-----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, OQSPeazVUFd2CuZfzfRJ3XcX1a1EcG62k58FjHaBth6HEVvDEajjstTLbUL0aKH4 rrnWQVPIckCiiwgLvpKtlw== 0001036050-99-002471.txt : 19991206 0001036050-99-002471.hdr.sgml : 19991206 ACCESSION NUMBER: 0001036050-99-002471 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19991031 FILED AS OF DATE: 19991203 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: 99768419 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 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED October 31, 1999 COMMISSION FILE NO. 1-13683 DELCO REMY INTERNATIONAL, INC. (Exact name of registrant as specified in its charter) Delaware 35-1909253 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 2902 Enterprise Drive Anderson, Indiana 46013 (Address of principal executive offices) (Zip Code) (765) 778-6499 (Registrant's telephone number, including area code) Not Applicable (Former name, former address and former fiscal year, if changed since last report) INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. Yes X No --- --- INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE REGISTRANT'S CLASSES OF COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE. Number of common shares outstanding Class as of November 9, 1999 ------------------------ ------------------------------------- Common Stock - Class A 18,118,058 Common Stock - Class B 6,278,055 ================================================================================ INDEX
PART I FINANCIAL INFORMATION Page Item 1 Financial Statements (Unaudited) Condensed Consolidated Statements of Operations................ 3 Condensed Consolidated Balance Sheets.......................... 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.......................................... 15 PART II OTHER INFORMATION Item 5 Other Information.............................................. 18 Item 6 Exhibits and Reports on Form 8-K............................... 18 SIGNATURES ............................................................... 19
2 PART I FINANCIAL INFORMATION Item 1. Financial Statements Condensed Consolidated Statements of Operations Delco Remy International, Inc. and Subsidiaries (Unaudited)
Three-Month Period Ended October 31 ------------------------------------------------------ 1999 1998 ------------------- ------------------- (in thousands of dollars, except for share amounts) Net sales $ 277,189 $ 232,785 Cost of goods sold 216,764 191,013 ------------------- ------------------- Gross profit 60,425 41,772 Selling, engineering and administrative expenses 30,870 22,164 Amortization of goodwill and intangibles 1,640 1,060 ------------------- ------------------- Operating income 27,915 18,548 Interest expense (12,124) (10,403) ------------------- ------------------- Income before income taxes, minority interest in income of subsidiaries and income (loss) from unconsolidated joint ventures 15,791 8,145 Income taxes 6,000 3,177 Minority interest in income of subsidiaries (1,811) (761) Income (loss) from unconsolidated joint ventures (6) 1,181 ------------------- ------------------- Net income $ 7,974 $ 5,388 =================== =================== Basic earnings per common share $ 0.33 $ 0.23 =================== =================== Diluted earnings per common share $ 0.31 $ 0.21 =================== ===================
See Notes to Condensed Consolidated Financial Statements 3 Condensed Consolidated Balance Sheets Delco Remy International, Inc. and Subsidiaries (Unaudited)
October 31, July 31, 1999 1999 ----------- --------- (in thousands of dollars) Assets Current assets: Cash and cash equivalents $ 11,738 $ 15,309 Trade accounts receivable, net 185,675 147,988 Other receivables 15,372 15,496 Inventories 239,236 232,165 Deferred income taxes 14,997 14,997 Other current assets 3,147 2,903 ---------- ----------- Total current assets 470,165 428,858 Property and equipment 270,352 258,727 Less accumulated depreciation 67,036 63,532 ---------- ----------- Property and equipment, net 203,316 195,195 Deferred financing costs 10,752 11,192 Goodwill (net of accumulated amortization) 135,448 137,429 Investments in joint ventures 4,759 4,756 Other assets 5,586 5,233 ---------- ----------- Total assets $ 830,026 $ 782,663 ========== =========== Liabilities and stockholders' equity Current liabilities: Accounts payable $ 133,800 $ 119,339 Accrued interest payable 9,799 11,603 Accrued restructuring charges 5,403 5,866 Other liabilities and accrued expenses 46,733 37,105 Current debt 11,089 12,596 ---------- ----------- Total current liabilities 206,824 186,509 Deferred income taxes 4,568 4,568 Long-term debt, less current portion 451,235 434,931 Post-retirement benefits other than pensions 21,894 21,050 Accrued pension benefits 2,957 2,719 Other noncurrent liabilities 3,902 3,545 Commitments and contingencies Minority interest in subsidiaries 21,585 19,821 Stockholders' equity: Common stock: Class A shares 182 182 Class B shares 63 63 Paid-in capital 104,176 104,176 Retained earnings 20,126 12,152 Accumulated other comprehensive loss (7,004) (6,516) Stock purchase plan (482) (537) ---------- ----------- Total stockholders' equity 117,061 109,520 ---------- ----------- Total liabilities and stockholders' equity $ 830,026 $ 782,663 ========== ===========
See Notes to Condensed Consolidated Financial Statements 4 Condensed Consolidated Statements of Cash Flows Delco Remy International, Inc. and Subsidiaries (Unaudited)
Three-Month Period Ended October 31, ---------------------------------- 1999 1998 ------------ ------------ (in thousands of dollars) Operating activities: Net income $ 7,974 $ 5,388 Adjustments to reconcile net income to net cash flows provided by (used in) operating activities: Depreciation 6,330 4,039 Amortization 1,640 1,060 Minority interest in income of subsidiaries 1,811 761 Income (loss) from unconsolidated joint ventures 6 (1,181) Deferred income taxes - (545) Post-retirement benefits other than pensions 844 957 Accrued pension benefits 238 477 Non-cash interest expense 439 339 Changes in operating assets and liabilities, net of acquisitions: Accounts receivable (37,687) (23,505) Inventories (3,484) (435) Accounts payable 14,461 6,913 Other current assets and liabilities 7,302 (13,174) Accrued restructuring charges (463) (5,571) Other non-current assets and liabilities, net 1,096 (21) ------------ ------------ Net cash provided by (used in) operating activities 507 (24,498) Investing activities: Acquisitions, net of cash acquired (5,733) - Purchases of property and equipment (13,142) (5,946) ------------ ------------ Net cash used in investing activities (18,875) (5,946) Financing activities: Net borrowings under revolving line of credit 14,797 30,698 ------------ ------------ Net cash provided by financing activities 14,797 30,698 Effect of exchange rate changes on cash - 126 ------------ ------------ Net increase (decrease) in cash and cash equivalents (3,571) 380 Cash and cash equivalents at beginning of period 15,309 8,113 ------------ ------------ Cash and cash equivalents at end of period $ 11,738 $ 8,493 ============ ============
See Notes to Condensed Consolidated Financial Statements 5 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 period ended October 31, 1999 are not necessarily indicative of the results that may be expected for the full fiscal year. The balance sheet at July 31, 1999 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, 1999 in Form 10-K. 2. Additional Balance Sheet Information October 31, July 31, Inventory: 1999 1999 ---------------- --------------- Raw material $128,776 $121,725 Work-in-process 49,344 50,725 Finished goods 61,116 59,715 ---------------- --------------- Total $239,236 $232,165 ================ =============== 3. Comprehensive 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 $7,486 and $4,658 for the three month periods ending October 31, 1999 and 1998, respectively. 6 4. Earnings per Share Basic earnings per share is computed by dividing net income available to common stockholders by the weighted average number of common stock shares outstanding during the year. Diluted earnings per share is computed by dividing net income available to common stockholders by the weighted average number of common stock shares outstanding during the year plus potential dilutive instruments, including stock options, warrants and the stock purchase plan. The following table sets forth the computation of basic and diluted earnings per share:
Three-Month Period Ended October 31, -------------------------------------------- 1999 1998 ------------------ ------------------ Numerator: Net income $ 7,974 $ 5,388 ================== ================== Denominator: Denominator for basic earnings per share (weighted average shares) 24,207,113 23,775,061 Effect of dilutive securities: Warrants 1,679,786 1,679,821 Stock purchase plan 88,703 445,594 ------------------ ------------------ Denominator for diluted earnings per share (weighted average shares and assumed conversions) 25,975,602 25,900,476 ================== ==================
5. 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 October 31, 1999 and July 31, 1999 and for the three month periods ended October 31, 1999 and 1998. 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. 7 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. Delco 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. Alberta Ltd. MCA, Inc. of Mississippi World Wide Automotive Distributors, Inc. Power Investments, Inc. Kraftube, Inc. Franklin Power Products, Inc. Tractech (Ireland) Ltd. International Fuel Systems, Inc. Central Precision Limited Marine Drive Systems, Inc. Electro Diesel Rebuild BVBA Marine Corporation of America Electro Rebuild Tunisia S.A.R.L. (Tunisia) Powrbilt Products, Inc. Delco Remy Mexico, S. de R.L. de C.V. World Wide Automotive, Inc. Publitech, Inc. Ballantrae Corporation Delco Remy Brazil, Ltda. Tractech Inc. Western Reman Ltd. (Canada) Williams Technologies, Inc. Engine Rebuilders Ltd. Western Reman, Inc. Reman Transport Ltd. Engine Master, L.P. Delco Remy Remanufacturing Delco Remy Germany GmbH Remy Componentes S. de R. L. de C. V. Delco Remy Belgium BVBA Magnum Power Products, LLC - --------------------------------------------------------------------------------
8 Delco Remy International, Inc. Condensed Consolidating Statement of Operations For the Three Months Ended October 31, 1999 (Unaudited) (in thousands of dollars)
Delco Remy International Inc. Non- (Parent Subsidiary Guarantor Company Only) Guarantors Subsidiaries Eliminations Consolidated ------------------ ----------- ------------ ------------ ------------ Net sales $ - $ 277,581 $ 91,561 $ (91,953)(a) $ 277,189 Cost of goods sold - 235,213 73,504 (91,953)(a) 216,764 ------------------ ----------- ------------ ------------ ------------ Gross profit - 42,368 18,057 - 60,425 Selling, engineering and administrative expenses 3,394 19,790 7,686 - 30,870 Amortization of goodwill and intangibles 64 1,246 330 - 1,640 ------------------ ----------- ------------ ------------ ------------ Operating (loss) income (3,458) 21,332 10,041 - 27,915 Interest expense (6,971) (4,569) (584) - (12,124) ------------------ ----------- ------------ ------------ ------------ Income (loss) before income taxes, minority interest in income (loss) of subsidiaries and income (loss) from unconsolidated joint ventures (10,429) 16,763 9,457 - 15,791 Income taxes (benefit) (2,453) 6,370 2,083 - 6,000 Minority interest in income of subsidiaries - (688) (1,123) - (1,811) Income (loss) from unconsolidated joint ventures - - (6) - (6) Equity in earnings of subsidiaries 15,950 - - (15,950)(b) - ------------------ ----------- ------------ ------------ ------------ Net income (loss) $ 7,974 $ 9,705 $ 6,245 $ (15,950) $ 7,974 ================== =========== ============ ============ ============
______________________________________________________________ (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 Three Months Ended October 31, 1998 (Unaudited) (in thousands of dollars)
Delco Remy International Inc. Non- (Parent Subsidiary Guarantor Company Only) Guarantors Subsidiaries Eliminations Consolidated ------------------ ---------- ------------ ------------ ------------ Net sales $ - $ 234,940 $ 55,001 $(57,156)(a) $ 232,785 Cost of goods sold - 202,974 45,195 (57,156)(a) 191,013 ------------------ ---------- ------------ -------- ----------- Gross profit - 31,966 9,806 - 41,772 Selling, engineering and administrative expenses 1,894 15,861 4,409 - 22,164 Amortization of goodwill and intangibles 288 701 71 - 1,060 ------------------ ---------- ------------ -------- ------------ Operating (loss) income (2,182) 15,404 5,326 - 18,548 Interest expense (7,167) (3,219) (17) - (10,403) ------------------ ---------- ------------ -------- ------------ Income (loss) before income taxes, minority interest in income of subsidiaries and income from unconsolidated joint ventures (9,349) 12,185 5,309 - 8,145 Income taxes (benefit) (1,706) 3,440 1,443 - 3,177 Minority interest in income of subsidiaries - (588) (173) - (761) Income from unconsolidated joint ventures - - 1,181 - 1,181 Equity in earnings of subsidiaries 13,031 - - (13,031)(b) - ------------------ ---------- ------------ -------- ------------ Net income (loss) $ 5,388 $ 8,157 $ 4,874 $(13,031) $ 5,388 ================== ========== ============ ======== ============
__________________________________________________________ (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 Consolidating Balance Sheet October 31, 1999 (Unaudited) (in thousands of dollars)
Delco Remy International Inc. Non- (Parent Subsidiary Guarantor Company Only) Guarantors Subsidiaries Eliminations Consolidated ------------------ ---------- ------------ ------------ ------------ Assets Current assets: Cash and cash equivalents $ - $ (42) $ 11,780 $ - $ 11,738 Trade accounts receivable, net - 150,197 35,478 - 185,675 Other receivables - 7,482 7,890 - 15,372 Inventories - 193,394 47,488 (1,646)(c) 239,236 Deferred income taxes - 14,997 - - 14,997 Other current assets - 2,485 662 - 3,147 ------------------ ---------- ------------ ------------ ------------ Total current assets - 368,513 103,298 (1,646) 470,165 Property and equipment 40 203,599 66,713 - 270,352 Less accumulated depreciation 40 58,804 8,192 - 67,036 ------------------ ---------- ------------ ------------ ------------ Property and equipment, net - 144,795 58,521 - 203,316 Deferred financing costs 8,079 2,673 - - 10,752 Goodwill, net - 113,434 22,014 - 135,448 Investments in affiliates 402,853 - - (398,094)(a) 4,759 Other assets 2,440 721 2,425 - 5,586 ------------------ ---------- ------------ ------------ ------------ Total assets $ 413,372 $ 630,136 $ 186,258 $ (399,740) $ 830,026 ================== ========== ============ ============ ============ Liabilities and stockholders' equity Current liabilities: Accounts payable $ 566 $ 100,306 $ 32,928 $ - $ 133,800 Intercompany accounts (10,704) 36,685 (25,380) (601)(c) - Accrued interest payable 8,409 1,378 12 - 9,799 Accrued restructuring charges - 5,403 - - 5,403 Other liabilities and accrued expenses 3,778 24,813 18,142 - 46,733 Current debt - 976 10,113 - 11,089 ------------------ ---------- ------------ ------------ ------------ Total current liabilities 2,049 169,561 35,815 (601) 206,824 Deferred income taxes - 4,560 8 - 4,568 Long-term debt, less current portion 285,000 153,766 12,469 - 451,235 Post-retirement benefits other than pensions - 21,894 - - 21,894 Accrued pension benefit - 2,957 - - 2,957 Other non-current liabilities 2,258 1,640 4 - 3,902 Minority interests in subsidiaries - 9,558 12,027 - 21,585 Stockholders' equity: Common stock: Class A shares 182 - - - 182 Class B shares 63 - - - 63 Paid-in capital 104,176 - - - 104,176 Subsidiary investment - 207,913 90,772 (298,685)(a) - Retained earnings (deficit) 20,126 58,287 42,167 (100,454)(b) 20,126 Accumulated other comprehensive loss - - (7,004) - (7,004) Stock purchase plan (482) - - - (482) ------------------ ---------- ------------ ------------ ------------ Total stockholders' equity 124,065 266,200 125,935 (399,139) 117,061 ------------------ ---------- ------------ ------------ ------------ Total liabilities and stockholders' equity $ 413,372 $ 630,136 $ 186,258 $ (399,740) $ 830,026 ================== ========== ============ ============ ============
________________________________________________________________ (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. Condensed Consolidating Balance Sheet July 31, 1999 (in thousands of dollars)
Delco Remy International Inc. Non- (Parent Subsidiary Guarantor Company Only) Guarantors Subsidiaries Eliminations Consolidated ------------------ ---------- ------------ ------------ ------------ Assets Current assets: Cash and cash equivalents $ - $ (291) $ 15,600 $ - $ 15,309 Trade accounts receivable, net - 118,371 29,617 - 147,988 Other receivables - 6,626 8,870 - 15,496 Inventories - 189,893 43,916 (1,644)(c) 232,165 Deferred income taxes - 14,997 - - 14,997 Other current assets - 2,125 778 - 2,903 ------------------ ---------- ------------ ------------ ------------ Total current assets - 331,721 98,781 (1,644) 428,858 Property and equipment 40 195,403 63,284 - 258,727 Less accumulated depreciation 40 54,754 8,738 - 63,532 ------------------ ---------- ------------ ------------ ------------ Property and equipment, net - 140,649 54,546 - 195,195 Deferred financing costs 8,352 2,840 - - 11,192 Goodwill, net - 114,799 22,630 - 137,429 Investments in affiliates 381,246 - 19 (376,509)(a) 4,756 Other assets 2,411 295 2,527 - 5,233 ------------------ ---------- ------------ ------------ ------------ Total assets $ 392,009 $ 590,304 $ 178,503 $ (378,153) $ 782,663 ================== ========== ============ ============ ============ Liabilities and stockholders' equity Current liabilities: Accounts payable $ 636 $ 85,590 $ 33,113 $ - $ 119,339 Intercompany accounts (19,630) 43,825 (23,596) (599)(c) - Accrued interest payable 9,001 2,592 10 - 11,603 Accrued restructuring charges - 5,866 - - 5,866 Other liabilities and accrued expenses (1,250) 24,684 13,671 - 37,105 Current debt - 1,227 11,369 - 12,596 ------------------ ---------- ------------ ------------ ------------ Total current liabilities (11,243) 163,784 34,567 (599) 186,509 Deferred income taxes - 4,560 8 - 4,568 Long-term debt, less current portion 285,000 138,117 11,814 - 434,931 Post-retirement benefits other than pensions - 21,050 - - 21,050 Accrued pension benefit - 2,719 - - 2,719 Other non-current liabilities 2,216 1,328 1 - 3,545 Minority interests in subsidiaries - 10,112 9,709 - 19,821 Stockholders' equity: Common stock: Class A shares 182 - - - 182 Class B shares 63 - - - 63 Paid-in capital 104,176 - - - 104,176 Subsidiary investment - 200,052 92,998 (293,050)(a) - Retained earnings (deficit) 12,152 48,582 35,922 (84,504)(b) 12,152 Accumulated other comprehensive loss - - (6,516) - (6,516) Stock purchase plan (537) - - - (537) ------------------ ---------- ------------ ------------ ------------ Total stockholders' equity 116,036 248,634 122,404 (377,554) 109,520 ------------------ ---------- ------------ ------------ ------------ Total liabilities and stockholders' equity $ 392,009 $ 590,304 $ 178,503 $ (378,153) $ 782,663 ================== ========== ============ ============ ============
___________________________________________________________ (a) Elimination of investments in subsidiaries. (b) Elimination of investments in subsidiaries' earnings. (c) Elimination of intercompany profit in inventory. 12 Delco Remy International, Inc. Condensed Consolidating Statement of Cash Flows For the Three Months Ended October 31, 1999 (Unaudited) (in thousands of dollars)
Delco Remy International Inc. Non- (Parent Subsidiary Guarantor Company Only) Guarantors Subsidiaries Eliminations ------------------ ------------ -------------- -------------- Operating activities: Net income $ 7,974 $ 9,705 $ 6,245 $ (15,950)(a) Adjustments to reconcile net income to net cash flows provided by (used in) operating activities: Depreciation - 5,282 1,048 - Amortization 64 849 727 - Minority interest in income of subsidiaries - 688 1,123 - Income from unconsolidated joint ventures - - 6 - Equity in earnings of subsidiary (15,950) - - 15,950(a) Post-retirement benefits other than pensions - 844 - - Accrued pension benefits - 238 - - Non-cash interest expense 273 166 - - Changes in operating assets and liabilities, net of acquisitions: Accounts receivable - (31,826) (5,861) - Inventories - 88 (3,572) - Accounts payable (70) 14,716 (185) - Other current assets and liabilities 4,436 (2,703) 5,569 - Intercompany accounts 8,720 (3,195) (5,525) - Accrued restructuring charges - (463) - - Other non-current assets and liabilities, net 286 (3,540) 4,350 - ------------------ ------------ -------------- -------------- Net cash provided by (used in) operating activities 5,733 (9,151) 3,925 - Investing activities: Acquisitions, net of cash acquired (5,733) - - - Purchases of property and equipment - (5,998) (7,144) - ------------------ ------------ -------------- -------------- Net cash used in investing activities (5,733) (5,998) (7,144) - Financing activities: Net borrowings (repayments) under revolving line of credit and other - 15,398 (601) - ------------------ ------------ -------------- -------------- Net cash provided by (used in) financing activities - 15,398 (601) - Effect of exchange rate changes on cash - - - - ------------------ ------------ -------------- -------------- Net increase (decrease) in cash and cash equivalents - 249 (3,820) - Cash and cash equivalents at beginning of period - (291) 15,600 - ------------------ ------------ -------------- -------------- Cash and cash equivalents at end of period $ - $ (42) $ 11,780 $ - ================== ============= ============== ============== Consolidated -------------- Operating activities: Net income $ 7,974 Adjustments to reconcile net income to net cash flows provided by (used in) operating activities: Depreciation 6,330 Amortization 1,640 Minority interest in income of subsidiaries 1,811 Income from unconsolidated joint ventures 6 Equity in earnings of subsidiary - Post-retirement benefits other than pensions 844 Accrued pension benefits 238 Non-cash interest expense 439 Changes in operating assets and liabilities, net of acquisitions: Accounts receivable (37,687) Inventories (3,484) Accounts payable 14,461 Other current assets and liabilities 7,302 Intercompany accounts - Accrued restructuring charges (463) Other non-current assets and liabilities, net 1,096 -------------- Net cash provided by (used in) operating activities 507 Investing activities: Acquisitions, net of cash acquired (5,733) Purchases of property and equipment (13,142) -------------- Net cash used in investing activities (18,875) Financing activities: Net borrowings (repayments) under revolving line of credit and other 14,797 -------------- Net cash provided by (used in) financing activities 14,797 Effect of exchange rate changes on cash - -------------- Net increase (decrease) in cash and cash equivalents (3,571) Cash and cash equivalents at beginning of period 15,309 -------------- Cash and cash equivalents at end of period $ 11,738 ==============
_________________________________________________________________ (a) Elimination of equity in earnings of subsidiaries. 13 Delco Remy International, Inc. Condensed Consolidating Statement of Cash Flows For the Three Months Ended October 31, 1998 (Unaudited) (in thousands of dollars)
Delco Remy International Inc. Non- (Parent Subsidiary Guarantor Company Only) Guarantors Subsidiaries Eliminations ------------------ ------------ -------------- -------------- Operating activities: Net income $ 5,388 $ 8,157 $ 4,874 $ (13,031)(a) Adjustments to reconcile net income to net cash flows from operating activities: Depreciation - 3,478 561 - Amortization 288 701 71 - Minority interest in income of subsidiaries - 586 175 - Income from unconsolidated joint ventures - - (1,181) - Equity in earnings of subsidiaries (13,031) - - 13,031(a) Deferred income taxes (1,420) 955 (80) - Post-retirement benefits other than pensions - 957 - - Accrued pension benefits - 477 - - Non-cash interest expense 273 66 - - Changes in operating assets and liabilities, net of acquisitions: Accounts receivable - (26,199) 2,694 - Inventories - 2,435 (2,870) - Accounts payable 816 6,807 (710) - Intercompany accounts 12,268 (1,381) (10,887) - Other current assets and liabilities (3,205) (7,088) (2,881) - Accrued restructuring charges - (5,571) - - Other non-current assets and liabilities, net (1,377) (7,434) 8,790 - ------------------ ------------ -------------- -------------- Net cash used in operating activities - (23,054) (1,444) - Investing activities: Purchases of property and equipment - (5,001) (945) - ------------------ ------------ -------------- -------------- Net cash used in investing activities - (5,001) (945) - Financing activities: Net borrowings under revolving line of credit and other - 28,916 1,782 - ------------------ ------------ -------------- -------------- Net cash provided by financing activities - 28,916 1,782 - Effect of exchange rate changes on cash - - 126 - ------------------ ------------ -------------- -------------- Net increase (decrease) in cash and cash equivalents - 861 (481) - Cash and cash equivalents at beginning of period - 125 7,988 - ------------------ ------------ -------------- -------------- Cash and cash equivalents at end of period $ - $ 986 $ 7,507 $ - ================== ============ ============== ============== Consolidated -------------- Operating activities: Net income $ 5,388 Adjustments to reconcile net income to net cash flows from operating activities: Depreciation 4,039 Amortization 1,060 Minority interest in income of subsidiaries 761 Income from unconsolidated joint ventures (1,181) Equity in earnings of subsidiaries - Deferred income taxes (545) Post-retirement benefits other than pensions 957 Accrued pension benefits 477 Non-cash interest expense 339 Changes in operating assets and liabilities, net of acquisitions: Accounts receivable (23,505) Inventories (435) Accounts payable 6,913 Intercompany accounts - Other current assets and liabilities (13,174) Accrued restructuring charges (5,571) Other non-current assets and liabilities, net (21) -------------- Net cash used in operating activities (24,498) Investing activities: Purchases of property and equipment (5,946) -------------- Net cash used in investing activities (5,946) Financing activities: Net borrowings under revolving line of credit and other 30,698 -------------- Net cash provided by financing activities 30,698 Effect of exchange rate changes on cash 126 -------------- Net increase (decrease) in cash and cash equivalents 380 Cash and cash equivalents at beginning of period 8,113 -------------- Cash and cash equivalents at end of period $ 8,493 ==============
____________________________________________________________ (a) Elimination of equity in earnings of subsidiaries. 14 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations
For the Three Months Ended October 31, --------------------------------------------------------- 1999 1998 ------------------------ ------------------------- (Thousands of Dollars) Amount % Amount % ------------------------ ------------------------- Net Sales $277,189 100.0% $232,785 100.0% Cost of Sales 216,764 78.2% 191,013 82.1% -------- -------- -------- ------- Gross Profit 60,425 21.8% 41,772 17.9% Selling, Engineering and Administrative Expense 30,870 11.1% 22,164 9.5% Amortization of Goodwill and Intangibles 1,640 0.6% 1,060 0.5% -------- -------- -------- ------- Operating Income 27,915 10.1% 18,548 8.0% Interest Expense (12,124) (4.4%) (10,403) (4.5%) Provision for Income Taxes 6,000 2.2% 3,177 1.4% Minority Interest (1,811) (0.7%) (761) (0.3%) Income from Unconsolidated Joint Ventures (6) 0.0% 1,181 0.5% -------- -------- -------- ------- Net Income $ 7,974 2.9% $ 5,388 2.3% ======== ======== ======== =======
Three Months Ended October 31, 1999 Compared to Three Months Ended October 31, 1998 Net Sales Net sales of $277.2 million in the first quarter of fiscal year 2000 increased $44.4 million, or 19.1%, from the first quarter of fiscal year 1999. This increase was due to higher demand for automotive electrical products in the OEM market, the effect of the acquisitions of Williams Technologies in the second quarter of fiscal year 1999 and Engine Master in the first quarter of fiscal year 2000 and increased demand for both electrical and powertrain/drivetrain remanufactured products in the aftermarket. Gross Profit Gross profit of $60.4 million increased $18.7 million, or 44.7%, and as a percentage of sales improved from 17.9% in the first quarter of 1999 to 21.8% in the first quarter of 2000. The growth in gross profit dollars reflects the sales growth discussed above. The improvement in margin was due to the realization of cost efficiencies generated by the OEM restructuring, the benefits of lean manufacturing initiatives, leveraging of fixed manufacturing costs and the effect of certain aftermarket and foreign acquisitions which generate higher gross profit margins. Selling, Engineering and Administrative Expenses Selling, engineering and administrative (SE&A) expenses increased $8.7 million, or 39.3%, and as a percentage of sales increased from 9.5% to 11.1% due primarily to the effect of acquisition related activities and aftermarket marketing initiatives. Operating Income Operating income of $27.9 million increased $9.4 million, or 50.5%, and as a percentage of sales improved from 8.0% in the first quarter of fiscal year 1999 to 10.1% in the first quarter of fiscal year 2000. This improvement reflects the sales and gross margin issues discussed above, partially offset by higher SE&A expense. 15 Interest Expense Interest expense of $12.1 million increased $1.7 million, or 16.5%, from the first quarter of fiscal 1999 due primarily to a higher average level of debt incurred to finance acquisitions and capital expenditures. Income Taxes Income tax expense in the first quarter of fiscal year 2000 was $6.0 million compared to $3.2 million in the comparable period last year. The Company's consolidated effective income tax rate of 38.0% was down from 39.0% due to the implementation of various tax planning initiatives and the effect of the acquisition of certain foreign subsidiaries. Income (Loss) From Unconsolidated Joint Ventures The Company's share of the earnings of its unconsolidated joint ventures of $1.2 million in the first quarter of fiscal year 1999 were primarily attributable to Remy Korea Ltd., which was consolidated effective June 25, 1999. 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 borrowing under the Senior Credit Facility. As of December 1, 1999, borrowings under the Senior Credit Facility were $114.7 million, leaving $185.3 million available under the $300 million facility, net of letters of credit. In the first quarter of fiscal year 2000, cash provided by operating activities was $.5 million compared to cash used of $24.5 million in the first quarter of fiscal year 1999. This improvement reflects increased earnings, depreciation, amortization and a smaller increase in net working capital from year-end. Accounts receivable increased $37.7 from July 31 due to strong shipments during the quarter to both OEM and aftermarket customers. Accounts payable increased $14.5 million due to first quarter production levels and the timing of payments. The Company's net trade cycle, including accounts receivable, inventory and accounts payable days, declined compared with both year-end and first quarter 1999. Capital expenditures of $13.1 million in the first quarter were in line with planned spending and included investments in machinery and equipment in certain foreign operations. In the first quarter, the Company completed the acquisition of Engine Master, a remanufacturer of engines. Net borrowings under the Company's revolving line of credit and other debt increased $14.8 million in the first quarter compared to a $30.7 million increase in the first quarter of fiscal year 1999. This improvement reflects the increase in cash generated by operating activities discussed above partially offset by higher capital spending and the acquisition. 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. 16 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 The Company has established remediation plans for all major information technology based 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 mission- critical applications. Conversion. Each material mission-critical system has been converted to a tested Year 2000 environment. Testing. Testing will continue until December 31, 1999 on all mission-critical systems to mitigate any exposure. Implementation. All material mission-critical systems have been implemented. 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. Foreign Sales A portion 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. 17 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 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. 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 On September 8, 1999, the Company filed an amendment to its report on Form 8-K relative to the acquisition of an additional 31% of the capital shares of Remy Korea Ltd., providing financial statements of Remy Korea Ltd. and pro forma financial information of the Company. 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: November 30, 1999 By: /s/ David L. Harbert --------------------------------- David L. Harbert Executive Vice President and Chief Financial Officer Date: November 30, 1999 By: /s/ David E. Stoll --------------------------------- David E. Stoll Vice President and Controller Chief Accounting Officer 19 EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONDENSED CONSOLIDATED BALANCE SHEET AND 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-31-2000 AUG-01-1999 OCT-31-1999 11,738 0 187,901 2,226 239,236 470,165 270,352 67,036 830,026 206,824 451,235 0 0 245 116,816 830,026 277,189 277,189 216,764 216,764 32,510 450 12,124 15,791 6,000 7,974 0 0 0 7,974 .33 .31
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