-----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, NHkru7Rx09Vzt62mv3hCSlenmHnePDSWF1p6nrDIwdD9O7q+o1a5J2Py0NNGmmgH umguT3tEZ8OAajuTXsW9yg== 0001021408-01-510263.txt : 20020410 0001021408-01-510263.hdr.sgml : 20020410 ACCESSION NUMBER: 0001021408-01-510263 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010930 FILED AS OF DATE: 20011114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DELCO REMY INTERNATIONAL INC CENTRAL INDEX KEY: 0001046859 STANDARD INDUSTRIAL CLASSIFICATION: MOTOR VEHICLE PARTS & ACCESSORIES [3714] IRS NUMBER: 351909253 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-13683 FILM NUMBER: 1790265 BUSINESS ADDRESS: STREET 1: 2902 ENTERPRISE DRIVE CITY: ANDERSON STATE: IN ZIP: 46013 BUSINESS PHONE: 7657786499 MAIL ADDRESS: STREET 1: 2902 ENTERPRISE DRIVE CITY: ANDERSON STATE: IN ZIP: 46013 10-Q 1 d10q.txt FORM 10-Q ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2001 COMMISSION FILE NO. 1-13683 DELCO REMY INTERNATIONAL, INC. (Exact name of registrant as specified in its charter) Delaware 35-1909253 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 2902 Enterprise Drive Anderson, Indiana 46013 (Address of principal executive offices) (Zip Code) (765) 778-6499 (Registrant's telephone number, including area code) Not Applicable (Former name, former address and former fiscal year, if changed since last report) INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. Yes X No ____ --- INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE REGISTRANT'S CLASSES OF COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE. Number of common shares outstanding Class as of October 29, 2001 -------------------- ---------------------------------------- Common Stock - Class A 1,000 Common Stock - Class B 848,286.57 Common Stock - Class C 1,677,862.79 ================================================================================ Delco Remy International, Inc. and Subsidiaries INDEX
PART I FINANCIAL INFORMATION Page Item 1 Financial Statements (Unaudited) Condensed Consolidated Balance Sheets............................ 3 Condensed Consolidated Statements of Operations.................. 4 Condensed Consolidated Statements of Cash Flows.................. 5 Notes to Condensed Consolidated Financial Statements............. 6 Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations............................................ 20 PART II OTHER INFORMATION Item 6 Exhibits and Reports on Form 8-K................................. 23 SIGNATURES........................................................................... 24
2 PART I FINANCIAL INFORMATION Item 1. Financial Statements Delco Remy International, Inc. and Subsidiaries Condensed Consolidated Balance Sheets (in thousands)
September 30, December 31, 2001 2000 -------------------- ------------------ (unaudited) Assets Current assets: Cash and cash equivalents $ 19,210 $ 24,380 Trade accounts receivable, net 208,281 173,466 Other receivables 16,868 16,205 Inventories 316,262 293,824 Deferred income taxes 15,366 16,539 Other current assets 16,038 8,909 -------------- ------------- Total current assets 592,025 533,323 Property and equipment 314,558 305,583 Less accumulated depreciation 122,507 105,743 -------------- ------------- Property and equipment, net 192,051 199,840 Deferred financing costs 13,314 8,694 Goodwill (net of accumulated amortization) 185,656 169,238 Investments in joint ventures 10,010 7,016 Other assets 7,907 6,359 -------------- ------------- Total assets $ 1,000,963 $ 924,470 ============== ============= Liabilities and stockholders' equity Current liabilities: Accounts payable $ 155,005 $ 156,075 Accrued interest payable 14,688 9,133 Accrued restructuring charges 4,789 7,692 Other liabilities and accrued expenses 44,951 33,790 Current debt 4,361 8,107 -------------- ------------- Total current liabilities 223,794 214,797 Deferred income taxes 10,684 10,155 Long-term debt, less current portion 580,156 519,284 Post-retirement benefits other than pensions 25,653 22,794 Accrued pension benefits 4,532 4,424 Other noncurrent liabilities 21,137 3,884 Commitments and contingencies Minority interest in subsidiaries 29,677 28,014 Stockholders' equity: Preferred stock - Series A 22 - Common stock: Class A shares - 182 Class B shares 1 63 Class C shares 2 - Paid-in capital 231,751 104,176 Retained earnings (deficit) (105,061) 34,269 Accumulated other comprehensive loss (21,385) (17,236) Stock purchase plan -- (336) -------------- ------------- Total stockholders' equity 105,330 121,118 -------------- ------------- Total liabilities and stockholders' equity $ 1,000,963 $ 924,470 ============== =============
See Notes to Condensed Consolidated Financial Statements 3 Delco Remy International, Inc. and Subsidiaries Condensed Consolidated Statements of Operations (Unaudited) (in thousands)
Three Month Period Nine Month Period Ended September 30 Ended September 30 ------------------------------- ------------------------------ 2001 2000 2001 2000 --------- --------- --------- --------- Net sales $ 271,090 $ 267,598 $ 804,069 $ 827,247 Cost of goods sold 223,396 216,037 653,127 656,213 --------- --------- --------- --------- Gross profit 47,694 51,561 150,942 171,034 Selling, general and administrative expenses 25,026 26,719 77,679 81,640 Amortization of goodwill and intangibles 1,880 1,605 4,994 4,583 Restructuring charge - - - 35,222 --------- --------- --------- --------- Operating income 20,788 23,237 68,269 49,589 Interest expense (16,475) (13,687) (45,122) (37,968) Non-recurring merger/tender offer expenses (1,055) - (4,731) - Other non-operating (expense) income (1,333) 1,222 (4,616) 601 --------- --------- --------- --------- Income before income tax expense, minority interest in income of subsidiaries and loss from unconsolidated joint ventures 1,925 10,772 13,800 12,222 Income tax expense 616 3,596 4,415 4,133 Minority interest in income of subsidiaries (2,301) (1,821) (6,623) (5,133) Loss from unconsolidated joint ventures (721) (39) (1,243) (495) --------- --------- --------- --------- Income (loss) before extraordinary item (1,713) 5,316 1,519 2,461 Extraordinary item: - Gain on early extinguishment of debt, net of income tax - - 698 - --------- --------- --------- --------- Net income (loss) (1,713) 5,316 2,217 2,461 Preferred stock dividends 6,843 - 14,204 - --------- --------- --------- --------- Loss attributable to common stockholders $ (8,556) $ 5,316 $ (11,987) $ 2,461 ========= ========= ========= =========
See Notes to Condensed Consolidated Financial Statements 4 Delco Remy International, Inc. and Subsidiaries Condensed Consolidated Statements of Cash Flows (Unaudited) (in thousands)
Nine Month Period Ended September 30 --------------------------------- 2001 2000 ---------- --------- Operating activities: Net income $ 2,217 $ 2,461 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation 20,546 19,506 Amortization 4,994 4,583 Changes in operating assets and liabilities, net of acquisitions: Accounts receivable (34,774) 11,575 Inventories (14,213) (27,602) Accounts payable (1,105) 9,251 Other current assets and liabilities 7,844 (23,043) Restructuring charge -- 35,222 Cash payments for restructuring charges (3,848) (16,976) Other non-current assets and liabilities, net 5,896 5,156 ---------- --------- Net cash provided by (used in) operating activities (12,443) 20,133 Investing activities: Acquisitions, net of cash acquired (25,394) (62,272) Purchases of property and equipment (12,480) (23,684) ---------- --------- Net cash used in investing activities (37,874) (85,956) Financing activities: Net increase in debt 56,944 71,549 Deferred financing costs (5,561) -- Merger and tender offer costs (4,755) -- Distributions to minority interests (762) (1,200) ---------- --------- Net cash provided by financing activities 45,866 70,349 Effect of exchange rate changes on cash (719) (635) ---------- --------- Net increase (decrease) in cash and cash equivalents (5,170) 3,891 Cash and cash equivalents at beginning of period 24,380 11,362 ---------- --------- Cash and cash equivalents at end of period $ 19,210 $ 15,253 ========== =========
See Notes to Condensed Consolidated Financial Statements 5 DELCO REMY INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (dollars in thousands, except per share data) 1. Basis of Presentation Effective in the fourth quarter of calendar year 2000, the Company changed its fiscal year from July 31 to December 31. Any references to "fiscal year" are to years ending July 31. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Certain prior year amounts have been reclassified to conform to the current year's presentation. Results of operations presented for the three-month and nine-month periods of 2000 reflect the reclassification of warranty expense, benefit costs of manufacturing personnel and certain other expenses in the amount of $1,721 and $11,194, respectively, from selling, general and administrative expense to cost of goods sold. This classification is consistent with the presentation for 2001 results. Operating results for the three-month and nine-month periods ended September 30, 2001 are not necessarily indicative of the results that may be expected for the full year. The balance sheet at December 31, 2000 has been derived from the audited financial statements at that date but does not include all of the information and notes required by generally accepted accounting principles for complete financial statements. For further information, refer to the consolidated financial statements and notes thereto for the five-month transition period ended December 31, 2000 and the three fiscal years ended July 31, 2000. 2. Stockholders' Equity On February 7, 2001, the Company agreed to a going private transaction with its largest stockholder, Court Square Limited ("Court Square"), pursuant to which Court Square made a cash tender offer for all of the Company's common stock not owned by it. Following completion of the tender offer on February 23, 2001, DRI Acquisition LLC, an affiliate of Court Square, merged with the Company and all remaining common stock not owned by Court Square was eliminated and converted into the right to receive the merger consideration of $9.50 per share. Following completion of the merger on March 14, 2001, the New York Stock Exchange delisted the Company's common stock and the Company terminated the registration of its common stock under the Exchange Act. For financial accounting purposes the transaction is treated as a leveraged recapitalization whereby the assets are not revalued and the excess purchase price of the redeemed shares over the par value and paid-in capital of the shares ($127,343) has been charged to the Company's retained earnings. Stockholders' equity at September 30, 2001 reflects the Company's equity subsequent to the above transactions and the paid-in capital includes $209,234 attributable to the preferred stock - Series A with liquidation value of $100.00 per share. 6 During the second quarter of 2001, World Equity Partners, L.P. exercised its warrant to purchase 144,707.31 shares of Series A Preferred Stock and 156,554.70 shares of Class B Common Stock, which were subsequently sold to Berkshire Hathaway Inc. Also during the second quarter, Court Square Capital Limited sold 315,679.53 shares of Series A Preferred Stock and 341,524.63 shares of Class C Common Stock to Berkshire Hathaway Inc. In accordance with the Company's Amended and Restated Certificate of Incorporation, the class C shares were automatically converted into an equal number of Class B shares upon transfer. At September 30, 2001, the authorized capital stock of the Company consisted of (i) 1,000 shares of Class A Common Stock (par value $.001), of which 1,000 were issued and outstanding, (ii) 6,000,000 shares of Class B Common Stock (par value $.001), of which 848,286.57 shares were issued and outstanding, (iii) 6,000,000 shares of Class C Common Stock (par value $.001), of which 1,677,862.79 shares were issued and outstanding and (iv) 3,500,000 shares of 12% Series A Cumulative Compounding Preferred Stock (par value $.01), of which 2,237,275.36 shares were issued and outstanding. The Series A Preferred Stock has a stated value of $100.00 per share and is entitled to semi-annual cash dividends commencing September 15, 2001, when, as, and if declared, which dividends are cumulative, whether or not earned or declared, and accrue at a rate of 12%, compounding annually. Such dividends accrue from the date of issuance (March 15, 2001). At September 30, 2001, preferred dividends totaling $14,204 had been charged to retained earnings and are reflected in other non-current liabilities. The Company incurred costs of $1,055 in the third quarter of 2001 and $4,731 year-to-date in connection with the going private transaction. 3. Acquisitions On February 12, 2001, the Company acquired the assets of XL Component Distribution Limited ("XL") for approximately $2,416. XL, headquartered in Droitwich, Worcestershire, England, is involved in the remanufacturing, packaging and distribution of steering racks, brake calipers, ignition distributors, ignition leads, transmission components and rotating electrics. Goodwill of approximately $2,416 recorded in connection with the acquisition is being amortized over 20 years. On May 4, 2001, the Company acquired 100% of the stock of Auto Matic Transmission International A/S ("AMT") for approximately $500. AMT, based in Soborg, Denmark, remanufactures automatic transmissions for passenger cars and commercial vehicles. On June 28, 2001, the Company acquired the North American remanufacturing business of Mazda North American Operations ("Mazda") for approximately $17,116, including expenses and excluding future contingent payments. The business, located in Jacksonville, Florida, is responsible for the remanufacturing of Mazda automatic transmissions, transaxles and rotary engines for Mazda's service requirements in North America. The Company will continue to remanufacture these components to support Mazda's service and replacement parts needs in North America. Goodwill of approximately $17,150, which includes estimated contingent payments of $4,800 recorded in connection with the acquisition, is being amortized over 20 years. 7 Payments totaling $5,362 have been made in 2001 to the minority shareholders of World Wide Automotive, Inc. ("World Wide"), which was acquired in May 1997. These payments increased the Company's ownership percentage of World Wide from 82.5% to 87.1%. Pro forma consolidated financial information has not been presented because the effect of these acquisitions, individually or combined, would not have a material effect on consolidated results. 4. Additional Balance Sheet Information The components of inventory are as follows:
September 30, December 31, 2001 2000 ------------- ------------ Raw material $176,102 $154,550 Work-in-process 55,267 51,668 Finished goods 84,893 87,606 ------------- ------------ Total $316,262 $293,824 ============= ============
5. Accumulated Other Comprehensive Income (Loss) The Company's other comprehensive income (loss) consists of unrealized net gains and losses on the translation of the assets and liabilities of its foreign operations, currency instruments and interest rate swaps. The before tax income (loss), related income tax expense (benefit) and accumulated balance are as follows:
Foreign Accumulated Currency Other Translation Interest Rate Comprehensive Adjustment Currency Hedges Swaps Loss ------------- ----------------- --------------- --------------- Balance at December 31, 2001 $ (12,584) $ (3,629) $ (1,023) $ (17,236) Before tax (8,187) (499) (1,643) (10,329) Income tax effect (2,620) (119) (714) (3,453) ------------- ----------------- --------------- --------------- Other comprehensive loss (5,567) (380) (929) (6,876) ------------- ----------------- --------------- --------------- Balance at March 31, 2001 (18,151) (4,009) (1,952) (24,112) Before tax 1,481 3,776 73 5,330 Income tax effect 474 604 28 1,106 ------------- ----------------- --------------- --------------- Other comprehensive income 1,007 3,172 45 4,224 ------------- ----------------- --------------- --------------- Balance at June 30, 2001 (17,144) (837) (1,907) (19,888) Before tax (2,009) 828 (1,333) (2,514) Income tax effect (643) 133 (507) (1,017) ------------- ----------------- --------------- --------------- Other comprehensive income (loss) (1,366) 695 (826) (1,497) ------------ ----------------- --------------- --------------- Balance at September 30, 2001 $ (18,510) $ (142) $ (2,733) $ (21,385) ============= ================= =============== ===============
8 The Company's total comprehensive income (loss) was as follows: Three months ended September 30, 2001 $ (3,210) Three months ended September 30, 2000 1,099 Nine months ended September 30, 2001 (1,932) Nine months ended September 30, 2000 (4,990) 6. Restructuring Charges In May 2000, the Company completed plans for the realignment of certain manufacturing facilities in the United States, Canada and the United Kingdom. A one-time charge of $35,222 was recorded in June 2000 for the estimated cost of the plan. The reserve included $27,098 for the estimated cost of various voluntary and involuntary employee separation programs associated with the resulting workforce reductions. A total of $5,011 was paid in fiscal year 2000, $15,961 was paid in the five months ended December 31, 2000 and $4,609, $1,333 and $184 are estimated to be paid in calendar years 2001, 2002 and 2003, respectively. The charge also included $8,124, net of salvage value, for the write-down of certain production assets which will no longer be used as a result of the realignment. Additionally, reserves of $1,050 and $1,145 were established in connection with the acquisition of Elmot-Dr, Spz.o.o. in March 2000 and XL in February 2001, respectively. The following table summarizes the reserve for restructuring charges:
Termination Exit/Impairment Benefits Costs Total ------------- ----------------- ----------- Reserve at December 31, 2000 $ 7,362 $ 330 $ 7,692 Payments and charges in the nine-month period ended September 30, 2001 (3,769) (279) (4,048) Reserve established in acquisition of businesses 846 299 1,145 ------------- ----------------- ----------- Reserve at September 30, 2001 $ 4,439 $ 350 $ 4,789 ============= ================= ===========
7. Long-term Debt On April 26, 2001, in a private placement, the Company issued $165,000 of 11.00% senior subordinated debt due May 1, 2009 (the "Notes"). Net proceeds (after discounts, commissions and expenses) of approximately $157,000 were used to retire the GM Subordinated Debenture of approximately $19,000 including accrued interest and repay approximately $138,000 outstanding under the Company's Senior Credit Facility. Interest on the Notes will accrue at 11.00% per annum and will be payable semi-annually in arrears on May 1 and November 1, commencing on November 1, 2001. The Notes are redeemable at the option of the Company, in whole or in part, at any time on or after May 1, 2005, at the redemption prices set forth in the note agreement plus accrued and unpaid interest, if any, to the date of redemption. 9 The Notes are unsecured senior subordinated obligations of the Company. As such, they are subordinated in right of payment to all existing and future senior indebtedness of the Company, senior in right of payment to any future subordinated obligations of the Company and guaranteed by each subsidiary guarantor. In the third quarter, pursuant to an effective registration statement under the Securities Act of 1933, as amended, the Company issued 11% Senior Subordinated Notes in the aggregate principal amount of $165,000 in exchange for all of the outstanding 11% Senior Subordinated Notes that the Company issued in the April 26, 2001 private placement. The Company recorded an extraordinary gain of $698 after tax on the early retirement of the GM subordinated Debenture in the second quarter. 8. Distributions to Minority Interests Distributions to minority interests consisted of a dividend payment of $762 to the minority shareholders of Delco Remy Korea in the first quarter. 9. New Accounting Standards On June 29, 2001, the Financial Accounting Standards Board issued Statements of Financial Accounting Standards No. 141, Business Combinations ("SFAS 141") and No. 142, Goodwill and Other Intangible Assets ("SFAS 142"). SFAS 141 eliminates the pooling-of-interests method of accounting for business combinations and changes the criteria for the recognition of intangible assets apart from goodwill. The requirements of SFAS 141 are effective for any business combination initiated after June 30, 2001. Under SFAS 142, goodwill and indefinite lived intangible assets are no longer amortized but are reviewed annually, or more frequently if impairment indicators arise, for impairment. Separable intangible assets that have finite lives will continue to be amortized over their useful lives. The amortization provisions of SFAS 142 apply to goodwill and intangible assets acquired after June 30, 2001. With respect to goodwill and intangible assets acquired prior to July 1, 2001, the amortization provisions of SFAS 142 are effective upon adoption. The Company is required to adopt SFAS 142 on January 1, 2002. The Company is assessing the effect adoption of these standards will have on its financial statements. 10. Financial Information for Subsidiary Guarantors and Non-Guarantor Subsidiaries The Company conducts a significant portion of its business through subsidiaries. The 8 5/8% Senior Notes, the 10 5/8% Senior Subordinated Notes and the 11% Senior Subordinated Notes are fully and unconditionally guaranteed, jointly and severally, by certain direct and indirect subsidiaries (the Subsidiary Guarantors). Certain of the Company's subsidiaries do not guarantee the Senior Notes or the Senior Subordinated Notes (the Non-Guarantor Subsidiaries). The claims of creditors of Non-Guarantor Subsidiaries have priority over the rights of the Company to receive dividends or distributions from such subsidiaries. 10 Presented below is condensed consolidating financial information for the Company, the Subsidiary Guarantors and the Non-Guarantor Subsidiaries at September 30, 2001 and December 31, 2000 and for the three- month and nine-month periods ended September 30, 2001 and 2000. The equity method has been used by the Company with respect to investments in subsidiaries. The equity method has been used by Subsidiary Guarantors with respect to investments in Non-Guarantor Subsidiaries. Separate financial statements for Subsidiary Guarantors are not presented based on management's determination that they do not provide additional information that is material to investors. The following table sets forth the Guarantor and direct Non-Guarantor Subsidiaries:
- ------------------------------------------------------------------------------------------------------------------- Guarantor Subsidiaries Non-Guarantor Subsidiaries - ------------------------------------------------------------------------------------------------------------------- Delco Remy America, Inc. Delco Remy Hungary RT (formerly Autovill RT Ltd.) Nabco, Inc. Power Investments Canada Ltd. The A&B Group, Inc. Remy UK Limited A&B Enterprises, Inc. Delco Remy International (Europe) GmbH Dalex, Inc. Remy India Holdings, Inc. A&B Cores, Inc. Remy Korea Holdings, Inc. R&L Tool Company, Inc. World Wide Automotive Distributors, Inc. MCA, Inc. of Mississippi Kraftube, Inc. Power Investments, Inc. Tractech (Ireland) Ltd. Franklin Power Products, Inc. Central Precision Limited International Fuel Systems, Inc. Electro Diesel Rebuild BVBA Power Investments Marine, Inc. Electro-Rebuild Tunisia S.A.R.L Marine Corporation of America Delco Remy Mexico, S. de R.L. de C.V. Powrbilt Products, Inc. Publitech, Inc. World Wide Automotive, Inc. Delco Remy Brazil, Ltda. Ballantrae Corporation Western Reman Ltd. Tractech, Inc. Engine Rebuilders Ltd. Williams Technologies, Inc. Reman Transport Ltd. Western Reman, Inc. Delco Remy Remanufacturing Engine Master, L.P. Delco Remy Germany GmbH M & M Knopf Auto Parts, Inc. Remy Componentes S. de R. L. de C. V. Reman Holdings, Inc. Delco Remy Belgium BVBA Remy International, Inc. Magnum Power Products, LLC Jax Reman, LLC Elmot-DR, Sp.z.o.o. XL Component Distribution Ltd. AutoMatic Transmission International A/S - -------------------------------------------------------------------------------------------------------------------
11 Delco Remy International, Inc. and Subsidiaries Condensed Consolidating Balance Sheet September 30, 2001 (Unaudited)
Delco Remy International Inc. Non- (Parent Subsidiary Guarantor Company Only) Guarantors Subsidiaries Eliminations Consolidated ------------------ ------------ -------------- -------------- -------------- Assets Current assets: Cash and cash equivalents $ - $ 141 $ 19,069 $ - $ 19,210 Trade accounts receivable, net - 169,980 38,301 - 208,281 Other receivables - 8,035 8,833 - 16,868 Inventories - 258,530 59,860 (2,128)(c) 316,262 Deferred income taxes 13,774 - 1,592 - 15,366 Other current assets 5,224 4,872 5,942 - 16,038 ------------------ ------------ -------------- -------------- -------------- Total current assets 18,998 441,558 133,597 (2,128) 592,025 Property and equipment 40 218,349 96,169 - 314,558 Less accumulated depreciation 23 101,621 20,863 - 122,507 ------------------ ------------ -------------- -------------- -------------- Property and equipment, net 17 116,728 75,306 - 192,051 Deferred financing costs 11,935 1,379 - - 13,314 Goodwill, net - 160,561 25,095 - 185,656 Investments in affiliates 578,688 - - (568,678)(a) 10,010 Other assets 703 2,867 4,337 - 7,907 ------------------ ------------ -------------- -------------- -------------- Total assets $ 610,341 $723,093 $238,335 $(570,806) $1,000,963 ================== ============ ============== ============== ============== Liabilities and stockholders' equity Current liabilities: Accounts payable $ 1,256 $112,307 $ 41,442 $ - $ 155,005 Intercompany accounts (15,751) 18,901 (2,549) (601)(c) - Accrued interest payable 13,934 734 20 - 14,688 Accrued restructuring charges - 4,124 665 - 4,789 Other liabilities and accrued expenses 8,595 19,876 16,480 - 44,951 Current debt - 928 3,433 - 4,361 ------------------ ------------ -------------- -------------- -------------- Total current liabilities 8,034 156,870 59,491 (601) 223,794 Deferred income taxes 9,981 - 703 - 10,684 Long-term debt, less current portion 447,969 118,948 13,239 - 580,156 Post-retirement benefits other than pensions - 25,653 - - 25,653 Accrued pension benefits - 3,486 1,046 - 4,532 Other non-current liabilities 20,375 61 701 - 21,137 Minority interest in subsidiaries - 13,845 15,832 - 29,677 Stockholders' equity: Preferred stock - Series A 22 - - - 22 Common stock: Class A shares - - - - - Class B shares 1 - - - 1 Class C shares 2 - - - 2 Paid-in capital 231,751 - - - 231,751 Subsidiary investment - 291,416 93,099 (384,515)(a) - Retained earnings (deficit) (105,061) 112,814 72,876 (185,690)(b) (105,061) Accumulated other comprehensive loss (2,733) - (18,652) - (21,385) ------------------ ------------ -------------- -------------- -------------- Total stockholders' equity 123,982 404,230 147,323 (570,205) 105,330 ------------------ ------------ -------------- -------------- -------------- Total liabilities and stockholders' equity $ 610,341 $723,093 $238,335 $(570,806) $1,000,963 ================== ============ ============== ============== ==============
______________________ (a) Elimination of investments in subsidiaries. (b) Elimination of investments in subsidiaries' earnings. (c) Elimination of intercompany profit in inventory. 12 Delco Remy International, Inc. and Subsidiaries Condensed Consolidating Balance Sheet December 31, 2000
Delco Remy International Inc. Non- (Parent Subsidiary Guarantor Company Only) Guarantors Subsidiaries Eliminations Consolidated ------------------ ------------ -------------- -------------- -------------- Assets Current assets: Cash and cash equivalents $ - $ (256) $ 24,636 $ - $ 24,380 Trade accounts receivable, net - 141,028 32,438 - 173,466 Other receivables - 9,886 6,319 - 16,205 Inventories - 243,410 52,465 (2,051)(c) 293,824 Deferred income taxes 14,256 - 2,283 - 16,539 Other current assets 2,667 2,694 3,548 - 8,909 ------------------ ------------ -------------- -------------- -------------- Total current assets 16,923 396,762 121,689 (2,051) 533,323 Property and equipment 40 217,644 87,899 - 305,583 Less accumulated depreciation 40 90,536 15,167 - 105,743 ------------------ ------------ -------------- -------------- -------------- Property and equipment, net - 127,108 72,732 - 199,840 Deferred financing costs 6,806 1,888 - - 8,694 Goodwill, net - 146,163 23,075 - 169,238 Investments in affiliates 515,616 - - (508,600)(a) 7,016 Other assets 770 3,087 2,502 - 6,359 ------------------ ------------ -------------- -------------- -------------- Total assets $ 540,115 $675,008 $219,998 $(510,651) $ 924,470 ================== ============ ============== ============== ============== Liabilities and stockholders' equity Current liabilities: Accounts payable $ 965 $109,727 $ 45,383 $ - $ 156,075 Intercompany accounts 90,427 (81,466) (8,360) (601)(c) - Accrued interest payable 6,719 919 1,495 - 9,133 Accrued restructuring charges - 6,798 894 - 7,692 Other liabilities and accrued expenses 5,256 20,623 7,911 - 33,790 Current debt - 1,526 6,581 - 8,107 ------------------ ------------ -------------- -------------- -------------- Total current liabilities 103,367 58,127 53,904 (601) 214,797 Deferred income taxes 12,209 - (2,054) - 10,155 Long-term debt, less current portion 285,000 219,266 15,018 - 519,284 Post-retirement benefits other than pensions - 22,794 - - 22,794 Accrued pension benefits - 3,751 673 - 4,424 Other non-current liabilities 2,208 971 705 - 3,884 Minority interest in subsidiaries - 11,351 16,663 - 28,014 Stockholders' equity: Common stock: Class A shares 182 - - - 182 Class B shares 63 - - - 63 Paid-in capital 104,176 - - - 104,176 Subsidiary investment - 266,087 94,172 (360,259)(a) - Retained earnings (deficit) 34,269 92,661 57,130 (149,791)(b) 34,269 Accumulated other comprehensive loss (1,023) - (16,213) - (17,236) Stock purchase plan (336) - - - (336) ------------------ ------------ -------------- -------------- -------------- Total stockholders' equity 137,331 358,748 135,089 (510,050) 121,118 ------------------ ------------ -------------- -------------- -------------- Total liabilities and stockholders' equity $ 540,115 $675,008 $219,998 $(510,651) $ 924,470 ================== ============ ============== ============== ==============
(a) Elimination of investments in subsidiaries. (b) Elimination of investments in subsidiaries' earnings. (c) Elimination of intercompany profit in inventory. 13 Delco Remy International, Inc. and Subsidiaries Condensed Consolidating Statement of Operations For the Three Month Period Ended September 30, 2001 (Unaudited)
Delco Remy International Inc. Non- (Parent Subsidiary Guarantor Company Only) Guarantors Subsidiaries Eliminations Consolidated ------------------ ------------ -------------- -------------- -------------- Net sales $ - $272,735 $110,937 $(112,582)(a) $ 271,090 Cost of goods sold - 241,824 94,154 (112,582)(a) 223,396 ------------------ ------------ -------------- -------------- -------------- Gross profit - 30,911 16,783 - 47,694 Selling, general and administrative expenses 3,523 15,934 5,569 - 25,026 Amortization of goodwill and intangibles - 1,699 181 - 1,880 ------------------ ------------ -------------- -------------- -------------- Operating income (loss) (3,523) 13,278 11,033 - 20,788 Interest expense (11,602) (4,487) (386) - (16,475) Non-recurring merger/tender offer expenses (1,055) - - - (1,055) Other non operating (expense) income - 1 (1,334) - (1,333) ------------------ ------------ -------------- -------------- -------------- Income (loss) before income taxes (benefit), minority interest in income of subsidiaries, loss from unconsolidated joint ventures and equity in earnings of subsidiaries (16,180) 8,792 9,313 - 1,925 Income taxes (benefit) (3,777) 2,662 1,731 - 616 Minority interest in income of subsidiaries - (1,049) (1,252) - (2,301) Loss from unconsolidated joint ventures - (539) (182) - (721) Equity in earnings of subsidiaries 10,690 - - (10,690)(b) - ------------------ ------------ -------------- -------------- -------------- Net income (loss) (1,713) 4,542 6,148 (10,690) (1,713) Preferred stock dividends 6,843 - - - 6,843 ------------------ ------------ -------------- -------------- -------------- Income (loss) attributable to common stockholders $ (8,556) $ 4,542 $ 6,148 $ (10,690) $ (8,556) ================== ============ ============== ============== ===============
______________________ (a) Elimination of intercompany sales and cost of sales. (b) Elimination of equity in net income of consolidated subsidiaries. 14 Delco Remy International, Inc. and Subsidiaries Condensed Consolidating Statement of Operations For the Three Month Period Ended September 30, 2000 (Unaudited)
Delco Remy International Inc. Non- (Parent Subsidiary Guarantor Company Only) Guarantors Subsidiaries Eliminations Consolidated ----------------- ------------ ------------- -------------- -------------- Net sales $ - $271,860 $105,245 (109,507)(a) $ 267,598 Cost of goods sold 1,213 233,536 90,795 (109,507)(a) 216,037 ----------------- ------------ ------------- -------------- -------------- Gross profit (1,213) 38,324 14,450 - 51,561 Selling, general and administrative expenses 2,687 8,883 15,149 - 26,719 Amortization of goodwill and intangibles - 1,350 255 - 1,605 ----------------- ------------ ------------- -------------- -------------- Operating income (loss) (3,900) 28,091 (954) - 23,237 Interest expense (8,770) (4,276) (641) - (13,687) Other non-operating income - - 1,222 - 1,222 ----------------- ------------ ------------- -------------- -------------- Income (loss) before income taxes (benefit), minority interest in income of subsidiaries, loss from unconsolidated joint ventures and equity in earnings of subsidiaries (12,670) 23,815 (373) - 10,772 Income taxes (benefit) (4,988) 10,836 (2,252) - 3,596 Minority interest in income of subsidiaries - (1,307) (514) - (1,821) Loss from unconsolidated joint ventures - - (39) - (39) Equity in earnings of subsidiaries 12,998 - - (12,998)(b) - ----------------- ------------ ------------- -------------- -------------- Net income (loss) $ 5,316 $ 11,672 $ 1,326 $ (12,998) $ 5,316 ================= ============ ============= ============== ==============
______________________________ (a) Elimination of intercompany sales and cost of sales. (b) Elimination of equity in net income of consolidated subsidiaries. 15 Delco Remy International, Inc. and Subsidiaries Condensed Consolidating Statement of Operations For the Nine Month Period Ended September 30, 2001 (Unaudited)
Delco Remy International Inc. Non- (Parent Subsidiary Guarantor Company Only) Guarantors Subsidiaries Eliminations Consolidated ----------------- ------------ ----------- -------------- ------------ Net sales $ - $ 809,743 $ 328,802 $ (334,476)(a) $ 804,069 Cost of goods sold - 708,897 278,706 (334,476)(a) 653,127 ----------------- ------------ ------------ -------------- ------------ Gross profit - 100,846 50,096 - 150,942 Selling, general and administrative expenses 11,396 46,741 19,542 - 77,679 Amortization of goodwill and intangibles - 4,515 479 - 4,994 ----------------- ----------- ------------ -------------- ------------ Operating income (loss) (11,396) 49,590 30,075 - 68,269 Interest expense (31,464) (12,785) (873) - (45,122) Non-recurring merger/tender offer expenses (4,731) - - - (4,731) Other non-operating (expense) income - 255 (4,871) - (4,616) ----------------- ------------ ------------ -------------- ------------ Income (loss) before income taxes, minority interest in income of subsidiaries, loss from unconsolidated joint ventures and equity in earnings of subsidiaries (47,591) 37,060 24,331 - 13,800 Income taxes (benefit) (13,909) 13,716 4,608 - 4,415 Minority interest in income of subsidiaries - (3,128) (3,495) - (6,623) Loss from unconsolidated joint ventures - (761) (482) - (1,243) Equity in earnings of subsidiaries 35,899 - - (35,899)(b) - ----------------- ------------ ------------ -------------- ------------ Net income (loss) before extraordinary item 2,217 19,455 15,746 (35,899) 1,519 Extraordinary item: Gain on early extinguishment of debt, net of income tax - 698 - - 698 ----------------- ------------ ------------ -------------- ------------ Net income (loss) 2,217 20,153 15,746 (35,899) 2,217 Preferred stock dividends 14,204 - - - 14,204 ----------------- ------------ ------------ -------------- -------------- Income (loss) attributable to common stockholders $ (11,987) $ 20,153 $ 15,746 $ (35,899) $ (11,987) ================= ============ ============ ============== ==============
________________________________________ (a) Elimination of intercompany sales and cost of sales. (b) Elimination of equity in net income of consolidated subsidiaries. 16 Delco Remy International, Inc. and Subsidiaries Condensed Consolidating Statement of Operations For the Nine Month Period Ended September 30, 2000 (Unaudited)
Delco Remy International Inc. Non- (Parent Subsidiary Guarantor Company Only) Guarantors Subsidiaries Eliminations Consolidated ------------------ ----------- ------------- -------------- -------------- Net sales $ - $ 836,946 $ 305,176 $ (314,875)(a) $ 827,247 Cost of goods sold - 711,065 260,023 (314,875)(a) 656,213 ------------------ ----------- ------------- -------------- -------------- Gross profit - 125,881 45,153 - 171,034 Selling, general and administrative expenses 10,560 45,919 25,161 - 81,640 Amortization of goodwill and intangibles - 3,995 588 - 4,583 Restructuring charge - 30,133 5,089 35,222 ------------------ ----------- ------------- -------------- -------------- Operating income (loss) (10,560) 45,834 14,315 - 49,589 Interest expense (24,523) (12,192) (1,253) - (37,968) Other non-operating income - - 601 - 601 ------------------ ----------- ------------- -------------- -------------- Income (loss) before income taxes, minority interest in income of subsidiaries, loss from unconsolidated joint ventures and equity in earnings of subsidiaries (35,083) 33,642 13,663 - 12,222 Income taxes (benefit) (11,083) 16,250 (1,034) - 4,133 Minority interest in income of subsidiaries - (2,793) (2,340) - (5,133) Loss from unconsolidated joint ventures - - (495) - (495) Equity in earnings of subsidiaries 26,461 - - (26,461)(b) - ------------------ ----------- ------------- -------------- -------------- Net income (loss) $ 2,461 $ 14,599 $ 11,862 $ (26,461) $ 2,461 ================== =========== ============= ============== ==============
____________________________________ (a) Elimination of intercompany sales and cost of sales. (b) Elimination of equity in net income of consolidated subsidiaries. 17 Delco Remy International, Inc. and Subsidiaries Condensed Consolidating Statement of Cash Flows For the Nine Month Period Ended September 30, 2001 (Unaudited)
Delco Remy International Inc. Non- (Parent Subsidiary Guarantor Company Only) Guarantors Subsidiaries Eliminations Consolidated ------------------ ------------ ------------ -------------- ------------ Operating activities: Net income (loss) $ 2,217 $ 20,153 $ 15,746 $ (35,899)(a) $ 2,217 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation 3 14,344 6,199 - 20,546 Amortization - 4,515 479 - 4,994 Equity in earnings of subsidiary (35,899) - - 35,899(a) - Changes in operating assets and liabilities, net of acquisitions: Accounts receivable - (28,952) (5,822) - (34,774) Inventories - (10,627) (3,586) - (14,213) Accounts payable 291 2,580 (3,976) - (1,105) Other current assets and liabilities 11,888 (4,004) (40) - 7,844 Intercompany accounts (110,759) 109,565 1,194 - - Cash payments for restructuring charges - (2,494) (1,354) - (3,848) Other non-current assets and liabilities, net (3,778) 8,152 1,522 - 5,896 ------------------ ------------ ------------ -------------- ------------- Net cash provided by (used in) operating activities (136,037) 113,232 10,362 - (12,443) Investing activities: Acquisitions, net of cash acquired (16,616) (5,862) (2,916) - (25,394) Purchases of property and equipment - (6,057) (6,423) - (12,480) ------------------ ------------ ------------ -------------- ------------- Net cash used in investing activities (16,616) (11,919) (9,339) - (37,874) Financing activities: Net increase (decrease) in debt 162,969 (100,916) (5,109) - 56,944 Deferred financing costs (5,561) - - - (5,561) Merger and tender offer costs (4,755) - - - (4,755) Distributions to minority interests - - (762) - (762) ------------------ ------------ ------------ -------------- ------------- Net cash provided by (used in) financing activities 152,653 (100,916) (5,871) - 45,866 Effect of exchange rate changes on cash - - (719) - (719) ------------------ ------------ ------------ -------------- ------------- Net increase (decrease) in cash and cash equivalents - 397 (5,567) - (5,170) Cash and cash equivalents at beginning of period - (256) 24,636 - 24,380 ------------------ ------------ ------------ -------------- ------------- Cash and cash equivalents at end of period $ - $ 141 $ 19,069 $ - $ 19,210 ================== ============ ============ ============== =============
_________________________________________ (a) Elimination of equity in earnings of subsidiaries. 18 Delco Remy International, Inc. and Subsidiaries Condensed Consolidating Statement of Cash Flows For the Nine Month Period Ended September 30, 2000 (Unaudited)
Delco Remy International Inc. Non- (Parent Subsidiary Guarantor Company Only) Guarantors Subsidiaries Eliminations Consolidated ------------------ ------------- ------------ ------------ ------------ Operating activities: Net income (loss) $ 2,461 $ 14,599 $ 11,862 $ (26,461) $ 2,461 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation - 13,451 6,055 - 19,506 Amortization - 3,995 588 - 4,583 Equity in earnings of subsidiaries (26,461) - - 26,461(a) - Changes in operating assets and liabilities, net of acquisitions: Accounts receivable - 4,587 6,988 - 11,575 Inventories (1,213) (29,179) 2,790 - (27,602) Accounts payable 1,911 (2,890) 10,230 - 9,251 Intercompany accounts 52,466 (73,181) 20,715 - - Other current assets and liabilities 15,551 (17,185) (21,409) - (23,043) Restructuring charge - 30,133 5,089 - 35,222 Cash payments for restructuring charges - (16,976) - - (16,976) Other non-current assets and liabilities, net 18,680 11,403 (24,927) - 5,156 --------------- ----------- ---------- ------------ --------- Net cash provided by (used in) operating activities 63,395 (61,243) 17,981 - 20,133 Investing activities: Acquisitions, net of cash acquired (63,395) (10) 1,133 - (62,272) Purchases of property and equipment - (11,562) (12,122) - (23,684) --------------- ----------- ---------- ------------ --------- Net cash used in investing activities (63,395) (11,572) (10,989) - (85,956) Financing activities: Net increase (decrease) in debt - 73,707 (2,158) - 71,549 Distributions to minority interests - (438) (762) - (1,200) --------------- ----------- ---------- ------------ ---------- Net cash provided by (used in) financing activities - 73,269 (2,920) - 70,349 Effect of exchange rate changes on cash - - (635) - (635) --------------- ----------- ---------- ------------ ---------- Net increase in cash and cash equivalents - 454 3,437 - 3,891 Cash and cash equivalents at beginning of period - (111) 11,473 - 11,362 --------------- ----------- ---------- ------------ ---------- Cash and cash equivalents at end of period $ - $ 343 $ 14,910 $ - $ 15,253 =============== =========== ========== ============ ==========
____________________________________________________________ (a) Elimination of equity in earnings of subsidiaries. 19 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations Three Months Ended September 30, 2001 Compared to Three Months Ended September 30, 2000 Net Sales Net sales of $271.1 million increased $3.5 million, or 1.3%, from the third quarter of 2000. This increase reflected sales relative to previously consigned inventory ($11.6 million), the effect of the acquisitions of Mazda and XL ($9.6 million) and higher demand for aftermarket electrical and powertrain/drivetrain products ($7.7 million). The sale of previously consigned inventory did not impact gross profit or operating profit. These increases were largely offset by lower demand in the automotive and heavy-duty OE markets ($21.8 million). In the heavy duty OE market, build rates for Class 8 trucks were down 60% from 2000. Automotive build rates were also down, although not as dramatically as heavy duty. In addition, third party core and other miscellaneous sales were down $3.6 million year over year. Gross Profit Gross profit of $47.7 million declined $3.9 million, or 7.5%, and as a percentage of net sales was 17.6% compared with 19.3% in the third quarter of 2000. In the aftermarket, volume growth was offset by lower product mix and reduced fixed manufacturing leverage due to volume shortfalls in certain facilities ($5.3 million). The decline in third party core and other miscellaneous sales contributed $3.8 million to the total decline. In the OE markets, gross profit was up $3.1 million as cost reductions resulting from restructuring actions taken in prior years offset volume shortfalls. Acquisitions accounted for $2.1 million of the year over year increase. Selling, General and Administrative Expenses Selling, general and administrative (SG&A) expenses declined $1.7 million, or 6.3%, and as a percentage of net sales were 9.2% compared with 10.0% in the third quarter of 2000. Continued emphasis on cost control throughout the Company offset the effect of acquisitions. Operating Income Operating income of $20.8 million was down $2.4 million, or 10.5%, and as a percentage of net sales was 7.7% compared with 8.7% in the third quarter of 2000. This change is explained by the sales, gross profit and SG&A issues discussed above. Interest Expense Interest expense of $16.5 million in the third quarter of 2001 compares with $13.7 million in 2000. This increase was due to the higher interest rate associated with the 11% senior subordinated debt issued on April 26 ($1.4 million), higher levels of debt to fund operations ($0.7 million), debt to fund acquisitions ($ 0.5 million) and interst rate swaps ($ 0.2 million). Other Non-Operating (Expense) Income Non-operating expense in the third quarter of 2001 consisted of realized losses on non-deliverable currency forward contracts entered into as a hedge against fluctuations between the South Korean won and U.S. Dollar ($0.8 million) and other miscellaneous expense, net ($0.5 million). Income Taxes The Company's consolidated effective income tax rate was approximately 32% in the third quarter of 2001 compared with 33% in the third quarter of 2000. 20 Nine Months Ended September 30, 2001 Compared to Nine Months Ended September 30, 2000 Net Sales Net sales of $804.1 million declined $23.2 million, or 2.8%, from the comparable period of 2000. Lower demand in the automotive and heavy-duty OE markets ($96.5 million) and reduced core and other miscellaneous sales ($8.8 million) were partially offset by sales of previously consigned inventory ($29.7 million), the effect of the acquisitions of XL, M&M Knopf Auto Parts, Inc. and Mazda ($29.4 million) and higher demand for aftermarket electrical and powertrain/drivetrain products ($23.0 million). Gross Profit Gross profit of $150.9 million declined $20.1 million, or 11.7%, and as a percentage of net sales was 18.8% compared with 20.7% in the first nine months of 2000. In the OE markets, gross profit was down $20.0 million as cost reductions resulting from restructuring actions taken in prior years were offset by volume shortfalls. Gross profit attributable to third party core and other miscellaneous sales was down $5.7 million due primarily to lower sales volume. Acquisitions contributed $5.4 million of incremental gross profit year over year. In the aftermarket, gross profit increased $0.2 million due to volume growth, largely offset by lower product mix and reduced fixed manufacturing leverage due to volume shortfalls in certain facilities. Selling, General and Administrative Expenses SG&A expenses declined $4.0 million, or 4.9%, and as a percentage of net sales were 9.7% compared with 9.9% in the first nine months of 2000. Continued emphasis on cost control throughout the Company offset the effect of acquisitions. Operating Income Operating income of $68.3 million in the first nine months of 2001 compares with $49.6 million in 2000. Excluding restructuring charges recorded in the second quarter of 2000, operating income declined $16.5 million, or 19.5%, and as a percentage of net sales was 8.5% compared with 10.3% in 2000. This change is explained by the sales, gross profit and SG&A issues discussed above. Interest Expense Interest expense of $45.1 million in the first nine months of 2001 compares with $38.0 million in 2000. This increase was due to higher levels of debt to fund operations ( $ 2.6 million), the higher interest rate associated with the 11% senior subordinated debt issued on April 26 ( $2.3 million), debt to fund acquisitions ( $1.4 million), interest rate swaps ( $0.6 million) and rate increases by the Federal Reserve ( $0.2 million). Other Non-Operating (Expense) Income Non-operating expense in 2001 consisted of realized losses on non-deliverable currency forward contracts entered into as a hedge against fluctuations between the South Korean won and U.S. Dollar ($4.9 million) and other miscellaneous income, net, of $0.3 million. Income Taxes The Company's consolidated effective income tax rate was approximately 32% in the first nine months of 2001 compared with 34% in the comparable period of 2000. Liquidity and Capital Resources The Company's short-term liquidity needs include required debt service, including capital lease payments, day to day operating expenses, working capital requirements and the funding of capital expenditures. Long-term liquidity requirements include principal payments of long-term debt and the funding of acquisitions. The Company's principal sources of cash to fund its short-term liquidity needs consist of cash generated by operations and borrowings under the Senior Credit Facility. At September 30, 2001, borrowings under the Senior Credit Facility were $100.7 million and utilization of letters of credit totaled $11.9 million, leaving $187.4 million available under the $300.0 million facility. 21 In the nine months ended September 30, 2001, cash used in operating activities was $12.4 million compared with cash provided of $20.1 million in the nine months of 2000. Accounts receivable increased $34.8 million in 2001 due primarily to sales by XL, sales of previously consigned inventory to certain aftermarket customers and higher aftermarket sales. The $11.6 million decrease in 2000 primarily reflected one-time accelerated payments from certain customers. The increase in inventory in 2001 and 2000 was due primarily to an increase in core returns from customers. The net decrease in other current assets and liabilities in 2001 reflects higher accrued interest expense. Acquisitions included XL, Mazda, AMT and an increase in the ownership percentage of World Wide in 2001; and Knopf and Elmot in 2000. The higher level of capital expenditures in 2000 was due to enterprise-wide system implementations and equipment supporting new products and customers. The $56.9 million net increase in debt during the first nine months of 2001 consisted of (i) proceeds of $157.3 million, net of discount, fees and expenses, on the issuance of the 11% senior subordinated debt on April 26, (ii) payment of $18.9 million on the early retirement of the GM Subordinated Debenture, and (iii) a $81.5 million net reduction in the Senior Credit Facility and other debt. The net proceeds on debt were used to fund the Company's acquisitions, capital expenditures, operating activities and other financing activities. Other financing activities included fees and expenses associated with the issuance of the 11% senior subordinated debt, costs incurred in connection with the Company's going private transactions and a dividend payment to the minority shareholders of Delco Remy Korea. In light of continued softness in heavy-duty and automotive OE volume, the Company is currently reviewing potential cost reduction actions in certain of its operations. The Company believes that cash generated from operations, together with the amounts available under the Senior Credit Facility, will be adequate to meet its debt service requirements, capital expenditures and working capital needs for the foreseeable future, although no assurance can be given in this regard. The Company's future operating performance and ability to service, extend, or refinance its indebtedness will be subject to future economic conditions and to financial, business and other factors that are beyond the Company's control. Seasonality The Company's business is moderately seasonal, as its major OEM customers historically have one- to two-week operations shutdowns each July. In response, the Company typically has shut down its own operations for one week each July, depending on backlog, scheduled maintenance and inventory buffers, as well as an additional week during the December holidays. Consequently, the Company's third and fourth quarter results reflect the effects of these shutdowns. Foreign Sales Approximately 21.7% of the Company's net sales in the nine months ending September 30, 2001 were derived from sales made to customers in foreign countries. Because of these foreign sales, the Company's business is subject to the risks of doing business abroad, including currency exchange rate fluctuations, limits on repatriation of funds, compliance with foreign laws and other economic and political uncertainties. Disclosure Regarding Forward Looking Statements From time to time, the Company makes oral and written statements that may constitute "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995 (the "Act") or by the SEC in its rules, regulations and releases. The Company desires to take advantage of the "safe harbor" provisions in 22 the Act for forward-looking statements made from time to time, including, but not limited to, the forward-looking statements relating to the future performance of the Company contained in Management's Discussion and Analysis, and Notes to Condensed Consolidated Financial Statements and other statements made in this Form 10-Q and in other filings with the SEC. The Company cautions readers that any such forward-looking statements are based on assumptions that the Company believes are reasonable, but are subject to a wide range of risks including, but not limited to risks associated with the uncertainty of future financial results, acquisitions, additional financing requirements, development of new products and services, the effect of competitive products or pricing, the effect of economic conditions and other uncertainties. Due to these uncertainties, the Company cannot assure readers that any forward-looking statements will prove to have been correct. PART II OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K There were no reports on Form 8-K filed during the quarter ended September 30, 2001. 23 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. DELCO REMY INTERNATIONAL, INC. ------------------------------ (Registrant) Date: November 13, 2001 By: /s/: David.E. Stoll --------------------------------- David E. Stoll Vice President and Chief Financial Officer Date: November 13, 2001 By: /s/: Richard L. Reinhart --------------------------------- Richard L. Reinhard Vice President and Controller Chief Accounting Officer 24 -----END PRIVACY-ENHANCED MESSAGE-----