EaglePicher Holdings, Inc. Announces Fourth Quarter and Fiscal Year 2003 Financial Results
PHOENIX, Feb. 16, 2004 -- EaglePicher Holdings, Inc. announces its fiscal year 2003 financial results and the filing of its Annual Report on Form 10-K with the Securities and Exchange Commission (SEC). Included in this press release is a summary discussion of Sales, Earnings and Cash Flows. We have also included a copy of our balance sheet, income statement and statement of cash flows. To obtain a more detailed discussion of our financial condition and results of operations, see the Management's Discussion and Analysis of Financial Condition and Results of Operations in our Form 10-K, which will be filed with the SEC on February 17, 2004 at www.sec.gov. You can obtain an immediate copy of our Form 10-K by visiting our web site at www.eaglepicher.com, under Investor Relations/ SEC Filings/ Form 10-K Year Ended 2003.
Fourth Quarter of 2003 Sales
Net sales increased $12.1 million, or 7.2%, to $180.5 million in the fourth quarter of 2003 from $168.4 million in the prior year. This increase was due to 36.9% increase in our Technologies Segment's Power Group and a 10.6% increase in our Automotive Segment's Wolverine business, partially offset by decreases of 1.6% in our Automotive Segment's Hillsdale business and 1.1% in our Filtration and Minerals Segment.
Earnings
Income (loss) from continuing operations before taxes improved $2.9 million from a loss of $3.7 million in 2002 to $0.8 million in 2003. This change was primarily the result of the following favorable/ (unfavorable) specific items (in million of dollars):
a. Loss from divestitures in 2002 $0.4 b. Restructuring in 2002 2.9 c. Insurance related losses in 2003 (0.2) d. Increased depreciation expense due to accelerated lives (1.1) e. Goodwill amortization expense (no longer amortized in 2003) 3.9
The remaining $3.0 million of unfavorable earnings represents $3.6 million of operating improvements as a result of increased sales and productivity initiatives, which was more than offset by $4.2 million of preferred stock dividend accruals, and $2.4 million of higher interest expense due to higher average debt levels as a result of our August 2003 refinancings.
Cash Flows and Net Debt
Cash flow was strong in the fourth quarter of 2003 as our net debt (total debt on the balance sheet plus the obligations of our asset-backed securitization less cash on our balance sheet) was reduced by $46.4 million to $354.6 million at November 30, 2003 from $401.0 million at August 31, 2003. The improvement was due to the strong operating performance and improvements in working capital performance. During the quarter, we made $7.1 million of investments to increase our ownership interest from 50% to a controlling 62% in EaglePicher Horizon Batteries, LLC, a manufacturer and distributor of a next-generation lead-acid woven battery technology, and a 60% controlling investment in EP NTZ Micro Filtration, LLC, a manufacturer and distributor of next-generation micro-filtration products and solutions for automotive suppliers.
Full Year 2003 Sales
Net sales increased $17.3 million, or 2.6%, to $685.4 in 2003 from $668.1 in 2002. Excluding sales from our Precision Products business within our Technologies Segment, which we divested in July 2002, net sales increased $20.7 million, or 3.1%.
This increase was due to strong increases of 37.5% in our Technologies Segment's Power Group and 13.2% in our Automotive Segment's Wolverine business, partially offset by decreases of 5.5% in our Automotive Segment's Hillsdale business and 4.3% in our Filtration and Minerals Segment.
The substantial increase in our Power Group sales is primarily due to new defense contracts, improved pricing and increased defense spending. The lower Hillsdale sales are primarily related to the 4.0%-4.5% decrease in overall North American light vehicle production levels in 2003 and the phase-out of three programs. The strong increase in our Wolverine division sales, despite lower North American vehicle production, was attributed to new programs and applications generating 6.3% volume growth and 6.8% favorable foreign exchange rates as a result of the strengthening of the Euro.
Earnings
Income (loss) from continuing operations before taxes improved $41.7 million from a loss of $30.1 million in 2002 to income of $11.6 million in 2003. This change was primarily the result of the following favorable/ (unfavorable) specific items (in million of dollars):
a. Loss from divestitures in 2002 $6.5 b. Restructuring in 2002 5.9 c. Insurance related gains in 2003 and losses in 2002 11.4 d. Write-off of deferred financing costs in 2003 (6.3) e. Goodwill amortization expense (no longer amortized in 2003) 15.4
The remaining $8.8 million represents $13.0 million of operating improvements as a result of increased sales and productivity initiatives partially offset by $4.2 million of preferred stock dividend accruals.
Cash Flows and Net Debt
We experienced very positive cash flow in 2003. Operating activities used $1.0 million in cash during 2003 compared to providing $75.9 million in 2002. In 2002, cash flows from operating activities were impacted by our net loss of $36.8 million, which was offset by non-cash charges of $65.0 million from depreciation and amortization, $6.5 million from losses from divestitures, $6.1 million from deferred income taxes, and $3.1 million from insurance related losses, which results in cash sources of $43.9 million compared to a similarly calculated amount in 2003 of $60.0 million. The 2003 amount of $60.0 million, an improvement of $16.1 million, or 36.7%, over 2002, is comprised of our net income of $2.8 million, and non-cash charges of $50.8 million from depreciation and amortization, $4.2 million for preferred stock dividends accrued, $4.2 million from loss from discontinued operations, and $6.3 million from the write-off of deferred financing costs, partially offset by non-cash insurance gains of $8.3 million.
The operating cash flow for 2002 was also increased by $32.0 million due to changes in certain assets and liabilities, resulting in net cash provided by operating activities of $75.9 million, primarily due to $46.5 million of proceeds from the sale of receivables to our accounts receivable asset-backed securitization, which was partially offset primarily by increases in our percentage of completion accounting working capital needs and decreases in accrued liabilities.
The operating cash flow for 2003 was reduced by $61.0 million due to changes in certain assets and liabilities, resulting in net cash used in operating activities of $1.0 million. This was primarily due to:
a. $46.5 million use of cash to pay off all the obligations of
EaglePicher Funding Corporation;
b. $3.1 million of cash generated from the better management of the
primary working capital areas of accounts receivable, inventories,
and accounts payable;
c. $7.8 million of cash received from insurance settlements;
d. approximately $15.0 million for payments on restructuring and legal
matters which were expensed in 2002; and
e. $10.3 million increase in production on long-term defense contracts
where costs are incurred before shipments or milestone billings are
made and collected; this was primarily driven by a 37.5% increase in
our Power Group revenues within our Technologies Segment.
Our investing activities used $23.6 million in cash during 2003 compared to using $7.9 million in 2002. The 2003 amount primarily includes $16.2 million for capital expenditures and $7.6 million for the purchase of intangibles and investments in unconsolidated subsidiaries. The 2002 amount primarily includes $16.3 million for capital expenditures, which was partially offset by $10.0 million of proceeds from the sale of businesses. We expect our capital expenditures to be between $35.0 million to $40.0 million in 2004, and our investments in unconsolidated or consolidated ventures to be between $8.0 million and $10.0 million.
Our financing activities provided $37.1 million of cash during 2003 compared to using $67.4 million during 2002. During 2003, we refinanced and incurred an additional $39.5 million of debt ($250.0 million of senior unsecured notes were issued to redeem $210.5 million of our existing $220.0 million of senior subordinated notes). These additional proceeds were used to reduce lower rate bank debt and the obligations of our accounts receivable asset-backed securitization. During 2002, we used $34.7 million to reduce our revolving credit facility, primarily from proceeds associated with the sale of our receivables to our accounts receivable asset-backed securitization. Also during 2002, regularly scheduled debt payments and divestitures resulted in a $32.5 million decline in our long-term debt.
Our net debt (total debt on the balance sheet plus the obligations of our asset-backed securitization less cash on our balance sheet) was reduced by $34.1 million to $354.6 million at November 30, 2003 from $388.7 million at November 30, 2002. The improvement was due to the strong operating performance and improvements in working capital performance, as discussed above.
Q4 and Full Year 2003 Earnings Conference Call
On Wednesday, February 18, 2004, we will also host a conference call to discuss our progress and performance for the quarter and the outlook for the future, followed by a question and answer session. The conference call, which may include forward looking statements, will be web cast and is scheduled to begin at 1:00 pm Eastern Time (10:00 am Pacific). The audio portion of the conference call may be accessed by dialing (800) 893-5903 or +1 (706) 679-3901 for international callers a few minutes prior to the scheduled start time. Callers should ask for the EaglePicher 4th Quarter Conference Call hosted by Tom Scherpenberg, vice president and treasurer.
To attend the web cast portion of this meeting, you must first register. Please click (or cut/paste into your web browser) the following link to see more information about and to register for this meeting:
https://intercall.webex.com/intercall/j.php?ED=80474571&RG=1
Once you have registered for the meeting, you will receive an email message confirming your registration and providing the information that you will need to join. A replay of the conference call and web cast will be available on our web site following the call at http://www.eaglepicher.com/EaglePicherInternet/About_EaglePicher/InvestorRelat ions.htm.
Reconciliation of Net Debt to our GAAP Financial Measure
The following is a reconciliation of our Net Debt to our GAAP balance sheet as of November 30, 2002, August 31, 2003, and November 30, 2003 (in millions of dollars):
November 30, August 31, November 30,
2002 2003 2003
Current portion of debt on our
balance sheet $18.6 $3.2 $13.3
Long-term portion of debt on
our balance sheet 355.1 421.8 408.6
Obligations of our accounts
receivable asset- backed
securitization 46.5 -- --
Cash on our balance sheet (31.5) (24.0) (67.3)
Net debt $388.7 $401.0 $354.6
EaglePicher Incorporated, founded in 1843 and headquartered in Phoenix, Arizona, is a diversified manufacturer and marketer of innovative, advanced technology and industrial products and services for space, defense, environmental, automotive, medical, filtration, pharmaceutical, nuclear power, semiconductor and commercial applications worldwide. The company has 4,000 employees and operates more than 30 plants in the United States, Canada, Mexico, the U.K. and Germany. Additional information on the company is available on the Internet at www.eaglepicher.com.
EaglePicher Holdings, Inc. is the parent of EaglePicher Incorporated. EaglePicher(TM) is a trademark of EaglePicher Incorporated.
EaglePicher Holdings, Inc.
Consolidated Balance Sheets
November 30, 2002 and 2003
(in thousands of dollars, except share and per share amounts)
2002 2003
ASSETS
Current Assets:
Cash and cash equivalents $31,522 $67,320
Receivables, net of doubtful accounts of
$435 in 2002 and $1,136 in 2003 19,979 25,943
Retained interest in EaglePicher Funding
Corporation, net of allowance of $700 in
2002 and $712 in 2003 29,400 63,335
Costs and estimated earnings in excess of
billings 16,942 28,433
Inventories 45,504 53,205
Assets of discontinued operations 28,899 4,441
Prepaid expenses and other assets 15,363 10,394
Deferred income taxes 10,798 8,526
198,407 261,597
Property, Plant and Equipment, net 173,658 151,894
Goodwill 159,640 159,640
Prepaid Pension 54,796 56,891
Other Assets, net 26,540 33,516
$613,041 $663,538
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Accounts payable $83,178 $89,274
Current portion of long-term debt 18,625 13,300
Compensation and employee benefits 18,689 15,783
Billings in excess of costs and estimated
earnings 944 2,098
Accrued divestiture reserve 17,662 9,297
Liabilities of discontinued operations 4,305 956
Other accrued liabilities 36,380 32,984
179,783 163,692
Long-term Debt, net of current portion 355,100 408,570
Postretirement Benefits Other Than Pensions 17,635 17,418
Other Long-Term Liabilities 10,128 9,649
11.75% Cumulative Redeemable Exchangeable
Preferred Stock; 50,000,000 shares authorized;
14,191 shares issued and outstanding
(Mandatorily Redeemable at $10,000 per share
on March 1, 2008) -- 154,416
562,646 753,745
11.75% Cumulative Redeemable Exchangeable
Preferred Stock; 50,000,000 shares authorized;
14,191 shares issued and outstanding
(Mandatorily Redeemable at $10,000 per share
on March 1, 2008) 137,973 --
Commitments and Contingencies
Shareholders' Equity (Deficit):
Common stock; $0.01 par value each; 1,000,000
shares authorized and issued 10 10
Additional paid-in capital 99,991 92,810
Accumulated deficit (175,112) (184,543)
Accumulated other comprehensive income
(loss) (4,376) 1,516
Treasury stock, at cost, 66,500 shares in
2002 (8,091) --
(87,578) (90,207)
$613,041 $663,538
EaglePicher Holdings, Inc.
Consolidated Statements of Income (Loss)
Years Ended November 30, 2001, 2002 and 2003
(in thousands of dollars, except share and per share amounts)
2001 2002 2003
Net Sales $657,324 $668,143 $685,426
Operating Costs and Expenses:
Cost of products sold (exclusive
of depreciation) 532,165 521,821 522,277
Selling and administrative 52,468 63,731 63,211
Depreciation and amortization 41,601 46,510 48,069
Goodwill amortization 15,385 15,392 --
Restructuring 14,163 5,898 --
Loss from divestitures 2,105 6,497 --
Insurance related losses (gains) -- 3,100 (8,279)
657,887 662,949 625,278
Operating Income (Loss) (563) 5,194 60,148
Interest expense (35,406) (36,812) (36,511)
Preferred stock dividends accrued -- -- (4,169)
Other income (expense), net 3,566 1,516 (1,583)
Write-off of deferred financing costs -- -- (6,327)
Income (Loss) from Continuing
Operations Before Taxes (32,403) (30,102) 11,558
Income Tax Provision (Benefit) (10,171) 1,938 2,837
Income (Loss) from Continuing
Operations (22,232) (32,040) 8,721
Discontinued Operations:
Loss from operations of
discontinued businesses, net of
income tax provision (benefit) of
$(745), $663 and $0 (1,323) (4,792) (1,683)
Loss on disposal of discontinued
business, net of income tax benefit
of $6,084 in 2001 and $600 in 2003 (30,416) -- (4,195)
Net Income (Loss) (53,971) (36,832) 2,843
Preferred Stock Dividends Accreted
or Accrued (13,282) (14,887) (12,274)
Loss Applicable to Common
Shareholders $(67,253) $(51,719) $(9,431)
Basic and Diluted Loss per Share
Applicable to Common
Shareholders:
Loss from Continuing Operations $(36.18) $(48.63) $(3.66)
Loss from Discontinued Operations (32.33) (4.97) (6.05)
Net Loss $(68.51) $(53.60) $(9.71)
EaglePicher Holdings, Inc.
Consolidated Statements of Cash Flows
Years Ended November 30, 2001, 2002 and 2003
(in thousands of dollars)
2001 2002 2003
Cash Flows From Operating
Activities:
Net income (loss) $(53,971) $(36,832) $2,843
Adjustments to reconcile net
income (loss) to net cash
provided by (used in) operating
activities:
Depreciation and amortization 60,703 65,033 50,786
Preferred stock dividends accrued -- -- 4,169
Loss on disposal for discontinued
operations 30,416 -- 4,195
Loss from divestitures 2,105 6,497 --
Insurance related losses (gains) -- 3,100 (8,279)
Write-off of deferred financing
costs -- -- 6,327
Deferred income taxes (9,344) 6,147 (79)
Changes in assets and
liabilities, net of effects of
divestitures:
Sale of receivables, net -- 46,475 (46,475)
Receivables (3,169) (857) 6,576
Inventories 4,674 (1,463) (7,701)
Costs and estimated earnings
in excess of billings and
billings in excess of costs
and estimated earnings, net (412) (7,342) (10,337)
Accounts payable 27,214 (276) 4,242
Accrued liabilities 3,694 (7,343) (14,467)
Proceeds from insurance -- -- 7,848
Other, net (1,803) 2,729 (606)
Net cash provided by (used in)
operating activities 60,107 75,868 (958)
Cash Flows From Investing Activities:
Proceeds from sales of divisions -- 10,027 --
Proceeds from the sale of property
and equipment, and other, net -- 639 238
Capital expenditures (34,184) (16,314) (16,269)
Purchase of intangibles -- -- (3,172)
Investments in unconsolidated
subsidiaries -- (2,299) (4,426)
Other, net (247) -- --
Net cash used in investing
activities (34,431) (7,947) (23,629)
Cash Flows From Financing
Activities:
Reduction of long-term debt (18,946) (32,527) (19,000)
Redemption of senior subordinated
notes -- -- (210,500)
Net borrowings (repayments) under
revolving credit agreements 6,229 (34,736) (121,500)
Issuance (acquisition) of treasury
stock (2,162) (159) 910
Proceeds from the New Credit
Agreement and Senior Unsecured Notes -- -- 398,000
Payment of deferred financing costs -- -- (10,844)
Other, net (872) -- --
Net cash (used in) provided by
financing activities (15,751) (67,422) 37,066
Net Cash Provided by Discontinued
Operations 7,476 5,244 17,398
Effect of Exchange Rates on Cash (248) 1,159 5,921
Net Increase in Cash and Cash
Equivalents 17,153 6,902 35,798
Cash and Cash Equivalents,
beginning of year 7,467 24,620 31,522
Cash and Cash Equivalents,
end of year $24,620 $31,522 $67,320
Supplemental Disclosure of
Non-Cash Investing and
Financing Activities:
Equipment acquisitions financed
by capital leases $-- $-- $1,105
Equipment acquired by accounts
payable $-- $-- $1,854