<PAGE>
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 April 3, 1999.
/ / Transition Report Pursuant to Section 13 or 15(d) of the securities
Exchange Act of 1934 for the Transition Period From
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to .
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Commission File Number 333-49429-01
Prestolite Electric Holding, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 94-3142033
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
2100 Commonwealth Blvd, Ste. 300, Ann Arbor, Michigan 48105
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(Address of principal executive offices) (Zip Code)
(734) 913 - 6600
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(Registrant's telephone number, including area code)
Not Applicable
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(Former name, address, and former fiscal year,
if changes since last report)
Indicate whether the registrant (1) has filed all reports required to be filed
by section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceeding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to the filing
requirements for the past 90 days.
Yes X No
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Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date:
Number of common shares
Class: outstanding as of May 6, 1999
Common Stock 1,993,000
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FORM 10-Q
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
Part I: Financial Information
Item 1: Condensed Consolidated Balance Sheets 3
at April 3, 1999 (unaudited) and December 31, 1998
Condensed Consolidated Statement of Operations 4
Three months ended April 3, 1999 (unaudited)
and April 4, 1998 (unaudited)
Condensed Consolidated Statements of Cash Flows 5
Three months ended April 3, 1999 (unaudited) and
April 4, 1998 (unaudited)
Notes to Condensed Consolidated Financial Statements 6
Item 2: Management's Discussion & Analysis of
Financial Condition and Results of Operations 11
Part II: Other Information 16
Signatures 17
</TABLE>
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ITEM 1: FINANCIAL STATEMENTS
Prestolite Electric Holding, Inc. and Subsidiaries
(including Prestolite Electric Incorporated)
Condensed Consolidated Balance Sheets
(in thousands, except share amounts)
<TABLE>
<CAPTION>
April 3, December 31,
1999 1998
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<S> <C> <C>
Assets
Current assets:
Cash $ 859 $ 896
Accounts receivable, net of allowances 50,790 51,352
Inventories, net 53,960 52,082
Deferred tax asset 2,050 2,134
Prepaid and other current assets 2,126 2,286
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Total current assets 109,785 108,750
Property, plant and equipment, net 56,357 56,064
Deferred tax asset 1,002 1,002
Investments 4,906 4,996
Intangible assets 11,558 11,528
Long-term receivables, pension assets and assets
of discontinued operations 5,704 5,807
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Total assets $189,312 $188,147
================= =======================
Liabilities
Current liabilities:
Revolving credit $ 7,301 $ 4,935
Current portion of long-term debt 3,216 2,401
Accounts payable 21,571 26,088
Accrued liabilities 21,921 27,135
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Total current liabilities 54,009 60,559
Long-term debt 143,301 133,416
Other non-current liabilities 2,541 3,090
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Total liabilities 199,851 197,065
Stockholders' equity:
Common stock, par value $.01, 5,000,000 shares authorized, 2 2
1,993,000 shares issued and outstanding at
April 3, 1999 and December 31, 1998, respectively
Paid-in capital 16,623 16,623
Retained earnings (accumulated deficit) (526) (404)
Notes receivable, employees' stock purchase, 7.74% due 2002 (559) (559)
Foreign currency translation adjustment (1,630) (131)
Treasury stock, 1,310,000 shares on April 3, 1999 (24,449) (24,449)
and December 31, 1998, respectively
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Total stockholders' equity (10,539) (8,918)
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Total liabilities and stockholders' equity $189,312 $188,147
================= =======================
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
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Prestolite Electric Holding, Inc. and Subsidiaries
(including Prestolite Electric Incorporated)
Condensed Consolidated Unaudited Statements of Operations
(in thousands, except share amounts)
<TABLE>
<CAPTION>
For the three months ended
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April 3, April 4,
1999 1998
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<S> <C> <C>
Net sales $ 64,758 $ 74,525
Cost of goods sold 50,504 60,031
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Gross profit 14,254 14,494
Selling, general and administrative 9,673 9,806
Costs associated with option repurchase - 2,101
Restructuring charge - 980
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Operating income 4,581 1,607
Interest expense 3,772 3,281
Other expense (income) (131) (86)
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Income from continuing operations before
extraordinary loss and income taxes 940 (1,588)
Loss (benefit) from unconsolidated subsidiaries 90 -
Provision for (benefit from) income taxes 972 (606)
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Income from continuing operations (122) (982)
Extraordinary loss, net of taxes of $716 - 1,275
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Net income (loss) $ (122) $ (2,257)
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Other comprehensive income (expense):
Foreign currency translation adjustment $ (1,499) $ 41
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Comprehensive income (expense) $ (1,621) $ (2,216)
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Basic earnings per common share
Income from continuing operations $ (0.06) $ (0.40)
Extraordinary item $ - $ (0.52)
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Net income (loss) $ (0.06) $ (0.92)
========== ==========
Diluted earnings per common share
Income from continuing operations $ (0.06) $ (0.38)
Extraordinary item $ - $ (0.49)
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Net income (loss) $ (0.06) $ (0.87)
========== ==========
Basic shares outstanding 1,993,000 2,468,247
Dilutive shares outstanding 2,126,457 2,613,513
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
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Prestolite Electric Holding, Inc. and Subsidiaries
(including Prestolite Electric Incorporated)
Condensed Colsolidated Unaudited Statement of Cash Flows
(in thousands)
<TABLE>
<CAPTION>
For the three months ended
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April 3, April 4,
1999 1998
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<S> <C> <C>
Cash Flows from Operating Activities:
Net income (loss) $ (122) $ (2,257)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Loss on debt refinancing 1,991
Option repurchase 2,101
Cash provided by (used in) discontinued operations 1,221
Depreciation 2,637 2,784
Amortization 450 208
Loss (gain) on sale of property, plant, and equipment - -
Loss from unconsolidated subsidiaries 90 -
Deferred taxes 84 (2,069)
Changes in working capital items: (11,111) 1,895
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Net cash provided by operating activities (7,972) 5,874
Cash Flows from Investing Activities:
Capital expenditures (2,089) (2,681)
Acquisition of:
Lucas businesses - (46,420)
Roberts Remanufacturing (2,902) -
Net cash provided by investing activities (4,991) (49,101)
Cash Flows from Financing Activities:
Net increase (decrease) in revolving credit 12,149 (552)
Payments on long term debt - (38,653)
Proceeds from borrowings 817 125,000
Costs related to new borrowings, including loss on refinancing - (5,514)
Purchase of treasury stock, options and warrants, net - (29,895)
Borrowings (payments) on capital leases 107 (90)
Other financing costs, net (7) -
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Net cash from financing activities 13,066 50,296
Effect of exchange rate changes on cash (140) 41
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Net increase (decrease) in cash (37) 7,110
Cash - beginning of period 896 455
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Cash - end of period $ 859 $ 7,565
==================== ====================
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
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Prestolite Electric Holding, Inc. and Subsidiaries
(including Prestolite Electric Incorporated)
Notes to Unaudited Condensed Consolidated Financial Statements
Note 1: General Information
Prestolite Electric Holding, Inc. conducts all of its operations through its
wholly-owned principal subsidiary, Prestolite Electric Incorporated. There are
no material differences between the financial statements of Prestolite Electric
Holding, Inc. and Prestolite Electric Incorporated (collectively, "Prestolite,"
"us," "we" or the "Company").
These unaudited condensed consolidated financial statements have been prepared
by us in accordance with Rule 10-01 of Regulation S-X and have been prepared on
a basis consistent with our audited financial statements for the year ended
December 31, 1998. These statements reflect all adjustments, consisting only of
items of a normal recurring nature, which are, in the opinion of management,
necessary for the fair statement of the consolidated financial condition and
consolidated results of operations for the interim period presented.
Certain information and footnote disclosures normally included in the
consolidated financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. These financial statements
and the related notes should be read in conjunction with our audited financial
statements, the notes to those statements and the other material included in our
Annual Report on Form 10-K for the year ended December 31, 1998. The year-end
1998 condensed balance sheet data was derived from our audited financial
statements, but does not include all information and footnotes required by
generally accepted accounting principles for complete financial statements. The
results of operations for the three month period ended April 3, 1999 are not
necessarily indicative of the operating results that may be expected for the
full year or any other interim period.
Genstar Capital Corporation and Company management own all of the equity
securities of Prestolite Electric Holding, Inc.
Note 2: Acquisitions
On January 15, 1999, we acquired a remanufacturing business unit from Roberts
Generator for $2.9 million. This business unit operates as Roberts
Remanufacturing and rebuilds alternators and starter motors for specialty
applications. We financed this purchase with funds borrowed under our United
States revolving line of credit.
On January 22, 1998 Prestolite acquired the heavy duty products division of
Lucas Industries, plc. (a U. K. corporation), Lucas South Africa and Lucas
Indiel Argentina S. A., collectively referred to as "the Lucas Acquisition," for
approximately $43.9 million in cash, the assumption of approximately $3.2
million in debt, inventory purchases of approximately $1.4 million during 1998,
and up to $4.1 million for certain accounts receivable as they are collected
($1,074,000 collected and paid during 1998 and no payments during the first
quarter of 1999). In addition, Prestolite has agreed to pay Lucas up to an
additional $6.6 million if certain operating targets are achieved in Argentina
in 1999 and 2000 and up to $ 4.9 million if certain fully reserved receivables
are collected. No liability for this $11.5 million is accrued, as management
does not consider payment probable. Any future payments will be recorded as an
adjustment to the
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purchase price. In addition, on January 22, 1998, Prestolite Electric
Incorporated completed the offering of $125 million of 9.625% Senior Notes due
2008 (the "Notes"). The proceeds of the Notes funded the Lucas Acquisition and
repaid approximately $42 million of our outstanding indebtedness. Approximately
$29.7 million of the proceeds were also used for the repurchase of common stock,
warrants and options to purchase common stock. These transactions are more fully
described in our Annual Report on Form 10-K for the year ended December 31,
1998.
In conjunction with these transactions, during the first quarter of 1998 the
Company charged operations for $2.1 million for the repurchase of options and
recorded an extraordinary charge of $1.275 million, net of tax benefit, related
to the debt refinancing. The Company also recorded a $0.98 million restructuring
charge in the first quarter of 1998 related to costs anticipated to be incurred
at the Company's existing facilities as a result of the Lucas Acquisition.
Note 3: Inventories
Inventories are summarized as follows (in thousands of U.S. dollars):
<TABLE>
<CAPTION>
As of As of
April 3, December 31,
1999 1998
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<S> <C> <C>
Raw Material $ 16,993 $ 15,014
Work in Progress 15,423 16,171
Finished Goods 21,544 20,897
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$ 53,960 $ 52,082
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</TABLE>
Note 4: Property, Plant and Equipment
Property, Plant and Equipment consists of the following (in thousands of U.S.
dollars):
<TABLE>
<CAPTION>
As of As of
April 3, December 31,
1999 1998
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<S> <C> <C>
Land & Buildings $ 29,108 $ 29,433
Machinery & Equipment 56,537 54,863
Construction in Progress 3,317 2,699
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Total, at Cost 88,962 86,995
Accumulated Depreciation (32,605) (30,931)
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Net $ 56,357 $ 56,064
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</TABLE>
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Note 5: Investments
Investments consist of the following (in thousands of U.S. dollars):
<TABLE>
<CAPTION>
As of As of
April 3, December 31,
1999 1998
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<S> <C> <C>
DAX Industries, Inc. (28% interest) $1,779 $1,869
Ecoair Corp. (7% interest, at cost) 2,000 2,000
Prestolite Asia Ltd. (50% interest) 538 530
Auto Ignition, Ltd. (4% interest, at cost) 588 597
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$4,905 $4,996
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</TABLE>
Note 6: Debt
In 1998 we issued $125 million of 9.625% (interest payable semiannually)
unsecured senior notes. The senior notes mature on February 1, 2008 but may be
redeemed earlier at our option under conditions specified in the indenture
pursuant to which the senior notes were issued. The senior notes are senior
unsecured obligations of Prestolite Electric Incorporated, and are fully and
unconditionally guaranteed on a senior unsecured basis by Prestolite Electric
Holding, Inc. The senior notes are subordinated to our secured credit
facilities, to the extent of the value of the assets securing such indebtedness,
including the secured facilities described below. The senior notes are also
subordinated to the indebtedness of any subsidiary of Prestolite Electric
Incorporated, including the indebtedness of its United Kingdom subsidiary. The
proceeds were used to refinance existing debt, fund the acquisition of the Lucas
businesses and to repurchase certain Prestolite Electric Holding, Inc.
securities. The senior notes are more fully described in our Prospectus dated
June 26, 1998.
In connection with the issuance of the Notes, we entered into new credit
agreements in the U. S. and the U. K. The U. S. agreement consists of a $23.0
million revolving credit facility ($17.0 million available at April 3, 1999)
which is advanced according to a formula based on eligible accounts receivable
and inventory levels. The borrowings are collateralized by all U. S. accounts
receivable and inventories and mature on July 31, 2000. Interest is payable at
the bank's prime rate (7.75 percent at April 3, 1999) or at the "London Late
Eurodollar" rate plus 2.75 percent at our option. In certain situations these
rates may be increased by 0.125 percent.
The U. K. agreement allows us to borrow up to (pound)7.0 million ((pound)1.0
million available at April 3, 1999) and is advanced based on eligible U. K.
accounts receivable. Interest is payable at the bank's base rate, 7.25 percent
at April 3, 1999. This agreement expires in April 2002.
In Argentina and South Africa, we have arrangements with several banks which
allow our subsidiaries in these countries to discount or borrow against accounts
receivable, generally at the prime rates of the banks involved. Those rates
ranged from 16.5 percent to 21.3 percent at April 3, 1999. Total available
credit in Argentina and South Africa at April 3, 1999 was approximately $5.7
million.
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Debt consists of the following (in thousands of U.S. dollars):
<TABLE>
<CAPTION>
As of As of
April 3, December 31,
1999 1998
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<S> <C> <C>
U. S. Bank Debt $ 16,552 $ 3,751
U. K. Bank Debt 6,493 8,132
Argentina Bank Debt 2,937 2,120
South Africa Bank Debt 1,256 269
Senior Notes 125,000 125,000
Capital Lease Obligations 1,303 1,196
Other Debt 277 284
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Total Debt 153,818 140,752
Current Maturities 10,517 7,336
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Long Term Debt $ 143,301 $ 133,416
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Cash 859 896
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Total Debt net of Cash 152,959 139,856
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</TABLE>
Note 7: Segment Reporting
In 1998, the Company adopted SFAS No. 131. Prior quarter information is restated
to conform with the provisions of SFAS No. 131. Prestolite operates in four
principal geographic regions. Sales in South Africa and Argentina consist
largely of products for the automotive market while sales of products in the
United States and United Kingdom consist largely of products for non-automotive
application. Sales between geographic segments and between operating segments
are priced at cost plus a standard markup.
Financial information summarized by geographic area is as follows:
<TABLE>
<CAPTION>
North United South
America Kingdom Argentina Africa Total
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<S> <C> <C> <C> <C> <C>
Sales to external customers,
based on country of domicile:
For Quarter ended April 3, 1999 35,587 16,699 9,311 3,161 64,758
For Quarter ended April 4, 1998 36,213 21,136 13,741 3,435 74,525
</TABLE>
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During 1998, also, the Company began to manage itself on the basis of three
business units (Heavy Duty Systems, Electric Vehicle Systems, and Automotive
Systems) and to evaluate the performance of its segments based on earnings
before interest expense, taxes, depreciation and amortization and excluding
restructuring and option repurchase charges ("EBITDA"). Corporate overhead and
certain other charges are not allocated to the divisions. Segment assets are not
currently broken out in the normal course of managing segment operations;
accordingly, such information is not available for disclosure. In accordance
with SFAS No. 131, the operating results for the quarters ended April 3, 1999
and April 4, 1998 are summarized below.
The financial information summarized by operating segment is:
<TABLE>
<CAPTION>
Heavy Electric
Duty Vehicle Automotive
Systems Systems Systems Unallocated
Division Division Divison Costs Total
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<S> <C> <C> <C> <C> <C>
Sales to external customers:
For Quarter ended April 3, 1999 32,803 17,609 14,346 64,758
For Quarter ended April 4, 1998 35,653 21,042 17,830 74,525
EBITDA:
For Quarter ended April 3, 1999 5,901 2,299 996 (1,397) 7,799
For Quarter ended April 4, 1998 5,141 3,154 939 (1,468) 7,766
</TABLE>
A reconciliation of EBITDA to income from continuing operations before income
taxes follows:
<TABLE>
<CAPTION>
For Quarter For Quarter
ended ended
April 3, April 4,
1999 1998
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<S> <C> <C>
EBITDA for reporting segments $ 7,799 $ 7,766
Depreciation and amortization 3,087 2,992
Option repurchase - 2,101
Restructuring - 980
Interest expense 3,772 3,281
-
--------------- ---------------
Income from continuing operations before income taxes 940 (1,588)
=============== ===============
</TABLE>
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ITEM 2: Management's Discussion and Analysis
of Financial Condition and Results of Operation.
Overview
We manufacture alternators, starter motors, direct current motors, battery
chargers, and switching devices. These are supplied under the "Prestolite,"
"Leece-Neville," "Hobart," "Lucas," and "Indiel" brand names for original
equipment and aftermarket application on a variety of vehicles and industrial
equipment. "Hobart" is used under license from a subsidiary of Illinios Tool
Works, Inc. "Lucas" is used under license from a subsidiary of LucasVarity plc.
Most of our products are component parts used on diesel engines, automobiles and
electric vehicles, sold to both aftermarket customers and original equipment
manufacturers. We sell our products to a variety of markets, in terms of both
end-use and geography.
In January 1998, we acquired three businesses from a subsidiary of LucasVarity
plc. These businesses operate in England, South Africa, and Argentina. We
purchased these businesses for approximately $44.3 million in cash, net of cash
acquired and including the assumption of $3.2 million in debt, plus certain
future obligations, as described in Note 2 to the financial statements.
The Lucas acquisition was financed from the sale of $125.0 million of 9.625%
senior notes due 2008 issued under Rule 144A of the Securities Act of 1933, as
amended. Proceeds from the offering of our senior notes were also used to repay
existing debt in the United States and United Kingdom, to repurchase all the
warrants issued to holders of the Company's subordinated debt, to repurchase 40%
of the common stock held by Genstar Capital Corporation, to repurchase 8.5% of
the common stock held by management and to repurchase 40% of the options held by
management. The total cost associated with the repurchase of these securities
was approximately $29.7 million.
In January 1999, we acquired a remanufacturing business that continues to
operate in Saddlebrook, NJ. We purchased this business for $2.9 million,
financed through our U.S. revolving line of credit.
During 1998, we organized our business into three divisions. While the three
divisions bear the names of their principal markets, no division sells
exclusively into its target market. Further, each division has some sales into
the target markets of the other divisions.
The Heavy Duty Systems Division produces alternators, starter motors, inline
pumps, control boxes and other products, primarily for installation on diesel
engines used in the heavy duty, defense, marine and industrial markets. The
division's major facilities are in Arcade, NY, Florence, KY, Acton, England, and
Leyland, England.
The Electric Vehicle Systems Division produces motors (including starter motors,
material handling motors, and pump and winch motors), controls (including
contactors, solenoids, relays, distributors, and control boxes), battery
chargers and other products. The division's major facilities are in Decatur, AL,
Wagoner, OK, Florence, KY, Troy, OH and Leyland, England. We sell these products
into many of the same markets as the products of our Heavy Duty Systems
Division. In addition, the products of our Electric Vehicles Systems Division
are sold into the material handling market for installation on or use with lift
trucks and other electric vehicles, the
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truck accessory market for use in winches, snow plow lifts and other
applications, and the telecommunications market where contactors are used in
battery backup systems.
The Automotive Systems Division manufactures automotive components, primarily
automotive alternators and starter motors. The division's major facilities are
in South Africa and Argentina, with smaller remanufacturing facilities in
Dearborn, MI and Saddlebrook, NJ. The Argentina operation also manufactures
steering columns and distributors. Some of the products of this division are
sold into the heavy duty and material handling markets. In both South Africa and
Argentina more than half of our sales are to the automotive aftermarket, and
about half of those aftermarket sales are products purchased for resale.
Results of Operations
Three Months Ended April 3, 1999 Compared to Three Months Ended April 4, 1998
Sales for the three months ended April 3, 1999 were $64.8 million, a decrease of
$9.7 million, or 13.1%, from the $74.5 million in the first quarter of 1998. The
decreases in sales dollars were approximately even across the three divisions.
Heavy Duty Systems sales declined approximately $2.9 million or 9.0%. Heavy Duty
Systems sales in the United Kingdom declined $3.8 million but were partially
offset by a $1.0 million increase in Heavy Duty Systems sales in the United
States. While United States Heavy Duty Systems defense sales declined $0.4
million, or 30%, heavy duty and other sales increased by $1.4 million, or 24%.
Electric Vehicle Systems sales declined approximately $3.2 million or 17.8%.
Contributing to this decline were both the defense sales decline of $1.8
million, or 62%, and the material handling decline of $0.9 million, or 34%.
Automotive Systems sales declined approximately $3.2 million or 22.1%. The
Argentina sales decline of $4.5 million was partially offset by the $1.3 million
in additional sales of the newly acquired Roberts Remanufacturing business in
Saddlebrook, NJ.
Gross profit was $14.3 million in the first quarter of 1999, or 22.0% of sales.
This compares to gross profit of $14.5 million, or 19.4% of sales, for the first
quarter of 1998. We believe the improvement of gross profit as a percent of
sales is attributable to ongoing cost cutting measures in the United Kingdom and
Argentina, the acquisition of the Roberts Remanufacturing business, lower
material costs, improved productivity, and a shift in sales toward higher margin
products.
Selling, general, and administrative expense was $9.7 million, or 14.9% of
sales, for the first quarter of 1999, a decrease of $0.1 million, or 1.4%, from
$9.8 million, or 13.2% of sales, in the first quarter of 1998. Reductions in
selling, general, and administrative expense reflect the cost control benefits
of the integration of the businesses acquired in the Lucas acquisition.
We recorded a $2.1 million charge in January of 1998 to reflect our repurchase
from management of 40% of then-outstanding options to purchase our common stock.
We also recorded a first quarter charge in 1998 of $1.0 million to cover
severance payments related to restructuring activities at our facilities in
Leyland, England and Decatur, Alabama. Of this total, $0.5 million was spent in
1998, $0.1 million was spent in the first quarter of 1999, and the remainder is
expected to be spent during the second quarter 1999.
Operating income in the first quarter of 1999 was $4.6 million, or 7.1% of
sales, an increase of $3.0 million, or 185%, from the $1.6 million, or 2.1% of
sales, in the first quarter of 1998 due to the factors discussed above.
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Other income was $131,000 in the first quarter of 1999 versus $86,000 in the
first quarter of 1998. This consists primarily of income from gain on the sale
of fixed assets, foreign currency translation adjustments, gain on undistributed
earnings, and interest and miscellaneous income, partially offset by pension
expense for inactive defined benefit pension plans associated with United States
facilities that have been closed, royalty expenses, and South Africa trademark
expense.
Interest expense was $3.7 million in the first quarter of 1999, an increase of
$0.4 million, or 12%, compared to $3.3 million in the first quarter of 1998.
This increase is due to increases in bank debt in the United States, United
Kingdom and South Africa, as well as increases in capital leases, as compared to
levels of debt in the first quarter of 1998.
Provision for income taxes was $972,000, 103.4% of income from continuing
operations before taxes for the first quarter of 1999 as compared to the
$606,000 benefit for the first quarter of 1998, 38.5% of loss from continuing
operations before taxes and the extraordinary item. The increase in the tax rate
is due to losses in Argentina for which no tax benefit has been recorded.
In conjunction with the incurrence of additional debt, the refinancing of our
existing debt and repurchase of warrants, we recorded an extraordinary item of
$1.3 million net-of-tax in 1998. On a pretax basis this charge covered $728,000
in debt prepayment fees, $335,000 for the write-off of unamortized financing
costs, $733,000 to write off the unamortized discount on subordinated debt and
$195,000 related to the repurchase of warrants.
Liquidity and Capital Resources
Cash used by operating activities in the first quarter of 1999 was $8.0 million.
Capital spending in the first quarter of 1999 was $2.1 million. Capital spending
in the United States was $0.8 million, while capital spending in the United
Kingdom was $0.6 million, in Argentina $0.5 million, and in South Africa $0.2
million. Planned capital expenditures consist primarily of expenditures to
reduce costs through automation, replace existing equipment and enable us to
manufacture new products. We also expect to spend approximately $2.8 million in
1999 on redundancy costs, to be charged to the reserve established in connection
with the Lucas acquisition in 1998.
In connection with the acquisition of our Argentina operations from Lucas in
1998, we agreed to certain future obligations to Lucas. Remaining obligations
include post-closing payments to Lucas of up to $3.0 million upon the collection
of certain receivables expected to be collected in 1999, 2000, and 2001, up to
$4.9 million contingent upon the collection of certain fully-reserved
receivables and up to $6.6 million contingent upon the achievement by our
Argentina subsidiary of certain earnings targets in 1999 and 2000. Aggregate
payments in 1998 totaled $1.1 million for receivables collected with no activity
in the first quarter of 1999. We expect to pay any of these contingencies from
the collection of receivables or from such earnings.
Debt, net of cash, increased from $139.9 million at December 31, 1998 to $152.8
million at April 3, 1999, an increase of $12.9 million. The increase was due, in
part, to the acquisition of the Roberts Remanufacturing business in January
1999. We had revolving credit facilities with banks in the United States and
United Kingdom under which additional borrowings of $4.7 million and $1.6
million ((pound)1.0 million) were available based on the April 3, 1999 levels of
receivables (United States and United Kingdom) and inventory (United States
only) which are pledged to support that debt. In Argentina and South Africa, we
have arrangements with several
Page 13
<PAGE>
banks permitting discount or borrowing against receivables. Total available
credit in Argentina and South Africa as of April 3, 1999 was approximately $5.7
million.
We expect our liquidity needs to consist primarily of working capital needs and
scheduled payments of principal and interest on our indebtedness. We expect our
short-term liquidity needs to be provided by operating cash flows and borrowings
under our revolving credit facilities. We expect to fund our long-term liquidity
needs from our operating cash flows, the issuance of debt and/or equity
securities and bank borrowings. We believe that cash flows from operations, our
existing cash balances and amounts available under these revolving credit
facilities will provide adequate funds for on going operation, planned capital
expenditures, investments, and debt service for at least the next twelve months.
Estimates as to working capital needs and other expenditures may be materially
affected if the foregoing sources are not available or do not otherwise provide
sufficient funds to meet our obligations.
Year 2000
Currently, many automated systems and software products are coded to accept only
two digit entries in the date code field. These date code fields will need to
accept four digit entries or otherwise be modified to distinguish 21st century
dates from 20th century dates. As a result, many companies' information systems
and software need to be upgraded or replaced in order to function correctly
after December 31, 1999.
We have completed our Year 2000 assessments of our information technology and
embedded systems, and are continuing efforts to prepare our systems and
applications for the Year 2000 as part of a larger, general program to enhance
all of our computer systems. The Year 2000 element of these efforts consists
primarily of installing or upgrading enterprise resource planning systems to be
Year 2000 compliant at our United States, United Kingdom and Argentina
facilities, and ensuring compliance by an outside service bureau utilized by our
South African facility. Software remediation efforts in the United States are
more than 95% complete as of April 3, 1999 and all actions are expected to be
completed and all systems are expected to be updated in early 1999. Because the
majority of our operations outside of the United States were acquired in early
1998 and these operations were not Year 2000 compliant, our efforts to deal with
the Year 2000 issue outside the United States are further from completion than
our domestic programs. In Argentina a new system has been selected and
installation begun. In the United Kingdom, a system used in two locations is
being replaced, while the system in use at a third location is being upgraded
for Year 2000 compliance. We expect all of our efforts outside the United States
to be completed by July 31, 1999. We expect that the material aspects of the
systems upgrades and remediation efforts at all of our facilities will be
completed and accordingly will be Year 2000 compliant prior to December 31,
1999. In addition, we have reviewed our product base and believe that our
products will not be affected by Year 2000 issues.
In connection with the overall computer enhancement program, including Year 2000
compliance, we expect too incur aggregate internal and third party costs of
approximately $3.0 million, of which approximately $2.1 million had been
incurred by the first quarter of 1999. The $3.0 million total includes
approximately $0.5 million related to in-house efforts to enhance the
performance of our United States warehousing systems, approximately $1.0 million
for each of the United Kingdom and Argentina software conversions and
approximately $0.5 million related to ancillary Year 2000 efforts.
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<PAGE>
We rely on third party vendors and service providers for certain products and
services, including certain data processing capabilities. We are communicating
with our principal vendors and service providers to assess the Year 2000
readiness of their products and services. Responses indicate that our
significant providers currently have compliant versions available or are well
into renovation and testing phases with completion scheduled prior to December
31, 1999. However, we can give no guarantee that the systems of these vendors
and service providers in which we rely will be timely Year 2000 compliant. Our
contingency planning for Year 2000 issues related primarily to securing backup
vendors (which have been identified for key purchased products) and the
possibility of stockpiling raw materials. Contingency planning will continue
throughout 1999 and our plans will be modified based upon the progress of our
remediation efforts, system updates and installations and based upon our
communications with selected suppliers.
While we believe that the estimated cost of becoming Year 2000 compliant will
not be significant to our results of operations, failure to complete all the
work in a timely manner could have a material adverse effect on our results of
operations. While we expect all planned work to be completed, we cannot
guarantee that all systems will be in compliance by the Year 2000, that the
systems of suppliers and other companies and government agencies on which we
rely will be converted in a timely manner or that our contingency planning will
be able to fully address all potential interruptions. Therefore, date-related
issues could cause delays in our ability to produce or ship our products,
process transactions or otherwise conduct business in any of our markets.
Forward-Looking Statements
This form 10-Q contains, in addition to historical information, forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995. All statements other than statements of historical fact included herein
may contain forward-looking statements. Forward-looking statements generally can
be identified by the use of forward-looking terminology such as "may", "will",
"expect", "intend", "estimate", "anticipate", "believe", or "continue" or the
negative thereof or variations thereon or similar terminology. Such
forward-looking statements are based upon information currently available in
which our management shares its knowledge and judgement about factors that they
believe may materially affect our performance. We make the forward-looking
statements in good faith and believe them to have a reasonable basis. However,
such statements are speculative, speak only as of the date made and are subject
to certain risks, uncertainties and assumptions. Should one or more of these
risks or uncertainties materialize, or should underlying assumptions prove
incorrect, actual results could vary materially from those anticipated,
estimated or expected. Factors that might cause actual results to differ
materially from those in such forward-looking statements include, but are not
limited to, those discussed in the "Management's Discussion and Analysis of
Financial Condition and Results of Operations." All subsequent written and oral
statements that we make are qualified in their entirety by these factors.
Page 15
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
None
Item 2. Changes in Securities.
None
Item 3. Defaults Upon Senior Securities.
None
Item 4. Submission of Matters to a Vote of Security Holders.
None
Item 5. Other Information.
None
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
27.1 Financial Data Schedule
(b) Reports on Form 8-K
We have not filed any reports on Form 8-K during the quarterly
period Ended April 3, 1999.
Page 16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: May 17, 1999 By: /s/ Kenneth C. Cornelius
---------------------------------
Kenneth C. Cornelius
Senior Vice President and
Chief Financial Officer
(principal financial and
accounting officer)
Page 17
<TABLE> <S> <C>
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED INCOME STATEMENTS FOR
PRESTOLITE ELECTRIC HOLDING, INC. AND SUBSIDIARIES AND IS QUALIFIED IN ITS
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<PERIOD-END> APR-03-1999
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<RECEIVABLES> 53,871
<ALLOWANCES> (3,081)
<INVENTORY> 53,960
<CURRENT-ASSETS> 109,785
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