DETROIT - Fuel-system supplier Pilot Industries Inc. spent millions of dollars establishing a business that could meet its automotive customers' technical and global needs.
But last year, it had to admit that once it built up its capabilities, it could not get enough money for its contracts - especially for new programs related to its biggest customer, Ford Motor Co. - to survive.
Now owners of the Dexter, Mich.-based company are wrapping up a planned sale through U.S. Bankruptcy Court in Detroit to financial buyer Cerberus Institutional Buyers LP for $41.5 million in cash and limited debts. The sale is slated for completion by Feb. 1.
Pilot entered Chapter 11 on Dec. 10 listing more than $36 million in secured debt and another $20 million in unsecured debt. The company posted sales of $287 million in its last fiscal year. The filing also came with a buyer in hand, Cerberus, through newly formed Cerberus Pilot Acquisition LLC.
Advisers were unable to find another official bidder for the business, despite nearly a year of searching.
Pilot must complete a sale by Feb. 1, according to requirements in the financial agreement that provides funds for continued operations.
Cerberus specializes in taking over troubled companies. In 2000 and early 2001 it was behind the scenes in a bid to buy Key Plastics LLC out of Chapter 11, eventually losing out to fellow financial buyer Carlyle Management Group.
Led by majority owner and Chief Executive Officer Robert A. Davis, Pilot opened in 1977 and produces thermoplastic fuel lines as well as injection molded connectors, composite fuel-tank heat shields and brake lines. It also has its own tooling capabilities.
Pilot touts itself as the first company to produce thermoplastic fuel lines for the U.S. auto industry, and the company has built on its manufacturing and technical expertise. By 2000, it made itself into one of the few companies capable of producing a complete fuel system, teaming its plastic hoses and connectors to a hydroformed steel tank.
But in its court filing, the firm also admitted that its extensive investments in becoming a full-service supplier had stretched its financial limits, and it could not make up enough on contracts.
``The capitalized costs were amortized and offset against a future revenue stream of [contract] charges included in the piece price,'' Pilot stated in an October overview of its fiscal position. ``Upon review of the product development expenses vs. the recoupment of these costs via part sales, the company underrealized on its recoupment of the costs to launch the Ford programs.''
With 75 percent of its sales directly or indirectly to Ford, Pilot also was hit hard by the slowdown at the automaker that began in 2000. Adding to that was the high cost of expanding into overseas markets, the firm said.
It had recorded rising sales since 1998, climbing from $217.5 million in the 1997-98 fiscal year ended in March, to $265.7 million in 1998-99 and $279.3 million for 1999-2000, before posting $287 million for the year ended March 31, 2001.
But at the same time, the costs of doing business increased. Pilot posted a profit of $5.7 million for 1997-98, but had a loss of $6.9 million the following year, a loss of $8.3 million in 1999-2000 and a loss of $12.7 million for the year ended March 31, 2001.
In 1999 it hired Lawrence Parker as president and chief operating officer to turn around the company and help refocus its operations. But deteriorating conditions in 2000 damaged the firm, and, by early 2001, it had defaulted on a loan and creditors forced it to seek outside help.
Pilot has operated on a cash-only basis with most suppliers since February 2001. Since then it also has made extensive adjustments to operations, cutting staff to 1,600 from 2,200 and closing nine of its 19 worldwide plants. It still operates two facilities in its Dexter corporate headquarters, as well as plants in Reed City and Clare, Mich.; North Vernon, Ind.; and in Mexico, England, Argentina, Brazil and the Netherlands.
It finally entered Chapter 11 to complete its sale to Cerberus, though consultants continued the search for competitive bidders into early January. Lawyers for Pilot and Cerberus expected to continue hammering out details of the purchase plan through the final days of January, but the sale was slated to close on schedule before the end of the month.