10-Q 1 a2057027z10-q.txt FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended JUNE 30, 2001 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______________to____________ Commission File No.: 333-64893 EVENFLO COMPANY, INC. (Exact name of registrant as specified in its charter) DELAWARE 31-1360477 (State or other jurisdiction (I.R.S. Employer Identification No.) of incorporation or organization) Northwoods Business Center II 707 Crossroads Court Vandalia, Ohio 45377 (Address of principal executive offices, Zip Code) (937) 415-3300 (Registrant's telephone number, including area code) (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required by Section 13 or 15(d) of the Securities Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to filing requirements for the past 90 days. Yes /X/ No The number of shares of common stock outstanding of the registrant's common stock, par value $1.00 per share, at June 30, 2001 was 10,219,372. EVENFLO COMPANY, INC. AND SUBSIDIARIES INDEX

1. EVENFLO COMPANY, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2000 AND JUNE 30, 2001 (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) -------------------------------------------------------------------------------

See Notes to Condensed Consolidated Financial Statements. 2. EVENFLO COMPANY, INC. AND SUBSIDIARIES CONDENSED STATEMENTS OF CONSOLIDATED EARNINGS (LOSS) FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2000 AND 2001 (DOLLAR AMOUNTS IN THOUSANDS) (Unaudited) --------------------------------------------------------------------------------

See Notes to Condensed Consolidated Financial Statements. 3. EVENFLO COMPANY, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 2001 (DOLLAR AMOUNTS IN THOUSANDS) -------------------------------------------------------------------------------

See Notes to Condensed Consolidated Financial Statements. 4. EVENFLO COMPANY, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS For the Three and Six Months ended June 30, 2000 and 2001. (Unaudited) (Dollars in thousands) 1. BASIS OF PRESENTATION The condensed consolidated balance sheet as of June 30, 2001 and the related statement of operations and cash flows for the three and six months ended June 30, 2000 and 2001 included herein have been prepared by Evenflo Company, Inc. and its Subsidiaries (the "Company") and are unaudited. The condensed balance sheet as of December 31, 2000 is derived from the Company's audited financial statements. In the opinion of the Company's management, the accompanying unaudited condensed consolidated financial statements contain all adjustments, which are of a normal recurring nature, necessary to present fairly, in all material respects, the Company's financial position as of June 30, 2001, results of operations and cash flows for the three and six months ended June 30, 2000 and 2001. The results of operations for the three and six months ended June 30, 2001 are not necessarily indicative of the results to be expected for the full year 2001. Therefore, the accompanying unaudited condensed financial statements of the Company should be read in conjunction with the financial statements included in the Company's Form 10-K. 2. ACCOUNTING POLICIES In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 141 ("SFAS 141"), "Business Combinations". SFAS 141 requires the purchase method of accounting for business combinations initiated after June 30, 2001 and eliminates the pooling-of-interests method. The Company has not determined the impact, if any, that SFAS 141 will have on its financial statements. In July 2001, the FASB issued Statement of Financial Accounting Standards No. 142 ("SFAS 142"), "Goodwill and Other Intangible Assets", which is effective January 1, 2002. SFAS 142 requires, among other things, the discontinuance of goodwill amortization. In addition, the standard includes provisions for the reclassification of certain existing recognized intangibles as goodwill, reassessment of the useful lives of existing recognized intangibles, reclassification of certain intangibles out of previously reported goodwill and the identification of reporting units for purposes of assessing potential future impairments of goodwill. SFAS 142 also requires the Company to complete a transitional goodwill impairment test six months from the date of adoption. The Company has not determined the impact that SFAS 142 will have on its financial statements. 5. 3. INVENTORIES. Inventories are valued at the lower of cost or market (net realizable value). Cost for United States inventories has been determined by use of the last-in, first-out method. Cost for non-U.S. inventories has been determined by use of the first-in, first-out method.

4. CREDIT FACILITY On August 20, 1998, as part of the Recapitalization, the Company entered into a secured credit facility (the "Credit Facility") with a syndicate of banks and other financial institutions. On March 16, 2001, the Company amended its Credit Facility to modify certain financial covenants, effective December 31, 2000, limit the availability to $95,000 while the leverage ratio is above 4.0 to 1.0, increase interest rates and provide additional collateral. The Credit Facility currently provides for $95,000 of commitments for revolving credit loans (the"Revolving Credit Loans"), which may be used for working capital needs and general purposes, for special facility obligations (letters of credit and bankers' acceptances) and for borrowings on same-day notice ("Swingline Loans"). Special facility obligations are limited to a maximum of $55,000, bankers' acceptances are limited to a maximum of $40,000 and Swingline Loans are limited to a maximum of $5,000. The Credit Facility terminates on August 19, 2005. At June 30, 2001, the Company had borrowing availability of approximately $23,810 under the Credit Facility subject to certain conditions (after giving effect to $39,400 of revolving credit loans and $31,790 of letters of credit and banker's acceptances, including $9,641 of commitments for stand-by letters of credit and for $3,261 letters of credit that have not yet been executed). The Credit Facility prohibits the Company from repurchasing any Notes or the Company's outstanding preferred stock, subject to limited exceptions. The Company's obligations under the Credit Facility are secured by a pledge of the common stock of its material direct domestic subsidiaries and 65% of the common stock of its material direct foreign subsidiaries, with certain exceptions, as well as accounts receivable, inventory, equipment, other real property and certain intangible assets, including intellectual property, with certain exceptions. In addition, indebtedness under the Credit Facility is guaranteed by the domestic subsidiaries of the Company, with certain exceptions. The Credit Facility contains customary covenants, events of default, and restrictions on the Company's ability to engage in certain activities including (i) limitations on liens, (ii) limitations on consolidations and mergers of the Company and sales of the assets of the Company, (iii) restrictions on the purchase, redemption or acquisition of any capital stock, 6. equity interest or any other obligations or other securities and restrictions on the advances, loans, extension of credit or capital contributions to, or investment in, other entities, (iv) restrictions on additional indebtedness to be incurred by the Company, (v) restrictions on payments of dividends or other distribution of assets, (vi) limits on capital expenditures, and (vii) compliance with certain financial covenants relating to an interest coverage ratio and a leverage ratio. 5. COMPREHENSIVE INCOME (LOSS). The Company's comprehensive income consists of foreign currency translation adjustments related to its non-U.S. subsidiaries net earnings (loss). For the comparative three and six months ended June 30, 2000 and 2001, comprehensive income (loss) was as follows:

6. SHAREHOLDERS EQUITY PREFERRED STOCK. On August 20, 1998, the Company issued Cumulative Preferred Stock with a liquidation preference of $40,000. The holder of the Cumulative Preferred Stock is entitled to receive, when, and if declared by the Board of Directors, dividends on each outstanding share of Cumulative Preferred Stock, at a variable rate based on the ten-year treasury rate, based on the then effective liquidation preference per share of Cumulative Preferred Stock. Dividends on the Cumulative Preferred Stock are payable quarterly in arrears on August 15, November 15, February 15 and May 15 of each year, commencing November 15, 1998. The dividend rate with respect to the Cumulative Preferred Stock bears a variable rate of interest indexed to the ten year U. S. Treasury rate. The interest rate used to calculate the dividends in arrears was approximately 14.16% per annum. The right to dividends on the Cumulative Preferred Stock is cumulative and dividends accrue (whether or not declared), without interest, from the date of issuance of the Cumulative Preferred Stock. Because the Board of Directors has not declared any preferred dividends through June 30, 2001, the amount of the Cumulative Preferred Stock dividends in arrears as of that date is $16,229. 7. 7. RESTRUCTURING In 2001, the Company approved a plan to restructure certain administrative and operational functions. Management assessed the impact that this would have on employment levels and during the first quarter of 2001 recorded severance and other payroll related costs of $1,448 for 35 salaried personnel that had been terminated. Severance and other payroll related costs of $348 and $467 were charged against this reserve during the three months ended March 31, 2001 and the three months ended June 30, 2001, respectively. In June 2001, Company management approved a plan to close the plant in Jasper, Alabama and outsource certain functions to enable the Company to continue to offer competitive prices on its high quality products. In connection with this decision, the Company recorded a charge of $1,050. This charge consisted of $282 of employee termination benefits, $70 of facility shutdown costs, $48 in other costs, $400 of inventory write-downs, and $250 in impairment costs associated with idle equipment. Inventory write-down, equipment impairment and facility shut down costs of $720 were recorded in Cost of Goods Sold. All other costs were recorded in Selling, General and Administrative Costs. Employee termination benefits represent severance payments for 10 salaried personnel and 77 collective bargaining personnel. The Company also recorded an additional charge during the second quarter of 2001 of $621 for severance and other payroll related costs of 34 salaried personnel associated with the previously approved plan to restructure certain administrative and operational functions. This amount is recorded in Selling, General and Administrative Expenses. The Company expects to dispose of the impaired assets and pay the remaining amounts related to these reserves by the end of 2001. 8. CONTINGENCIES The Company is both plaintiff and defendant in numerous lawsuits incidental to its operations, some alleging substantial claims. In addition, the Company's operations are subject to federal, state and local environmental laws and regulations. The Company has entered into settlement agreements with the U. S. Environmental Protection Agency and other parties on several sites and is still negotiating on other sites. The settlement amounts and estimated liabilities are not significant. Management is of the opinion that, after taking into account the merits of defenses, insurance coverage and established reserves, the ultimate resolution of these matters will not have a material adverse effect in relation to the Company's consolidated financial statements. However, due to the inherent uncertainty of litigation, it is possible that the Company may be subject to adverse judgements which, singularly or in the aggregate, could be substantial in amount and may not be covered by insurance or reserves. In addition, no assurances can be given that in the future a claim will not be brought against the Company which would have a material adverse effect on the Company. 8. Under an indemnification agreement entered into on August 20, 1998, Spalding agreed to indemnify the Company for all losses and liabilities of any kind relating to any non-Company matters and the Company agreed to indemnify Spalding for all losses and liabilities of any kind relating to the Company's business. In addition, Spalding agreed to indemnify the Company for the expense of product recalls and corrective actions relating to products manufactured by the Company prior to August 20, 1998. The Company has insurance to cover the cost of recalls and corrective actions. The policy has a deductible of $500 per occurrence and a limit of $10,000 per year. 9. SEGMENT REPORTING

9. INDEPENDENT ACCOUNTANTS' REVIEW REPORT The Board of Directors & Shareholders Evenflo Company, Inc.: We have reviewed the accompanying condensed consolidated balance sheet of Evenflo Company, Inc. and subsidiaries (the "Company") as of June 30, 2001, and the related condensed consolidated statements of operations and cash flows for the three and six months ended June 30, 2001 and 2000. These financial statements are the responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and of making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with auditing standards generally accepted in the United States of America, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to such condensed financial statements for them to be in conformity with accounting principles generally accepted in the United States of America. We have previously audited, in accordance with auditing standards generally accepted in the United States of America, the consolidated balance sheet of the Company at December 31, 2000, and the related consolidated statements of operations and comprehensive earnings (loss), cash flows and preferred stock and common shareholders' equity for the year then ended (not presented herein); and in our report dated March 16, 2001, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2000, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived. DELOITTE & TOUCHE LLP Dayton, Ohio August 2, 2001 10. EVENFLO COMPANY, INC.AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (DOLLAR AMOUNTS IN THOUSANDS) RESULTS OF OPERATIONS THREE MONTHS ENDED JUNE 30, 2001 ("2001 THREE MONTHS") AND SIX MONTHS ENDED JUNE 30, 2001 ("2001 SIX MONTHS") COMPARED TO THE THREE MONTHS ENDED JUNE 30, 2000 ("2000 THREE MONTHS") AND SIX MONTHS ENDED JUNE 30, 2000 ("2000 SIX MONTHS"). NET SALES. The Company's net sales declined to $79,947 in the 2001 three months from $83,152 for the 2000 three months, a decrease of $3,205 or 3.9%. The Company's 2001 six months net sales of $163,423 compare to $179,704 for the 2000 six months, a $16,281 decrease or 9.1%. U.S. net sales, including export sales, of $66,765 for the 2001 three months were $4,874 or 6.8% below U.S. sales for the 2000 three months of $71,639. U.S. net sales, including export sales, of $136,436 for the 2001 six months, decreased $20,470 or 13.0%, from $156,906 for the 2000 six months due to reduced sales to major retail customers in most product categories. The decline in U.S. net sales can be attributed to (i) the timing of new product introductions, including the Express(TM) Booster Car Seat and Easy Comfort(TM) High Chair, where initial orders were shipped heavily to retailers late in the fourth quarter 2000 instead of the 2001 six months and (ii) a slowing U.S economy that caused retailers to cut back on reordering to control the build up of retailers inventory. International net sales increased 14.5% to $13,182 in the 2001 three months from $11,513 for the 2000 three months. In the 2001 six months, international net sales increased by $4,189, or 18.4%, to $26,987 from $22,798 for the 2000 six months. International net sales for both the 2001 three and six months increased principally due to increased sales in Mexico. GROSS PROFIT. The Company's gross profit decreased to $17,467 in the 2001 three months from $18,920 in the 2000 three months. As a percentage of net sales, gross profit decreased to 21.8% in the 2001 three months from 22.8% in the 2000 three months. For the 2001 six months, gross profit decreased by $7,058 or 17.2% to $34,073 from $41,131 for the 2000 six months. The decrease in the 2001 three months was due to restructuring charge of $720 or 0.9% of net sales, for the closure of the Jasper, Alabama plant and reduced net sales volume vs. prior year. Cost improvements from lower supplier prices and greater factory through put partially offset the decrease. The decrease in the 2001 six months was due to (i) the $720 or 0.4% of net sales restructuring charge for the Jasper, Alabama plant closure, (ii) lower operating margins resulting from reduced manufacturing volume. SELLING, GENERAL AND ADMINISTRATIVE ("SG&A") EXPENSES. The Company's SG&A expenses decreased to $16,154, excluding restructuring costs of $951, in the 2001 three months from $17,257 in the 2000 three months. As a percentage of net sales, SG&A expenses were 20.2% in the 2001 and 20.8% in the 2000 three months, respectively. For the 2001 six months SG&A expenses were $32,266, excluding restructuring costs of $2,399, a $3,631 or 10.1% decrease from the $35,897 reported for the 2000 six months. SG&A expenses in the 2001 three and six months were reduced primarily by lower marketing support costs and reduced administrative costs. Following is a discussion of restructuring: 11. RESTRUCTURING COST. In 2001, the Company approved a plan to restructure certain administrative and operational functions. Management assessed the impact that this would have on employment levels and during the first quarter of 2001 recorded severance and other payroll related costs of $1,448 for 35 salaried personnel that had been terminated. Severance and other payroll related costs of $348 and $467 were charged against this reserve during the three months ended March 31, 2001 and the three months ended June 30, 2001, respectively. In June 2001, Company management approved a plan to close the plant in Jasper, Alabama and outsource certain functions to enable the Company to continue to offer competitive prices on its high quality products. In connection with this decision, the Company recorded a charge of $1,050. This charge consisted of $282 of employee termination benefits, $70 of facility shutdown costs, $48 in other costs, $400 of inventory write-downs, and $250 in impairment costs associated with idle equipment. Inventory write-down, equipment impairment and facility shut down costs of $720 were recorded in Cost of Goods Sold. All other costs were recorded in Selling, General and Administrative Costs. Employee termination benefits represent severance payments for 10 salaried personnel and 77 collective bargaining personnel. The Company also recorded an additional charge during the 2001 three months ended June 30, 2001 of $621 for severance and other payroll related costs of 34 salaried personnel associated with the previously approved plan to restructure certain administrative and operational functions. This amount is recorded in Selling, General and Administrative Expenses. The Company expects to dispose of the impaired assets and pay the remaining amounts related to these reserves by the end of 2001. INTEREST EXPENSE. Interest expense increased to $4,848 in the 2001 three months and $9,735 in the 2001 six months from $4,560 in the 2000 three months and $8,957 in the 2000 six months. The increase was due primarily to increased borrowings under the revolving credit facility, somewhat offset by lower interest rates. CURRENCY (GAIN) LOSS. The $72 currency gain in the 2001 three months and $89 loss in the 2001 six months compare to a $512 currency loss in the 2000 three months and $423 loss in the 2000 six months. The impact of currency is due primarily to the currency effect of U.S. dollar denominated transactions with non-U.S. subsidiaries. INCOME TAXES (BENEFIT). The Company recorded a tax benefit in both the 2001 and 2000 three months and 2001 and 2000 six months associated with losses from U.S. operations. The tax benefit for both the 2001 three and six months was offset in part by tax expense from the Company's Mexico subsidiary. The tax benefit for both the 2000 three and six months loss from U.S. operations was offset in part by tax expense from the Company's Mexico subsidiary. 12. LIQUIDITY AND CAPITAL RESOURCES GENERAL. The Company's principal sources of liquidity are from cash balances, cash flows generated from operations and from borrowings under the Company's $100,000 revolving credit facility. The Company's principal uses of liquidity are to provide working capital, meet debt service requirements and finance the Company's strategic investments. At June 30, 2001, the Company had $2,317 of cash. The revolving credit facility subjects the Company to certain restrictions and covenants related to, among other things, minimum interest coverage, maximum leverage ratio restrictions on capital expenditures, and no dividend payments. At June 30, 2001, the Company had $39,400 in borrowings outstanding under the revolving credit facility and utilized $18,888 banker's acceptances and letters of credit. In addition, the Company had $9,641 in stand-by letters of credit and $3,261 of letters of credit that have not yet been executed. The Company had $23,810 in available borrowing capacity under its revolving credit facility. In addition, the Company has outstanding $110,000 of 11 3/4% Series B Senior Notes due 2006, issued on August 20, 1998 and $40,000 liquidation preference of Cumulative Preferred Stock that bears a variable rate of interest indexed to the ten-year U.S. Treasury Rate. As of March 31, 2001 the average dividend rate on the Cumulative Preferred Stock was approximately 14.16%. The syndicate of financial institutions under the revolving credit facility and the Company agreed to amend certain financial covenants included in the revolving credit facility for the period commencing with the third fiscal quarter 2000. This amendment ("Amendment No. 1") modified financial covenants relating to an interest coverage ratio and a leverage ratio, increased the bankers' acceptance limit and increased the additional margin on the "eurodollar rate" and the "base rate" interest calculation. The syndicate of financial institutions under the revolving credit facility and the Company agreed to further amend certain financial covenants included in the revolving credit facility for the period commencing with the fourth fiscal quarter of 2000. This amendment ("Amendment No. 2") (i) modified financial covenants relating to an interest coverage ratio and a leverage ratio, (ii) imposed stricter limits on the Company's ability to make capital expenditures, (iii) required that the Company pledge certain additional assets, (iv) modified certain other sections of the revolving credit facility to tighten the covenants on the Company and (v) further increased the additional margin on the "eurodollar rate" and the "base rate" interest calculation. The Company anticipates cash outlays of approximately $13,500 during 2001 for capital expenditures for new products, cost reduction and replacement of assets, which it expects to be paid out of existing cash balances, cash generated from operations and borrowings under the revolving credit facility. The Company currently believes that cash flow from operating activities, together with borrowings available under its revolving credit facility, and cash on hand will be sufficient to fund the Company's currently anticipated working capital, capital expenditures, interest payments and other liquidity needs for the Company's 2001 year. Any future acquisitions, joint ventures or other similar transactions will likely require approval by the syndicate under the revolving credit facility and additional capital and there can be no assurance that any such capital will be available to the Company on acceptable terms or at all. There can be no assurance, however, that the Company's 13. business will continue to generate sufficient cash flow from operations in the future to service its debt, meet the Company's increasingly restrictive debt covenants, make necessary capital expenditures or meet its other cash needs. If unable to do so, the Company may be required to refinance all or a portion of its existing debt, to sell assets, as permitted by the revolving credit facility or to obtain additional financing. There can be no assurances that any such refinancings would be possible or that any such sales of assets or additional financing could be achieved on terms acceptable to the Company. The Company and/or affiliates of the Company, including entities related to Kohlberg Kravis Roberts & Co., L. P. may, from time to time depending on market conditions, purchase senior notes previously issued by the Company in the open market or by other means. CASH FLOWS 2001 SIX MONTHS COMPARED TO THE 2000 SIX MONTHS. For the 2001 six months, the Company used $1,357 in cash for operating activities, and invested $4,022 in capital expenditures. The Company decreased its borrowing by $18,500 under the revolving credit facility. At June 30, 2001 the Company had $2,317 in cash. The $314 lower cash provided from operating activities for 2001 six months compared to the 2000 six months was primarily due to the increase in net loss and changes in working capital components. Capital expenditures during the 2001 and 2000 six months relate primarily to new product development, and projects to improve product quality and reduce operating costs of the business. EBITDA AND ADJUSTED EBITDA EBITDA is defined as earnings before interest expense, income taxes, depreciation, amortization, and extraordinary items. Adjusted EBITDA is defined as EBITDA and restructuring costs. EBITDA and Adjusted EBITDA are included because the Company believes it provides useful information regarding its ability to service its debt and because the Company understands that such information is considered to be an additional basis for evaluating the Company's ability to pay interest and repay debt. EBITDA and Adjusted EBITDA do not, however, represent cash flow from operations as defined by generally accepted accounting principles and should not be considered as a substitute for net earnings as an indicator of the Company's operating performance or cash flow as a measure of liquidity. Because EBITDA and Adjusted EBITDA are not calculated identically by all companies, the presentation herein may not be comparable to similarly titled measures of other companies. The Company's Adjusted EBITDA increased to $6,070 in the 2001 three months from $5,556 in the 2000 three months and decreased in the 2001 six months to $10,625 from $13,569 in the 2000 six months as indicated in the table below. 14.

CURRENCY HEDGING In the 2001 six months, approximately 16.5% of the total Company net sales were generated in non-U.S. currencies. Fluctuations in the value of these currencies relative to the U.S. dollar could have a material effect on the Company's results of operations. The Company's cost could be adversely affected if the Chinese Renminbi appreciates significantly relative to the U.S. dollar. Although the Company generally pays for its products in U.S. dollars, the cost of such products fluctuates with the value of the Chinese Renminbi. The Company is exposed to the impact of changes in foreign currency exchange rates on its results of operations as a result of U.S. dollar-denominated intercompany balances owed from international subsidiaries, primarily for purchases of products from the Company's U.S. operations and long-term notes receivable. The impact of a hypothetical unfavorable change in foreign currency exchange rates of 10% would result in additional losses before taxes of approximately $1,600 based on intercompany balances as of December 31, 2000 and June 30, 2001. INTEREST RATE RISK The Company is subject to market risk from exposure to changes in interest rates based on its financing, investing and cash management activities. The Company has the 11.75% Notes due 2006 and the revolving credit facility to maintain the desired level of exposure to risk of interest rate fluctuations and to minimize interest expense. The Company utilizes a mix of debt maturities along with both fixed- and variable-rate debt to manage its exposure to changes in interest rates. Recent increases in the cost of borrowing under the Revolving Credit Facility and higher utilization of the Company's revolving credit facility are expected to increase interest expense in 2001. There can be no assurances that interest rates will not materially change from existing levels. 15. FORWARD LOOKING STATEMENTS Certain statements made in this Management's Discussion and Analysis of the Consolidated Financial Statements and in the Notes to Condensed Consolidated Financial Statements reflect management's estimates and beliefs and are intended to be, and are hereby identified as, "forward-looking statements" for purposes of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking terminology, includes but is not limited to words such as "may," "intend," "will," "expect," "anticipate," "plan," "the Company believes," "management believes," "estimate," "continue," or "position" or the negative thereof or other variations thereon or comparable terminology. In particular, any statements, express or implied, concerning future operating results or the ability to generate revenues, income or cash flow are forward looking statements. Forward looking statements are necessarily dependent upon assumptions, estimates and data that may be incorrect or imprecise and involve known and unknown risks, uncertainties and other important factors that could cause the actual results, performance or achievements of the Company or any of its subsidiaries, or industry results, to differ materially from any future results, performance or achievements expressed or implied by such forward-looking statements. Although the Company believes that the expectations will prove to have been correct. Accordingly, the Company hereby identifies the following important factors as some of the factors that could cause the Company's financial results to differ materially from any such results that might be projected, forecast, estimated or budgeted by the Company in forward-looking statements: Heightened competition, including specifically the intensification of price competition, the development and introduction of new products and entry by competitors into new product markets; higher selling, general and administrative expenses, including advertising and promotion; significant indebtedness of the Company; the restrictive covenants included in its debt arrangements; need to continue introduction of products that represent an improvement over our existing products, or which are more successful than competitors' innovations; failure to obtain new customers or retain existing key customers or the effects of inventory reductions by key accounts; ability to maintain and increase shelf space for our products at key accounts; inability to carry out domestic and foreign marketing and sales plans; decline in international sales due to economic disruptions in certain foreign countries, or due to fluctuations in currency exchange rates; increased manufacturing costs, including inability or reduced ability to have products manufactured overseas and the cost of raw materials; loss of the services of one or more key personnel; changes in operating strategy or development plans; any protracted labor relations dispute; changes in the Company's capital expenditure plan; continued consolidation in the retail industry; general domestic and foreign economic downturns; changes in or failure to comply with government regulations; and product recalls, corrective actions and liability claims and product liability litigation and the impact on sales of adverse publicity and news coverage due to any recall, corrective action or litigation. The foregoing review of factors pursuant to the Private Litigation Securities Reform Act of 1995 should not be construed as exhaustive or as any admission regarding the adequacy of disclosures made by the Company prior to this filing. All subsequent written and oral forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by such factors. 16. Part II. Other Information. Item 1. Legal Proceedings There are various claims pending against the Company involving product liability, patent, employee benefit, environmental, and other matters arising out of the conduct of the business of the Company as previously described in the Company's Form 10-K and Form 10-Q. The following summarizes significant developments in previously reported matters and any material claims asserted since March 31, 2001. None. Item 6. EXHIBITS AND REPORTS ON FORM 8-K A. The following is an index of the exhibits included in the Form 10-Q: None. B. The following Reports on Form 8-K were filed by Evenflo Company, Inc. during the quarter ended June 30, 2001. Evenflo Company News Release for the year ended December 31, 2000 filed April 2, 2001. 17. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed on behalf of the registrant by the following duly authorized persons. Evenflo Company, Inc. and Subsidiaries -------------------------------------- (Registrant) Date August 13, 2001 /s/ Wayne W. Robinson --------------- -------------------------------------- Wayne W. Robinson Chief Executive Officer Date August 13, 2001 /s/ Daryle A. Lovett --------------- -------------------------------------- Daryle A. Lovett Senior Executive Vice President Finance and Chief Financial Officer 18.

EVENFLO CO INC 10-Q