-----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, QZUQbdJ7Sl443LMvEkYMQ2zFFyPwkfqlpyREgJdPvcwtAVguqBHsnMtetNultPNz FlGD6If4BXq6WK7FXNSCpQ== /in/edgar/work/0000912057-00-049687/0000912057-00-049687.txt : 20001115 0000912057-00-049687.hdr.sgml : 20001115 ACCESSION NUMBER: 0000912057-00-049687 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ELGAR HOLDINGS INC CENTRAL INDEX KEY: 0001061976 STANDARD INDUSTRIAL CLASSIFICATION: [3679 ] IRS NUMBER: 510373329 STATE OF INCORPORATION: DE FISCAL YEAR END: 0102 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 333-55797 FILM NUMBER: 764939 BUSINESS ADDRESS: STREET 1: 9250 BROWN DEER ROAD CITY: SAN DIEGO STATE: CA ZIP: 92121 BUSINESS PHONE: 6194500085 MAIL ADDRESS: STREET 1: 9250 BROWN DEER ROAD CITY: SAN DIEGO STATE: CA ZIP: 92121 10-Q 1 a2029200z10-q.txt FORM 10-Q ================================================================================ UNITED STATES 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, AS AMENDED For the quarterly period ended September 30, 2000 OR /_/ 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 1-333-55797 ----------------------------- ELGAR HOLDINGS, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 51-0373329 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 9250 BROWN DEER ROAD SAN DIEGO, CALIFORNIA 92121-2294 (Address of Principal Executive Offices) (Zip Code) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (858) 450-0085 ----------------------------- 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, as amended, 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 November 13, 2000, the number of shares outstanding of the Registrant's Common Stock was 4,600,000. ================================================================================ ELGAR HOLDINGS, INC. QUARTERLY REPORT ON FORM 10-Q INDEX
PAGE NUMBER ------ PART I FINANCIAL INFORMATION Item 1 Consolidated Financial Statements Consolidated Statements of Operations for the three and nine months ended October 2, 1999 (unaudited) and September 30, 2000 (unaudited)............. 3 Consolidated Balance Sheets as of January 1, 2000 and September 30, 2000 (unaudited)................................................................ 4 Consolidated Statements of Cash Flows for the nine months ended October 2, 1999 (unaudited) and September 30, 2000 (unaudited)........................ 5 Notes to Consolidated Financial Statements (unaudited)....................... 6 Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations.......................................................... 10 Item 3 Quantitative and Qualitative Disclosures About Market Risks...................... 13 PART II OTHER INFORMATION Item 6 Exhibits and Reports on Form 8-K................................................. 14
2 ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS ELGAR HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (IN THOUSANDS)
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED -------------------------- ------------------------- OCTOBER 2, SEPTEMBER 30, OCTOBER 2, SEPTEMBER 30, 1999 2000 1999 2000 ---------- ------------- ---------- ------------- Net sales ....................................... $ 14,125 $ 16,980 $ 42,355 $ 47,147 -------- Cost of sales ................................... 8,419 10,086 24,612 27,214 -------- -------- -------- -------- Gross profit .................................... 5,706 6,894 17,743 19,933 Selling, general and administrative expense ..... 2,467 2,828 7,754 8,268 Research and development and engineering expense........................................ 1,430 1,678 4,450 5,092 Amortization expense ............................ 609 608 1,823 1,826 ---------- ------------- ---------- ------------- Operating income ................................ 1,200 1,780 3,716 4,747 Interest expense, net ........................... 2,594 2,650 7,881 7,899 ---------- ------------- ---------- ------------- Loss before income tax benefit .................. (1,394) (870) (4,165) (3,152) Income tax benefit .............................. (312) -- (937) (21) ---------- ------------- ---------- ------------- Net loss ........................................ $ (1,082) $ (870) $ (3,228) $ (3,131) ========== ============= ========== =============
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 3 ELGAR HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
JANUARY 1, 2000 SEPTEMBER 30, 2000 --------------- ------------------ (UNAUDITED) ASSETS CURRENT ASSETS: Cash and cash equivalents ................................................... $ 4,479 $ 405 Accounts receivable, net of allowance for doubtful accounts of $152 and $155, respectively........................................................ 7,253 8,682 Inventories ................................................................. 7,623 10,599 Deferred income taxes ....................................................... 796 796 Prepaids and other .......................................................... 984 385 --------------- ------------------ Total current assets .................................................... 21,135 20,867 --------------- ------------------ PROPERTY, PLANT AND EQUIPMENT, at cost, net of accumulated depreciation and amortization of $3,093 and $3,773, respectively ............................ 2,343 2,830 INTANGIBLE ASSETS, net of accumulated amortization of $8,076 and $10,452, respectively ............................................................... 34,414 32,038 DEFERRED INCOME TAXES, net of current portion ................................. 653 653 --------------- ------------------ $ 58,545 $ 56,388 =============== ================== LIABILITIES AND STOCKHOLDERS' DEFICIT CURRENT LIABILITIES: Accounts payable ............................................................ $ 1,748 $ 3,072 Accrued expenses ............................................................ 7,665 5,653 Current portion of long-term debt ........................................... 1,250 4,000 Line of credit .............................................................. -- 2,100 --------------- ------------------ Total current liabilities ............................................... 10,663 14,825 LONG-TERM DEBT, net of current portion ........................................ 98,750 96,000 --------------- ------------------ Total liabilities .................................................... 109,413 110,825 --------------- ------------------ SERIES A 10% CUMULATIVE REDEEMABLE PREFERRED STOCK, no par value, 20,000 shares authorized; 10,000 shares issued and outstanding................................................................. 10,707 11,762 --------------- ------------------ STOCKHOLDERS' DEFICIT: Series B 6% Cumulative Convertible Preferred Stock, no par value, 5,000 shares authorized, issued and outstanding .......................... 5,000 5,000 Series C 6% Cumulative Convertible Preferred Stock, no par value, 4,000 shares authorized, issued and outstanding .......................... 4,000 4,000 Common Stock, $.01 par value, 15,000,000 shares authorized; 4,600,000 shares issued and outstanding ................................................... 46 46 Additional paid-in capital .................................................. (68,581) (68,581) Accumulated deficit ......................................................... (2,040) (6,664) --------------- ------------------ (61,575) (66,199) --------------- ------------------ $ 58,545 $ 56,388 =============== ==================
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 4 ELGAR HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (IN THOUSANDS)
FOR THE NINE MONTHS ENDED ----------------------------- OCTOBER 2, SEPTEMBER 30, 1999 2000 --------- ------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss .................................................................. $(3,228) $(3,131) Adjustments to reconcile net loss to net cash used in operating activities: Amortization of intangibles ........................................... 2,374 2,376 Depreciation and amortization on property, plant and equipment ........ 670 655 Loss (Gain) on sale of property, plant and equipment ................. 25 (16) (Increases) decreases in assets: Accounts receivable ................................................ (1,929) (1,429) Inventories ........................................................ 1,407 (2,976) Prepaids and other ................................................. (100) 599 Increases (decreases) in liabilities: Accounts payable ................................................... (848) 1,324 Accrued liabilities ................................................ 308 (224) Interest Payable ................................................... (2,224) (2,226) --------- ------------- Net cash used in operating activities ..................................... (3,545) (5,048) --------- ------------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property, plant and equipment ................................ (501) (1,126) --------- ------------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from preferred stock issuance .................................... 4,000 -- (Repayments) borrowing on debt ............................................ (4,000) 2,100 Payments under capital leases ............................................. (5) -- --------- ------------- Net cash (used in) provided by financing activities ....................... (5) 2,100 --------- ------------- NET DECREASE IN CASH AND CASH EQUIVALENTS ................................... (4,051) (4,074) CASH AND CASH EQUIVALENTS, beginning of period .............................. 6,507 4,479 --------- ------------- CASH AND CASH EQUIVALENTS, end of period .................................... $ 2,456 $ 405 ========= ============= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid for interest .................................................... $ 9,612 $ 9,567 Cash received from income taxes ........................................... (585) (784) NON-CASH INVESTING AND FINANCING ACTIVITIES: Series A preferred stock dividend-in-kind ................................. $ 842 $ 930 Series B and Series C preferred stock dividend accrual .................... 358 438 Accretion of discount on Series A preferred stock ......................... 125 125
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS 5 1. COMPANY OPERATIONS Elgar Holdings, Inc., a Delaware corporation (the "Company"), manufactures and sells programmable power and high power supply units through its direct and indirect wholly owned subsidiaries, Elgar Electronics Corporation ("Elgar") and Power Ten, for semiconductors, telecommunications, measurement and control and defense applications. The Company's primary sales are within the United States and Europe. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION/BASIS OF PRESENTATION The accompanying consolidated financial statements as of and for the three and nine months ended September 30, 2000 include the accounts of the Company, its wholly owned subsidiary, Elgar, and Elgar's wholly owned subsidiary, Power Ten. All significant intercompany accounts and transactions have been eliminated. These financial statements have been prepared in accordance with generally accepted accounting principles and with the instructions to Form 10-Q. The Company suggests that these financial statements be read in conjunction with the financial statements and notes thereto included in the Company's Form 10-K for the fiscal year ended January 1, 2000. These financial statements include all adjustments (consisting of normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of financial condition, results of operations and cash flows for such periods. INTERIM ACCOUNTING PERIODS The Company operates and reports financial results on a fiscal year of 52 or 53 weeks ending the Saturday closest to December 31. Interim periods include 13 or 14 weeks ending the last Saturday closest to the end of the quarter. Results of operations for the three and nine months ended September 30, 2000 are not necessarily indicative of the results to be expected for the Company's fiscal year ending December 30, 2000. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 6 INVENTORIES Inventories, which include materials, direct labor and manufacturing overhead, are stated at the lower of cost (first-in, first-out) or market and are comprised of the following (in thousands):
JANUARY 1, 2000 SEPTEMBER 30, 2000 --------------- ------------------ (UNAUDITED) Raw materials............................... $3,789 $5,403 Work-in-process............................. 2,482 4,063 Finished goods.............................. 1,352 1,133 --------------- ------------------ Total.................................. $7,623 $10,599 =============== ==================
RECENT ACCOUNTING PRONOUNCEMENTS In June 1998, the FASB issued SFAS No. 133 "Accounting for Derivative Instruments and for Hedging Activities." SFAS No. 133 requires that all derivatives be recorded on the balance sheet as an asset or liability measured at its fair value with changes in fair value recognized currently in earnings unless hedge accounting criteria are met. In June 1999, the FASB issued SFAS No. 137 which deferred the implementation of SFAS No. 133 to all fiscal quarters of fiscal years beginning after June 15, 2000. SFAS No. 133, as further amended in June 2000 by SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities," establishes accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded on the balance sheet as either an asset or liability measured at its fair value. The Company will adopt these standards on December 31, 2000 and record its interest rate swap at fair market value. The Company has not yet determined what impact, the adoption of SFAS No. 133, as amended by SFAS No. 138, will have on its consolidated financial statements, results of operations or related disclosures thereto. In December 1999, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" (SAB 101). This bulletin draws on existing accounting rules and provides specific guidance on how those accounting rules should be applied to revenue recognition. In June 2000, the SEC issued SAB 101B which deferred the implementation of SAB 101 to the fourth quarter for fiscal years beginning after December 15, 1999. The Company believes that its accounting policies conform to the current provisions of SAB 101. In July 2000, the Emerging Issues Task Force ("EITF") reached a consensus on EITF 00-10, "Accounting for Shipping and Handling Fees and Costs." EITF 00-10 requires that all amounts billed to a customer in a sales transaction related to shipping and handling, if any, represent revenue to the vendor and should be classified as revenue. There has been no consensus at this time on the treatment for the related costs. This EITF will be effective in the fourth quarter of fiscal years beginning after December 15, 1999. The Company has not yet determined what impact, if any, the adoption of EITF 00-10 will have on its consolidated financial statements, results of operations or related disclosures thereto. 3. CONCENTRATIONS OF CREDIT RISK In the quarter ended September 30, 2000, sales to one customer accounted for approximately 10% of the Company's net sales. In the quarter ended October 2, 1999, sales to one customer accounted for approximately 21% of the Company's net sales, and in the nine months ended October 2, 1999, sales 7 to two customers accounted for approximately 20% and 13% of the Company's net sales. No other customers individually represented more than 10% of net sales in the three months ended October 2, 1999 and September 30, 2000 or the nine months ended October 2, 1999 and September 30, 2000. The Company performs ongoing credit evaluation of its customers' financial condition. The Company maintains reserves for potential credit losses. 4. CREDIT FACILITY AND CAPITAL CALL AGREEMENT On March 10, 2000, in anticipation of Elgar's noncompliance with the EBITDA and fixed charge covenants for the quarter ended April 1, 2000 contained in Elgar's credit facility, Elgar, the Company and the banks under the credit facility entered into a third amendment to the credit agreement governing the facility. In addition to receiving waivers for any covenant violations both before and after giving effect to the third amendment, the third amendment (i) resets the fixed charge coverage ratio for the quarter ended April 1, 2000 and for following quarters of fiscal 2000 and (ii) resets the minimum EBITDA levels for the quarter ended January 1, 2000 and for the following quarters of fiscal 2000. Elgar was in compliance with the covenants contained in the amended credit agreement as of September 30, 2000 and expects to be in compliance through the end of fiscal 2000. If the Company were to determine that it would not be able to meet those debt covenants for the quarter ending March 31, 2001 or any successive periods, the Company would then seek to enter into negotiations with Bankers Trust, the agent under its credit facility, to renegotiate the applicable covenants, as it did for 2000. If any such renegotiations were required, as they may be for the period ending March 31, 2001, although the Company believes that it would be successful in renegotiating the relevant covenants, no assurances can be given that it would be able to do so. The Company believes that funds available under its lines of credit and anticipated funds from operations should be sufficient to satisfy its projected working capital, debt service and capital expenditure needs in the normal course of business. The Company is currently in compliance with its debt covenants. The Company has a $5.0 million working capital line of credit available to it under the credit facility. At September 30, 2000, the Company had outstanding $2,100,000 under the line of credit bearing interest at variable rates. The line of credit expires on February 3, 2003. The Company, Elgar and the Company's majority shareholder are parties to a capital call agreement with Bankers Trust Company, as agent (the "Capital Call Agreement"). Pursuant to the terms of this agreement, the majority shareholder agreed to contribute up to $5.0 million of capital to the Company upon the occurrence of certain events, including the Company's failure to comply with certain covenants contained in the capital call agreement. The Company was in compliance with these covenants for the quarter ended September 30, 2000. 5. CONVERTIBLE PREFERRED STOCK In connection with the acquisition of Power Ten, the Company issued 5,000 shares of Series B 6% Cumulative Convertible Preferred Stock (the "Series B Preferred Stock") for cash proceeds of $5.0 million. This offering, which was made in compliance with the subscription rights contained in the Company's Shareholders Agreement, was completed on May 29, 1998. In connection with entering into the first amendment to the credit agreement, the Company's majority shareholder made a $4.0 million capital contribution to the Company. In order to effectuate the contribution, the Company issued 4,000 shares of Series C 6% Cumulative Convertible Preferred Stock (the "Series C Preferred Stock") for cash proceeds of $4.0 million. This offering, which was made in compliance with the subscription rights contained in the Company's Shareholders Agreement, was completed on March 30, 1999. Dividends are payable to the holders of the Series B Preferred Stock and Series C Preferred Stock at the annual rate per share of 6% times the sum of (x) $1,000 and (y) accrued but unpaid dividends. For the series B Preferred Stock, dividends are payable semi-annually on April 30 and 8 October 31. For the Series C Preferred Stock, dividends are payable semi-annually on March 31 and September 30. These dividends are payable when and if declared by the Board of Directors out of funds legally available therefor. During the three months ended September 30, 2000, the Company accrued $84,210 of dividends on the Series B Preferred Stock and $63,729 of dividends on the Series C Preferred Stock. 6. SERIES A REDEEMABLE PREFERRED STOCK Dividends are payable quarterly to the holders of Series A cumulative redeemable preferred stock at 10% per year. The dividends are payable in-kind through January 31, 2001 and in cash thereafter except under certain conditions as outlined in the indenture governing the Company's $90 million of senior notes. 7. INTEREST RATE SWAP On June 22, 1998, the Company entered into an interest rate swap agreement with a bank with a notional amount of $7.5 million. Under the swap agreement, the Company is required to make a payment based on a fixed rate of 5.83% on each March 24, June 24, September 24 and December 24. This swap agreement continues for the life of the related term loan agreement, with the notional amounts of the swap decreasing as principal decreases on the related loan agreement, terminating on June 25, 2001. The Company receives a floating rate based on three-month LIBOR on the same dates as described above. In connection with the swap agreement, the Company has included settlement income of $18,000 and $33,000, respectively, in interest expense, net, in its consolidated statements of operations for the three and nine months ended September 30, 2000. 8. STOCK SPLIT In July 2000, the Board of Directors and the shareholders approved (i) a two-for-one stock split of the Company's common stock, (ii) an increase in the number of authorized shares of common stock from 5,000,000 to 15,000,000 and (iii) an amendment to the Company's stock option plan to increase the number of shares of common stock reserved under the plan from 979,526 to 1,164,082. All references to shares included in the accompanying financial statements and notes thereto have been restated to reflect the two for one stock split. 9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the unaudited Consolidated Financial Statements and Notes thereto of the Company included elsewhere herein. This report contains certain forward-looking statements and information relating to the Company that are based on the beliefs of management as well as assumptions made by, and information currently available to management. The words "anticipates," "believes," "estimates," "expects," "plans," "intends" and similar expressions, as they relate to the Company or its management, are intended to identify forward-looking statements. Such statements reflect the current views of the Company, with respect to future events and are subject to certain risks, uncertainties and assumptions, that could cause actual results to differ materially from those expressed in any forward-looking statement, including, without limitation: competition from other manufacturers in the Company's industry, loss of key employees and/or general economic conditions. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described herein as anticipated, believed, estimated or expected. The Company does not intend to update these forward-looking statements. RESULTS OF OPERATIONS The following table sets forth certain income statement information for the Company as a percentage of net sales for the three months ended October 2, 1999 and September 30, 2000:
THREE MONTHS ENDED NINE MONTHS ENDED -------------------------- -------------------------- OCTOBER 2, SEPTEMBER 30, OCTOBER 2, SEPTEMBER 30, 1999 2000 1999 2000 ---------- ------------- ---------- ------------- Net sales ................................. 100.0% 100.0% 100.0% 100.0% Cost of sales ............................. 59.6 59.4 58.1 57.7 ---------- ------------- ---------- ------------- Gross profit .......................... 40.4 40.6 41.9 42.3 Selling, general and administrative expense.................................. 17.5 16.6 18.3 17.5 17.5 Research and development and engineering expenses ............................... 10.1 9.9 10.5 10.8 Amortization expense ...................... 4.3 3.6 4.3 3.9 ---------- ------------- ---------- ------------- Operating income ...................... 8.5% 10.5% 8.8% 10.1% ========== ============= ========== =============
COMPARISON OF THE THREE MONTHS ENDED SEPTEMBER 30, 2000 TO THE THREE MONTHS ENDED OCTOBER 2, 1999 NET SALES. Net sales for the quarter ended September 30, 2000 were $17.0 million, an increase of $2.9 million, or 20.6%, from net sales of $14.1 million for the quarter ended October 2, 1999. This increase was mainly due to an increase in sales of programmable DC power products, including sales of Sorensen and Power Ten products and sales to Racal, partially offset by a decrease in sales of Space Systems and CASS program products. GROSS PROFIT. Gross profit for the quarter ended September 30, 2000 was $6.9 million, an increase of $1.2 million, or 21.1%, from gross profit of $5.7 million for the quarter ended October 2, 1999. As a percentage of net sales, gross profit increased from 40.4% for the quarter ended October 2, 1999 to 40.6% for the quarter ended September 30, 2000. 10 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative ("SG&A") expenses were $2.8 million for the quarter ended September 30, 2000, an increase of $0.3 million, or 12.0%, from SG&A expenses of $2.5 million for the quarter ended October 2, 1999. SG&A expenses decreased as a percentage of net sales from 17.5% for the quarter ended October 2, 1999 to 16.6% for the quarter ended September 30, 2000. The increase in SG&A dollars was primarily due to higher commissions, increased compensation and higher advertising expenses in the quarter ended September 30, 2000 compared to the quarter ended October 2, 1999. RESEARCH AND DEVELOPMENT AND ENGINEERING EXPENSES. Research and development and engineering expenses were $1.7 million for the quarter ended September 30, 2000, an increase of $0.3 million, or 21.4%, from research and development and engineering expenses of $1.4 million for the quarter ended October 2, 1999. As a percentage of net sales, research and development and engineering expense decreased from 10.1% for the quarter ended October 2, 1999 to 9.9% for the quarter ended September 30, 2000. The increase in dollars was mainly due to less customer-funded research and development expense and higher compensation costs for the quarter ended September 30, 2000 as compared to the quarter ended October 2, 1999. AMORTIZATION EXPENSE. Amortization expense was $0.6 million for each of the quarters ended September 30, 2000 and October 2, 1999. OPERATING INCOME. Operating income was $1.8 million for the quarter ended September 30, 2000, an increase of $0.6 million, or 50.0%, from operating income of $1.2 million for the quarter ended October 2, 1999. Operating income increased as a percentage of net sales from 8.5% for the quarter ended October 2, 1999 to 10.5% for the quarter ended September 30, 2000, due to the factors discussed above. INCOME TAXES. Income taxes for the three months ended October 2, 1999 contained a tax benefit of $0.3 million, compared to zero tax benefit for the three months ended September 30, 2000. For the quarter ended October 2, 1999, the Company had generated losses that resulted in carryback benefits that were reflected in income. Losses generated in the quarter ended September 30, 2000 do not have a carryback benefit and thus the benefit has not been recognized in income as its realization is uncertain. COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 2000 TO THE NINE MONTHS ENDED OCTOBER 2, 1999. NET SALES. Net sales for the nine months ended September 30, 2000 were $47.1 million, an increase of $4.7 million, or 11.1%, from net sales of $42.4 million for the nine months ended October 2, 1999. This increase was mainly due to an increase in sales of programmable DC power products, including sales of Sorensen and Power Ten products and sales to Racal, partially offset by a decrease in sales of Space Systems and CASS program products. GROSS PROFIT. Gross profit for the nine months ended September 30, 2000 was $19.9 million, an increase of $2.2 million, or 12.4%, from gross profit of $17.7 million for the nine months ended October 2, 1999. As a percentage of net sales, gross profit increased from 41.9% for the nine months ended October 2, 1999 to 42.3% for the nine months ended September 30, 2000 due to efficiencies resulting from increasing sales volumes. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. SG&A expenses were $8.3 million for the nine months ended September 30, 2000, an increase of $0.5 million, or 6.4%, from SG&A expenses of $7.8 million for the nine months ended October 2, 1999. SG&A expenses decreased as a percentage of net sales from 18.3% for the nine months ended October 2, 1999 to 17.5% for the nine months ended 11 September 30, 2000. The dollar increase was primarily due to higher commissions, higher advertising expenses and higher sales and marketing expenses in the nine months ended September 30, 2000 compared to the nine months ended October 2, 1999. RESEARCH AND DEVELOPMENT AND ENGINEERING EXPENSES. Research and development and engineering expenses were $5.1 million for the nine months ended September 30, 2000, an increase of $0.6 million, or 13.3%, from research and development and engineering expenses of $4.5 million for the nine months ended October 2, 1999. As a percentage of net sales, research and development and engineering expense increased from 10.5% for the nine months ended October 2, 1999 to 10.8% for the nine months ended September 30, 2000. The increase in both dollars and as a percentage of net sales was mainly due to higher compensation expense and an increase in the cost of engineering materials for the nine months ended September 30, 2000 as compared to the nine months ended October 2, 1999. AMORTIZATION EXPENSE. Amortization expense was $1.8 million for each of the nine months ended September 30, 2000 and October 2, 1999. OPERATING INCOME. Operating income was $4.7 million for the nine months ended September 30, 2000, an increase of $1.0 million, or 27.0%, from operating income of $3.7 million for the nine months ended October 2, 1999. Operating income increased as a percentage of net sales from 8.8% for the nine months ended October 2, 1999 to 10.1% for the nine months ended September 30, 2000, due to the factors discussed above. INCOME TAXES. Income taxes for the nine months ended October 2, 1999 contained a tax benefit of $0.9 million, compared to a tax benefit of approximately $21,000 for the nine months ended September 30, 2000. For the nine months ended October 2, 1999, the Company generated losses that resulted in carryback benefits that were reflected in income. Losses generated in the nine months ended September 30, 2000 do not have a carryback benefit and thus have not been recognized in income as its realization is uncertain. LIQUIDITY AND CAPITAL RESOURCES CASH FLOW. The Company's principal uses of cash are to finance working capital, debt service and capital expenditures. Historically, the Company has funded its activities principally from working capital, a revolving line of credit and the sale of convertible preferred stock to its stockholders. On each of December 31, 2000 and March 31, 2001, the Company is required to make $875,000 principal payments on its outstanding term loan under the credit facility. In addition, on February 1, 2001 an interest payment of approximately $4.5 million is due to the holders of the Company's senior notes. The Company believes that funds available under its line of credit and anticipated funds from operations should be sufficient to satisfy the Company's projected working capital, debt service and capital expenditure needs in the normal course of business. The Company is currently in compliance with the debt covenants contained in its credit facility and expects to be in compliance through the end of 2000. If the Company were to determine that it would not be able to meet those debt covenants for the quarter ending March 31, 2001 or any successive periods, the Company would then seek to enter into negotiations with Bankers Trust, the agent under its credit facility, to renegotiate the applicable covenants, as it did for 2000. If any such renegotiations were required, as they may be for the period ending March 31, 2001, although the Company believes that it would be successful in renegotiating the relevant covenants, no assurances can be given that it would be able to do so. SOURCES OF CAPITAL. The Company anticipates that its principal sources of cash will be cash flow from operations together with amounts available under the Company's line of credit with Bankers Trust, which provides for borrowings of up to $5,000,000. As of September 30, 2000, the Company has utilized $2.1 million of the line of credit leaving $2.9 million available for other cash flow needs. 12 CAPITAL EXPENDITURES. The Company's capital expenditures were $1,126,000 and $501,000 in the nine months ended September 30, 2000 and nine months ending October 2, 1999, respectively. The Company's capital expenditures were $310,000 and $153,000 in the three months ended September 30, 2000 and three months ending October 2, 1999, respectively. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS We have only limited involvement in derivative financial instruments. We do not hold or issue derivative financial instruments for trading purposes. As of September 30, 2000, $10,000,000 of outstanding borrowings under our credit facility are at variable interest rates and we are thus subject to market risk resulting from interest rate fluctuations. We enter into interest rate swaps in part to alter interest rate exposures. Interest rate swaps allow us to raise long-term borrowings at floating rates and effectively swap them into fixed rates that are lower than those available to us if fixed-rate borrowings were made directly. Under interest rate swaps, we agree with another party to exchange, at specified intervals, the difference between fixed-rate and floating-rate amounts calculated by reference to an agreed notional principal amount. As of September 30, 2000, all but $2,500,000 of our long-term bank debt was covered by this swap arrangement. Thus, our exposure with respect to upward movements in interest rates is this portion of our bank debt. In addition, we are exposed to market risks related to fluctuations in interest rates on our $90,000,000 of senior notes outstanding at September 30, 2000. For fixed rate debt such as the senior notes, changes in interest rates generally affect the fair value of the debt instrument. We do not have an obligation to repay the senior notes prior to maturity in February 2008 and, as a result, interest-rate risk and changes in fair value should not have a significant impact on us. The tables below provide information as of September 30, 2000 about our derivative instruments and other financial instruments that are sensitive to changes in interest rates.
LONG TERM BANK DEBT (VARIABLE RATE) Principal amount $10,000,000 (1) Variable interest rate 9.625% (2) Maturity--loan February 3, 2003 Remaining principal payments: 2000 $375,000 2001 $3,625,000 2002 $4,000,000 2003 $2,000,000
- ------------------- (1) $7,500,000 of this amount is covered by the interest-rate swap arrangement described below. (2) Renewals are based on the Eurodollar Rate plus 2.75%.
REVOLVING BANK DEBT (VARIABLE RATE) Line of credit limit $5,000,000 Principal amount outstanding $2,100,000 Variable interest rate (1)
- ------------------- (1) Renewals are based on the Eurodollar Rate plus 2.75% or current Base Rate. 13
INTEREST RATE SWAP ARRANGEMENT (FIXED RATE) Parties The Company (fixed rate payor) and Bankers Trust Company (floating rate payor) Notional amount $7,500,000 Fixed interest rate 5.83% (1) Floating interest rate 6.66% for the current period (2) Swap interest (credit) $(32,962) (3) Commencement date June 24, 1998 Maturity date June 25, 2001
- ------------------- (1) As the fixed interest rate payor, the Company is required to pay a fixed rate of 5.83% per annum on the $7,500,000 notional amount, payable quarterly on each March 24, June 24, September 24 and December 24. (2) As the floating rate payor, Bankers Trust Company is required to pay a floating rate of interest on the $7,500,000 notional amount, based on the three-month London Interbank Offering Rate (LIBOR), payable quarterly on each March 24, June 24, September 24 and December 24. (3) In connection with the swap agreement, the Company recorded $33,000 as a credit to interest expense for the nine months ended September 30, 2000.
SENIOR NOTES (FIXED RATE) Principal amount outstanding $90,000,000 Fixed interest rate 9.875% Maturity date February 1, 2008
PART II OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) EXHIBITS. EXHIBIT NO. DESCRIPTION 27 Financial Data Schedule (b) No current reports on Form 8-K were filed during the quarter ended September 30, 2000. 14 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ELGAR HOLDINGS, INC. Dated: November 14, 2000 By: /s/ CHRISTOPHER W. KELFORD -------------------------- Christopher W. Kelford Vice President--Finance, Chief Financial Officer, Treasurer and Assistant Secretary EX-27 2 a2029200zex-27.txt EXHIBIT 27
5 3-MOS 3-MOS 9-MOS 9-MOS 12-MOS JAN-01-2000 DEC-30-2000 JAN-01-2000 DEC-30-2000 JAN-01-2000 JUL-04-1999 JUL-02-2000 JAN-03-1999 JAN-02-2000 JAN-03-1999 OCT-02-1999 SEP-30-2000 OCT-02-1999 SEP-30-2000 JAN-01-2000 0 0 0 405 4479 0 0 0 0 0 0 0 0 8837 7405 0 0 0 (155) (152) 0 0 0 10599 7623 0 0 0 20867 21135 0 0 0 6603 5436 0 0 0 (3773) (3093) 0 0 0 56388 58545 0 0 0 14825 10663 0 0 0 90,000 90,000 0 0 0 11762 10707 0 0 0 9000 9000 0 0 0 46 46 0 0 0 (75245) (70621) 0 0 0 56388 58545 14125 16980 42355 47147 0 14125 16980 42355 47147 0 8419 10086 24612 27214 0 3897 4494 12175 13348 0 609 608 1823 1826 0 0 12 29 12 0 2594 2650 7881 7899 0 (1394) (870) (4165) (3152) 0 (312) 0 (937) (21) 0 (1082) (870) (3228) (3131) 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 (1082) (870) (3228) (3131) 0 0 0 0 0 0 0 0 0 0 0
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