<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 1, 2000.
[_] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Transition Period From ___________ to
____________.
Commission file Number 333-49429-01
Prestolite Electric Holding, Inc.
---------------------------------
(Exact name of registrant as specified in its charter)
Delaware 94-3142033
----------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
2100 Commonwealth Blvd., Ste 300, Ann Arbor, Michigan 48105
----------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(734) 913-6600
--------------
(Registrant's telephone number, including area code)
Not Applicable
--------------
(Former name, address, and former fiscal year, if changed 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 preceding 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 _______
---
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 outstanding
Class: as of May 12, 2000
Common Stock 1,993,000
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FORM 10-Q
TABLE OF CONTENTS
<TABLE>
<S> <C>
Part I: Financial Information
Item 1: Condensed Consolidated Balance sheets 3
at April 1, 2000 (unaudited) and December 31, 1999
Condensed Consolidated Statement of Operations 4
Three months ended April 1, 2000 (unaudited
and April 2, 1999 (unaudited)
Condensed Consolidated Statements of Cash Flows 5
Three months ended April 1, 2000 (unaudited)
and April 2, 1999
Notes to Condensed Consolidated Financial Statements 6
Item 2: Management's Discussion and Analysis of Financial 13
Condition and Results of Operations
Part II: Other Information 17
Signatures 18
</TABLE>
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PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
Prestolite Electric Holding, Inc. and Subsidiaries
(including Prestolite Electric Incorporated)
Condensed Consolidated Unaudited Balance Sheet
(in thousands, except share amounts)
<TABLE>
<CAPTION>
April 1, December 31,
2000 1999
------------- --------------
<S> <C> <C>
Assets
Current Assets:
Cash $ 456 $ 432
Accounts receivable, net of allowances 39,961 37,807
Inventories, net 47,194 49,642
Defered tax asset 6,672 6,429
Prepaid and other current assets 2,277 3,088
------------- --------------
Total current assets 96,560 97,398
Property, plant and equipment, net 46,831 47,870
Investments 3,147 3,152
Intangible assets 10,487 10,908
Long-term receivables and pension assets 4,598 4,706
Net assets of discontinued operations 16,717 18,022
-------------- ---------------
Total assets $178,340 $182,056
============= ==============
Liabilities
Current Liabilities:
Revolving credit $ 26,494 $ 19,214
Current portion of long-term debt 717 666
Accounts payable 19,874 24,162
Accrued liabilities 15,039 19,076
------------- --------------
Total current liabilities 62,124 63,118
Long-term debt 131,026 131,246
Other non-current liabilities 1,884 1,845
Deferred tax liabilities 2,139 2,139
------------- --------------
Total liabilities 197,173 198,348
Stockholders' equity
Common stock, par value $.01, 5,000,000 shares
authorized, 1,993,000 shares issued and outstanding
at April 1, 2000 and December 31, 1999, respectivley 2 2
Paid-in capital 16,623 16,623
Retained earnings (accumulated deficit) (8,407) (6,595)
Notes receivable, employees' stock purchase, 7.74% due 2002 (490) (513)
Foreign currency translation adjustment (2,112) (1,360)
Treasury stock, 1,310,000 shares on April 1, 2000 and
December 31, 1999, respectively (24,449) (24,449)
------------- --------------
Total stockholders' equity (18,833) (16,292)
------------- --------------
Total liabilities and stockholders' equity $178,340 $182,056
============= ==============
</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
--------------------------------
April 1, April 3
2000 1999
-------------- --------------
<S> <C> <C>
Net Sales $ 52,113 $ 53,942
Cost of goods sold 42,068 41,679
-------------- --------------
Gross profit 10,045 12,263
Selling, general and administrative 7,858 8,149
Restructuring charge 27 -
-------------- --------------
Operating income 2,160 4,114
Interest expense 4,133 3,772
Other expense (income) 172 (142)
-------------- --------------
Income (loss) from continuing operations
before extraordinary loss and income taxes (2,145) 484
Provision for income taxes (144) 817
-------------- --------------
Income (loss) from continuing operations (2,001) (333)
Income from discontinued operations, net of taxes 189 211
-------------- --------------
Net income (loss) $ (1,812) $ (122)
============== ==============
Other comprehensive income (expense):
Foreign currency translation adjustment $ (752) $ (1,499)
-------------- --------------
Comprehensive income (loss) $ (2,564) $ (1,621)
============== ==============
Basic earnings per common share
Income (loss) from continuing operations $ (1.00) $ (0.17)
Income (loss) from discontinued operations $ 0.09 $ 0.11
-------------- --------------
Net income (loss) $ (0.91) $ (0.06)
============== ==============
Diluted earnings per common share
Income (loss) from continuing operations $ (1.00) $ (0.17)
Income (loss) from discontinued operations $ 0.09 $ 0.10
-------------- --------------
Net income (loss) $ (0.91) $ (0.07)
============== ==============
Basic shares outstanding 1,993,000 1,993,000
Dilutive shares outstanding 2,125,886 2,126,457
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
Page 4
<PAGE>
Prestolite Electric Holding, Inc. and Subsidiaries
(including Prestolite Electric Incorporated)
Condensed Consolidated Unaudited Statement of Cash Flows
(in thousands)
<TABLE>
<CAPTION>
For the three months ended
------------------------------------
April 1, April 3,
2000 1999
-------------- --------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income (loss) $ (1,812) $ (122)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Cash provided by (used in) discontinued operations 219 (208)
Depreciation 2,574 2,237
Amortization 436 450
Loss (gain) on sale of property, plant, and equipment 13 -
Deferred gain on sale and leaseback 58 58
Deferred taxes (243) 84
Changes in working capital items (8,048) (10,825)
-------------- --------------
Net cash provided by (used in) operating activities (6,803) (8,326)
Cash Flows from Investing Activities:
Capital expenditures (1,037) (1,735)
Proceeds from disposal of fixed assets - -
Acquisition of Roberts Remanufacturing - (2,902)
Investment in affiliates 5 -
-------------- --------------
Net cash used in investing activities (1,032) (4,637)
Cash Flows from Financing Activities:
Net increase in revolving line of credit 7,296 12,149
Payments on long-term debt (341) -
Proceeds from borrowings - 817
Purchase of treasury stock, options and warrants, employee stock receivable 23 -
Borrowings (payments) on capital leases 163 107
Other financing costs, net (7) (7)
-------------- --------------
Net cash provided by financing activities 7,134 13,066
Effect of exchange rate changes on cash 725 (140)
-------------- --------------
Net increase (decrease) in cash 24 (37)
Cash - beginning of period 432 896
-------------- --------------
Cash - end of period $ 456 $ 859
============== ==============
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
Page 5
<PAGE>
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, 1999. 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, 1999. The year-end
1999 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 1, 2000 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: Discontinued Operations
During 1999, the Company announced its intention to sell two business segments,
the direct current electric motor business ("DC motors") and the battery charger
business. In conjunction with that decision, the Company recorded a charge of
$2.3 million ($3,561,000 less a tax benefit of $1,261,000) to recognize the
expected loss on the sale of the net assets (including estimated losses through
the disposal date) of one of these business segments. The Company has retained
an investment banker to assist in the disposition of these businesses and
expects to complete the sales during 2000.
The DC motor and battery charger businesses have been treated as discontinued
operations. Prior year financial statement data, including 1999 diluted earnings
per share, have been restated to reflect these businesses as discontinued
operations.
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Summary financial information is presented below for these discontinued
businesses (in thousands):
<TABLE>
<CAPTION>
Quarter Quarter
ended ended
April 1, April 3,
2000 1999
--------------- ---------------
<S> <C> <C>
Net sales $ 11,673 $ 10,816
Operating and other income (loss) 284 456
Provision for income taxes 95 155
Income from discontinued operations (net) $ 189 $ 211
============== ==============
Depreciation and amortization $ 466 $ 482
============== ==============
<CAPTION>
As of As of
April 1, December 31,
2000 1999
-------------- --------------
<S> <C> <C>
Net assets $ 16,717 $ 18,022
============== ==============
</TABLE>
Note 3: 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.
Note 4: Inventories
Inventories are summarized as follows (in thousands of U.S. dollars):
<TABLE>
<CAPTION>
As of As of
April 1, December 31,
2000 1999
------------- --------------
<S> <C> <C>
FIFO Cost:
Raw Material $19,532 $ 23,056
Work in Progress 8,678 7,420
Finished Goods 23,600 23,351
------------- --------------
Total FIFO cost $51,810 $ 53,827
Adjustment to LIFO cost 939 990
Reserves for excess and obsolescence (5,555) (5,175)
------------- --------------
$47,194 $ 49,642
============= ==============
</TABLE>
Page 7
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Note 5: 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 1, December 31,
2000 1999
-------------- --------------
<S> <C> <C>
Land & Buildings $ 28,184 $ 28,686
Machinery & Equipment 53,695 49,206
Construction in Progress 2,036 3,716
-------------- --------------
Total, at Cost 83,915 81,608
Accumulated Depreciation (37,084) (33,738)
-------------- --------------
Net $ 46,831 $ 47,870
============== ==============
</TABLE>
Note 6: Investments
Investments consist of the following (in thousands of U.S. dollars):
<TABLE>
<CAPTION>
As of As of
April 1, December 31,
2000 1999
-------------- --------------
<S> <C> <C>
Ecoair Corp. (9% interest, at cost) $ 2,570 $ 2,570
Auto Ignition, Ltd. (4% interest, at cost) 577 582
-------------- --------------
$ 3,147 $ 3,152
============== ==============
</TABLE>
Page 8
<PAGE>
Note 7: Debt
Debt consists of the following (in thousands of U.S. dollars):
<TABLE>
<CAPTION>
As of As of
April 1, December 31,
2000 1999
--------------- ---------------
<S> <C> <C>
North America
Revolving credit $ 18,391 $ 12,091
Senior unsecured notes, 9.625% 125,000 125,000
-------------- --------------
Total 143,391 137,091
United Kingdom
Overdraft facility 3,650 2,593
Term loan 6,024 6,409
South Africa 862 269
Argentina 2,549 3,160
-------------- --------------
Total 13,085 12,431
Total term, revolving credit and
subordinated debt 156,476 149,522
Capital lease obligations 1,512 1,348
Other 249 256
-------------- --------------
Consolidated total 158,237 151,126
Less current maturities 27,211 19,880
-------------- --------------
Consolidated long term debt $ 131,026 $ 131,246
============== ==============
Cash 456 432
-------------- --------------
Total debt net of cash $ 157,781 $ 150,694
============== ==============
</TABLE>
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 ($3.5 million available at April 1, 2000),
including a $2 million letter of credit subfacility, 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, 2001. Interest is payable at the bank's prime rate (9.0
percent at April 1, 2000) or at the "London Late Eurodollar" rate plus 2.75
percent, at our option. In certain situations the U.S.
Page 9
<PAGE>
rates may be increased by 0.625 percent. The Company amended the credit
agreement on February 28, 2000 to cure certain covenants effective December 31,
1999 and received bank approval on May 3, 2000 to amend and waive certain
covenant violations effective April 1, 2000.
The U.K. agreement allowed the company to borrow up to (pound)7 million and was
advanced based on eligible U.K. accounts receivable. In October, 1999, the
Company revised its United Kingdom borrowing arrangements. The revised agreement
consists of a (pound)2 million fixed rate term loan and a (pound)4 million
overdraft facility which reduces in steps until it reaches (pound)2 million on
November 30, 2000. Interest on the fixed rate loan is 8.144% while interest on
the floating-rate term loan and the overdraft facility is at 1.25% above the
bank's base rate (6.0% at April 1, 2000). The term loans are repayable in sixty
essentially equal monthly payments through January 2004 (fixed rate) and
November 2003 (floating rate). The loans are collateralized by the Company's
receivables and fixed assets in the United Kingdom. At April 1, 2000, both the
term loans and (pound)2.3 million of the (pound)4.0 million overdraft facility
had been drawn.
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 14.6 percent to 16.0 percent at April 1, 2000. Total available
credit in Argentina and South Africa at April 1, 2000 was approximately $4.1
million.
The senior notes and credit facilities mentioned above contain various covenants
including maintenance of certain financial ratios and limits on (a) issuance of
additional debt or preferred stock; (b) the payment of dividends and purchases,
redemptions or retirements of common stock; (c) investments; (d) sale of assets
and capital stock of subsidiaries; and (e) certain consolidations, mergers,
transfers of assets and certain other transactions with affiliates. The Company
was in violation of certain covenants at December 31, 1999 and April 1, 2000,
which were cured by amending the U.S. credit agreement.
The Company anticipates paying a significant portion of the revolving debt from
the proceeds of the anticipated sale of the discontinued businesses. The related
debt, therefore, has been classified as current.
Note 8: Segment Reporting
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 applications. Sales between geographic segments and between
operating segments are priced at cost plus a standard markup.
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Sales to external customers, based on country of origin, is as follows (in
thousands of U.S. dollars):
<TABLE>
<CAPTION>
North United South
America Kingdom Argentina Africa Total
--------------- --------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
For quarter ended April 1, 2000
Consolidated $ 36,871 $ 15,309 $ 8,585 $ 3,021 $ 63,786
Continuing 27,226 13,281 8,585 3,021 52,113
Discontinued 9,645 2,028 - - 11,673
For quarter ended April 3, 1999
Consolidated $ 35,587 $ 16,699 $ 9,311 $ 3,161 $ 64,758
Continuing 26,435 15,035 9,311 3,161 53,942
Discontinued 9,152 1,664 - - 10,816
</TABLE>
During 1998, 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.
<TABLE>
<CAPTION>
North United South
America Kingdom Argentina Africa Other Total
--------- ----------- ------------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Sales to external customers, based on location of customer
(in thousands of U.S. dollars):
For quarter ended April 1, 2000
Consolidated $35,829 $13,726 $8,433 $3,206 $2,592 $63,786
Conitnuing 25,816 12,362 8,433 3,206 2,296 52,113
Discontinued 10,013 1,364 - - 296 11,673
For quarter ended April 3, 1999
Consolidated $34,116 $17,250 $9,454 $2,356 $1,582 $64,758
Continuing 24,967 15,679 9,454 2,356 1,486 53,942
Discontinued 9,149 1,571 - - 96 10,816
Long-lived assets (net, in thousands of U.S. dollars):
As of April 1, 2000
Consolidated $22,152 $21,133 $ 7,169 $ 1,980 $52,434
Continuing 17,367 20,315 7,169 1,980 46,831
Discontinued 4,785 818 - - 5,603
As of December 31, 1999
Consolidated $22,644 $21,937 $ 7,333 $ 2,114 $54,028
Continuing 17,701 20,722 7,333 2,114 47,870
Discontinued 4,943 1,215 6,158
</TABLE>
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In accordance with SFAS No. 131, the operating results for the quarters ended
April 1, 2000 and April 3, 1999 are summarized by operating segment (in
thousands of U.S. dollars) below:
<TABLE>
<CAPTION>
Heavy Electric
Duty Vehicle Automotive
Systems Systems Systems Unallocated
Division Division Divison Costs Total
--------------- -------------- --------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C>
Sales to external customers:
For quarter ended April 1, 2000
Consolidated 33,281 18,899 11,606 63,786
Continuing 33,281 7,226 11,606 52,113
Discontinued - 11,673 - 11,673
For quarter ended April 3, 1999
Consolidated 35,119 17,167 12,472 64,758
Continuing 35,119 6,351 12,472 53,942
Discontinued - 10,816 - 10,816
EBITDA:
For quarter ended April 1, 2000
Consolidated 4,324 1,942 301 (1,188) 5,379
Continuing 4,324 1,192 301 (1,188) 4,629
Discontinued - 750 - - 750
For quarter ended April 3, 1999
Consolidated 6,487 2,041 667 (1,397) 7,798
Continuing 6,487 1,104 667 (1,397) 6,861
Discontinued - 938 - - 938
</TABLE>
A reconciliation of EBITDA to income from continuing operations before income
taxes follows (in thousands of U.S. dollars):
<TABLE>
<CAPTION>
For the three months ended
April 1, April 3,
2000 1999
--------------- -------------
<S> <C> <C>
EBITDA for reporting segments $ 4,629 $ 6,861
Depreciation and amortization 2,544 2,605
Redundancy and exchange loss 27 -
Exchange loss 70 -
Interest expense 4,133 3,772
--------------- -------------
Income (loss) from continuing operations before income taxes $ (2,145) $ 484
=============== =============
</TABLE>
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<PAGE>
ITEM 2: Management's Discussion and Analysis
of Financial Condition and Results of Operation.
Overview
We manufacture alternators, starter motors, switching devices and other items.
These are supplied under the "Prestolite," "Leece-Neville," "Lucas," and
"Indiel" brand names for original equipment and aftermarket application on a
variety of vehicles and industrial equipment. "Lucas" is used under license from
a subsidiary of LucasVarity plc. Most of our products are component parts used
on diesel engines and automobiles, 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 1999, we acquired a remanufacturing business that continues to
operate in Garfield, NJ. We purchased this business for $2.9 million, financed
through our U.S. revolving line of credit.
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 facilities are in Arcade, NY; Florence, KY; Garfield, NJ; Acton,
England; and Leyland, England.
The Electric Vehicle Systems Division produces motors (including starter motors,
material handling motors, and pump and winch motors), switches (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, with a smaller
remanufacturing facility in Dearborn, MI. 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 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. In the fourth quarter of 1999, we
decided to sell the direct current motor and battery charger businesses that are
a part of this division and these businesses are treated as discontinued
businesses. The remaining portion of this business manufactures and sells
switches, and with the completion of the sale of the discontinued businesses, we
intend to rename this the Switch Division.
The Automotive Systems Division manufactures automotive components, primarily
alternators and starter motors. The division's facilities are in South Africa
and Argentina. 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.
Page 13
<PAGE>
Results of Operations
Three Months Ended April 1, 2000 Compared to Three Months Ended April 3, 1999
Sales for the three months ended April 1, 2000 were $52.1 million, a decrease of
$1.8 million, or 3.4%, from $53.9 million in the first quarter of 1999. The
decrease in sales dollars is mainly attributable to the Heavy Duty Systems
Division. Heavy Duty Systems sales declined $1.8 million or 5.2%. Heavy Duty
Systems sales in the United Kingdom declined $2.0 million but were offset by a
$165,000 increase in Heavy Duty Systems sales in the United States, including
$528,000 in Roberts Remanufacturing sales. Heavy Duty Systems defense sales in
the United States declined $112,000, or 11.1%, and other U.S. sales, not
including Roberts Remanufacturing sales, decreased by $251,000, or 1.3%.
Automotive Systems Division sales declined $866,000, or 6.9%. Argentina sales
declined $726,000, or 7.8%, while South Africa sales declined $140,000, or 4.4%.
Switch Division sales increased $875,000 or 13.8%. Defense sales increased
$8,000, or 2.0%, material handling sales increased $175,000, or 32.4%, and other
U.S. sales increased $453,000, or 10.8%. These increases were complemented by a
Switch division sales increase in the United Kingdom of $239,000, or 19.9%.
Gross profit was $10.0 million in the first quarter of 2000, or 19.3% of sales.
This compares to gross profit of $12.3 million, or 22.7% of sales, in the first
quarter of 1999. Lower sales volume and a shift in mix toward lower margin
products and markets contributed to this decline.
Selling, general, and administrative expense was $7.8 million, or 14.9% of sales
for the first quarter of 2000, a decrease of $0.3 million, or 3.6%, from $8.1
million, or 15.0% of sales, in the first quarter of 1999. The reduction in
selling, general, and administrative expense is partially attributable to cost
savings recognized from prior and continuing programs refocusing the company on
our primary lines of business.
Operating income in the first quarter of 2000 was $2.2 million, or 4.3% of
sales, a decrease of $2.0 million, or 46.6%, from the $4.2 million, or 7.8% of
sales, in the first quarter of 1999. This was due to the factors discussed
above.
Other expenses were $172,000 in the first quarter of 2000 versus other income of
$142,000 in the first quarter of 1999. This consists of the net effect of
interest income, pension expense for inactive defined benefit pension plans
associated with United States facilities that have been closed, foreign currency
exchange losses, royalty expenses, South Africa export rebate income and South
Africa trademark expense and loss or gain on sale of fixed assets.
Interest expense was $4.1 million in the first quarter of 2000, an increase of
$361,000, or 9.6%, compared to $3.8 million in the first quarter of 1999. This
increase is due primarily to increases in bank debt in the United States and the
United Kingdom.
The benefit from income taxes was $144,000, 6.7% of the loss from continuing
operations before taxes, for the first quarter of 2000 as compared to the
$817,000 provision for income taxes for the first quarter of 1999, 168.8% of
income from continuing operations before taxes and the extraordinary item. The
change in the tax rate is due to losses in Argentina for which no tax benefit
has been recorded.
Page 14
<PAGE>
Discontinued Businesses - Three Months Ended April 1, 2000 Compared to Three
Months Ended April 1, 1999
Discontinued operations produced income before taxes of $284,000 in the first
three months of 2000 and $456,000 in the first three months of 1999. Income on
an after-tax basis for these same periods, reported as income from discontinued
operations in our financial statements, was $189,000 for 2000 and $211,000 for
1999. Sales for the three months ended April 1, 2000 were $11.7 million, an
increase of $0.9 million, or 7.9%, from $10.8 million in the first three months
of 1999. Sales of both battery chargers and DC motors increased. Gross profit
was $2.2 million in the first three months of 2000, or 18.5% of sales. This
compares to gross profit of $2.0 million, or 18.4% of sales, for the first three
months of 1999. Selling, general, and administrative expense was $2.0 million,
or 17.1% of sales, for the first three months of 2000, an increase of $0.4
million, or 24.2%, from $1.6 million, or 14.8% of sales, in the first three
months of 1999. In March, 2000 a $0.5 million charge was recorded for the
accounts receivable of the Clark Material Handling bankruptcy. As the result of
the above factors, operating income in the first three months of 2000 was
$170,000 thousand, or 1.5% of sales, a decrease of $215,000, or 55.8%, from the
$385,000, or 3.6% of sales, in the first three months of 1999.
Liquidity and Capital Resources
Cash used by operating activities in the first three months of 2000 was $6.8
million. Capital spending for the first three months of 2000 was $1.4 million, a
$0.7 million reduction from the $2.1 million of capital spending in the first
three months of 1999. Capital spending for the first three months of 2000 in the
Unites States was $579,000 as compared to capital spending in 1999 of $826,000.
Capital spending for the first three months of 2000 in the United Kingdom of
$203,000, in Argentina of $572,000, and in South Africa of $75,000, compares to
the first three months of 1999 levels in the United Kingdom of $573,000, in
Argentina of $526,000, and in South Africa of $175,000. Capital spending of the
discontinued operations, included in the above discussion, in the first three
months of 2000 was $392,000 compared with $354,000 in the first three months of
1999. Planned capital expenditures consist primarily of expenditures to reduce
costs through automation, replace existing equipment and enable us to
manufacture new products. We spent $2.9 million in 1999 and $0.5 million in the
first three months of 2000 on redundancy costs. These amounts have been charged
to the various reserves established in December, 1999.
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 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 2000. Aggregate payments for receivables
collected totaled $1.1 million in 1998 and $0.1 million in 1999, and $0.1
million in the first quarter of 2000. We expect to pay any of these
contingencies from the collection of receivables or from such earnings.
Debt, net of cash, increased from $150.7 million at December 31, 1999 to $157.8
million at April 1, 2000. The increase was due, for the most part, to revolver
loan increases for operating purposes. We had revolving credit facilities with
banks in the United States and United Kingdom under which additional borrowings
of $3.5 million and $1.9 million were available based on the April 1, 2000
levels of receivables (United States and United Kingdom) and
Page 15
<PAGE>
inventory (United States only) which are pledged to support that debt. In
Argentina and South Africa, we have arrangements with several banks permitting
discounting or borrowing against receivables. Total net additional credit
available in Argentina and South Africa as of April 1, 2000 was approximately
$0.8 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, bank borrowings, and the sale of our direct current motor and
battery charger businesses. 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.
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 16
<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 1, 2000.
Page 17
<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 12, 2000 By: /s/ Kenneth C. Cornelius
-------------------------
Kenneth C. Cornelius
Senior Vice President and
Chief Financial Officer
(principal financial and
accounting officer)
Page 18
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
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PRESTOLITE ELECTRIC HOLDINGS, INC. AND SUBSIDIARIES AND IS QUALIFIED IN ITS
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<NAME> PRESTOLITE ELECTRIC HOLDING, INC.
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