<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 July 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
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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
----------------
(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 August 1, 2000
Common Stock 1,985,000
Page 1
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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 July 1, 2000 (unaudited) and December 31, 1999
Condensed Consolidated Statement of Operations 4
Three and six months ended July 1, 2000 (unaudited)
and July 3, 1999 (unaudited)
Condensed Consolidated Statements of Cash Flows 5
Six months ended July 1, 2000 (unaudited)
and July 3, 1999 (unaudited)
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 19
Signatures 20
</TABLE>
Page 2
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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>
July 1, December 31,
2000 1999
--------------- ---------------
<S> <C> <C>
Assets
Current Assets:
Cash $ 839 $ 432
Accounts receivable, net of allowances 33,622 34,162
Inventories, net 38,408 44,608
Defered tax asset 7,614 6,429
Prepaid and other current assets 2,541 2,999
--------------- --------------
Total current assets 83,024 88,630
Property, plant and equipment, net 38,179 41,145
Property, plant and equipment held for disposal, net 3,618 3,781
Investments 3,147 3,152
Intangible assets 9,927 10,908
Long-term receivables and pension assets 4,753 4,706
Net assets of discontinued operations 25,324 27,282
--------------- --------------
Total assets $ 167,972 $ 179,604
=============== ==============
Liabilities
Current Liabilities:
Revolving credit $ 21,296 $ 19,214
Current portion of long-term debt 627 666
Accounts payable 16,672 22,442
Accrued liabilities 17,051 18,344
--------------- --------------
Total current liabilities 55,646 60,666
Long-term debt 130,513 131,246
Other non-current liabilities 2,742 1,845
Deferred tax liabilities 2,139 2,139
--------------- --------------
Total liabilities 191,040 195,896
Stockholders' equity
Common stock, par value $.01, 5,000,000 shares
authorized, 1,993,000 shares issued and outstanding
at July 1, 2000 and December 31, 1999, respectivley 2 2
Paid-in capital 16,623 16,623
Retained earnings (accumulated deficit) (11,185) (6,595)
Notes receivable, employees' stock purchase, 7.74% due 2002 (446) (513)
Foreign currency translation adjustment (3,437) (1,360)
Treasury stock, 1,318,000 shares on July 1, 2000 and
1,310,000 on December 31, 1999 (24,625) (24,449)
--------------- --------------
Total stockholders' equity (23,068) (16,292)
--------------- --------------
Total liabilities and stockholders' equity $ 167,972 $ 179,604
=============== ==============
The accompanying notes are an integral part of the condensed consolidated financial statements.
</TABLE>
Page 3
<PAGE>
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 For the six months ended
--------------------------------- ----------------------------------
July 1, July 3 July 1, July 3
2000 1999 2000 1999
-------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C>
Net sales $ 43,577 $ 48,005 $ 88,464 $ 95,596
Cost of goods sold 36,531 39,434 72,974 76,412
-------------- -------------- -------------- ---------------
Gross profit 7,046 8,571 15,490 19,184
Selling, general and administrative 6,850 7,315 14,087 14,715
Restructuring and severance 1,673 - 1,700 -
-------------- -------------- -------------- ---------------
Operating income (loss) (1,477) 1,256 (297) 4,469
Interest expense 4,169 4,114 8,302 7,886
Loss (gain) on foreign exchange 544 - 614 -
Other expense (income) (447) (932) (346) (1,091)
-------------- -------------- -------------- ---------------
Income (loss) from continuing operations
before income taxes (5,743) (1,926) (8,867) (2,326)
Provision for (benefit of) income taxes (1,782) (862) (1,926) (45)
-------------- -------------- -------------- ---------------
Income (loss) from continuing operations (3,961) (1,064) (6,941) (2,281)
Income from discontinued operations, net of taxes 1,183 369 2,351 1,464
-------------- -------------- -------------- ---------------
Net income (loss) $ (2,778) $ (695) $ (4,590) $ (817)
Other comprehensive income (expense):
Foreign currency translation adjustment $ (1,325) $ (569) $ (2,077) $ (2,068)
-------------- -------------- -------------- ---------------
Comprehensive income (loss) $ (4,103) $ (1,264) $ (6,667) $ (2,885)
============== ============== ============== ===============
Basic and diluted earnings per common share
Income (loss) from continuing operations $ (2.00) $ (0.53) $ (3.50) $ (1.14)
Income (loss) from discontinued operations 0.60 0.19 1.18 0.73
-------------- -------------- -------------- ---------------
Net income (loss) $ (1.40) $ (0.34) $ (2.32) $ (0.41)
============== ============== ============== ===============
Basic shares outstanding 1,985,000 1,993,000 1,985,000 1,993,000
Dilutive shares outstanding 2,117,417 2,126,314 2,121,652 2,126,386
The accompanying notes are an integral part of the condensed consolidated financial statements.
</TABLE>
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 six months ended
---------------------------------
July 1, July 3,
2000 1999
---------- ---------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income (loss) $ (4,590) $ (817)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Cash provided by (used in) discontinued operations (68) 770
Depreciation 3,953 3,947
Amortization 707 783
Loss (gain) on sale of property, plant, and equipment 256 65
Deferred gain on sale and leaseback 178 114
Change in deferred taxes 26 238
Changes in working capital items 546 (8,697)
--------- ---------
Net cash provided by (used in) operating activities 1,008 (3,597)
Cash Flows from Investing Activities:
Capital expenditures (2,616) (3,628)
Proceeds from disposal of fixed assets 216 5
Acquisition of Roberts Remanufacturing - (2,958)
Investment in affiliates (565) -
--------- ---------
Net cash used in investing activities (2,965) (6,581)
Cash Flows from Financing Activities:
Net increase in revolving line of credit 1,944 9,505
Payments on long-term debt (601) -
Proceeds from borrowings - 765
Purchase of treasury stock, and options and warrants (109) 46
Borrowings (payments) on capital leases (19) 100
Other financing costs, net (14) (14)
--------- ---------
Net cash provided by financing activities 1,201 10,402
Effect of exchange rate changes 1,163 494
--------- ---------
Net increase in cash 407 718
Cash - beginning of period 432 896
--------- ---------
Cash - end of period $ 839 $ 1,614
========= =========
</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- and six- month periods ended July 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. In the second quarter of
2000, the Company revised its intentions to sell business segments to also
include the Switch business. In August 2000, we sold the three business units
for approximately $60 million. Consequently, the results presented here reflect
the three business units as discontinued. Prior year financial statement data
have been restated to reflect these businesses as discontinued operations.
Page 6
<PAGE>
Summary financial information is presented below for these discontinued
businesses (in thousands):
<TABLE>
<CAPTION>
Three months ended Six months ended
---------------------------- --------------------------
July 1, July 3, July 1, July 3,
2000 1999 2000 1999
---------------------------- --------------------------
<S> <C> <C> <C> <C>
Net sales $ 19,093 $ 17,756 $ 37,992 $ 34,923
Operating and other income (loss) $ 2,299 $ 1,029 $ 3,562 $ 2,279
Provision for income taxes 1,116 660 1,211 815
---------- ----------- ---------- ----------
Income from discontinued operations (net) $ 1,183 $ 369 $ 2,351 $ 1,464
========== =========== ========== ==========
Depreciation and amortization $ 650 $ 711 $ 1,329 $ 1,413
========== =========== ========== ==========
As of As of
July 1, December 31,
2000 1999
---------- -----------
Net assets $ 25,324 $ 27,282
========== ===========
</TABLE>
Note 3: Acquisitions
On January 15, 1999, we acquired a remanufacturing business from Roberts
Generator for $2.9 million. This business 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):
As of As of
July 1, December 31,
2000 1999
-------- ------------
FIFO Cost:
Raw Material $ 15,693 $19,763
Work in Progress 7,940 6,658
Finished Goods 19,115 22,500
-------- -----------
Total FIFO cost $ 42,748 $48,921
Adjustment to LIFO cost 528 640
Reserves for excess and obsolescence (4,868) (4,953)
-------- -----------
$ 38,408 $44,608
======== ===========
Page 7
<PAGE>
Note 5: Property, Plant and Equipment
Property, plant and equipment consists of the following (in thousands of U.S.
dollars):
As of As of
July 1, December 31,
2000 1999
---------- ------------
Land & Buildings $ 20,326 $ 20,926
Machinery & Equipment 46,183 44,591
Construction in Progress 2,675 2,772
---------- ------------
Total, at Cost 69,184 68,289
Accumulated Depreciation (31,005) (27,144)
---------- ------------
Net $ 38,179 $ $ 41,145
========== ============
Property, plant and equipment held for disposal at July 1, 2000, and December
31, 1999 includes land and building of a discontinued business not a part of the
sale of the discontinued business. The property held for disposal is included in
the balance sheet at its estimated fair value. Actual amounts realized on the
future disposal of this facility could be materially different than its recorded
amount.
Note 6: Investments
Investments consist of the following (in thousands of U.S. dollars):
As of As of
July 1, December 31,
2000 1999
---------- ------------
Ecoair Corp. (9% interest, at cost) $ 2,570 $ 2,570
Auto Ignition, Ltd. (4% interest, at cost) 577 582
---------- ------------
$ 3,147 $ 3,152
========== ============
Page 8
<PAGE>
Note 7: Debt
Debt consists of the following (in thousands of U.S. dollars):
As of As of
July 1, December 31,
2000 1999
--------- ------------
North America
Revolving credit $ 17,392 $ 12,091
Senior unsecured notes, 9.625% 125,000 125,000
--------- ------------
Total 142,392 137,091
United Kingdom
Overdraft facility 1,487 2,593
Term loan 5,616 6,409
South Africa 96 269
Argentina 1,273 3,160
--------- ------------
Total 8,472 12,431
Total term, revolving credit and
subordinated debt 150,864 149,522
Capital lease obligations 1,330 1,348
Other 242 256
--------- ------------
Consolidated total 152,436 151,126
Less current maturities 21,923 19,880
--------- ------------
Consolidated long term debt $ 130,513 $ 131,246
========= ============
Cash 839 432
--------- ------------
Total debt net of cash $ 151,597 $ 150,694
========= ============
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.
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 businesses from Lucas Industries, a subsidiary of LucasVarity,
plc., 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 ($6.4 million available at July 1, 2000),
including a $2 million letter of credit sub-facility, 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 (9.5 percent at July 1, 2000) or at the
Page 9
<PAGE>
"London Late Eurodollar" rate plus 2.75 percent, at our option. In certain
situations the U.S. rates may be increased by 0.625 percent.
In October, 1999, the Company revised its United Kingdom borrowing arrangements.
The revised agreement consists of a (Pounds)2.0 million fixed rate term loan, a
(Pounds)2.0 million floating rate term loan and a (Pounds)4.0 million overdraft
facility which reduces in steps until it reaches (Pounds)2 million on November
30, 2000. Interest on the fixed rate term loan is 8.144% while interest on the
floating-rate term loan and the overdraft facility is at 1.375% above the bank's
base rate (6.0% at July 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.
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 14.5 percent to 16.0 percent at July 1, 2000. Total available credit
in Argentina and South Africa at July 1, 2000 was approximately $2.8 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. Violation of
certain U.S. debt covenants at December 31, 1999 and July1, 2000, were waived by
the U.S. bank.
As a result of the sale of businesses discussed in note 2, the Company expects
to renegotiate both its U.S. and U.K. bank facilities. The related debt,
therefore, has been classified as current, except for the long-term portion of
the U.K. bank debt.
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
in the United States and United Kingdom consist largely of products for non-
automotive applications.
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<PAGE>
Sales to external customers, based on country of origin, are 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 July 1, 2000 $ 19,701 $ 10,935 $ 10,024 $ 2,917 $ 43,577
For quarter ended July 3, 1999 $ 20,677 $ 13,254 $ 10,809 $ 3,265 $ 48,005
For six months ended July 1, 2000 $ 41,412 $ 22,775 $ 18,339 $ 5,938 $ 88,464
For six months ended July 3, 1999 $ 41,963 $ 27,087 $ 20,120 $ 6,426 $ 95,596
</TABLE>
Long lived assets, net of depreciation and amortization, are located as follows
(in thousands of U.S. Dollars):
<TABLE>
<CAPTION>
North United South
America Kingdom Argentina Africa Total
--------- --------- ----------- -------- ---------
<S> <C> <C> <C> <C> <C>
Long lived assets as of:
July 1, 2000 $ 8,776 $ 17,172 $ 12,255 $ 1,634 $ 39,837
December 31, 1999 $ 15,576 $ 20,058 $ 7,178 $ 2,114 $ 44,926
</TABLE>
Sales to external customers, based on customer location, is as follows (in
thousands of U.S. dollars):
<TABLE>
<CAPTION>
North United South
America Kingdom Argentina Africa Other Total
--------- --------- ----------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
For quarter ended July 1, 2000 $ 18,467 $ 5,599 $ 9,060 $ 2,944 $ 7,507 $ 43,577
For quarter ended July 3, 1999 $ 19,699 $ 10,406 $ 9,964 $ 2,574 $ 5,362 $ 48,005
For six months ended July 1, 2000 $ 38,498 $ 12,355 $ 17,113 $ 6,150 $ 14,348 $ 88,464
For six months ended July 3, 1999 $ 39,517 $ 20,517 $ 19,214 $ 5,368 $ 10,980 $ 95,596
</TABLE>
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The Company manages itself based on the business units shown below and evaluates
performance based on earnings before interest expense, taxes, depreciation and
amortization ("EBITDA"). Corporate overhead, restructuring and redundancy,
option repurchase charges, and exchange losses are not charged to the operating
segments.
In accordance with SFAS No. 131, the operating results for the three and six
month periods ended July 1, 2000 and July 3, 1999 are summarized by operating
segment (in thousands of U.S. dollars) below:
<TABLE>
<CAPTION>
Heavy
Duty Automotive
Systems Systems Unallocated
Division Divison Costs Total
---------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Sales to external customers:
For quarter ended July 1, 2000 $ 30,636 $ 12,941 $ 43,577
For quarter ended July 3, 1999 $ 33,931 $ 14,074 $ 48,005
For six months ended July 1, 2000 $ 64,187 $ 24,277 $ 88,464
For six months ended July 3, 1999 $ 65,410 $ 30,186 $ 95,596
EBITDA:
For quarter ended July 1, 2000 $ 3,552 $ 394 $ (974) $ 2,972
For quarter ended July 3, 1999 $ 4,577 $ 1,399 $ (1,443) $ 4,533
For six months ended July 1, 2000 $ 7,876 $ 695 $ (2,162) $ 6,409
For six months ended July 3, 1999 $ 11,064 $ 2,066 $ (2,840) $ 10,290
</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 For the six months ended
July 1, July 3, July 1, July 3,
2000 1999 2000 1999
------------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
EBITDA for reporting segments $ 2,972 $ 4,533 $ 6,409 $ 10,290
Depreciation and amortization 2,329 2,345 4,660 4,730
Restructuring and severance 1,673 - 1,700 -
Loss (gain) on foreign exchange 544 - 614 -
Interest expense 4,169 4,114 8,302 7,886
Income (loss) from continuing
------------- ------------- ------------ -------------
operations before income taxes $ (5,743) $ (1,926) $ (8,867) $ (2,326)
============= ============= ============ =============
</TABLE>
Page 12
<PAGE>
ITEM 2: Management's Discussion and Analysis
of Financial Condition and Results of Operation.
Overview
We manufacture alternators, starter motors and other items. These are supplied
under the "Prestolite Electric," "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 have organized our business into two divisions. While each division bears the
name of its principal markets, neither division sells exclusively into its
target market. Further, each division has some sales into the target markets of
the other division.
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 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 distributors. Some of
the products of this division are sold into heavy duty and other 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
Continuing Business - Three Months Ended July 1, 2000 Compared to Three Months
Ended July 3, 1999
Sales for the three months ended July 1, 2000 were $43.6 million, a decrease of
$4.4 million, or 9.2%, from $48.0 million in the second quarter of 1999. The
decrease in sales dollars is mainly attributable to the Heavy Duty Systems
Division. Heavy Duty Systems sales declined $3.5 million or 10.3%. Heavy Duty
Systems sales in the United Kingdom declined $2.3 million while Heavy Duty
System sales in the U.S. declined $1.2 million. Heavy Duty Systems defense sales
in the United States improved $590,000, or 65.7%, Roberts Remanufacturing sales
improved $828,000, or 66.0%; other U.S. sales declined $2.3 million, or 14.0 %.
Automotive Systems Division sales declined $982,000, or 7.0%. Argentina sales
declined $634,000, or 5.9%, while South Africa sales declined $348,000, or
10.7%.
Gross profit was $7.0 million in the second quarter of 2000, or 16.2% of sales.
This compares to gross profit of $8.6 million, or 17.9% of sales, in the second
quarter of 1999. Lower sales volume, a shift in mix toward lower margin markets
and inventory reduction contributed to this decline.
Selling, general, and administrative expense was $6.9 million, or 15.7% of sales
for the second quarter of 2000, a decrease of $0.5 million, or 6.7%, from $7.3
million, or 15.2% of sales, in the second 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. In conjunction with those cost reductions, the
company recorded a $1.7 million charge in the second quarter to reflect the cost
of redundancy and severance payments being made to terminated employees. The
employees in question were terminated or advised of their status during the
first half of 2000.
Operating loss in the second quarter of 2000 was $1.5 million, or -3.4% of
sales, a decrease of $2.7 million, from the $1.3 million operating income, or
2.6% of sales, in the second quarter of 1999. This was due to the factors
discussed above.
Other income was $447,000 in the second quarter of 2000, versus other income of
$932,000 in the second 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, royalty
expenses, South Africa export rebate income, South Africa trademark expense, and
loss or gain on sale of fixed assets. Loss on foreign exchange was $544,000 in
the second quarter of 2000. No foreign exchange losses were recorded in the
second quarter of 1999.
Interest expense was $4.2 million in the second quarter of 2000, an increase of
$55,000, or 1.3%, compared to $4.1 million in the second quarter of 1999. This
increase is due primarily to increases in bank debt and interest rates in the
United States and the United Kingdom.
The benefit from income taxes was $1.8 million, 31.0% of the loss from
continuing operations before taxes, for the second quarter of 2000 as compared
to the $862,000 benefit from income taxes for the second quarter of 1999, 44.8%
of loss from continuing operations before taxes. The change in the effective tax
rate is due to losses in Argentina for which no tax benefit has been recorded.
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Six Months Ended July 1, 2000 Compared to Six Months Ended July 3, 1999
Sales for the six months ended July 1, 2000 were $88.4 million, a decrease of
$7.1 million, or 7.5%, from $95.6 million in the first half of 1999. The
decrease in sales dollars reflects decreases in both Heavy Duty Systems and
Automotive Systems divisions. Heavy Duty Systems sales declined $5.3 million or
7.7%. Heavy Duty Systems sales in the United Kingdom declined $4.3 million while
Heavy Duty System sales in the U.S. declined $1.0 million. Heavy Duty Systems
defense sales in the United States improved $478,000, or 25.0%, Roberts
Remanufacturing sales improved $1.4 million, or 53.7%, while other U.S. sales
declined $2.8 million, or 7.6 %. Automotive Systems Division sales declined $1.8
million, or 7.0%. Argentina sales declined $1.3 million, or 6.8%, while South
Africa sales declined $488,000, or 7.6%.
Gross profit was $15.5 million in the first half of 2000, or 17.5% of sales.
This compares to gross profit of $19.2 million, or 20.1% of sales, in the first
half of 1999. Lower sales volume and a shift in mix toward lower margin products
contributed to this decline.
Selling, general, and administrative expense was $14.1 million, or 15.9% of
sales for the first half of 2000, a decrease of $0.6 million, or 4.1%, from
$14.7 million, or 15.4% of sales, in the first half 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. In conjunction with those cost reductions, the
company recorded a $1.7 million charge in the second quarter to reflect the cost
of redundancy and severance payments being made to terminated employees. The
employees in question were terminated or advised of their status during the
first half of 2000.
Operating loss in the first half of 2000 was $297,000, or -0.3% of sales, a
decrease of $4.8 million, from the $4.5 million operating income, or 4.7% of
sales, in the first half of 1999. This was due to the factors discussed above.
Other income was $346,000 in the first half of 2000, versus other income of $1.1
million in the first half 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, royalty expenses, South
Africa export rebate income, South Africa trademark expense, and loss or gain on
sale of fixed assets. Loss on foreign exchange was $614,000 in the first half of
2000, reflecting a decline in the value of the U.K. pound. No foreign exchange
losses were recorded in the first half of 1999.
Interest expense was $8.3 million in the first half of 2000, an increase of
$416,000, or 5.3%, compared to $7.9 million in the first half of 1999. This
increase is due primarily to increases in bank debt and interest rates in the
United States and the United Kingdom.
The benefit from income taxes was $1.9 million, 21.7% of the loss from
continuing operations before taxes, for the first half of 2000 as compared to
the $45,000 benefit from income taxes for the first half of 1999, 1.9% of loss
from continuing operations before taxes. The change in the effective tax rate is
due to losses in Argentina for which no tax benefit has been recorded.
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Discontinued Businesses - Three Months Ended July 1, 2000 Compared to Three
Months Ended July 1, 1999
Discontinued operations produced income after taxes of $2.4 million in the first
half of 2000 and $1.2 million in the second quarter of 2000. Income on an after-
tax basis for these same periods of 1999 was $1.5 million for the first half and
$0.4 million for the second quarter. Sales of these operations for the three
months ended July 1, 2000 were $19.1 million, an increase of $1.3 million, or
7.8%, from $17.8 million in the same three months of 1999. Gross profit was $4.1
million in the second quarter of 2000, or 21.5% of sales. This compares to gross
profit of $3.4 million, or 19.1% of sales, for the second quarter of 1999.
Selling, general, and administrative expense was $1.9 million, or 10.0% of
sales, for the second quarter of 2000, a decrease of $0.4 million, or 18.2%,
from $2.3 million, or 13.1% of sales, in the second quarter of 1999. As the
result of the above factors, operating income in the second quarter of 2000 was
$2.2 million, or 11.5% of sales, an increase of $1.1 million, or 104.9%, from
the $1.1 million, or 6.0% of sales, in the second quarter of 1999.
Discontinued Businesses - Six Months Ended July 1, 2000 Compared to Six Months
Ended July 1, 1999
Discontinued operations produced income before taxes of $3.6 million in the
first half of 2000 and $2.4 million in the first half of 1999. Income on an
after-tax basis for these same periods, reported as income from discontinued
operations in our financial statements, was $2.4 million for 2000 and $1.5 for
1999. Sales for the six months ended July 1, 2000 were $38.0 million, an
increase of $3.1 million, or 8.8%, from $34.9 million in the same six months of
1999. Sales of battery chargers, switches and DC motors increased. Gross profit
was $7.9 million in the first half of 2000, or 20.7% of sales. This compares to
gross profit of $7.0 million, or 20.1% of sales, for the first half of 1999.
Selling, general, and administrative expense was $4.4 million, or 11.7% of
sales, for the first half of 2000, a decrease of $0.2 million, or 3.5%, from
$4.6 million, or 13.2% of sales, in the first half of 1999. As the result of the
above factors, operating income in the first half of 2000 was $3.4 million, or
9.0% of sales, an increase of $1.0 million, or 40.4%, from the $2.4 million, or
7.0% of sales, in the first half of 1999.
Liquidity and Capital Resources
Cash used by operating activities in the first half of 2000 was $1.0 million.
Capital spending for the second quarter of 2000, including discontinued
operations, was $2.0 million, a $0.3 million reduction from the $2.3 million of
capital spending in the second quarter of 1999. Capital spending for the second
quarter of 2000 in the Unites States was $1.4 million, the same as capital
spending in 1999. Capital spending for the second quarter of 2000 in the United
Kingdom of $243,000, in Argentina of $333,000, and in South Africa of $10,000,
compares to the second quarter of 1999 levels in the United Kingdom of $462,000,
in Argentina of $348,000, and in South Africa of $61,000. Capital spending for
the first half of 2000, including discontinued operations, was $3.4 million,
$1.0 million reduction from the $4.4 million of capital spending for the first
half of 1999. Capital spending in the United States declined $0.2 million to
$2.0 million in the first half of 2000 versus the $2.2 million in the first half
of 1999. Capital spending for the first half of 2000 in the United Kingdom of
$446,000, in Argentina of $905,000, and in South Africa of $84,000 compares to
1999 capital spending for the first half of $1.0 million in the United Kingdom,
$874,000 in Argentina, and $236,000 in South Africa. Capital spending of the
discontinued operations, included in the above discussion, in the first half of
2000 was $677,000 compared with $1.5 million in the first half of 1999. Planned
capital expenditures consist
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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 $1.7 million in the first half of 2000 on restructuring and severance
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, and up to
$4.9 million contingent upon the collection of certain fully-reserved
receivables. Aggregate payments for receivables collected totaled $1.1 million
in 1998, $0.1 million in 1999, and $0.2 million in the first half of 2000. We
expect to pay any of these contingencies from the collection of the receivables
in question.
Debt, net of cash, increased from $150.7 million at December 31, 1999 to $151.6
million at July 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 $6.4 million and $4.1 million were available based on the July 1, 2000 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 banks permitting discounting or borrowing against
receivables. Total net additional credit available in Argentina and South Africa
as of July 1, 2000 was approximately $2.8 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 in August, 2000 of our direct current
motor, switches and battery charger businesses. We believe that cash flows from
operations, from the sale of the three businesses, our existing cash balances
and amounts available under our 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
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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.
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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 July 1, 2000.
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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: August 18, 2000 By: /s/ Kenneth C. Cornelius
------------------------
Kenneth C. Cornelius
Senior Vice President and
Chief Financial Officer
(principal financial and
accounting officer)
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