company, Cincinnati, Ohio, a manufacturer of custom gears and enclosed drives. Member of Audit, Executive and Stock Option/Compensation Committees. Chairman of Audit Committee. MELVIN F. CHUBB, JR., 62.................................................. 1990 (1) Senior Vice President 1988-96, of Eagle-Picher Industries, Inc.; Lieutenant General, United States Air Force and Commander of the Electronic Systems Division at Hanscom Air Force Base, Massachusetts, 1984-88. Director of Empire District Electric Co. V. ANDERSON COOMBE, 69.................................................... 1974 1996 Chairman of the Board since March 1991, and President prior thereto (through April 1991), of The Wm. Powell Company, Cincinnati, Ohio, a valve manufacturer. Director of Star Banc Corp., The Starflo Corp., Union Central Life Insurance Co. and The Wm. Powell Company. Member of Audit, Executive and Stock Option/Compensation Committees. ROGER L. HOWE, 61......................................................... 1986 (2) Chairman of the Board of U.S. Precision Lens, Inc., Cincinnati, Ohio, a manufacturer of optics for video projection, instrumentation, and photographic applications. Director of Cintas Corporation, Star Banc Corp. and Baldwin Piano & Organ Co. Member of Executive and Stock Option/Compensation Committees. DANIEL W. LEBLOND, 69..................................................... 1965 (2) Chairman of the Board of LeBlond Makino Machine Tool Company, Cincinnati, Ohio, a manufacturer of machine tools. Director of The Ingersoll Milling Machine Company, LeBlond Makino Machine Tool Company and The Ohio National Life Insurance Co. Member of Executive and Stock Option/Compensation Committees. Chairman of Stock Option/Compensation Committee. POWELL MCHENRY, 69........................................................ 1991 (2) Of Counsel to Dinsmore & Shohl, a law firm, Cincinnati, Ohio, as of October 1, 1991; Senior Vice President and General Counsel of The Procter & Gamble Company, Cincinnati, Ohio, a manufacturer of consumer and industrial products, 1983-91. Member of Audit Committee.
15 16
PRESENT FIRST TERM BECAME OF OFFICE DIRECTOR EXPIRES -------- --------- THOMAS E. PETRY, 56....................................................... 1981 (2) Chairman of the Board and Chief Executive Officer 1994, Chairman of the Board, President, and Chief Executive Officer 1992, Chairman of the Board and Chief Executive Officer 1989, President and Chief Executive Officer 1982, President and Chief Operating Officer 1981, Group Vice President 1978, President, Akron Standard Division 1977, Vice President and Treasurer 1974, of Eagle-Picher Industries, Inc. Director of Cinergy Corp., Star Banc Corp., Union Central Life Insurance Co. and Insilco Corp. Member and Chairman of Executive Committee. EUGENE P. RUEHLMANN, 71................................................... 1991 1996 Of Counsel to Vorys, Sater, Seymour & Pease, a law firm, Cincinnati, Ohio as of January 1, 1996; Partner of that firm 1989-1996, Chairman, Hamilton County (Ohio) Republican Central Committee, 1991. Director of Western-Southern Life Insurance Company. Member of Audit Committee. ANDRIES RUIJSSENAARS, 53.................................................. 1994 (2) President and Chief Operating Officer as of December 1, 1994, Senior Vice President 1989-94, President, the Ohio Rubber Company Division 1987-89, Executive Vice President, the Ohio Rubber Company Division 1986-87, General Manager of the subsidiary, Eagle-Picher Industries GmbH in Ohringen, Germany 1980-86, of Eagle-Picher Industries, Inc.
- --------------- (1) Mr. Chubb retired from the Company's Board of Directors effective February 1, 1996. (2) Messrs. LeBlond and Petry were elected directors to hold office for terms expiring at the annual meeting of shareholders in 1994 or when their successors are elected and qualified. Messrs. Howe and McHenry were elected directors to hold office for terms expiring at the annual meeting of shareholders in 1995 or when their successors are elected and qualified. As the Company did not hold an annual meeting of shareholders in 1994 or 1995, these directors continue to hold office until their successors are elected and qualified. Mr. Ruijssenaars was elected director by the incumbent directors on November 2, 1994 to serve in the same class as Messrs. LeBlond and Petry, and accordingly will hold office until his successor is elected and qualified. (b) Executive Officers. The name and age, the positions and offices held with the registrant and employment history with the registrant, term of office as officer and period during which each has served as such, follow for each executive officer:
YEAR ELECTED OR ASSUMED PRESENT AGE DUTIES --- ------------ Thomas E. Petry.......... Chairman of the Board of Directors and Chief Executive Officer 56 1982 Andries Ruijssenaars..... President and Chief Operating Officer, Director 53 1994 Melvin F. Chubb, Jr...... Senior Vice President and Director* 62 1988 David N. Hall............ Senior Vice President-Finance 56 1987 Wayne R. Wickens......... Senior Vice President 49 1994 Carroll D. Curless....... Vice President and Controller 57 1984 James A. Ralston......... Vice President, General Counsel and Secretary 49 1982
- --------------- * Retired effective February 1, 1996. 16 17 Thomas E. Petry was first employed by the Company in 1968. He was elected Assistant Treasurer in 1971, Treasurer in 1973 and Vice President and Treasurer in 1974. He served as President of the Akron Standard Division from 1977 to 1978. He was elected Group Vice President in 1978, a Director, President and Chief Operating Officer in 1981, and President and Chief Executive Officer in 1982. He served as President from 1981-89 and from 1992-94. He has been serving as Chief Executive Officer since 1982 and as Chairman of the Board since 1989. Andries Ruijssenaars was first employed by the Company in 1980 as General Manager of Eagle-Picher Industries GmbH in Ohringen, Germany. He served as Executive Vice President of The Ohio Rubber Company Division from 1986 to 1987 and as President of The Ohio Rubber Company Division from 1987 to 1989. He was elected Senior Vice President in 1989 and was appointed a Director in November, 1994. He was elected President and Chief Operating Officer effective December 1, 1994 and has been serving in those capacities since December 1, 1994. Melvin F. Chubb, Jr., was first employed by the Company in 1988 and was elected and served as Senior Vice President from 1988 until his retirement effective February 1, 1996. In 1990 Mr. Chubb was elected a Director. Prior to joining the Company, he completed a career in the United States Air Force, having attained the rank of Lieutenant General and having served most recently as commander of the Electronic Systems Division, Air Force Systems Command at Hanscom Air Force Base. David N. Hall was first employed by the Company and elected Treasurer in 1977. He was elected Vice President and Treasurer in 1979, and he was elected and has been serving as Senior Vice President-Finance since 1987. Wayne R. Wickens was first employed by the Company in 1976 as a management trainee with the former Fabricon Automotive Division, was promoted to Plant Manager in 1979, Vice President in 1981 and then President of Fabricon Automotive in 1986. He was named President of the Wolverine Gasket Division in 1988, Vice President of the Eagle-Picher Automotive Group in 1989, and Division President of Hillsdale Tool & Manufacturing Co. in 1990. He was elected Senior Vice President of the Company effective December 1, 1994. Carroll D. Curless was first employed by the Company in 1964. He was elected Assistant Controller in 1978 and Controller in 1984. He was elected and has been serving as Vice President and Controller since 1986. James A. Ralston was first employed by the Company as an attorney in the Legal Department in 1979. He was elected Assistant Secretary in 1982, General Counsel in 1982, Vice President and General Counsel in 1984, and Secretary in 1994. He has been serving as Vice President, General Counsel and Secretary since 1994. Executive officers serve during the pleasure of the Board, or until their successors are elected and qualified. There are no family relationships existing between or among the above executive officers and directors of the registrant. 17 18 ITEM 11. EXECUTIVE COMPENSATION. The following Summary Compensation Table sets forth for the last three fiscal years the compensation provided by the Company to the Chief Executive Officer and each of the other four most highly compensated executive officers (collectively, "named executive officers"): SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION ---------------------------------------------- OTHER FISCAL ANNUAL ALL OTHER NAME AND YEAR COMPENSATION COMPENSATION PRINCIPAL POSITION ENDED SALARY($) BONUS($) ($)(2) ($)(3) - ----------------------------------------- --------- --------- -------- ------------ ------------ Thomas E. Petry.......................... 11/30/95 575,000 244,000 255,296 285,611 Chairman and 11/30/94 575,000 216,000 150,149 169,763 Chief Executive Officer 11/30/93 575,000 100,000 149,492 178,154 Andries Ruijssenaars..................... 11/30/95 390,000 145,000 87,298 102,571 President and Chief Operating Officer 11/30/94 300,000 100,000 86,033 101,197 11/30/93 275,000 75,000 22,760 31,420 Melvin F. Chubb, Jr...................... 11/30/95 290,000 100,000 129,387 149,692 Senior Vice President(1) 11/30/94 280,000 75,000 326,853 370,313 11/30/93 275,000 45,000 0 4,497 David N. Hall............................ 11/30/95 345,000 110,000 120,284 136,415 Senior Vice President -- Finance 11/30/94 320,000 95,000 193,447 216,177 11/30/93 310,000 65,000 50,133 62,692 Wayne R. Wickens......................... 11/30/95 280,000 85,000 24,377 31,109 Senior Vice President 11/30/94 205,000 60,000 20,272 29,512 11/30/93 195,000 60,000 7,150 25,202
(1) Mr. Chubb retired effective February 1, 1996. (2) This column includes nothing for perquisites since in no case did they exceed the reporting thresholds (the lesser of 10% of salary plus bonuses or $50,000), but includes amounts for the payment of taxes on purchases of annuities under the Supplemental Executive Retirement Plan. (3) ALL OTHER COMPENSATION:
COST OF ANNUITY UNDER COMPANY NON-QUALIFIED CONTRIBUTIONS SUPPLEMENTAL TO EAGLE-PICHER EXECUTIVE RETIREMENT YEAR RETIREMENT SAVINGS ENDED PLAN($) PLAN($) TOTAL($) --------- ------------- ---------------- -------- Thomas E. Petry.................. 11/30/95 280,991 4,620 285,611 Andries Ruijssenaars............. 11/30/95 97,951 4,620 102,571 Melvin F. Chubb, Jr.............. 11/30/95 145,072 4,620 149,692 David N. Hall.................... 11/30/95 131,795 4,620 136,415 Wayne R. Wickens................. 11/30/95 26,489 4,620 31,109
18 19 AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION/SAR VALUES NOTE: Registrant has never granted Stock Appreciation Rights (SARs), so there are no SARs outstanding. There were no exercises of options by, or grants of options to, the named executive officers during fiscal 1995.
NUMBER OF SECURITIES VALUE OF UNDERLYING UNEXERCISED UNEXERCISED IN-THE-MONEY OPTIONS AT FISCAL OPTIONS AT FISCAL YEAR-END(#) YEAR-END($) NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE ---------------------------------------- ------------------------- ------------------------- Thomas E. Petry......................... 0/100,000 ** Andries Ruijssenaars.................... 0/50,000 ** David N. Hall........................... 0/50,000 ** Melvin F. Chubb, Jr.*................... 0/50,000 ** Wayne R. Wickens........................ 0/10,000 **
* Retired effective February 1, 1996. ** None of the unexercised options held by any of the named executive officers was "In-the-Money" as of November 30, 1995. Further, the options were exercisable only if the last selling price per share on the New York Stock Exchange ("NYSE") or its successor prior to the date on which the Company received written notice of the exercise was at least 20% above the option price per share. Trading in the Company's shares on the NYSE was suspended on November 15, 1993, and the NYSE delisted the Company's shares effective June 9, 1994. All of the unexercised options are at a price of $2.50 per share. PENSION BENEFITS The following table shows the estimated total combined annual benefits to named executive officers upon retirement at age 62 payable under Social Security, the Eagle-Picher Salaried Plan, and the Supplemental Executive Retirement Plan: PENSION PLAN TABLE
YEARS OF SERVICE ------------------------------------------------------------- REMUNERATION 15 20 25 30 35 ---------------------------- --------- --------- --------- --------- --------- $ 250,000................... $ 90,000 $ 120,000 $ 150,000 $ 150,000 $ 150,000 300,000................... 108,000 144,000 180,000 180,000 180,000 350,000................... 126,000 168,000 210,000 210,000 210,000 400,000................... 144,000 192,000 240,000 240,000 240,000 450,000................... 162,000 216,000 270,000 270,000 270,000 500,000................... 180,000 240,000 300,000 300,000 300,000 550,000................... 198,000 264,000 330,000 330,000 330,000 600,000................... 216,000 288,000 360,000 360,000 360,000 650,000................... 234,000 312,000 390,000 390,000 390,000 700,000................... 252,000 336,000 420,000 420,000 420,000 750,000................... 270,000 360,000 450,000 450,000 450,000 800,000................... 288,000 384,000 480,000 480,000 480,000 850,000................... 306,000 408,000 510,000 510,000 510,000 900,000................... 324,000 432,000 540,000 540,000 540,000 950,000................... 342,000 456,000 570,000 570,000 570,000 1,000,000................... 360,000 480,000 600,000 600,000 600,000
The Eagle-Picher Salaried Plan, a non-contributory defined benefit pension plan in which the named executive officers are participants, provides 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 19 20 Plan, compensation includes base salary, bonuses, commissions, and severance payments; salary and bonus included are as reported in the Summary Compensation Table, and commissions and severance payments, if there had been any, would have been included in that Table. The benefits shown by the Pension Plan Table above include amounts payable under Social Security and the Company's Supplemental Executive Retirement Plan as well as those payable under the Eagle-Picher Salaried Plan. Benefits are computed on the basis of straight-life annuity amounts. The estimated credited years of service with the Company for the named executive officers at age 62 are: Thomas E. Petry............................................ 33 David N. Hall.............................................. 24 Andries Ruijssenaars....................................... 24 Melvin F. Chubb, Jr........................................ 12 Wayne R. Wickens........................................... 32
SEVERANCE PLAN On February 6, 1991, the Board of Directors adopted a Severance Plan for certain employees, including the named executive officers, which was approved by the Bankruptcy Court on May 13, 1991. Under the Severance Plan, a participant whose employment is terminated by the Company other than for cause receives: a Base Severance Benefit of one week's pay for each year of Company service, payable under general payroll pay practices, but reduced dollar for dollar by any compensation earned from a subsequent employer during the period such benefits are being paid; a Supplemental Severance Benefit ranging from three months' salary up to one year's salary, payable in a lump sum upon termination; and continuation of certain insurance benefits for up to one week for each year of service. Currently, the Severance Plan provides that the payment of Supplemental Severance Benefits will terminate upon confirmation of a plan of reorganization. It is anticipated, however, that the Amended Plan that the Company intends to file will provide for the continuation of the Severance Plan for a period of at least twelve months after the effective date of the Amended Plan. COMPENSATION OF DIRECTORS During fiscal 1995, directors were paid a retainer of $18,000 per year, a fee of $750 for each Board meeting attended and a fee of $750 for each Board committee meeting attended. Effective December 1, 1995, this retainer was increased to $24,000 per year, and the fee for attending a meeting of the Board or a Board committee was increased to $1,000 for each meeting attended. Board committee members, excluding committee chairmen, are paid a retainer of $3,000 per year for each committee on which they serve; the chairman of each Board committee is paid a retainer of $5,000 per year. The Company does not pay director retainers or attendance fees, or committee retainers or attendance fees, to directors who are also employees of the Company. Directors who are not also employees of the Company who retire with ten or more years of service as members of the Board are paid an annual advisory fee for life in an amount equal to the annual retainer paid to active directors at the time of their retirement. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION During fiscal 1995, Messrs. LeBlond (Chairman), Christensen, Coombe and Howe, directors of the Company, constituted the Stock Option/Compensation Committee. During fiscal 1995 and as of February 23, 1996, Mr. Petry, Chairman and Chief Executive Officer of the Company, served as a director and as a member of the compensation committee of The Wm. Powell Company. During fiscal 1995 and as of February 23, 1996, Mr. Coombe was Chairman of the Board of The Wm. Powell Company. 20 21 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. As of February 23, 1996, beneficial ownership of the Company's Common Stock by all directors; each of the named executive officers (except Mr. Chubb who retired effective February 1, 1996); and all directors and executive officers as a group, was:
AMOUNT AND NATURE OF BENEFICIAL PERCENT OWNERSHIP OF CLASS ----------- --------- DIRECTORS Paul W. Christensen, Jr....................................... 38,000(1) * V. Anderson Coombe............................................ 3,480(1) * Roger L. Howe................................................. 0 * Daniel W. LeBlond............................................. 0 * Powell McHenry................................................ 1,000 * Thomas E. Petry............................................... 129,102(2)(3) 1.17% Eugene P. Ruehlmann........................................... 1,000 * Andries Ruijssenaars.......................................... 52,433(2)(3) * NAMED EXECUTIVE OFFICERS David N. Hall................................................. 62,482(3) * Wayne R. Wickens.............................................. 10,000(3) * DIRECTORS AND EXECUTIVE OFFICERS AS A GROUP (12 PERSONS)...... 369,027(4) 3.34%
- --------------- * Less than 1%. (1) The following persons disclaim beneficial ownership as to the following numbers of shares included herein which are beneficially owned by family members: Mr. Christensen -- 13,000 shares; Mr. Coombe -- 1,520 shares. (2) Messrs. Petry and Ruijssenaars are also executive officers of the Company; their holdings of Company stock are listed here and not duplicated under the Named Executive Officers individual listing immediately below. (3) Includes shares subject to options to purchase within 60 days: Mr. Petry -- 100,000; Mr. Ruijssenaars -- 50,000; Mr. Hall -- 50,000; Mr. Wickens -- 10,000. The terms of the option grants make the options exercisable if the last selling price per share on the New York Stock Exchange or its successor is at least $3.00 on the day prior to the date on which the Company receives written notice of the exercise. (4) This figure includes 270,000 shares subject to options to purchase within 60 days on the same terms as set forth in footnote (3), above. All shares shown above as owned were directly owned except as footnoted. Directors and executive officers are considered control persons of the Company. There were as of February 23, 1996 no beneficial owners of more than 5% of the Company's Common Stock. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The Board of Directors has no knowledge of any significant transaction or proposed significant transaction to which the Company or any subsidiary and any director, officer or nominee for director, or any associate of such director, officer, or nominee, were or are to be parties. 21 22 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. (a) 1. All Financial Statements Eagle-Picher Industries, Inc. (Incorporated by reference to the Company's Annual Report for the fiscal year ended November 30, 1995, Exhibit 13 -- See Part II above) Independent Auditors' Report -- Incorporated by reference to Exhibit 13, page 36 3. Exhibits (numbers keyed to Item 601, Regulation S-K). * 3.(i) Amended Articles of Incorporation as adopted May 1, 1985 and amended May 28, 1986. Incorporated by reference to Exhibit 1 to Form S-8 Registration Statement No. 33-45179 for the Registrant's Stock Option Plan of 1990. * (ii) Code of Regulations of Eagle-Picher Industries, Inc., last amended March 26, 1985. Incorporated by reference to Exhibit 3(b) to Report on Form 10-K of Registrant for the fiscal year ended November 30, 1992. * 4.(a) Form of Indenture relating to the $50,000,000 Eagle-Picher Industries, Inc. 9 1/2% Sinking Fund Debentures due March 1, 2017, dated as of March 1, 1987, between Eagle-Picher Industries, Inc. and The Bank of New York. Incorporated by reference to Report on Form 8-K of Registrant dated March 5, 1987 (on file with the SEC; SEC File No. 1-1499). * (b)(i) Credit and Agency Agreement (debtor-in-possession financing agreement) dated as of November 5, 1992. Incorporated by reference to Exhibit 4(b) to Form 10-K of Registrant for the fiscal year ended November 30, 1992. * (ii) First Amendment to Credit Agreement dated as of August 29, 1994 incorporated by reference to Exhibit 4(b)(ii) to Report on Form 10-K of Registrant for the fiscal year ended November 30, 1994. *10.(a) Eagle-Picher Industries, Inc. Stock Option Plan of 1983, as amended. Incorporated by reference to Exhibit 28 to Post Effective Amendment No. 1 dated April 10, 1990 and Appendix 2 dated May 30, 1991 to Registrant's Form S-8 Registration Statement No. 33-5792. * (b) Eagle-Picher Industries, Inc. Stock Option Plan of 1990. Incorporated by reference to Appendix A to Registrant's Proxy Statement for Annual Meeting of Shareholders, March 27, 1990 (on file with the SEC; SEC File No. 1-1499). * (c) Eagle-Picher Supplemental Executive Retirement Plan. Incorporated by reference to Report on Form 10-Q of Registrant for the quarter ended May 31, 1995. * (d) Eagle-Picher Industries, Inc. Severance Plan dated as of June 25, 1991. Incorporated by reference to Report on Form 10-K of Registrant for the fiscal year ended November 30, 1994. 13. Excerpts from Eagle-Picher Industries, Inc. Annual Report for the fiscal year ended November 30, 1995. 21. Subsidiaries of the Registrant. 23. Independent Auditors' Consent. 24.(a),(b) Powers of Attorney. 27. Financial Data Schedules (submitted electronically to the SEC for its information). 99. Plants and Locations.
(b) Reports on Form 8-K. * (i) December 7, 1995 - Reporting December 4, 1995 decision of the U.S. Bankruptcy Court presiding over chapter 11 cases of the Company and seven of its domestic subsidiaries that the Company's estimated aggregate liability on account of present and future asbestos-related personal injury claims is $2,502,511,000. * Incorporated by reference. 22 23 SIGNATURES PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED. Eagle-Picher Industries, Inc. By /s/ THOMAS E. PETRY Thomas E. Petry Chairman of the Board and Chief Executive Officer Date: February 27, 1996 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. /s/ THOMAS E. PETRY Date: February 27, 1996 Thomas E. Petry, Chairman of the Board and Chief Executive Officer /s/ David N. Hall Date: February 27, 1996 David N. Hall, Senior Vice President-Finance (Principal Financial Officer) /s/ Carroll D. Curless* Date: February 27, 1996 Carroll D. Curless, Vice President and Controller (Principal Accounting Officer) /s/ Paul W. Christensen, Jr.* Date: February 27, 1996 Paul W. Christensen, Jr., Director /s/ V. Anderson Coombe* Date: February 27, 1996 V. Anderson Coombe, Director /s/ Roger L. Howe* Date: February 27, 1996 Roger L. Howe, Director /s/ Daniel W. LeBlond* Date: February 27, 1996 Daniel W. LeBlond, Director /s/ Powell McHenry* Date: February 27, 1996 Powell McHenry, Director /s/ Eugene P. Ruehlmann* Date: February 27, 1996 Eugene P. Ruehlmann, Director /s/ Andries Ruijssenaars* Date: February 27, 1996 Andries Ruijssenaars, Director * By /s/ James A. Ralston James A. Ralston Attorney-in-fact
23 24 EXHIBIT INDEX
EXHIBIT NUMBER - --------------------------------------------------------------------------------------------- 3(i) -- Articles of Incorporation* 3(ii) -- Code of Regulations* 4(a) -- Form of Indenture, $50,000,000 9 1/2% Sinking Fund Debentures due March 1, 2017* 4(b)(i) -- Credit and Agency Agreement dated as of November 5, 1992* 4(b)(ii) -- First Amendment to Credit Agreement, dated as of August 29, 1994* 10(a),(b) -- Eagle-Picher Industries, Inc. Stock Option Plans of 1983 and 1990* 10(c) -- Eagle-Picher Supplemental Executive Retirement Plan* 10(d) -- Eagle-Picher Industries, Inc. Severance Plan dated as of June 25, 1991* 13 -- Excerpts from Annual Report for the Fiscal Year Ended November 30, 1995 21 -- Subsidiaries of the Registrant 23 -- Independent Auditors' Consent 24(a),(b) -- Powers of Attorney 27 -- Financial Data Schedules (Submitted electronically to the SEC for its information.) 99 -- Plants and Locations
- --------------- * Incorporated by reference. See page 22 above. 24 EX-13 2 EXHIBIT 13 1 EXHIBIT 13 CONSOLIDATED STATEMENT OF INCOME (LOSS) Eagle-Picher Industries, Inc.
Years Ended November 30 (In thousands of dollars, except per share) 1995 1994 1993 - --------------------------------------------------------------------------------------------------- NET SALES $ 848,548 $756,741 $ 661,452 OPERATING COSTS AND EXPENSES Cost of products sold 706,586 622,907 548,605 Selling and administrative 78,875 75,553 69,093 --------- -------- -------- 785,461 698,460 617,698 --------- -------- -------- OPERATING INCOME 63,087 58,281 43,754 Provision for asbestos litigation (1,005,511) - (1,135,500) Provision for environmental and other claims - - (41,436) Interest expense (contractual interest of $8,897 in 1995, $8,940 in 1994 and $9,369 in 1993) (1,926) (1,809) (2,070) Gain on sale of investment 11,505 - - Other income (expense) 199 703 (174) --------- -------- -------- INCOME (LOSS) BEFORE REORGANIZATION ITEMS, TAXES AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE (932,646) 57,175 (1,135,426) REORGANIZATION ITEMS (2,225) (3,426) (4,344) --------- -------- -------- INCOME (LOSS) BEFORE TAXES AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE (934,871) 53,749 (1,139,770) INCOME TAXES 9,300 5,000 5,000 --------- -------- -------- INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE (944,171) 48,749 (1,144,770) CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING FOR POSTRETIREMENT BENEFITS - - (12,598) --------- -------- -------- NET INCOME (LOSS) $(944,171) $ 48,749 $(1,157,368) ========= ======== ========= INCOME (LOSS) PER SHARE: INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE $ (85.51) $ 4.42 $ (103.78) CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING FOR POSTRETIREMENT BENEFITS - - (1.14) --------- -------- -------- NET INCOME (LOSS) $ (85.51) $ 4.42 $ (104.92) ========= ======== ========
See accompanying notes to consolidated financial statements. 13 2 CONSOLIDATED BALANCE SHEET Eagle-Picher Industries, Inc.
ASSETS November 30 (In thousands of dollars) 1995 1994 - ---------------------------------------------------------------------------------- CURRENT ASSETS Cash and cash equivalents $ 93,330 $ 92,606 Receivables, less allowances of $1,860 in 1995 and $1,445 in 1994 127,044 109,130 Income tax refund receivable 4,402 2,246 Inventories 83,647 81,982 Prepaid expenses 17,695 10,295 -------- -------- TOTAL CURRENT ASSETS 326,118 296,259 -------- -------- PROPERTY, PLANT AND EQUIPMENT Land and land improvements 12,482 11,940 Buildings 84,549 79,937 Machinery and equipment 319,987 301,518 Construction in progress 24,939 14,623 -------- -------- 441,957 408,018 Less accumulated depreciation 286,139 263,369 -------- -------- NET PROPERTY, PLANT AND EQUIPMENT 155,818 144,649 -------- -------- DEFERRED INCOME TAXES 62,824 43,924 OTHER ASSETS 35,313 36,275 -------- -------- TOTAL ASSETS $580,073 $521,107 ======== ========
See accompanying notes to consolidated financial statements. 14 3 CONSOLIDATED BALANCE SHEET LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
1995 1994 - ---------------------------------------------------------------------------------- CURRENT LIABILITIES Accounts payable $ 40,318 $ 43,691 Compensation and employee benefits 13,759 14,005 Long-term debt - current portion 1,525 1,726 Income taxes 4,789 5,223 Taxes other than income 4,772 4,611 Other accrued liabilities 17,460 16,705 -------- -------- TOTAL CURRENT LIABILITIES 82,623 85,961 -------- -------- LIABILITIES SUBJECT TO COMPROMISE 2,662,530 1,657,265 LONG-TERM DEBT, less current portion 19,103 19,896 POSTRETIREMENT BENEFITS OTHER THAN PENSIONS 21,720 21,070 OTHER LONG-TERM LIABILITIES 5,405 3,608 -------- -------- TOTAL LIABILITIES 2,791,381 1,787,800 --------- --------- SHAREHOLDERS' EQUITY (DEFICIT) Preference stock - no par value. Authorized 873,457 shares; none issued - - Common stock - $1.25 par value per share. Authorized 30,000,000 shares; issued 11,125,000 shares 13,906 13,906 Additional paid-in capital 36,378 36,378 Accumulated deficit (2,261,289) (1,317,118) Unrealized gain on investments 333 - Foreign currency translation 1,277 2,054 --------- -------- (2,209,395) (1,264,780) Cost of 84,068 common treasury shares (1,913) (1,913) --------- -------- TOTAL SHAREHOLDERS' EQUITY (DEFICIT) (2,211,308) (1,266,693) ---------- ---------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) $580,073 $521,107 ======== ========
See accompanying notes to consolidated financial statements. 15 4 CONSOLIDATED STATEMENT OF CASH FLOWS Eagle-Picher Industries, Inc.
Years Ended November 30 (In thousands of dollars) 1995 1994 1993 - ------------------------------------------------------------------------------------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ (944,171) $ 48,749 $(1,157,368) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Provision for asbestos litigation 1,005,511 - 1,135,500 Provision for environmental and other claims - - 41,436 Cumulative effect of accounting change - - 12,598 Depreciation and amortization 28,708 26,143 24,955 Gain on sale of investment (11,505) - - Changes in assets and liabilities: Receivables (17,914) (11,544) (10,764) Inventories (1,665) (13,676) (4,098) Deferred income taxes (18,900) (14,000) (12,137) Accounts payable (3,373) 11,326 5,539 Other (6,235) (1,905) 2,015 -------- -------- -------- Net cash provided by operating activities 30,456 45,093 37,676 CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sale of investment 11,505 - - Capital expenditures (40,558) (35,887) (28,512) Other 340 1,800 335 -------- -------- -------- Net cash used in investing activities (28,713) (34,087) (28,177) CASH FLOWS FROM FINANCING ACTIVITIES: Issuance of long-term debt 1,240 - 810 Reduction of long-term debt (2,259) (2,974) (4,007) Issuance of common shares - - 156 -------- -------- -------- Net cash used in financing activities (1,019) (2,974) (3,041) -------- -------- -------- NET INCREASE IN CASH AND CASH EQUIVALENTS 724 8,032 6,458 -------- -------- -------- CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 92,606 84,574 78,116 -------- -------- -------- CASH AND CASH EQUIVALENTS, END OF YEAR $ 93,330 $ 92,606 $ 84,574 ======== ======== ======== See accompanying notes to consolidated financial statements.
16 5 CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT) Eagle-Picher Industries, Inc.
TOTAL ADDITIONAL UNREALIZED FOREIGN SHAREHOLDERS' COMMON PAID-IN ACCUMULATED GAIN ON CURRENCY TREASURY EQUITY (In thousands of dollars) STOCK CAPITAL DEFICIT INVESTMENTS TRANSLATION STOCK (DEFICIT) - ------------------------------------------------------------------------------------------------------------------ BALANCE NOVEMBER 30, 1992 $13,906 $37,644 $ (208,499) $ - $1,326 $(3,335) $ (158,958) Net loss - - (1,157,368) - - - (1,157,368) Stock options - (1,266) - - - 1,422 156 Foreign currency translation - - - - (1,036) - (1,036) -------------------------------------------------------------------------------- BALANCE NOVEMBER 30, 1993 13,906 36,378 (1,365,867) - 290 (1,913) (1,317,206) Net income - - 48,749 - - - 48,749 Foreign currency translation - - - - 1,764 - 1,764 -------------------------------------------------------------------------------- BALANCE NOVEMBER 30, 1994 13,906 36,378 (1,317,118) - 2,054 (1,913) (1,266,693) Cumulative effect of change in accounting for marketable securities - - - 5,377 - - 5,377 Net loss - - (944,171) - - - (944,171) Realized gain on investment - - - (5,044) - - (5,044) Foreign currency translation - - - - (777) - (777) -------------------------------------------------------------------------------- BALANCE NOVEMBER 30, 1995 $13,906 $36,378 $(2,261,289) $ 333 $1,277 $(1,913) $(2,211,308) ================================================================================
See accompanying notes to consolidated financial statements. 17 6 QUARTERLY DATA (Unaudited) (In thousands of dollars, except per share)
1995 FIRST SECOND THIRD FOURTH YEAR - ----------------------------------------------------------------------------------------- Net Sales $197,603 $225,378 $210,723 $214,844 $848,548 - ----------------------------------------------------------------------------------------- Operating Income 15,113 19,147 14,022 14,805 63,087 - ----------------------------------------------------------------------------------------- Net Income (Loss) 13,032 16,776 23,394(1) (997,373)(2) (944,171) - ----------------------------------------------------------------------------------------- Net Income (Loss) Per Share 1.18 1.52 2.12 (90.33)(2) (85.51) - ----------------------------------------------------------------------------------------- Bid Prices (3) High 23/32 9/32 3/16 7/32 23/32 - ----------------------------------------------------------------------------------------- Low 1/16 1/32 1/16 3/32 1/32 - ----------------------------------------------------------------------------------------- Ask Prices (3) High 1-1/32 1/2 11/32 11/32 1-1/32 - ----------------------------------------------------------------------------------------- Low 3/16 5/32 3/16 7/32 5/32 - ----------------------------------------------------------------------------------------- 1994 First Second Third Fourth Year - ----------------------------------------------------------------------------------------- Net Sales $177,754 $196,994 $186,191 $195,802 $756,741 - ----------------------------------------------------------------------------------------- Operating Income 13,781 17,537 14,226 12,737 58,281 - ----------------------------------------------------------------------------------------- Net Income 11,039 14,669 11,733 11,308 48,749 - ----------------------------------------------------------------------------------------- Net Income Per Share 1.00 1.33 1.06 1.03 4.42 - ---------------------------------------------------------------------------------------- Bid Prices (3) High 7/8 13/16 1/2 7/16 7/8 - ------------------------------------------------------------------------------------------ Low 1/16 1/4 7/32 1/16 1/16 - ----------------------------------------------------------------------------------------- Ask Prices (3) High 1-3/8 1-1/4 7/8 11/16 1-3/8 - ----------------------------------------------------------------------------------------- Low 5/32 9/16 15/32 1/4 5/32 - ----------------------------------------------------------------------------------------- (1) The Company realized an $11.5 million gain on the sale of certain equity investments in June 1995. (2) In December 1995, the Bankruptcy Court ruled that the estimated aggregate liability on account of present and future asbestos-related personal injury claims is $2.5 billion. Accordingly, the Company recorded a provision of approximately $1.0 billion to increase its asbestos liability subject to compromise to $2.5 billion. (3) Effective June 9, 1994, the Company's Common Stock was delisted from the New York Stock Exchange. It is now trading on the Over-the-Counter Market (trading symbol is EPIHQ). The sources of all prices are quotations from the pink sheets and the OTC Bulletin Board. The bid and ask quotations represent prices between dealers, do not include retail markup, markdown or commission, and do not represent actual transactions.
18 7 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS A. SIGNIFICANT ACCOUNTING POLICIES The significant accounting policies used in the preparation of the consolidated financial statements are summarized below. These policies conform to generally accepted accounting principles and have been consistently applied. The Company has accounted for all transactions related to the chapter 11 proceedings in accordance with Statement of Position 90-7 ("SOP 90-7"), "Financial Reporting by Entities in Reorganization Under the Bankruptcy Code," issued by the American Institute of Certified Public Accountants. Accordingly, Liabilities Subject to Compromise under the chapter 11 proceedings have been segregated on the Consolidated Balance Sheet and are recorded at the amounts that have been or are expected to be allowed on known claims rather than estimates of consideration those claims may receive in a plan of reorganization. In addition, the Consolidated Statement of Income (Loss) separately discloses expenses related to the chapter 11 proceedings. Principles of Consolidation The consolidated financial statements include the accounts of all of the Company's subsidiaries which are more than 50% owned and controlled. Intercompany accounts and transactions have been eliminated. Investments in nonconsolidated companies which are at least 20% owned are accounted for using the equity method. Separate condensed combined financial statements of the entities in chapter 11 have not been presented because they represent a substantial portion of the Company. Additionally, entities not in chapter 11 represent identifiable investments of those entities in chapter 11 and are therefore subject to the chapter 11 process. Cash and Cash Equivalents Marketable securities with original maturities of three months or less are considered to be cash equivalents. The carrying amount reported in the Consolidated Balance Sheet approximates fair value. Marketable Securities Effective December 1, 1994, the Company adopted the provisions of Statement of Financial Accounting Standards No. 115 ("FAS 115"), "Accounting for Certain Investments in Debt and Equity Securities." On November 30, 1995, these investments have been categorized as available for sale and, as a result, are stated at fair value, based generally on quoted market prices. Unrealized holding gains and losses are included as a component of Shareholders' Equity (Deficit) until realized. Realized gains and losses on sales of investments, as determined on a specific identification basis, are included in the Consolidated Statement of Income. Concentrations of Credit Risk Financial instruments which potentially expose the Company to concentrations of credit risk consist primarily of trade accounts receivable. The Company's customer base includes all significant automotive manufacturers and their first tier suppliers in North America and Europe. Although the Company is directly affected by the well-being of the automotive industry, management does not believe significant credit risk existed at November 30, 1995. 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 investments in plant, property 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 12 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. Cost in Excess of Net Assets Acquired Amounts are being amortized using the straight-line method primarily over 40 years. 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. 19 8 Foreign Currency Translation Assets and liabilities of foreign subsidiaries are translated at current exchange rates, and income and expenses are translated using weighted average exchange rates. Adjustments resulting from translation of financial statements stated in local currencies generally are excluded from the results of operations and accumulated in a separate component of Shareholders' Equity (Deficit). 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 current year financial statement presentation. B. PROCEEDINGS UNDER CHAPTER 11 On January 7, 1991 ("petition date"), Eagle-Picher Industries, Inc. ("Company") and seven of its domestic subsidiaries each filed a voluntary petition for relief under chapter 11 of the United States Bankruptcy Code ("chapter 11") with the United States Bankruptcy Court for the Southern District of Ohio, Western Division, in Cincinnati, Ohio ("Bankruptcy Court"). Each filing entity, other than EDI, Inc., currently is operating its business as a debtor in possession in accordance with the provisions of the Bankruptcy Code. An Unsecured Creditors' Committee ("UCC"), an Injury Claimants' Committee ("ICC"), an Equity Security Holders' Committee ("ESC") and a Legal Representative for Future Claimants ("RFC") have been appointed in the chapter 11 cases. An unofficial asbestos co-defendants' committee has also been participating in the chapter 11 cases. In accordance with the provisions of the Bankruptcy Code, these parties have the right to be heard with respect to transactions outside the ordinary course of business. The official committees and the RFC typically are the entities with which the Company would negotiate the terms of a plan of reorganization. In June 1992, a mediator was appointed by the Bankruptcy Court to assist the constituencies in their negotiations. On November 9, 1993, the Company reached an agreement on the principal elements of a joint plan of reorganization. The agreement was with the ICC and the RFC, the representatives of the holders of present and future asbestos-related personal injury and other toxic tort claims in the Company's chapter 11 case, and was reached with the assistance of the mediator. One of the principal elements of the agreement was a negotiated settlement of the Company's aggregate liability for such claims in the amount of $1.5 billion. As a consequence of this agreement, the Company recorded a provision in the fourth quarter of 1993 of $1.135 billion to increase the asbestos liability subject to compromise to $1.5 billion. The Company also recorded a provision of $41.4 million in 1993 for environmental and other litigation claims. Throughout 1994, the Company, the ICC and the RFC continued to refine the details of a joint plan of reorganization ("Original Plan"). The Original Plan was filed with the Bankruptcy Court on February 28, 1995. The Original Plan did not have the support of the UCC or the ESC because they did not agree with the amount of the aggregate asbestos liability which had been negotiated and which was used in the Original Plan to determine the allocation of the consideration to be distributed to the unsecured creditor and shareholder classes. As a result of the dispute, the Company was unable to move forward with the Original Plan. In order to resolve this dispute, the Company filed a motion in July 1995 requesting that the Bankruptcy Court estimate the Company's aggregate liability on account of present and future asbestos-related personal injury claims. The Bankruptcy Court ruled in December 1995 that the Company's liability is $2.5 billion ("Estimation Ruling"). The UCC, the ESC and two individual members of the UCC have filed notices of appeal of the Estimation Ruling. The Company does not know whether the Appellate Court will hear the appeals or, if it does, when any decision will be rendered. The Company intends to file a First Amended Consolidated Plan of Reorganization ("Amended Plan") which will reflect the Estimation Ruling. The Company anticipates that the only substantive modification to the Original Plan will relate to the allocation of the consideration to be distributed under the plan to the various classes of unsecured claims. The Amended Plan, like the Original Plan, contemplates a resolution of the Company's liability for all present and future asbestos-related personal injury claims and certain other tort claims. These claims will be channeled to and resolved by an independently administered claims trust ("Trust"). The Amended Plan also will provide for the distribution of cash, notes, debentures, and common stock 20 9 of the reorganized Company to the Trust and to holders of allowed unsecured claims on a pro-rata basis proportionate to the percentage of their claims to the total of the Liabilities Subject to Compromise. Claims entitled to priority under the Bankruptcy Code and convenience claims (general unsecured claims of $500 or less or claims that will be reduced to that amount) will be paid in full, in cash. In addition, it is contemplated that the Amended Plan will resolve and discharge all asbestos property damage claims. Under the Bankruptcy Code, shareholders are not entitled to any distribution under a plan of reorganization unless all classes of pre-petition creditors receive satisfaction in full of their allowed claims or accept a plan which allows shareholders to participate in the reorganized company or to receive a distribution. It is anticipated that under the Amended Plan, existing shareholders will receive no distributions and their shares will be canceled. Following the Estimation Ruling, the Company recorded a provision of $1.0 billion to increase the asbestos liability subject to compromise to the amount found by the Bankruptcy Court. This resulted in negative shareholders' equity in excess of $2.2 billion. As a result, the Company filed a motion in the Bankruptcy Court in December 1995 seeking an order to direct the United States Trustee to disband the ESC on the basis that existing equity holders do not have an economic interest in the chapter 11 cases. In January 1996, the Bankruptcy Court ruled that the ongoing activities of the ESC shall be limited to pursuing its appeal of the Estimation Ruling. The accompanying consolidated financial statements have been prepared on a going concern basis which contemplates continuity of operations, realization of assets and liquidation of liabilities in the ordinary course of business. The Liabilities Subject to Compromise have been reported on the basis of the amount of the allowed claims even though it is expected that the distributions under a plan of reorganization with respect to such claims will be lesser amounts. Upon confirmation of a plan of reorganization, the Company would utilize the "fresh-start" reporting principles contained in SOP 90-7, which would result in adjustments relating to the amounts and classification of recorded assets and liabilities, determined as of the plan confirmation date. Pursuant to the Amended Plan, the ultimate consideration to be received by all unsecured creditors will be substantially less than the amounts shown in the accompanying Consolidated Balance Sheet. Until a plan of reorganization is confirmed, however, the Company cannot be certain of the final terms thereof or the ultimate amount creditors will receive. Liabilities incurred by the Company as of the petition date and subject to compromise under a plan of reorganization are separately classified in the Consolidated Balance Sheet and include the following:
(In thousands of dollars) 1995 1994 ---- ---- Asbestos liability - Note K $ 2,502,511 $ 1,499,993 Long-term debt - Note E 62,003 62,004 Accounts payable 41,236 41,074 Accrued liabilities - Note L 56,780 54,194 --------- --------- $ 2,662,530 $ 1,657,265 ========= =========
The net expense resulting from the Company's chapter 11 filings has been segregated from expenses related to ordinary operations in the accompanying Consolidated Statement of Income (Loss) and includes the following:
(In thousands of dollars) 1995 1994 1993 ---- ---- ---- Professional fees $ 7,047 $ 6,218 $ 5,865 Debt financing costs - 200 - Other expenses 181 296 863 Interest income (5,003) (3,288) (2,384) ------- ------- ------- $ 2,225 $ 3,426 $ 4,344 ======= ======= =======
Interest income is attributable to the accumulation of cash and cash equivalents subsequent to the petition date. C. INVENTORIES Inventories consisted of:
(In thousands of dollars) 1995 1994 ---- ---- Raw materials and supplies $ 49,358 $ 52,146 Work-in-process 27,943 24,907 Finished goods 19,470 15,853 ------- -------- 96,771 92,906 Allowance to value inventory at cost on the LIFO method 13,124 10,924 -------- -------- $ 83,647 $81,982 ======== =======
The percentage of inventories valued using the LIFO method was 75% in 1995 and 81% in 1994. The effects of liquidations of LIFO inventory quantities carried at lower costs prevailing in prior years were not material. 21 10 D. OTHER ASSETS Other assets consisted of:
(In thousands of dollars) 1995 1994 ---- ---- Cost in excess of net assets acquired, net of accumulated amortization of $4,385 in 1995 and $3,973 in 1994 $ 12,382 $ 12,507 Notes receivable 5,137 5,778 Prepaid pension cost - Note I 7,545 7,879 Other 10,249 10,111 -------- -------- $ 35,313 $ 36,275 ======== ========
Notes receivable include $4,550,000 received as partial consideration for the sale of a division. This note is payable in two equal installments in 1997 and 1998 and bears interest at 8%. Pursuant to the terms of the note, interest is payable semiannually commencing in August 1994. The Company is receiving interest payments in accordance with the terms of the note. E. LONG-TERM DEBT AND SHORT-TERM BORROWINGS The Company has a Bankruptcy Court approved debtor in possession financing agreement which provides a $40,000,000 committed revolving credit facility ("Facility"). The entire amount of the Facility is available for both cash borrowings and letters of credit. The Facility expires on the earlier of December 31, 1996 or the effective date of a plan of reorganization. Letters of credit totaling $30,205,000 and $32,941,000 were outstanding on November 30, 1995 and 1994, respectively, leaving the Company with $9,795,000 and $7,059,000, respectively, in available borrowing capacity under the Facility. There were no cash borrowings under the Facility at any time in 1995 or 1994. The annual rate of interest under the Facility is the agent bank's prime rate plus 1-1/2%. Fees for letters of credit range up to 2-1/2% per annum and a commitment fee equal to 1/2% per annum is due on the unused portion. The obligations are secured by accounts receivable and inventories and are afforded administrative priority under the Bankruptcy Code. The Company has had sufficient collateral to borrow the maximum amount under the Facility. The Facility also contains affirmative and negative covenants which include, among other things, limitations on capital expenditures and additional borrowings and minimum quarterly and annual cash flow requirements. The Company has been in compliance with these covenants throughout the term of the Facility. The Company's foreign subsidiaries entered into agreements with various banks which provided lines of credit in the amount of $17,100,000 that expire in 1998. At November 30, 1995, there were $1,200,000 in borrowings outstanding leaving $15,900,000 in available borrowing capacity. The annual rates of interest on these lines of credit range from 3/4% to 1-1/2% over the banks' base rates. Some have no commitment fees; the fees on the others range from .25% to .65% per annum on the unused portion. These agreements also contain covenants which include restrictions on dividends and minimum financial requirements. The Company is in compliance with these covenants at November 30, 1995. Repayments of pre-petition debt obligations may be made only with the approval of the Bankruptcy Court. The Bankruptcy Court has approved payments by the Company with respect to certain pre-petition secured debt obligations in order to provide the holders of such obligations with adequate protection of their interests in their collateral security. These adequate protection payments generally have been in the form of principal payments paid over the remaining lives of the collateral assets in an aggregate amount equal to the determined market value of those assets. The amount by which the original obligation and pre-petition accrued interest exceeds the collateral value is deemed to be a general unsecured claim. These claims are included in Liabilities Subject to Compromise. Interest expense has not been recorded on these obligations for the post-petition period because interest is not payable. Interest on undersecured and other unsecured pre-petition debt obligations would have been $6,971,000, $7,131,000 and $7,299,000 in 1995, 1994, and 1993, respectively. Due to the chapter 11 filings and the anticipated reorganization, it is not practicable to estimate the fair value of long-term debt which is described below. 22 11 Long-term debt consisted of:
(In thousands of dollars) 1995 1994 ---- ---- 9-1/2% Sinking fund debentures, due 2017 $ 50,000 $ 50,000 Industrial revenue bonds 18,050 18,125 Secured notes 12,161 13,683 Debt of foreign subsidiaries 1,949 1,304 Other 471 514 ------- ------- 82,631 83,626 Less: Current portion 1,525 1,726 Subject to compromise 62,003 62,004 ------- ------- Long-term debt, less current portion $ 19,103 $ 19,896 ======= ======= Unsecured debt included in Liabilities Subject to Compromise consisted of: Sinking fund debentures $ 50,000 $ 50,000 Industrial revenue bonds 7,500 7,500 Unsecured portion of secured notes 4,131 4,132 Other 372 372 ------- ------- $ 62,003 $ 62,004 ======= =======
Interest rates averaged 5% in 1995, 4% in 1994, and 5% in 1993 on the industrial revenue bonds, foreign and other long-term debt on which the Company is obligated to pay interest. These long-term debt amounts are to mature at various dates through 2004. Long-term debt (excluding amounts subject to compromise) is scheduled to mature as follows: $1,525,000 in 1996, $2,203,000 in 1997, $2,721,000 in 1998, $1,179,000 in 1999, and $877,000 in 2000. The unsecured portion of long-term debt will be resolved in a plan of reorganization. During 1995, 1994, and 1993, the Company paid interest of $1,966,000, $1,765,000, and $2,075,000, respectively. F. INCOME TAXES The Company adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("FAS 109"), in 1993. The cumulative effect of this change in accounting for income taxes was not material and prior year financial statements were not restated to apply the provisions of FAS 109. Total income tax benefit for the year ended November 30, 1993 of $1,490,000 consisted of $5,000,000 expense from operations and $6,490,000 tax benefit of the cumulative effect of the change in accounting for postretirement benefits. The following is a summary of the components of income taxes (benefit) from operations:
(In thousands of dollars) 1995 1994 1993 ---- ---- ---- Federal - current $ 20,900 $ 15,600 $ 12,500 - deferred (18,900) (14,000) (11,800) Foreign 3,400 900 2,700 State and local 3,900 2,500 1,600 -------- -------- -------- $ 9,300 $ 5,000 $ 5,000 ======== ======== ========
The sources of income (loss) before income tax expense (benefit) and cumulative effect of accounting change are as follows:
(In thousands of dollars) 1995 1994 1993 ---- ---- ---- United States $(941,971) $ 47,670 $(1,143,312) Foreign 7,100 6,079 3,542 --------- -------- ---------- $(934,871) $ 53,749 $(1,139,770) ========= ======== ==========
The significant components of deferred income tax expense (benefit) attributable to income from operations are as follows:
(In thousands of dollars) 1995 1994 1993 ---- ---- ---- Deferred tax benefit (exclusive of the effects of other components listed below) $(351,800) $ (400) $(412,900) Adjustments to deferred tax assets and liabilities for enacted changes in tax laws and rates - - (3,800) Change in beginning-of-the-year balance of the valuation allowance for deferred tax assets 332,900 (13,600) 404,900 -------- -------- -------- $(18,900) $(14,000) $(11,800) ======== ======== ========
Components of deferred tax balances as of November 30 are as follows:
(In thousands of dollars) 1995 1994 ---- ---- Deferred tax liabilities: Property, plant and equipment $ (7,820) $ (6,608) Prepaid pension (2,641) (2,758) Other (3,338) (3,371) -------- -------- Total deferred tax liabilities (13,799) (12,737) -------- -------- Deferred tax assets: Asbestos liability 877,171 524,998 Accrued liabilities (including amounts subject to compromise) 26,246 26,223 Postretirement benefit liability 7,602 7,375 Other 4,483 4,048 -------- -------- Total deferred tax assets 915,502 562,644 -------- -------- Valuation allowance (838,879) (505,983) -------- -------- Net deferred tax assets $ 62,824 $ 43,924 ======== ========
23 12 Given the uncertainties surrounding the chapter 11 cases, the Company does not believe that recognition of a significant portion of the deferred tax assets relating to the asbestos liability and other pre-petition liabilities is appropriate at this time. These liabilities have been recorded at the expected amounts of the allowed claims; if the liabilities are settled for lesser amounts, there will be a corresponding reduction in the deferred tax assets and related valuation allowance. A significant portion of the net deferred tax asset recognized at November 30, 1995 is expected to be recovered through the carryback of amounts which will become deductible when the related liabilities are paid. It is expected that the Company will realize the benefits related to these deductions when it emerges from chapter 11. The changes in the valuation allowance result from increased amounts provided for asbestos litigation and other claims net of increases in the amounts recoverable through these carrybacks. The differences between the total income tax expense from operations and the income tax expense (benefit) computed using the Federal income tax rate were as follows:
(In thousands of dollars) 1995 1994 1993 ---- ---- ---- Computed "expected" tax expense (benefit) $(327,200) $ 18,800 $(398,900) Change in valuation allowance 332,900 (13,600) 404,900 Change in Federal income tax rate - - (3,800) Foreign tax rate differential 600 (1,500) 1,300 State and local taxes, net of Federal benefit 2,500 1,600 1,000 Other 500 (300) 500 -------- --------- --------- Total income tax expense $ 9,300 $ 5,000 $ 5,000 ======== ========= =========
The Company paid income taxes, net of refunds received, in 1995, 1994, and 1993 of $28,800,000, $18,200,000, and $16,500,000, respectively. G. INCOME (LOSS) PER SHARE The calculation of net income (loss) per share is based upon the average number of common shares outstanding assuming the exercise of stock options. The average number of shares used in the computation of net income (loss) per share was 11,040,932 in 1995 and 1994 and 11,030,515 in 1993. H. COMMON STOCK OPTIONS At November 30, 1995, there were outstanding common stock options under a 1990 and a 1983 plan each authorizing 450,000 shares. The options expire at various dates through 2000. No options could be exercised as of November 30, 1995. Stock option transactions are summarized as follows:
Shares Option Price ------ ------------ Outstanding at November 30, 1992 597,000 $ 2.50 to $14.25 Exercised (62,500) $ 2.50 Expired (15,000) $ 2.50 ------- ------- Outstanding at November 30, 1993 519,500 $ 2.50 to $14.25 Expired (20,000) $ 2.50 ------- ------- Outstanding at November 30, 1994 499,500 $ 2.50 to $14.25 Expired (5,000) $ 2.50 ------- ------- Outstanding at November 30, 1995 494,500 $ 2.50 to $14.25
There were 284,274 shares available for future grants at November 30, 1995. I. RETIREMENT BENEFIT PLANS Substantially all employees of the Company and its subsidiaries are covered by various pension or profit sharing retirement plans. The cost of providing retirement benefits was $1,900,000 in 1995, $998,000 in 1994, and $849,000 in 1993. Plan benefits for salaried employees are based primarily on employees' highest five consecutive years' earnings during the last ten years of employment. Plan benefits for hourly employees typically are based on a dollar unit multiplied by the number of service years. Net periodic pension expense for the Company's defined benefit plans included the following components:
(In thousands of dollars) 1995 1994 1993 ---- ---- ---- Service cost - benefits earned during the period $ 4,001 $ 4,684 $ 3,924 Interest cost on projected benefit obligation 12,972 12,144 12,490 Actual gain on plan assets (40,975) (635) (20,658) Net amortization and deferral 24,336 (17,052) 3,943 -------- -------- -------- Net periodic pension costs $ 334 $ (859) $ (301) ======== ======== ========
The plans' assets consist primarily of listed equity securities and publicly traded notes and bonds. The actual net return on plan assets was 21.2% in 1995, .3% in 1994, 24 13 and 11.3% in 1993, and generally reflects the performance of the equity and bond markets. The following table sets forth the plans' funded status and amounts recognized in the Company's Consolidated Balance Sheet at November 30:
(In thousands of dollars) 1995 1994 ---- ---- Actuarial present value of: Vested benefit obligation $(167,376) $(143,249) ========= ========= Accumulated benefit obligation $(174,515) $(148,243) ========= ========= Projected benefit obligation $(191,831) $(161,089) Plan assets at fair value 208,256 178,216 --------- --------- Projected benefit obligation less than plan assets 16,425 17,127 Unrecognized net gain (1,942) (72) Unrecognized prior service cost 2,244 1,192 Unrecognized net asset (9,182) (10,368) --------- --------- Prepaid pension cost recognized $ 7,545 $ 7,879 ========= =========
The discount rate and weighted average rate of increase in future compensation levels used in determining the actuarial present value of the projected benefit obligation were 7.0% and 4.2%, and 8.0% and 4.2%, respectively, at November 30, 1995 and 1994, respectively. The expected long-term rate of return on assets was 9.0% in 1995 and in 1994. The Company's funding policy is to fund amounts on an actuarial basis to provide for current and future benefits in accordance with the funding guidelines of ERISA. J. EMPLOYEE BENEFITS OTHER THAN PENSIONS In addition to providing pension retirement benefits, the Company makes health care and life insurance benefits available to certain retired employees on a limited basis. Generally, the medical plans pay a stated percentage of medical expenses reduced by deductibles and other coverages. Eligible employees may elect to be covered by these health and life insurance benefits if they reach early or normal retirement age while working for the Company. In most cases, a retiree contribution for health insurance coverage is required. The Company funds these benefit costs primarily on a pay-as-you-go basis. In the fourth quarter of 1993, the Company adopted the provisions of Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" ("FAS 106"). The Company recognized the accumulated postretirement benefit obligation of $19,088,000 retroactively to December 1, 1992 as an accounting change. On an aftertax basis, this charge was $12,598,000 or $1.14 per share. Previously reported quarterly results in 1993 were restated to reflect the adoption of FAS 106 as of December 1, 1992. The adoption of FAS 106 had no impact on consolidated cash flows. The components of expense were as follows:
(In thousands of dollars) 1995 1994 1993 ---- ---- ---- Service cost - benefits earned during the period $ 396 $ 510 $ 467 Interest cost on accumulated postretirement benefit obligation 1,202 1,327 1,394 Amortization of unrecognized net gain (179) - - ------- ------- ------- Net periodic postretirement benefit costs $ 1,419 $ 1,837 $ 1,861 ======= ======= =======
The accumulated postretirement benefit obligation at November 30 consisted of the following components:
(In thousands of dollars) 1995 1994 ---- ---- Retirees and dependents $12,021 $13,017 Eligible active participants 1,650 1,602 Other active participants 5,862 4,823 ------- ------- Accumulated postretirement benefit obligation 19,533 19,442 Unrecognized net gain 2,187 1,628 ------- ------- Accrued postretirement benefit costs $21,720 $21,070 ======= =======
Benefit costs were estimated assuming retiree health care costs would initially increase at an 11% annual rate which decreases to an ultimate rate of 6% in 5 years. If this annual trend rate would increase by 1%, the accumulated postretirement obligation as of November 30, 1995 would increase by $2,021,000 with a corresponding increase of $267,000 in the postretirement benefit expense in 1995. The discount rates used in determining the accumulated postretirement obligation at November 30, 1995 and 1994 were 6.5% and 7.5%, respectively. K. ASBESTOS LITIGATION AND CLAIMS As discussed above in Note B, the Company currently intends to file a First Amended Consolidated Plan of Reorganization ("Amended Plan") with the ICC and the RFC. Like the Original Plan filed in 1995, the Amended Plan will provide, among other things, that all present and future asbestos-related personal injury claims 25 14 will be channeled to and resolved by an independently administered claims trust. Similar plans of reorganization have been confirmed in the chapter 11 cases of certain other companies involved in asbestos litigation. It is also currently contemplated that the Amended Plan will resolve and discharge all asbestos property damage claims. The asbestos-related claims, which consist of personal injury and property damage claims, are discussed below. Personal Injury - --------------- Prior to its chapter 11 filing, the Company had been named as a co-defendant in a substantial number of lawsuits brought by present or former insulators, shipyard workers, steel workers, tire workers and other persons alleging damage to their health from exposure to dust from asbestos-containing industrial insulation products. As a result of the chapter 11 filing by the Company, all such litigation is automatically stayed pursuant to section 362 of the Bankruptcy Code. As of the petition date, there were approximately 67,800 asbestos-related personal injury claims outstanding against the Company. The Bankruptcy Court set September 30, 1992 as the bar date for present asbestos-related claims. The Company implemented the Court-approved plan to notify known and potential claimants of the bar date. All persons with a pre-petition asbestos-related claim were required to file a proof of claim by the bar date in order to participate in the reorganization cases. Approximately 160,000 proofs of claim were filed alleging personal injury. The Company believes that approximately 11,000 of these claims are duplicates or were filed by persons whose lawsuits were previously closed. The vast majority of persons who had filed pre-petition lawsuits against the Company, and whose lawsuits were pending as of the petition date, filed proofs of claim in the reorganization cases. Therefore, approximately 81,200 previously undisclosed claims were filed as a result of the bar date. The Company believes that most of the approximately 40,000 claimants who in 1991, pursuant to a previous Bankruptcy Court order, notified the Company of their intent to assert a claim against the Company, also filed claims pursuant to the bar date. The Company expects that additional asbestos-related personal injury claims will arise for several decades into the future. Holders of these claims were not required to file claims pursuant to the bar date. In July 1995, the Company filed a motion requesting that the Bankruptcy Court estimate the Company's aggregate liability on account of present and future asbestos-related personal injury claims. The motion was filed because the UCC and the ESC appointed in the Company's chapter 11 cases had not agreed with the amount of such liability previously negotiated for settlement purposes among the Company, the ICC and the RFC. In December 1995, the Bankruptcy Court ruled that the Company's estimated liability for such claims is $2,502,511,000. Appeals have been filed by certain creditors, the UCC and the ESC seeking to have the Bankruptcy Court's ruling overturned. The Company does not know whether the Appellate Court will hear the appeals or, if it does, when any decision may be rendered. Property Damage - --------------- There were forty-one lawsuits pending against the Company at the end of fiscal 1991 arising from the alleged presence of asbestos-containing products in buildings. The pending lawsuits typically named numerous defendants, were filed in both state and federal courts, and were brought by school districts, cities, states, counties, universities, hospitals and commercial building owners. The lawsuits typically demanded compensation for any costs incurred in identifying, repairing, encapsulating or removing asbestos-containing products, or sought to have the defendants do these things directly. Many lawsuits also sought punitive damages. A few of the pending cases were certified as class actions. Prior to filing its chapter 11 petition, the Company settled seven building related cases for less than $22,000 in the aggregate. Approximately 1,000 proofs of claim alleging such property damage claims were filed in the chapter 11 cases pursuant to the bar date. These claims include most of those asserted in the lawsuits described above that were pending on the petition date. Many of the other claims also appear to be asserted by claimants similar to those which had commenced pre-petition lawsuits. In February 1996, after the close of the fiscal year, the hospital members of the American Hospital Association, which filed asbestos-related property damage claims against the Company in the alleged approximate amount of $300 million ("Hospitals"), filed a motion in the Bankruptcy Court seeking an order (a) estimating the aggregate value of 26 15 all asbestos-related property damage claims against the Company and (b) temporarily allowing such claims for purposes of voting on a plan of reorganization. The motion states that the relief requested is not intended to be a determination by the Bankruptcy Court of the Company's liability, if any, on account of such claims or to assign a permanently fixed value for such claims, but is sought in order to determine the appropriate distribution to creditor classes under a plan of reorganization. Because the motion was just filed, the Company has not yet made a determination as to how it intends to respond. The Company does, however, intend to file with the Bankruptcy Court shortly an objection on various grounds to many asbestos-related property damage claims, including claims filed by the hospitals. It is anticipated that the Amended Plan will provide alternative methods for treatment of the asbestos-related property damage claims. If the class of asbestos-related property damage claimants votes to accept the Amended Plan, a second trust will be established to resolve the claims and the Company will fund the trust with $3 million in cash. If such class votes to reject the Amended Plan, but the Amended Plan is nevertheless confirmed, such claims will be resolved and discharged pursuant to claims resolution procedures contained in the Amended Plan. These procedures will require such claimants to prove by application of a scientific protocol that the asbestos-containing insulation products for which they are seeking damages were manufactured by the Company. If the class of asbestos-related property damage claimants rejects the Amended Plan and has its claims resolved through the claims resolution procedures discussed above, the eventual outcome of its claims cannot be reasonably predicted at this time. It should also be noted that the Company may have insurance coverage for certain of these claims. L. ENVIRONMENTAL AND OTHER LITIGATION CLAIMS The Bankruptcy Court established a bar date of October 31, 1991 for all pre-petition claims against the Company other than those arising from the sale of asbestos-containing products. Pursuant to this general claims bar date, numerous proofs of claim were filed alleging a right to payment from the estate due to litigation matters. Certain of such claims are discussed below. Environmental - ------------- The Company received 1,102 proofs of claim alleging a right to payment because of environmental matters. These claims, relating primarily to various Superfund sites, sought payment aggregating $27.9 billion, of which readily identifiable duplicate claims approximated $27.5 billion. The Company has resolved the majority of these environmental claims through negotiations with the United States Environmental Protection Agency ("USEPA") and the United States Department of Interior ("USDOI"). The USEPA is responsible for resolving, among other things, claims arising from Superfund sites and the USDOI is responsible for resolving the Company's liability for any natural resource damage that may have occurred at the Superfund sites. Natural resource damage is damage caused to the environment or to plants or animals by the release of hazardous materials at Superfund sites. Pursuant to an agreement among the Company, USEPA, USDOI, and certain states, which is subject to the approval of the Bankruptcy Court, the agencies would be afforded allowed pre-petition general unsecured claims aggregating approximately $43.0 million in full satisfaction of all of the Company's alleged liability at most of its known Superfund sites, including any liability for any natural resource damage. This amount has been provided for and is included in Liabilities Subject to Compromise. In exchange for these allowed claims, the agencies and such states would release the Company from liability at these sites and grant the Company protection from claims of other parties that may be co-liable at the sites. The intent of the settlement agreement is to completely resolve all claims against the Company with respect to these sites. With respect to the small number of sites as to which the USEPA believes that it does not have sufficient information to negotiate a meaningful settlement with the Company, the settlement agreement provides a process which permits any liability with respect to these sites to be resolved in the future when additional information is available. Pursuant to this process, the Company retains all of its rights and defenses as to these sites and may settle or litigate its liability at such future time. The settlement agreement also provides that any future liability of the Company, when fixed, will be satisfied essentially with the same type and amount of consideration that pre-petition general unsecured 27 16 creditors receive pursuant to a confirmed plan of reorganization in the Company's chapter 11 case. In November 1995, a hearing was held before the Bankruptcy Court on the Company's motion seeking the approval of the settlement agreement. USEPA and USDOI joined in the motion. Certain parties that may be liable at certain of the sites resolved by the settlement agreement opposed the Company's motion. Such opposition basically seeks increases in the amount of the allowed claims provided in the settlement agreement attributable to the sites where the objectants may have liability. The Company believes, however, that the terms and provisions of the settlement agreement are fair and equitable and that the objections raised have no basis. The Court has not yet ruled on the motion. Lead Chemicals - -------------- The Bankruptcy Court received 131 timely proofs of claim asserting liability based on personal injury or property damage from lead chemicals allegedly manufactured and sold by the Company. Three additional claims were filed in November 1993, after the 1991 bar date. While some of the timely filed claims did not specify an amount, those that did sought an aggregate of $165 million. All of the timely filed claims which specified an amount of damages have been fully withdrawn without the allowance of any amount by the Company. The three late filed claims referred to above were filed by the City of New York or its agencies which had filed a pre-petition lawsuit against the Company. In November 1994, the Bankruptcy Court sustained the Company's objection to these claims and disallowed them because they were late filed. No appeal of this ruling was sought by the claimants. As a result, the Company has disposed of all filed lead-related property damage claims. The Company had also filed objections to seven other claims that were filed against it seeking damages for bodily injuries resulting from exposure to lead. Pursuant to the objections, the Company sought an order of the Bankruptcy Court disallowing such claims because the claimants' lawsuits asserting similar claims against other defendants which were not in bankruptcy had been dismissed in the trial court. In June 1995, the Bankruptcy Court disallowed all seven of such claims. Currently, there are 113 remaining timely-filed lead-related personal injury claims that have not been resolved. The Company believes that it has valid grounds to object to the allowance of all of the remaining lead-related personal injury claims. It is currently contemplated that all lead-related personal injury claims that were filed that are not disposed of pursuant to an objection filed by the Company, and all future lead-related personal injury claims, will be channeled to and resolved by the trust referred to in Note K above, to be established under the Amended Plan for the benefit of holders of personal injury claims resulting from exposure to asbestos or lead- containing products. Other Litigation - ---------------- The Company received, by the 1991 bar date, ninety-two claims arising out of litigation matters other than those related to lead, asbestos or environmental issues. These claims aggregated approximately $1.1 billion. The majority of these claims have been resolved by disallowance, settlement pursuant to Bankruptcy Court authority or by the allowance of a pre-petition general unsecured claim for amounts that are not material to the Company or its operations. Summary - ------- During the pendency of the chapter 11 cases, any unresolved litigation with respect to pre-petition claims can proceed against the Company only with the express permission of the Bankruptcy Court. The Company intends to defend all litigation claims vigorously in the manner permitted by the Bankruptcy Code and/or applicable law. All pre-petition claims against the Company arising from litigation must be liquidated or otherwise addressed in the context of the chapter 11 cases. Further, all such claims against the Company will be treated in a plan of reorganization. The Company has resolved most of the litigation claims that were asserted by the October 31, 1991 bar date for claims other than those arising from the sale of asbestos-containing products. The Company has filed objections to certain of these litigation-based claims which have not been resolved, seeking to reduce the amount of such claims or eliminate them entirely. The Company anticipates filing additional objections to other such claims if they cannot be resolved through negotiation. These objections will be vigorously litigated by the Company pursuant to the provisions of the Bankruptcy Code and applicable law. 28 17 The eventual outcome of the environmental and other litigation claims described herein cannot be reasonably predicted due to numerous uncertainties that are inherent in the reorganization process. However, the Company believes that its provision for these claims is adequate. In addition, the Company may have insurance coverage for certain of these claims and other factual and legal defenses available to it. M. OTHER INCOME The Company held certain equity investments having no cost basis, but which had a fair value of approximately $5.4 million when FAS 115 was adopted. A substantial portion of these investments related to shares of stock in a Canadian mining concern that the Company received in 1990 in settlement of certain indebtedness. The Company had previously deemed the investment to be permanently impaired and had recorded a loss on the investment in the amount of its full book value. The price of the stock, however, had recently increased significantly. Substantially all of these investments were sold in June, 1995, resulting in a realized gain of $11.5 million. N. INDUSTRY SEGMENT INFORMATION A general description of the products manufactured by the Company's three industry segments is: Industrial Diatomaceous earth products, rubber products, rare metals, fiberglass reinforced plastic parts and industrial chemicals. Machinery Earth moving machines, heavy-duty forklift trucks, aerospace and defense parts, metal cleaning and finishing systems and aluminum castings. Automotive Mechanical, structural, and trim parts for passenger cars, trucks, vans and utility vehicles for the OEM and replacement markets. Sales between segments and foreign operations were not material. Consolidated sales to Ford Motor Company amounted to $166,800,000 in 1995, $165,300,000 in 1994, and $148,000,000 in 1993. No other customer accounted for 10% or more of consolidated sales with the exception of General Motors Corporation ("GMC") in 1994 and 1993 when consolidated sales to GMC amounted to $81,400,000 and $73,100,000, respectively. Consolidated export sales were $92,500,000 in 1995, $76,900,000 in 1994 and $73,200,000 in 1993. 29 18 INDUSTRY SEGMENT INFORMATION
Years ended November 30 (In millions of dollars) Industrial Machinery Automotive 1995 1994 1993 1995 1994 1993 1995 1994 1993 ---- ---- ---- ---- ---- ---- ---- ---- ---- Sales $160.6 $141.4 $132.6 $254.7 $217.0 $171.7 $433.2 $398.3 $357.2 ====== ====== ====== ====== ====== ====== ====== ====== ====== Operating Income 15.6 14.5 15.0 24.1 18.8 9.1 42.1 43.7 37.4 ==== ==== ==== ==== ==== === ==== ==== ==== Identifiable Assets 80.6 78.2 72.7 112.0 109.8 92.8 217.1 190.6 168.2 ==== ==== ==== ===== ===== ==== ===== ===== ===== Depreciation and Amortization 6.1 5.5 4.9 4.7 4.0 3.4 17.6 16.2 16.2 === === === === === === ==== ==== ==== Capital Expenditures 4.4 7.7 5.6 7.6 6.9 7.4 28.3 21.2 15.4 === === === === === === ==== ==== ==== Segment Total Corporate Total 1995 1994 1993 1995 1994 1993 1995 1994 1993 ---- ---- ---- ---- ---- ---- ---- ---- ---- Sales $848.5 $756.7 $661.5 $ - $ - $ - $848.5 $756.7 $661.5 ====== ====== ====== ====== ====== ====== ====== ====== ====== Operating Income (Loss) 81.8 77.0 61.5 (18.7) (18.7) (17.7) 63.1 58.3 43.8 ==== ==== ==== Provision for Asbestos Ligitation (1,005.5) - (1,135.5) (1,005.5) - (1,135.5) Provision for Environmental and Other Claims - - (41.4) - - (41.4) Interest Expense (1.9) (1.8) (2.1) (1.9) (1.8) (2.1) Other Income (Expense) 11.6 .6 (.2) 11.6 .6 (.2) Reorganization Items (2.2) (3.4) (4.4) (2.2) (3.4) (4.4) ===== ===== ===== ----- ----- ----- Income (Loss) Before Taxes (934.9) 53.7 (1,139.8)(1) ======= ==== ========= Identifiable Assets 409.7 378.6 333.7 170.4 142.5 125.7 580.1 521.1 459.4 ===== ===== ===== ===== ===== ===== ===== ===== ===== Depreciation and Amortization 28.4 25.7 24.5 .3 .4 .5 28.7 26.1 25.0 ==== ==== ==== == == == ==== ==== ==== Capital Expenditures 40.3 35.8 28.4 .3 .1 .1 40.6 35.9 28.5 ==== ==== ==== == == == ==== ==== ==== (1) Before cumulative effect of accounting changes.
30 19 INDEPENDENT AUDITORS' REPORT - ---------------------------- The Board of Directors Eagle-Picher Industries, Inc.: We have audited the accompanying consolidated balance sheet of Eagle-Picher Industries, Inc. and subsidiaries (debtor in possession, as of January 7, 1991) as of November 30, 1995 and 1994, and the related consolidated statements of income (loss), shareholders' equity (deficit), and cash flows for each of the years in the three-year period ended November 30, 1995. 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 generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Eagle-Picher Industries, Inc. and subsidiaries as of November 30, 1995 and 1994, and the results of their operations and their cash flows for each of the years in the three-year period ended November 30, 1995 in conformity with generally accepted accounting principles. The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note B to the consolidated financial statements, on January 7, 1991, Eagle-Picher Industries, Inc. and seven of its domestic subsidiaries each filed a voluntary petition for relief under chapter 11 of the United States Bankruptcy Code with the United States Bankruptcy Court. Although the Company and its operating subsidiaries, other than EDI, Inc., are currently operating their businesses as debtors in possession under the jurisdiction of the Bankruptcy Court, the continuation of their businesses as going concerns is contingent upon, among other things, the ability to formulate a plan of reorganization which will gain approval of the creditors and confirmation by the Bankruptcy Court. The filing under chapter 11 and the continued uncertainty related to claims associated with the Company's sale of asbestos products and certain other litigation, raise substantial doubt about the Company's ability to continue as a going concern. The consolidated financial statements do not include any adjustments that may be required in connection with restructuring the Company and its subsidiaries as they reorganize under chapter 11 of the United States Bankruptcy Code. As discussed in Note J, the Company adopted the provisions of the Financial Accounting Standards Board's SFAS No. 106, Employers' Accounting for Postretirement Benefits Other than Pensions, on December 1, 1992. /s/KPMG Peat Marwick LLP - ------------------------- KPMG Peat Marwick LLP Cincinnati, Ohio February 14, 1996 31 20 Report of Management The Company's management is responsible for the preparation and presentation of the consolidated financial statements and related financial data included in this annual report. The financial information has been prepared in conformity with generally accepted accounting principles and as such includes amounts based on judgments and estimates made by management. The Company's system of internal accounting controls is designed to provide reasonable assurance at reasonable costs 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, KPMG Peat Marwick 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, composed solely of outside 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/Thomas E. Petry - ------------------------ Thomas E. Petry Chairman and Chief Executive Officer /s/Andries Ruijssenaars - ------------------------ Andries Ruijssenaars President and Chief Operating Officer /s/David N. Hall - ------------------------ David N. Hall Senior Vice President - Finance Cincinnati, Ohio February 14, 1996 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION RESULTS OF OPERATIONS 1995 COMPARED TO 1994 On a 12% sales increase, operating income increased 8% to $63.1 million in 1995 from $58.3 million in 1994. Comparative sales volume by industry segment showed increases of 14% in the Industrial segment, 17% in the Machinery segment, and 9% in the Automotive segment. Operating income increased 8% in the Industrial segment and 28% in the Machinery segment, but decreased 4% in the Automotive segment. The increase in operating income in the Industrial Segment was shared by all operations within the segment. This segment tends not to experience cyclical swings as its customers serve a range of consumer nondurable markets. The increase in operating income in the Machinery segment was attributable solely to the continuing improvements in both volume and operating efficiencies in the operations making earth moving and material handling equipment. The decrease in operating income in the Automotive segment was due to: 1) intense pricing pressure by major customers demanding price concessions; 2) inability to pass on raw material cost increases on a timely basis; and 3) start-up costs associated with new business. In December 1995, the Bankruptcy Court estimated the Company's aggregate liability on account of present and future asbestos-related personal injury claims to be $2.5 billion. As a result, the Company recorded a provision in the fourth quarter of 1995 of $1.0 billion to increase the asbestos liability subject to compromise to $2.5 billion. Interest expense was $1.9 million in 1995 compared to $1.8 million in 1994. A gain on sale of investments of $11.5 million resulted from the sale of securities which the Company had received several years ago in settlement of financing it had provided to a supplier. Reorganization items are described in Note B. The primary components of the income tax provision are described in Note F. 1994 COMPARED TO 1993 On a 14% sales increase, operating income increased 33% to $58.3 million in 1994 from $43.8 million in 1993. 32 21 Comparative sales volume by industry segment showed increases of 7% in the Industrial segment, 26% in the Machinery segment, and 12% in the Automotive segment. Operating income decreased 3% in the Industrial segment, but increased 107% in the Machinery segment and 17% in the Automotive segment. The decrease in operating income in the Industrial segment was attributable to pricing pressures on diatomaceous earth products. The increase in operating income in the Machinery segment was primarily associated with improvements in production of a line of heavy-duty forklift trucks. An increase in sales volumes of metal cleaning and finishing equipment also contributed to the increase in operating income in the Machinery segment. The increase in operating income in the Automotive segment was due to: 1) an increase in export sales and stronger performance of our operations in Great Britain and Spain; 2) broader market penetration coupled with record domestic auto production; and 3) favorable product mix heavily weighted toward the light truck, van, and sport utility segment of the market for which several divisions produce components. In November 1993, the Company reached an agreement on the principal elements of a plan of reorganization with the Injury Claimants' Committee and the Legal Representative for Future Claimants, the representatives of the holders of present and future asbestos-related personal injury and other toxic tort claims in the Company's chapter 11 case. The agreement contemplated a settlement of the Company's liability for all present and future asbestos-related personal injury claims. As a consequence of the proposed settlement, the Company recorded an additional provision of $1.135 billion for all present and future asbestos-related personal injury claims, thereby increasing the asbestos liability subject to the compromise on the Consolidated Balance Sheet to $1.5 billion. In addition, in 1993 a provision of $41.4 million was made for environmental and other litigation claims. Interest expense decreased to $1.8 million from $2.1 million due primarily to the repayment of certain foreign debt in 1994. Reorganization items are described in Note B. The primary components of the income tax provision are described in Note F. INDUSTRY SEGMENT DATA Industry segment data for 1995, 1994 and 1993 is summarized on page 30. FINANCIAL CONDITION The filing of the petitions for reorganization under chapter 11 on January 7, 1991 had a significant positive impact on the Company's liquidity. The filing stayed all litigation against the Company with respect to pre-petition claims and reduced the cash drain for asbestos litigation. In the third quarter of 1995, the Company filed a motion with the Bankruptcy Court presiding over the Company's chapter 11 case asking the Court to estimate its aggregate liability on account of present and future asbestos-related personal injury claims. In December 1995, the Court ruled on the motion and estimated this liability to be $2.5 billion. As a result, the Company recorded a provision in the fourth quarter of 1995 of $1.0 billion to increase the asbestos liability subject to compromise to $2.5 billion. At November 30, 1995, the balance of Liabilities Subject to Compromise was $2.663 billion. These amounts were recorded based on the expected amount of the allowed claims, not the amounts of consideration that such allowed claims may receive pursuant to a plan of reorganization. During 1995, there was a $.7 million increase in cash. Operating activities provided $30.5 million. Items which affected cash provided by operations include the following: 1) There was a significant increase in customer tooling costs from $15.0 million at the end of fiscal 1994, to $26.5 million at November 30, 1995. It is common practice in the automotive industry to accumulate customer tooling costs while the tooling is under construction and bill the customer upon its completion. It is anticipated that customer tooling will return to a more traditional level of $10.0 to $12.0 million by the end of 1996, which would generate $14.5 to $16.5 million in cash in the coming fiscal year. 2) There was an increase in working capital, other than customer tooling costs, which was in line with the 12% increase in sales volume. 3) While income tax expense for financial statement purposes was $9.3 million, the Company paid income taxes, net of a small refund, of $28.8 million. 4) The Company incurred interest expenses of $1.9 million and reorganization costs of $2.2 million. 33 22 In addition, the Company used cash of $28.7 million, net of an $11.5 million sale of an investment (Note M), for investing activities. The Company had near record ($43.0 million in 1988) capital expenditures of $40.6 million in 1995. This compares to $35.9 million spent in 1994. The capital expenditures in 1995 included $10.3 of an approved $12.0 million expansion of a new coating line for the manufacture of gasket materials which is to be completed in early 1996. Finally, the Company used $1.0 million of cash for financing activities which included repayment of debt in accordance with adequate protection payments authorized by the Bankruptcy Court, combined with the financing activities of the foreign subsidiaries. As of November 30, 1995, the Company had $82.6 million of long-term debt compared to $83.6 million at the end of the prior year. The disposition of unsecured debt included in liabilities subject to compromise of $62.0 million will be treated in a plan of reorganization. The Company has a Bankruptcy Court approved debtor in possession financing agreement which provides a $40.0 million committed revolving credit facility. This facility expires the earlier of December 31, 1996 or the effective date of a plan of reorganization. Should a plan not become effective by the end of 1996, the Company would expect to have the current facility extended for as long as necessary. At November 30, 1995, $30.2 million in letters of credit were outstanding under the facility leaving the Company with $9.8 million in available borrowing capacity. There were no cash borrowings in 1995 under the facility. While the Company is reorganizing under chapter 11, it is prohibited from paying interest or principal on pre-petition obligations without the approval of the Bankruptcy Court. To the extent cash generated from operations exceeds capital expenditures, working capital requirements, approved payments of secured debt and administrative expenses of the reorganization, the Company will continue to accumulate cash. Consequently, the liquidity of the Company should improve. The Company intends to file an amended plan of reorganization with the Bankruptcy Court as soon as practicable. It is contemplated that such plan will provide for a discharge of the Company's pre-petition liabilities (Liabilities Subject to Compromise) and provide the reorganized Company with a capital structure appropriate for an industrial products company which will enable the Company to access financing in the credit and debt markets. RECENT FASB PRONOUNCEMENTS During the year, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" ("FAS 121"). This statement requires that long-lived assets and certain identifiable intangibles to be held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Measurement of an impairment loss on these assets should be based on the fair value of the assets. FAS 121 is required to be adopted for fiscal years beginning after December 15, 1995. As such, the Company will adopt this standard the sooner of the fiscal year ended November 30, 1997 or the effective date of a plan of reorganization. Management has not fully assessed the impact of FAS 121; however, it is not anticipated that its adoption will have a material impact on the financial statements. Statement of Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("FAS 123"), was also issued in 1995. This statement establishes a fair value method of accounting for stock-based compensation plans. Adoption of the fair value method is encouraged; however, entities may elect to continue to account for stock-based compensation plans according to the provisions of Accounting principles Bulletin No. 25, "Accounting for Stock Issued to Employees" ("APB 25"), but provide the disclosures related to FAS 123. FAS 123 is effective for transactions entered into in fiscal years that begin after December 15, 1995. Accordingly, the Company will adopt this standard the sooner of the fiscal year ended November 30, 1997 or the effective date of a plan of reorganization. As a result of the numerous uncertainties that are inherent in the reorganization process, Management has not assessed the impact that adoption of FAS 123 would have on the financial statements. 34 23 SELECTED FINANCIAL DATA
(Unaudited) (In thousands of dollars, except per share) - ------------------------------------------------------------------------------------------- 1995 1994 1993 1992 1991 - ------------------------------------------------------------------------------------------- Net Sales $848,548 $756,741 $661,452 $611,458 $598,631 - ------------------------------------------------------------------------------------------- Operating Income 63,087 58,281 43,754 46,560 18,849 - ------------------------------------------------------------------------------------------- Income (Loss) Before Reorganization Items and Taxes (932,646)(1) 57,175 (1,135,426)(2) 40,924 (788) - ------------------------------------------------------------------------------------------- Reorganization Items (3) (2,225) (3,426) (4,344) (9,038) (12,124) - ------------------------------------------------------------------------------------------- Income (Loss) Before Taxes (934,871) 53,749 (1,139,770) 31,886 (12,912) - ------------------------------------------------------------------------------------------- Net Income (Loss) (944,171) 48,749 (1,144,770)(4) 28,886 (15,812) - ------------------------------------------------------------------------------------------- Net Income (Loss) Per Share (85.51) 4.42(4) (103.78)(4) 2.63 (1.44) - ------------------------------------------------------------------------------------------- Common Dividend Per Share - - - - - - ------------------------------------------------------------------------------------------- Total Assets 580,073 521,107 459,360 419,435 398,990 - ------------------------------------------------------------------------------------------- Long-Term Debt, less current portion 19,103(5) 19,896(5) 21,712(5) 25,033(5) 32,001(5) - ------------------------------------------------------------------------------------------- (1) Includes a provision for asbestos litigation of $1.0 billion in 1995. (2) Includes a provision for asbestos litigation of $1.135 billion and a provision for environmental and other claims of $41.4 million in 1993. (3) On January 7, 1991, the Company and seven of its domestic subsidiaries each filed a petition for relief under chapter 11 of the U.S. Bankruptcy Code. (4) Excludes cumulative adjustment for adoption of FAS 106 in 1993 which decreased net income by $12.6 million ($1.14 per share). (5) Long-term debt of $62.0 million in 1995, 1994 and 1993 and $61.7 million in 1992, and 1991 has been included in liabilities subject to compromise.
35 EX-21 3 EXHIBIT 21 1 EXHIBIT 21 EAGLE-PICHER INDUSTRIES, INC. SUBSIDIARIES OF THE REGISTRANT Cincinnati Industrial Machinery Sales Company [Ohio] Daisy Parts, Inc. [Michigan] Eagle-Picher Development Company, Inc. [Delaware] Transicoil Inc. [Pennsylvania] Transicoil (Malaysia) SDN. BHD. [Malaysia] Michigan Automotive Research Corporation (MARCO) [Michigan] EDI, Inc. [Michigan] Eagle-Picher Espana, S.A. [Spain] Eagle-Picher Europe, Inc. [Delaware] Eagle-Picher Fluid Systems Ltd [England and Wales] Eagle-Picher Far East, Inc. [Delaware] Eagle-Picher, Inc. [Virgin Islands] Eagle-Picher Industries of Canada Limited [Canada] Eagle-Picher Industries GmbH [Germany] Eagle-Picher Industries Materials GmbH [Germany] Eagle-Picher Minerals, Inc. [Nevada] Eagle-Picher Minerals International S.A.R.L. [France] United Minerals Verwaltungs- und Beteiligungs GmbH [Germany] United Minerals GmbH & Co. KG [Germany] Equipos de Acuna, S.A. de C.V. [Mexico] Hillsdale Tool & Manufacturing Co. [Michigan] Eagle-Picher Industries Europe GmbH [Germany] EPTEC, S.A. de C.V. [Mexico] Eagle-Picher Fluid Systems, Inc. [Michigan] - --------------- [ ] Brackets indicate state or country of incorporation and do not form part of corporate name. EX-23 4 EXHIBIT 23 1 EXHIBIT 23 INDEPENDENT AUDITORS' CONSENT The Board of Directors Eagle-Picher Industries, Inc.: We consent to incorporation by reference in Registration Statement Nos. 2-50595, 33-5792, 33-31975 and 33-37518 on Form S-8 of Eagle-Picher Industries, Inc. of our report, with explanatory paragraphs, dated February 14, 1996 relating to the consolidated balance sheet of Eagle-Picher Industries, Inc. and subsidiaries (debtor in possession, as of January 7, 1991) as of November 30, 1995 and 1994, and the related consolidated statements of income (loss), shareholders' equity (deficit), and cash flows for each of the years in the three-year period ended November 30, 1995, which reports appear in the Company's 1995 Annual Report on Form 10-K and in the 1995 Annual Report, which is incorporated by reference in the Company's 1995 Annual Report on Form 10-K. Our report on the consolidated financial statements refers to a change in accounting for postretirement benefits other than pensions in 1993. /s/ KPMG Peat Marwick LLP Cincinnati, Ohio February 27, 1996 EX-24.A 5 EXHIBIT 24(A) 1 EXHIBIT 24(a) POWER OF ATTORNEY Each of the undersigned officers and/or directors of Eagle-Picher Industries, Inc. hereby consents to and appoints Thomas E. Petry and James A. Ralston, and each of them, as his true and lawful attorneys-in-fact and agents with all power of substitution, for him and in his name, place and stead, in any and all capacities, to sign the Annual Report on Form 10-K for the 1995 fiscal year of Eagle-Picher Industries, Inc., a corporation organized and existing under the laws of the State of Ohio, and any and all amendments thereto, and to file the same, with all exhibits thereto, and all documents in connection therewith, with the Securities and Exchange Commission pursuant to the requirements of the Securities Exchange Act of 1934, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the same as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or either of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue thereof. In Witness Whereof, each of the undersigned has hereunto set his hand on this 14th day of February, 1996. /s/ Thomas E. Petry ------------------------------------------------------ Thomas E. Petry Director, Chairman of the Board and Chief Executive Officer /s/ Andries Ruijssenaars ------------------------------------------------------ Andries Ruijssenaars Director, President and Chief Operating Officer /s/ David N. Hall ------------------------------------------------------ David N. Hall Senior Vice President-Finance (Principal Financial Officer) /s/ Paul W. Christensen, Jr. ------------------------------------------------------ Paul W. Christensen, Jr. Director /s/ V. Anderson Coombe ------------------------------------------------------ V. Anderson Coombe Director /s/ Roger L. Howe ------------------------------------------------------ Roger L. Howe Director /s/ Daniel W. LeBlond ------------------------------------------------------ Daniel W. LeBlond Director /s/ Powell McHenry ------------------------------------------------------ Powell McHenry Director /s/ Eugene P. Ruehlmann ------------------------------------------------------ Eugene P. Ruehlmann Director EX-24.B 6 EXHIBIT 24(B) 1 EXHIBIT 24(b) POWER OF ATTORNEY The undersigned officer of Eagle-Picher Industries, Inc. hereby consents to and appoints Thomas E. Petry and James A. Ralston, and each of them, as his true and lawful attorneys-in-fact and agents with all power of substitution, for him and in his name, place and stead, in any and all capacities, to sign the Annual Report on Form 10-K for the 1995 fiscal year of Eagle-Picher Industries, Inc., a corporation organized and existing under the laws of the State of Ohio, and any and all amendments thereto, and to file the same, with all exhibits thereto, and all documents in connection therewith, with the Securities and Exchange Commission pursuant to the requirements of the Securities Exchange Act of 1934, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the same as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or either of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue thereof. In Witness Whereof, the undersigned has hereunto set his hand on this 20th day of February, 1996. /s/ Carroll D. Curless - ------------------------------------ Carroll D. Curless Vice President and Controller (Principal Accounting Officer) EX-27 7 EXHIBIT 27
5 This schedule contains summary financial information extracted from the Consolidated Statement of Income (Loss) and the Consolidated Balance Sheet and is qualified in its entirety by reference to such financial statements. 1,000 U.S. DOLLARS YEAR NOV-30-1995 DEC-01-1994 NOV-30-1995 1 93,330 0 128,904 1,860 83,647 326,118 441,957 286,139 580,073 82,623 82,631 13,906 0 0 (2,225,214) 580,073 848,548 848,548 785,461 785,461 1,005,511 0 1,926 (934,871) 9,300 (944,171) 0 0 0 (944,171) (85.51) (85.51)
EX-99 8 EXHIBIT 99 1 EXHIBIT 99
EPI OPERATIONS (DIVISIONS) PLANT LOCATIONS - ---------------------------------------------------------------------------------------------- Cincinnati Industrial Machinery Sharonville, Ohio 3280 Hageman Street Sharonville, Ohio 45241 Construction Equipment Lubbock, Texas 1802 E. 50th Street Acuna, Coahuila, Mexico Lubbock, Texas 79404 Eagle-Picher Fluid Systems, Inc. Brighton, Michigan* 7854 Lochlin Drive Brighton, Michigan 48116 Electronics Joplin, Missouri (6) "C" and Porter Streets Colorado Springs, Colorado (2) Joplin, Missouri 64801 Galena, Kansas Grove, Oklahoma Seneca, Missouri Stella, Missouri Socorro, New Mexico** Fabricon Products River Rouge, Michigan 1721 West Pleasant Avenue Philadelphia, Pennsylvania River Rouge, Michigan 48218 Riverton, New Jersey Hillsdale Tool & Manufacturing Co. Hillsdale, Michigan (4)** 135 E. South Street Hamilton, Indiana Hillsdale, Michigan 49242 Jonesville, Michigan Vassar, Michigan San Luis Potosi, Mexico Michigan Automotive Ann Arbor, Michigan Research Corporation (MARCO) 1254 North Main Street Ann Arbor, Michigan 48104 Minerals Clark Station, Nevada 6110 Plumas Street Lovelock, Nevada Reno, Nevada 89509 Vale, Oregon
- --------------- * Effective approximately March 1, 1996. ** The New Mexico plant and one of the Hillsdale, Michigan plants have little, if any, manufacturing activity at this time. 2
EPI OPERATIONS (DIVISIONS) PLANT LOCATIONS - ---------------------------------------------------------------------------------------------- Orthane Denton, Texas*** 1500 I-35 W. (at Airport Road) Denton, Texas 76202 Plastics Grabill, Indiana 14123 Roth Road Ashley, Indiana Grabill, Indiana 46741 Huntington, Indiana Ross Aluminum Foundries Sidney, Ohio (2) 815 North Oak Avenue Sidney, Ohio 45365 Rubber Molding Norwich, Connecticut 19 Ohio Avenue Pine Bluff, Arkansas Norwich, Connecticut 06360 Stratford, Connecticut Specialty Materials Quapaw, Oklahoma (2) One Mile NE of Quapaw on Hwy. 69A Miami, Oklahoma (3) Quapaw, Oklahoma 74363 Harrisonville, Missouri Lenexa, Kansas Suspension Systems Paris, Illinois Route 133 West Paris, Illinois 61944 Transicoil Inc. Trooper, Pennsylvania 2560 General Armistead Avenue Melaka, Malaysia Trooper, Pennsylvania 19403 Trim Kalkaska, Michigan 829 U.S. Hwy. 131 NW Kalkaska, Michigan 49646 Wolverine Gasket Inkster, Michigan 2638 Princess Street Blacksburg, Virginia Inkster, Michigan 48141 Leesburg, Florida Garden City, Michigan Eagle-Picher Industries Europe GmbH Market Harborough, England Soria, Spain Ohringen, Germany
- --------------- *** A substantial portion of the business of the Denton, Texas facility was sold on January 31, 1996. The remainder will be transferred to the Brighton, Michigan plant, listed above. -----END PRIVACY-ENHANCED MESSAGE-----