-----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, WVcjaVJ9RtpNbMXDsF4r5AyJByTiJrPQEbWhXnyHAT9bV3xa5HdBP5sgvNxaSwmj Z8WkFjvGL6WbH5a20/FTNQ== 0001036050-99-001240.txt : 19990608 0001036050-99-001240.hdr.sgml : 19990608 ACCESSION NUMBER: 0001036050-99-001240 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990430 FILED AS OF DATE: 19990607 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: 0731 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-13683 FILM NUMBER: 99641651 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 FORM 10-Q FOR DELCO REMY INTERNATIONAL, INC. UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-Q (Mark One) [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the Quarterly Period Ended April 30, 1999 -------------- OR [_] Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the Transition Period From ____________________ to _________________ Commission File Number 1-13683 --------------------------------------------------- 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 Number) 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 issuer's classes of common stock, as of the latest practicable date: Number of common shares outstanding Class as of May 7, 1999 ----- ----------------- Common Stock - Class A 18,118,058 Common Stock - Class B 6,278,055 1 PART I. FINANCIAL INFORMATION Item 1. FINANCIAL STATEMENTS -------------------- Condensed Consolidated Statements of Operations Delco Remy International, Inc. and Subsidiaries (Unaudited)
Three-Month Period Nine-Month Period Ended April 30 Ended April 30 ------------------------- ----------------------------- 1999 1998 1999 1998 ========================= ============================= (in thousands of dollars, except per share amounts) Net sales $ 248,826 $ 217,083 $ 703,935 $ 619,362 Cost of goods sold 196,305 172,349 562,932 497,287 ----------- ---------- -------------- ----------- Gross profit 52,521 44,734 141,003 122,075 Selling, engineering, and administrative expenses 28,157 25,292 77,269 67,871 ----------- ---------- -------------- ----------- Operating income 24,364 19,442 63,734 54,204 Interest expense 12,695 9,748 34,363 30,398 ----------- ---------- -------------- ----------- Income before income taxes, minority interest in income of subsidiaries, income from unconsolidated joint ventures, deemed dividend on preferred stock conversion, and preferred dividend requirement of subsidiary 11,669 9,694 29,371 23,806 Income taxes 4,550 4,074 11,456 9,769 Minority interest in income of subsidiaries (746) (524) (2,328) (1,545) Income from unconsolidated joint ventures 1,801 831 3,828 1,244 Deemed dividend on preferred stock conversion - - - (1,639) Preferred dividend requirement of subsidiary - - - (645) ----------- ---------- -------------- ----------- Income before extraordinary item 8,174 5,927 19,415 11,452 Extraordinary item: Write-off of debt issuance costs (less applicable tax benefit) - - - (1,803) ----------- ---------- -------------- ----------- Net income $ 8,174 $ 5,927 $ 19,415 $ 9,649 =========== ========== ============== =========== Basic Earnings Per Common Share: Income before extraordinary item $ 0.34 $ 0.25 $ 0.81 $ 0.70 Extraordinary item (write-off of debt issuance) - - - (0.11) =========== ========== ============== =========== Net income $ 0.34 $ 0.25 $ 0.81 0.59 =========== ========== ============== =========== Diluted Earnings Per Common Share: Income before extraordinary item $ 0.32 $ 0.23 $ 0.75 $ 0.61 Extraordinary item (write-off of debt issuance) - - - (0.10) =========== ========== ============== =========== Net income $ 0.32 $ 0.23 $ 0.75 $ 0.51 =========== ========== ============== ===========
See notes to condensed consolidated financial statements 2 Condensed Consolidated Balance Sheets Delco Remy International, Inc. and Subsidiaries
April 30, July 31, 1999 1998 ---------------- ---------------- (in thousands of dollars) ASSETS (Unaudited) ----- Current Assets: Cash and cash equivalents $ 7,710 $ 8,113 Trade accounts receivable, net 155,465 126,896 Other receivables 17,212 9,846 Inventories 224,822 198,437 Deferred income taxes 16,106 21,653 Other current assets 5,678 4,685 ---------------- ---------------- Total current assets 426,993 369,630 Property and equipment 237,411 208,537 Less accumulated depreciation 63,303 50,568 ---------------- ---------------- Property and equipment, net 174,108 157,969 Deferred financing costs 11,632 10,786 Goodwill (less accumulated amortization) 135,003 115,446 Net assets held for disposal 14,477 14,894 Investment in joint ventures 16,586 12,474 Other assets 4,511 3,798 ---------------- ---------------- Total assets $ 783,310 $ 684,997 ================ ================ LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ Current Liabilities: Accounts payable $ 111,485 $ 85,804 Accrued interest expense 10,660 9,581 Accrued restructuring charges 24,195 35,519 Other liabilities and accrued expenses 39,503 37,318 Current portion of long-term debt 2,901 1,948 ---------------- ---------------- Total current liabilities 188,744 170,170 Deferred income taxes 1,769 1,241 Long-term debt, less current portion 450,096 393,806 Post-retirement benefits other than pensions 19,366 16,495 Accrued pension benefits 2,949 4,628 Other noncurrent liabilities 3,363 3,967 Minority interest in subsidiaries 12,775 10,450 Stockholders' equity: Common Stock: Class A shares 182 182 Class B shares 63 63 Paid-in capital 106,052 106,392 Retained earnings (deficit) 3,221 (16,194) Cumulative translation adjustment (3,583) (4,074) Stock purchase plan (1,687) (2,129) ---------------- ---------------- Total stockholders' equity 104,248 84,240 ---------------- ---------------- Total liabilities and stockholders' equity $ 783,310 $ 684,997 ================ ================
See notes to condensed consolidated financial statements 3 Condensed Consolidated Statements of Cash Flows Delco Remy International, Inc. and Subsidiaries (Unaudited)
Nine Month Period Ended April 30 --------------------------------- 1999 1998 ================================= (in thousands of dollars) Operating activities: Net income $ 19,415 $ 9,649 Extraordinary item - 1,803 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation 13,614 9,143 Amortization 4,558 3,212 Minority interest in income of subsidiaries 2,328 1,545 Income from unconsolidated joint ventures (3,828) (1,244) Deferred income taxes 5,547 1,379 Post-retirement benefits other than pensions 2,871 3,195 Accrued pension benefits (1,679) (44) Non-cash interest expense 1,207 2,024 Preferred dividend requirement of subsidiary - 645 Deemed dividend on preferred stock conversion - 1,639 Changes in operating assets and liabilities, net of acquisitions: Accounts receivable (19,167) (28,962) Inventories (14,955) (17,078) Accounts payable 19,042 2,518 Other current assets and liabilities (6,816) 10,900 Accrued restructuring charges (11,322) (10,879) Other non-current assets and liabilities, net (2,497) (3,041) ------------- ------------- Net cash provided by (used in) operating activities 8,318 (13,596) Investing activities: Acquisitions, net of cash acquired (42,110) (35,722) Purchase of property and equipment (18,023) (15,039) Investment in joint ventures - (4,326) ------------- ------------- Net cash used in investing activities (60,133) (55,087) Financing activities: Proceeds from initial public offering - 51,336 Proceeds from issuances of long-term debt - 141,375 Payments on long-term debt - (145,955) Net borrowings under revolving line of credit and other 51,802 22,201 ------------- ------------- Net cash provided by financing activities 51,802 68,957 Effect of exchange rate changes on cash (390) (1,197) ------------- ------------- Net decrease in cash and cash equivalents (403) (923) Cash and cash equivalents at beginning of period 8,113 10,050 ------------- ------------- Cash and cash equivalents at end of period $ 7,710 $ 9,127 ============= =============
See notes to condensed consolidated financial statements 4 DELCO REMY INTERNATIONAL, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (in thousands of dollars) 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 footnotes 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. Operating results for the three-month and nine-month periods ended April 30, 1999 are not necessarily indicative of the results that may be expected for the full fiscal year. The balance sheet at July 31, 1998 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. For further information, refer to the consolidated financial statements and footnotes thereto for the year ended July 31, 1998 in Form 10-K. 2. Inventories Inventories consisted of the following:
--------------------------------------------------------------------------- April 30, July 31, 1999 1998 --------------------------------------------------------------------------- Raw material $ 124,726 $ 102,281 Work-in-process 37,495 36,742 Finished goods 62,601 59,414 ---------- --------- Total $ 224,822 $ 198,437 ---------------------------------------------------------------------------
3. Comprehensive Income In the first quarter of fiscal 1999, the Company adopted Statement of Financial Accounting Standards No. 130, Reporting Comprehensive Income. This standard requires the reporting of comprehensive income in addition to net income from operations. Comprehensive income includes certain items that historically have been excluded from the calculation of net income. The Company's other comprehensive income consists of unrealized gains and losses on the translation of the assets and liabilities of its foreign operations. Comprehensive income was $8,760 and $6,176 for the three-month period ending April 30, 1999 and 1998, respectively, and $19,906 and $8,452 for the nine-month period ending April 30,1999 and 1998, respectively. 5 4. Share and Per Share Information The basic and diluted earnings per common share are determined using the numerator and denominator calculated as follows:
- ------------------------------------------------------------------------------------------------------------------------- Three-Month Period Nine-Month Period Ended April 30, Ended April 30, - ------------------------------------------------------------------------------------------------------------------------- 1999 1998 1999 1998 ----------------------------------------------------- Numerator: Income from continuing operations $ 8,174 $ 5,927 $ 19,415 $ 11,452 Extraordinary item - - - (1,803) ----------------------------------------------------- Numerator for basic and diluted earnings per share $ 8,174 $ 5,927 $ 19,415 $ 9,649 ===================================================== Denominator (in thousands of shares): Denominator for basic earnings per share (weighted average shares) 23,860 23,463 23,826 16,339 Effect of dilutive securities: Warrants 1,680 1,680 1,680 1,680 Employee stock options - 62 - 24 Stock purchase plan 305 840 367 831 ------------------------------------------------------ Denominator for diluted earnings per share (weighted average shares and assumed conversions) 25,845 26,045 25,873 18,874 - -------------------------------------------------------------------------------------------------------------------------
5. Acquisitions On November 13, 1998, Reman Holdings, Inc., a wholly owned subsidiary of the Company, purchased 100% of the Common Stock of Williams Technologies, Inc. ("Williams") from The W.W. Williams Company for approximately $38,800 in cash, less Williams' intercompany and third-party debt and including working capital and other adjustments. The purchase was funded through proceeds from the Company's Senior Credit Facility. The acquisition was treated as a purchase for accounting purposes and resulted in goodwill of approximately $17,600 which is being amortized over 35 years. Results of operations for Williams are included in the Company's consolidated results from the date of acquisition. Williams is a remanufacturer of automatic transmissions and torque converters for automotive and medium and heavy duty truck applications. Its primary market is the dealer network of major North American and foreign original equipment vehicle manufacturers. The Company does not currently anticipate any significant changes in the operation of the business of Williams. The unaudited pro forma consolidated results of operations for the nine months ended April 30, 1999 and 1998, assuming the acquisition of Williams had been consummated on the first day of each period and that the acquisition of Ballantrae on December 22, 1997 had been consummated on August 1, 1997, are as follows: 6
- ------------------------------------------------------------------------------------------------------------------------ Nine Months Ended Nine Months Ended April 30, 1999 April 30, 1998 - ------------------------------------------------------------------------------------------------------------------------ Net sales $ 714,052 $ 654,415 ------------------------- ----------------------- Income before extraordinary item 19,688 13,151 ------------------------- ----------------------- Net income $ 19,688 $ 11,348 ========================= ======================= Basic earnings per common share before extraordinary item $ 0.83 $ 0.80 ========================= ======================= Basic earnings per common share $ 0.83 $ 0.69 ========================= ======================= Diluted earnings per common share before extraordinary item $ 0.76 $ 0.70 ========================= ======================= Diluted earnings per common share $ 0.76 $ 0.60 ========================= =======================
The pro forma consolidated financial information does not purport to present what the Company's consolidated results of operations would actually have been if the acquisitions had occurred on the dates indicated and is not intended to project future results of operations. On April 30, 1999, Delco Remy Hungary Rt., a wholly owned subsidiary of the Company, acquired certain assets of EFEL, an automotive parts manufacturer in Torino, Italy. Proforma consolidated results are not presented for this acquisition because the effect on the Company is not material. 6. Senior Credit Facility On November 13, 1998, the Company amended its Senior Credit Facility. Pursuant to the Senior Credit Facility, as amended, revolving loans are available in the aggregate principal amount of $300 million for general purposes (including acquisitions). The Company has the option of paying an interest rate of one bank's prime rate or a LIBOR-based rate. The Senior Credit Facility contains various covenants which include, among other things: (i) limitations on additional borrowings and encumbrances; (ii) the maintenance of certain financial ratios and compliance with certain financial tests and limitations; (iii) limitations on cash dividends paid; (iv) limitations on investments and capital expenditures; and (v) limitations on leases and sales of assets. The Senior Credit Facility is collateralized by a lien on substantially all assets of the Company and its domestic subsidiaries and by all the capital stock of such subsidiaries held by the Company or any such other subsidiary. The Senior Credit Facility terminates on October 31, 2003. 7. Financial Information for Subsidiary Guarantors and Non-Guarantor Subsidiaries The Company conducts a significant portion of its business through subsidiaries. The Senior Notes and the 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 April 30, 1999 and July 31, 1998 and for the three month and nine month periods ended April 30, 1999 and 1998. 7 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.) Ballantrae Corporation Remy UK Limited Tractech Inc. Delco Remy Mexico, S. de R.L. de C.V. Nabco, Inc. Delco Remy International (Europe) GmbH The A & B Group, Inc. Remy India Holdings, Inc. A & B Enterprises, Inc. Remy Korea Holdings, Inc. Dalex, Inc. Delco Remy Brazil, Ltda. A & B Cores, Inc. Publitech, Inc. R & L Tool Company, Inc. World Wide Automotive Distributors, Inc. MCA, Inc. of Mississippi Tractech (Ireland) Ltd. Power Investments, Inc. Kraftube, Inc. Franklin Power Products, Inc. Power Investments Canada Ltd. International Fuel Systems, Inc. Alberta Ltd. Marine Drive Systems, Inc. Central Precision Limited Marine Corporation of America Western Reman Ltd. (Canada) Powrbilt Products, Inc. Engine Rebuilders Ltd. Western Reman, Inc. Reman Transport Ltd. World Wide Automotive, Inc. Electro Diesel Rebuild Williams Technologies, Inc. Electro-Rebuild Tunisie S.A.R.L. (Tunisia)
8 DELCO REMY INTERNATIONAL, INC. Condensed Consolidating Statement of Operations For the Quarter Ended April 30, 1999
Delco Remy International Inc. Non- (Parent Subsidiary Guarantor Company Guarantors Subsidiaries Eliminations Consolidated Only) ------------- ------------- ------------- ------------- ------------- Net sales $ - $ 250,886 $ 70,940 $(73,000) (a) $ 248,826 Cost of goods sold - 211,008 58,297 (73,000) (a) 196,305 ------------- ------------- ------------- --------- ------------- Gross profit - 39,878 12,643 - 52,521 Selling, engineering, and administrative expenses 3,412 19,095 5,650 - 28,157 ------------- ------------- ------------- --------- ------------- Operating (loss) income (3,412) 20,783 6,993 - 24,364 Interest expense 6,698 4,587 1,410 - 12,695 ------------- ------------- ------------- --------- ------------- (Loss) income before income tax (benefit), minority interest in income of subsidiaries, income from unconsolidated joint ventures and equity in earnings of subsidiaries (10,110) 16,196 5,583 - 11,669 Income taxes (benefit) (1,592) 4,575 1,567 - 4,550 Minority interest in income of subsidiaries - (416) (330) - (746) Income from unconsolidated joint ventures - - 1,801 - 1,801 Equity in earnings of subsidiaries 16,692 - - (16,692) (b) - ------------- ------------- ------------- --------- ------------- Net income (loss) $ 8,174 $ 11,205 $ 5,487 $(16,692) $ 8,174 ============= ============= ============= ========= =============
(a) Elimination of intercompany sales and cost of sales. (b) Elimination of equity in net income (loss) from consolidated subsidiaries. 9 DELCO REMY INTERNATIONAL, INC. Condensed Consolidating Statement of Operations For the Nine Month Period Ended April 30, 1999
Delco Remy International Inc. Non- (Parent Subsidiary Guarantor Company Guarantors Subsidiaries Eliminations Consolidated Only) ------------- ------------- ------------- ------------- ------------- Net sales $ - $ 709,114 $ 191,536 $(196,715) (a) $ 703,935 Cost of goods sold - 601,953 157,694 (196,715) (a) 562,932 ------------- ------------- ------------- ---------- ------------- Gross profit - 107,161 33,842 - 141,003 Selling engineering, and administrative expenses 8,520 53,185 15,564 - 77,269 ------------- ------------- ------------- ---------- ------------- Operating (loss) income (8,520) 53,976 18,278 - 63,734 Interest expense 20,529 11,902 1,932 - 34,363 ------------- ------------- ------------- ---------- ------------- (Loss) income before income tax (benefit), minority interest in income of subsidiaries, income from unconsolidated joint ventures and equity earnings of subsidiaries (29,049) 42,074 16,346 - 29,371 Income taxes (benefit) (3,926) 10,612 4,770 - 11,456 Minority interest in income of subsidiaries - (1,654) (674) - (2,328) Income from unconsolidated joint ventures - - 3,828 3,828 Equity in earnings of subsidiaries 44,538 - - (44,538) (b) - ------------- ------------- ------------- ---------- ------------- Net income (loss) $ 19,415 $ 29,808 $ 14,730 $ (44,538) $ 19,415 ============= ============= ============= ========== =============
(a) Elimination of intercompany sales and cost of sales. (b) Elimination of equity in net income (loss) from consolidated subsidiaries. 10 Delco Remy International, Inc. Condensed Consolidated Statement of Operations For the Three Months Ended April 30, 1998
Delco Remy International, Inc. Non- (Parent Subsidiary Guarantor Company Guarantors Subsidiaries Eliminations Consolidated Only) ------------------------------------------------------------------------- Net sales $ - $ 220,557 $ 40,372 $ (43,846) (a) $ 217,083 Cost of goods sold - 182,453 33,742 (43,846) (a) 172,349 ------------------------------------------------------------------------- Gross profit - 38,104 6,630 - 44,734 Selling, engineering, and administrative expenses (706) 22,008 3,990 - 25,292 ------------------------------------------------------------------------- Operating income (loss) 706 16,096 2,640 - 19,442 Interest expense (income) 7,154 2,625 (31) - 9,748 ------------------------------------------------------------------------- Income (loss) before income tax (benefit), minority interest in income of subsidiaries, income from unconsolidated joint ventures, and equity in earnings of subsidiaries (6,448) 13,471 2,671 - 9,694 Income taxes (benefit) (3,090) 6,071 1,093 - 4,074 Minority interest in income of subsidiaries - (446) (78) - (524) Income from unconsolidated joint venture - - 831 - 831 Equity in earnings of subsidiaries 9,285 - - (9,285) (b) - ------------ ------------ ------------ --------- ------------ Net income (loss) $ 5,927 $ 6,954 $ 2,331 $ (9,285) $ 5,927 =========================================================================
_____________________________________________________ (a) Elimination of intercompany sales and cost of sales. (b) Elimination of equity in net income from consolidated subsidiaries. 11 Delco Remy International, Inc. Condensed Consolidated Statement of Operations For the Nine Months Ended April 30, 1998
Delco Remy International, Inc. Non- (Parent Subsidiary Guarantor Company Only) Guarantors Subsidiaries Eliminations Consolidated ------------------------------------------------------------------------- Net sales $ - $ 633,797 $ 94,312 $(108,747) (a) $ 619,362 Cost of goods sold - 526,630 79,404 (108,747) (a) 497,287 ------------------------------------------------------------------------- Gross profit - 107,167 14,908 - 122,075 Selling, engineering, and administrative expenses 807 57,943 9,121 - 67,871 ------------------------------------------------------------------------- Operating income (loss) (807) 49,224 5,787 - 54,204 Interest expense 17,722 12,617 59 - 30,398 ------------------------------------------------------------------------- Income (loss) before income tax (benefit), minority interest in income of subsidiaries, equity in earnings of subsidiaries, deemed dividend on preferred stock conversion, and preferred dividend requirement of subsidiary (18,529) 36,607 5,728 - 23,806 Income taxes (benefit) (7,828) 15,143 2,454 - 9,769 Minority interest in income of subsidiaries - (1,390) (155) - (1,545) Income from unconsolidated joint venture - - 1,244 - 1,244 Equity in earnings of subsidiaries 20,350 - - (20,350) (b) - Deemed dividend on preferred stock conversion - - - (1,639) (c) (1,639) Preferred dividend requirement of subsidiary - - - (645) (c) (645) ------------------------------------------------------------------------- Income before extraordinary item 9,649 20,074 4,363 (22,634) 11,452 Extraordinary item: Write-off of debt issuance costs (net of applicable income tax benefit) - (1,803) - - (1,803) ------------------------------------------------------------------------- Net income $ 9,649 $ 18,271 $ 4,363 $ (22,634) $ 9,649 =========================================================================
________________________________________ (a) Elimination of intercompany sales and cost of sales. (b) Elimination of equity in net income from consolidated subsidiaries. (c) Recording of preferred dividend requirement of subsidiary and deemed dividend on preferred stock conversion. 12 DELCO REMY INTERNATIONAL, INC. Condensed Consolidating Balance Sheet April 30, 1999
Delco Remy International Inc. Non- (Parent Subsidiary Guarantor Company Only) Guarantors Subsidiaries Eliminations Consolidated ----------------------------------------------------------------------------- Assets: Current assets: Cash and cash equivalents $ - $ 18 $ 7,692 $ - $ 7,710 Trade accounts receivable - 135,419 20,046 - 155,465 Other receivables 2,804 8,646 5,762 - 17,212 Inventories - 182,929 41,893 - 224,822 Deferred income taxes 5,637 10,411 58 - 16,106 Other current assets - 5,060 618 - 5,678 --------------- ---------- ------------ ------------ ----------- Total current assets 8,441 342,483 76,069 - 426,993 Property and equipment 40 203,079 34,292 - 237,411 Less accumulated depreciation 40 55,461 7,802 - 63,303 --------------- ---------- ------------ ------------ ----------- 0 147,618 26,490 - 174,108 Deferred financing costs 8,625 3,007 - - 11,632 Goodwill, net - 111,762 23,241 - 135,003 Net assets held for disposal - 14,477 - - 14,477 Investment in affiliates 350,654 - 18 (334,086) (a) 16,586 Other assets 1,351 1,224 1,936 - 4,511 --------------- ---------- ------------ ------------ ----------- Total assets $ 369,071 $ 620,571 $ 127,754 $ (334,086) $ 783,310 =============== ========== ============ ============ =========== Liabilities and stockholders' equity: Current liabilities: Accounts payable $ 626 $ 92,921 $ 17,938 $ - $ 111,485 Intercompany accounts (36,996) 48,258 (11,262) - - Accrued interest payable 8,409 2,251 - - 10,660 Accrued restructuring charges - 24,195 - - 24,195 Other liabilities and accrued 65 30,347 9,091 - 39,503 expenses Current portion of long term debt - 714 2,187 - 2,901 --------------- ---------- ------------ ------------ ----------- Total current liabilities (27,896) 198,686 17,954 - 188,744 Deferred income taxes 1,761 8 - - 1,769 Long-term debt, less current portion 285,000 156,481 8,615 - 450,096 Post-retirement benefits other than pensions - 19,366 - - 19,366 Accrued pension benefit - 2,936 13 - 2,949 Other non-current liabilities 2,375 981 7 - 3,363 Minority interest in subsidiary - 7,684 5,091 - 12,775 Stockholders' equity: Common stock: Class A Shares 63 - - - 63 Class B Shares 182 - - - 182 Paid-in capital 106,052 - - - 106,052 Subsidiary investment - 200,481 68,365 (268,846) (a) - Retained earnings (deficit) 3,221 33,779 31,461 (65,240) (b) 3,221 Cumulative translation adjustment - 169 (3,752) - (3,583) Stock purchase plan (1,687) - - - (1,687) --------------- ---------- ------------ ------------ ----------- Total stockholders' equity (deficit) 107,831 234,429 96,074 (334,086) 104,245 --------------- ---------- ------------ ------------ ----------- Total liabilities and stockholders' equity (deficit) $ 369,071 $ 620,571 $ 127,754 $ (334,086) $ 783,310 =============== ========== ============ ============ ===========
(a) Elimination of investments in subsidiaries. (b) Elimination of investments in subsidiaries' earnings. 13
Delco Remy International, Inc. Condensed Consolidating Balance Sheet July 31, 1998 Delco Remy International Inc. Non- (Parent Subsidiary Guarantor Company Only) Guarantors Subsidiaries Eliminations Consolidated --------------- ---------- ------------ ------------ ------------ ASSETS: Current assets: Cash and cash equivalents $ -- $ 125 $ 7,988 $ -- $ 8,113 Trade accounts receivable -- 106,543 20,353 -- 126,896 Other receivables -- 8,161 1,685 -- 9,846 Recoverable income taxes -- 1,802 -- -- 1,802 Inventories -- 165,150 33,287 -- 198,437 Deferred income taxes 6,428 15,225 -- -- 21,653 Other current assets -- 2,405 478 -- 2,883 --------------- ---------- ------------ --------- ------------ Total current assets 6,428 299,411 63,791 -- 369,630 Property and equipment 20 178,146 30,371 -- 208,537 Less accumulated depreciation 20 44,769 5,779 -- 50,568 --------------- ---------- ------------ --------- ------------ Property and equipment, net -- 133,377 24,592 -- 157,969 Deferred financing costs 9,437 1,312 37 -- 10,786 Goodwill, net -- 93,673 21,773 -- 115,446 Net assets held for disposal -- 14,894 -- -- 14,894 Investments in affiliates and joint ventures 261,541 -- -- (249,067)(a)(b) 12,474 Other assets 2,523 876 399 -- 3,798 --------------- ---------- ------------ --------- ------------ Total assets $ 279,929 $ 543,543 $ 110,592 $(249,067) $ 684,997 =============== ========== ============ ========= ============ LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT): Current liabilities: Accounts payable $ 130 $ 71,180 $ 14,494 $ -- $ 85,804 Intercompany accounts (79,839) 82,869 (3,030) -- -- Accrued interest payable 9,001 580 -- -- 9,581 Accrued restructuring charges -- 35,519 -- -- 35,519 Other liabilities and accrued expenses 2,751 30,505 4,062 -- 37,318 Current portion of long-term debt -- 961 987 -- 1,948 --------------- ---------- ------------ --------- ------------ Total current liabilities (67,957) 221,614 16,513 -- 170,170 Deferred income taxes (25,431) 23,755 2,917 -- 1,241 Long-term debt, less current portion 285,000 101,218 7,588 -- 393,806 Post-retirement benefits other than pensions -- 16,495 -- -- 16,495 Accrued pension benefits -- 4,628 -- -- 4,628 Other non-current liabilities 3 3,802 162 -- 3,967 Minority interests in subsidiaries -- 8,650 1,800 -- 10,450 Stockholders' equity (deficit): Common stock: Class A shares 182 -- -- -- 182 Class B shares 63 -- -- -- 63 Paid-in capital 106,392 -- -- -- 106,392 Subsidiary investments -- 158,988 69,377 (228,365)(a) -- Retained earnings (deficit) (16,194) 4,393 16,309 (20,702)(b) (16,194) Cumulative translation adjustment -- -- (4,074) -- (4,074) Stock purchase plan (2,129) -- -- -- (2,129) --------------- ---------- ------------ --------- ------------ Total stockholders' equity (deficit) 88,314 163,381 81,612 (249,067) 84,240 --------------- ---------- ------------ --------- ------------ Total liabilities and stockholders' equity (deficit) $ 279,929 $ 543,543 $ 110,592 $(249,067) $ 684,997 =============== ========== ============ ========= ============
(a) Elimination of investments in subsidiaries. (b) Elimination of investments in subsidiaries' earnings. 14 DELCO REMY INTERNATIONAL, INC. Condensed Consolidating Statement of Cash Flows For the Nine Month Period Ended April 30, 1999
Delco Remy International Inc. Non- (Parent Subsidiary Guarantor Company Only) Guarantors Subsidiaries Eliminations Consolidated ------------- ------------- ------------- ------------- ------------- Operating Activities: Net income (loss) $ 19,415 $ 29,808 $ 14,730 $ (44,538)(a) $ 19,415 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation 20 10,750 2,844 - 13,614 Amortization 865 3,136 557 - 4,558 Minority Interest in income of subsidiaries - 1,654 674 - 2,328 Income from unconsolidated joint ventures - - (3,828) - (3,828) Equity in earnings of subsidiary (44,538) - - 44,538 (a) - Deferred income taxes 791 4,814 (58) - 5,547 Post-retirement benefits other than pensions - 2,871 - - 2,871 Accrued pension benefits - (1,679) - - (1,679) Non-cash interest expense 819 388 - - 1,207 Changes in operating assets and liabilities, net of acquisitions: Accounts receivable - (19,474) 307 - (19,167) Inventories - (6,349) (8,606) - (14,955) Accounts payable 496 15,102 3,444 - 19,042 Intercompany accounts 62,169 (50,212) (11,957) - - Other current assets and liabilities (6,082) (1,741) 1,007 - (6,816) Accrued restructuring - (11,322) - - (11,322) Other non-current assets - and liabilities, net 4,876 (14,504) 7,131 - (2,497) ------------- ------------- ------------- ------------- ------------- Net cash provided by (used in) operating activities 38,831 (36,758) 6,245 - 8,318 Investing activities: Acquisitions, net of cash acquired. (38,831) - (3,279) - (42,110) Purchase of property and equipment - (12,924) (5,099) - (18,023) ------------- ------------- ------------- ------------- ------------- Net cash used in investing activities (38,831) (12,924) (8,378) - (60,133) Financing activities: Other financing activities - 49,575 2,227 - 51,802 ------------- ------------- ------------- ------------- ------------- Net cash used in financing activities - 49,575 2,227 - 51,802 Effect of exchange rate changes on cash - 0 (390) - (390) ------------- ------------- ------------- ------------- ------------- Net increase (decrease) in cash and cash equivalents - (107) (296) - (403) Cash and cash equivalents at beginning of year - 125 7,988 - 8,113 ------------- ------------- ------------- ------------- ------------- Cash and cash equivalents at end of year $ - $ 18 $ 7,692 $ - $ 7,710 ============= ============= ============= ============= =============
(a) Elimination of equity in earnings of subsidiary. 15 Delco Remy International, Inc. Condensed Consolidating Statement of Cash Flows For the Nine Months Ended April 30, 1998
Delco Remy International, Inc. Non- (Parent Subsidiary Guarantor Company Only) Guarantors Subsidiaries Eliminations Consolidated ------------------------------------------------------------------------- Operating Activities: Net income $ 9,649 $ 18,271 $ 4,363 $ (22,634)(a) $ 9,649 Extraordinary item - 1,803 - - 1,803 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation - 8,324 819 - 9,143 Amortization - 2,924 288 3,212 Minority interest in subsidiaries - 1,390 155 - 1,545 Income from unconsolidated joint ventures - - (1,244) - (1,244) Equity in earnings of subsidiaries (20,350) - - 20,350 (a) - Deferred income taxes (4,990) 7,457 (1,088) - 1,379 Post-retirement benefits other than pensions - 3,195 - - 3,195 Accrued pension benefits - (44) - - (44) Non-cash interest expense 1,705 319 - - 2,024 Preferred dividend requirement of subsidiary - - - 645 (b) 645 Deemed dividend on preferred stock conversion - - - 1,639 (b) 1,639 Changes in operating assets and liabilities, net of acquisitions: Accounts receivable - (24,711) (4,251) - (28,962) Inventories - (12,230) (4,848) - (17,078) Accounts payable (65) (2,721) 5,304 - 2,518 Intercompany accounts (130,208) 123,666 6,542 - - Other current assets and liabilities 3,082 5,053 2,765 - 10,900 Accrued restructuring - (10,879) - - (10,879) Other non-current assets and liabilities, net (4,550) 937 572 - (3,041) ------------------------------------------------------------------------- Net cash (used in) provided by operating activities (145,727) 122,754 9,377 - (13,596) Investing activities: Acquisitions, net of cash acquired (34,358) - (1,364) - (35,722) Purchase of property and equipment - (8,641) (6,398) - (15,039) Investments in affiliates (4,326) - -- - (4,326) ------------------------------------------------------------------------- Net cash used in investing activities (38,684) (8,641) (7,762) - (55,087) Financing activities: Proceeds from issuance of long term debt 141,375 - - - 141,375 Payments on long-term debt (8,300) (137,641) (14) - (145,955) Proceeds from initial public offering 51,336 - - - 51,336 Other financing activities - 22,201 - - 22,201 ------------------------------------------------------------------------- Net cash provided by (used in) financing activities 184,411 (115,440) (14) - 68,957 Effect of exchange rate changes on cash - - (1,197) - (1,197) ------------------------------------------------------------------------- Net increase (decrease) in cash and cash equivalents - (1,327) 404 - (923) Cash and cash equivalents at beginning of period - 1,504 8,546 - 10,050 - ------------------------------------------------------------------------- Cash and cash equivalents at end of period $ - $ 177 $ 8,950 $ - $ 9,127 =========================================================================
_________________ (a) Elimination of equity in earnings of subsidiary. (b) Recording of preferred dividend requirement of subsidiary and deemed dividend on preferred stock conversion. 16 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations
Three Months Ended Nine Months Ended Ended April 30 Ended April 30 ------------------------------------ ----------------------------------- 1999 1998 1999 1998 ---------------- ----------------- ---------------- ---------------- (Thousands of Dollars) Amount % Amount % Amount % Amount % ---------------- ----------------- ---------------- ---------------- Net sales $248,826 100.0% $217,083 100.0% $703,935 100.0% $619,362 100.0% Cost of sales 196,305 78.9% 172,349 79.4% 562,932 80.0% 497,287 80.3% ---------------- ---------------- --------------- ---------------- Gross profit 52,521 21.1% 44,734 20.6% 141,003 20.0% 122,075 19.7% Selling, engineering, and administrative 28,157 11.3% 25,292 11.7% 77,269 11.0% 67,871 11.0% ---------------- ---------------- --------------- ---------------- Operating income 24,364 9.8% 19,442 9.0% 63,734 9.1% 54,204 8.8% Interest expense 12,695 5.1% 9,748 4.5% 34,363 4.9% 30,398 4.9% Provision for income taxes 4,550 1.8% 4,074 1.9% 11,456 1.6% 9,769 1.6% Minority interests (746) -0.3% (524) -0.2% (2,328) -0.3% (1,545) -0.2% Income from unconsolidated joint ventures 1,801 0.7% 832 0.4% 3,828 0.5% 1,244 0.2% Preferred dividend requirement of subsidiary - 0.0% - 0.0% - 0.0% (645) -0.1% Non-recurring deemed dividend on preferred stock conversion - 0.0% - 0.0% - 0.0% (1,639) -0.3% Write-off of debt issuance costs net of tax - 0.0% - 0.0% - 0.0% (1,803) -0.3% ---------------- ----------------- ---------------- ---------------- Net income $ 8,174 3.3% $ 5,928 2.7% $ 19,415 2.8% $ 9,649 1.6% ================ ================= ================ ================
Three Months Ended April 30, 1999 Compared to Three Months Ended April 30, 1998 Net Sales Net sales were $248.8 million for the three months ended April 30, 1999, an increase of $31.7 million, or 14.6%, from $217.1 million for the comparable period of 1998. This increase was due to growth in the Company's aftermarket business, including the effect of the acquisitions of Williams (November 1998), Electro Diesel Rebuild (July 1998) and Lucas Varity's electrical remanufacturing operations (April 1998). Growth in aftermarket sales also reflected stronger market demand and the addition of new customers and distribution. OEM sales improved due to stronger automotive and heavy duty demand. Gross Profit Gross profit was $52.5 million in the third quarter of fiscal 1999 compared to $44.7 million in the third quarter of fiscal 1998, an increase of $7.8 million, or 17.4%. This growth reflects the acquisitions and volume increases discussed above. As a percentage of net sales, gross profit improved to 21.1% from 20.6% due to sales growth, a higher mix of aftermarket sales (which generate higher margins) and improved productivity and quality. 17 Selling, Engineering and Administrative Expenses Selling, engineering, and administrative (SE&A) expenses of $28.2 million were up $2.9 million, or 11.3%, from $25.3 million in the comparable period of fiscal 1998 and, as a percentage of sales, were 11.3% versus 11.7%. The effect of the above mentioned acquisitions was more than offset by continued emphasis on overall cost control. Operating Income Operating income was $24.4 million for the three months ended April 30, 1999, an increase of $4.9 million, or 25.3%, from the third quarter of fiscal 1998. Operating income margin expanded from 9.0% in 1998 to 9.8% in 1999, reflecting the sales, gross profit and SE&A expense issues discussed above. Interest Expense Interest expense of $12.7 million in the third quarter was up $2.9 million compared to $9.7 million in the third quarter last year due to increased utilization of the Senior Credit Facility to fund acquisitions and business growth. Income Taxes Income taxes for the three months ended April 30, 1999 were $4.6 million compared to $4.1 million in the third quarter of fiscal 1998. The Company's consolidated effective income tax rate varies between 39% and 42% based on income levels and other factors involving the states and countries in which the Company does business. Income from Unconsolidated Joint Ventures Income from unconsolidated joint ventures of $1.8 million in the third quarter of 1999 increased $1.0 million from the third quarter of 1998. Earnings in both years were generated primarily by the Company's investment in a Korean automotive parts manufacturer, which began operations in fiscal 1998. Nine Months Ended April 30, 1999 Compared to Nine Months Ended April 30, 1998 Net Sales Net sales of $703.9 million in the first three quarters of fiscal 1999 were up $84.6 million, or 13.7%, compared with the first three quarters of fiscal 1998. This increase was driven by the acquisitions discussed above, the acquisition of Ballantrae in December 1997, strong market demand, new customers and distribution in the aftermarket and increased demand in the automotive and heavy duty OEM markets. Gross Profit Gross profit of $141.0 million increased $18.9 million, or 15.5%, from the first nine months of fiscal 1998 due to acquisitions and sales volume growth. As a percentage of net sales, gross profit improved from 19.7% to 20.0% in 1999 due to the higher mix of aftermarket sales and improved productivity. Selling, Engineering and Administrative Expenses SE&A expenses of $77.3 million were up $9.4 million, or 13.8%, from $67.9 million in the first nine months of fiscal 1998 and, as a percentage of sales, were 11.0% in both years. The effect of acquisitions was offset by continued emphasis on overall cost control. Operating Income Operating income was $63.7 million in the first three quarters of fiscal 1999, an increase of $9.5 million, or 17.6%, from the comparable period of fiscal 1998. As a percentage of net sales, operating income was 9.1% in 1999 versus 8.8% in 1998, as the growth in sales and gross profit was partially offset by the increase in SE&A expense. Interest Expense Interest expense of $34.4 million was up $4.0 million, or 13.0%, compared to $30.4 million in the first three quarters last year. The Company's weighted average interest rate declined year over year as funds generated from the initial public offering in December 1997 were used to repay higher interest rate debt. This was more than offset by increased utilization of the Senior Credit Facility since the refinancing to fund acquisitions and business growth. 18 Income Taxes Income taxes for the nine months ended April 30, 1999 were $11.5 million compared to $9.8 million in 1998. Income from Unconsolidated Joint Ventures Income from unconsolidated joint ventures of $3.8 million in the first three quarters of 1999 increased $2.6 million from the comparable period of 1998 and, in both years, were generated primarily by the Company's investment in a Korean automotive parts manufacturer, which began operations in fiscal 1998. Non-recurring Deemed Dividend on Preferred Stock Conversion In December 1997, redeemable exchangeable preferred stock was exchanged for the 8% Subordinated Debenture over the carrying value of the redeemable exchangeable preferred stock of subsidiary resulting in a non-recurring deemed dividend of $1.6 million. Write Off of Debt Issuance Cost In December 1997, certain debt was retired out of the proceeds from the senior notes and initial public offering. Unamortized issuance costs, net of income taxes, of $1.8 million relating to the retired debt was written off in the nine month period ended April 30, 1998. Liquidity and Capital Resources The Company's liquidity needs include required debt service, working capital needs and the funding of capital expenditures and acquisitions. The Company does not currently have any significant maturities of long-term debt prior to 2006 other than the Senior Credit Facility and the 8% Subordinated Debenture. Cash provided by operating activities in the first nine months of fiscal 1999 of $8.3 million compares with cash used of $13.6 million in the first nine months of fiscal 1998. Increased earnings, excluding non-cash charges, smaller increases in accounts receivable and inventories and a larger increase in accounts payable were partially offset by higher cash restructuring payments and increases in other current assets. During the third quarter, the company generated sufficient cash from operations and cash balances to pay down $11.9 million of the balance on the Senior Credit Facility. Cash used in investing activities of $60.1 million in the first three quarters of 1999 was $5.0 million higher than cash used in the comparable period of fiscal 1998 due to cash payments for acquisitions. The Company's capital expenditures were $18.0 million for the nine months ended April 30, 1999. The Company is forecasting capital expenditures of approximately $7.0 million for the remainder of fiscal year 1999. Capital expenditures consist of production equipment for the Company's new focus factories and investments in cost reduction programs, including upgrades in machinery technology, new quality standards and environmental compliance. Cash provided by financing activities of $51.8 million in the first nine months of 1999, consisting primarily of borrowing under the Senior Credit Facility, was down from $69.0 million provided in the first nine months of 1998.The Company's initial public offering of 4.6 million shares of Class A Common Stock in December 1997 and January 1998 generated net proceeds of $51.3 million. The Company also issued 8 5/8% Senior Subordinated Notes with net proceeds of $141.4 million in December 1997. These proceeds were used to pay off debt with higher interest rates and less favorable terms. On April 30, 1999 the debt to total capitalization of the Company was 79% as compared to 78% on April 30, 1998. The Company's principal sources of cash to fund its liquidity needs consist of net cash from operating activities and borrowings under the Senior Credit Facility. As discussed in Note 6 to the Condensed Consolidated Financial Statements, the Company amended its Senior Credit Facility on November 13, 1998. As a result of this amendment, revolving loans are now available in the aggregate principal amount of $300 million. As of April 30, 1999, approximately $169.6 million remained available. Cash interest expense for the nine months ended April 30, 1999 was $33.2 million. Non-cash interest accrued during the nine months ended April 30, 1999 was $1.2 million, or 3.5% of total interest expense. 19 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 summer shutdowns of operations during the fourth fiscal quarter. In addition, 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 second and fourth quarter results reflect the effects of these shutdowns. Year 2000 Readiness Disclosure Many existing computer programs use only two digits to identify years. These programs were designed without consideration for the affect of the upcoming change in century, and if not corrected, could fail or create erroneous results by, at or beyond the year 2000. Essentially all the Company's information technology based systems, as well as many non-information technology based systems are affected by the "Year 2000" issue. Technology based systems reside on mainframes, servers and personal computers in the U.S. and in the foreign countries where the Company has operations. Specific systems include accounting, payroll, financial reporting, product development, inventory tracking and control, business planning, tax, accounts receivable, accounts payable, purchasing, distribution and numerous word processing applications. Non-information technology based systems include equipment and services containing imbedded microprocessors, such as clocks, security systems and building management systems. All of the Company's businesses have relationships with numerous third parties, including material suppliers, utility companies, transportation companies, banks and brokerage firms, that may be affected by the Year 2000 issue. Remediation plans have been established for all mission critical systems potentially affected by the Year 2000 issue. The primary phases and current status of the plans for internal systems are summarized as follows: Enterprise awareness and planning. This phase involved the establishment of project teams and plans for each subsidiary and joint venture. This phase has been completed for all subsidiaries and the Company is in the process of determining the status of the joint ventures. Inventory of all hardware and software. This phase has been completed. Impact analysis/assessment. This phase has been completed. Planning and scheduling. Plans have been implemented for all of mission critical applications. Conversion. The organizations are at varying points in their conversion process. 85% of the mission critical applications have been converted. The remaining 15% are expected to be converted by September 1999. Testing. Each system is tested based on the specific requirements. These are included as part of the overall project plans. Implementation. Each system within the organization is at a different point. 85% of the mission critical applications have been implemented. The remaining 15% are expected to be implemented by September 1999. Assessment of the Company's third-party risk involves the identification of critical vendors, Year 2000 confirmation correspondence, evaluations and selected vendor reviews. Remediation plans are being developed for identified areas of third party risk. 20 The Company is in the process of determining the risks it would face in the event certain aspects of its Year 2000 remediation plan fail. It is also developing contingency plans for all mission-critical processes. Under a "worst case" scenario, the Company's manufacturing operations would be unable to build and deliver product due to internal system failures and/or the inability of vendors to deliver raw materials and components. While virtually all internal systems can be replaced with manual systems on a temporary basis, the failure of any mission-critical system will have at least a short-term negative affect on operations. The failure of national and worldwide banking systems could result in the inability of many businesses, including the Company, to conduct business. Risk assessment and contingency plans are expected to be completed by July 1999. The total cost to the Company of achieving Year 2000 compliance is not expected to exceed $2.0 million, including the cost of both internal and external resources. Spending to date totals approximately $1.2 million. While the Company believes that the estimated cost of becoming Year 2000 compliant will not be significant to its results of operations, failure to complete all work in a timely manner could have a material adverse effect on the Company's results of operations. While the Company expects all planned work to be completed, it cannot guarantee that all systems will be in compliance by the year 2000, that the systems of suppliers and other third parties on which the Company relies will be converted in a timely manner or that the Year 2000 contengency planning will be able to fully address all potential interruptions. Therefore, date-related issues could cause delays in the Company's ability to produce or ship products, process transactions or otherwise conduct business in any of the Company's markets. Foreign Sales Approximately 24% of the Company's sales are 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. 21 PART II. OTHER INFORMATION Item 5. Other Information - ------- ----------------- 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 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. Item 6. Exhibits and Reports on Form 8-K. - ------- --------------------------------- (a) Exhibits 27 Financial Data Schedule (Filed via EDGAR only) (b) Reports on Form 8-K There were no reports on Form 8-K filed during the quarter ended April 30, 1999. 22 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: June 1, 1999 By: /s/ David L. Harbert -------------------------------- David L. Harbert Executive Vice President and Chief Financial Officer Date: June 1, 1999 By: /s/ David E. Stoll -------------------------------- David E. Stoll Vice President and Controller Chief Accounting Officer 23 EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONDENSED CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENT OF OPERATIONS FOR DELCO REMY INTERNATIONAL INC. AND SUBSIDIARIES AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS JUL-31-1999 FEB-01-1999 APR-30-1999 7,710 0 157,763 2,298 224,822 426,993 237,411 63,303 783,310 188,744 0 0 0 245 104,003 783,310 248,826 248,826 196,305 196,305 28,157 450 12,695 11,669 4,550 8,174 0 0 0 8,174 .34 .32
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