-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, AF0GpKQpuJt6VCyQBCXuEq9kU1wSaSz2i0w/S0SM8FZvRm1sj6rSoLS+rvEbGXAj O2muZLlSESdjpCTlaJxOzA== 0000929624-99-002042.txt : 19991130 0000929624-99-002042.hdr.sgml : 19991130 ACCESSION NUMBER: 0000929624-99-002042 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19991002 FILED AS OF DATE: 19991129 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PRESTOLITE ELECTRIC HOLDING INC CENTRAL INDEX KEY: 0001057053 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRICAL INDUSTRIAL APPARATUS [3620] IRS NUMBER: 943142033 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q/A SEC ACT: SEC FILE NUMBER: 333-49429-01 FILM NUMBER: 99765407 BUSINESS ADDRESS: STREET 1: 2100 COMMONWEALTH BLVD CITY: ANN ARBOR STATE: MI ZIP: 48105 BUSINESS PHONE: 3139136600 MAIL ADDRESS: STREET 1: 2100 COMMONWEALTH BLVD CITY: ANN ARBOR STATE: MI ZIP: 48105 FORMER COMPANY: FORMER CONFORMED NAME: PEI HOLDINGS INC DATE OF NAME CHANGE: 19980304 10-Q/A 1 AMENDMENT NO. 1 TO FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 AMENDMENT NO. 1 TO FORM 10-Q/A
(Mark one) [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the Quarterly Period Ended October 2, 1999. [_] 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 1, 1999 Common Stock 1,993,000 Page 1 EXPLANATORY NOTE TO FORM 10-Q/A-1 This amended quarterly report on Form 10-Q/A-1 amends Note 7 to the condensed consolidated financial statements contained in Item 1 of the Company's quarterly report on Form 10-Q for the quarter ended October 2, 1999, as filed with the Securities and Exchange Commission on November 15, 1999. This amendment reflects the adjusted and corrected division reporting due to the realignment of the divisions that occurred in the third quarter of 1999. The commentary in Item 2 (Management's Discussion and Analysis of Financial Condition and Results of Operations) regarding sales in both the three-month results and the nine-month results have also been amended to reflect the adjusted and corrected division reporting. In accordance with rule 12b-15 under the Securities Exchange Act of 1934, the complete text of Part I, Items 1 and 2, as amended, follows. Page 2 FORM 10-Q/A-1 TABLE OF CONTENTS Part I: Financial Information Item 1: Condensed Consolidated Balance Sheets at October 2, 1999 (unaudited) and December 31, 1998 4 Condensed Consolidated Statement of Operations Three and nine months ended October 2, 1999 (unaudited) and October 3, 1998 (unaudited) 5 Condensed Consolidated Statements of Cash Flows Nine months ended October 2, 1999 (unaudited) and October 3, 1998 (unaudited) 6 Notes to Condensed Consolidated Financial Statements 7 Item 2: Management's Discussion and Analysis of Financial 13 Condition and Results of Operations Signatures 20
Page 3 PART I: FINANCIAL INFORMATION ITEM 1: FINANCIAL STATEMENTS Prestolite Electric Holding, Inc. and Subsidiaries (including Prestolite Electric Incorporated) Condensed Consolidated Balance Sheet (in thousands, except share amounts)
October 2, December 31, 1999 1998 ---- ---- Assets Current Assets: Cash $ 832 $ 896 Accounts receivable, net of allowances 51,605 51,352 Inventories, net 55,556 52,082 Defered tax asset 2,898 2,134 Prepaid and other current assets 2,203 2,286 ---------------- ---------------- Total current assets 113,094 108,750 Property, plant and equipment, net 55,981 56,064 Deferred tax asset 1,002 1,002 Investments 4,770 4,996 Intangible assets 10,923 11,528 Long-term receivables, pension assets and assets of discontinued operations 5,747 5,807 ---------------- ---------------- Total assets $ 191,517 $ 188,147 ================ ================ Liabilities Current Liabilities: Revolving credit $ 5,660 $ 4,935 Current portion of long-term debt 3,060 2,401 Accounts payable 25,223 26,088 Accrued liabilities 19,108 27,135 ---------------- ---------------- Total current liabilities 53,051 60,559 Long-term debt 147,169 133,416 Other non-current liabilities 1,958 3,090 ---------------- ---------------- Total liabilities 202,178 197,065 Stockholders' equity Common stock, par value $.01, 5,000,000 shares 2 2 authorized, 1,993,000 shares issued and outstanding at October 2, 1999 and December 31, 1998, respectivley Paid-in capital 16,623 16,623 Retained earnings (accumulated deficit) (2,024) (404) Notes receivable, employees' stock purchase, 7.74% due 2002 (513) (559) Foreign currency translation adjustment (300) (131) Treasury stock, 1,310,000 shares on October 2, 1999 and December 31, 1998, respectively (24,449) (24,449) ---------------- ---------------- Total stockholders' equity (10,661) (8,918) ---------------- ---------------- Total liabilities and stockholders' equity $ 191,517 $ 188,147 ================ ================
The accompanying notes are an integral part of the condensed consolidated financial statements. Page 4 Prestolite Electric Holding, Inc. and Subsidiaries (including Prestolite Electric Incorporated) Condensed Consolidated Unaudited Statements of Operations (in thousands except share amounts)
For the three months ended For the nine months ended ------------------------------------- ------------------------------------- October 2, October 3, October 2, October 3, 1999 1998 1999 1998 --- ---- ---- ---- Net Sales $ 65,433 $ 70,450 $ 195,952 $ 217,823 Cost of goods sold 52,580 56,198 156,878 174,117 --------------- --------------- --------------- -------------- Gross profit 12,853 14,252 39,074 43,706 Selling, general and administrative 9,472 9,732 28,786 29,370 Costs associated with option repurchase - - - 2,101 Restructuring charge - - - 980 --------------- --------------- --------------- -------------- Operating income 3,381 4,520 10,288 11,255 Interest expense 4,029 3,425 11,915 9,951 Other expense (income) (201) 47 (1,249) (475) --------------- --------------- --------------- -------------- Income (loss) from continuing operations before extraordinary loss and income taxes (447) 1,048 (378) 1,779 Loss (benefit) from unconsolidated subsidiaries 44 - 160 - Provision for income taxes 312 369 1,082 632 --------------- --------------- --------------- -------------- Income (loss) from continuing operations (803) 679 (1,620) 1,147 Extraordinary loss, net of taxes of $716 - - - 1,275 for the nine months ended October 3, 1998 --------------- --------------- --------------- -------------- Net income (loss) $ (803) $ 679 $ (1,620) $ (128) =============== =============== =============== ============== Other comprehensive income (expense): Foreign currency translation adjustment $ 1,899 $ 865 $ (169) $ (62) --------------- --------------- --------------- -------------- Comprehensive income (loss) $ 1,096 $ 1,544 $ (1,789) $ (190) =============== =============== =============== ============== Basic earnings per common share Income (loss) from continuing operations $ (0.40) $ 0.34 $ (0.81) $ 0.54 Extraordinay item $ - $ - $ - $ (0.61) --------------- --------------- --------------- -------------- Net income (loss) $ (0.40) $ 0.34 $ (0.81) $ (0.07) =============== =============== =============== ============== Diluted earnings per common share Income (loss) from continuing operations $ (0.40) $ 0.32 $ (0.81) $ 0.54 Extraordinay item $ - $ - $ - $ (0.61) --------------- --------------- --------------- -------------- Net income (loss) $ (0.40) $ 0.32 $ (0.81) $ (0.07) =============== =============== =============== ============== Basic shares outstanding 1,993,000 1,993,000 1,993,000 2,105,052 Dilutive shares outstanding 2,125,886 2,103,860 2,126,219 2,224,501
The accompanying notes are an integral part of the condensed consolidated financial statements. Page 5 Prestolite Electric Holding, Inc. and Subsidiaries (including Prestolite Electric Incorporated) Condensed Consolidated Unaudited Statement of Cash Flows (in thousands)
1999 1998 ---------------- ---------------- Cash Flows from Operating Activities: Net income (loss) $ (1,620) $ (128) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Loss on debt refinancing - 1,991 Option repurchase - 2,101 Cash provided by discontinued operations 170 1,603 Depreciation 8,117 8,215 Amortization 1,410 800 Gain on sale of property, plant, and equipment (128) (236) Loss from unconsolidated subsidiaries 160 - Deferred taxes (764) (1,431) Changes in working capital items (13,576) (4,239) ---------------- ---------------- Net cash provided by (used in) operating activities (6,231) 8,676 CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (6,782) (7,806) Proceeds from disposal of fixed assets 239 18 Acquisition of: Lucas businesses - (49,943) Roberts Remanufacturing (2,958) - Investment in affiliates 66 (2,640) ---------------- ---------------- Net cash used in investing activities (9,435) (60,371) CASH FLOWS FROM FINANCING ACTIVITIES: Net increase in revolving line of credit 14,471 2,990 Payments on long-term debt - (32,146) Proceeds from borrowings 659 125,000 Costs related to new borrowings, including loss on refinancing - (5,785) Purchase of treasury stock, options and warrants, employee stock receivable 46 (29,895) Borrowings (payments) on capital leases 26 (173) Other financing costs, net (19) (6,773) ---------------- ---------------- Net cash provided by financing activities 15,183 53,218 Effect of exchange rate changes on cash 419 141 ---------------- ---------------- Net increase (decrease) in cash (64) 1,664 Cash - beginning of period 896 455 ---------------- ---------------- Cash - end of period $ 832 $ 2,119 ================ ================
The accompanying notes are an integral part of the condensed consolidated financial statements. Page 6 Prestolite Electric Holding, Inc. and Subsidiaries (including Prestolite Electric Incorporated) Notes to Unaudited Condensed Consolidated Financial Statements Note 1: General Information Prestolite Electric Holding, Inc. conducts all of its operations through its wholly-owned principal subsidiary, Prestolite Electric Incorporated. There are no material differences between the financial statements of Prestolite Electric Holding, Inc. and Prestolite Electric Incorporated (collectively, "Prestolite," "us," "we" or the "Company"). These unaudited condensed consolidated financial statements have been prepared by us in accordance with Rule 10-01 of Regulation S-X and have been prepared on a basis consistent with our audited financial statements for the year ended December 31, 1998. These statements reflect all adjustments, consisting only of items of a normal recurring nature, which are, in the opinion of management, necessary for the fair statement of the consolidated financial condition and consolidated results of operations for the interim period presented. Certain information and footnote disclosures normally included in the consolidated financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. These financial statements and the related notes should be read in conjunction with our audited financial statements, the notes to those statements and the other material included in our Annual Report on Form 10-K for the year ended December 31, 1998. The year-end 1998 condensed balance sheet data was derived from our audited financial statements, but does not include all information and footnotes required by generally accepted accounting principles for complete financial statements. The results of operations for the three- and nine-month periods ended October 2, 1999 are not necessarily indicative of the operating results that may be expected for the full year or any other interim period. Genstar Capital Corporation and Company management own all of the equity securities of Prestolite Electric Holding, Inc. Note 2: Acquisitions On January 15, 1999, we acquired a remanufacturing business unit from Roberts Generator for $2.9 million. This business unit operates as Roberts Remanufacturing and rebuilds alternators and starter motors for specialty applications. We financed this purchase with funds borrowed under our United States revolving line of credit. On January 22, 1998 Prestolite acquired the heavy duty products division of Lucas Industries, plc. (a U. K. corporation), Lucas South Africa and Lucas Indiel Argentina S. A., collectively referred to as "the Lucas Acquisition," for approximately $44.3 million in cash, net of cash acquired and including the assumption of approximately $3.2 million in debt, inventory purchases of approximately $1.4 million during 1998, and up to $4.1 million for certain accounts receivable as they are collected ($1,074,000 paid during 1998, and $0.1 million paid to date in 1999). In addition, Prestolite has agreed to pay Lucas up to an additional $6.6 million if certain operating targets are achieved in Argentina in 1999 and 2000 and up to $ 4.9 million if certain fully reserved receivables are collected. No liability for this $11.5 million is accrued, as management does not consider payment probable. Any future payments will be recorded as an Page 7 adjustment to the purchase price. In addition, on January 22, 1998, Prestolite Electric Incorporated completed the offering of $125 million of 9.625% Senior Notes due 2008 (the "Notes"). The proceeds of the Notes funded the Lucas Acquisition and repaid approximately $42 million of our outstanding indebtedness. Approximately $29.7 million of the proceeds were also used for the repurchase of common stock, warrants and options to purchase common stock. These transactions are more fully described in our Annual Report on Form 10-K for the year ended December 31, 1998. In conjunction with these transactions, during the first quarter of 1998 the Company charged operations for $2.1 million for the repurchase of options and recorded an extraordinary charge of $1.275 million, net of tax benefit, related to the debt refinancing. The Company also recorded a $0.98 million restructuring charge in the first quarter of 1998 related to costs anticipated to be incurred at the Company's existing facilities as a result of the Lucas Acquisition. Note 3: Inventories Inventories are summarized as follows (in thousands of U.S. dollars):
As of As of October 2, December 31, 1999 1998 ------------- ------------- Raw Material $ 21,600 $ 15,014 Work in Progress 11,685 16,171 Finished Goods 22,271 20,897 ------------ ------------ $ 55,556 $ 52,082 ============ ============
Note 4: Property, Plant and Equipment Property, Plant and Equipment consists of the following (in thousands of U.S. dollars):
As of As of October 2, December 31, 1999 1998 ----------- ------------ Land & Buildings $ 29,725 $ 29,433 Machinery & Equipment 60,515 54,863 Construction in Progress 3,927 2,699 ----------- ------------ Total, at Cost 94,167 86,995 Accumulated Depreciation (38,186) (30,931) ----------- ----------- Net $ 55,981 $ 56,064 =========== ===========
Page 8 Note 5: Investments Investments consist of the following (in thousands of U.S. dollars):
As of As of October 2, December 31, 1999 1998 -------------- -------------- DAX Industries, Inc. (35% interest) $ 1,671 $ 1,869 Ecoair Corp. (7% interest, at cost) 2,000 2,000 Prestolite Asia Ltd. (50% interest) 576 530 Auto Ignition, Ltd. (4% interest, at cost) 523 597 ------------ ------------- $ 4,770 $ 4,996 ============ =============
Note 6: Debt In 1998 we issued $125 million of 9.625% (interest payable semiannually) unsecured senior notes. The senior notes mature on February 1, 2008 but may be redeemed earlier at our option under conditions specified in the indenture pursuant to which the senior notes were issued. The senior notes are senior unsecured obligations of Prestolite Electric Incorporated and are fully and unconditionally guaranteed on a senior unsecured basis by Prestolite Electric Holding, Inc. The senior notes are subordinated to our secured credit facilities, to the extent of the value of the assets securing such indebtedness, including the secured facilities described below. The senior notes are also subordinated to the indebtedness of any subsidiary of Prestolite Electric Incorporated, including the indebtedness of its United Kingdom subsidiary. The proceeds were used to refinance existing debt, fund the acquisition of the Lucas businesses and to repurchase certain Prestolite Electric Holding, Inc. securities. The senior notes are more fully described in our Prospectus dated June 26, 1998. In connection with the issuance of the Notes, we entered into new credit agreements in the U. S. and the U. K. The U. S. agreement consists of a $23.0 million revolving credit facility ($23.0 million available at October 2, 1999) which is advanced according to a formula based on eligible accounts receivable and inventory levels. The borrowings are collateralized by all U. S. accounts receivable and inventories and mature on July 31, 2000. Interest is payable at the bank's prime rate (8.25 percent at October 2, 1999) or at the "London Late Eurodollar" rate plus 2.75 percent at our option. In certain situations these rates may be increased by 0.125 percent. On November 2, 1999, the Company revised its United Kingdom borrowing arrangements. The revised agreement makes available an overdraft facility of (Pounds)4.0 million with interest at 1.25% above the bank's base rate (5.25% at November 1, 1999), a (Pounds)2.0 million floating rate term loan with interest at 1.35% above the bank's base rate and principal payable over 60 months, and a (Pounds)2.0 million fixed rate term loan with an interest rate to be established upon the drawing of the loan. The Company intends to draw the full amount of the floating rate term loan and a portion of the overdraft facility in November, 1999. The receivables and facilities of the Company in the United Kingdom secure these loans. In Argentina and South Africa, we have arrangements with several banks which allow our subsidiaries in these countries to discount or borrow against accounts receivable, generally at the prime rates of the banks involved. Those rates ranged from 16.9 percent to 18.0 percent at Page 9 October 2, 1999. Total available credit in Argentina and South Africa at October 2, 1999 was approximately $5.1 million. Debt consists of the following (in thousands of U.S. dollars):
As of As of October 2, December 31, 1999 1998 ------------- ------------- U. S. Bank Debt $ 20,628 $ 3,366 U.S. Unpresented Checks 1,299 385 U. K. Bank Debt 4,327 8,132 Argentina Bank Debt 2,729 2,120 South Africa Bank Debt 571 269 Senior Notes 125,000 125,000 Capital Lease Obligations 1,222 1,196 Other Debt 113 284 ------------- -------------- Total Debt 155,889 140,752 Current Maturities 8,720 7,336 Long Term Debt $ 147,169 $ 133,416 ============= ============== Cash 832 896 Total Debt net of Cash $ 155,057 $ 139,856 ============= ==============
The current maturities shown above represent $660,000 of required principal payments on the United Kingdom term loan, all Argentina bank debt, and management's estimate of the maximum amounts to be paid down in the next year on revolver and overdraft facilities for which no principal repayment is specified. The Company was in violation of the fixed charge covenant of its United States bank agreement at October 2, 1999. On October 28, 1999, the bank waived the violation and the covenant was amended to reduce the fixed charge coverage requirements through December 30, 2000. The Company presently anticipates that it will be able to comply with the amended covenant. Note 7: Segment Reporting In 1998, the Company adopted SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information. Prior quarter information is restated to conform with the provisions of SFAS No. 131. Prestolite operates in four principal geographic regions. Sales in South Africa and Argentina consist largely of products for the automotive market while sales of products in the United States and United Kingdom consist largely of products for non-automotive applications. Sales between geographic segments and between operating segments are priced at cost plus a standard markup. Page 10 Sales to external customers, based on country of origin, is as follows (in thousands of U.S. dollars):
North United South America Kingdom Argentina Africa Total ----------- --------- ----------- ---------- ------------ For quarter ended October 2, 1999 $ 37,205 $ 15,380 $ 9,522 $ 3,326 $ 65,433 For quarter ended October 3, 1998 36,543 15,462 15,486 2,959 70,450 For nine months ended October 2, 1999 $ 108,193 $ 48,365 $ 29,642 $ 9,752 $ 195,952 For nine months ended October 3, 1998 106,822 54,365 46,782 9,854 217,823
During 1998, the Company began to manage itself on the basis of three business units (Heavy Duty Systems, Electric Vehicle Systems, and Automotive Systems) and to evaluate the performance of its segments based on earnings before interest expense, taxes, depreciation and amortization and excluding restructuring and option repurchase charges ("EBITDA"). Corporate overhead and certain other charges are not allocated to the divisions. During the third quarter of 1999, division locations were realigned, moving two U.S. locations out of the Automotive Systems Division and placing one each in Heavy Duty Systems and Electric Vehicle Systems. Segment assets are not currently broken out in the normal course of managing segment operations; accordingly, such information is not available for disclosure. In accordance with SFAS No. 131, the operating results for the quarters ended October 2, 1999 and October 3, 1998 are summarized by operating segment (in thousands of U.S. dollars) below:
Heavy Electric Duty Vehicle Automotive Systems Systems Systems Unallocated Division Division Divison Costs Total ---------- -------- ---------- ------------ ---------- Sales to external customers: For quarter ended October 2, 1999 $ 33,607 $ 18,978 $ 12,848 $ - $ 65,433 For quarter ended October 3, 1998 32,659 19,346 18,445 - 70,450 EBITDA: For quarter ended October 2, 1999 5,153 1,995 949 (1,131) 6,966 For quarter ended October 3, 1998 4,071 2,555 2,418 (1,433) 7,611 Sales to external customers: For nine months ended October 2, 1999 100,593 55,965 39,394 - 195,952 For nine months ended October 3, 1998 100,778 60,409 56,636 - 217,823 EBITDA: For nine months ended October 2, 1999 15,898 6,122 3,015 (3,971) 21,064 For nine months ended October 3, 1998 14,012 8,653 5,785 (4,624) 23,826
Page 11 A reconciliation of EBITDA to income from continuing operations before income taxes follows (in thousands of U.S. dollars):
For the three months ended October 2, October 3, 1999 1998 ---------------- -------------- EBITDA for reporting segments $ 6,966 $ 7,611 Depreciation and amortization 3,384 3,138 Loss in unconsolidated subsidiaries 44 - Interest expense 4,029 3,425 ---------------- -------------- Income (loss) from continuing operations before income taxes $ (403) $ 1,048 ================ ==============
For the nine months ended October 2, October 3, 1999 1998 ---------------- -------------- EBITDA for reporting segments $ 21,064 $ 23,826 Depreciation and amortization 9,527 9,015 Loss in unconsolidated subsidiaries 160 - Option repurchase - 2,101 Restructuring - 980 Interest expense 11,915 9,951 ---------------- -------------- Income (loss) from continuing operations before income taxes $ (218) $ 1,779 ================ ==============
Page 12 ITEM 2: Management's Discussion and Analysis of Financial Condition and Results of Operation. Overview We manufacture alternators, starter motors, direct current motors, battery chargers, and switching devices. These are supplied under the "Prestolite," "Leece-Neville," "Hobart," "Lucas," and "Indiel" brand names for original equipment and aftermarket application on a variety of vehicles and industrial equipment. "Hobart" is used under license from a subsidiary of Illinois Tool Works, Inc. "Lucas" is used under license from a subsidiary of LucasVarity plc. Most of our products are component parts used on diesel engines, automobiles and electric vehicles, sold to both aftermarket customers and original equipment manufacturers. We sell our products to a variety of markets, in terms of both end-use and geography. In January 1998, we acquired three businesses from a subsidiary of LucasVarity plc. These businesses operate in England, South Africa, and Argentina. We purchased these businesses for approximately $44.3 million in cash, net of cash acquired and including the assumption of $3.2 million in debt, plus certain future obligations, as described in Note 2 to the financial statements. The Lucas acquisition was financed from the sale of $125.0 million of 9.625% senior notes due 2008 issued under Rule 144A of the Securities Act of 1933, as amended. Proceeds from the offering of our senior notes were also used to repay existing debt in the United States and United Kingdom, to repurchase all the warrants issued to holders of the Company's subordinated debt, to repurchase 40% of the common stock held by Genstar Capital Corporation, to repurchase 8.5% of the common stock held by management and to repurchase 40% of the options held by management. The total cost associated with the repurchase of these securities was approximately $29.7 million. In January 1999, we acquired a remanufacturing business that continues to operate in Saddlebrook, NJ. We purchased this business for $2.9 million, financed through our U.S. revolving line of credit. During 1998, we organized our business into three divisions. While the three divisions bear the names of their principal markets, no division sells exclusively into its target market. Further, each division has some sales into the target markets of the other divisions. The Heavy Duty Systems Division produces alternators, starter motors, inline pumps, control boxes and other products, primarily for installation on diesel engines used in the heavy duty, defense, marine and industrial markets. The division's major facilities are in Arcade, NY; Florence, KY; Acton, England; and Leyland, England, with a smaller remanufacturing facility in Garfield, NJ (previously located in Saddlebrook, NJ and reported with the Automotive Systems Division). The Electric Vehicle Systems Division produces motors (including starter motors, material handling motors, and pump and winch motors), controls (including contactors, solenoids, relays, distributors, and control boxes), battery chargers and other products. The division's major facilities are in Decatur, AL; Wagoner, OK; Florence, KY; Troy, OH; and Leyland, England, with a smaller remanufacturing facility in Dearborn, MI (previously reported with the Automotive Systems Division). We sell these products into many of the same markets as the Page 13 products of our Heavy Duty Systems Division. In addition, the products of our Electric Vehicles Systems Division are sold into the material handling market for installation on or use with lift trucks and other electric vehicles; the truck accessory market for use in winches, snow plow lifts and other applications; and the telecommunications market where contactors are used in battery backup systems. The Automotive Systems Division manufactures automotive components, primarily alternators and starter motors. The division's facilities are in South Africa and Argentina. The Argentina operation also manufactures steering columns and distributors. Some of the products of this division are sold into the heavy duty and material handling markets. In both South Africa and Argentina more than half of our sales are to the automotive aftermarket, and about half of those aftermarket sales are products purchased for resale. Results of Operations Three Months Ended October 2, 1999 Compared to Three Months Ended October 3, 1998 Sales for the three months ended October 2, 1999 were $65.4 million, a decrease of $5.0 million, or 7.1%, from $70.5 million in the third quarter of 1998. The decrease in sales dollars is mainly attributable to the Automotive Systems Division. Automotive Systems sales declined $7.9 million or 45.9%. An Argentina sales decline of $7.8 million and a $0.1 million South Africa sales decline comprise this total. Heavy Duty Systems sales increased $3.3 million or 10.0%. Heavy Duty Systems sales in the United Kingdom declined $0.7 million but were offset by a $4.0 million increase in Heavy Duty Systems sales in the United States, including $1.1 million in Roberts Remanufacturing sales. While Heavy Duty Systems defense sales in the United States declined $2,000, or 0.2%, other U.S. sales, not including the Roberts Remanufacturing sales, increased by $2.8 million, or 15.0%. Electric Vehicle Systems sales declined $0.4 million or 1.9%. Contributing to this were declines in defense sales of $0.4 million, or 21.7%, material handling sales of $0.4 million, or 17.1%, and Beech Remanufacturing sales of $74,000, or 13.2%. These declines were offset by Electric Vehicle sales increases in the United Kingdom of $0.3 million, or 14.8%, and in other U.S. sales of $0.2 million, or 1.3%. Gross profit was $12.9 million in the third quarter of 1999, or 19.6% of sales. This compares to gross profit of $14.3 million, or 20.2% of sales, in the third quarter of 1998. Lower sales volume, higher material costs, and a shift to sales of lower margin products contributed to this decline. Selling, general, and administrative expense was $9.5 million, or 14.5% of sales, for the third quarter of 1999, a decrease of $0.3 million, or 2.9%, from $9.7 million, or 13.8% of sales, in the third quarter of 1998. Reduction in selling, general, and administrative expense in our international locations continues to reflect the cost control benefits of the integration of the businesses acquired in the Lucas acquisition. This reduction is offset in part by the increased selling, general, and administrative expense in the U.S. Heavy Duty Systems due to the Roberts acquisition. Operating income in the third quarter of 1999 was $3.4 million, or 5.2% of sales, a decrease of $1.1 million, or 25.2%, from the $4.5 million, or 6.4% of sales, in the third quarter of 1998. This was due to the factors discussed above. Other income was $201,000 in the third quarter of 1999 versus other expenses of $47,000 in the third quarter of 1998. This consists of the net effect of interest income, pension expense for Page 14 inactive defined benefit pension plans associated with United States facilities that have been closed, foreign currency exchange losses, royalty expenses, South Africa export rebate income and South Africa trademark expense. Interest expense was $4.0 million in the third quarter of 1999, an increase of $0.6 million, or 17.6%, compared to $3.4 million in the third quarter of 1998. This increase is due to increases in bank debt in the United States and the United Kingdom. The provision for income taxes was $312,000, 69.8% of the loss from continuing operations before taxes, for the third quarter of 1999 as compared to the $369,000 provision for income taxes for the third quarter of 1998, 35.2% of income from continuing operations before taxes and the extraordinary item. The change in the tax rate is due to losses in Argentina for which no tax benefit has been recorded. Nine Months Ended October 2, 1999 Compared to Nine Months Ended October 3, 1998 Sales for the nine months ended October 2, 1999 were $196.0 million, a decrease of $21.9 million, or 10.0%, from $217.8 million in the first nine months of 1998. The decrease in sales dollars is mainly attributable to the Automotive Systems Division. Automotive Systems sales declined $17.2 million or 30.4%. An Argentina sales decline of $17.1 million and a South Africa sales decline of $0.1 million comprise this decline. Heavy Duty Systems sales declined $185,000 or 0.2%. Heavy Duty Systems sales in the United Kingdom declined $6.5 million but were offset by a $6.4 million increase in Heavy Duty Systems sales in the United States, including an increase of $3.7 million in Roberts Remanufacturing sales for the period. While Heavy Duty Systems defense sales in the United States declined $0.5 million, or 14.2%, other heavy Duty systems sales in the United States increased by $3.2 million, or 6.2%, not including the $3.7 million increase in Roberts Remanufacturing sales. Electric Vehicle Systems sales declined $4.4 million or 7.4%. Contributing to this were declines in defense sales of $3.2 million, or 44.7%, in material handling sales of $1.6 million, or 21.9%, Beech Remanufacturing sales of $208,000, or 11.5%, and other U.S. sales of $0.1 million. Electric Vehicle Systems sales in the United Kingdom increased $540,000, or 6.5%, partially offsetting the declines in other areas. Gross profit was $39.1 million in the first nine months of 1999, or 19.9% of sales. This compares to gross profit of $43.7 million, or 20.1% of sales, for the first nine months of 1998. The decrease in gross profit as a percent of sales results from several factors. Ongoing cost cutting measures in the United Kingdom and Argentina have reduced overhead costs. The benefit of these reductions is offset by declining volume, higher material costs, and a shift in sales to lower margin products at some locations. The Roberts Remanufacturing business, acquired in January 1999, has higher margins than the company average, mitigating some of the decline. Selling, general, and administrative expense was $28.8 million, or 14.7% of sales, for the first nine months of 1999, a decrease of $0.6 million, or 2.0%, from $29.4 million, or 13.5% of sales, in the first nine months of 1998. Reduction in selling, general, and administrative expense in our international locations continues to reflect the cost control benefits of the integration of the businesses acquired in the Lucas acquisition. This reduction is offset in part by the increased selling, general, and administrative expense in U.S. Heavy Duty Systems due to the Roberts acquisition. Page 15 We recorded a $2.1 million charge in January of 1998 to reflect our repurchase from management of 40% of then-outstanding options to purchase our common stock. We also recorded a first quarter charge in 1998 of $1.0 million to cover severance payments related to restructuring activities at our facilities in Leyland, England and Decatur, Alabama. Of this total, $0.5 million was spent in 1998 and $0.2 million was spent in the first nine months of 1999. The remainder is expected to be spent during the fourth quarter of 1999. Operating income in the first nine months of 1999 was $10.3 million, or 5.3% of sales, a decrease of $967,000, or 8.6%, from the $11.3 million, or 5.2% of sales, in the first nine months of 1998. This was due to the factors discussed above. Other income was $1.2 million in the first nine months of 1999 versus $475,000 in the first nine months of 1998. This consists of South Africa export rebate income, the elimination of a lawsuit-related reserve in Argentina in 1999, proceeds on the sales of fixed assets, interest income, and miscellaneous income. These were partially offset by pension expense for inactive defined benefit pension plans associated with United States facilities that have been closed, foreign currency exchange losses, royalty expenses, and South Africa trademark expense. Interest expense was $11.9 million in the first nine months of 1999, an increase of $2.0 million, or 19.7%, compared to $9.9 million in the first nine months of 1998. This increase is due to increases in bank debt in the United States, United Kingdom and South Africa, as well as increases in capital leases, as compared to levels of debt in the first nine months of 1998. The provision for income taxes was $1.1 million on the $378,000 loss from continuing operations before taxes for the first nine months of 1999. This compares to a provision for income taxes of $632,000 for the first nine months of 1998, 35.5% of income from continuing operations before taxes and the extraordinary item. The higher 1999 tax rate is due to losses in Argentina for which tax benefits have not been recorded. In conjunction with the incurrence of additional debt, the refinancing of our existing debt and repurchase of warrants, we recorded an extraordinary item of $1.3 million net-of-tax in 1998. On a pretax basis this charge covered $728,000 in debt prepayment fees, $335,000 for the write-off of unamortized financing costs, $733,000 to write off the unamortized discount on subordinated debt and $195,000 related to the repurchase of warrants. Liquidity and Capital Resources Cash used by operating activities in the first nine months of 1999 was $6.2 million. Capital spending for the first nine months of 1999 was $6.8 million, a $1.0 million reduction from the $7.8 million of capital spending in the first nine months of 1998. Capital spending for the first nine months of 1999 in the Unites States was $3.7 million as compared to capital spending in 1998 of $4.9 million. Capital spending for the first nine months of 1999 in the United Kingdom of $1.4 million, in Argentina of $1.4 million, and in South Africa of $0.3 million, compares to the first nine months of 1998 levels in the United Kingdom of $1.6 million, in Argentina of $0.7 million, and in South Africa of $0.6 million. Planned capital expenditures consist primarily of expenditures to reduce costs through automation, replace existing equipment and enable us to manufacture new products. Page 16 We spent $4.9 million in 1998 and $1.4 million in the first nine months of 1999 on redundancy costs. We expect to spend approximately $1.4 million in the fourth quarter of 1999 on redundancy costs. These amounts have been or will be charged to the reserves established in connection with the Lucas acquisition in 1998 or as a result of the 1998 restructuring charge discussed above. In connection with the acquisition of our Argentina operations from Lucas in 1998, we agreed to certain future obligations to Lucas. Remaining obligations include post-closing payments to Lucas of up to $3.0 million upon the collection of certain receivables expected to be collected in 1999, 2000, and 2001, up to $4.9 million contingent upon the collection of certain fully-reserved receivables and up to $6.6 million contingent upon the achievement by our Argentina subsidiary of certain earnings targets in 1999 and 2000. Aggregate payments for receivables collected totaled $1.1 million in 1998 and $0.1 million in the first nine months of 1999. We expect to pay any of these contingencies from the collection of receivables or from such earnings. Debt, net of cash, increased from $139.9 million at December 31, 1998 to $155.1 million at October 2, 1999. The increase was due, in part, to the acquisition of the Roberts Remanufacturing business in January 1999. We had revolving credit facilities with banks in the United States and United Kingdom under which additional borrowings of $1.9 million and $5.4 million were available based on the October 2, 1999 levels of receivables (United States and United Kingdom) and inventory (United States only) which are pledged to support that debt. In addition, during July 1999, we modified our U.S. bank agreement to allow borrowings above the amount supported by receivables and inventory. The additional amount is $3.0 million effective July 30, 1999 declining in steps to zero at December 1, 1999. 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 October 2, 1999 was approximately $1.9 million. In November 1999, we increased the amounts which can be borrowed in the United Kingdom, as described in Note 6 to the financial statements. We expect our liquidity needs to consist primarily of working capital needs and scheduled payments of principal and interest on our indebtedness. We expect our short-term liquidity needs to be provided by operating cash flows and borrowings under our revolving credit facilities. We expect to fund our long-term liquidity needs from our operating cash flows, the issuance of debt and/or equity securities and bank borrowings. We believe that cash flows from operations, our existing cash balances and amounts available under these revolving credit facilities will provide adequate funds for on going operation, planned capital expenditures, investments, and debt service for at least the next twelve months. Estimates as to working capital needs and other expenditures may be materially affected if the foregoing sources are not available or do not otherwise provide sufficient funds to meet our obligations. Year 2000 Currently, many automated systems and software products are coded to accept only two digit entries in the date code field. These date code fields will need to accept four digit entries or otherwise be modified to distinguish 21st century dates from 20th century dates. As a result, many companies' information systems and software need to be upgraded or replaced in order to function correctly after December 31, 1999. We have completed our Year 2000 assessments of our information technology and embedded systems, and are continuing efforts to prepare our systems and applications for the Year 2000 as Page 17 part of a larger, general program to enhance all of our computer systems. The Year 2000 element of these efforts consists primarily of installing or upgrading enterprise resource planning systems to be Year 2000 compliant at our United States, United Kingdom and Argentina facilities, and ensuring compliance by an outside service bureau utilized by our South African facility. All software remediation efforts are complete as of October 2, 1999. Because the majority of our operations outside of the United States were acquired in early 1998 and these operations were not Year 2000 compliant, our efforts to deal with the Year 2000 issue outside the United States required a larger investment than our domestic programs. In Argentina, a new Year 2000 compliant system has been installed. In the United Kingdom, a system used in two locations was replaced with Year 2000 compliant systems, while the system in use at a third location was upgraded for Year 2000 compliance. In addition, we have reviewed our product base and believe that our products will not be affected by Year 2000 issues. In connection with the overall computer enhancement program, including Year 2000 compliance, we expect to incur aggregate internal and third party costs of approximately $3.0 million, of which approximately $2.6 million had been incurred by the third quarter of 1999. The $3.0 million total includes approximately $0.5 million related to in-house efforts to enhance the performance of our United States warehousing systems, approximately $1.0 million for each of the United Kingdom and Argentina software conversions and approximately $0.5 million related to ancillary Year 2000 efforts. We rely on third party vendors and service providers for certain products and services, including certain data processing capabilities. We are communicating with our principal vendors and service providers to assess the Year 2000 readiness of their products and services. Responses indicate that our significant providers currently have compliant versions available or are well into renovation and testing phases with completion scheduled prior to December 31, 1999. However, we can give no guarantee that the systems of these vendors and service providers in which we rely will be timely Year 2000 compliant. Our contingency planning for Year 2000 issues related primarily to securing backup vendors (which have been identified for key purchased products) and the possibility of stockpiling raw materials. Contingency planning will continue throughout 1999 and our plans will be modified based upon the progress of our remediation efforts, system updates and installations and based upon our communications with selected suppliers. While we believe that the estimated cost of becoming Year 2000 compliant will not be significant to our results of operations, failure to complete all the work in a timely manner could have a material adverse effect on our results of operations. While we expect all planned work to be completed, we cannot guarantee that all systems will be in compliance by the Year 2000, that the systems of suppliers and other companies and government agencies on which we rely will be converted in a timely manner or that our contingency planning will be able to fully address all potential interruptions. Therefore, date-related issues could cause delays in our ability to produce or ship our products, process transactions or otherwise conduct business in any of our markets. Forward-Looking Statements This form 10-Q contains, in addition to historical information, forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact included herein may contain forward-looking statements. Forward-looking statements generally can be identified by the use of forward-looking terminology such as Page 18 "may", "will", "expect", "intend", "estimate", "anticipate", "believe", or "continue" or the negative thereof or variations thereon or similar terminology. Such forward-looking statements are based upon information currently available in which our management shares its knowledge and judgement about factors that they believe may materially affect our performance. We make the forward-looking statements in good faith and believe them to have a reasonable basis. However, such statements are speculative, speak only as of the date made and are subject to certain risks, uncertainties and assumptions. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results could vary materially from those anticipated, estimated or expected. Factors that might cause actual results to differ materially from those in such forward-looking statements include, but are not limited to, those discussed in the "Management's Discussion and Analysis of Financial Condition and Results of Operations." All subsequent written and oral statements that we make are qualified in their entirety by these factors. Page 19 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 24, 1999 By: /s/ Kenneth C. Cornelius ------------------------ Kenneth C. Cornelius Senior Vice President and Chief Financial Officer (principal financial and accounting officer) Page 20 -----END PRIVACY-ENHANCED MESSAGE-----