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DRAFT COPY-11
Updated 2/02/99
9:00 p.m.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended December 25, 1998 Commission File Number 34-24802
EDELBROCK CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 33-0627520
------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
2700 California Street, Torrance, California 90503
(Address of principal executive offices) (Zip Code)
(310)781-2222
Registrant's telephone number, including area code
Indicate by check mark 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 such filing
requirements for the past 90 days.
Yes X No
----- -----
As of February 4, 1999, the Company had 5,251,930 shares of Common Stock
outstanding.
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EDELBROCK CORPORATION
FORM 10-Q FOR THE QUARTER ENDED DECEMBER 25, 1998
INDEX
<TABLE>
<CAPTION>
Part I FINANCIAL STATEMENTS Page
-------------------- ----
<S> <C>
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of December 25, 1998
and June 30, 1998............................................... 3
Consolidated Statements of Income for the Three Months
and Six Months Ended December 25, 1998 and 1997................ 4
Condensed Consolidated Statements of Cash Flows for the Six
Months Ended December 25, 1998 and 1997 ........................ 5
Notes to Consolidated Interim Financial Statements ............... 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations .......................................... 7-11
Item 3. Quantitative and Qualitative Disclosure About Market Risk......... 12
Part II OTHER INFORMATION ....................................................... 13-15
-----------------
</TABLE>
2
<PAGE> 3
EDELBROCK CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 25, June 30,
1998 1998
-------------- -----------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents........................... $4,165,000 $8,370,000
Accounts receivable, net ........................... 23,334,000 21,222,000
Inventories ........................................ 16,935,000 16,776,000
Prepaid expenses and other.......................... 1,363,000 1,288,000
-------------- -----------
Total current assets.................................... 45,797,000 47,656,000
Property, plant and equipment, net...................... 35,365,000 35,676,000
Other .................................................. 1,495,000 1,643,000
-------------- -----------
Total assets .......................................... $82,657,000 $84,975,000
============== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable.................................... $10,572,000 $14,724,000
Accrued expenses ................................... 2,650,000 3,610,000
Current portion of long-term debt ................. 62,000 62,000
-------------- -----------
Total current liabilities............................... 13,284,000 18,396,000
Long-term debt.......................................... 2,093,000 2,123,000
Deferred income taxes .................................. 2,790,000 2,725,000
Shareholders' equity ................................... 64,490,000 61,731,000
-------------- -----------
Total liabilities and shareholders' equity ............. $82,657,000 $84,975,000
============== ===========
</TABLE>
The accompanying notes are an integral part of the interim financial statements.
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EDELBROCK CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended Six months ended
December 25, December 25,
-------------------------------- -------------------------------
1998 1997 1998 1997
--------------- -------------- -------------- -------------
<S> <C> <C> <C> <C>
Revenues............................ $25,602,000 $22,805,000 $48,197,000 $43,243,000
Cost of sales....................... 15,789,000 14,181,000 29,334,000 26,608,000
--------------- -------------- -------------- -------------
Gross profit.................... 9,813,000 8,624,000 18,863,000 16,635,000
--------------- -------------- -------------- -------------
Operating expenses
Selling, general and
administrative................. 6,403,000 5,404,000 12,675,000 11,073,000
Research and development........ 763,000 608,000 1,441,000 1,175,000
Write-off of uncollectible
receivable..................... 400,000 1,878,000 400,000 1,878,000
--------------- -------------- -------------- -------------
Total operating expenses ....... 7,566,000 7,890,000 14,516,000 14,126,000
--------------- -------------- -------------- -------------
Operating income.................... 2,247,000 734,000 4,347,000 2,509,000
Interest expense.................... 51,000 69,000 102,000 138,000
Interest income..................... 66,000 83,000 172,000 192,000
--------------- -------------- -------------- -------------
Income before taxes on income....... 2,262,000 748,000 4,417,000 2,563,000
Taxes on income..................... 838,000 275,000 1,635,000 948,000
--------------- -------------- -------------- -------------
Net income ......................... $1,424,000 $473,000 $2,782,000 $1,615,000
=============== ============== ============== =============
Basic net income per share ......... $0.27 $0.09 $0.53 $0.31
=============== ============== ============== =============
Diluted net income per share ....... $0.27 $0.09 $0.52 $0.30
=============== ============== ============== =============
Basic weighted average number
of shares outstanding ............. 5,249,000 5,250,000 5,253,000 5,250,000
=============== ============== ============== =============
Diluted weighted average number
of shares outstanding .............. 5,309,000 5,389,000 5,311,000 5,398,000
=============== ============== ============== =============
</TABLE>
The accompanying notes are an integral part of the interim financial statements.
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EDELBROCK CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six months ended
December 25,
---------------------------
1998 1997
---------- ----------
<S> <C> <C>
Increase (Decrease) in Cash and Cash Equivalents
Operating activities
Net income ......................................... $2,782,000 $1,615,000
Write-off of uncollectible receivable .............. 400,000 1,878,000
Depreciation and amortization....................... 2,207,000 1,983,000
Net change in operating assets and liabilities...... (7,792,000) (7,698,000)
------------ -----------
Net cash used in operating activities .................. (2,403,000) (2,222,000)
------------ -----------
Investing activities
Capital expenditures................................ (1,897,000) (4,113,000)
Other .............................................. 183,000 279,000
------------ -----------
Net cash used in investing activities .................. (1,714,000) (3,834,000)
------------ -----------
Financing activities
Proceeds from issuance of common stock
under stock option plan ........................ 154,000 25,000
Payments to acquire treasury stock ................. (212,000) -0-
Debt repayments .................................... (30,000) (28,000)
------------ -----------
Net cash used in financing activities .............. (88,000) (3,000)
------------ -----------
Net decrease in cash and cash equivalents .............. (4,205,000) (6,059,000)
Cash and cash equivalents at beginning of period........ 8,370,000 9,744,000
============ ===========
Cash and cash equivalents at end of period ............. $4,165,000 $3,685,000
============ ===========
Supplemental disclosure of cash flow information
Cash paid during the period for
Interest............................................ $102,000 $139,000
============ ===========
Income taxes........................................ $2,200,000 $1,850,000
============ ===========
</TABLE>
The accompanying notes are an integral part of the interim financial statements.
5
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EDELBROCK CORPORATION
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The consolidated interim financial statements of Edelbrock Corporation (the
"Company") at December 25, 1998 and for the three and six month periods ended
December 25, 1998, are unaudited, but include all adjustments (consisting only
of normal recurring adjustments) which the Company considers necessary for a
fair presentation. The June 30, 1998 balance sheet was derived from the balance
sheet included in the Company's audited consolidated financial statements as
included in the Company's Form 10-K for its fiscal year ended June 30, 1998
(File No. 0-24802). Certain amounts have been reclassified to conform to the
December 25, 1998 presentation.
These unaudited financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes, and
should be read in conjunction with the Company's audited consolidated financial
statements included in the Form 10-K indicated above. Operating results for the
three and six month periods ended December 25, 1998 are not necessarily
indicative of the results that may be expected for the fiscal year ending June
30, 1999.
NOTE 2 - INVENTORIES
Inventories at December 25, 1998 and June 30, 1998 consisted of the following:
<TABLE>
<CAPTION>
December 25, June 30,
------------ -----------
(Unaudited)
<S> <C> <C>
Raw materials............................... $10,470,000 $10,493,000
Work in process............................. 1,085,000 930,000
Finished goods.............................. 5,380,000 5,353,000
----------- -----------
$16,935,000 $16,776,000
=========== ===========
</TABLE>
NOTE 3 - LEGAL PROCEEDINGS
On January 6, 1999, Edelbrock was served with a complaint filed by Super Shops,
Inc. ("Super Shops") in the United Sates Bankruptcy court for the Central
District of California wherein Super Shops seeks to recover approximately $1.8
million in allegedly preferential payments made by Super Shops to Edelbrock in
the ninety days prior to the commencement of Super Shops' chapter 11 case under
the United States Bankruptcy code, 11 U.S.C. Sections 101-1330 (the
"Bankruptcy Code"). As previously disclosed, in September 1997, Super Shops
filed a voluntary petition for relief under chapter 11 of the Bankruptcy Code.
At the time of Super Shops' filing, Edelbrock was one of Super Shop's largest
unsecured creditors and, in December 1997, Edelbrock wrote-off approximately
$1.9 million of unsecured trade receivables relating to Super Shops. Edelbrock
intends vigorously to defend this preference action and believes that it has
numerous valid defenses to Super Shops' claims including, without limitation,
that the payments by Super Shops to Edelbrock were made in the ordinary course
of business and that Edelbrock provided significant new value to Super Shops
after the date on which the allegedly preferential transfers were received.
Edelbrock believes that the claims made by Super Shops ultimately will be
disposed of in a manner which will not have a material adverse effect upon the
business or financial position of Edelbrock.
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following is a discussion and analysis of the consolidated financial
condition and results of operations of the Company for the three and six months
ended December 25, 1998. The following should be read in conjunction with the
Consolidated Interim Financial Statements and related notes appearing elsewhere
herein.
Overview
The Company was founded in 1938, and is one of America's leading manufacturers
and marketers of specialty performance automotive and motorcycle aftermarket
parts. The Company designs, manufactures, packages and markets performance
automotive and motorcycle aftermarket parts, including intake manifolds,
carburetors, camshafts, cylinder heads, exhaust systems, Performer IAS Shock
Absorbers and other performance components for most domestic V8 and selected V6
engines. The Company currently offers over 1,800 performance automotive and
motorcycle aftermarket parts for street, off-road, recreational and competition
vehicle use. In addition, the Company offers performance aftermarket manifolds,
camshafts, cylinder heads, air cleaners, and carburetors for Harley-Davidson and
selected off-road motorcycles.
In May 1997, the Company entered the performance shock absorber aftermarket
utilizing RICOR Racing and Development, L.P.'s patented "inertia sensitive
system." The Company is currently producing shock absorbers for 163 different
two-and four-wheel drive applications for Ford, Chevrolet, Chrysler and selected
foreign manufactured vehicles.
Product Mix
The Company manufactures its own products and purchases other products designed
to the Company's specifications from third-party manufacturers for subsequent
packaging and distribution to the Company's customers. Generally, the Company
can achieve a higher margin on those products which it manufactures as compared
to those purchased from third-party manufacturers. Accordingly, the Company's
results of operations in any given period are affected by the product mix of the
Company's sales during the period.
Manufacturing Capacity
During the most recent peak manufacturing period, the Company used substantially
all of its manufacturing capability for producing its specialty performance
automotive and motorcycle aftermarket parts.
In September 1998, the Company announced its intent to construct a 65,950 square
foot distribution facility on Company-owned property adjacent to its exhaust
system and shock absorber production facilities in Torrance, California. The
Company expects this facility to be fully operational in July 1999.
Seasonality
The Company's sales are subject to seasonal variations. Customer orders and
sales are greatest in the third and fourth quarters of the Company's fiscal year
in anticipation of and during the spring and summer months. Accordingly,
revenues and operating income tend to be relatively higher in the third and
fourth fiscal quarters.
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<PAGE> 8
THREE MONTHS ENDED DECEMBER 25, 1998, COMPARED TO THREE MONTHS ENDED
DECEMBER 25, 1997:
Revenues
Revenues increased 12.3% to $25.6 million for the three months ended December
25, 1998 from $22.8 million for the same period of 1997. This increase was
primarily the result of an increase of approximately $1.0 million, or 11.6%, in
the sale of Edelbrock Performer Series carburetors; an increase of approximately
$.4 million, or 21.2%, in the sale of aluminum automotive cylinder heads, an
increase of approximately $1.5 million, or 24.2%, in the sale of aluminum intake
manifolds, and an increase of approximately $.3 million, or 68.5% in the sale of
Performer IAS Shock Absorbers.
Cost of Sales
Cost of sales increased 11.3% to $15.8 million for the three months ended
December 25, 1998 from $14.2 million for the same period of 1997. As a percent
of revenues, cost of sales decreased to 61.7% for the three months ended
December 25, 1998 from 62.2% for the same period of 1997. This decrease in cost
of sales was primarily due to a favorable change in product sales mix toward
Company manufactured products for which the Company achieves higher margins.
Selling, General and Administrative Expense
Selling, general and administrative expense increased 18.5% to $6.4 million for
the three months ended December 25, 1998 from $5.4 million for the same period
of 1997. This increase was primarily due to increased advertising expense and
sales commissions associated with increased sales and costs associated with the
Company's implementation of the QS9000 quality standard. As a percent of
revenues, selling, general and administrative expense increased to 25.0% for the
three months ended December 25, 1998 from 23.7% for the same period of 1997.
Research and Development Expense
Research and development expense increased 25.5% to $763,000 for the three
months ended December 25, 1998 from $608,000 for the same period of 1997. As a
percent of revenues, research and development expense increased to 3.0% for the
three months ended December 25, 1998 from 2.7% for the same period of 1997. This
increase was primarily due to the addition of personnel to the Company's
research and development staff to meet the rising demand for its products.
Write-off of Uncollectible Receivable
In December 1998, the Company wrote-off approximately $400,000 of unsecured
trade receivables relating to Champion Auto Stores, Inc. a Minnesota based
automotive parts retailer who filed for voluntary petitions for reorganization
under Chapter 11 of the Federal Bankruptcy Code in May 1998 and was further
converted to Chapter 7 Liquidation in December 1998. The $400,000 write-off
represents all of the outstanding receivable balance, a portion of which was
previously reserved.
In December 1997, the Company wrote-off approximately $1.9 million of unsecured
trade receivables relating to Super Shops, Inc., which filed a voluntary
petition for reorganization under Chapter 11 of the Federal Bankruptcy Code and
further obtained court approval in February 1998 to begin a "Going Out of
Business Sale" under Chapter 11 of the Federal Bankruptcy Code.
8
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Interest Expense
Interest expense decreased 26.1% to $51,000 for the three months ended December
25, 1998 from $69,000 for the same period of 1997. The decrease was primarily
due to a decrease in the principal amount of average debt outstanding.
Interest Income
Interest income decreased 20.5% to $66,000 for the three months ended December
25, 1998 from $83,000 for the same period in 1997. The decrease was primarily
due to a decrease in the balance of the Company's excess working capital
investments.
Taxes on Income
The provision for income taxes increased to $838,000 for the three months ended
December 25, 1998 from $276,000 million for the 1997 period. The effective tax
rate for both periods was approximately 37%.
Net Income
The Company's net income for the three months ended December 25, 1998 increased
201.1% to $1.4 million from $473,000 for the same period of 1997. This increase
was primarily the result of the decrease in the write-off of the uncollectible
receivable as compared to the prior year as mentioned above.
SIX MONTHS ENDED DECEMBER 25, 1998, COMPARED TO SIX MONTHS ENDED
DECEMBER 25, 1997
Revenues
Revenues increased 11.5% to $48.2 million for the six months ended December 25,
1998 from $43.2 million for the same period of 1997. This increase was primarily
the result of an increase of approximately $1.8 million, or 10.7%, in the sale
of Edelbrock Performer Series carburetors, an increase of approximately $984,000
or 26.5%, in the sale of aluminum cylinder heads, an increase of approximately
$2.3 million, or 18.8%, in the sale of aluminum intake manifolds, and an
increase of approximately $780,000, or 112.7% in the sale of Performer IAS shock
absorbers.
Cost of Sales
Cost of sales increased 10.2% to $29.3 million for the six months ended December
25, 1998 from $26.6 million for the same period of 1997. As a percent of
revenues, cost of sales decreased to 60.9% for the six months ended December 25,
1998 from 61.5% for the same period of 1997. This decrease in cost of sales was
primarily due to favorable change in product sales mix toward Company
manufactured products for which the Company achieves higher margins.
Selling, General and Administrative Expense
Selling, general and administrative expense increased 14.5% to $12.7 million for
the six months ended December 25, 1998 from $11.1 million for the same period of
1997. This increase was due primarily to increased sales commissions and freight
costs associated with increased sales increases in advertising expenditures and
costs associated with the Company's implementation of the QS9000 quality
standard. As a percent of revenues, selling, general and administrative expense
increased to 26.3% for the six months ended December 25, 1998 from 25.6% for the
same period of 1997.
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Research and Development Expense
Research and development expense increased 22.6% to $1.44 million for the six
months ended December 25, 1998 from $1.18 million for the same period of 1997.
As a percent of revenues, research and development expense increased to 3.0% for
the six months ended December 25, 1998 from 2.7% for the same period of 1997.
This increase was primarily due to the addition of personnel to the Company's
research and development staff to meet the rising demand for its products.
Write-off of Uncollectible Receivable
In December 1998, the Company wrote-off approximately $400,000 of unsecured
trade receivables relating to Champion Auto Stores, Inc.a Minnesota based
automotive parts retailer who filed for voluntary petitions for reorganization
under Chapter 11 of the Federal Bankruptcy Code in May 1998 and was further
converted to Chapter 7 Liquidation in December 1998. The $400,000 write-off
represents all of the outstanding receivable balance, a portion of which was
previously reserved.
In December 1997, the Company wrote-off approximately $1.9 million of unsecured
trade receivables relating to Super Shops, Inc., which filed a voluntary
petition for reorganization under Chapter 11 of the Federal Bankruptcy Code and
further obtained court approval in February 1998 to begin a "Going Out of
Business Sale" under Chapter 11 of the Federal Bankruptcy Code.
Interest Expense
Interest expense decreased 26.1% to $102,000 for the six months ended December
25, 1998 from $138,000 for the same period of 1997. The decrease was primarily
due to a decrease in the principal amount of average debt outstanding.
Interest Income
Interest income decreased 10.4% to $172,000 for the six months ended December
25, 1998 from $192,000 for the same period in 1997. This decrease was primarily
due to a decrease in the balance of the Company's excess working capital
investments.
Taxes on Income
The provision for income taxes increased to $1.6 million for the six months
ended December 25, 1998 from $948,000 for the 1997 period. The effective tax
rate for both periods was approximately 37%.
Net Income
The Company's net income for the six months ended December 25, 1998 increased
72.3% to $2.8 million from $1.6 million for the same period of 1997. This
increase was primarily the result of the decrease in the write-off of the
uncollectible receivable as compared to the prior year as mentioned above.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity requirements arise primarily from the funding of its
seasonal working capital needs and capital expenditures. Historically, the
Company has met these liquidity requirements through cash flow generated from
operating activities and with borrowed funds
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under the Company's $2.0 million revolving credit facility ("Revolving Credit
Facility") which expires on February 1, 2000. Due to seasonal demand for the
Company's products, the Company builds inventory during the first and second
fiscal quarters in advance of the typically stronger selling periods during the
third and fourth fiscal quarters.
The Company believes that funds generated from operations and funds available
under the Revolving Credit Facility together with cash balances will be adequate
to meet its working capital, debt service and capital expenditure requirements
through the next twelve months. The Company anticipates making capital
expenditures of approximately $6.5 - $8.0 million in fiscal year 1999 primarily
for construction of its new distribution facility and additional capital
equipment to increase production capacity.
YEAR 2000 COMPLIANCE
Computers, software and other equipment utilizing microprocessors that use only
two digits to identify a year in a date field may be unable to process
accurately certain date-based information at or after the year 2000. This is
commonly referred to as the "Year 2000 issue," and the Company is addressing
this issue on several different fronts. First, the Company has requested Year
2000 compliance certification from each of its major vendors and suppliers for
their hardware or software products and for their internal business applications
and processes. Second, the Company has established a separate team to coordinate
solutions to the Year 2000 issue for its own internal information systems, for
which it has completed all remediation for Year 2000 compliance in the fourth
calendar quarter of 1998. As part of its initial phase of its Year 2000
readiness, the Company installed Oracle applications and database. In order to
complete the Year 2000 readiness program for it's information systems, the
Company upgraded its existing Oracle applications (Version 10.6) to release
10.7. Amounts incurred in connection with the Year 2000 compliance program were
not material to its financial condition or results of operations. The Company
does not believe that its business will be adversely affected by the Year 2000
issue in any material respect. Nevertheless, achieving Year 2000 compliance is
dependent on many factors, some of which are not completely within the Company's
control, including without limitation, the availability and cost of trained
personnel and effectiveness of software upgrades used by the Company and its
vendors and suppliers. Should either the Company's internal systems or the
internal systems of one or more significant vendors or suppliers fail to achieve
Year 2000 compliance, the Company's business and its results of operations could
be adversely affected. For Year 2000 issues which, if not timely resolved, could
have a significant impact on the Company's operations, the Company intends to
develop contingency plans. Those plans will be designed to minimize the impact
of failure to achieve Year 2000 compliance. Those contingency plans are expected
to be reasonably developed in early calendar 1999.
"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT
OF 1995:
Any statements set forth above which are not historical facts are
forward-looking statements that involve known and unknown risks and
uncertainties that could cause actual results to differ materially from those in
the forward-looking statements. Potential risks and uncertainties include such
factors as the financial strength and competitive pricing environment of the
automotive and motorcycle aftermarket industries, product demand, market
acceptance, manufacturing efficiencies, new product development, the success of
planned advertising, marketing and promotional campaigns, the success of the
Company's, its vendors', and its suppliers' Year 2000 compliance programs and
other risks identified herein and in other documents filed by the Company with
the Securities and Exchange Commission.
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Item 3. Quantitative and Qualitative Disclosure About Market Risk
The Company's exposure to interest rate changes is primarily related to its
variable rate debt which may be outstanding from time to time under the
Company's Revolving Credit Facility with Bank of America, NT & SA. The Company's
Revolving Credit Facility is a $2 million line of credit with an interest rate
based on the prime rate (currently 7.75%). It expires on February 1, 2000.
Because the interest rate on the Revolving Credit Facility is variable, the
Company' cash flow may be affected by increases in the prime rate. Management
does not believe that any risk inherent in the variable rate nature of the loan
is likely to have a material effect on the Company. As of December 25, 1998, the
Company's outstanding balance on the Revolving Credit Facility was zero. Even if
the Company were to draw down on the line prior to its expiration and an
unpredicted increase in the prime rate occurred, it would not likely have a
material effect.
Sensitivity Analysis
To assess exposure to interest rate changes, the Company has performed a
sensitivity analysis assuming the Company had a $1 million balance outstanding
under the Revolving Line of Credit. The monthly interest payment, if the rate
stayed constant, would be $6,458. If the prime rate rose 100 basis points, the
monthly interest payment would equal $7,292. The Company does not believe the
risk resulting from such fluctuations is material nor that the payment required
would have a material effect on cash flow.
12
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
On January 6, 1999, Edelbrock was served with a complaint filed by Super
Shops, Inc. ("Super Shops") in the United Sates Bankruptcy court for the
Central District of California wherein Super Shops seeks to recover
approximately $1.8 million in allegedly preferential payments made by
Super Shops to Edelbrock in the ninety days prior to the commencement of
Super Shops' chapter 11 case under the United States Bankruptcy code, 11
U.S.C. Sections 101-1330 (the "Bankruptcy Code"). As previously
disclosed, in September 1997, Super Shops filed a voluntary petition for
relief under chapter 11 of the Bankruptcy Code. At the time of Super
Shops' filing, Edelbrock was one of Super Shop's largest unsecured
creditors and, in December 1997, Edelbrock wrote-off approximately $1.9
million of unsecured trade receivables relating to Super Shops.
Edelbrock intends vigorously to defend this preference action and believes
that it has numerous valid defenses to Super Shops' claims including,
without limitation, that the payments by Super Shops to Edelbrock were
made in the ordinary course of business and that Edelbrock provided
significant new value to Super Shops after the date on which the allegedly
preferential transfers were received. Edelbrock believes that the claims
made by Super Shops ultimately will be disposed of in a manner which will
not have a material adverse effect upon the business or financial position
of Edelbrock.
Item 2. Changes in Securities
Not applicable.
Item 3. Defaults upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
On November 18, 1998, the Company held its Annual Meeting of Shareholders in
Torrance, California. At that meeting, the shareholders elected all eight
directors nominated by the Board of Directors. The number of votes cast for or
against for each director were as follows:
<TABLE>
<CAPTION>
Number of Votes Cast
------------------------
For Against
--------- -------
<S> <C> <C>
O. Victor Edelbrock 4,468,750 2,501
Jeffrey L. Thompson 4,468,750 2,501
Aristedes T. Feles 4,468,750 2,501
Cathleen Edelbrock 4,468,750 2,501
E. A. Breitenbach 4,468,750 2,501
Jerry Herbst 4,468,750 2,501
Alexander Michalowski 4,468,750 2,501
Richard M. Wilbur 4,468,750 2,501
</TABLE>
In addition, the shareholders approved by a vote of 4,462,958 for, and 2,195
against, the ratification of the appointment of BDO Seidman, LLP as independent
auditors of the Company for the fiscal year ending June 30, 1999.
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
Exhibits
10.1 Amendment to Business Loan Agreement between Edelbrock Corporation
and Bank of America, NT and SA
10.2 Purchasing Agreement between Edelbrock Corporation and Magneti
Marelli, USA, Inc.
27.1 Financial Data Schedule
Reports on Form 8-K
There were no reports on Form 8-K filed during the three months ended
December 25, 1998.
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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.
EDELBROCK CORPORATION
Registrant
Date: February 4, 1999 JEFFREY L. THOMPSON
------------------------------
Jeffrey L. Thompson
Executive Vice President,
Chief Operating Officer and
Director
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Exhibit 10.1
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[BANK OF AMERICA LOGO] AMENDMENTS TO DOCUMENTS
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AMENDMENT NO. 2 TO BUSINESS LOAN AGREEMENT
This Amendment No. 2 (the "Amendment") dated as of JANUARY 6, 1999 is
between BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION (the "Bank") and
EDELBROCK CORPORATION (the "Borrower").
RECITALS
A. The Bank and the Borrower entered into a certain Business Loan
Agreement dated as of January 23, 1997, as previously amended (the "Agreement").
B. The Bank and the Borrower desire to further amend the Agreement.
AGREEMENT
1. DEFINITIONS. Capitalized terms used but not defined in this
Amendment shall have the meaning given to them in the Agreement.
2. AMENDMENTS. The Agreement is hereby amended as follows:
2.1 In Paragraph 1.2 of the Agreement, the date "FEBRUARY 1, 2000"
is substituted for the date "FEBRUARY 1, 1999."
2.2 Subparagraph (a) of Paragraph 4.6 of the Agreement is amended in
its entirety as follows:
"(a) sufficiently complete to give the Bank accurate knowledge of
the Borrower's (and any guarantor's) financial condition,
including all material contingent liabilities."
2.3 A new paragraph 4.13 is added to the Agreement as follows:
"4.13 YEAR 2000 COMPLIANCE. The Borrower has conducted a
comprehensive review and assessment of the Borrower's systems and
equipment applications and made inquiry of the Borrower's key
suppliers, vendors and customers with respect to the 'year 2000
problem' (that is, the inability of computers, as well as
embedded microchips in non-computing devices, to properly perform
date-sensitive functions with respect to certain dates prior to
and after December 31, 1999). Based on that review and inquiry,
the Borrower does not believe the year 2000 problem, including
costs of remediation, will result in a material adverse change in
the Borrower's business condition (financial or otherwise),
operations, properties or prospects, or ability to repay the
credit. The Borrower has developed adequate contingency plans to
ensure uninterrupted and unimpaired business operation in the
event of a failure of its own or a third party's systems or
equipment due to the year 2000 problem, including those of
vendors, customers, and suppliers, as well as a general failure
of or interruption in its communications and delivery
infrastructure."
2.4 In Paragraph 5.4 of the Agreement, the amount "FIFTY THREE
MILLION DOLLARS ($53,000,000)" is substituted for the amount
"FORTY-EIGHT MILLION DOLLARS ($48,000,000)."
2.5 Paragraph 6.8 of the Agreement is amended in its entirety as
follows:
"6.8 MATERIAL ADVERSE CHANGE. A material adverse change
occurs, or is reasonably likely to occur, in the Borrowers (or
any guarantor's) business condition (financial or otherwise),
operations, properties or prospects, or ability to repay the
credit."
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AmendL (10/92) -1- 022373-10078
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3. EFFECT OF AMENDMENT. Except as provided in this Amendment, all of
the terms and conditions of the Agreement shall remain in full force and effect.
This Amendment is executed as of the date stated at the beginning of
this Amendment.
BANK OF AMERICA
NATIONAL TRUST AND SAVINGS ASSOCIATION EDELBROCK CORPORATION
/s/ ROBERT D. LOVIE /s/ JEFFREY L. THOMPSON
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By: Robert D. Lovie, Vice President By: Jeffrey L. Thompson,
Executive Vice
President
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EXHIBIT 10.2
MUTUAL AGREEMENT
BETWEEN
MAGNETI MARELLI USA, INC., AND EDELBROCK CORPORATION
This Agreement is effective January 1, 2000 between MAGNETI MARELLI U.S.A.,
INC. ("Magneti") and EDELBROCK CORPORATION ("Edelbrock").
BACKGROUND
Magneti is the designer and manufacturer of certain 4-barrel performance
carburetors; and Edelbrock is a manufacturer and distributor of automotive
products into the automotive performance aftermarket, and
the parties have reached certain understandings on the terms on which
Edelbrock will act as distributor of these carburetors and certain other
products into the automotive performance aftermarket, and
the parties wish to express these understandings in writing.
TERMS AND CONDITIONS
WHEREFORE, in consideration for the mutual understandings and covenants
expressed in this Agreement, the parties agree as follows:
1. PRODUCT: Magneti has designed and manufactured, and will sell to
Edelbrock, a series of 4-barrel replacement and performance carburetors commonly
known as "P/N 1400, P/N 1404, P/N 1405, P/N 1406, P/N 1407, P/N 1409, P/N 1410,
and P/N 1411" and any new part numbers to be introduced as well as all related
parts and components (described collectively in this Agreement as "Product").
The Product will be resold by Edelbrock on the automotive performance
aftermarket, under the trade name "Edelbrock Performer Series" ("EPS") or such
other trade name upon which the parties agree.
2. EXCLUSIVITY: Edelbrock agrees to sell only carburetors manufactured by
Magneti, which will act as Edelbrock's exclusive supplier. Edelbrock shall be
the exclusive distributor of the Product to all parties contained on the list
attached to this Agreement as Exhibit A ("Customer List"). The Customer List is
a confidential listing of Edelbrock customers and competitors which has been
prepared by Edelbrock.
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Magneti agrees that it will not sell the Product directly to any party on
the Customer List during the term of this Agreement provided that Edelbrock is
in full compliance with all of the terms and conditions of this Agreement.
3. REVISIONS TO CUSTOMER LIST: The Customer List shall be updated by
the parties twelve (12) months after the date of this Agreement, and every
twelve (12) months thereafter for the term of this Agreement. Additions to and
deletions from the Customer List shall be made upon the agreement of the
parties, provided that it is specifically agreed that any customers that inform
Edelbrock that they will not be buying Product within the coming twelve (12)
month period should be removed from the Customer List.
4. OTHER SALES: The parties agree that Magneti shall retain marketing
rights as to the Product, under its own or another customer's trade name, in
any and all other markets including but not limited to, Federal-Mogul
distribution network, the original equipment and aftermarket marine market, the
industrial market, the original equipment service replacement market, the
motorcycle product market and to any parties inside or outside the United
States of America provided that any such party is not included on the Customer
List. Notwithstanding anything in this Agreement to the contrary, the parties
acknowledge that Federal-Mogul distribution customers may conflict with
Edelbrock distribution customers.
5. CONDITION OF SALE -- AFB UNITS: Edelbrock agrees to purchase a
minimum quantity of 160,000 units per year in calendar year 2000, 2001 and 2002
and 150,000 units per year in the calendar year 2003 and 2004, and/or 780,000
units (with consideration given to Edelbrock of an allowance for a plus or
minus factor of ten percent (10%) during the term of the Agreement ending
December 31, 2004. Edelbrock further agrees to purchase all Magneti designed
loose parts from Magneti, if the quality, pricing and availability are
comparable with any alternative supplier at a mutually agreed upon price and
timing position. In its resale of the Product, Edelbrock agrees that its
pricing of the Product shall remain "market competitive" at all times, which
shall be defined as pricing with a maximum mark-up of 1.66 over the acquisition
costs from Magneti, including the costs of parts, cartons, re-packaging, labor,
inbound freight, instruction sheets or any other material supplied by
Edelbrock. The above maximum mark-up does not pertain to the sales of small
carburetor parts purchased from Magneti or alternative small parts suppliers.
All Edelbrock pricing must be competitive in the marketplace.
6. SALES PROJECTIONS -- AFB UNITS: Magneti has entered into this
Agreement in reliance upon the projected sales figures prepared by Edelbrock
and to be supplied annually, which indicate minimum annual sales as defined in
paragraph no. 5 (with consideration given to Edelbrock of an allowance for a
plus or minus factor of ten percent (10%). Changes to the projected sales will
be accepted by Magneti no less than 120 days before shipment. Edelbrock will
provide Magneti a 4-month forecast beginning January 2000. Edelbrock will
provide Magneti with a 12-month projection of carburetor purchases which will
be updated monthly throughout the term of the Agreement, including any
extensions thereto.
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7. NEW PRODUCTS: The parties anticipate that Magneti may design and
manufacture certain performance carburetors redeveloped from the Product, which
would utilize existing Magneti tooling and concepts, whether used in the
Product or not, and would contain changes in application, calibration, overall
performance, specification or configuration, and will include components and
part modifications to support any such changes ("New Product") Edelbrock is
granted a right of first refusal to distribute the New Product, and upon
acceptance of the distributorship of the New Product, agrees that its exclusive
rights for sale shall be only to those parties on the Customer List, with
pricing to be agreed upon by the parties based upon product characteristics.
Edelbrock's right of first refusal on the New Product shall exist for a period
of ninety (90) days. If this right is exercised, the New Product shall bear the
Edelbrock brand name; if it is not, the New Product shall be identified with
Magneti's or another customer's trade name. Magneti will have the same rights
as set forth in paragraph 4 above, as to the distribution of the New Product to
other markets, including the Federal-Mogul distributions network, original
equipment and aftermarket marine market, industrial market, original equipment
service replacement markets, the motorcycle market, and to any parties inside
and outside the United States of America provided that any such party is not
included on the Customer List.
8. TERM. The term of this Agreement shall commence on January 1, 2000
and shall end on December 31, 2004.
9. PRODUCT PRICING: The products covered by this Agreement will be
subject to pricing in effect as of December 31, 1999 to remain in effect
through December 31, 2001 provided annual sales projections are achieved. For
the remaining three years of this Agreement (CY 2002, 2003, and 2004) Magneti
and Edelbrock pricing will review and take into consideration manufacturing
cost, sales volume and competitive market conditions to ensure this agreement
will continue to be mutually beneficial.
10. PRODUCT LIABILITY: Magneti will provide Edelbrock Product Liability
Insurance coverage on all Magneti products sold to Edelbrock to a limit of $1
million coverage. Edelbrock will be named as an additional insured under
Magneti's liability policy, and Magneti shall provide a Certificate of
Insurance to this effect. As Part Numbers 1400, 1404, 1405, 1406, 1407, and
1411 are not U.S. Coast Guard approved for marine usage, product liability
insurance will not be extended to marine applications.
11. PRODUCT WARRANTIES: On all products sold to Edelbrock, Magneti
shall provide limited manufacturer's product warranties under the terms
attached at Exhibit B. Pursuant to the terms of that warranty, all allegedly
defective products shall be inspected first by Edelbrock prior to shipping to
Magneti. Edelbrock pricing includes compensation for warranty administration
up to 0.25%. Edelbrock shall maintain an accurate log of all returned units
with apparent factory defects and return to Magneti those units exceeding the
allotted 0.25%.
Units determined by Magneti to be defect free will be returned to
Edelbrock for redistribution. Edelbrock will have auditing rights during the
re-testing procedure by Magneti
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and/or Magneti shall supply data on this re-testing of returned units of the
Product in a form agreeable to the parties.
12. OTHER PRODUCTS: If Edelbrock initiates distribution of any other fuel
injection system and/or related accessories into the automotive performance
aftermarket other than the Product, Magneti shall have a right of first refusal
to become Edelbrock's exclusive supplier of such product. Magneti must exercise
this right within ninety (90) days of written notice specifying terms and
conditions agreeable to both parties. If Magneti fails to exercise such right,
Edelbrock shall have the right to arrange for procurement of such other product
from parties other than Magneti.
13. INDEMNIFY AND HOLD HARMLESS: Magneti states that they own the rights
to the manufacturing and distribution of the Product or any other fuel injected
related system sold to Edelbrock by Magneti, and agrees that it will hold
Edelbrock harmless and will defend Edelbrock solely as to any claim of third
parties contesting those rights of manufacture and distribution. Magneti will
offer no further indemnity or similar protection to Edelbrock or any other
party as to any other claims, including without limitation claims for lost
profits and expenses related to the transactions contemplated under this
Agreement.
14. ENTIRE AGREEMENT; MODIFICATIONS: This Agreement may be amended,
changed or modified only by a written instrument executed by the parties.
The parties have executed this Agreement on the date written above.
WITNESS: EDELBROCK CORPORATION
[SIG] By: [SIG]
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Its: President
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MAGNETI MARELLI U.S.A., INC.
By: [SIG]
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Its: President & CEO
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> DEC-25-1998
<CASH> 4,165,000
<SECURITIES> 0
<RECEIVABLES> 23,834,000
<ALLOWANCES> 500,000
<INVENTORY> 16,935,000
<CURRENT-ASSETS> 45,797,000
<PP&E> 59,935,000
<DEPRECIATION> 24,570,000
<TOTAL-ASSETS> 82,657,000
<CURRENT-LIABILITIES> 13,283,000
<BONDS> 2,093,000
0
0
<COMMON> 52,400
<OTHER-SE> 64,437,600
<TOTAL-LIABILITY-AND-EQUITY> 82,657,000
<SALES> 48,197,000
<TOTAL-REVENUES> 48,197,000
<CGS> 29,334,000
<TOTAL-COSTS> 29,334,000
<OTHER-EXPENSES> 14,516,000
<LOSS-PROVISION> 400,000
<INTEREST-EXPENSE> 102,000
<INCOME-PRETAX> 4,417,000
<INCOME-TAX> 1,635,000
<INCOME-CONTINUING> 2,782,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,782,000
<EPS-PRIMARY> $0.27
<EPS-DILUTED> $0.27
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