<PAGE> 1
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 September 30, 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 November 10, 2000
Common Stock 1,985,000
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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 September 30, 2000 (unaudited) and December 31, 1999
Condensed Consolidated Statement of Operations 4
Three and nine months ended September 30, 2000 (unaudited)
and October 2, 1999 (unaudited)
Condensed Consolidated Statements of Cash Flows 5
Nine months ended September 30, 2000 (unaudited)
and October 2, 1999 (unaudited)
Notes to Condensed Consolidated Financial Statements 6
Item 2: Management's Discussion and Analysis of Financial 12
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>
September 30 December 31,
2000 1999
--------- ---------
<S> <C> <C>
Assets
Current Assets:
Cash $ 15,501 $ 432
Accounts receivable, net of allowances 35,331 34,162
Inventories, net 38,090 44,608
Deferred tax asset -- 6,429
Prepaid and other current assets 2,498 2,999
--------- ---------
Total current assets 91,420 88,630
Property, plant and equipment, net 37,078 41,145
Investments 577 3,152
Intangible assets 8,852 10,908
Long-term receivables and pension assets 4,942 4,706
Net assets related to discontinued operations 1,771 31,063
--------- ---------
Total assets $ 144,640 $ 179,604
========= =========
Liabilities
Current Liabilities:
Revolving credit $ 4,634 $ 19,214
Current portion of long-term debt 605 666
Accounts payable 17,851 22,442
Accrued liabilities 13,576 18,344
--------- ---------
Total current liabilities 36,666 60,666
Long-term debt 111,066 131,246
Other non-current liabilities 2,269 1,845
Deferred tax liabilities 2,139 2,139
--------- ---------
Total liabilities 152,140 195,896
Stockholders' equity
Common stock, par value $.01, 5,000,000 shares
authorized, 1,985,000 and 1,993,000 shares issued and outstanding
at September 30, 2000 and December 31, 1999, respectively 2 2
Paid-in capital 16,623 16,623
Retained earnings (accumulated deficit) 4,927 (6,595)
Notes receivable, employees' stock purchase, 7.74% due 2002 (446) (513)
Foreign currency translation adjustment (3,981) (1,360)
Treasury stock, 1,318,000 shares on September 30, 2000 and
1,310,000 on December 31, 1999 (24,625) (24,449)
--------- ---------
Total stockholders' equity (7,500) (16,292)
--------- ---------
Total liabilities and stockholders' equity $ 144,640 $ 179,604
========= =========
</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 For the nine months ended
----------------------------- -----------------------------
September 30, October 2 September 30, October 2
2000 1999 2000 1999
------------- ----------- ------------- -----------
<S> <C> <C> <C> <C>
Net sales $ 42,709 $ 47,335 $ 131,173 $ 142,931
Cost of goods sold 34,326 38,004 107,300 114,416
------------- ----------- ------------- -----------
Gross profit 8,383 9,331 23,873 28,515
Selling, general and administrative 5,571 7,265 19,658 21,827
Costs associated with option repurchase 168 -- 168 --
Charge and write-down related to
two specialty alternator projects 3,450 -- 3,450 --
Severance 419 -- 2,119 --
------------- ----------- ------------- -----------
Operating income (loss) (1,225) 2,066 (1,522) 6,688
Interest expense 3,656 4,029 11,958 11,915
Gain on foreign exchange 106 -- 720 --
Other income (73) (360) (419) (1,298)
------------- ----------- ------------- -----------
Income (loss) from continuing operations
before income taxes (4,914) (1,603) (13,781) (3,929)
Benefit of income taxes (2,315) (26) (4,241) (71)
------------- ----------- ------------- -----------
Loss from continuing operations (2,599) (1,577) (9,540) (3,858)
Income (loss) from discontinued
operations, net of taxes (52) 774 2,299 2,238
Gain on sale of discontinued businesses, net of tax 15,096 -- 15,096 --
Extraordinary item: gain on senior note purchases, net 3,667 -- 3,667 --
------------- ----------- ------------- -----------
Net income (loss) $ 16,112 $ (803) $ 11,522 $ (1,620)
Other comprehensive income (expense):
Foreign currency translation adjustment $ (544) $ 1,899 $ (2,621) $ (169)
------------- ----------- ------------- -----------
Comprehensive income (loss) $ 15,568 $ 1,096 $ 8,901 $ (1,789)
============= =========== ============= ===========
Basic and diluted earnings per common share
Loss from continuing operations $ (1.31) $ (0.79) $ (4.81) $ (1.94)
Income (loss) from discontinued operations and
sale of businesses 7.58 0.39 8.76 1.12
Extraordinary income 1.85 -- 1.85 --
------------- ----------- ------------- -----------
Net income (loss) per share $ 8.12 $ (0.40) $ 5.80 $ (0.82)
============ =========== ============ ===========
Basic shares outstanding, weighted average 1,985,000 1,993,000 1,985,000 1,993,000
Dilutive shares outstanding, weighted average 2,114,369 2,125,886 2,119,224 2,126,219
</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 STATEMENT OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
For the nine months ended
---------------------------------
September 30, October 2,
2000 1999
------------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 11,522 $ (1,620)
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Cash provided by (used in) discontinued operations (66) 1,050
Depreciation 5,913 6,201
Amortization 1,054 1,166
Gain on senior note purchase (5,914) --
Gain on sale of property, plant, and equipment (313) (123)
Gain on sale of discontinued businesses (24,348) --
Deferred gain on sale and leaseback 114 114
Specialty alternator charge and write down 3,450 --
Option repurchase 168 --
Change in deferred taxes 6,429 389
Changes in working capital items (3,804) (15,217)
-------- --------
Net cash used in operating activities (5,795) (8,040)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (4,522) (4,968)
Proceeds from disposal of fixed assets 293 234
Proceeds from sale of discontinued businesses 50,933 --
Acquisition of Roberts Remanufacturing -- (2,958)
Other investing activities 5 66
-------- --------
Net cash (used in) provided by investing activities 46,709 (7,626)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (decrease) increase in revolving line of credit (14,832) 14,471
Senior note purchase (13,202) --
Payments on long-term debt (724) --
Proceeds from borrowings -- 659
Other financing activities, net 476 53
-------- --------
Net cash provided by (used in) financing activities (28,282) 15,183
Effect of foreign currency exchange rate changes 2,437 419
-------- --------
Net increase (decrease) in cash 15,069 (64)
Cash - beginning of period 432 896
-------- --------
Cash - end of period $ 15,501 $ 832
======== ========
</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").
We prepared these unaudited condensed consolidated financial statements in
accordance with Rule 10-01 of Regulation S-X and 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 our 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.
Certain prior period amounts have been reclassified to conform to current period
presentation. The results of operations for the three- and nine- month periods
ended September 30, 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
Effective August 4, 2000 we sold our direct current electric motor, switch, and
battery charger businesses to Ametek, Inc. The $62 million contractual sale
price of this asset sale will be adjusted for changes in net operating assets
from a target amount and for the sales to a key customer during a three-month
period in 2001. We estimate that the adjusted sales price will be approximately
$59 million, including $7.75 million currently in escrow. We also committed to
provide Ametek with certain services at no charge for periods of six to twelve
months following closing. After providing for the no-charge services and for
other costs related to the transaction, we recorded during the third quarter of
2000 a gain on the disposition of $24.3 million on a pretax basis and $15.1
million after tax. In the fourth quarter of 1999 we recorded a charge of $2.3
million ($3.6 million less a tax benefit of $1.3 million) to recognize the
expected loss on the sale of one of these businesses.
We have presented the results of the businesses sold as discontinued operations
and have restated prior period financial statement data to conform to that
presentation.
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Net assets related to discontinued operations at September 30, 2000 include
asset disposition proceeds in escrow, provision for no-charge services and other
costs related to the transaction, and land and building of the discontinued
businesses not included in the divestiture transaction.
NOTE 3: CHARGES RELATED TO SPECIALTY ALTERNATORS
During 1998 and 1999 we committed to a $2.6 million investment for a 9% interest
in the equity of Ecoair Corp. We also purchased a license for $570,000 covering
a specialty alternator patented by Ecoair, and we acquired approximately
$100,000 in equipment and inventory related to the production of the Ecoair
alternator. Production of the Ecoair alternator is proving to be far more
difficult than originally anticipated. In addition, Ecoair Corp. must secure new
investment if it is to survive. We do not intend to invest further in Ecoair
Corp. and accordingly recorded a $3.2 million charge in the third quarter of
2000 to write off all our assets related to Ecoair. We also recorded a $250,000
charge in the third quarter of 2000 as the result of settling a lawsuit related
to the development and manufacture of a special regulator used in certain
alternators.
NOTE 4: INVENTORIES
Inventories are summarized as follows (in thousands of U.S. dollars):
<TABLE>
<CAPTION>
As of As of
September 30, December 31,
2000 1999
---------------- ---------------
<S> <C> <C>
FIFO Cost:
Raw Material $17,034 $ 19,763
Work in Progress 7,357 6,658
Finished Goods 17,994 22,500
---------------- ---------------
Total FIFO cost $42,385 $ 48,921
Adjustment to LIFO cost 476 640
Reserves for excess and obsolescence (4,771) (4,953)
---------------- ---------------
$38,090 $ 44,608
================ ===============
</TABLE>
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
September 30, December 31,
2000 1999
--------------- --------------
<S> <C> <C>
Land & Buildings $ 21,933 $ 20,926
Machinery & Equipment 43,902 44,591
Construction in Progress 2,948 2,772
--------------- --------------
Total, at Cost 68,783 68,289
Accumulated Depreciation (31,705) (27,144)
--------------- --------------
Net $ 37,078 $ 41,145
=============== ==============
</TABLE>
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NOTE 6: ACQUISITIONS AND INVESTMENTS
In January 1999, we acquired all the assets of a remanufacturing business from
Roberts Generator for $2.9 million. This business now operates as a division of
Prestolite, remanufacturing alternators and starter motors.
Investments at September 30, 2000 consist of a 4% interest, recorded at cost, in
Auto Ignition, Ltd. Investments at December 31, 1999 consisted of $2,570,000 for
Ecoair Corp. (See Note 3) and $582,000 for Auto Ignition, Ltd.
NOTE 7: DEBT
Debt consists of the following (in thousands of U.S. dollars):
<TABLE>
<CAPTION>
As of As of
September 30, December 31,
2000 1999
------------- ------------
<S> <C> <C>
North America
Revolving credit $ -- $ 12,091
Senior unsecured notes, 9.625% 105,883 125,000
-------- --------
Total 105,883 137,091
United Kingdom
Overdraft facility 2,099 2,593
Term loan 5,045 6,409
South Africa 192 269
Argentina 1,326 3,160
-------- --------
Total 8,662 12,431
Total term, revolving credit and
subordinated debt 114,545 149,522
Capital lease obligations 1,526 1,348
Other 234 256
-------- --------
Consolidated total 116,305 151,126
Less current maturities 5,972 19,880
-------- --------
Consolidated long term debt $110,333 $131,246
======== ========
Cash 15,501 432
-------- --------
Total debt net of cash $100,804 $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.
The senior notes are also subordinated to the indebtedness of any subsidiary of
Prestolite Electric Incorporated, including the indebtedness of its U. K.
subsidiary. The proceeds were used to refinance existing debt, fund the
acquisition of businesses from Lucas Industries, a then subsidiary of
LucasVarity, plc., and to repurchase certain Prestolite
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Electric Holding, Inc. securities. The senior notes are more fully described in
our Prospectus dated June 26, 1998. During the third quarter of 2000 we
repurchased and retired Senior notes with a face value of $19,117,000 for
$13,203,000 plus accrued interest, resulting in a pretax gain of $5,914,000
($3,667,000 after tax).
In connection with the issuance of the senior notes, we entered into new credit
agreements in the United States and the United Kingdom. The U.S. agreement
consisted of a $23.0 million revolving credit facility advanced based on and
collateralized by accounts receivable and inventory in North America. Interest
was payable at rates ranging from the lender's prime rate to prime plus 0.625%.
In September 2000 this facility was replaced by a $5 million revolving credit
facility with interest payable at the bank's prime rate (9.5% at September 29,
2000) and a $2 million letter of credit facility with a fee equal to 2% of
amounts drawn. These facilities are collateralized by our accounts receivable
and inventory in North America. On September 29, 2000 none of the revolving
credit facility was drawn and $1.8 million of the letter of credit facility was
used.
In 1999, we revised our U. K. borrowing arrangements. The revised agreement
consists of a (pound)2.0 million (U.S. $2.9 million) fixed rate term loan, a
(pound)2.0 million (U.S $2.9 million) floating rate term loan and a (pound)4.0
million (U.S. $5.9 million) overdraft facility which reduces in steps until it
reaches (pound)2 million (U.S. $2.9 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
September 30, 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 our receivables and fixed assets in the
United Kingdom. (Figures in this paragraph are based on an assumed exchange rate
of 1.4748.)
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 percent to 18 percent at September 30, 2000. Total available
credit in Argentina and South Africa at September 30, 2000 was approximately
$2.7 million of which $2.4 million was borrowed.
The senior notes and credit facilities mentioned above contain various covenants
including the 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. Our
U. S. lender waived certain U.S. debt covenants that we were not in compliance
with at December 31, 1999.
As the result of the sale of businesses discussed in Note 2, we expect to
renegotiate the U.K. bank credit agreement. Therefore, the related debt has been
classified as current, except for the long-term portion of the U.K. fixed rate
term loan.
NOTE 8: REGIONAL INFORMATION
Prestolite operates in four principal geographic regions. Sales from Argentina
and South Africa consist largely of products for the automotive (passenger car)
market while sales from the United States and United Kingdom consist largely of
products for non-automotive applications.
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Sales to external customers, based on country of origin, are as follows (in
thousands of U.S. dollars):
<TABLE>
<CAPTION>
United United South
States Kingdom Argentina Africa Total
-------- -------- --------- ------- ---------
<S> <C> <C> <C> <C> <C>
For quarter ended:
September 30, 2000 $ 19,873 $ 10,225 $ 9,754 $ 2,857 $ 42,709
October 2, 1999 $ 22,061 $ 12,426 $ 9,522 $ 3,326 $ 47,335
For nine months ended:
September 30, 2000 $ 60,864 $ 33,000 $ 28,515 $ 8,794 $ 131,173
October 2, 1999 $ 64,024 $ 39,513 $ 29,642 $ 9,752 $ 142,931
</TABLE>
Long lived assets, net of depreciation and amortization, are located as follows
(in thousands of U. S. Dollars):
<TABLE>
<CAPTION>
United United South
States Kingdom Argentina Africa Total
------- -------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
Long lived assets as of:
September 30, 2000 $12,518 $ 16,346 $ 6,255 $ 1,818 $ 36,937
December 31. 1999 $11,795 $ 20,058 $ 7,178 $ 2,114 $ 41,145
</TABLE>
Sales to external customers, based on customer location, is as follows (in
thousands of U.S. dollars):
<TABLE>
<CAPTION>
North South
America Europe America Africa Other Total
------- ------- ------- ------ ------ --------
<S> <C> <C> <C> <C> <C> <C>
For quarter ended:
September 30, 2000 $18,767 $ 8,514 $ 9,703 $2,866 $2,859 $ 42,709
October 2, 1999 $21,243 $12,073 $ 9,965 $2,502 $1,552 $ 47,335
For nine months ended:
September 30, 2000 $57,595 $28,554 $28,228 $9,016 $7,780 $131,173
October 2, 1999 $58,986 $41,290 $30,317 $7,678 $4,660 $142,931
</TABLE>
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NOTE 9: OPERATING SEGMENTS
We manage ourselves based on the business units shown below and evaluate
performance based on earnings before interest expense, taxes, depreciation and
amortization, or EBITDA. Corporate overhead, restructuring and redundancy,
option repurchase charges, exchange losses, and certain other costs are not
charged to the operating segments.
Operating results for the three and nine month periods ended September 30, 2000
and October 2, 1999 are summarized by segment (in thousands of U.S. dollars)
below:
<TABLE>
<CAPTION>
Heavy
Duty Automotive
Systems Systems Unallocated
Division Division Costs Total
-------- -------- ------- --------
<S> <C> <C> <C> <C>
Sales to external customers:
For quarter ended September 30, 2000 $ 30,098 $12,611 $ 42,709
For quarter ended October 2, 1999 $ 34,487 $12,848 $ 47,335
For nine months ended September 30, 2000 $ 93,864 $37,309 $131,173
For nine months ended October 2, 1999 $103,537 $39,394 $142,931
EBITDA:
For quarter ended September 30, 2000 $ 4,795 $ 1,479 $(1,082) $ 5,192
For quarter ended October 2, 1999 $ 5,245 $ 949 $(1,131) $ 5,063
For nine months ended September 30, 2000 $ 12,684 $ 2,174 $(3,257) $ 11,601
For nine months ended October 2, 1999 $ 16,309 $ 3,015 $(3,971) $ 15,353
</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 nine months ended
September 30, October 2, September 30, October 2,
2000 1999 2000 1999
---------------- ---------------- ----------------- -----------------
<S> <C> <C> <C> <C>
EBITDA for reporting segments $ 5,192 $ 5,063 $ 11,601 $ 15,353
Depreciation and amortization 2,307 2,637 6,967 7,367
Redundancy 419 - 2,119 -
Costs associated with option repurchase 168 - 168 -
Specialty alternator charge 3,450 - 3,450 -
Loss (gain) on foreign exchange 106 - 720 -
Interest expense 3,656 4,029 11,958 11,915
Income (loss) from continuing
operations before income taxes ---------------- ---------------- ----------------- -----------------
$ (4,914) $ (1,603) $ (13,781) $ (3,929)
================ ================ ================= =================
</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 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 TRW, Inc. 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-user and geographic location.
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, New York; Florence, Kentucky; Garfield, New
Jersey; 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. 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 September 30, 2000 Compared to Three Months Ended October 2,
1999
Sales for the three months ended September 30, 2000 were $42.7 million, a
decrease of $4.6 million, or 9.8%, from $47.3 million in the third quarter of
1999. The decrease in sales dollars is mainly attributable to the Heavy Duty
Systems Division. Heavy Duty Systems sales declined $4.4 million or 12.7%. Heavy
Duty Systems sales in the United Kingdom declined $2.2 million while Heavy Duty
System sales in the United States declined $2.2 million. Automotive Systems
Division sales declined $237,000, or 1.8%. Argentina sales improved $232,000, or
2.4%, while South Africa sales declined $469,000, or 14.1%.
Gross profit was $8.4 million in the third quarter of 2000, or 19.6% of sales.
This compares to gross profit of $9.3 million, or 19.7% of sales, in the third
quarter of 1999. Lower sales volume and a shift in mix toward markets with lower
profit margins contributed to this decline.
Selling, general, and administrative expense was $5.6 million, or 13.0% of sales
for the third quarter of 2000, a decrease of $1.7 million, or 23.3%, from $7.3
million, or 15.4% of sales, in the third quarter of 1999. The reduction in
selling, general, and administrative expense is partially attributable to cost
savings recognized from prior and continuing programs refocusing on our primary
lines of business. In conjunction with those cost reductions, we recorded a
$400,000
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charge in the third 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 prior to September 30, 2000.
During the third quarter we recorded charges of $3.45 million related to two
specialty alternator programs as described in Note 3 to the financial
statements. We also recorded a charge of $168,000 as the result of repurchasing
options, primarily from former employees of the business units sold during the
quarter.
Operating losses in the third quarter of 2000 were $1.2 million, a decrease of
$3.3 million from the $2.1 million operating income, in the third quarter of
1999. This was due to the factors discussed above.
Other income was $73,000 in the third quarter of 2000 versus other income of
$360,000 in the third quarter of 1999. In 2000 this consists of the net effect
of royalty and trademark expenses of $321,000, export rebate income of $403,000,
and miscellaneous other income and expense items. Loss on foreign exchange was
$106,000 in the third quarter of 2000, reflecting a decline in the value of the
U.K. pound sterling. No foreign exchange losses were recorded in the third
quarter of 1999.
Interest expense was $3.7 million in the third quarter of 2000, a decrease of
$373,000, or 9.3%, compared to $4.0 million in the third quarter of 1999. This
decrease is due primarily to decreases in bank debt in the United States and the
United Kingdom, and to the reduction of senior note debt from the repurchase and
retirement of approximately $19 million of such notes.
The benefit from income taxes for the third quarter of 2000 was $2.3 million, or
47.2% of the loss from continuing operations before taxes, as compared to the
$26,000 benefit from income taxes for the third quarter of 1999, 1.62% 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.
Nine Months Ended September 30, 2000 Compared to Nine Months Ended October 2,
1999
Sales for the nine months ended September 30, 2000 were $131.2 million, a
decrease of $11.7 million, or 8.2%, from $142.9 million in the nine months ended
October 2, 1999. The decrease in sales dollars reflects decreases in both Heavy
Duty Systems and Automotive Systems divisions. Heavy Duty Systems sales declined
$9.7 million or 9.3%. Heavy Duty Systems sales in the United Kingdom declined
$6.5 million while Heavy Duty System sales in the United States declined $3.2
million. Automotive Systems Division sales declined $2.1 million, or 5.3%.
Argentina sales declined $1.1 million, or 3.8%, while South Africa sales
declined $958,000, or 9.8%.
Gross profit was $23.9 million in the first nine months of 2000, or 18.2% of
sales. This compares to gross profit of $28.5 million, or 19.9% of sales, in the
first nine months of 1999. Lower sales volume, a shift in mix toward products
with lower profit margin and inventory reduction contributed to this decline.
Selling, general, and administrative expense was $19.7 million, or 15.0% of
sales for the first nine months of 2000, a decrease of $2.1 million, or 9.9%,
from $21.8 million, or 15.3% of sales,
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in the first nine months 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 $2.1
million charge in the first nine months of 2000 to reflect the cost of
redundancy and severance payments being made to terminated employees. The
employees in question were terminated or given notice of termination of
employment prior to September 30, 2000.
During the third quarter we recorded charges of $3.45 million related to two
specialty alternator programs as described in Note 3 to the financial
statements. We also recorded a charge of $168,000 as the result of repurchasing
options, primarily from former employees of the business units sold during the
quarter.
Operating loss in the first nine months of 2000 was $1.5 million, a decrease of
$8.2 million from the $6.7 million operating income, in the first nine months of
1999. This was due to the factors discussed above.
Other income was $419,000 in the first nine months of 2000, versus other income
of $1.3 million in the first nine months of 1999. In 2000 this consists of the
net effect of royalty and trademark expenses of $722,000, export rebate income
of $730,000, and miscellaneous other income and expense items. Loss on foreign
exchange was $720,000 in the first nine months of 2000, reflecting a decline in
the value of the U.K. pound. No foreign exchange losses were recorded in the
first nine months of 1999.
Interest expense was $11.9 million in the first nine months of 2000, compared to
$11.9 million in the first nine months of 1999. Increases in bank debt and
interest rates in the United States and the United Kingdom earlier in the year
were offset by decreases in bank debt and senior notes in the third quarter of
2000. As referred to in Note 7, senior notes valued at $19.1 million were
repurchased and retired during the period.
The benefit from income taxes was $4.2 million, 30.8% of the loss from
continuing operations before taxes, for the first nine months of 2000 as
compared to the $71,000 benefit from income taxes for the first nine months of
1999, 1.8% of loss from continuing operations before taxes. The change in the
effective tax rate is due to the change in losses in Argentina for which no tax
benefit has been recorded.
SALE OF DISCONTINUED BUSINESSES
As discussed in Note 2 to the financial statements, effective August 4, 2000 we
sold our direct current electric motor, switch, and battery charger businesses
to Ametek, Inc. for approximately $59 million. We recorded a gain on this sale
of $24.3 million ($15.1 million after tax).
SENIOR NOTE REPURCHASES
As discussed in Note 7 to the financial statements above, during the third
quarter we repurchased and retired approximately $19.2 million of the Senior
Notes issued in 1998. These notes were repurchased for $13.2 million plus
accrued interest resulting in a pretax gain of $5,914,000 ($3,667,000 after
tax).
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LIQUIDITY AND CAPITAL RESOURCES
Cash used by operating activities in the first nine months of 2000 was $5.8
million. Capital spending for the third quarter of 2000 was $1.9 million, a
$566,000 increase from the $1.3 million of capital spending in the third
quarter of 1999. Capital spending for the first nine months of 2000, including
discontinued operations, was $5.1 million, $1.7 million reduction from the $6.8
million of capital spending for the first nine months of 1999. 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
and $13,000 during the third quarter of 1999. Planned capital expenditures
consist primarily of expenditures to reduce costs through automation, replace
existing equipment and enable us to manufacture new products.
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 through 2002, 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,
$100,000 in 1999, and $200,000 in the first nine months of 2000. We expect to
pay any of these contingencies from the collection of the receivables in
question.
Debt, net of cash, decreased from $150.7 million at December 31, 1999 to $100.8
million at September 30, 2000. The decrease was due largely to the proceeds from
the sale of the businesses discussed above. We had revolving credit facilities
with banks in the United States and United Kingdom under which additional
borrowings of $5.0 million and $3.2 million were available based on the
September 30, 2000 levels of receivables and inventory 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 September 30,
2000 was approximately $1.2 million.
We expect our liquidity needs to consist primarily of capital spending, tax
payments, and scheduled payments of principal and interest on our indebtedness.
We expect our short-term liquidity needs to be provided by cash on hand,
operating cash flows and borrowings under our revolving credit facilities. We
expect to fund our long-term liquidity needs from cash on hand, our operating
cash flows, and bank borrowings. We believe that cash flows from operations, 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
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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.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
In 1997, Prestolite Electric Incorporated stopped purchasing a
regulator from BBS Powermod, Inc. BBS Powermod, Inc. sued for $1.2 million
alleging that Prestolite Electric had defaulted on a contract. Prestolite
Electric settled this case for $250,000 in September, 2000.
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
10.1 Letter agreement between Comerica Bank and Prestolite
Electric Incorporated regarding the Master Revolving Note
10.2 Master Revolving Note between Comerica Bank and Prestolite
Electric Incorporated
10.3 Letter agreement between Comerica Bank and Prestolite
Electric Incorporated regarding Standby Letters of Credit
27.1 Financial Data Schedule
99.1 Amendment No. 2 to Management Consulting Agreement between
Prestolite Electric Incorporated and Genstar Investment
Corporation
(b) Reports on Form 8-K
The Registrant filed a Current Report on Form 8-K dated August 7,
2000 that included information relating to Prestolite Electric's
sale of businesses to Ametek, Inc.
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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: November 14, 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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Exhibit Index
Exhibit No. Description
10.1 Letter Agreement between Comerica Bank and
Prestolite Electric Incorporated regarding the
Master Revolving Note
10.2 Master Revolving Note between Comerica Bank and
Prestolite Electric Incorporated
10.3 Letter Agreement between Comerica Bank and
Prestolite Electric Incorporated regarding
Standby Letters of Credit
27 Financial Data Schedule
99.1 Amendment No. 2 to Management Consulting
Agreement between Prestolite Electric
Incorporated and Genstar Investment Corporation
