10-Q 1 d10q.txt FORM 10-Q FOR DELCO REMY INTERNATIONAL, INC. ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2002 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 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. Outstanding as of May 8, 2002 ----------------------------------- Common Stock - Class A 1,000 Common Stock - Class B 2,497,337.49 Common Stock - Class C 16,687 ================================================================================ 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 .................... 16 PART II OTHER INFORMATION Item 6 Exhibits and Reports on Form 8-K. ...................... 18 SIGNATURES ............................................................... 19 2 PART I FINANCIAL INFORMATION Item 1. Financial Statements Delco Remy International, Inc. and Subsidiaries Condensed Consolidated Balance Sheets (in thousands)
March 31, December 31, 2002 2001 --------------- -------------- (unaudited) Assets Current assets: Cash and cash equivalents $ 12,911 $ 24,355 Trade accounts receivable, net 177,425 160,380 Other receivables 14,759 10,316 Inventories 305,175 303,355 Deferred income taxes 19,116 21,175 Other current assets 13,798 13,755 --------------- -------------- Total current assets 543,184 533,336 Property and equipment 309,027 307,074 Less accumulated depreciation 131,049 124,006 --------------- -------------- Property and equipment, net 177,978 183,068 Deferred financing costs 13,460 12,640 Goodwill 190,948 186,531 Investments in joint ventures 11,792 11,144 Deferred income taxes 10,889 10,476 Other assets 11,305 10,210 --------------- -------------- Total assets $ 959,556 $ 947,405 =============== ============== Liabilities and stockholders' equity Current liabilities: Accounts payable $ 146,788 $ 132,149 Accrued interest 14,399 10,100 Accrued restructuring charges 24,422 32,424 Other liabilities and accrued expenses 58,805 57,015 Current debt 130,562 6,771 --------------- -------------- Total current liabilities 374,976 238,459 Long-term debt, less current portion 475,286 593,656 Post-retirement benefits other than pensions 22,009 25,812 Accrued pension benefits 10,996 10,216 Accrued preferred dividends 27,730 20,971 Other non-current liabilities 6,330 6,655 Commitments and contingencies Minority interest in subsidiaries 28,550 30,107 Stockholders' equity: Preferred stock - Series A 223,728 223,728 Common stock: Class A shares - - Class B shares 3 3 Class C shares - - Retained deficit (184,619) (178,762) Accumulated other comprehensive loss (25,433) (23,440) --------------- -------------- Total stockholders' equity 13,679 21,529 --------------- -------------- Total liabilities and stockholders' equity $ 959,556 $ 947,405 =============== ==============
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 Ended March 31 ------------------------------------- 2002 2001 ---------------- ---------------- Net sales $ 263,804 $ 259,900 Cost of goods sold 216,632 216,802 Special charges - cost of goods sold - 2,098 ---------------- ---------------- Gross profit 47,172 41,000 Selling, general and administrative expenses 25,378 28,130 Amortization of goodwill and intangibles 33 1,560 ---------------- ---------------- Operating income 21,761 11,310 Interest expense (16,552) (13,294) Non-recurring merger and tender offer expenses - (3,676) Other non-operating income (expense) (2) 352 ---------------- ---------------- Income (loss) before income taxes, minority interest in income of subsidiaries and loss from unconsolidated joint ventures 5,207 (5,308) Income tax expense (benefit) 1,302 (1,691) Minority interest in income of subsidiaries (1,803) (1,822) Loss from unconsolidated joint ventures (1,200) (391) ---------------- ---------------- Net income (loss) 902 (5,830) Preferred dividends 6,759 - ---------------- ---------------- Loss attributable to common stockholders $ (5,857) $ (5,830) ================ ================
See Notes to Condensed Consolidated Financial Statements 4 Delco Remy International, Inc. and Subsidiaries Condensed Consolidated Statements of Cash Flows (Unaudited) (in thousands)
Three Month Period Ended March 31 ----------------------------------------- 2002 2001 ------------------ ------------------ Operating activities: Net income (loss) $ 902 $ (5,830) Adjustments to reconcile net income (loss) to net cash used in operating activities: Depreciation 7,263 7,003 Amortization 33 1,560 Minority interest in income of subsidiaries 1,803 1,822 Loss from unconsolidated joint ventures 1,200 391 Deferred income taxes 1,955 (2,124) Post-retirement benefits other than pensions (3,803) 929 Accrued pension benefits 780 436 Non-cash interest expense 588 170 Changes in operating assets and liabilities, net of acquisitions and non-cash special charges : Accounts receivable (17,045) (15,182) Inventories (2,653) (3,269) Accounts payable 14,639 3,330 Other current assets and liabilities 1,129 2,321 Cash payments for restructuring charges (7,678) (755) Non-cash special charges -- 2,098 Other non-current assets and liabilities, net (1,503) (412) ------------------ ------------------ Net cash used in operating activities (2,390) (7,512) Investing activities: Acquisitions, net of cash acquired (7,324) (2,479) Purchases of property and equipment (3,681) (3,461) Investments in joint ventures (2,000) (728) ------------------ ------------------ Net cash used in investing activities (13,005) (6,668) Financing activities: Net borrowings under revolving line of credit and other 5,421 8,838 Deferred financing costs (1,408) -- Merger and tender offer costs -- (3,246) Distributions to minority interests -- (762) ------------------ ------------------ Net cash provided by financing activities 4,013 4,830 Effect of exchange rate changes on cash (62) (632) ------------------ ------------------ Net decrease in cash and cash equivalents (11,444) (9,982) Cash and cash equivalents at beginning of period 24,355 24,380 ------------------ ------------------ Cash and cash equivalents at end of period $ 12,911 $ 14,398 ================== ==================
See Notes to Condensed Consolidated Financial Statements 5 DELCO REMY INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (dollars in thousands) 1. Basis of Presentation 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. The Company restated net sales and earnings in the first three quarters of 2001 in connection with the filing of the Company's 2001 Form 10-K for the reclassification of certain currency hedging activities to net sales from non-operating expense, retiming of special charges-cost of goods sold relative to unusual warranty claims and to correct the recording of certain intercompany transactions. Operating results for the three-months ended March 31, 2002 are not necessarily indicative of the results that may be expected for the full year. The balance sheet at December 31, 2001 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. The Company has not materially changed its significant accounting policies from those disclosed in its Form 10-K for the year ended December 31, 2001. For further information, refer to the consolidated financial statements and notes thereto for the year ended December 31, 2001. 2. Additional Balance Sheet Information The components of inventory are as follows: March 31, December 31, 2002 2001 ------------- -------------- Raw material $ 163,141 $ 176,704 Work-in-process 52,044 50,131 Finished goods 89,990 76,520 ------------- -------------- Total $ 305,175 $ 303,355 ============= ============== 6 3. 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, interest rate swaps and minimum pension liability adjustments. The before tax income (loss), related income tax expense (benefit) and accumulated balance are as follows:
Foreign Unrealized Currency Gains (Losses) Minimum Accumulated Other Translation On Interest Rate Pension Liability Comprehensive Adjustment Swaps Adjustments Loss ----------------- ----------------- ----------------- ----------------- Balance at December 31, 2001 $ (18,208) $ (2,497) $ (2,735) $ (23,440) Before tax (3,691) 1,250 - (2,441) Income tax effect (923) 475 - (448) ----------------- ----------------- ----------------- ----------------- Other comprehensive income (loss) (2,768) 775 - (1,993) ----------------- ----------------- ----------------- ----------------- Balance at March 31, 2002 $ (20,976) $ (1,722) $ (2,735) $ (25,433) ================= ================= ================= =================
The Company's total comprehensive loss was as follows: Three months ended March 31, 2002 $ 1,091 Three months ended March 31, 2001 12,706 4. Restructuring Charges In the fourth quarter of 2001, the Company recorded a one-time charge of $39,349 in conjunction with plans for the closure and realignment of certain manufacturing facilities and administrative functions in the United States, Canada and Europe. The charge included $26,727 for the estimated cost of various voluntary and involuntary employee separation programs associated with workforce reductions of approximately 820 employees. A total of $2,482 was paid in the fourth quarter of 2001 and $6,846 was paid in the three month period ended March 31, 2002. Approximately $8,220, $4,593 and $4,586 will be paid in the last three quarters of 2002, and in 2003 and 2004, respectively. In the first quarter of 2002, the Company recorded a $4,375 post-employment benefit plan curtailment associated with these workforce reductions. This gain was credited to cost of goods sold. In June 2000, the Company recorded a charge of $35,222 for the realignment of certain manufacturing facilities. The charge included $27,098 for the estimated cost of various voluntary and involuntary employee separation programs associated with workforce reductions of approximately 860 employees. A total of $5,011, $15,961, $3,087 and $16 were paid in the year ended July 31, 2000, the five months ended December 31, 2000, the year ended December 31, 2001 and the three month period ended March 31, 2002. Approximately $2,891 and $132 will be paid in the last three quarters of 2002 and in 2003, respectively. 7 The following table summarizes the reserve for restructuring charges:
Termination Exit/Impairment Benefits Costs Total ------------- --------------- --------- Reserve at December 31, 2001 $ 28,081 $ 4,343 $32,424 Payments and charges in the three-month period ended March 31, 2002 (7,643) (359) (8,002) ------------- --------------- --------- Reserve at March 31, 2002 $ 20,438 $ 3,984 $24,422 ============= =============== =========
5. Recently Issued Accounting Standards On October 3, 2001, the Financial Accounting Standard Board ("FASB") issued Statement of Financial Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS No. 144). SFAS No. 144 supersedes SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of and also supersedes the accounting and reporting provisions of APB Opinion Number 30, Reporting the Results of Operations - Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual, and Infrequently Occurring Events and Transactions, for segments of a business to be disposed of. Among its many provisions, SFAS No. 144 retains the fundamental requirements of both previous standards, however, it resolves significant implementation issues related to SFAS No. 121 and broadens the separate presentation of discontinued operations in the income statement required by APB Opinion Number 30 to include a component of an entity (rather than a segment of a business). The provisions of SFAS No. 144 became effective for financial statements issued for fiscal years beginning after December 15, 2001 with early application encouraged. The Company adopted SFAS No. 144 on January 1, 2002. Adoption of SFAS No. 144 did not have a material effect on the Company's results of operation, financial position or cash flows. On June 29, 2001, the FASB issued Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets (SFAS No. 142). SFAS No. 142 addresses accounting and reporting of acquired goodwill and other intangible assets and must be adopted by the Company with an effective date of January 1, 2002. In addition, the goodwill impairment testing provisions of SFAS No. 142 must be applied to any goodwill or other intangible assets that are recognized in the Company's financial statements at the time of adoption. Upon adoption, goodwill is no longer amortized and is tested for impairment at least annually. Excluding goodwill amortization of approximately $1.5 million, the Company's net loss would have been approximately $4.9 million in the quarter ended March 31, 2001. At March 31, 2002, the Company had goodwill and other intangible assets totaling approximately $195.0 million, net of accumulated amortization. Any goodwill or other intangible assets impairment losses recognized from the initial impairment test will be reported as cumulative effect of a change in accounting principle in the Company's financial statements. The Company has not completed the transitional impairment test required by SFAS No. 142 and has not yet determined the likelihood or amount of any impairment. In April of 2002, the FASB issued Statement of Financial Accounting Standards No. 145, Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13 and Technical Corrections (SFAS No. 145). SFAS No. 145 is required to be adopted in the second quarter of 2002. The Company is currently evaluating the effects, if any, that this standard will have on its financial statements upon adoption. 6. Long-term Debt On March 31, 2002, borrowings under the Senior Credit Facility in the amount of $123,826 million maturing on March 31, 2003, were reclassified from non-current debt to current debt. The Company expects to replace the Senior Credit Facility with a new senior revolving credit agreement, maturing in March 2006, by June 30, 2002. 7. Acquisitions During the quarter ended March 31, 2002, the Company made payments totaling $4,289 under contractual put agreements to purchase additional shares from the minority shareholders of World Wide Automotive, Inc. ("World Wide"), which was acquired in 1997. These payments increased the Company's ownership percentage of World Wide from 88.2% to 92.8%. The Company also made payments totaling $2,538 under contractual put agreements to purchase additional shares from the minority shareholders of Power Investments, Inc. ("Power"), which was acquired in 1996. These payments increased the Company's ownership percentage of Power from 85.8% to 89.3%. Contingent earn-out payments of $497 were made during the quarter ended March 31, 2002 relative to the acquisition of Mazda North American Operations in June 2001. 8. 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. Presented below is condensed consolidating financial information for the Company, the Subsidiary Guarantors and the Non-Guarantor Subsidiaries at March 31, 2002 and December 31, 2001 and for the three month periods ended March 31, 2002 and 2001. 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. 8 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
9 Delco Remy International, Inc. and Subsidiaries Condensed Consolidating Balance Sheet March 31, 2002 (Unaudited)
Delco Remy International Inc. Non- (Parent Subsidiary Guarantor Company Only) Guarantors Subsidiaries Eliminations Consolidated ------------------ ---------- ------------ ------------ ------------ Assets Current assets: Cash and cash equivalents $ -- $ 173 $ 12,738 $ -- $ 12,911 Trade accounts receivable, net -- 149,504 27,921 -- 177,425 Other receivables -- 4,057 10,702 -- 14,759 Inventories -- 251,743 55,319 (1,887)(c) 305,175 Deferred income taxes 17,184 -- 1,932 -- 19,116 Other current assets 4,402 3,563 5,833 -- 13,798 --------- --------- --------- --------- --------- Total current assets 21,586 409,040 114,445 (1,887) 543,184 Property and equipment 57 207,421 101,549 -- 309,027 Less accumulated depreciation 28 106,165 24,856 -- 131,049 --------- --------- --------- --------- --------- Property and equipment, net 29 101,256 76,693 -- 177,978 Deferred financing costs 12,420 1,040 -- -- 13,460 Goodwill -- 164,274 26,674 -- 190,948 Investments joint ventures 540,683 -- -- (528,891)(a) 11,792 Deferred income taxes 10,646 12 231 10,889 Other assets 3,822 3,236 4,247 -- 11,305 --------- --------- --------- --------- --------- Total assets $ 589,186 $ 678,858 $ 222,290 $(530,778) $ 959,556 ========= ========= ========= ========= ========= Liabilities and stockholders' equity Current liabilities: Accounts payable $ 6,246 $ 99,176 $ 41,366 $ -- $ 146,788 Intercompany accounts (75,872) 89,806 (13,333) (601)(c) -- Accrued interest 14,230 -- 169 -- 14,399 Accrued restructuring charges -- 20,805 3,617 -- 24,422 Other liabilities and accrued expenses 5,517 38,510 14,778 -- 58,805 Current debt 123,826 1,268 5,468 -- 130,562 --------- --------- --------- --------- --------- Total current liabilities 73,947 249,565 52,065 (601) 374,976 Long-term debt, less current portion 448,106 17,874 9,306 -- 475,286 Post-retirement benefits other than pensions -- 22,009 -- -- 22,009 Accured pension benefits -- 9,711 1,285 10,996 Accrued preferred dividends 27,730 -- -- -- 27,730 Other non-current liabilities 2,014 3,618 698 -- 6,330 Minority interest in subsidiaries -- 10,320 18,230 -- 28,550 Stockholders' equity: Preferred stock - Series A 223,728 -- -- -- 223,728 Common stock: Class A shares -- -- -- -- -- Class B shares 3 -- -- -- 3 Class C shares -- -- -- -- -- Subsidiary investment -- 291,416 93,249 (384,665)(a) -- Retained earnings (deficit) (184,619) 77,117 68,395 (145,512)(b) (184,619) Accumulated other comprehensive loss (1,723) (2,772) (20,938) -- (25,433) --------- --------- --------- --------- --------- Total stockholders' equity 37,389 365,761 140,706 (530,177) 13,679 --------- --------- --------- --------- --------- Total liabilities and stockholders' equity $ 589,186 $ 678,858 $ 222,290 $(530,778) $ 959,556 ========= ========= ========= ========= =========
(a) Elimination of investments in subsidiaries. (b) Elimination of investments in subsidiaries' earnings. (c) Elimination of intercompany profit in inventory. 10 Delco Remy International, Inc. and Subsidiaries Condensed Consolidating Balance Sheet December 31, 2001
Delco Remy International Inc. Non- (Parent Subsidiary Guarantor Company Only) Guarantors Subsidiaries Eliminations Consolidated ------------------ ---------- ------------ -------------- ------------ Assets Current assets: Cash and cash equivalents $ -- $ 232 $ 24,123 $ -- $ 24,355 Trade accounts receivable, net -- 133,952 26,428 -- 160,380 Other receivables -- 2,871 7,445 -- 10,316 Inventories -- 247,953 57,489 (2,087)(c) 303,355 Deferred income taxes 17,184 -- 3,991 -- 21,175 Other current assets 4,759 3,572 5,424 -- 13,755 --------- --------- --------- --------- --------- Total current assets 21,943 388,580 124,900 (2,087) 533,336 Property and equipment 57 205,640 101,377 -- 307,074 Less accumulated depreciation 25 100,921 23,060 -- 124,006 --------- --------- --------- --------- --------- Property and equipment, net 32 104,719 78,317 -- 183,068 Deferred financing costs 11,431 1,209 -- -- 12,640 Goodwill -- 160,328 26,203 -- 186,531 Investments in joint ventures 526,038 -- -- (514,894)(a) 11,144 Deferred income taxes 11,121 12 (657) -- 10,476 Other assets 2,531 3,263 4,416 -- 10,210 --------- --------- --------- --------- --------- Total assets $ 573,096 $ 658,111 $ 233,179 $(516,981) $ 947,405 ========= ========= ========= ========= ========= Liabilities and stockholders' equity Current liabilities: Accounts payable $ 1,304 $ 98,691 $ 32,154 $ -- $ 132,149 Intercompany accounts (59,671) 53,781 6,491 (601)(c) -- Accrued interest 9,927 -- 173 -- 10,100 Accrued restructuring charges -- 27,519 4,905 -- 32,424 Other liabilities and accrued expenses 7,568 32,881 16,566 -- 57,015 Current debt -- 804 5,967 -- 6,771 --------- --------- --------- --------- --------- Total current liabilities (40,872) 213,676 66,256 (601) 238,459 Long-term debt, less current portion 548,683 34,580 10,393 -- 593,656 Post-retirement benefits other than pensions -- 25,812 -- -- 25,812 Accrued pension benefits -- 9,035 1,181 -- 10,216 Accrued preferred dividends 20,971 -- -- -- 20,971 Other non- current liabilities 1,842 4,089 724 -- 6,655 Minority interest in subsidiaries -- 12,696 17,411 -- 30,107 Stockholders' equity: Preferred Stock - Series A 223,728 -- 223,728 Common stock: -- Class A shares -- -- -- -- -- Class B shares 3 -- -- -- 3 Class C shares -- -- -- -- -- Subsidiary investment -- 291,416 93,099 (384,515)(a) -- Retained earnings (deficit) (178,762) 69,542 62,323 (131,865)(b) (178,762) Accumulated other comprehensive loss (2,497) (2,735) (18,208) -- (23,440) --------- --------- --------- --------- --------- Total stockholders' equity 42,472 358,223 137,214 (516,380) 21,529 --------- --------- --------- --------- --------- Total liabilities and stockholders' equity $ 573,096 $ 658,111 $ 233,179 $(516,981) $ 947,405 ========= ========= ========= ========= =========
(a) Elimination of investments in subsidiaries. (b) Elimination of investments in subsidiaries' earnings. (c) Elimination of intercompany profit in inventory. 11 Delco Remy International, Inc. and Subsidiaries Condensed Consolidating Statement of Operations For the Three Month Period Ended March 31, 2002 (Unaudited)
Delco Remy International Inc. Non- (Parent Subsidiary Guarantor Company Only) Guarantors Subsidiaries Eliminations Consolidated ------------------ ---------- ------------ -------------- ------------ Net sales $ -- $ 265,214 $ 107,130 $(108,540)(a) $ 263,804 Cost of goods sold -- 234,035 91,137 (108,540)(a) 216,632 --------- ---------- --------- --------- --------- Gross profit -- 31,179 15,993 -- 47,172 Selling, general and administrative expenses 2,644 17,457 5,277 -- 25,378 Amortization of goodwill and intangibles -- -- 33 -- 33 --------- ---------- --------- --------- --------- Operating income (loss) (2,644) 13,722 10,683 -- 21,761 Interest expense (12,349) (4,054) (149) -- (16,552) Other non-operating income (expense) -- -- (2) -- (2) --------- ---------- --------- --------- --------- Income (loss) before income taxes, minority interest in income of subsidiaries, loss from unconsolidated joint ventures and equity in earnings of subsidiaries (14,993) 9,668 10,532 -- 5,207 Income tax expense (benefit) (2,248) 1,588 1,962 -- 1,302 Minority interest in income of subsidiaries -- (505) (1,298) -- (1,803) Loss from unconsolidated joint ventures -- -- (1,200) -- (1,200) Equity in earnings of subsidiaries 13,647 -- -- (13,647)(b) -- --------- ---------- --------- --------- --------- Net income (loss) 902 7,575 6,072 (13,647) 902 Preferred dividends 6,759 -- -- -- 6,759 --------- ---------- --------- --------- --------- Income (loss) attributable to common stockholders $ (5,857) $ 7,575 $ 6,072 $ (13,647) $ (5,857) ========= ========== ========= ========= =========
_________________________________ (a) Elimination of intercompany sales and cost of sales. (b) Elimination of equity in net income of consolidated subsidiaries. 12 Delco Remy International, Inc. and Subsidiaries Condensed Consolidating Statement of Operations For the Three Month Period Ended March 31, 2001 (Unaudited)
Delco Remy International Inc. Non- (Parent Subsidiary Guarantor Company Only) Guarantors Subsidiaries Eliminations Consolidated -------------------- ------------ -------------- -------------- -------------- Net sales $ -- $ 265,619 $ 104,283 $ (110,002)(a) $ 259,900 Cost of goods sold -- 233,660 93,144 (110,002)(a) 216,802 Special charges - cost of goods sold -- 2,098 -- -- 2,098 -------------------- ------------ -------------- -------------- -------------- Gross profit -- 29,861 11,139 -- 41,000 Selling, general and administrative expenses 4,482 15,775 7,873 -- 28,130 Amortization of goodwill and intangibles -- 1,409 151 -- 1,560 -------------------- ------------ -------------- -------------- -------------- Operating income (loss) (4,482) 12,677 3,115 -- 11,310 Interest expense (8,709) (4,378) (207) -- (13,294) Non-recurring merger and tender offer expenses (3,676) -- -- -- (3,676) Other non-operating income -- -- 352 -- 352 -------------------- ------------ -------------- -------------- -------------- Income (loss) before income taxes (benefit), minority interest in income of subsidiaries, loss from unconsolidated joint ventures and equity in earnings of subsidiaries (16,867) 8,299 3,260 -- (5,308) Income tax expense (benefit) (4,980) 3,066 223 -- (1,691) Minority interest in income of subsidiaries -- (853) (969) -- (1,822) Loss from unconsolidated joint ventures -- -- (391) -- (391) Equity in earnings of subsidiaries 6,057 -- -- (6,057)(b) -- -------------------- ------------ -------------- -------------- -------------- Net income (loss) $ (5,830) $ 4,380 $ 1,677 $ (6,057) $ (5,830) ==================== ============ ============== ============== ==============
____________________________________________________________________________ (a) Elimination of intercompany sales and cost of sales. (b) Elimination of equity in net income of consolidated subsidiaries. 13 Delco Remy International, Inc. and Subsidiaries Condensed Consolidating Statement of Cash Flows For the Three Month Period Ended March 31, 2002 (Unaudited)
Delco Remy International Inc. Non- (Parent Subsidiary Guarantor Company Only) Guarantors Subsidiaries Eliminations Consolidated ------------------ ---------- ------------ ------------ ------------ Operating activities: Net income (loss) $ 902 $ 7,575 $ 6,072 $ (13,647)(a) $ 902 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation 3 4,968 2,292 -- 7,263 Amortization -- -- 33 -- 33 Minority interest in income of -- 505 1,298 -- 1,803 subsidiaries Loss from unconsolidated joint ventures -- -- 1,200 -- 1,200 Equity (loss) in earnings of subsidiary (13,647) -- -- 13,647(a) -- Deferred income taxes 475 -- 1,480 -- 1,955 Post retirement benefits other than -- (3,803) -- -- (3,803) pensions Accrued pension benefits -- 676 104 -- 780 Non - cash interest expense 519 69 -- -- 588 Changes in operating assets and liabilities, net of acquisitions: Accounts receivable -- (15,551) (1,494) -- (17,045) Inventories -- (3,991) 1,338 -- (2,653) Accounts payable 4,942 485 9,212 -- 14,639 Other current assets and liabilities 2,609 4,454 (5,934) -- 1,129 Cash payments for restructuring charges -- (6,714) (964) -- (7,678) Intercompany accounts (16,201) 36,025 (19,824) -- -- Other non-current assets and liabilities, net (1,443) 1,363 (1,423) -- (1,503) --------- --------- --------- --------- --------- Net cash provided by (used in) operating activities (21,841) 26,061 (6,610) -- (2,390) Investing activities: Acquisitions, net of cash acquired -- (7,324) -- -- (7,324) Purchases of property and equipment -- (2,066) (1,615) -- (3,681) Investments in joint ventures -- -- (2,000) -- (2,000) --------- --------- --------- --------- --------- Net cash used in investing activities -- (9,390) (3,615) -- (13,005) Financing activities: Net borrowings under revolving line of credit and other 23,249 (16,242) (1,586) 5,421 Deferred financing costs (1,408) -- -- -- (1,408) --------- --------- --------- --------- --------- Net cash provided by (used in) financing activities 21,841 (16,242) (1,586) -- 4,013 Effect of exchange rate changes on cash -- -- (62) -- (62) --------- --------- --------- --------- --------- Net increase (decrease) in cash and cash equivalents -- 429 (11,873) -- (11,444) Cash and cash equivalents at beginning of period -- (256) 24,611 -- 24,355 --------- --------- --------- --------- --------- Cash and cash equivalents at end of period $ -- $ 173 $ 12,738 $ -- $ 12,911 ========= ========= ========= ========= =========
________________________________________________________________________ (a) Elimination of equity in earnings of subsidiaries. 14 Delco Remy International, Inc. and Subsidiaries Condensed Consolidating Statement of Cash Flows For the Three Month Period Ended March 31, 2001 (Unaudited)
Delco Remy International Inc. Non- (Parent Subsidiary Guarantor Company Only) Guarantors Subsidiaries Eliminations Consolidated ----------------- -------------- -------------- -------------- ------------- Operating activities: Net income (loss) $ (5,830) $ 4,380 $ 1,677 $ (6,057)(a) $ (5,830) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation -- 4,972 2,031 -- 7,003 Amortization -- 1,409 151 -- 1,560 Equity in earnings of subsidiaries (6,057) -- -- 6,057(a) -- Minority interest in income of subsidiaries -- 853 969 -- 1,822 Loss from unconsolidated joint ventures -- -- 391 -- 391 Deferred income taxes (1,027) -- (1,097) -- (2,124) Post - retirement benefits other than pensions -- 929 -- -- 929 Accrued pension benefits -- 374 62 -- 436 Non-cash interest expense -- 170 -- -- 170 Changes in operating assets and liabilities, net of acquisitions and non-cash special charges: Accounts receivable -- (13,520) (1,662) -- (15,182) Inventories -- (3,262) (7) -- (3,269) Accounts payable 3,849 4,993 (5,512) -- 3,330 Intercompany accounts 6,778 (6,628) (150) -- -- Other current assets and liabilities (847) (494) 3,662 -- 2,321 Cash payments for restructuring charges -- (755) -- -- (755) Non-cash special charges -- 2,098 -- -- 2,098 Other non-current assets and liabilities, net 6,380 (3,799) (2,993) -- (412) -------- -------- -------- ---------- -------- Net cash provided by (used in) operating activities 3,246 (8,280) (2,478) -- (7,512) Investing activities: Acquisitions, net of cash acquired -- -- (2,479) -- (2,479) Purchases of property and equipment -- (2,149) (1,312) -- (3,461) Investments in Joint Ventures -- -- (728) -- (728) -------- -------- -------- ---------- -------- Net cash used in investing activities -- (2,149) (4,519) -- (6,668) Financing activities: Net borrowings under revolving line of credit and other -- 10,900 (2,062) -- 8,838 Merger and tender offer costs (3,246) -- -- -- (3,246) Distributions to minority interests -- -- (762) -- (762) -------- -------- -------- ---------- -------- Net cash provided by (used in) financing activities (3,246) 10,900 (2,824) -- 4,830 Effect of exchange rate changes on cash -- -- (632) -- (632) -------- -------- -------- ---------- -------- Net increase (decrease) in cash and cash equivalents -- 471 (10,453) -- (9,982) Cash and cash equivalents at beginning of period -- (256) 24,636 -- 24,380 -------- -------- -------- ---------- -------- Cash and cash equivalents at end of period $ -- $ 215 $ 14,183 $ -- $ 14,398 ======== ======== ======== ========== ========
_________________________ (a) Elimination of equity in earnings of subsidiaries. 15 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations Three Months Ended March 31, 2002 Compared to Three Months Ended March 31, 2001 Net Sales: Net sales of $263.8 million increased $3.9 million, or 1.5%, from the first quarter of 2001. This increase reflected the acquisitions of Mazda North American Operations ("Mazda"), XL Component Distribution Limited ("XL") and Auto Matic Transmission International A/S ("AMT") in 2001 ($7.2 million) and higher volume in the electrical aftermarket ($6.8 million) and the automotive OEM market ($3.3 million). These increases were partially offset by lower volume in the heavy duty OEM market ($7.0 million) and the powertrain/drivetrain aftermarket ($6.4 million). In the powertrain/drivetrain aftermarket, increased sales of remanufactured transmissions and diesel engines were offset by lower sales of gasoline engines. Gross Profit: Gross profit of $47.2 million increased $6.2 million, or 15.1%, and as a percentage of net sales was 17.9% compared with 15.8% in the first quarter of 2001. The year over year increase reflected higher sales volume and improved margins in the automotive OEM market ($5.5 million), acquisitions ($2.6 million), a post-employment benefit curtailment gain ($4.4 million) and the special charge for warranty costs for a specific heavy duty alternator product recorded in 2001 ($2.1 million). These improvements were partially offset by lower gross profit in the electrical aftermarket ($3.4 million), where higher volume was offset by lower product mix, lower volume in the heavy duty OEM market ($3.3 million) and lower gross profit in the powertrain/drivetrain aftermarket ($2.0 million), where higher margins were offset by lower volume. The margin improvements discussed above reflect the initial impact of the restructuring actions initiated in the fourth quarter of 2001. Excluding the curtailment gain in 2002 and the special charge in 2001, gross profit was down $0.3 million, or 0.7%, and as a percentage of sales was 16.2% compared with 16.6%. Selling, General and Administrative Expenses: Selling, general and administrative (SG&A) expenses declined $2.8 million, or 9.8%, and as a percentage of net sales were 9.6% compared with 10.8% in the first quarter of 2001. This decrease reflects the impact of cost and business process improvement programs initiated in the fourth quarter of 2001 as well as overall spending reductions throughout the Company. Operating Income: Operating income of $21.8 million increased $10.5 million, or 92.4%, and as a percentage of net sales was 8.2% compared with 4.4% in the first quarter of 2001. This improvement was generated by the sales, gross profit and SG&A expense issues discussed above. Excluding the curtailment gain in 2002 and the special charge and goodwill amortization in 2001, operating income increased $2.5 million, or 16.4%, and as a percentage of net sales was 6.6% compared with 5.7% in the first quarter of 2001. Interest Expense: Interest expense of $16.6 million compares with $13.3 million in the first quarter of 2001. This increase was due to the higher interest rate associated with the 11% senior subordinated debt issued in April 2001 ($1.7 million), higher levels of debt to fund operations ($0.8 million) and debt to fund acquisitions ($0.8 million). Income Taxes: The Company's consolidated effective income tax rate was 25.0% in the first quarter of 2002 compared with the U.S. statutory rate of 35.0%. This difference is attributable primarily to earnings in foreign jurisdictions, which have effective rates lower than the U.S. federal rate. Loss From Unconsolidated Joint Ventures: The year over year increase in joint venture losses was due primarily to increased research and development activity in iPower Technologies, L.L.C. 16 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 March 31, 2002, borrowings under the Senior Credit Facility were $123.8 million and utilization of letters of credit totaled $11.9 million, leaving $64.3 million unused and $7.8 million available under the $200.0 million facility. The Company has reached an agreement in principle with a major financial institution to implement a new senior revolving credit facility that will be secured by the Company's accounts receivable, inventories and certain classes of equipment. This facility will replace the current senior credit facility and is expected to afford the Company with access to more capital than is available under the current facility. The due diligence process for putting this new facility in place is underway and close to substantial completion. The Company currently anticipates that the new facility will be in place by the end of the second quarter and will have a maturity date in 2006. The Company believes that cash generated from operations, together with the amounts expected to be available under the new 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. Cash used in operating activities of $2.4 million in the three months ended March 31, 2002 compares with cash used of $7.5 million in the comparable period of 2001. Higher earnings adjusted for non-cash items and increased accounts payable were partially offset by higher restructuring payments. The increase in accounts receivable of $17.0 million in 2002 and $15.2 million in 2001 reflect higher shipments compared with the fourth quarter. Days sales outstanding improved year over year. Accounts payable increased $14.6 million in the first quarter of 2002 due to timing of payments to vendors. Cash payments of $7.7 million for restructuring charges consisted primarily of employee termination benefits. Acquisition payments consisted of the purchase, under contractual put agreements, of increased ownership percentages of World Wide ($4.3 million) and Power ($2.5 million), and a contingent purchase price payment on the acquisition of Mazda ($0.5 million). Capital expenditures were primarily for production equipment and tooling. In the first quarter of 2002, the Company made a capital contribution of $2.0 million to its iPower joint venture. In the first quarter of 2002, payments of $1.4 million were made on deferred financing costs in conjunction with the replacement of the Senior Credit Facility. Seasonality The Company's business is moderately seasonal, as its major OEM customers historically have one-to two- week operations shutdowns in 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. 17 Foreign Sales Approximately 20.5% of the Company's net sales in the three months ending March 31, 2002 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. 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 Securities and Exchange Commission ("SEC") in its rules, regulations and releases. The Company desires to take advantage of the "safe harbor" provisions in 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 the 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 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 March 31, 2002. 18 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: May 15, 2002 By: /s/ Rajesh K. Shah -------------------------------------- Rajesh K. Shah Executive Vice President and Chief Financial Officer Date: May 15, 2002 By: /s/ Allen R. Wilkie -------------------------------------- Allen R. Wilkie Vice President and Operations Controller Chief Accounting Officer 19