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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(Mark one)
/ X / Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the Quarterly Period Ended
March 29, 2003.
/ / Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the Transition Period From
to .
-------------- -----------------
Commission file Number 333-49429-01
PRESTOLITE ELECTRIC HOLDING, INC.
---------------------------------
(Exact name of registrant as specified in its charter)
Delaware 94-3142033
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
2311 Green Road, Ste. B., Ann Arbor, Michigan 48105
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(Address of principal executive offices) (Zip Code)
(734) 913 - 6600
----------------
(Registrant's telephone number, including area code)
Not Applicable
--------------
(Former name, address, and former fiscal year, if changed since last report)
Indicate whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to the filing
requirements for the past 90 days.
Yes X No
---------- -----------
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date:
Number of common shares outstanding
Class: as of May 12, 2003
Common Stock 1,969,000
FORM 10-Q
TABLE OF CONTENTS
PART I: ITEM 1: FINANCIAL INFORMATION
Condensed Consolidated Balance Sheets
at March 29, 2003 (unaudited) and December 31, 2002 3
Condensed Consolidated Statements of Operations
Three months ended March 29, 2003 and March 30, 2002 4
Condensed Consolidated Statements of Cash Flows
Three months ended March 29, 2003 and March 30, 2002 5
Notes to Condensed Consolidated Financial Statements 6
Item 2: Managements Discussion and Analysis of Financial
Condition and Results of Operations 13
Item 4: Internal Controls and Procedures 16
PART II: OTHER INFORMATION 17
Signatures 18
Certification of the Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002 19
Certification of the Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002 20
Page 2
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
PRESTOLITE ELECTRIC HOLDING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
March 29, December 31,
2003 2002
--------- ---------
Assets (Unaudited)
Current Assets:
Cash $ 3,400 $ 4,386
Accounts receivable, net of allowances 30,279 28,264
Inventories, net 43,237 38,699
Prepaid and other current assets 2,914 2,675
--------- ---------
Total current assets 79,830 74,024
Property, plant and equipment, net 31,686 33,032
Investments 577 577
Goodwill 3,965 4,048
Other intangibles, net 3,514 3,393
Long-term receivables and pension assets 3,872 3,435
Net assets of discontinued operations 2,151 1,976
--------- ---------
Total assets $ 125,595 $ 120,485
========= =========
Liabilities
Current Liabilities:
Revolving credit $ 7,521 $ 3,575
Current portion of long-term debt 877 740
Accounts payable 17,849 16,118
Accrued liabilities 11,756 15,006
--------- ---------
Total current liabilities 38,003 35,439
Long-term debt 104,535 105,125
Other non-current liabilities 10,084 9,955
--------- ---------
Total liabilities 152,622 150,519
Minority interest 6,462 5,908
Stockholders' equity (deficit)
Common stock, par value $.01, 5,000,000 shares authorized,
1,969,000 shares issued and outstanding
at March 30, 2003 and December 31, 2002 2 2
Paid-in capital 16,957 16,957
Accumulated deficit (2,961) (5,151)
Notes receivable, employees' stock purchase, 7.74% due 2002 (105) (105)
Treasury stock, 1,334,000 shares on March 30, 2003
and December 31, 2002 (24,900) (24,900)
--------- ---------
Total stockholders' deficit before accumulated other
comprehensive income (loss) (11,007) (13,197)
Minimum pension liability (9,156) (9,156)
Foreign currency translation adjustment (13,326) (13,589)
--------- ---------
Accumulated other comprehensive income (loss) (22,482) (22,745)
Total stockholders' equity (deficit) (33,489) (35,942)
--------- ---------
Total liabilities and stockholders' equity (deficit) $ 125,595 $ 120,485
========= =========
The accompanying notes are an integral part of the condensed consolidated
financial statements.
Page 3
PRESTOLITE ELECTRIC HOLDING, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share amounts)
For the three months ended
--------------------------
March 29, March 30,
2003 2002
----------- -----------
Net sales $ 42,377 $ 36,641
Cost of goods sold 31,086 28,109
----------- -----------
Gross profit 11,291 8,532
Selling, general and administrative 5,679 5,555
Severance charges 22 91
----------- -----------
Operating income 5,590 2,886
Interest expense 2,726 2,871
Foreign exchange (gains) losses (206) 576
Minority interest expense 555 318
Other expense (income) (79) 67
----------- -----------
Income (loss) before income taxes 2,594 (946)
Provision for income taxes 404 159
----------- -----------
Net income (loss) 2,190 (1,105)
Other comprehensive income (loss):
Foreign currency translation adjustment 263 (4,732)
----------- -----------
Comprehensive income (loss) $ 2,453 $ (5,837)
=========== ===========
Basic earnings (loss) per common share $ 1.11 $ (0.56)
Diluted earnings (loss) per common share $ 1.08 $ (0.56)
Basic weighted average shares outstanding 1,969,000 1,985,000
Diluted weighted average shares outstanding 2,035,754 1,985,000
The accompanying notes are an integral part of the condensed consolidated
financial statements.
Page 4
PRESTOLITE ELECTRIC HOLDING, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
For the three months ended
--------------------------
March 29, March 30,
2003 2002
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 2,190 $ (1,105)
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating activities:
Depreciation 1,660 1,553
Amortization 185 195
Minority interest income 554 318
Loss on sale of property, plant, and equipment 5 3
Deferred gain on sale and leaseback (48) (48)
Changes in working capital items (7,992) (4,701)
-------- --------
Net cash provided by (used in) continuing operating activities (3,446) (3,785)
Net cash provided by (used in) discontinued operations (175) 3,188
-------- --------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (3,621) (597)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (1,152) (721)
Proceeds from disposal of fixed assets 201 -
Acquisition of Mosal - (179)
Investment in affiliates (147) -
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (1,098) (900)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in revolving line of credit 4,017 1,122
Payments on long-term debt (164) (314)
Borrowings (payments) on capital leases (104) (116)
Other financing costs, net (238) (5)
-------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 3,511 687
Effect of exchange rate changes on cash 222 (270)
-------- --------
Net increase (decrease) in cash (986) (1,080)
Cash - beginning of period 4,386 2,907
-------- --------
CASH - END OF PERIOD $ 3,400 $ 1,827
======== ========
The accompanying notes are an integral part of the condensed
consolidated financial statements.
Page 5
PRESTOLITE ELECTRIC HOLDING, INC. AND SUBSIDIARIES
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 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,
2002. These statements reflect all adjustments, including items of a normal
recurring nature, which are, in the opinion of management, necessary for the
fair presentation of the consolidated financial position, results of operations,
and cash flows for the interim periods 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, 2002. The results of
operations for the three-month period ended March 29, 2003 are not necessarily
indicative of the operating results that may be expected for the full year or
any other interim period.
On January 22, 2002, the 1,920,000 shares of Prestolite Electric Holding, Inc.
formerly held by Genstar Capital Corporation were distributed to the 39
shareholders of Genstar Capital Corporation. The voting power associated with
the shares is exercised by Genstar Capital Corporation.
NOTE 2: GOODWILL AND INTANGIBLE ASSETS
In 2001 the Financial Accounting Standards Board issued Statement of Accounting
Standard No. 142, "Goodwill and Other Intangible Assets". SFAS 142 eliminated
the requirement to amortize goodwill and indefinite-lived intangible assets,
addressed the amortization of intangible assets with a defined life and required
impairment testing and recognition for goodwill and intangible assets. SFAS No.
142 is effective for 2002. Effective January 1, 2002 we adopted SFAS No. 142 and
accordingly no longer amortize goodwill. Goodwill is instead assessed for
impairment at least annually. For purposes of testing this goodwill for
potential impairment, fair values were determined based upon the anticipated
earning multiples of the operating units. Both the initial analysis and the
analysis at December 31, 2002 indicated that the fair value exceeded the
corresponding carrying value.
Page 6
PRESTOLITE ELECTRIC HOLDING, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
Changes in goodwill for the three months ended March 29, 2003 follow (in
thousands):
Goodwill, December 31, 2002 $ 4,048
Impact of changes in foreign currency (83)
--------
Goodwill, March 29, 2003 $ 3,965
========
Amortizable intangible assets consist of the following (in thousands):
as of March 29, 2003 as of December 31, 2002
----------------------- ---------------------------
Accumulated Accumulated Weighted
Gross Amortization Gross Amortization Average Life
------- ------------ ------ ------------ ------------
Licenses $ 226 $ (159) $ 226 $ (151) 7 years
MOSAL 879 (205) 699 (135) 10 years
Financing Costs 4,613 (2,635) 4,613 (2,533) 10 years
Technology 948 (153) 801 (127) 10 years
Total Net
----------- -----------
Amortizable Assets $ 3,514 $ 3,393
=========== ===========
NOTE 3: INVENTORIES
Inventories are summarized as follows (in thousands):
As of As of
March 29, December 31,
2003 2002
--------- -----------
FIFO cost:
Raw material $ 22,040 $ 19,519
Work in progress 5,976 3,919
Finished goods 18,678 18,315
--------- ---------
Total FIFO cost $ 46,694 $ 41,753
Adjustment to LIFO cost 738 778
Reserves (4,195) (3,832)
--------- ---------
$ 43,237 $ 38,699
========= =========
Page 7
PRESTOLITE ELECTRIC HOLDING, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
NOTE 4: PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following (in thousands):
As of As of
March 29, December 31,
2003 2002
---------- ------------
Land & buildings $ 15,916 $ 16,649
Machinery & equipment 55,077 53,471
Construction in progress 1,229 1,617
---------- ------------
Total, at cost $ 72,222 $ 71,737
Accumulated depreciation (40,536) (38,705)
---------- ------------
Net $ 31,686 $ 33,032
========== ============
NOTE 5: DEBT
Debt consists of the following (in thousands):
As of As of
March 29, December 31,
2003 2002
--------- ----------
North America
Float $ 963 $ 130
Senior unsecured notes, 9.625% 98,533 98,533
Revolving credit 3,585 -
--------- ---------
Total 103,081 98,663
United Kingdom
Overdraft facility 467 1,425
Term loan 5,464 5,752
South Africa 1,498 990
Argentina - -
MOSAL obligation 1,010 1,040
China - -
--------- ---------
Total 8,439 9,207
Total term, revolving credit and senior debt 111,520 107,870
Capital lease obligations 1,374 1,456
Other 39 114
--------- ---------
Consolidated total 112,933 109,440
Less current maturities 8,398 4,315
--------- ---------
Consolidated long term debt $ 104,535 $ 105,125
========= =========
Page 8
PRESTOLITE ELECTRIC HOLDING, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
Our U.S. bank borrowing arrangements consist of a $10 million revolving credit
facility and a $3.5 million revolving credit and letter of credit facility.
Interest is payable on amounts borrowed under the revolving credit facility at
the bank's prime rate plus up to another 0.75% depending upon amounts borrowed
and our Funded Debt Ratio. We were paying interest at prime, 4.25% at March 29,
2003. The letter of credit fee is 2% of amounts drawn. Both U.S. facilities are
collateralized by eligible accounts receivable and inventory. On March 29, 2003,
letters of credit totaling $0.5 million were outstanding.
The 9.625% (interest payable semiannually) 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 notes mature on February 1, 2008, and are redeemable at our
option, in whole or in part, beginning on February 1, 2003 at amounts from
104.8125% to 100% of the principal plus accrued interest. The senior notes are
more fully described in our Prospectus dated June 26, 1998.
Our U.K. agreement consists of a (pound)3.6 million variable rate term loan and
a (pound)2.3 million overdraft facility. Interest on the variable rate loan is
1.375% above the bank's base rate (3.75% at March 29, 2003) and interest on the
overdraft is at 1.25% above the base rate. The term loan is repayable in sixty
monthly payments through December 2007. The U.K. loans are collateralized by
eligible receivables and fixed assets in the United Kingdom. The Company was in
violation of one U.K. debt covenant at December 31, 2002, which was waived by
the U.K. bank.
At March 29, 2003 and December 31, 2002 we had no Argentine bank debt or
discounted checks outstanding. In March 2002 our Argentine subsidiary acquired
an Argentine corporation ("MOSAL") with certain tax benefits for 4.0 million
Argentine pesos: 500,000 pesos in cash and 3.5 million pesos due over the next
three years. The 3.5 million pesos are shown in the table above as $1.0 million
of "MOSAL obligation" at December 31, 2002 and 3.0 million pesos are recorded as
$1.0 million at March 29, 2003.
In South Africa we borrow from a bank at the bank's prime lending rate. This
loan is supported by a pledge of South African receivables and fixed assets.
In China, the joint venture obtained a bank line of credit in 2002 for Rmb 10.0
million ($1.2 million translated at 8.28 Rmb to one U.S. dollar on March 29,
2003). The term of this agreement is one year. There were no borrowings at March
29, 2003 and December 31, 2002.
We classified $8.4 million of debt as current at March 29, 2003. This consisted
of principal payments of $1.0 million due in the United Kingdom, principal
payments of $0.4 million due on lease rental obligations, $0.5 million due for
the MOSAL obligations, and $6.5 million of revolving debt which we expect (but
are not obligated) to pay down over the following twelve months.
The senior notes and bank arrangements mentioned above contain various covenants
including maintenance of certain financial ratios and limits on (a) issuance of
additional debt or preferred stock; (b) the payment of dividends and purchases,
redemptions or retirements of common stock;
Page 9
PRESTOLITE ELECTRIC HOLDING, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
(c) investments; (d) sale of assets and capital stock of subsidiaries; and (e)
certain consolidations, mergers, transfers of assets and certain other
transactions with affiliates. Our U.S. bank covenants require us to maintain a
Funded Debt Ratio of not more than 6.5:1 and a Fixed Charge Coverage Ratio of
not less that 1:1, as those terms are defined in our bank agreements. The
foreign facilities contain covenants that pertain to the foreign operations.
NOTE 6: SEVERANCE
We record severance expense when plans are announced and employees notified. The
severance charged to operations in the table below is related to personnel
reductions in the United Kingdom and in Argentina for the first quarter of 2003.
The following is a summary of the severance charges and outlays (in thousands):
Beginning balance, December 31, 2002 $ 1,915
Severance charged to operations 22
Payments (1,331)
Currency change 85
------------
Ending balance, March 29, 2003 $ 691
============
Page 10
PRESTOLITE ELECTRIC HOLDING, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
NOTE 7: DISCONTINUED OPERATIONS
Net assets related to discontinued operations at March 29, 2003 and December 31,
2002 are presented below (in thousands):
As of As of
March 29, December 31,
2003 2002
------------ -------------
(Unaudited)
In escrow $ 536 $ 536
Facility held for sale 3,246 3,246
Accrued transaction costs, estimated sale price reductions,
and provision for lease guarantee (1,631) (1,806)
------------- -------------
Total $ 2,151 $ 1,976
============= =============
NOTE 8: ARGENTINA
Beginning in 1991 the Argentine government maintained the value of its currency
such that one Argentine peso equaled one U.S. dollar. During the second half of
2001, Argentina suffered a severe economic and monetary crisis. During most of
December 2001 and early January 2002 the banks in Argentina were closed. On
January 14, 2002, the banks reopened and the Argentina peso traded at $0.606 per
peso (1.65 pesos per dollar). The peso traded at $0.3396 (2.94 pesos per dollar)
on March 30, 2002 and as a result of using this rate, we recorded a first
quarter 2002 foreign exchange loss of $585,000 and a charge to other
comprehensive income of $4.4 million representing the cumulative translation
adjustment. The Argentine peso ended 2002 with a value of $0.2972 and we used
that rate to translate the December 31, 2002 Argentina balance sheet. The peso
traded at $0.3364 (2.97 pesos per dollar) on March 28, 2003. As a result, we
recorded a first quarter 2003 foreign exchange gain of $0.2 million and other
comprehensive income of $0.6 million representing the cumulative translation
adjustment.
Our practice in Argentina had been to borrow funds by discounting post-dated
checks received from our customers. Because Argentine banks stopped lending
during the second half of 2001, we provided financial support to our Argentine
subsidiary from North America, increasing the amount lent to that subsidiary by
$5.3 million during 2001. Also during 2001 our Argentine subsidiary reduced the
non-debt discounted checks outstanding by $3.7 million and bank debt outstanding
by $1.2 million. During 2002 we lent an additional $2.1 million to our Argentine
subsidiary and the subsidiary reduced its discounted checks outstanding and bank
debt to zero. In the first quarter of 2003, we received $0.3 million from the
Argentine subsidiary repaying part of the loan made in 2001 and 2002.
NOTE 9: GEOGRAPHIC REGIONS
Prestolite operates in five principal geographic regions; each region's revenue
and operating performance is managed and reported separately. We evaluate
operating performance based on
Page 11
PRESTOLITE ELECTRIC HOLDING, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
adjusted earnings before interest expense, taxes, depreciation, and amortization
(Adjusted EBITDA) in each geographic region. The Company defines Adjusted EBITDA
as operating income plus depreciation, amortization and other special charges.
Corporate overhead and certain other charges are not allocated to the
business/geographic units. Sales from Africa and South America consist largely
of products for automotive and light truck applications while sales of products
from North America and Europe consist largely of products for heavy-duty
applications. China sales are primarily products for medium and heavy-duty
applications.
Sales, assets and Adjusted EBITDA are summarized by geographic region as follows
(in thousands):
North South
America Europe America Africa Asia Other Total
-------- ------- ------- ------- ------- ------- --------
Sales to external customers, based on point of shipment
For quarter ended:
March 29, 2003 $ 26,213 $ 9,374 $ 3,594 $ 1,438 $ 1,758 $ - $ 42,377
March 30, 2002 $ 22,210 $ 8,538 $ 2,045 $ 1,071 $ 2,777 $ - $ 36,641
Long-lived assets (net) as of:
March 29, 2003 $ 11,650 $ 14,129 $ 1,916 $ 1,277 $ 2,714 $ - $ 31,686
December 31, 2002 $ 11,726 $ 15,094 $ 2,301 $ 1,233 $ 2,678 $ - $ 33,032
Sales to external customers, based on location of customers
For quarter ended:
March 29, 2003 $ 22,194 $ 8,509 $ 3,473 $ 1,401 $ 6,077 $723 $ 42,377
March 30, 2002 $ 23,470 $ 7,849 $ 2,022 $ 1,074 $ 1,702 $524 $ 36,641
Adjusted EBITDA
For quarter ended:
March 29, 2003 $ 5,269 $ 1,488 $ 979 $ 27 $ 989
March 30, 2002 $ 3,612 $ 1,166 $ 543 $ 74 $ 642
A reconciliation of adjusted EBITDA to net income follows (in thousands of U.S.
dollars):
For the quarter ended
March 29, March 30,
2003 2002
---------- ----------
Adjusted EBITDA of geographic regions $ 8,752 $ 6,037
Less:
Corporate costs $ 1,216 $ 1,379
Depreciation and amortization 1,845 1,748
Severance 22 91
Interest expense 2,726 2,871
Foreign exchange loss (gain) (206) 576
Minority interest expense 555 318
Provision for income taxes 404 159
---------- ----------
Net income (loss) $ 2,190 $ (1,105)
========== ==========
Page 12
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATION.
OVERVIEW
We manufacture alternators, starter motors and other items for heavy duty,
automotive, defense and industrial markets. These are supplied under the
"Prestolite," "Leece-Neville," and "Indiel" brand names for original equipment
and aftermarket application on a variety of vehicles and industrial equipment.
We sell our products to a variety of markets, in terms of both end-use and
geography.
We operate in five principal geographic regions. While each region
primarily sells in its own area, no location sells exclusively into its
geographic region.
Our North American and European facilities produce alternators, starter
motors, inline pumps, and other products, primarily for installation on diesel
engines used in the heavy duty, defense, marine and industrial markets. These
facilities are located in Arcade, NY; Florence, KY; Garfield, NJ; Acton,
England; and Leyland, England.
The African and South American facilities manufacture lighter duty
alternators and starter motors. These facilities are located in Johannesburg,
South Africa; and in Buenos Aires and San Luis, Argentina. In both South Africa
and Argentina a significant portion of our sales are to the automotive
aftermarket, and a portion of those aftermarket sales are products purchased for
resale.
Prestolite Electric Beijing, Ltd. manufactures automotive products in
China, selling primarily into the heavy-duty (non-automotive) market.
RESULTS OF OPERATIONS
Quarter Ended March 29, 2003 Compared to Quarter Ended March 30, 2002
Sales for the quarter ended March 29, 2003 were $42.4 million, an increase
of $5.7 million, or 15.7%, from $36.6 million in the first quarter of 2002. The
sales increase is mostly attributable to the North American sales of $26.2
million in the first quarter of 2003, an increase of $4.0 million, or 18.0%,
from sales in the first quarter of 2002 of $22.2 million. Other contributions to
the increase in sales included South American sales of $3.6 million, an increase
of $1.5 million or 75.6%; European sales of $9.4 million, an increase of $0.8
million or 9.8%; and African sales of $1.4 million, an increase of $0.4 million
or 34.3%. These sales increases were partially offset by Asian sales of $1.6
million, a decrease of $1.2 million, or 36.7%, from sales of $2.8 million in the
first quarter 2002. The increases in European and African sales were due to
exchange rate changes. In local currencies, European and African sales fell
slightly.
Gross profit was $11.3 million in the first quarter of 2003, or 26.6% of
sales. This compares to gross profit of $8.5 million, or 23.3% of sales, in the
first quarter of 2002. Control of product costs, a shift toward higher margin
products, and the weakening of the Argentine peso produced the improvement in
gross profit.
Page 13
Selling, general, and administrative expense was $5.7 million, or 13.4% of
sales for the first quarter of 2003, an increase of $0.1 million, or 2.2%, from
$5.6 million, or 15.2% of sales, in the first quarter of 2002. The dollar
increase in selling, general, and administrative expense is due to inflation
plus additional spending for sales and marketing.
Operating income in the first quarter of 2003 was $5.6 million, or 13.2%
of sales, an increase of $2.7 million, or 93.7%, from the $2.9 million, or 7.9%
of sales, in the first quarter of 2002. This was due to the factors discussed
above.
Other income was $79,000 in the first quarter of 2003 compared to other
expense of $67,000 in the first quarter of 2002. This consists primarily of
interest income, miscellaneous income, royalty expense, and trademark expense.
Interest expense was $2.7 million in the first quarter of 2003, a decrease
of $0.2 million compared to $2.9 million in the first quarter of 2002. This
decrease is due to the reductions in United States and United Kingdom debt and
lower interest rates on bank debt.
The provision for income taxes was $404,000, 15.6% of the income before
taxes, for the first quarter of 2003 compared to the $159,000 provision for
income taxes, 16.8% of income before tax, for the first quarter of 2002, when we
reported a pretax loss. In the first quarter of 2003 we did not record a U.S.
tax provision despite U.S. pretax income because we previously did not record a
benefit associated with U.S. operating losses.
LIQUIDITY AND CAPITAL RESOURCES
Cash used by operating activities in the first quarter of 2003 was $3.6
million. Capital spending for the first quarter of 2003 was $1.2 million, an
increase of $0.5 million from the first quarter of 2002, not including the MOSAL
transaction in 2002. Of the $1.2 million, $0.7 million was spent in the United
States and $0.5 million outside the United States. Planned capital expenditures
consist primarily of expenditures to reduce costs through automation, replace
existing equipment and enable us to manufacture new products.
Debt, net of cash, increased from $105.1 million at December 31, 2002 to
$109.5 million at March 29, 2003, an increase of $4.4 million. Factors
contributing to this increase were the $1.2 million of capital spending, a $2.0
million increase in accounts receivable, a $4.5 million increase in inventory,
and a $3.3 million decrease in accrued liabilities. The decrease in accrued
liabilities was mostly due to a $4.0 million decrease in accrued liabilities in
North America for interest paid in February on the senior notes, offset by small
changes in accrued liabilities in our international locations.
We had a cash balance of $3.4 million and revolving credit facilities with
banks in the United States and United Kingdom under which additional borrowings
of $9.3 million and $3.1 million were available based on the March 29, 2003
levels of eligible receivables (United States and United Kingdom) and inventory
(United States only) which are pledged to support that debt.
Page 14
As of March 29, 2003, we had no bank debt outstanding in China or Argentina. In
South Africa we borrow from a bank on an unsecured basis.
We expect our liquidity needs to consist primarily of working capital
needs, scheduled payments under certain contractual obligations, 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.
NEW ACCOUNTING PRONOUNCEMENTS
In April 2002, the FASB issued SFAS No.145, "Rescission of FASB Statements
No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections." With the rescission of SFAS No. 4 and 64, only gains and losses
from extinguishments of debt that meet the criteria of APB Opinion No. 30 would
be classified as extraordinary items. Accordingly, we will reclassify to other
income or expense the extraordinary gains previously recorded on the repurchase
of our senior notes.
In November 2002, the FASB issued FASB Interpretation ("FIN") No. 45,
"Guarantors Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others." FIN No. 45 clarifies disclosures
that are required to be made for certain guarantees and establishes a
requirement to record liability at fair value for certain guarantees at the time
of the guarantee's issuance. The disclosure requirements of FIN No. 45 are
currently effective. The requirement to record a liability applies to guarantees
issued or modified after December 31, 2002. We do not believe the adoption of
this portion of the Interpretation will have a material effect on our financial
condition or results of operations.
In January 2003, the FASB issued FIN No. 46, "Consolidation of Variable
Interest Entities, an Interpretation of ARB 51." FIN No. 46 requires that the
primary beneficiary in a variable interest entity consolidate the entity even if
the primary beneficiary does not have a majority voting interest. The
consolidation requirements of this Interpretation are required to be implemented
for any variable interest entity created on or after January 31, 2003. In
addition, FIN No. 46 requires disclosure of information regarding guarantees or
exposures to loss relating to any variable interest entity existing prior to
January 31, 2003 in financial statements issued after January 31, 2003. We do
not believe this Interpretation will significantly impact our financial position
or results of operations.
Page 15
FORWARD-LOOKING STATEMENTS
This form 10-Q contains, in addition to historical information,
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. All statements other than statements of
historical fact included herein may contain forward-looking statements.
Forward-looking statements generally can be identified by the use of
forward-looking terminology such as "may", "will", "expect", "intend",
"estimate", "anticipate", "believe", or "continue" or the negative thereof or
variations thereon or similar terminology. Such forward-looking statements are
based upon information currently available in which our management shares its
knowledge and judgment 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.
ITEM 4: CONTROLS AND PROCEDURES
Within the 90 days prior to the date of this report, the Company carried
out an evaluation, under the supervision and with the participation of the
Company's management, including the President and Chief Executive Officer and
the Chief Financial Officer of the Company, of the effectiveness of the design
and operation of the Company's disclosure controls and procedures pursuant to
Exchange Act Rule 13-a14. Based upon that evaluation, the principal executive
officers and Chief Financial Officer concluded that the Company's disclosure
controls and procedures are effective in timely alerting them to material
information relating to the Company (including its consolidated subsidiaries)
required to be included in the Company's periodic SEC filings.
Subsequent to the evaluation, there were no significant changes in internal
controls or other factors that could significantly affect internal controls,
including any corrective actions with regard to significant deficiencies and
material weaknesses.
Page 16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
None
Item 2. Changes in Securities.
None
Item 3. Defaults Upon Senior Securities.
None
Item 4. Submission of Matters to a Vote of Security Holders.
None
Item 5. Other Information.
None
Item 6. Exhibits and Reports on Form 8-K.
(a) Reports on Form 8-K filed in the three month period ended March
29, 2003, and incorporated by reference include:
1. 8K filed on January 30, 2003, accompanied by the press
release of January 28, 2003 announcing sales for the year
ended December 31, 2002.
2. 8K filed on February 28, 2003 accompanied by the press
release of February 27, 2003 reporting results for the year
ended December 31, 2002.
(b) Exhibits
99.1 Certification of Chief Executive Officer pursuant to Section
906 of the Sarbanes-Oxley Act of 2002
99.2 Certification of Chief Financial Officer pursuant to Section
906 of the Sarbanes-Oxley Act of 2002
Page 17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: May 12, 2003 By: /s/ Kenneth C. Cornelius
------------------------
Kenneth C. Cornelius
Executive Vice President and
Chief Financial Officer
(principal financial and
accounting officer)
Page 18
CERTIFICATION ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Prestolite Electric Holding, Inc.
(the Company) on Form 10-Q for the period ending March 29, 2003 as filed with
the Securities and Exchange Commission on the date hereof (the Report):
I, P. Kim Packard, Chief Executive Officer of the Company. certify, pursuant to
Rule 13a-14, as adopted pursuant to ss.302 of the Sarbanes-Oxley Act of 2002,
that:
(1) I have reviewed this quarterly report on Form 10-Q of the Company;
(2) Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, nor are the
statements misleading with respect to the period covered by this
quarterly report;
(3) Based on my knowledge, the financial statements and other
financial information included in this quarterly report, fairly
present in all material respects the financial condition, results
of operations and cash flows of the Company as of, and for, the
periods presented in this quarterly report;
(4) Prestolite Electric Holding, Inc.'s other certifying officers and
I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-14
and 15d-14) for the Company and we have:
a. Designed such disclosure controls and procedures to ensure
that material information relating to the Company,
including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during
the period in which this quarterly report is being
prepared;
b. Evaluated the effectiveness of the Company's disclosure
controls and procedures as of a date within 90 days prior
to the filing of this quarterly report (the Evaluation
Date); and
c. Presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and
procedures based on our evaluation as of the Evaluation
Date.
(5) The Company's other certifying officers and I have disclosed,
based on our most recent evaluation, to our auditors and the audit
committee of our board of directors:
a. All significant deficiencies in the design of operation of
internal controls which could adversely affect our ability
to record, process, summarize, and report financial data
and have identified for our auditors and material
weaknesses in internal controls; and
b. Any fraud, whether or not material, that involves
management or other employees who have a significant role
in our internal controls.
(6) The Company's other certifying officers and I have indicated in
this quarterly report whether or not there were significant
changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of
our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: May 12, 2003 By: /s/ P. Kim Packard
------------------
P. Kim Packard, President and
Chief Executive Officer
Page 19
CERTIFICATION ADOPTED PURSUANT TO
SECTION 302 THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Prestolite Electric Holding, Inc.
(the Company) on Form 10-Q for the period ending March 29, 2003 as filed with
the Securities and Exchange Commission on the date hereof (the Report):
I, Kenneth C. Cornelius, Chief Financial Officer of the Company. certify,
pursuant to Rule 13a-14, as adopted pursuant to ss.302 of the Sarbanes-Oxley Act
of 2002, that:
(1) I have reviewed this quarterly report on Form 10-Q of the Company;
(2) Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, nor are the
statements misleading with respect to the period covered by this
quarterly report;
(3) Based on my knowledge, the financial statements and other
financial information included in this quarterly report, fairly
present in all material respects the financial condition, results
of operations and cash flows of the Company as of, and for, the
periods presented in this quarterly report;
(4) The Company's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-14 and 15d-14) for the
Company and we have:
a. Designed such disclosure controls and procedures to ensure
that material information relating to the Company,
including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during
the period in which this quarterly report is being
prepared;
b. Evaluated the effectiveness of the Company's disclosure
controls and procedures as of a date within 90 days prior
to the filing of this quarterly report (the Evaluation
Date); and
c. Presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and
procedures based on our evaluation as of the Evaluation
Date.
(5) The Company's other certifying officers and I have disclosed,
based on our most recent evaluation, to our auditors and the audit
committee of our board of directors:
a. All significant deficiencies in the design of operation of
internal controls which could adversely affect our ability
to record, process, summarize, and report financial data
and have identified for our auditors and material
weaknesses in internal controls; and
b. Any fraud, whether or not material, that involves
management or other employees who have a significant role
in our internal controls.
(6) The Company's other certifying officers and I have indicated in
this quarterly report whether or not there were significant
changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of
our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: May 12, 2003 By: /s/ Kenneth C. Cornelius
------------------------
Kenneth C. Cornelius,
Executive Vice President and
Chief Financial Officer
Page 20
10-Q EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
EX-99.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
EX-99.2 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002