As filed with the Securities and Exchange Commission on July 20, 2001
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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Delco Remy International, Inc.
(Exact name of Registrant as specified in its charter)
Delaware 6719 35-1909253
(State or Other (Primary Standard (I.R.S. Employer
Jurisdiction of Industrial Classification Identification No.)
Incorporation or Code Number)
Organization)
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2902 Enterprise Drive
Anderson, Indiana 46013
(765) 778-6499
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
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See Table of Additional Registrants Below
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Thomas J. Snyder
President and Chief Executive Officer
Delco Remy International, Inc.
2902 Enterprise Drive
Anderson, Indiana 46013
(765) 778-6499
(Name, address including zip code, and telephone number, including area code,
of agent for service)
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With a Copy to:
G. Daniel O'Donnell, Esq.
Dechert
4000 Bell Atlantic Tower
1717 Arch Street
Philadelphia, Pennsylvania 19103
(215) 994-4000
Approximate date of commencement of proposed sale of the securities to the
public: As soon as practicable after this Registration Statement becomes
effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering [_]
CALCULATION OF REGISTRATION FEE
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Proposed
Proposed Maximum
Title of each Class of Amount Maximum Aggregate Amount of
Securities to be to be Offering Price Offering Registration
Registered Registered Per Unit Price(1) Fee
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11% Senior Subordinated
Notes due 2009.......... $165,000,000 100% 165,000,000 $41,250
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Guarantees(2)............ $165,000,000 -- -- (3)
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(1) Estimated pursuant to Rule 457(f) under the Securities Act of 1933, as
amended, solely for purposes of calculating the registration fee.
(2) The other companies listed in the Table of Additional Registrants below
have guaranteed, jointly and severally, the 11% Senior Subordinated Notes
Due 2009 being registered hereby. The Guarantors are registering the
Guarantees. Pursuant to Rule 457(n) under the Securities Act of 1933, no
registration fee is required with respect to the Guarantees.
(3) Not applicable.
The Registrants hereby amend this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall filed a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until this Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
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++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities and is not soliciting an offer to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED JULY 20, 2001
PROSPECTUS
[LOGO OF DELCO REMY]
OFFER TO EXCHANGE
11% Senior Subordinated Notes Due 2009 for all outstanding
11% Senior Subordinated Notes Due 2009
of
DELCO REMY INTERNATIONAL, INC.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME ON , , UNLESS EXTENDED.
--------
Terms of the exchange offer:
--We will exchange all old notes that are validly tendered and not withdrawn
prior to the expiration of the exchange offer.
--You may withdraw tenders of old notes at any time prior to the expiration
of the exchange offer.
--We believe that the exchange of old notes will not be a taxable event for
U.S. federal income tax purposes, but you should see "United States
Federal Income Tax Considerations" on page 119 for more information.
--We will not receive any proceeds from the exchange offer.
--The terms of the new notes are substantially identical to the old notes,
except that the new notes are registered under the Securities Act of 1933
and the transfer restrictions and registration rights applicable to the
old notes do not apply to the new notes.
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See "Risk Factors" beginning on page 12 for a discussion of risks that should
be considered by holders prior to tendering their old notes.
--------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or
disapproved of these securities or passed upon the adequacy or accuracy of this
prospectus.
Any representation to the contrary is a criminal offense.
The date of this prospectus is , 2001.
Delco Remy International, Inc.
Table of Additional Registrants
Primary Standard
Industrial
State of Incorporation Classification IRS Employer
Name or Organization Code Number Identification No.
- ---- ---------------------- ---------------- ------------------
Delco Remy America,
Inc.................... Delaware 3694 35-1909405
2902 Enterprise Drive
Anderson, IN 46013
(765) 778-6499
Remy International,
Inc.................... Delaware 3694 35-2004050
2902 Enterprise Drive
Anderson, IN 46013
(765) 778-6499
Reman Holdings, Inc..... Delaware 3714 52-1910536
2902 Enterprise Drive
Anderson, IN 46013
(765) 778-6499
NABCO, Inc.............. Michigan 3694 38-2105668
591 E. Church Street
Reed City, MI 49677
(231) 832-8114
The A&B Group, Inc...... Mississippi 3694 64-0823245
5168 Water Tower Road
Meridian, MS 39302
(601) 485-8575
A&B Enterprises, Inc.... Mississippi 3694 64-0643692
5168 Water Tower Road,
P. O. Box 5468
Meridian, MS 39302
(601) 782-9922
Dalex, Inc.............. Mississippi 3694 64-0719018
5168 Water Tower Road,
P. O. Box 5468
Meridian, MS 39302
(601) 764-4168
A&B Cores, Inc.......... Mississippi 3694 64-0815878
5168 Water Tower Road,
P. O. Box 5468
Meridian, MS 39302
(601) 782-9922
R&L Tool Company, Inc... Mississippi 3694 64-0701131
5168 Water Tower Road,
P. O. Box 5468
Meridian, MS 39302
(601) 536-2510
MCA, Inc. of
Mississippi............ Mississippi 3694 64-0765216
5168 Water Tower Road,
P. O. Box 5468
Meridian, MS 39302
(601) 787-2688
Primary Standard
Industrial
State of Incorporation Classification IRS Employer
Name or Organization Code Number Identification No.
- ---- ---------------------- ---------------- ------------------
Power Investment, Inc... Indiana 3714 35-1567602
2902 Enterprise Drive
Anderson, IN 46013
(765) 778-6499
Franklin Power Products,
Inc.................... Indiana 3519 35-1809762
400 Forsythe Street
Franklin, IN 46131
(317) 738-2117
International Fuel
Systems, Inc. ......... Indiana 3519 35-1880654
980 North Hurricane
Road
Franklin, IN 46131
(317) 738-9408
Marine Corporation of
America................ Indiana 3568 35-1804826
400 Forsythe Street
Franklin, IN 46131
(317) 738-9408
Powrbilt Products,
Inc. .................. Texas 3519 75-2398592
617 S. 4th Avenue
Mansfield, TX 76063
(817) 473-3208
World Wide Automotive,
Inc. .................. Virginia 3694 54-1025997
300 West Brooke Road
Winchester VA 22603
(540) 667-9100
Ballantrae Corporation.. Delaware 3714 35-2073201
2902 Enterprise Drive
Anderson, IN 46013
(765) 778-6499
Tractech, Inc. ......... Delaware 3714 38-3313000
1445 Stephens Drive
Warren, MI 48090
(810) 759-3850
Williams Technologies,
Inc. .................. South Carolina 3714 58-1653182
211 Farmington Road,
P.O. Box 1548
Summerville SC 29484-
1548
(843) 875-0150
Engine Master, L.P. .... Delaware 3714 31-1660548
1011 Regal Row
Dallas, TX 75247
(214) 267-5100
M.&M. Knopf Auto Parts,
Inc. .................. New York 3714 11-2255442
239 Old New Brunswick
Road
Piscataway, New Jersey
08854
(732) 981-8040
Primary Standard
Industrial
State of Incorporation Classification IRS Employer
Name or Organization Code Number Identification No.
- ---- ---------------------- ---------------- ------------------
Power Investments
Marine, Inc. .......... New Jersey 3568 58-0941862
400 Forsythe Street
Franklin, IN 46131
(765) 778-6499
DR Sales, Inc. ......... Delaware 3694 38-3480653
2902 Enterprise Drive
Anderson, IN 46013
(765) 778-6499
HSG I, Inc. ............ Delaware 3714 35-2081750
2902 Enterprise Drive
Anderson, IN 46013
(765) 778-6499
HSG II, Inc. ........... Delaware 3714 35-2081751
2902 Enterprise Drive
Anderson, IN 46013
(765) 778-6499
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TABLE OF CONTENTS
Forward-Looking Statements........... ii
Industry Data........................ ii
Where You Can Find More Information.. ii
Summary.............................. 1
Risk Factors......................... 12
Use of Proceeds...................... 22
Capitalization....................... 23
Unaudited Pro Forma Condensed
Consolidated Financial Data......... 24
Selected Consolidated Historical
Financial Data...................... 31
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.......................... 33
Business............................. 44
The Exchange Offer................. 55
Management......................... 63
Ownership of Capital Stock......... 70
Description of Capital Stock....... 72
Certain Relationships and Related
Transactions...................... 75
Description of Other Indebtedness.. 76
Description of Notes............... 80
United States Federal Income Tax
Consequences...................... 119
Plan of Distribution............... 123
Legal Matters...................... 123
Experts............................ 123
Index to Consolidated Financial
Statements........................ F-1
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You should rely only on the information contained in this document. We have
not authorized anyone to provide you with information that is different. This
document may only be used where it is legal to sell these securities. The
information in this document may only be accurate on the date of this document.
Each broker-dealer that receives new notes for its own account pursuant to
the exchange offer must acknowledge that it will deliver a prospectus in
connection with any resale of new notes. The letter of transmittal states that
by so acknowledging and by delivering a prospectus, a broker-dealer will not be
deemed to admit that it is an "underwriter" within the meaning of the
Securities Act of 1933, as amended, which we refer to as the Securities Act.
This prospectus, as it may be amended or supplemented from time to time, may be
used by a broker-dealer in connection with resales of new notes received in
exchange for old notes where the old notes were acquired by the broker-dealer
as a result of market-making activities or other trading activities. We have
agreed that, for a period of 180 days after the expiration date, we will make
this prospectus available to any broker-dealer for use in connection with any
such resale. See "Plan of Distribution."
i
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FORWARD-LOOKING STATEMENTS
This prospectus contains both historical and forward-looking statements
within the meaning of Section 27A of the Securities Act and Section 21E of the
Securities Exchange Act of 1934, as amended, which we refer to as the Exchange
Act. These forward-looking statements are not historical facts, but only
predictions and generally can be identified by use of statements that include
phrases such as "believe," "expect," "anticipate," "intend," "plan," "foresee"
or other words or phrases of similar import. Similarly, statements that
describe our objectives, plans or goals also are forward-looking statements.
These forward-looking statements are subject to risks and uncertainties which
could cause actual results to differ materially from those currently
anticipated. Factors that could materially affect these forward-looking
statements can be found below under "Risk Factors." Potential investors and
other readers are urged to consider these factors carefully in evaluating the
forward-looking statements and are cautioned not to place undue reliance on
these forward-looking statements. The forward-looking statements included in
this prospectus are made only as of the date of this prospectus and we
undertake no obligation to publicly update these forward-looking statements to
reflect new information, future events or otherwise. In light of these risks,
uncertainties and assumptions, the forward-looking events might or might not
occur. We cannot assure you that projected results or events will be achieved.
INDUSTRY DATA
In this prospectus, we rely on and refer to information regarding the
automotive industry and its segments and participants from market research
reports, analyst reports and other publicly available information, including
without limitation reports issued or prepared by R.L. Polk, J.D. Power,
Automotive News, ACT, ARMC, MacKay and Frost & Sullivan. Although we believe
that this information is reliable, we cannot guarantee the accuracy and
completeness of this information, and we have not independently verified any of
it.
WHERE YOU CAN FIND MORE INFORMATION
Delco Remy International, Inc. files annual and quarterly reports and other
information with the Securities and Exchange Commission, which we refer to as
the SEC. These documents include specific information regarding Delco Remy
International, Inc. You may read and copy any document we file with the SEC at
the SEC's public reference rooms in Washington, DC, New York, New York and
Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further
information on the public reference rooms. Our SEC filings are also available
to the public at the SEC's web site at http://www.sec.gov.
We have filed with the SEC a registration statement on Form S-4 under the
Securities Act, covering the notes to be issued in the exchange offer
(Registration No. 333- ). This prospectus, which is a part of the
registration statement, does not contain all of the information included in the
registration statement. Any statement made in this prospectus concerning the
contents of any contract, agreement or other document is not necessarily
complete. For further information regarding our company and the notes to be
issued in the exchange offer, please reference the registration statement,
including its exhibits. If we have filed any contract, agreement or other
document as an exhibit to the registration statement, you should read the
exhibit for a more complete understanding of the documents or matter involved.
Copies of the registration statement, including all related exhibits and
schedules, may be inspected without charge at the public reference facilities
maintained by the SEC, or obtained at prescribed rates from the Public
Reference Section of the SEC. In addition, you may request a copy of any of
these filings, at no cost, by writing or telephoning us at the following
address: Delco Remy International, Inc., 2902 Enterprise Drive, Anderson,
Indiana 46013; the telephone number at that address is (765) 778-6499.
ii
SUMMARY
This summary may not contain all of the information that may be important to
you. You should read this entire prospectus, including the financial data and
related notes, before making an investment decision. As used in this
prospectus, the terms "we," "us," "Delco Remy" and the "Company" refer to Delco
Remy International, Inc. and its subsidiaries on a consolidated basis, unless
the context requires otherwise. We changed our fiscal year to December 31,
effective August 1, 2000. Prior to August 1, 2000, our fiscal year ended July
31. As used in this prospectus, the term "fiscal year" refers to the year ended
July 31 in the year indicated.
The Exchange Offer
On April 26, 2001, we issued and sold $165.0 million aggregate principal
amount of 11% Senior Subordinated Notes Due 2009, which we refer to as the old
notes. In connection with that sale, we entered into a registration rights
agreement with the initial purchasers of the old notes in which we agreed to
deliver this prospectus to you and to complete an exchange offer for the old
notes. As requested by the registration rights agreement, we are offering to
exchange $165.0 million aggregate principal amount of our new 11% Senior
Subordinated Notes Due 2009, which we refer to as the new notes, the issuance
of which will be registered under the Securities Act, for a like aggregate
principal amount of our old notes. We refer to this offer to exchange new notes
for old notes in accordance with the terms set forth in this prospectus and the
accompanying letter of transmittal as the exchange offer. You are entitled to
exchange your old notes for new notes. We urge you to read the discussions
under the headings "The Exchange Offer" and "The New Notes" in this summary for
further information regarding the exchange offer and the new notes.
The Company
We are a leading global manufacturer and remanufacturer of original
equipment and aftermarket electrical and powertrain/drivetrain components for
automobiles, light trucks, medium and heavy duty trucks and other heavy duty
vehicles. We sell our products worldwide primarily under the "Delco Remy" brand
name, first used in 1918, as well as other widely recognized private label
brand names. Our products include starter motors, alternators, engines,
transmissions, torque converters and fuel systems. In calendar year 2000, about
50% of our sales were to the original equipment market and about 50% were to
the aftermarket. We sell our products principally in North America, Europe,
Latin America and Asia-Pacific.
We believe that we are the largest producer in North America of original
equipment starters for automobiles and light trucks and starters and
alternators for medium and heavy duty vehicles. We believe we are also the
largest producer in North America of remanufactured starters and alternators
for the aftermarket. We provide exchange services for used components, commonly
known as cores, for third party aftermarket remanufacturers. Our largest
customers include General Motors, which we refer to as GM, International Truck
and Engine Corporation, which we refer to as Navistar, Freightliner,
Caterpillar, Advance Auto Parts, PACCAR, Delphi, Ford, AutoZone, Cummins, Mack,
Volvo Trucks, O'Reilly and Pep Boys.
Since our separation from GM in July 1994, management has focused on
increasing revenues and improving margins. From fiscal year 1995 through fiscal
year 2000, we have:
. increased our sales from $573.4 million to $1.091 billion, representing a
compound annual growth rate of about 13.7%; and
. improved our Adjusted EBITDA margin from 9.8% to 13.5%.
Since 1994, we have successfully acquired and integrated 16 strategic
businesses and entered into six joint ventures. These acquisitions and joint
ventures have enabled us to broaden our product line, expand our manufacturing
and remanufacturing capability, extend our participation in international
markets and increase our penetration of the retail automotive parts channel. As
a result, sales to our customers other than GM have increased from 41% of total
sales in fiscal year 1995 to 70% in fiscal year 2000. We have also increased
sales outside of the Class 8 heavy duty truck market from 87% of total sales in
fiscal year 1995 to 91% in fiscal year 2000.
Our expanding aftermarket business benefits from the non-deferrable nature
of the repairs for which many of our products are used. Additionally, the
design, manufacturing and technological expertise that we have developed in our
original equipment operations contributes to our aftermarket business. This
expertise provides us with advantages over many of our aftermarket competitors.
We believe that our participation in both original equipment manufacturer, or
OEM, and aftermarket businesses and our diversified customer base reduce our
exposure to the cyclical nature of the automotive industry.
Competitive Strengths
Global Manufacturing Footprint
Since 1995, we have transitioned our production capacity to lower cost plant
sites. Currently, our manufacturing base includes a presence in nine countries
on four continents. Today, about 19% of our workforce is unionized and we enjoy
a good relationship with our local International Union, United Automobile,
Aerospace and Agricultural Implement Workers of America, which we refer to as
the UAW.
Lean Manufacturing Operations
We have shifted our OEM production from older, vertically integrated plants
to new, smaller and more efficient "focus" factories, reducing our U.S. floor
space for OEM production by more than 70% since 1994. Our focus factories
generally produce one product line in a plant designed to facilitate lean
manufacturing techniques. In conjunction with our emphasis on focus factories,
we continue to work with our employees to establish best-in-class work
practices, including reducing the number of job classifications per focus
factory and implementing team-based lean manufacturing techniques. In fiscal
year 2000, we launched an initiative to implement the lean manufacturing
concepts applied in our focus factories throughout our entire company.
We are committed to product quality. Twenty-five of our manufacturing and
remanufacturing facilities are QS9000 certified. In addition, our
powertrain/drivetrain operations that remanufacture products for Ford have
received the Q-1 rating, Ford's highest quality rating.
Strong Brand Recognition
We manufacture and market brand name products worldwide principally under
the "Delco Remy" and private label brand names. In connection with our 1994
separation from GM, we acquired perpetual rights to our Delco Remy brand name.
Our premium brand names are important assets in a time of customer
consolidation and merging distribution channels. In 2000, we earned the
Automotive Industries magazine's prestigious Quest for Excellence Award as one
of the industry's "Best-of-the-Best" in the Electrical Systems Suppliers
category for the second consecutive year.
Diverse Customer Base
We continue to build upon our long-standing relationships with our customers
around the world and are focused on developing new customer relationships as
well. Our largest customers include GM, Navistar,
2
Freightliner, Caterpillar, Advance Auto Parts, PACCAR, Delphi, Ford, AutoZone,
Cummins, Mack, Volvo Trucks, O'Reilly and Pep Boys. We have broadened our
customer base in the highly competitive automotive retail aftermarket. We
believe that we are the principal supplier of starters and alternators for many
of our major OEM customers.
Proven Management Team
Our management team of seven senior executives has over 145 years of
combined industry experience. Our Chief Executive Officer, Thomas Snyder, has
been in the automotive industry for 28 years in both the OEM and aftermarket
businesses, having held executive positions within GM's Delco Remy division
since 1980. We have strengthened our management team in the aftermarket by
recruiting executives from a wide range of automotive aftermarket companies
other than GM. Our management team led our transformation from a division of GM
to a successful stand-alone business, and our revenues have grown at a
compounded annual rate of 13.7% from fiscal year 1995 through fiscal year 2000
while Adjusted EBITDA margins increased from 9.8% to 13.5% over the same
period. Since our separation from GM, our management team has:
. successfully reduced our financial leverage; and
. successfully integrated 16 acquisitions and entered into six joint
ventures.
Business Strategy
Exploit Leading Market Share in Fragmented Aftermarket
We participate in a portion of the aftermarket that is large and highly
fragmented. Most participants are small, regional companies offering relatively
narrow product lines. A key element of our growth strategy is to capitalize on
our position as a consolidator. We believe that we are the largest manufacturer
and remanufacturer of aftermarket starters and alternators in North America and
in Europe. However, we continue to have significant growth opportunity because
our sales of these products in North America account for less than 15% of this
$2.2 billion market and our sales of these products in Europe account for less
than 10% of what we believe to be a $1 billion market. Today, remanufacturing
is less prevalent in Europe than in the U.S. We believe we are well-positioned
to capitalize on the increasing trend towards remanufacturing from repair.
Consolidation of the aftermarket is occurring as many competitors are finding
it difficult to meet the increasing quality, cost and service demands of
customers, who, in turn, are seeking to reduce the number of their suppliers.
With our OEM capabilities, remanufacturing expertise, full product line, access
to cores and ability to capitalize on economies of scale, we are well
positioned to benefit from the consolidation of the aftermarket.
Strengthen Customer Relationships
We intend to increase our sales to new and existing customers by
capitalizing on our balanced coverage of the key aftermarket distribution
channels and our competitive strengths as an OEM supplier. We plan to
strengthen our customer relationships by:
. meeting the increasing demands of OEMs and their dealer networks for
high-quality remanufactured units, which enable them to reduce warranty
and extended service costs;
. growing sales of existing and new product lines to OEM dealer networks as
dealers continue to capture an increasing percentage of vehicle repairs
due primarily to longer warranty and service programs and growing vehicle
complexity;
. continuing to expand our product offerings; and
. capitalizing on the expansion of the national automotive retail parts
chains and warehouse distributors that are our customers.
3
Increase Global Presence
OEMs are increasingly requiring suppliers to provide components on a global
basis as vehicle platforms are standardized across geographic markets.
Additionally, the Western European market for automotive components is expected
to grow at a greater rate than the North American market over the next few
years due to higher levels of OEM outsourcing. The emerging markets also should
benefit from long-term growth as demand for automotive vehicles in these
markets is expected to increase at a compounded annual rate of almost 7% over
the next five years. Currently, our manufacturing base includes a presence in
nine countries on four continents. We believe that continued global expansion
will enable us to continue to grow to meet these demands.
Increase Focus on Technologically Advanced Products
We continue to produce technologically advanced products by regularly
updating and enhancing our product line. These products help us to compete
successfully in the global marketplace. Since 1994, we have completed the
introduction of a new family of gear reduction starters that replaced all
straight drive starters in GM automobiles and light duty trucks by the 1998
model year and introduced several longer-life heavy duty alternators. We are
also in various stages of development on a number of new products including:
. an integrated starter and alternator product scheduled for production in
GM vehicles beginning in 2004;
. a small gear reduction starter specifically designed for application on
world automobile platforms; and
. high-technology products in the distributed generation and hybrid
electric vehicle markets.
4
Recent Developments
Going Private Transaction
On February 7, 2001, we agreed to a going private transaction with our
largest stockholder, Court Square Capital Limited, which we refer to as Court
Square, pursuant to which Court Square made a cash tender offer for all of our
common stock not owned by it. Following completion of the tender offer on
February 23, 2001, an affiliate of Court Square merged with us and the merger
eliminated the remaining common stock not owned by Court Square. The aggregate
consideration for the shares purchased in the tender offer and the merger was
about $104.2 million. We did not incur any indebtedness in connection with the
tender offer and merger. Following completion of the merger on March 14, 2001,
the New York Stock Exchange delisted our common stock, and we terminated the
registration of our common stock under the Exchange Act.
Acquisitions
On June 28, 2001, we acquired the North American remanufacturing business of
Mazda North American Operations for about $17.1 million, including fees and
expenses and excluding future contingent payments. The business, located in
Jacksonville, Florida, is responsible for the remanufacturing of Mazda
automatic transmissions, transaxles and rotary engines for Mazda's service
requirements in North America. We will continue to remanufacture these
components to support Mazda's service and replacement parts needs in North
America.
On May 4, 2001, we completed the acquisition of 100% of the stock of Auto
Matic Transmission International A/S, which we refer to as AMT, and its wholly-
owned subsidiary, Mr. Transmission ApS., for about $500,000. AMT is based in
Soborg, which is a suburb of Copenhagen, Denmark. AMT will expand our existing
business of remanufacturing automatic transmissions for passenger cars and
commercial vehicles.
On February 12, 2001, we expanded our aftermarket product line by acquiring
the business and assets of XL Component Distribution Limited, which we refer to
as XL, for about $2.4 million. Since 1985, XL, with headquarters in Droitwich,
Worcestershire, England, has been involved in the remanufacturing, packaging
and distribution of steering racks, brake calipers, ignition distributors,
ignition leads, transmission components and rotating electrics. These products
are distributed under the XL brand, with the exception of rotating electrics,
which are branded under the Autostart name.
In December 2000, we and AeroVironment, Inc. formed iPower Technologies,
L.L.C., which we refer to as iPower, to pursue the development and
commercialization of high-technology products in the distributed generation and
hybrid electric vehicle markets. Distributed generation is the on-site
generation of electrical power. Hybrid electric vehicles use both a traditional
combustion power source and an electric motor to drive the vehicle. iPower will
develop these technologies as a manufacturer and seller for the hybrid electric
vehicle applications. We and AeroVironment own iPower equally. We will both
devote management time to iPower and use some of our technology, intellectual
property and development contracts for iPower's benefit. We expect that iPower
will raise additional capital from strategic and financial investors.
5
The Exchange Offer
Securities Offered.............. $165,000,000 aggregate principal amount of
11% Senior Subordinated Notes Due 2009. The
terms of the new notes and old notes are
identical in all material respects, except
for transfer restrictions and registration
rights relating to the old notes.
The Exchange Offer.............. We are offering the new notes to you in
exchange for a like principal amount of old
notes. Old notes may be exchanged only in
integral multiples of $1,000. We intend by
the issuance of the new notes to satisfy our
obligations contained in the registration
rights agreement.
Expiration Date; Withdrawal of
Tender......................... The exchange offer will expire at 5:00 p.m.,
New York City time, on , 2001, or such
later date and time to which it may be
extended by us. The tender of old notes
pursuant to the exchange offer may be
withdrawn at any time prior to the expiration
date of the exchange offer. Any old notes not
accepted for exchange for any reason will be
returned without expense to the tendering
holder thereof as promptly as practicable
after the expiration or termination of the
exchange offer.
Conditions to the Exchange
Offer.......................... Our obligation to accept for exchange, or to
issue new notes in exchange for, any old
notes is subject to customary conditions
relating to compliance with any applicable
law or any applicable interpretation by the
staff of the SEC, the receipt of any
applicable governmental approvals and the
absence of any actions or proceedings of any
governmental agency or court which could
materially impair our ability to consummate
the exchange offer. We currently expect that
each of the conditions will be satisfied and
that no waivers will be necessary. See "The
Exchange Offer--Conditions to the Exchange
Offer."
Procedures for Tendering Old
Notes.......................... If you wish to participate in the exchange
offer and tender your old notes, you must
complete, sign and date the letter of
transmittal, or a facsimile of the letter of
transmittal, in accordance with its
instructions and the instructions in this
prospectus, and mail or otherwise deliver the
letter of transmittal, or the facsimile,
together with the old notes and any other
required documentation, to the exchange agent
at the address set forth herein. See "The
Exchange Offer--Procedures for Tendering Old
Notes."
Use of Proceeds................. We will not receive any proceeds from the
exchange offer.
Exchange Agent.................. First Union National Bank is serving as the
exchange agent in connection with the
exchange offer.
Federal Income Tax
Consequences................... The exchange of notes pursuant to the
exchange offer should not be a taxable event
for federal income tax purposes. See "United
States Federal Income Tax Consequences."
6
Consequences of Exchanging Old Notes Pursuant to the Exchange Offer
Based on certain interpretive letters issued by the staff of the SEC to
third parties in unrelated transactions, we are of the view that holders of
old notes (other than any holder who is an "affiliate" of our company within
the meaning of Rule 405 under the Securities Act) who exchange their old notes
for new notes pursuant to the exchange offer generally may offer the new notes
for resale, resell the new notes and otherwise transfer the new notes without
compliance with the registration and prospectus delivery provisions of the
Securities Act, provided:
. the new notes are acquired in the ordinary course of the holders'
business;
. the holders have no arrangement with any person to participate in a
distribution of the new notes; and
. neither the holder nor any other person is engaging in or intends to
engage in a distribution of the new notes.
Each broker-dealer that receives new notes for its own account in exchange
for old notes must acknowledge that it will deliver a prospectus in connection
with any resale of the new notes. See "Plan of Distribution." In addition, to
comply with the securities laws of applicable jurisdictions, the new notes may
not be offered or sold unless they have been registered or qualified for sale
in the applicable jurisdiction or in compliance with an available exemption
from registration or qualification. We have agreed, under the registration
rights agreement and subject to limitations specified in the registration
rights agreement, to register or qualify the new notes for offer or sale under
the securities or blue sky laws of the applicable jurisdictions as any holder
of the notes reasonably requests in writing. If a holder of old notes does not
exchange the old notes for new notes according to the terms of the exchange
offer, the old notes will continue to be subject to the restrictions on
transfer contained in the legend printed on the old notes. In general, the old
notes may not be offered or sold, unless registered under the Securities Act,
except under an exemption from, or in a transaction not subject to, the
Securities Act and applicable state securities laws. Holders of old notes do
not have any appraisal or dissenters' rights under the Delaware General
Corporation Law in connection with the exchange offer. See "The Exchange
Offer--Consequences of Failure to Exchange; Resales of New Notes."
The old notes are currently eligible for trading in the Private Offerings,
Resales and Trading through Automated Linkages (PORTAL) market. Following
commencement of the exchange offer but prior to its completion, the old notes
may continue to be traded in the PORTAL market. Following completion of the
exchange offer, the new notes will not be eligible for PORTAL trading.
7
The New Notes
The terms of the new notes and the old notes are identical in all material
respects, except for transfer restrictions and registration rights relating to
the old notes.
Issuer.......................... Delco Remy International, Inc.
Maturity Date................... May 1, 2009.
Interest Payment Dates.......... May 1 and November 1 of each year commencing
November 1, 2001.
Optional Redemption............. Until May 1, 2004, we can choose to redeem up
to 35% of the original principal amount of
the notes, and any additional notes issued
under the same indenture governing the notes,
at a redemption price of 111% of the
principal amount thereof, plus accrued and
unpaid interest to the date of redemption,
with money we raise in specified equity
offerings, as long as:
. at least 65% of the original aggregate
principal amount of the notes, and any
additional notes, remains outstanding
after each redemption (other than notes
held, directly or indirectly, by us or
our affiliates); and
. each redemption occurs within 90 days
after the date of the related equity
offering.
On or after May 1, 2005, we can choose to
redeem some or all of the notes at the
redemption prices listed in the "Description
of Notes--Optional Redemption."
Change of Control............... If a Change of Control of our company occurs,
subject to some conditions, we must give
holders of the new notes an opportunity to
sell to us the new notes at a purchase price
of 101% of the principal amount of the new
notes, plus accrued and unpaid interest to
the date of the purchase. The term "Change of
Control" is defined under "Description of
Notes--Change of Control."
Ranking......................... The new notes will be our senior subordinated
unsecured obligations. They will rank senior
in right of payment to any of our future
Subordinated Obligations, equal in right of
payment with any of our existing and future
Senior Subordinated Indebtedness and
subordinated in right of payment to any of
our existing and future Senior Indebtedness.
As of March 31, 2001, on a pro forma basis
after giving effect to the sale of the old
notes, we would have had about $200.1 million
of Senior Indebtedness and $302.9 million of
Senior Subordinated Indebtedness. The terms
"Senior Indebtedness," "Senior Subordinated
Indebtedness" and "Subordinated Obligation"
are defined under "Description of Notes--
Certain Definitions."
8
The new notes will be effectively
subordinated to indebtedness and other
liabilities of our subsidiaries which are not
guaranteeing the notes. A portion of our
operations are conducted through our non-
guarantor subsidiaries. See "Description of
Notes--Ranking."
Guarantees...................... The payment of the principal, premium and
interest on the new notes is guaranteed on a
senior subordinated basis by our material
domestic subsidiaries. The guarantees by
subsidiaries will be senior to any of their
existing and future Subordinated Obligations,
equal in right of payment with any of their
existing and future Senior Subordinated
Indebtedness and subordinated to any of their
existing and future Senior Indebtedness. As
of March 31, 2001, on a pro forma basis after
giving effect to the sale of the old
notes,the guaranteeing subsidiaries would
have had $220.4 million of Senior
Indebtedness and $302.9 million of Senior
Subordinated Indebtedness. See "Description
of Notes--Guarantees."
Restrictive Covenants........... The indenture governing the notes contains
covenants that limit our ability and certain
of our subsidiaries' ability to:
. incur additional indebtedness;
. pay dividends on our capital stock or
redeem, repurchase or retire our
capital stock or subordinated
indebtedness;
. make investments;
. create restrictions on the payment of
dividends or other amounts to us from
our restricted subsidiaries;
. engage in transactions with our
affiliates;
. sell assets, including capital stock of
our subsidiaries; and
. consolidate, merge or transfer assets.
These covenants are subject to important
exceptions and qualifications, which are
described under "Description of Notes--
Certain Covenants."
For a more detailed discussion of the new notes, see "Description of Notes."
Risk Factors
You should carefully consider the risk factors set forth under the caption
"Risk Factors" and the other information included in this prospectus prior to
making an investment in the new notes. See "Risk Factors."
9
SUMMARY CONSOLIDATED HISTORICAL AND PRO FORMA FINANCIAL DATA
The following table sets forth certain summary historical and pro forma
consolidated financial data. The pro forma data gives effect to the
transactions described under "Unaudited Pro Forma Condensed Consolidated
Financial Data." The balance sheet data under the column heading "As Adjusted"
adjusts the historical balance sheet data to give effect to the issuance of the
notes and the use of the net proceeds to repay a portion of the outstanding
loans under our senior credit facility. The information below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations," "Unaudited Pro Forma Condensed Consolidated
Financial Data," our consolidated financial statements, the related notes and
the other financial information included elsewhere in this prospectus.
Historical Pro Forma
-------------------------------------------- --------------------------
Three Months Three Months
Fiscal Year Ended July 31 Ended Fiscal Year Ended
------------------------------ March 31, Ended March 31,
1998 1999 2000 2001 July 31, 2000 2001
-------- -------- ---------- ------------ ------------- ------------
(dollars in thousands)
Statement of Operations
Data:
Net sales.............. $815,313 $953,706 $1,090,938 $261,663 $1,132,506 $261,633
Gross profit........... 147,515 182,804 228,766 48,287 243,129 48,287
Selling, general and
administrative
expenses.............. 76,937 88,795 108,051 28,140 113,870 28,140
Amortization of
goodwill and
intangibles........... 3,478 5,203 6,043 1,289 6,809 1,289
Non-recurring charges.. 26,515 -- 35,222 -- 35,222 --
Operating income....... 40,585 88,806 79,450 18,858 87,228 18,858
Interest expense....... 40,291 45,505 48,766 13,294 58,648 14,864
Income (loss) before
extraordinary items... (2,187) 28,346 12,418 (1,888) 11,060 (2,956)
Extraordinary items.... (1,833) -- -- -- 627 671
Net income (loss)...... (4,020) 28,346 12,418 (1,888) 11,687 (2,285)
Other Financial Data:
EBITDA(a).............. $ 57,226 $112,367 $ 111,907 $ 22,063 $ 120,451 $ 22,063
Adjusted EBITDA(b)..... 87,559 116,922 147,718 22,992 156,262 22,992
Cash provided by (used
in) operating
activities............ (11,306) 43,086 69,718 (11,489) 68,593 (12,650)
Cash used in investing
activities............ (69,267) (73,387) (106,376) (5,937) (106,376) (5,937)
Cash provided by
financing activities.. 79,123 38,048 39,806 8,076 40,967 9,237
Depreciation and
amortization.......... 17,069 23,561 32,169 8,292 32,935 8,292
Capital expenditures... 24,190 25,066 38,371 3,458 38,371 3,458
EBITDA margin.......... 7.0% 11.8% 10.3% 8.4% 10.6% 8.4%
Adjusted EBITDA
margin................ 10.7% 12.3% 13.5% 8.8% 13.8% 8.8%
Ratio of Adjusted
EBITDA to interest
expense............... 2.2x 2.6x 3.0x 1.7x 2.7x 1.5x
Ratio of total debt to
Adjusted EBITDA....... 4.5x 3.8x 3.3x NA 3.2x NA
Ratio of earnings to
fixed charges(c)...... -- 1.9x 1.6x 1.0x 1.5x --
10
March 31, 2001
--------------------
Actual As Adjusted
-------- -----------
Balance Sheet Data:
Working capital........................................... $326,024 $326,757
Total assets.............................................. 935,873 941,434
Total debt................................................ 536,229 541,825
Total stockholders' equity(d)............................. 112,702 113,400
- --------------------
(a) EBITDA represents income before extraordinary item plus the sum of interest
expense, income taxes, minority interest in income of subsidiaries, income
(loss) from unconsolidated joint ventures, preferred dividend requirement
of subsidiary, deemed dividend on preferred stock conversion and
depreciation and amortization. EBITDA for the three months ended March 31,
2001 was reduced by non-recurring costs of $3.7 million incurred in
connection with our going private transaction. Excluding these costs,
EBITDA would have been $25.7 million. EBITDA should not be construed as a
substitute for income from operations, net income or cash flow from
operating activities prepared in accordance with generally accepted
accounting principles or as an indicator of our operating performance or
liquidity. We have presented EBITDA because it is commonly used by some
investors to analyze a company's ability to service debt. The definition of
EBITDA differs from the definition of EBITDA applicable to the covenants
for the notes and may not be comparable to EBITDA as defined by other
companies.
(b) Adjusted EBITDA represents EBITDA plus the sum of non-cash post-retirement
benefits other than pensions and non-recurring charges. Adjusted EBITDA for
the three months ended March 31, 2001 was reduced by non-recurring costs of
$3.7 million incurred in connection with our going private transaction.
Excluding these costs, Adjusted EBITDA would have been $26.7 million.
Adjusted EBITDA was calculated as follows:
Historical Pro Forma
----------------------------------------- ---------------------------
Fiscal Year Ended July 31 Three Months Fiscal Year Three Months
------------------------- Ended March 31, Ended July Ended March 31,
1998 1999 2000 2001 31, 2000 2001
------- -------- -------- --------------- ----------- ---------------
(dollars in thousands)
EBITDA, as defined...... $57,226 $112,367 $111,907 $ 22,063 $120,451 $ 22,063
Non-cash post-retirement
benefits other than
pensions............... 3,818 4,555 589 929 589 929
Non-recurring charges... 26,515 -- 35,222 -- 35,222 --
------- -------- -------- -------- -------- --------
Adjusted EBITDA......... $87,559 $116,922 $147,718 $ 22,992 $156,262 $ 22,992
======= ======== ======== ======== ======== ========
(c) For purposes of computing the ratio of earnings to fixed charges, earnings
consist of income from continuing operations before income taxes, fixed
charges, minority interest in income of subsidiaries and income (loss) from
unconsolidated joint ventures. Fixed charges include preferred dividend
requirement of subsidiary, deemed dividend on preferred stock conversion,
interest expense and the portion of operating rents that is deemed
representative of an interest factor. Our earnings were insufficient to
cover our fixed charges by $3.9 million during fiscal year 1998 and, on a
pro forma basis, would have been insufficient to cover our fixed charges by
$1.1 million in the three months ended March 31, 2001.
(d) Reflects the extraordinary gain, net of income tax, realized on the early
retirement of our 8% Subordinated Debenture. Does not include any
adjustment to reflect the cancellation of a stock purchase plan in
connection with our going private transaction.
11
RISK FACTORS
You should consider carefully the following risk factors, in addition to the
other information set forth in this prospectus, before making an investment
decision.
Our substantial indebtedness may limit cash flow available to invest in the
ongoing needs of our business to generate future cash flow, which could prevent
us from fulfilling our obligations under the notes.
We have a significant amount of indebtedness. The following chart sets forth
important credit information on a pro forma basis after giving effect to the
sale of the old notes as of the date, or at the beginning of the period,
specified below:
At March 31, 2001
---------------------
(dollars in millions)
Total indebtedness..................................... $541.8
Stockholders' equity................................... 113.4
Three Months End
March 31, 2001
----------------
Ratio of earnings to fixed charges..................... --
On a pro forma basis, our earnings were insufficient to cover our fixed
changes by $1.1 million during the first quarter of 2001.
In addition, on a pro forma basis, after giving effect to the sale of the
old notes, as of March 31, 2001, we would have had about $233.0 million of
unused availability under our senior credit facility, subject to specific
requirements, including compliance with financial covenants.
Our substantial indebtedness could have important consequences to you. For
example, it could:
. require us to dedicate a substantial portion of our cash flow from
operations to payments on our indebtedness, reducing the availability of
our cash flow to fund working capital, capital expenditures, research and
development efforts and other general corporate purposes;
. increase the amount of interest expense that we have to pay, because
certain of our borrowings are at variable rates of interest, which, if
interest rates increase, could result in higher interest expense;
. increase our vulnerability to adverse general economic or industry
conditions;
. limit our flexibility in planning for, or reacting to, changes in our
business or the industry in which we operate;
. prevent us from raising the funds necessary to repurchase all notes
tendered to us upon the occurrence of specific changes of control in our
ownership, which would constitute a default under the indenture governing
our notes; or
. place us at a competitive disadvantage compared to our competitors that
have less debt.
See "Capitalization," "Summary Consolidated Historical and Pro Forma
Financial Data," "Selected Consolidated Historical Financial Data," "Unaudited
Pro Forma Condensed Consolidated Financial Data" and "Description of Other
Indebtedness."
Despite our level of indebtedness, we and our subsidiaries will be able to
incur substantially more debt. This could further exacerbate the risks
described above.
We and our subsidiaries may be able to incur substantial additional
indebtedness in the future. Although the indenture governing the notes contains
restrictions on the incurrence of additional indebtedness, these restrictions
are subject to a number of qualifications and exceptions, and the indebtedness
incurred in compliance with these restrictions could be substantial. Also,
these restrictions do not prevent us from incurring obligations that do not
constitute indebtedness. As of March 31, 2001, on a pro forma basis, after
giving effect to the sale of the old notes, our senior credit facilities would
have provided for additional borrowing of up to
12
about $233.0 million, subject to specific requirements, including compliance
with financial covenants. To the extent new debt is added to our and our
subsidiaries' currently anticipated debt levels, the substantial leverage risks
described above would increase. See "Description of Notes" and "Description of
Other Indebtedness."
To service our indebtedness, we will require a significant amount of cash. Our
ability to generate cash depends on many factors beyond our control. If we
cannot generate the required cash, we may not be able to make the necessary
payments under the notes.
Our ability to make payments on our indebtedness, including the notes, and
to fund planned capital expenditures and research and development efforts will
depend on our ability to generate cash in the future. This, to a certain
extent, is subject to general economic, financial, competitive, legislative,
regulatory and other factors that are beyond our control.
Our historical financial results have been, and we anticipate that our
future financial results will be, subject to substantial fluctuations. We
cannot assure you that our business will generate sufficient cash flow from
operations, that we will realize the currently anticipated cost savings and
operating improvements on schedule or that future borrowings will be available
to us in an amount sufficient to enable us to pay our indebtedness, including
the notes, or to fund our other liquidity needs. Our inability to pay our debts
would require us to pursue one or more alternative strategies, such as selling
assets, refinancing or restructuring our indebtedness or selling equity
capital. However, we cannot assure you that any alternative strategies will be
feasible at the time or prove adequate. Also, some alternative strategies would
require the prior consent of our senior secured lenders, which we may not be
able to obtain. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Your right to receive payments on the new notes, like the old notes, is junior
to our existing senior indebtedness and the existing senior indebtedness of the
subsidiary guarantors and possibly all of our and their future borrowings.
Further, claims of creditors of our non-guarantor subsidiaries will generally
have priority with respect to the assets and earnings of those subsidiaries
over your claims.
The new notes, like the old notes, and the subsidiary guarantees will be
subordinated to the prior payment in full of our and the subsidiary guarantors'
respective current and future senior indebtedness to the extent set forth in
the indenture. As of March 31, 2001, after giving pro forma effect to the sale
of the old notes, we would have had about $200.1 million of Senior
Indebtedness, consisting of our 8 5/8% Senior Notes Due 2007 and our senior
guarantee of our subsidiaries' obligations under the senior credit facilities,
and the subsidiary guarantors would have had about $220.4 million of Senior
Indebtedness, consisting of the senior credit facilities and their senior
guarantee of our obligations under our 8 5/8% Senior Notes Due 2007. Because of
the subordination provisions of the notes, in the event of the bankruptcy,
liquidation or dissolution of our company or any guarantor, our assets or the
assets of the guarantors would be available to pay obligations under the notes
and our other senior subordinated obligations only after all payments had been
made on our or the guarantors' Senior Indebtedness. Sufficient assets may not
remain after all these payments have been made to make any payments on the
notes and our other senior subordinated obligations, including payments of
interest when due. The term "Senior Indebtedness" is defined in the
"Description of Notes" section of this prospectus. In addition, all payments on
the notes and the guarantees will be prohibited in the event of a payment
default on our Senior Indebtedness (including borrowings under the senior
credit facilities) and, for limited periods, upon the occurrence of other
defaults under the senior credit facilities.
We conduct all of our business through our subsidiaries. Some of our
immaterial domestic subsidiaries, and all of our foreign subsidiaries, are not
guaranteeing the notes. The aggregate net sales and EBITDA for the five months
ended December 31, 2000 of our subsidiaries that are not guaranteeing the notes
were $171.3 million and $12.6 million, respectively, and at December 31, 2000,
those subsidiaries had total assets of $220.0 million. Claims of creditors of
the non-guarantor subsidiaries, including trade creditors, secured creditors
and unsecured creditors, and claims of preferred stockholders (if any) of the
non-guarantor subsidiaries, will
13
generally have priority with respect to their assets and earnings over the
claims of creditors of our company, including holders of the notes, even if the
obligations of the subsidiaries do not constitute senior indebtedness. See
"Description of Notes--Ranking" and "Description of Notes--Certain Covenants--
Limitation on Indebtedness."
The new notes, like the old notes, are not secured by our assets and those of
our subsidiaries, and the lenders under the senior credit facilities will be
entitled to remedies available to a secured lender, which gives them priority
over the note holders to collect amounts due on our debt.
In addition to being subordinated to all of our existing and future senior
debt, the new notes, like the old notes, and the subsidiary guarantees will not
be secured by any of our assets. Our obligations under the senior credit
facilities are secured by, among other things, a first priority pledge of all
of our capital stock, mortgages upon all of the real property owned by us in
the U.S. and by substantially all of the assets of our company and each of our
existing and subsequently acquired or organized material domestic (and, to the
extent no adverse tax consequences will result, foreign) subsidiaries. If we
become insolvent or are liquidated, or if payment under the senior credit
facilities or in respect of any other secured senior indebtedness is
accelerated, the lenders under the senior credit facilities or holders of other
secured senior indebtedness will be entitled to exercise the remedies available
to a secured lender under applicable law (in addition to any remedies that may
be available under documents pertaining to the senior credit facilities or the
other senior debt). Upon the occurrence of any default under the senior credit
facilities (and even without accelerating the indebtedness under the senior
credit facilities), the lenders may be able to prohibit the payment of the
notes and guarantees either by limiting our ability to access our cash flow or
under the subordination provisions contained in the indenture governing the
notes. See "Description of Other Indebtedness--Senior Credit Facility" and
"Description of Notes."
Restrictions imposed by our senior credit facilities, the indentures governing
our existing notes and the indenture governing these notes limit our ability to
engage in or enter into business, operating and financing arrangements, which
could prevent us from taking advantage of potentially profitable business
opportunities.
The operating and financial restrictions and covenants in our debt
instruments, including the senior credit facilities, the 8 5/8% Senior Notes
Due 2007, the 10 5/8% Senior Subordinated Notes Due 2006 and these notes, may
affect adversely our ability to finance our future operations or capital needs
or engage in other business activities that may be in our interest. In
particular, our senior credit facilities require us to maintain certain
financial ratios which become more restrictive over time. Our ability to comply
with these ratios may be affected by events beyond our control. A breach of any
of these covenants or our inability to comply with the required financial
ratios could result in a default under our senior credit facilities. In the
event of any default under our senior credit facilities, the lenders under our
senior credit facilities could elect to declare all borrowings outstanding,
together with accrued and unpaid interest and other fees, to be due and
payable, to require us to apply all of our available cash to repay these
borrowings or to prevent us from making debt service payments on these notes,
any of which would be an event of default under these notes. See "Description
of Notes" and "Description of Other Indebtedness."
We may not have the ability to raise the funds necessary to finance the change
of control offer required by the indenture governing the notes, which would
violate the terms of the notes.
Upon the occurrence of a change of control, we will be required to offer to
repurchase all of our existing notes and these notes. The existing notes
include the 8 5/8% Senior Notes Due 2007 which rank pari passu with the
obligations and guarantees arising under our senior credit facilities and
senior to most of our other indebtedness. We cannot assure you that there will
be sufficient funds available for us to make any required repurchases of the
notes, including the senior notes, upon a change of control. In addition, our
senior credit facilities will prohibit us from purchasing any notes and provide
that the occurrence of a change of control
14
constitutes a default. If we do not repay all borrowings under our senior
credit facilities or obtain a consent of our lenders under our senior credit
facilities to repurchase the notes, we will be prohibited from purchasing the
notes. Our failure to purchase tendered notes would constitute a default under
the indenture governing the notes, which, in turn, would constitute a default
under our senior credit facilities. See "Description of Notes--Change of
Control."
A subsidiary guarantee could be voided if it constitutes a fraudulent transfer
under U.S. bankruptcy laws or comparable state laws, which could result in the
holders of the notes not being able to rely on that subsidiary guarantor to
satisfy claims.
Under U.S. bankruptcy law and comparable provisions of state fraudulent
transfer laws, a guarantee can be voided, or claims under a guarantee may be
subordinated to all other debts of that guarantor if, among other things, the
guarantor, at the time it incurred the indebtedness evidenced by its guarantee:
. intended to hinder, delay or defraud any present or future creditor or
received less than reasonably equivalent value or fair consideration for
the incurrence of the guarantee; and
. the guarantor:
. was insolvent or rendered insolvent by reason of the incurrence;
. was engaged in a business or transaction for which the guarantor's
remaining assets constituted unreasonably small capital; or
. intended to incur, or believed that it would incur, debts beyond its
ability to pay those debts as they mature.
In addition, any payment by that guarantor under a guarantee could be voided
and required to be returned to the guarantor or to a fund for the benefit of
the creditors of the guarantor.
The measures of insolvency for purposes of fraudulent transfer laws will
vary depending upon the governing law. Generally, a guarantor would be
considered insolvent if:
. the sum of its debts, including contingent liabilities, was greater than
the fair salable value of all of its assets;
. the present fair salable value of its assets was less than the amount
that would be required to pay its probable liability on its existing
debts, including contingent liabilities, as they become absolute and
mature; or
. it could not pay its debts as they become due.
On the basis of historical financial information, recent operating history
and other factors, we believe that the subsidiary guarantees are being incurred
for proper purposes and in good faith and that each guarantor, after giving
effect to its guarantee of the notes, will not be insolvent, have unreasonably
small capital for the business in which it is engaged or have incurred debts
beyond its ability to pay as they mature. We cannot be certain, however, that a
court would agree with our conclusions in this regard.
Our business is cyclical in nature and downturns in the automotive industry
could reduce the revenues and profitability of our business.
The demand for our products is largely dependent on the production of
automobiles, light trucks and heavy duty vehicles in North America. The
automotive industry is highly cyclical, as new vehicle demand is dependent on
consumer spending and is tied closely to the overall strength of the North
American economy. The North American automotive industry is facing costly
inventory corrections which could adversely affect our revenues and the
profitability of our business. Recent production cuts announced by the three
largest auto makers, including GM, and cutbacks in heavy duty truck production,
have adversely affected us. Any decline in
15
the demand for new automobiles, particularly in the United States, could have a
material adverse impact on our financial condition and results of operations.
Seasonality experienced by the automobile industry also impacts our operations,
and historically we have reported lower levels of sales for July and December
due to model changeovers and plant idlings by the automobile and light truck
OEMs.
Consolidation among automotive parts customers and suppliers could make it more
difficult for us to compete successfully.
In both the original equipment market and aftermarket, the customer base for
original equipment and aftermarket automotive parts is consolidating. As a
result, we are competing for business from fewer customers. Due to the cost
focus of these major customers, we have been, and expect to continue to be,
required to reduce our prices. We cannot be sure that we will be able to
generate cost savings and operational improvements in the future that would be
sufficient to offset price reductions required by existing customers and
necessary to win new business.
Furthermore, the trend towards consolidation among automotive parts
suppliers is resulting in fewer, larger suppliers who benefit from purchasing
and distribution economies of scale. If we cannot achieve cost savings and
operational improvements sufficient to allow us to compete favorably in the
future with these larger companies, our financial condition and results of
operations could be adversely affected due to a reduction of, or inability to
increase, sales. See "Business--Industry Overview."
Longer product life of automotive parts may reduce aftermarket demand for some
of our products.
The average useful life of automotive parts has been steadily increasing in
recent years due to innovations in products and technologies. The longer
product life allows vehicle owners to replace parts of their vehicles less
often. As a result, a portion of sales in the aftermarket has been displaced.
Additional increases in the average useful life of automotive parts are likely
to adversely affect the demand for our aftermarket products. Aftermarket sales
represented about 50% of our net sales for calendar year 2000. See "Business--
Industry Overview."
We depend heavily on GM. If GM develops alternative sources or otherwise
decreases its need for the products we currently supply, our revenues may
decrease.
The loss of GM as a customer for OEM or aftermarket products, the default by
GM on its obligations to act as a distributor or to purchase our OEM or
aftermarket products, a substantial decrease in demand for GM's automobile
models containing our products or our failure to obtain supply orders for our
products used in GM's new automobile models could have a material adverse
effect on our business, financial condition and results of operations. In
addition, strikes and work stoppages affecting GM's operations may postpone
GM's need for components produced by us, which could have a material adverse
effect on our business, financial condition and results of operations.
GM accounted for about 45% of our total OEM net sales in fiscal year 2000.
GM Service Parts Operations, which we refer to as GM SPO, accounted for about
15% of our total aftermarket net sales in fiscal year 2000. In connection with
our separation from GM in July 1994, GM entered into long-term contracts to
purchase from us 100% of its North American requirements for automotive
starters (other than for Saturn and Geo) and 100% of its U.S. and Canadian
requirements for heavy duty starters and alternators. GM's obligation to
purchase automotive starters from us terminates on August 31, 2008. GM's
obligation to purchase heavy duty starters and alternators from us terminated
on July 31, 2000. GM's commitments to purchase products from us in the future
are subject to those products remaining competitive as to price, technology and
design. See "Business--Customers." We cannot be sure that GM will not develop
alternative sources for components currently produced by us and purchase some
or all of its requirements for starters and alternators from these alternative
sources.
16
In addition, GM SPO has been designated as the exclusive distributor of a
significant amount of our automotive products and as a distributor of our heavy
duty aftermarket products. GM SPO has agreed to provide us with purchasing
support, which enables us to obtain raw materials at competitive prices. Our
exclusive distribution arrangements with GM SPO for our automotive aftermarket
products terminates on July 31, 2009. Our distribution arrangement with GM SPO
is continuously renewable on an annual basis for our heavy duty aftermarket
products.
The prices that we can charge GM and some of our other customers are
predetermined and we bear the risk of costs in excess of our estimates.
Our supply agreements with GM and some of our other customers require us to
provide our products at predetermined prices. In some cases, these prices
decline over the course of the contract. The costs that we incur in fulfilling
these contracts may vary substantially from our initial estimates.
Unanticipated cost increases may occur as a result of several factors,
including increases in the costs of labor, components or materials. In some
cases, we are permitted to pass on to our customers the cost increases
associated with specific materials. Cost overruns that we cannot pass on to our
customers would adversely affect our business, financial condition and results
of operations.
A limited number of persons indirectly control us and may exercise their
control in a manner adverse to you.
Court Square, Berkshire Hathaway Inc. and DRI Group, LLC, which we refer to
as DRI Group, together own beneficially about 94.6% of our outstanding common
stock and members of our management own beneficially about 5.4% of our
outstanding common stock. By virtue of their ownership, these persons have the
power to direct our affairs and will be able to determine the outcome of all
matters required to be submitted to our stockholders for approval, including
the election of a majority of our directors, the approval of mergers,
consolidations and the sale of all or substantially all of our assets and the
amendment of our certificate of incorporation. These persons have the power to
prevent or cause a change of control of our company. See "Ownership of Capital
Stock" and "Description of Capital Stock--Securities Transfer, Recapitalization
and Holders Agreement."
We may be required to make substantial additional payments in connection with
our completed acquisitions.
In connection with our separation from GM, one of our subsidiaries issued a
contingent purchase price note to GM payable beginning in 2004. The amount
payable will depend on our earnings over the three-year period ending December
31, 2003. We cannot predict the amounts of the payments, if any, that we will
be required to make under the contingent note. We will also be required to make
additional payments in connection with our acquisitions of M&M Knopf, Delco
Remy Mexico, Delco Remy Korea and AMT. We expect that the aggregate amount of
these payments will be in the range of $15 million to $40 million, payable over
about four years. Because the amounts of some of these payments depend on
future earnings, the actual amounts of these payments may differ substantially
from our estimates. We granted put/call options in connection with the
acquisitions of World Wide Automotive and Power Investments that became
exercisable in February 2001 for World Wide Automotive and March 2001 for Power
Investments. The exercise prices that we would be required to pay upon exercise
of the put options, which are based on earnings formulas, are currently
estimated to be about $26 million in total for the two acquisitions. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources" and "Description of Other
Indebtedness--GM Contingent Purchase Price Note."
We may not be able to consummate future acquisitions or successfully integrate
acquisitions into our business.
To expand our markets and take advantage of the consolidation trend in the
automotive parts industry, our business strategy includes growth through
acquisitions. Our failure to integrate acquired businesses successfully
17
into our existing businesses, or the expense incurred in consummating future
acquisitions, could result in our company incurring unanticipated expenses and
losses.
We are continually investigating opportunities for domestic and foreign
acquisitions. In connection with future acquisitions, the process of
integrating acquired operations into our existing operations may result in
unforeseen operating difficulties and may require significant financial
resources that would otherwise be available for the ongoing development or
expansion of existing operations. Our ability to make future acquisitions may
be constrained by our ability to obtain additional financing.
Acquisitions may involve a number of special risks, including:
. unexpected losses of key employees or customers of the acquired business;
. conforming the standards, processes, procedures and controls of the
acquired business with those of our existing operations;
. coordinating new product and process development;
. hiring additional management and other critical personnel;
. negotiating with labor unions; and
. increasing the scope, geographic diversity and complexity of our
operations.
Possible future acquisitions could result in our incurrence of additional
debt, contingent liabilities and amortization expenses related to goodwill and
other intangible assets, all of which could have a material adverse effect on
our financial condition and operating results. See "Business--Business
Strategy" and "Description of Other Indebtedness."
If we are unable to retain senior executives and other qualified professionals
our growth may be hindered.
Our success is largely dependent on maintaining our staff of qualified
professionals. The market for qualified professionals is competitive and we may
not continue to be successful in our efforts to attract and retain these
professionals. Our future operations could be harmed if any of our senior
executives or other key personnel ceased working for us.
Our success depends in part on key customer relationships forged by members
of our senior management. We cannot assure you that we will be able to continue
to maintain these relationships if members of senior management leave us.
We may experience increased costs associated with labor unions that could
adversely affect our financial performance and results of operations.
As of March 31, 2001, about 1,491 of our 7,710 employees, or about 19%, were
represented by unions. Our contract with the UAW, which represents 550 of our
hourly workers, is effective through March 2003 and stipulates an annual wage
and benefit increase of about 3.2%. Some of our other union contracts also
provide for wage and benefit increases. If we are unable to offset these wage
and benefit increases through cost reduction initiatives and increased
productivity, our financial condition and operating results would be adversely
affected. See "Business--Employees."
Our business is very competitive and increased competition could reduce our
revenues.
The motor vehicle parts industry in which we operate is highly competitive.
Some of our OEM competitors are divisions or subsidiaries of companies that are
larger and have substantially greater resources
18
than we do. We cannot be sure that we will be able to compete successfully with
our competitors. See "Business--Competition."
Our international operations subject us to risks not faced by domestic
competitors, which include unfavorable political, regulatory, labor and tax
conditions in other countries.
About 22.3% of our net sales in fiscal year 2000 were derived from sales in
foreign markets. We expect sales from international markets to represent an
increasing portion of total sales. Risks inherent in international operations
include the following:
. agreements may be difficult to enforce and receivables difficult to
collect through a foreign country's legal system;
. foreign customers may have longer payment cycles;
. foreign countries may impose additional withholding taxes or otherwise
tax our foreign income, impose tariffs or adopt other restrictions on
foreign trade or investment, including exchange controls;
. U.S. export licenses may be difficult to obtain;
. intellectual property rights may be more difficult to enforce in foreign
countries;
. fluctuations in exchange rates may affect product demand and may
adversely affect the profitability in U.S. dollars of products and
services provided by us in foreign markets where payment for our products
and services is made in the local currency;
. general economic conditions in the countries in which we operate could
have an adverse effect on our earnings from operations in those
countries;
. unexpected adverse changes in foreign laws or regulatory requirements may
occur;
. compliance with a variety of foreign laws and regulations may be
difficult; and
. overlap of different tax structures may subject us to additional taxes.
We cannot be sure that any of these factors will not have a material adverse
effect on our business, financial condition and results of operations. See
"Business--Business Strategy."
An insufficient supply of cores could make it difficult or impossible for us to
respond to customer demands.
In our remanufacturing operations, we obtain cores from various sources,
principally our existing aftermarket customers, which generally return cores
when they purchase remanufactured products. As a result, GM SPO and Navistar
each supplied greater than 10% of the cores used by us in fiscal year 2000. We
also obtain cores from brokers who specialize in buying and selling cores. No
single broker supplies us with more than 10% of those cores. We expect our
recent acquisition of M&M Knopf to improve our ability to acquire cores. The
ability to obtain cores of the types and quantities required by our business is
essential to our ability to meet demand and expand production in our
remanufacturing business. A sufficient supply of cores may not always be
available to permit us to respond fully to customer demands for our
remanufactured products.
Shortages of cores could result from, among other things:
. a time lag between the initial customer order for a remanufactured
product and the return of cores for the products;
. an inability to salvage cores for reuse due to excessive wear or
deterioration; or
. our inability to acquire cores because of loss or significant
deterioration of our relationships with our customers.
19
Although we believe that our relationships with several of our customers
will continue to provide us with access to cores, we cannot be sure that we
will continue to have an adequate supply of cores for our remanufactured
products.
We are dependent on the availability of raw materials.
We require substantial amounts of raw materials and substantially all raw
materials we require are purchased from outside sources. The availability and
prices of raw materials may be subject to curtailment or change due to, among
other things, new laws or regulations, suppliers' allocations to other
purchasers, interruptions in production by suppliers, changes in exchange rates
and worldwide price levels. Any change in the supply of, or price for, these
raw materials could materially affect our operating results.
We are subject to the effects of fluctuations in foreign exchange rates.
We are exposed to fluctuations in foreign currencies as a significant
portion of our revenue, and some of our costs, assets and liabilities, are
denominated in currencies other than the U.S. dollar. Principal and interest on
the notes will be payable in U.S. dollars. Our ability to pay interest and
principal on the notes and our other principal indebtedness when due is
dependent on the then current exchange rates between U.S. dollars, on the one
hand, and the euro and other European as well as Asian currencies, on the other
hand, which rates are and will be subject to fluctuation. About 22.3% of our
net sales in fiscal year 2000 were derived from sales in foreign markets. We
expect that our share of revenue in non-U.S. dollar denominated currencies will
continue to increase in future periods. We cannot be sure, however, that
exchange rate fluctuations will not have a material adverse effect on our
results of operations and financial condition and, therefore, on our ability to
make principal and interest payments on our indebtedness, including the notes,
when due.
Environmental and health and safety liabilities and requirements could require
us to incur material costs.
We are subject to various U.S. and foreign laws and regulations relating to
environmental protection and worker health and safety, including those
governing:
.discharges of pollutants into the air and water;
.the management and disposal of hazardous substances; and
.the cleanup of contaminated properties.
The nature of our operations exposes us to the risk of liabilities or claims
with respect to environmental matters, including on-site and off-site disposal
matters. For example, there are ongoing investigation and remediation
activities in connection with several of our properties, and we have been
identified as a potentially responsible party at two off-site disposal sites.
Although virtually all of these matters are being handled by former owners of
our various properties and businesses pursuant to indemnification and similar
agreements, we could incur material costs in connection with these matters if
these indemnities become inapplicable or unavailable.
Based on our experience to date, we believe that the future cost of
compliance with existing environmental laws, regulations and ordinances (or
liability for known environmental claims) will not have a material adverse
effect on our business, financial condition and results of operations. However,
future events could require us to make additional expenditures to modify or
curtail our operations, install pollution control equipment or investigate and
cleanup contaminated sites, such as:
.the discovery of new information concerning past releases of hazardous
substances;
.the discovery or occurrence of compliance problems relating to our
operations;
.changes in existing environmental laws or their interpretation; and
20
.more rigorous enforcement by regulatory authorities.
Expenditures resulting from these events could have a material adverse effect
on our business, financial condition and results of operations. See "Business--
Environmental Regulation."
We have a holding company structure and will depend on distributions from our
operating subsidiaries to pay our existing notes and these notes. Contractual
or legal restrictions applicable to our subsidiaries could limit distributions
from them.
We are a holding company and derive all of our operating income from, and
hold substantially all of our assets through, our subsidiaries. The effect of
this structure is that we will depend on the earnings of our subsidiaries, and
the payment or other distributions to us of these earnings, to meet our
obligations under our Senior Credit Facility, the 8 5/8% Senior Notes Due 2007,
the 10 5/8% Senior Subordinated Notes Due 2006 and these notes. Provisions of
law, like those requiring that dividends be paid only out of surplus, and
provisions of our senior indebtedness limit the ability of our subsidiaries to
make payments or other distributions to us. Our subsidiaries also could agree
to other contractual restrictions on their ability to make distributions. See
"Description of Other Indebtedness."
There is no public trading market for the new notes and an active trading
market may not develop for the new notes.
The old notes are currently eligible for trading in the PORTAL Market, a
screen-based market operated by the National Association of Securities Dealers.
The PORTAL market is limited to qualified institutional investors as defined by
Rule 144A of the Securities Act. The new notes are new securities for which
there is no established trading market. We do not intend to apply for listing
or quotation of the notes on any securities exchange or stock market.
Credit Suisse First Boston Corporation and Deutsche Banc Alex. Brown Inc.
acted as initial purchasers in connection with the offer and sale of the old
notes. The initial purchasers have informed us that they intend to make a
market in the new notes. However, these initial purchasers may cease their
market-making at any time. In addition, the liquidity of the trading market in
the new notes, and the market price quoted for the new notes, may be adversely
affected by changes in the overall market for high yield securities and by
changes in our financial performance or prospects or in the prospects for
companies in our industry generally. As a result, we cannot assure you that an
active trading market will develop for the new notes.
Failure to tender your old notes for new notes could limit your ability to
resell the old notes.
The old notes were not registered under the Securities Act or under the
securities laws of any state and may not be resold, offered for resale or
otherwise transferred unless they are subsequently registered or resold under
an exemption from the registration requirements of the Securities Act and
applicable state securities laws. If you do not exchange your old notes for new
notes in the exchange offer, you will not be able to resell, offer to resell or
otherwise transfer the old notes unless they are registered under the
Securities Act or unless you resell them, offer to resell or otherwise transfer
them under an exemption from the registration requirements of, or in a
transaction not subject to, the Securities Act. In addition, we will no longer
be under an obligation to register the old notes under the Securities Act
except in the limited circumstances provided under the registration rights
agreement. If you want to exchange your old notes in the exchange offer for the
purpose of participating in a distribution of the new notes, you may be deemed
to have received restricted securities, and, if so, will be required to comply
with the registration and prospectus delivery requirements of the Securities
Act in connection with any resale transaction.
21
USE OF PROCEEDS
We will not receive any proceeds from the exchange offer. In consideration
for issuing the new notes, we will receive in exchange old notes of like
principal amount, the terms of which are identical in all material respects,
except for transfer restrictions and registration rights relating to the old
notes, to the new notes. The old notes surrendered in exchange for new notes
will be retired and canceled and cannot be reissued. Accordingly, issuance of
the new notes will not result in any increase in our indebtedness. We have
agreed to bear the expenses of the exchange offer. No underwriter is being used
in connection with the exchange offer.
The net proceeds from the sale of the old notes was about $157 million. We
used about $138 million of the net proceeds from the sale of the old notes to
repay a portion of the outstanding loans under our senior credit facility and
about $19 million of the net proceeds from the sale of the old notes to retire
our 8% Subordinated Debenture.
22
CAPITALIZATION
(dollars in thousands)
The following table sets forth our consolidated cash and cash equivalents
and capitalization as of March 31, 2001, on an actual basis and adjusted to
give effect to the sale of the old notes. You should read this table in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations," "Description of Other Indebtedness" and our
financial statements, the related notes and the other financial information
included elsewhere in this prospectus.
March 31, 2001
------------------
Actual Pro Forma
-------- ---------
Cash and cash equivalents.................................... $ 14,398 $ 14,398
======== ========
Debt:
Senior Credit Facility(l).................................. $193,438 $ 55,098
8% Subordinated Debenture(2)............................... 18,916 --
8 5/8% Senior Notes Due 2007(3)............................ 145,000 145,000
Other Senior Debt and Capitalized Leases................... 38,875 38,875
10 5/8% Senior Subordinated Notes Due 2006(4).............. 140,000 140,000
11% Senior Subordinated Notes Due 2009(5).................. -- 162,852
-------- --------
Total Debt............................................... 536,229 541,825
Stockholders' Equity(6)...................................... 112,702 113,400
-------- --------
Total Capitalization..................................... $648,931 $655,225
======== ========
- ---------------------
(1) The senior credit facility provides for borrowings of up to $300,000
subject to specific requirements, including compliance with financial
covenants. The loans under our senior credit facility mature on October 31,
2003. The weighted average interest rate on the amounts outstanding under
our senior credit facility at March 31, 2001 was about 8.0%.
(2) The 8% Subordinated Debenture was issued to GM by Delco Remy America, Inc.,
on December 22, 1997 in a principal amount of $19,488 and matures on July
31, 2004. The 8% Subordinated Debenture bears interest, payable in cash, at
the rate of 8% per year.
(3) The 8 5/8% Senior Notes Due 2007 were issued in 1997 in an aggregate
principal amount of $145,000. The 8 5/8% Senior Notes Due 2007 accrue
interest at the rate of 8 5/8% per annum and are due December 15, 2007.
Interest on the 8 5/8% Senior Notes Due 2007 is payable in cash semi-
annually. The 8 5/8% Senior Notes Due 2007 are fully and unconditionally
guaranteed on a senior basis by our material domestic subsidiaries.
(4) The 10 5/8% Senior Subordinated Notes Due 2006 were issued in 1996 in an
aggregate principal amount of $140 million. The 10 5/8% Senior Subordinated
Notes Due 2006 accrue interest at the rate of 10 5/8% per annum and are due
August 1, 2006. Interest on the 10 5/8% Senior Subordinated Notes is
payable in cash semi-annually. The 10 5/8% Senior Subordinated Notes are
fully and unconditionally guaranteed on a senior subordinated basis by our
material domestic subsidiaries.
(5) Reflects issuance of $165,000 principal amount of 11% Senior Subordinated
Notes Due 2009 at 98.698% of face value.
(6) Reflects the extraordinary gain, net of income tax, realized on the early
retirement of our 8% Subordinated Debenture.
23
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL DATA
The following unaudited pro forma condensed consolidated financial data are
based on our consolidated financial statements included elsewhere in this
prospectus, adjusted to give effect to the acquisition of M.&M. Knopf Auto
Parts, Inc., which we refer to as M&M Knopf, on March 10, 2000 and the sale of
the old notes, which we refer to as the transactions, as described below.
The unaudited pro forma condensed consolidated statement of operations for
the fiscal year ended July 31, 2000 has been adjusted to give effect to the
transactions as if they had occurred on August 1, 1999. The unaudited pro forma
condensed consolidated statement of operations for the three months ended March
31, 2001 has been adjusted to give effect to the sale of the old notes as if it
had occurred on January 1, 2001. The unaudited pro forma condensed consolidated
balance sheet at March 31, 2001 has been adjusted to give effect to the sale of
the old notes as if it had occurred on March 31, 2001.
The unaudited pro forma condensed consolidated financial data do not purport
to be indicative of the results of operations or financial position that would
actually have been obtained if the transactions had occurred on the dates
indicated or of the results of operations or financial position that may be
obtained in the future. The unaudited pro forma condensed consolidated
financial data are presented for comparative purposes only. The pro forma
adjustments, as described in the accompanying data, are based on available
information and certain assumptions that management believes are reasonable.
The unaudited pro forma condensed consolidated financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations," our consolidated financial statements, the related
notes and the other financial information included elsewhere in this
prospectus.
24
Unaudited Pro Forma Condensed Consolidated Statement of Operations
For the Fiscal Year Ended July 31, 2000
Historical
-------------------- Pro Forma
M&M Acquisition for Offering
Delco Remy Knopf(a) Adjustments(b) Acquisition Adjustments(c) Pro Forma
---------- -------- -------------- ----------- -------------- ----------
(dollars in thousands)
Net sales............... $1,090,938 $41,568 $ -- $1,132,506 $ -- $1,132,506
Cost of goods sold...... 862,172 27,205 -- 889,377 -- 889,377
---------- ------- ------- ---------- -------- ----------
Gross profit............ 228,766 14,363 -- 243,129 -- 243,129
Selling, general and
administrative
expenses............... 108,051 5,819 -- 113,870 -- 113,870
Amortization of goodwill
and intangibles........ 6,043 -- 766 (1) 6,809 -- 6,809
Non-recurring charge.... 35,222 -- -- 35,222 -- 35,222
---------- ------- ------- ---------- -------- ----------
Operating income........ 79,450 8,544 (766) 87,228 -- 87,228
Interest expense........ (48,766) (415) (3,187)(2) (52,368) (6,280)(1) (58,648)
Non-operating income.... 288 -- -- 288 -- 288
---------- ------- ------- ---------- -------- ----------
Income (loss) before
income taxes (benefit),
minority interest in
income of subsidiaries,
loss from
unconsolidated joint
ventures and
extraordinary item..... 30,972 8,129 (3,953) 35,148 (6,280) 28,868
Income taxes (benefit).. 11,460 3,080 (1,502)(3) 13,038 (2,324)(2) 10,714
Minority interest in
income of
subsidiaries........... (6,742) -- -- (6,742) -- (6,742)
Loss from unconsolidated
joint ventures......... (352) -- -- (352) -- (352)
---------- ------- ------- ---------- -------- ----------
Net income (loss) before
extraordinary item..... 12,418 5,049 (2,451) 15,016 (3,956) 11,060
Extraordinary item:
Gain on early
extinguishment
of debt............... -- -- -- -- 627(3) 627
---------- ------- ------- ---------- -------- ----------
Net income (loss)....... $ 12,418 $ 5,049 $(2,451) $ 15,016 $ (3,329) $ 11,687
========== ======= ======= ========== ======== ==========
Other Financial Data:
EBITDA(d).............. $ 111,907 $ 8,544 $ -- $ 120,451 $ -- $ 120,451
Adjusted EBITDA(e)..... 147,718 8,544 -- 156,262 -- 156,262
Cash provided by (used
in) operating
activities............ 69,718 5,049 (1,685)(4) 73,082 (4,489)(4) 68,593
Cash used in investing
activities............ (106,376) -- -- (106,376) -- (106,376)
Cash provided by
financing activities.. 39,806 -- -- 39,806 1,161 (5) 40,967
Depreciation and
amortization.......... 32,169 -- 766 (1) 32,935 -- 32,935
Capital expenditures... 38,371 -- -- 38,371 -- 38,371
- ---------------------
(a) This column provides the historical results of M&M Knopf for the period
from August 1, 1999 through March 9, 2000. The results of M&M Knopf were
included in our historical consolidated statements of operations from March
10, 2000, the closing date of the M&M Knopf acquisition.
25
(b) This column provides the purchase accounting adjustments and related income
tax effect for the acquisition of M&M Knopf for the period from August 1,
1999 through March 9, 2000 as if the acquisition had occurred on August 1,
1999.
(1) Represents goodwill recorded in the acquisition of about $37,600
amortized over a period of 30 years.
(2) Represents the incremental interest expense associated with the cash
purchase price of about $61,300, at an assumed interest rate of 8.5%.
(3) Represents the incremental income tax benefit resulting from the above
adjustments at an assumed effective tax rate of 38.0%.
(4) Represents incremental interest payments net of the income tax benefit
on the acquisition adjustments.
(c) This column provides adjustments to give effect to the sale of the old
notes and the application of the proceeds as if they had occurred on August
1, 1999.
(1) Represents interest expense on the notes of about $19,114, including
amortization of deferred acquisition costs, at an interest rate of
11.0%, less the reduction in interest expense of about $11,275 at an
assumed interest rate of 8.15% resulting from paying down the senior
credit facility and the reduction in interest expense of about $1,559
from the retirement of our 8% Subordinated Debenture with the net
proceeds.
(2) Represents the income tax effect on the above adjustments at an assumed
effective tax rate of 37.0%.
(3) Represents the gain, net of income tax, realized on the early
retirement of our 8% Subordinated Debenture.
(4) Represents incremental interest payments, net of the income tax
benefit, the extraordinary gain and payment of accrued interest on the
8% Subordinated Debenture.
(5) Reflects payments and receipts on debt and for deferred financing costs
as follows:
11% Senior Subordinated Notes................................... $ 162,852
Senior Credit Facility.......................................... (138,340)
8% Subordinated Debenture....................................... (17,790)
Deferred financing costs........................................ (5,561)
---------
Net change to cash provided by financing activities............. $ 1,161
=========
(d) EBITDA represents income before extraordinary item plus the sum of interest
expense, income taxes, minority interest in income of subsidiaries, income
(loss) from unconsolidated joint ventures, preferred dividend requirement
of subsidiary, deemed dividend on preferred stock conversion and
depreciation and amortization. EBITDA should not be construed as a
substitute for income from operations, net income or cash flow from
operating activities prepared in accordance with generally accepted
accounting principles or as an indicator of our operating performance or
liquidity. We have presented EBITDA because it is commonly used by some
investors to analyze a company's ability to service debt. The definition of
EBITDA differs from the definition of EBITDA applicable to the covenants
for the notes and may not be comparable to EBITDA as defined by other
companies.
(e) Adjusted EBITDA represents EBITDA plus the sum of non-cash post-retirement
benefits other than pensions and non-recurring charges. Adjusted EBITDA was
calculated as follows:
Pro Forma
Fiscal Year
Ended July 31, 2000
-------------------
EBITDA, as defined...................................... $120,451
Non-cash post-retirement benefits other than pensions... 589
Non-recurring charge.................................... 35,222
--------
Adjusted EBITDA......................................... $156,262
========
26
Unaudited Pro Forma Condensed Consolidated Statement of Operations
For the Three Month Period Ended March 31, 2001
Historical
---------- Offering
Delco Remy Adjustments(a) Pro Forma
---------- -------------- ---------
(dollars in thousands)
Net sales................................. $261,663 $ -- $ 261,663
Cost of goods sold........................ 213,376 -- 213,376
-------- ------ ---------
Gross profit.............................. 48,287 -- 48,287
Selling, general and administrative
expenses................................. 28,140 -- 28,140
Amortization of goodwill and intangibles.. 1,289 -- 1,289
-------- ------ ---------
Operating income.......................... 18,858 -- 18,858
Interest expense.......................... (13,294) (1,570)(1) (14,864)
Non-operating expense..................... (5,087) -- (5,087)
-------- ------ ---------
Income (loss) before income taxes
(benefit), minority interest in income of
subsidiaries, loss from unconsolidated
joint ventures and extraordinary item.... 477 (1,570) (1,093)
Income taxes (benefit).................... 152 (502)(2) (350)
Minority interest in income of
subsidiaries............................. (1,822) -- (1,822)
Loss from unconsolidated joint ventures... (391) -- (391)
-------- ------ ---------
Net income (loss) before extraordinary
item..................................... (1,888) (1,068) (2,956)
Extraordinary item:
Gain on early extinguishment of debt..... -- 671(3) 671
-------- ------ ---------
Net income (loss)......................... $ (1,888) $ (397) $ (2,285)
======== ====== =========
Other Financial Data:
EBITDA(b)................................ $ 22,063 $ -- $ 22,063
Adjusted EBITDA(c)....................... 22,992 -- 22,992
Cash used in operating activities........ (11,489) (1,161)(4) (12,650)
Cash used in investing activities........ (5,937) -- (5,937)
Cash provided by financing activities.... 8,076 1,161(5) 9,237
Depreciation and amortization............ 8,292 -- 8,292
Capital expenditures..................... 3,458 -- 3,458
- ---------------------
(a) This column provides adjustments to give effect to the sale of the old
notes and the application of the proceeds as if they had occurred on
January 1, 2001.
(1) Represents interest expense of about $4,779, including amortization of
deferred acquisition costs, at an interest rate of 11.0%, less the
reduction in interest expense of about $2,819 at an assumed interest
rate of 8.15% resulting from paying down the senior credit facility
and the reduction in interest expense of about $390 from retirement of
our 8% Subordinated Debenture with the net proceeds.
(2) Represents the income tax effect on the above adjustments at an
assumed effective tax rate of 32.0%.
(3) Represents the gain, net of income tax, realized on the early
retirement of our 8% Subordinated Debenture.
(4) Represents payment of accrued interest on the 8% Subordinated
Debenture.
(5) Reflects payments and receipts on debt and for deferred financing
costs as follows:
11% Senior Subordinated Notes................................... $ 162,852
Senior Credit Facility.......................................... (138,340)
8% Subordinated Debenture (17,790)
Deferred financing costs........................................ (5,561)
---------
Net change to cash provided by financing activities............. $ 1,161
=========
(b) EBITDA represents income before extraordinary item plus the sum of interest
expense, income taxes, minority interest in income of subsidiaries, income
(loss) from unconsolidated joint ventures, preferred
27
dividend requirement of subsidiary, deemed dividend on preferred stock
conversion and depreciation and amortization. EBITDA for the three months
ended March 31, 2001 was reduced by non-recurring costs of $3.7 million
incurred in connection with our going private transaction. Excluding these
costs, EBITDA would have been $25.7 million. EBITDA should not be construed
as a substitute for income from operations, net income or cash flow from
operating activities prepared in accordance with generally accepted
accounting principles or as an indicator of our operating performance or
liquidity. We have presented EBITDA because it is commonly used by some
investors to analyze a company's ability to service debt. The definition of
EBITDA differs from the definition of EBITDA applicable to the covenants
for the notes and may not be comparable to EBITDA as defined by other
companies.
(c) Adjusted EBITDA represents EBITDA plus the sum of non-cash post-retirement
benefits other than pensions and non-recurring charges. Adjusted EBITDA
for the three months ended March 31, 2001 was reduced by non-recurring
costs of $3.7 million incurred in connection with our going private
transaction. Excluding these costs, Adjusted EBITDA would have been $26.7
million. Adjusted EBITDA was calculated as follows:
Pro Forma
Three Month Period
Ended March 31,
2001
------------------
EBITDA, as defined....................................... $22,063
Non-cash post-retirement benefits other than pensions.... 929
Non-recurring charge..................................... --
-------
Adjusted EBITDA.......................................... $22,992
=======
28
Unaudited Pro Forma Condensed Consolidated Balance Sheet
As of March 31, 2001
(in thousands)
Pro Forma
Offering for the
Historical Adjustments Offering
---------- ----------- ---------
ASSETS
Current assets:
Cash and cash equivalents................. $ 14,398 $ -- $ 14,398
Trade accounts receivable, net............ 188,909 -- 188,909
Other receivables......................... 16,887 -- 16,887
Inventories............................... 300,857 -- 300,857
Deferred income taxes..................... 16,383 -- 16,383
Other current assets...................... 11,157 -- 11,157
-------- ------- --------
Total current assets.................... 548,591 -- 548,591
Property and equipment.................... 306,302 -- 306,302
Less accumulated depreciation............. 111,857 -- 111,857
-------- ------- --------
Property and equipment, net............... 194,445 -- 194,445
Deferred financing costs.................. 8,251 5,561 (a) 13,812
Goodwill (net of accumulated
amortization)............................ 168,503 -- 168,503
Investments in joint ventures............. 8,962 -- 8,962
Other assets.............................. 7,121 -- 7,121
-------- ------- --------
Total assets............................ $935,873 $ 5,561 $941,434
======== ======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................... $155,979 $ -- $155,979
Accrued interest payable.................. 7,880 (1,161)(b) 6,719
Accrued non-recurring charges............. 7,977 -- 7,977
Other liabilities and accrued expenses.... 43,148 428 (c) 43,576
Current debt.............................. 7,583 -- 7,583
-------- ------- --------
Total current liabilities............... 222,567 (733) 221,834
Deferred income taxes....................... 9,981 -- 9,981
Long-term debt, less current portion........ 528,646 5,596 (d) 534,242
Post-retirement benefits other than
pensions................................... 23,723 -- 23,723
Accrued pension benefits.................... 4,860 -- 4,860
Other noncurrent liabilities................ 4,897 -- 4,897
Minority interest in subsidiaries........... 28,497 -- 28,497
Stockholders' equity:
Preferred stock - Series A................ 21 -- 21
Common stock:
Class A shares.......................... -- -- --
Class B shares.......................... 1 -- 1
Class C shares.......................... 2 -- 2
Paid-in-capital........................... 231,752 -- 231,752
Retained deficit.......................... (94,962) 698 (e) (94,264)
Accumulated other comprehensive loss...... (24,112) -- (24,112)
-------- ------- --------
Total stockholders' equity.............. 112,702 698 113,400
-------- ------- --------
Total liabilities and stockholders'
equity................................. $935,873 $ 5,561 $941,434
======== ======= ========
29
- ---------------------
(a) Represents deferred financing costs related to the Offering.
(b) Represents payment of accrued interest relating to the early retirement of
our 8% Subordinated Debenture.
(c) Represents income tax payable relating to the extraordinary gain realized
on the early retirement of our 8% Subordinated Debenture.
(d) Details regarding the changes to our long-term debt (excluding current
portion) are as follows:
Total long-term debt (historical)................................ $ 528,646
11% Senior Subordinated Notes Due 2009........................... 162,852
8% Subordinated Debenture........................................ (18,916)
Senior Credit Facility........................................... (138,340)
---------
Pro forma for the Offering....................................... $ 534,242
=========
(e) Represents the extraordinary gain relating to the early retirement of our
8% Subordinated Debenture net of income taxes at a marginal rate of 38.0%.
30
SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA
The following table sets forth selected financial data for our company. The
data for the five fiscal years is derived from our audited financial
statements. The data for the three months ended March 31, 2001 and 2000 is
derived from our unaudited condensed consolidated financial statements. The
table should be read in conjunction with "Management's Discussion and Analysis
of Financial Condition and Results of Operations," our consolidated financial
statements, the related notes and the other financial information included
elsewhere in this prospectus.
Three Months Three Months
Fiscal Year Ended July 31 Ended Ended
-------------------------------------------------- March 31, March 31,
1996 1997 1998 1999 2000 2001 2000
-------- -------- -------- -------- ---------- ------------ ------------
(dollars in thousands)
Statement of Operations
Data:
Net sales.............. $636,852 $689,787 $815,313 $953,706 $1,090,938 $261,663 $276,115
Gross profit........... 122,520 141,254 147,515 182,804 228,766 48,287 61,501
Selling, general and
administrative
expenses.............. 70,572 77,645 76,937 88,795 108,051 28,140 27,552
Amortization of
goodwill and
intangibles........... 3,168 3,154 3,478 5,203 6,043 1,289 1,445
Non-recurring charges.. 8,101 34,500 26,515 -- 35,222 -- --
Operating income....... 40,679 25,955 40,585 88,806 79,450 18,858 32,504
Interest expense....... 27,367 38,774 40,291 45,505 48,766 13,294 11,103
Income (loss) from
continuing
operations............ 5,796 (10,263) (2,187) 28,346 12,418 (1,888) 11,401
Loss from discontinued
operations, net of
tax................... (10,637) (1,682) -- -- -- -- --
Net income (loss)...... (4,841) (14,296) (4,020) 28,346 12,418 (1,888) 11,401
Other Financial Data:
EBITDA(a).............. $ 59,525 $ 50,360 $ 57,226 $112,367 $ 111,907 $ 22,063 40,690
Adjusted EBITDA(b)..... 71,378 89,351 87,559 116,922 147,718 22,992 41,663
Cash provided by (used
in) operating
activities............ (684) 22,537 (11,306) 43,086 69,718 (11,489) 19,204
Cash used in investing
activities............ (54,761) (74,087) (69,267) (73,387) (106,376) (5,937) (68,401)
Cash provided by
financing activities.. 56,490 57,786 79,123 38,048 39,806 8,076 55,661
Depreciation and
amortization.......... 18,846 22,323 17,069 23,561 32,169 8,292 8,573
Capital expenditures... 32,741 31,888 24,190 25,066 38,371 3,458 7,163
EBITDA margin.......... 9.3% 7.3% 7.0% 11.8% 10.3% 8.4% 14.7%
Adjusted EBITDA
margin................ 11.2% 13.0% 10.7% 12.3% 13.5% 8.8% 15.1%
Ratio of Adjusted
EBITDA to interest
expense............... 2.6x 2.3x 2.2x 2.6x 3.0x 1.7x 3.8x
Ratio of total debt to
Adjusted EBITDA....... 4.2x 4.1x 4.5x 3.8x 3.3x NA NA
Ratio of earnings to
fixed charges(c)...... 1.3x -- -- 1.9x 1.6x 1.0x 2.8x
31
July 31
--------------------------------------------- March 31, March 31,
1996 1997 1998 1999 2000 2001 2000
-------- -------- -------- -------- -------- --------- ---------
(dollars in thousands)
Balance Sheet Data:
Working capital........ $113,801 $154,041 $199,460 $242,349 $272,661 $326,024 $299,605
Total assets........... 475,082 570,569 684,997 782,663 889,240 935,873 897,721
Total debt............. 298,796 363,768 395,754 447,527 491,724 536,229 508,702
Total stockholders'
equity (deficit)...... 1,589 (9,797) 84,240 109,520 117,826 112,702 131,582
- --------
(a) EBITDA represents income before extraordinary item plus the sum of interest
expense, income taxes, minority interest in income of subsidiaries, income
(loss) from unconsolidated joint ventures, preferred dividend requirement
of subsidiary, deemed dividend on preferred stock conversion and
depreciation and amortization, plus, in fiscal years 1996 and 1997, loss
from discontinued operations, net of tax. EBITDA for the three months ended
March 31, 2001 was reduced by non-recurring costs of $3.7 million incurred
in connection with our going private transaction. Excluding these costs,
EBITDA would have been $25.7 million. EBITDA should not be construed as a
substitute for income from operations, net income or cash flow from
operating activities prepared in accordance with generally accepted
accounting principles or as an indicator of our operating performance or
liquidity. We have presented EBITDA because it is commonly used by some
investors to analyze a company's ability to service debt. The definition of
EBITDA differs from the definition of EBITDA applicable to the covenants
for the notes and may not be comparable to EBITDA as defined by other
companies.
(b) Adjusted EBITDA represents EBITDA plus non-cash post-retirement benefits
other than pensions plus non-recurring charges. Adjusted EBITDA for the
three months ended March 31, 2001 was reduced by non-recurring costs of
$3.7 million incurred in connection with our going private transaction.
Excluding these costs, Adjusted EBITDA would have been $26.7 million.
Adjusted EBITDA was calculated as follows:
Fiscal Year Ended July 31 Three Months Three Months
----------------------------------------- Ended Ended
1996 1997 1998 1999 2000 March 31, 2001 March 31, 2000
------- ------- ------- -------- -------- -------------- --------------
(dollars in thousands)
EBITDA, as defined...... $59,525 $50,360 $57,226 $112,367 $111,907 $22,063 $40,690
Non-cash post-retirement
benefits other than
pensions............... 3,752 4,491 3,818 4,555 589 929 973
Non-recurring charges... 8,101 34,500 26,515 -- 35,222 -- --
------- ------- ------- -------- -------- ------- -------
Adjusted EBITDA......... $71,378 $89,351 $87,559 $116,922 $147,718 $22,992 $41,663
======= ======= ======= ======== ======== ======= =======
(c) For purposes of computing the ratio of earnings to fixed charges, earnings
consist of income from continuing operations before income taxes, fixed
charges, minority interest in income of subsidiaries and income (loss) from
unconsolidated joint ventures. Fixed charges include preferred dividend
requirement of subsidiary, deemed dividend on preferred stock conversion,
interest expense and the portion of operating rents that is deemed
representative of an interest factor. Our earnings were insufficient to
cover our fixed charges by $13.5 million and $3.9 million during fiscal
years 1997 and 1998, respectively.
32
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with and
is qualified in its entirety by reference to our consolidated financial
statements and accompanying notes. Except for historical information, the
discussions in this section contain forward-looking statements that involve
risks and uncertainties. Future results could differ materially from those
discussed below.
We changed our fiscal year to December 31, effective August 1, 2000. Prior
to August 1, 2000, our fiscal year ended on July 31. Accordingly, our audited
financial statements include a balance sheet at December 31, 2000 and
statements of operations, stockholders' equity and cash flows for the five-
month transition period ended December 31, 2000. For comparative purposes, we
have included unaudited statements of operations and cash flows for the five-
month period ended December 31, 1999.
Overview
We manufacture and remanufacture electrical and powertrain/drivetrain
components for the aftermarket and OEM market and provide core exchange
services. We sell our products principally in North America, Europe, Latin
America and Asia-Pacific to OEMs, warehouse distributors and retail automotive
parts chains.
The aftermarket is highly fragmented and competitive. We believe that
aftermarket suppliers are consolidating. We believe that this consolidation is
occurring, in part, because of higher quality demands for remanufactured
products, which may be more expensive or technically difficult for smaller
remanufacturers to meet. We plan to continue to increase our penetration of the
aftermarket through internal growth and strategic acquisitions.
The demand for components in the OEM market is cyclical. We believe that
opportunities for growth in the OEM market will continue to come primarily
through the introduction of new products and expansion of our global
operations. We believe that our aftermarket and OEM products are complementary
and provide us with a competitive advantage in meeting customer needs and
maintaining the high levels of expertise necessary to compete successfully in
both markets. We believe that the high capability and expertise required to
meet the stringent technology and quality requirements of OEM customers
provides us with a competitive advantage in the development and production of
products for the aftermarket.
The primary components of the cost of goods sold in our products include
component parts, material, labor costs, overhead and the cost of cores.
Although the availability and cost of cores fluctuate based on supply and
demand, our relationships with dealers and other customers have historically
provided us with sufficient access to cores at favorable prices. We believe
that our recent acquisition of M&M Knopf, one of the world's largest automotive
components recovery and exchange companies, will provide us with a key
competitive advantage in the area of core management.
About 13% of our domestic hourly labor force is represented by the UAW. In
June 2000, we signed a new two-year extension to the previous four-year master
agreement with the UAW. Wage and benefit increases under the agreement
generally follow the same pattern as the prior agreement and, as a result, we
will experience higher wage and benefit rates in future periods. Under
provisions of the agreement, we and the UAW developed special programs of
incentives for hourly employees who agree to leave us. The cost of these
programs is included in the non-recurring charge in fiscal year 2000 described
below. We have implemented our strategy of shifting production to focus
factories, which we believe has reduced costs and will continue to reduce costs
as these focus factories continually improve and implement lean manufacturing
concepts.
Since 1994, we have successfully acquired and integrated 15 strategic
businesses and entered into six joint ventures. These acquisitions and joint
ventures have enabled us to broaden our product line, expand our manufacturing
and remanufacturing capability, extend our participation in international
markets and increase
33
our penetration of the retail automotive parts channel. As a result, sales to
our customers other than GM have increased from 41% of our total sales in
fiscal year 1995 to 70% in fiscal year 2000. We have also increased sales
outside of the Class 8 heavy duty truck market from 87% of our total sales in
fiscal year 1995 to 91% in fiscal year 2000.
In fiscal year 2000, we completed the acquisitions of Engine Master, M&M
Knopf and Elmot-DR, Sp z.o.o, which we refer to as Elmot. Results for these
businesses are reflected in our results of operations effective as of their
respective acquisition dates. The acquisitions completed in fiscal year 1999,
including Williams Technologies and Delco Remy Korea, provided a full-year
contribution to our results in fiscal year 2000. Results for M&M Knopf and
Elmot are not reflected in the results for the five-month period ended December
31, 1999.
GM accounted for about 45% of our total OEM net sales in fiscal year 2000.
GM SPO accounted for about 15% of our total aftermarket net sales in fiscal
year 2000. In connection with our separation from GM, GM entered into long-term
contracts to purchase from us 100% of its North American requirements for
automotive starters (other than for Saturn and Geo) and 100% of its U.S. and
Canadian requirements for heavy duty starters and alternators. GM's obligation
to purchase automotive starters from us terminates on August 31, 2008. GM's
obligation to purchase heavy duty starters and alternators from us terminated
on July 31, 2000. GM's commitments to purchase products from us in the future
are subject to those products remaining competitive as to price, technology and
design. See "Business--Customers." We cannot be sure that GM will not develop
alternative sources for components currently produced by us and purchase some
or all of its requirements for starters and alternators from these alternative
sources.
In addition, GM SPO has been designated as an exclusive distributor of a
significant amount of our automotive and as a distributor of our heavy duty
aftermarket products. GM SPO has agreed to provide us with purchasing support,
which enables us to obtain raw materials at competitive prices. Our exclusive
distribution arrangements with GM SPO for our automotive aftermarket products
terminates on July 31, 2009. Our distribution arrangement with GM SPO is
continuously renewable on an annual basis for our heavy duty aftermarket
products.
In May 2000, we completed a plan for the realignment of some of our
manufacturing facilities in the United States, Canada and the United Kingdom. A
one-time charge of $35.2 million was recorded in the fourth quarter of fiscal
year 2000 for the estimated cost of the plan, which included various employee
separation programs and the write-down of some production assets. Cash payments
relative to this charge were $5.0 million in fiscal year 2000 and $16.0 million
in the five months ended December 31, 2000. Payments are expected to
approximate $3.1 million, $2.8 million and $200,000 in calendar years 2001,
2002 and 2003, respectively.
In fiscal year 1998, we developed a plan to restructure our workforce to a
level that should enable it to realize better efficiency. The plan included a
buyout provision for the hourly workforce designed to assist those employees
with their transition from our company. This program was completed in fiscal
year 1999. We incurred a non-recurring charge of $26.5 million as a result of
this action, and we established a reserve in that amount. We reduced this
reserve through cash payments of $10.0 million in fiscal year 1998, $11.6
million in fiscal year 1999 and $3.9 million in fiscal year 2000. We paid an
additional $900,000 in the five months ended December 31, 2000 and $200,000 is
expected to be paid in calendar year 2001.
34
The following table sets forth statements of operations data expressed as a
percentage of sales:
Three Months Ended Five Months Ended Fiscal Year Ended
March 31 December 31 July 31
--------------------- ------------------ -------------------
2001 2000 2000 1999 2000 1999 1998
--------- --------- -------- -------- ----- ----- -----
Net sales................ 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold....... 81.5 77.7 80.2 79.8 79.0 80.8 81.9
--------- --------- -------- -------- ----- ----- -----
Gross profit............. 18.5 22.3 19.8 20.2 21.0 19.2 18.1
Selling, general and ad-
ministrative expenses... 10.8 10.0 10.0 10.2 9.9 9.3 9.4
Amortization of goodwill
and intangibles......... 0.5 0.5 0.6 0.5 0.6 0.6 0.4
Non-recurring charges.... -- -- -- -- 3.2 -- 3.3
--------- --------- -------- -------- ----- ----- -----
Operating income......... 7.2 11.8 9.2 9.5 7.3 9.3 5.0
Interest expense and
other non-operating
items................... (7.0) (4.2) (4.9) (4.4) (4.5) (4.8) (5.0)
--------- --------- -------- -------- ----- ----- -----
Income (loss) before
income taxes (benefit),
minority interest in
income of subsidiaries,
income (loss) from
unconsolidated joint
ventures, preferred
dividend requirement of
subsidiary, deemed
dividend on preferred
stock conversion and
extraordinary item...... 0.2 7.6 4.3 5.1 2.8 4.5 --
Income taxes (benefit)... 0.1 2.9 1.4 1.9 1.1 1.7 --
Minority interest in
income of subsidiaries.. (0.7) (0.6) (0.6) (0.7) (0.6) (0.4) (0.3)
Income (loss) from
unconsolidated joint
ventures................ (0.1) -- (0.1) -- -- 0.6 0.3
Preferred dividend
requirement of
subsidiary.............. -- -- -- -- -- -- (0.1)
Deemed dividend on
preferred stock
conversion.............. -- -- -- -- -- -- (0.2)
--------- --------- -------- -------- ----- ----- -----
Income (loss) before
extraordinary item...... (0.7) 4.1 2.2 2.5 1.1 3.0 (0.3)
Extraordinary item:
Write-off of debt
issuance costs, net of
applicable income tax
benefit............... -- -- -- -- -- -- (0.2)
--------- --------- -------- -------- ----- ----- -----
Net income (loss)........ (0.7)% 4.1% 2.2% 2.5% 1.1% 3.0% (0.5)%
========= ========= ======== ======== ===== ===== =====
Three Months Ended March 31, 2001 Compared to Three Months Ended March 31, 2000
Net Sales
Net sales of $261.7 million declined $14.5 million, or 5.2%, due to lower
demand in the heavy duty and automotive OEM markets ($38.0 million), partially
offset by sales of M&M Knopf and Elmot, which we acquired in 2000, and XL,
which we acquired in February 2001 ($14.7 million) and increased demand in the
electrical and powertrain/drivetrain products aftermarket ($9.1 million).
Gross Profit
Gross profit of $48.3 million was down $13.2 million, or 21.5%, and as a
percentage of net sales was 18.5% compared with 22.3% in the first quarter of
2000. These declines were due to lower volume and product mix in the heavy duty
and automotive OEM markets ($12.1 million) and lower product mix and higher
warranty costs in the aftermarket businesses ($1.6 million), partially offset
by the effect of acquisitions ($1.9 million).
Selling, General and Administrative Expenses
Selling, general and administrative (SG&A) expenses increased $0.6 million,
or 2.1%, and as a percentage of net sales were 10.8% compared with 10.0% in the
first quarter of 2000. Control of spending throughout the Company was largely
offset by increases associated with acquisitions.
35
Operating Income
Operating income of $18.9 million declined $13.6 million, or 42.0%, and as a
percentage of sales was 7.2% versus 11.8% in the first quarter of 2000. This
decline reflected the sales, gross profit and SG&A issues discussed above.
Interest Expense
Interest expense of $13.3 million in the first quarter of 2001 compares with
$11.1 million in the comparable period of 2000. This increase was due to higher
average levels of debt to fund acquisitions ($0.9 million) and operations ($0.9
million), rate increases by the Federal Reserve ($0.2 million) and interest
rate swaps ($0.2 million).
Other Non-Operating Expense
Non-operating expense in the first quarter of 2001 consists primarily of
one-time expenses associated with the merger and tender offer transactions
($3.7) and realized losses on non-deliverable currency forward contracts
entered into as a hedge against fluctuations between the South Korean Won and
U.S. dollar ($1.7 million).
Income Taxes
Our consolidated effective income tax rate was approximately 32% in the
first quarter of 2001 compared with approximately 37% in the first quarter of
2000. This reduction reflects the implementation of various tax planning
initiatives and increased utilization of certain foreign subsidiaries.
Five Months Ended December 31, 2000 Compared to Five Months Ended December 31,
1999
Net Sales
Net sales of $443.1 million declined $3.7 million, or 0.8%, due to lower
demand from customers in the heavy duty OEM market ($23.6 million), reduced
orders from GM and other customers in the OEM automotive products market ($4.3
million) and lower demand for powertrain/drivetrain products in the aftermarket
($3.1 million). These factors were mostly offset by sales of M&M Knopf ($23.9
million), which we acquired in March 2000, and increased volume in the
electrical products aftermarket ($3.4 million).
Gross Profit
Gross profit of $87.6 million declined $2.9 million, or 3.2%, and as a
percentage of sales declined to 19.8% in the five-month period of 2000 from
20.2% in the comparable period of 1999. The decline in gross profit was due to
lower volume and product mix in the heavy duty OEM market ($9.4 million), lower
volume in the powertrain/drivetrain aftermarket ($1.8 million) and lower volume
and product mix in the OEM automotive market ($1.1 million). Cost improvements,
including realization of cost savings associated with the June 2000
manufacturing realignment, mitigated these volume and product mix declines.
Increased volume in the electrical aftermarket ($5.3 million) and the
acquisition of M&M Knopf ($4.1 million) favorably impacted gross profit. The
decline in gross profit as a percentage of sales reflects the effect of lower
volume on fixed manufacturing costs and unfavorable product mix, largely offset
by cost improvements throughout our company.
36
Selling, General and Administrative Expenses
SG&A expenses declined $1.3 million, or 2.9%, and as a percentage of sales,
improved from 10.2% in the five-month period of 1999 to 10.0% in the comparable
period of 2000. These improvements were driven primarily by cost reductions
associated with the June 2000 realignment that were partially offset by
increased costs associated with the acquisition of M&M Knopf.
Operating Income
Operating income of $40.8 million declined $1.7 million, or 4.1%, from $42.5
million in the five-month period of 1999. This decrease reflects the sales
volume, product mix and cost issues discussed above.
Interest Expense
Interest expense increased $2.1 million, or 10.9%, in the five months ended
December 31, 2000. This increase was due primarily to higher levels of debt we
incurred to finance acquisitions ($2.1 million) and higher rates reflecting
increases by the Federal Reserve.
Non-operating Income (Expense)
Non-operating income in the five-month period of 2000 included a $0.6
million business dissolution fee from a customer and a foreign currency
transaction gain realized by our South Korean subsidiary on the settlement of
U.S. dollar denominated accounts receivable which was partially offset by
realized losses on non-deliverable forward contracts on the South Korean Won
entered into as a hedge against these transactions. The net foreign currency
transaction gain was approximately $0.5 million. These items were offset by
one-time expenses associated with the merger and tender offer transactions of
approximately $1.1 million.
Income Taxes
Our consolidated effective income tax rate of 32.0% in the five-month period
ended December 31, 2000 compares with 37.9% in the comparable period of 1999.
This decrease reflects implementation of various tax planning initiatives and
acquisitions of foreign subsidiaries with lower rates.
Net Income
Net income of $9.7 million, or $0.37 per share on a diluted basis, compares
with $11.2 million, or $0.43 per share on a diluted basis. This decline
reflects lower sales volume, partially offset by cost improvements, non-
operating income and the lower effective income tax rate.
Fiscal Year Ended July 31, 2000 Compared to Fiscal Year Ended July 31, 1999
Net Sales
Net sales of $1,090.9 million increased $137.2 million, or 14.4%, due
primarily to the effect of fiscal year 2000 and 1999 acquisitions ($93.1
million) and increased demand for electrical and powertrain/drivetrain products
in the aftermarket ($26.5 million) and automotive products in the OEM market
($17.6 million). Sales in the heavy duty OEM market were down marginally due to
lower customer production. Price increases did not have a significant effect on
year-over-year sales as we continued to face price pressures in most of our
markets.
Gross Profit
Gross profit of $228.8 million increased $46.0 million, or 25.1%, and as a
percentage of sales improved from 19.2% to 21.0%. The increase in gross profit
was due primarily to acquisitions ($30.7 million) and sales growth in the
electrical aftermarket ($13.6 million) and automotive OEM market ($7.0
million), partially offset by lower
37
demand and margins in the heavy duty OEM market ($4.8 million). The improvement
in gross profit as a percentage of sales was due primarily to the integration
of strategic acquisitions, productivity improvements realized from lean
manufacturing initiatives and the leveraging of higher production volume on
fixed costs.
Selling, General and Administrative Expenses
SG&A expenses increased $19.3 million, or 21.7%, and as a percentage of net
sales, were 9.9% in fiscal year 2000 compared with 9.3% in fiscal year 1999.
These increases were the result of acquisitions and costs related to
implementation of enterprise-wide systems.
Operating Income
Operating income of $79.5 million declined $9.4 million, or 10.5%, from
$88.8 million in fiscal year 1999. Excluding the effect of the non-recurring
charge of $35.2 million in fiscal year 2000, operating income increased $25.9
million, or 29.1%, and as a percentage of sales improved from 9.3% in fiscal
year 1999 to 10.5% in fiscal year 2000. This increase reflects the sales
growth, gross margin improvement and SG&A expense issues discussed above.
Interest Expense
Interest expense increased $3.3 million, or 7.2%, in fiscal year 2000. This
increase was due primarily to higher average levels of debt incurred to finance
acquisitions ($2.7 million) and higher rates reflecting increases by the
Federal Reserve.
Income Taxes
Our consolidated effective income tax rate of 37.0% in fiscal year 2000
compares with 38.0% reported in fiscal year 1999. This decrease reflects
implementation of various tax planning initiatives and acquisitions of foreign
subsidiaries with lower rates. Foreign subsidiaries should continue to
favorably impact the effective rate in future years.
Minority Interest in Income of Subsidiaries
Minority interests' share of earnings of our consolidated subsidiaries was
$6.7 million in fiscal year 2000 compared with $3.9 million in fiscal year
1999. This increase reflects the consolidation of Delco Remy Korea effective in
the fourth quarter of fiscal year 1999.
Income (Loss) from Unconsolidated Joint Ventures
The loss of $0.4 million in fiscal year 2000 compares with income of $5.4
million in fiscal year 1999. This change reflects the consolidation of Delco
Remy Korea, which was previously accounted for under the equity method.
Net Income
Net income of $12.4 million, or $0.48 per share on a diluted basis, compares
with $28.3 million, or $1.09 per share on a diluted basis. Excluding the after-
tax effect of the non-recurring charges, net income of $34.6 million, or $1.33
per share, increased 22.1% and 22.0%, respectively.
Fiscal Year Ended July 31, 1999 Compared to Fiscal Year Ended July 31, 1998
Net Sales
Net sales of $953.7 million increased $138.4 million, or 17.0%, due
primarily to increased demand for both automotive and heavy duty electrical
products in the OEM market ($64.8 million), the effect of the fiscal
38
year 1999 and 1998 acquisitions ($61.1 million) and increased demand for
electrical and powertrain/drivetrain products in the aftermarket ($12.5
million). Price increases did not have a significant effect on year-over-year
sales. A prolonged strike by GM reduced fiscal year 1998 sales an estimated
$22.3 million.
Gross Profit
Gross profit of $182.8 million increased $35.3 million, or 23.9%, and as a
percentage of sales improved from 18.1% in fiscal year 1998 to 19.2% in fiscal
year 1999. The increase in gross profit dollars was due primarily to
acquisitions in fiscal years 1999 and 1998 ($15.7 million) and sales growth in
the aftermarket ($15.5 million) and OEM market ($4.1 million) (including the
effect of the GM strike in fiscal year 1998). The improvement in gross profit
as a percentage of sales reflects the realization of cost efficiencies
generated by the OEM restructuring, including successful integration of the new
focus factories, and the effect of certain aftermarket and foreign acquisitions
which generate higher gross profit percentages.
Selling, General and Administrative Expenses
SG&A expenses increased $11.9 million, or 15.4%, and as a percentage of net
sales were 9.3% in fiscal year 1999 compared with 9.4% in fiscal year 1998. The
cost structure of certain acquisitions completed in fiscal years 1999 and 1998
partially offset sales growth and effective control of costs.
Operating Income
Operating income of $88.8 million in fiscal year 1999 compares with $40.6
million in fiscal year 1998. Excluding the effect of the non-recurring charge
in fiscal year 1998, operating income increased $21.7 million, or 32.3%, and as
a percentage of sales improved from 8.2% in fiscal year 1998 to 9.3% in fiscal
year 1999. This increase reflects the sales growth, profitability improvements
and cost control items discussed above. The GM strike reduced operating income
by an estimated $8.6 million in fiscal year 1998.
Interest Expense
Interest expense increased $5.2 million, or 12.9%, in fiscal year 1999. This
increase was due primarily to higher average levels of debt incurred to finance
acquisitions. Operations generated sufficient cash to otherwise reduce
utilization of our senior credit facility. In addition, our overall average
interest rate declined year-over-year.
Income Taxes
Our consolidated effective income tax rate of 38.0% in fiscal year 1999
compares with 38.8% reported in fiscal year 1998. This decrease reflects
implementation of various tax planning initiatives.
Income From Unconsolidated Joint Ventures
Our share of the earnings of our unconsolidated joint ventures of $5.4
million in fiscal year 1999 compares with $2.6 million in fiscal year 1998. The
increase was primarily attributable to Delco Remy Korea.
Net Income (Loss)
As a result of the items discussed above, net income of $28.3 million in
fiscal year 1999 compares with the net loss of $4.0 million in fiscal year
1998. Excluding the after-tax effect of the non-recurring charges, net income
was $12.2 million in fiscal year 1998.
39
Liquidity and Capital Resources
Our 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. Cash interest payments
are expected to approximate $55.0 million in calendar year 2001. Long-term
liquidity requirements include principal payments of long-term debt and the
funding of acquisitions. Note 6 to our consolidated financial statement
presents our principal payments on long-term debt and capital lease
obligations. Our principal sources of cash to fund our short-term liquidity
needs consist of cash generated by operations and borrowings under our senior
credit facility. At March 31, 2001, borrowings under our senior credit facility
were $193.4 million, leaving $94.7 million available under the $300 million
facility, net of lines of credit. At December 31, 2000, borrowings under the
senior credit facility were $182.4 million, leaving $105.7 million available
under the $300 million facility, net of lines of credit.
In connection with our separation from GM, one of our subsidiaries issued a
contingent purchase price note to GM payable beginning in 2004. The amount of
the payment will be based upon a percentage of our average earnings over the
three-year period ending December 31, 2003 in excess of certain imputed
earnings. It is not currently possible to estimate the amount of payments, if
any, payable under this note. See "Description of Other Indebtedness--GM
Contingent Purchase Price Note." We will also be required to make additional
payments in connection with our acquisitions of M&M Knopf, Delco Remy Mexico,
Delco Remy Korea and AMT. We expect that the aggregate amount of these
additional payments will be in the range of $15 million to $40 million, payable
over about four years. We granted put/call options in connection with the
acquisitions of World Wide Automotive and Power Investments that became
exercisable in February 2001 for World Wide Automotive and March 2001 for Power
Investments. The exercise prices that we would be required to pay upon exercise
of the put options, which are based on earnings formulas, are currently
estimated to be about $26 million in total for the two acquisitions. The
payments will be added to the goodwill recorded for each acquisition and
amortized over our remaining useful life.
Cash used in operating activities in the first quarter ended March 31, 2001
was $11.5 million compared with cash provided of $19.2 million in the first
quarter of 2000. Accounts receivable increased $15.4 million in the first
quarter of 2001 due primarily to XL's first quarter sales, sales of previously
consigned inventory to certain aftermarket customers and timing of payments
from OE customers. The $13.1 million decrease in the first quarter of 2000
primarily reflected one-time accelerated payments from certain customers. The
$16.6 million increase in inventory in the first quarter of 2000 was due
primarily to an increase in core returns from customers. Accounts payable
increased $7.2 million in the first quarter of 2000 due primarily to changes in
terms with certain suppliers.
Acquisitions included XL in the first quarter of 2001 and M&M Knopf in 2000.
The higher level of capital expenditures in 2000 was due to enterprise-wide
system implementations and equipment supporting new products and customers.
Net borrowings under our revolving line of credit and other debt of $8.8
million was $46.8 million below the prior year's first quarter due to lower
expenditures on acquisitions and capital, partially offset by cash used in
operating activities.
Cash used in operating activities during the five months ended December 31,
2000 of $15.4 million reflects cash generated from earnings adjusted for non-
cash items offset by increased working capital (primarily inventory) and cash
payments relative to the manufacturing realignment. The inventory increase was
due primarily to higher average return rates on cores and lower customer
demand.
Capital expenditures of $11.8 million during the transition period were for
production equipment, tooling and enterprise-wide systems.
Cash provided by financing activities was generated entirely from our senior
credit facility.
40
Cash provided by operating activities of $69.7 million in fiscal year 2000
compares with $43.1 million in fiscal year 1999. This improvement was due
primarily to increased earnings excluding the non-recurring charge and non-
cash items. Earnings growth of $6.3 million excluding the non-recurring charge
included the results of Delco Remy Korea, which we reported as an
unconsolidated joint venture in fiscal year 1999, a $8.6 million increase in
depreciation and amortization expense, a $2.8 million increase in minority
interest and a $5.8 million decline in earnings of joint ventures. Excluding
the amounts recorded from acquisitions, net working capital increased $19.3
million in fiscal year 2000 compared to a $6.1 million increase in fiscal year
1999.
Accounts receivable increased $1.6 million due primarily to very strong
shipments in the fourth quarter. Collections improved overall in fiscal year
2000. The $4.6 million decline in fiscal year 1999 was due primarily to strong
fourth quarter collections. Inventories increased $18.2 million in fiscal year
2000 due primarily to delayed product pull from aftermarket customers. The
$17.7 million increase in fiscal year 1999 reflected support for sales growth
in the electrical aftermarket. Accounts payable increased $15.8 million in
fiscal year 2000 and $13.6 million in fiscal year 1999. The $15.4 million
increase in other current assets in fiscal year 2000 reflects non-cash charges
to the reserve for non-recurring items and decreases in other accrued
expenses. The decline in other non-current assets and liabilities of $12.2
million in fiscal year 2000 was due primarily to the net change in non-current
deferred income taxes.
Cash used in investing activities was $106.4 million in fiscal year 2000
compared with $73.4 million in fiscal year 1999. Acquisitions in fiscal year
2000 included M&M Knopf, Engine Master and Elmot, all of which we funded with
proceeds from the senior credit facility. Capital expenditures, consisting
primarily of production equipment and tooling, were $38.4 million in fiscal
year 2000 and $25.1 million in fiscal year 1999. This increase reflects
implementation of enterprise-wide systems and projects to facilitate the
global manufacturing realignment.
Cash provided by financing activities in fiscal year 2000 and fiscal year
1999 were generated entirely from our senior credit facility. In fiscal year
2000, we made a $1.2 million cash distribution to the minority stockholders of
Delco Remy Korea.
Instruments governing our indebtedness restrict the ability of our
subsidiaries to make distributions to us.
We believe that cash generated from operations, together with the amounts
available under the senior credit facility, will be adequate to meet our debt
service requirements, capital expenditures and working capital needs for at
least the next 12 months, although no assurance can be given. Our future
operating performance and ability to extend or refinance our indebtedness will
be dependent on future economic conditions and financial, business and other
factors that are beyond our control.
Seasonality
Our business is seasonal, as our major OEM customers historically have one-
or two-week operations shutdowns each July. In response, we typically shut
down our 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. Our second and fourth quarter results in the
fiscal years ended July 31, 2000, 1999 and 1998, and the five-month periods
ended December 31, 2000 and 1999 reflect the effects of these shutdowns. Refer
to Note 17 to our consolidated financial statements, which pertains to
quarterly (unaudited) financial information. As a result of the change in our
fiscal year, in the future these shutdowns will affect our third and fourth
quarter results.
Effects of Inflation
We believe that the relatively moderate inflation over the last few years
has not had a significant impact on our revenues or profitability and that we
have been able to offset the effects of inflation by increasing prices or by
realizing improvements in operating efficiency. We have provisions in many of
our contracts that provide for the pass through of fluctuations in the prices
of certain raw materials, such as copper and aluminum.
41
Foreign Sales
We derived about 22.8% of our net sales in the quarter ended March 31, 2001,
about 21.3% in the five-month period ended December 31, 2000 and about 22.3%,
21.3%, and 23.9% of our fiscal year 2000, 1999 and 1998 net sales,
respectively, from sales made to customers in foreign countries. Because of
these foreign sales, our 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.
Accounting Pronouncements
For a discussion of pending accounting pronouncements that may affect us,
see Note 2 to our consolidated financial statements.
Euro Conversion
In January 1999, 11 European nations adopted a common currency, the euro,
and formed the European Economic and Monetary Union, or EMU. For a three-year
transition period, both the euro and individual participants' currencies will
remain in circulation. After July 1, 2002, at the latest, the euro will be the
sole legal tender for EMU countries. The adoption of the euro will affect a
multitude of financial systems and business applications as the commerce of
these nations will be transacted in the euro and the existing national
currency. We are currently addressing these issues and their potential effect
on information systems, currency exchange rate risk, taxation, contracts,
competition and pricing. Plans will be developed and implemented which are
expected to result in compliance with all laws and regulations. However, we
cannot be certain that our plans will be successfully implemented or that
external factors will not have an adverse effect on our operations. Any costs
of compliance associated with the adoption of the euro will be expensed as
incurred and we do not expect these costs to be material to our results of
operations, financial condition or liquidity.
Quantitative and Qualitative Disclosures About Market Risk
In the normal course of business, our operations are exposed to continuing
fluctuations in foreign currency values, interest rates and commodity prices
that can affect the cost of operating, investing and financing. Accordingly, we
address a portion of these risks through a controlled program of risk
management that includes the use of derivative financial instruments. Our
objective is to reduce earnings and cash flow volatility associated with these
fluctuations. Our derivative activities, all of which are for purposes other
than trading, are initiated within the guidelines of established policies and
procedures designed to manage market risk. We do not enter into any derivative
transactions for speculative purposes.
Our primary interest rate risk exposure results from changes in short-term
U.S. dollar interest rates. In an effort to manage our interest rate exposures,
we strive to achieve an acceptable balance between fixed and variable rate debt
positions. In order to limit the effect of interest rate changes on earnings
and cash flows, we maintain a significant percentage of fixed rate debt (83% at
December 31, 2000). In November 2000, we entered into an interest rate swap on
a notional amount of $100.0 million of the senior credit facility. Under this
transaction, we swapped a variable rate for a fixed rate. The $100.0 million
notional amount is included in the fixed rate debt for purposes of analyzing a
change in market interest rates. Accordingly, we are exposed to changes in U.S.
interest rates only on the senior credit facility. A 100 basis point increase
in U.S. market interest rates on the amounts outstanding at December 31, 2000
under the senior credit facility would result in an increase in our annual
interest expense of about $800,000.
Our foreign currency risk exposure results from fluctuating currency
exchange rates, primarily the strengthening of the U S. dollar against the
South Korean Won and specific European currencies. We face transactional
currency exposures that arise when we or our foreign subsidiaries enter into
transactions, generally on an intercompany basis, denominated in currencies
other than local currency. We also face currency exposure that arises from
translating the results of our global operations to the U.S. dollar at exchange
rates that have fluctuated from the beginning of the period. We manage our
exposure to variability in foreign
42
currency exchange rates primarily through the use of natural hedges, whereby
funding obligations and assets are both denominated in the local currency. From
time to time, we enter into exchange agreements to manage our exposure arising
from fluctuating exchange rates related to specific transactions. A
hypothetical 10% strengthening in the exchange rates (primarily the South
Korean Won against the U.S. dollar) over a one-year period would decrease
earnings by about $3.6 million. A hypothetical 10% weakening in exchange rates
would reduce the carrying value of our net investment in our foreign
subsidiaries at December 31, 2000 by approximately $2.4 million.
In order to reduce the uncertainty of price movements relating to the
purchase of specific commodities, primarily copper, we enter into forward
purchase contracts and various supply and purchase agreements with our
customers and vendors. Based on our overall commodity hedge exposure at
December 31, 2000 and July 31, 2000 and 1999, a hypothetical 10% change in
market rates applied to the fair value of the instruments would not have a
material effect on our earnings, cash flows or financial position in the five-
month transition period ended December 31, 2000 or in fiscal years 2000 and
1999.
43
BUSINESS
We are a leading global manufacturer and remanufacturer of original
equipment and aftermarket electrical and powertrain/drivetrain components for
automobiles, light trucks, medium and heavy duty trucks and other heavy duty
vehicles. We sell our products worldwide primarily under the "Delco Remy" brand
name, first used in 1918, as well as other widely recognized private label
brand names. Our products include starter motors, alternators, engines,
transmissions, torque converters and fuel systems. In calendar year 2000, about
50% of our sales were to the OEM market and about 50% were to the aftermarket.
We sell our products principally in North America, Europe, Latin America and
Asia-Pacific.
We believe that we are the largest producer in North America of OEM starters
for automobiles and light trucks and starters and alternators for medium and
heavy duty vehicles. We believe we are also the largest producer in North
America of remanufactured starters and alternators for the aftermarket. We
provide exchange services for cores for third party aftermarket
remanufacturers. Our largest customers include GM, Navistar, Freightliner,
Caterpillar, Advance Auto Parts, PACCAR, Delphi, Ford, AutoZone, Cummins, Mack,
Volvo Trucks, O'Reilly and Pep Boys.
Since 1994, we have successfully acquired and integrated 15 strategic
businesses and entered into six joint ventures. These acquisitions and joint
ventures have enabled us to broaden our product line, expand our manufacturing
and remanufacturing capability, extend our participation in international
markets and increase our penetration of the retail automotive parts channel. As
a result, sales to our customers other than GM have increased from 41% of our
total sales in fiscal year 1995 to 70% in fiscal year 2000. We have also
increased sales outside of the Class 8 heavy duty truck market from 87% of our
total sales in fiscal year 1995 to 91% in fiscal year 2000.
Industry Overview
In general, our business is influenced by the underlying trends of the
automotive industry. However, we believe that our focus on expanding our
remanufacturing capabilities heightens the importance of the aftermarket and
reduces our dependence on the cyclical OEM business.
Aftermarket
The aftermarket consists of the production and sale of both new and
remanufactured parts used in the maintenance and repair of automobiles, trucks
and other vehicles. Remanufacturing is a process through which cores are
disassembled into their sub-components, cleaned, inspected, tested, combined
with new subcomponents and reassembled into finished products. A remanufactured
product can be produced at a lower cost than a comparable individually repaired
unit due to effective salvage technology methods, high volume precision
manufacturing techniques and rigorous inspection and testing procedures. The
ability to procure cores is critical to the remanufacturing process.
Aftermarket parts are supplied principally through three distribution
channels:
. car and truck dealers that obtain parts either through an OEM parts
organization (like GM SPO, Ford Parts & Service, Chrysler Mopar and
Navistar) or directly from an OEM-authorized remanufacturer;
. retail automotive parts chains and mass merchandisers; and
. wholesale distributors and jobbers who supply independent service
stations, specialty and general repair shops, farm equipment dealers, car
dealers and small retailers.
We believe that the aftermarket and our opportunities in the aftermarket
have been, and will continue to be, impacted by the following trends:
. the increasing number and average age of vehicles in use and the number
of miles driven annually;
44
. the increasing demands of customers that their aftermarket suppliers meet
high quality and service standards;
. the increasing use of remanufactured parts for OEM warranty and extended
service programs, especially on larger, more complex components, like
engines, transmissions and fuel system components;
. the growth and consolidation of large retail automotive parts chains and
warehouse distributors requiring larger, nationally capable suppliers;
. the increasing engine output and durability demands related to the high
temperatures at which engines operate;
. the increased high-technology content of replacement components which
requires more factory manufacturing compared with in-vehicle repair; and
. the increasing product lives of automotive parts.
The use of remanufactured components for warranty and extended service
repairs has increased in recent years as OEMs have offered extended warranty
and extended service coverage and dealers have begun to provide extended
service plans and warranties on used vehicles. OEMs have sought to reduce
warranty and extended service costs by using remanufactured components, which
generally offer the same degree of quality and reliability as OEM products at a
lower cost. This trend has also resulted in independent aftermarket customers
requiring higher quality standards for remanufactured products.
Recently, large retail automotive parts chains offering a broad range of new
and remanufactured products have experienced rapid growth at the expense of
small, independent retail and wholesale stores. We have significantly grown our
sales to these large retail channels and believe that further increasing our
sales to retail chains offers a significant opportunity for growth. Retail
chains generally prefer to deal with large, national suppliers capable of
meeting their cost, quality, volume and service requirements.
OEM Markets
The OEM market consists of the production and sale of new component parts
for use in the manufacture of new vehicles. The OEM market includes two major
classes of customers:
. automobile and light truck manufacturers; and
. medium and heavy duty truck and engine manufacturers and other heavy duty
vehicle manufacturers.
Recent fundamental changes in the OEMs' sourcing strategies have impacted
the OEM market. OEMs are consolidating their supplier base, demanding that
their suppliers provide technologically advanced product lines, greater systems
engineering support and management capabilities, just-in-time sequenced
delivery and lower system costs. As a result, each OEM has selected its own
preferred suppliers. OEMs are increasingly requiring that their preferred
suppliers establish global production capabilities to meet their needs as they
expand internationally and increase platform standardization across multiple
markets. As OEM global alliances increase, global pricing for automotive
components is becoming the norm.
OEMs continue to outsource component manufacturing of non-strategic parts.
Outsourcing has taken place in response to competitive pressures on OEMs to
improve quality and reduce capital outlays, production costs, overhead and
inventory levels. In addition, OEMs are increasingly purchasing integrated
systems from suppliers who provide the design, engineering, manufacturing and
project management support for a complete package of integrated products. By
purchasing complete systems, OEMs are able to shift design, engineering and
product management to fewer and more capable suppliers. Integrated systems
suppliers are generally able to design, manufacture and deliver components at a
lower cost than the OEMs due to:
. their lower labor costs and other manufacturing efficiencies;
45
. their ability to spread research and development and engineering costs
over products provided to multiple OEMs; and
. other economies of scale inherent in high volume manufacturing such as
the ability to automate and leverage global purchasing capabilities.
Products
Our product line includes a diverse range of manufactured and remanufactured
products for the aftermarket and OEM markets under the "Delco Remy" brand name
or under a private-label brand name specified by the OEM or the aftermarket
customer. We also provide core acquisition services for third party aftermarket
remanufacturers as well as our own subsidiaries. The product line is classified
into two product categories: Electrical Systems and Powertrain/Drivetrain.
Third-party sales for core acquisition services are included in the "Other"
category.
The following table sets forth the approximate composition by product
category of our revenues for the five months ended December 31, 2000 and the
last three fiscal years:
Fiscal Year Ended
July 31
------------------- Five Months Ended
Product Categories 1998 1999 2000 December 31, 2000
------------------ ----- ----- ----- -----------------
Electrical systems................ 85.5% 83.2% 78.7% 76.2%
Powertrain/drivetrain............. 13.5 15.7 17.8 17.5
Other............................. 1.0 1.1 3.5 6.3
----- ----- ----- -----
Total............................. 100.0% 100.0% 100.0% 100.0%
===== ===== ===== =====
See the consolidated financial statements and the related notes for a more
detailed presentation of revenues from external customers, a breakdown of
foreign revenues, measure of profit (loss) and total assets.
Products within the electrical systems category include manufactured and
remanufactured starters and alternators. The starters are used in all
automobiles and trucks manufactured by GM in North America (except for its
Saturn and Geo divisions). We manufacture a full line of heavy duty starters
and alternators for use primarily with large diesel engines. Our starters and
alternators are specified as part of the standard electrical system by most
North American heavy duty truck and engine manufacturers. We believe that we
are the largest manufacturer and remanufacturer in North America of (1)
starters for automobiles and light trucks (including sport-utility vehicles,
minivans and pickup trucks) and (2) starters and alternators for medium and
heavy duty vehicles. With the acquisition of M&M Knopf in March 2000, we
expanded our role as a provider of core acquisition services.
Products within the powertrain/drivetrain category include gas, diesel and
marine engines, fuel injectors, injection pumps and turbo chargers (fuel
systems), transmissions, torque converters, water pumps, rack and pinions,
power steering pumps, gears and clutches and traction control systems.
Customers
Our principal customers include OEM automotive and heavy duty manufacturers,
OEM dealer networks, leading automotive parts retail chains and warehouse
distributors. Our major customers include GM, Navistar, Freightliner,
Caterpillar, Advance Auto Parts, PACCAR, Delphi, Ford, AutoZone, Cummins, Mack,
Volvo Trucks, O'Reilly and Pep Boys.
We have long-term agreements, with terms typically ranging from three to
five years, to supply heavy duty starters and alternators to GM and PACCAR.
Total sales to GM and related affiliates accounted for about 28.1%, of which
about 21.1% are OEM sales, and sales to Navistar accounted for about 12.1% of
our sales in
46
the five months ended December 31, 2000. No other customer accounted for more
than 10.0% of consolidated net sales.
In 1994, GM entered into long-term contracts with us to purchase 100% of its
North American requirements for automotive starters (other than for Saturn and
Geo) and 100% of its U.S. and Canadian requirements for heavy duty starters and
alternators, at fixed prices which are scheduled to decline over the life of
the contracts. GM's obligations to purchase our automotive starters and heavy
duty starters and alternators under these agreements are subject to those
products remaining competitive as to price, technology and design. In fiscal
year 1999, we and GM extended the terms of these agreements for us to supply
automotive starting motors for existing and planned new engines introduced to
support GM North American Operations to August 31, 2008. The amendment also
provides that Delco Remy America and its international operations will be the
supplier of starting motors for the life of production of those engines. The
contracts relating to heavy duty products terminated on July 31, 2000.
In 1994, GM also entered into a long-term contract with us to distribute
exclusively our automotive aftermarket products. Prices to GM under this
agreement are driven by the market. This agreement terminates on July 31, 2009.
Until July 1998, we had a long-term contract with GM to distribute
exclusively our heavy duty aftermarket products. We and GM have entered into an
amendment to that agreement which is continuously renewable on an annual basis
for non-exclusive distribution of heavy duty products to the independent
aftermarket. As part of this agreement, heavy duty replacement parts will
continue to be supplied to the independent aftermarket through existing AC
Delco distributors and newly appointed Delco Remy distributors. As a result of
this agreement, we are developing a distribution network of independent
warehouse distributors to expand the sales volume previously covered by the
expired agreement for heavy duty aftermarket product distribution. We expect
that we will be able to expand our market share through this more direct
channel of distribution. Although we expect that our automotive and heavy duty
products will remain competitive throughout the term of the agreements with GM,
we cannot be sure that GM will not develop alternative sources for those
components and purchase some or all of its requirements from these sources
prior to or following the expiration of the agreements.
We employ our own direct sales force which develops and maintains sales
relationships with major North American truck fleet operators as well as our
OEM customers worldwide. These sales efforts are supplemented by a network of
field service engineers and product service engineers.
Distribution
Our products are distributed to our customers primarily by common carrier.
Competition
The automotive parts market is highly competitive. Competition is based
primarily on quality of products, service, delivery, technical support and
price. Most OEM manufacturers and aftermarket distributors source parts from
one or two suppliers. We compete with a number of companies who supply
automobile manufacturers throughout the world. In the North American automotive
market, our principal competitors include Denso, Valeo, Mitsubishi, Bosch,
Visteon, Rayloc, Units Parts and Motorcar Parts & Accessories.
Business Strategy
Exploit Leading Market Share in Fragmented Aftermarket
We participate in a portion of the aftermarket that is large and highly
fragmented. Most participants are small, regional companies offering relatively
narrow product lines. A key element of our growth strategy is to
47
capitalize on our position as a consolidator. We believe that we are the
largest manufacturer and remanufacturer of aftermarket starters and alternators
in North America and in Europe. However, we continue to have significant growth
because our sales of these products in North America account for less than 15%
of this $2.2 billion market and our sales of these products in Europe account
for less than 10% of what we believe to be a $1 billion market. Today,
remanufacturing is less prevalent in Europe than in the U.S. We believe we are
well-positioned to capitalize on the increasing trend towards remanufacturing
from repair. Consolidation of the aftermarket is occurring as many competitors
are finding it difficult to meet the increasing quality, cost and service
demands of customers, who, in turn, are seeking to reduce the number of their
suppliers. With our OEM capabilities, remanufacturing expertise, full product
line, access to cores and ability to capitalize on economies of scale, we are
well positioned to benefit from the consolidation of the aftermarket.
Strengthen Customer Relationships
We intend to increase our sales to new and existing customers by
capitalizing on our balanced coverage of the key aftermarket distribution
channels and our competitive strengths as an OEM supplier. We plan to
strengthen our customer relationships by:
. meeting the increasing demands of OEMs and their dealer networks for
high-quality remanufactured units, which enable them to reduce warranty
and extended service costs;
. growing sales of existing and new product lines to OEM dealer networks as
dealers continue to capture an increasing percentage of vehicle repairs
due primarily to longer warranty and service programs and growing vehicle
complexity;
. continuing to expand our product offerings; and
. capitalizing on the expansion of the national automotive retail parts
chains and warehouse distributors that are our customers.
Increase Global Presence
OEMs are increasingly requiring suppliers to provide components on a global
basis as vehicle platforms are standardized across geographic markets.
Additionally, the Western European market for automotive components is expected
to grow at a greater rate than the North American market over the next few
years due to higher levels of OEM outsourcing. The emerging markets also should
benefit from long-term growth as demand for automotive vehicles in these
markets is expected to increase at a compounded annual rate of almost 7% over
the next five years. Currently, our manufacturing base includes a presence in
nine countries on four continents. We plan to seek out collaborative
opportunities in order to expand our OEM starter and alternator product lines
and our international marketing and distribution capability. We believe that
continued global expansion will enable us to continue to grow to meet these
demands.
Increase Focus on Technologically Advanced Products
We continue to produce technologically advanced products by regularly
updating and enhancing our product line. These products help us to compete
successfully in the global marketplace. Since 1994, we have completed the
introduction of a new family of gear reduction starters that replaced all
straight drive starters in GM automobiles and light duty trucks by the 1998
model year and introduced several longer-life heavy duty alternators. We are
also in various stages of development on a number of new products including:
. an integrated starter and alternator product scheduled for production in
GM vehicles beginning in 2004;
. a small gear reduction starter specifically designed for application on
world automobile platforms; and
. high-technology products in the distributed generation and hybrid
electric vehicle markets.
48
Patents, Trademarks and Licenses
Under a Trademark Agreement between us and GM, GM has granted us an
exclusive license to use the "Delco Remy" trademark on and in connection with
automotive starters and heavy duty starters and alternators until July 31,
2004, extendable indefinitely at our option upon payment of a fixed $100,000
annual licensing fee to GM. We have also been granted a perpetual, royalty-free
license to use the "Remy" trademark. The "Delco Remy" and "Remy" trademarks are
registered in the United States, Canada and Mexico and in most major markets
worldwide. GM has agreed with us that, upon our request, GM will register the
trademarks in any jurisdiction where they are not currently registered.
We have also been granted an exclusive license to use the "Delco Remy" name
as a tradename and corporate name worldwide until July 31, 2004 under a
Tradename License Agreement between us and GM. In addition, GM has granted us a
perpetual license to use the "Remy" name as a tradename and corporate name
worldwide.
We own and have obtained licenses to various domestic and foreign patents
and patent applications related to our products and processes. The patents
expire at various times over the next 15 years. While these patents and patent
applications in the aggregate are important to our competitive position, no
single patent or patent application is material to us.
Raw Materials
Principal raw materials for our business include bare copper strap,
insulated copper, aluminum castings, forgings, outer frames, nomex paper, steel
coils, steel bars, copper tube, copper wire, gray iron castings, ductile iron
castings, copper cross-section coils, magnets, steel shafts, steel cores, steel
wire and molding material. All materials are readily available from a number of
suppliers. We have entered into a long-term worldwide purchasing support
agreement with GM that allows us to purchase copper wire and steel, which are
used in the manufacture of starters sold to GM, at prices that we believe
generally to be lower than those that would otherwise be obtainable by us. This
agreement expires on July 31, 2004, or earlier, upon termination of the
automotive and heavy duty supply OEM agreements between us and GM. We generally
follow the North American industry practice of passing on to our customers the
costs or benefits of fluctuation in copper and aluminum prices on an annual or
semi-annual basis.
Employees
As of March 31, 2001, we employed 7,710 people, 1,968 of whom were salaried
and administrative employees and 5,742 of whom were hourly employees. Of our
total employees, about 19% are represented by unions. In the United States, 550
of our hourly workers are represented by the UAW under an agreement between us
and the UAW, the applicable provisions of which were assumed by us in
connection with the separation from GM. The agreement between the UAW and us,
originally scheduled to expire on March 22, 2001, was extended an additional
two years. In addition, 59 of our hourly employees are represented by the
International Brotherhood of Teamsters, or the Teamsters. Our agreement with
the Teamsters expires on August 31, 2003.
As of March 31, 2001, 115 of our 132 Canadian hourly employees were
represented by the National Automobile, Aerospace, Transportation and General
Workers Union of Canada, 14 were represented by the United Steel Workers of
America and three were represented by the Metallurgists Unis d'Amerique. The
agreements with these unions expire in November 2002, December 2002 and
November 2003, respectively.
As of March 31, 2001, about 149 of Delco Remy Hungary's 459 hourly employees
were affiliated with the Hungarian Steel Industry Workers Union. The agreement
was signed July 17, 1996 and is perpetual, subject to termination upon three
months' notice from either party.
49
As of March 31, 2001, all of Elmot's hourly workers were affiliated with The
Intercompany Trade Union or the Intercompany Union Organization NSZZ.
Agreements with these unions were signed on August 23, 2000 and are perpetual.
Our other facilities are primarily non-union. We are unaware of any current
efforts to organize the employees in our other facilities. There can be no
assurance that there will not be any labor union efforts to organize employees
at facilities that are not currently unionized. At the present time, we believe
that our relations with our employees are good.
Research and Development
Our engineering staff works independently and with OEMs to design new
products, improve performance and technical features of existing products and
develop methods to lower manufacturing costs. In support of our engineering
efforts, we have formed technical alliances with a select number of engineering
and technology firms to identify long-term engineering advances and
opportunities. We have entered into a joint venture with Continental AG for the
joint industrialization of the Integrated Starter Alternator Damper, or the
ISAD, motor in Europe. This new technology combines the starter and alternator
functions in one compact, high performance unit integrated between the engine
and gearbox. We are also a participant in Electricore Incorporated, a
consortium for advanced transportation technologies. Through this
participation, we are working on developing the technical alliances to develop
the next generation motors and alternators. We have also entered into an
alliance with Lynx Motion Technologies to develop a family of electric drive
motors which will be integral components of the propulsion system needed for
advanced hybrid gas-electric, diesel-electric and fuel cell vehicles.
Consistent with our strategy to introduce technologically advanced and
improved products, we spent about $7.2 million in the five-month period ended
December 31, 2000 and about $16.3 million, $13.5 million, and $13.3 million in
fiscal years 2000, 1999 and 1998, respectively, on research and development
activities. All expenditures were company-funded.
Properties and Foreign Operations
Our world headquarters are located at 2902 Enterprise Drive, Anderson,
Indiana 46013. We lease our headquarters. The following table sets forth
information regarding manufacturing and other facilities operated by us as of
March 31, 2001.
Number
Location of Facilities Use Leased/Owned
- -------- ------------- -------------------- ------------
Anderson, IN.................. 3 Office Leased
Anderson, IN.................. 7 Manufacturing Leased
Anderson, IN.................. 1 Testing Leased
Anderson, IN.................. 1 Warehouse Leased
Atlanta, GA................... 1 Warehouse Leased
Bay Springs, MS............... 2 Manufacturing Leased
Brooklyn, NY.................. 2 Warehouse Leased
Brusque, Brazil............... 1 Manufacturing Leased
Budapest, Hungary............. 1 Office Leased
Budapest, Hungary............. 1 Warehouse Owned
Buffalo, NY................... 2 Warehouse Leased
Chantilly, VA................. 1 Manufacturing Leased
Cradler Heath, United
Kingdom...................... 1 Manufacturing Leased
Dallas, TX.................... 1 Manufacturing/Office Leased
Droitwick, Worcestshire,
United Kingdom............... 1 Warehouse/Office Leased
Edinburgh, IN................. 1 Manufacturing Leased
50
Number
Location of Facilities Use Leased/Owned
- -------- ------------- ----------------------- ------------
Edmonton, Canada........... 2 Manufacturing Leased
Findlay, OH................ 1 Manufacturing Leased
Flint, MI.................. 1 Warehouse Leased
Fort Wayne, IN............. 1 Warehouse Leased
Fradley, West Midland,
United Kingdom............ 1 Manufacturing Leased
Franklin, IN............... 3 Manufacturing Owned
Hancock, MD................ 1 Warehouse Leased
Haverly, United Kingdom.... 1 Office Leased
Heidelberg, MS............. 2 Manufacturing Leased
Heist Op Den Berg,
Belgium................... 2 Office Leased
Heverly, Belgium........... 1 Office Leased
Holbrook, NY............... 1 Warehouse Leased
Indaiatuba, Brazil......... 1 Manufacturing Leased
Indianapolis, IN........... 3 Manufacturing Leased
Jemmel, Tunisia............ 2 Manufacturing Leased
Kaleva, MI................. 1 Manufacturing Leased
Kearny, NJ................. 1 Warehouse Leased
Kings Winford, Leicester,
United Kingdom............ 1 Manufacturing Leased
Kyoungnam, South Korea..... 2 Manufacturing Leased
Laredo, TX................. 1 Warehouse Leased
Lavant, West Sussex, United
Kingdom................... 1 Manufacturing Leased
Mansfield, TX.............. 1 Manufacturing Leased
Marion, MI................. 1 Manufacturing Leased
Memphis, TN................ 1 Warehouse Leased
Meridian, MS............... 3 Manufacturing/Warehouse Leased
Mezokovesd, Hungary........ 1 Manufacturing Owned
Miskolc, Hungary........... 1 Manufacturing Leased
Moncton, Canada............ 1 Manufacturing Leased
North Kansas City, MO...... 2 Manufacturing Leased
Peru, IN................... 2 Manufacturing Leased
Philadelphia, PA........... 2 Warehouse Leased
Piscataway, NJ............. 1 Office/Warehouse Leased
Plainfield, IN............. 1 Warehouse Leased
Raleigh, MS................ 3 Manufacturing Leased/Owned
Reed City, MI.............. 4 Manufacturing/Warehouse Leased
Ridgeville, SC............. 1 Manufacturing Leased
San Luis Potosi, Mexico.... 3 Manufacturing Leased
Saskatoon, Canada.......... 1 Manufacturing Leased
Seoul, South Korea......... 1 Office Leased
Sligo, Ireland............. 1 Manufacturing Leased
Spartanburg, SC............ 1 Warehouse Leased
St. Laurent, Canada........ 1 Warehouse Leased
Summerville, SC............ 5 Manufacturing/Warehouse Leased
Swidnica, Poland........... 2 Manufacturing Owned
Sylvarena, MS.............. 1 Manufacturing Leased
Taylorsville, MS........... 1 Manufacturing Leased
Toledo, OH................. 1 Manufacturing Leased
Toronto, Canada............ 2 Manufacturing/Warehouse Leased
Troy, MI................... 1 Office Leased
Warren, MI................. 1 Manufacturing Owned
Winchester, VA............. 1 Manufacturing/Warehouse Leased
Winnepeg, Canada........... 2 Manufacturing Leased/Owned
51
We believe all facilities are suitable for their intended purpose, are being
efficiently utilized and provide adequate capacity to meet demand for the next
several years.
Information about our foreign operations is set forth in Note 14 to our
consolidated financial statements included elsewhere in this prospectus.
Environmental Regulation
Our facilities and operations are subject to a wide variety of federal,
state, local and foreign environmental laws, regulations and ordinances,
including those related to air emissions, wastewater discharges and chemical
and hazardous waste management and disposal, which we refer to as environmental
laws. Our operations also are governed by laws relating to workplace safety and
worker health, primarily the Occupational Safety and Health Act, and foreign
counterparts to those laws, which we refer to as employee safety laws. We
believe that we are in compliance with current requirements under environmental
laws and employee safety laws except for non-compliance where the cost we might
incur to resolve the non-compliance would not be material. The nature of our
operations, however, exposes us to the risk of liabilities or claims relating
to environmental and worker health and safety matters. We cannot be sure that
we will not incur material costs in connection with liabilities or claims
arising out of those matters.
In September 2000, one of our Franklin, Indiana facilities received a
Finding of Violation and Order for Compliance from the Environmental Protection
Agency, which we refer to as the EPA, requiring us to correct violations of the
facility's wastewater discharge permit. We are in compliance with the terms of
the order and are determining the actions we will need to take to correct the
noncompliance with the permit. Based on the projects proposed by our
consultant, and assuming the EPA approves the project we select, we do not
believe that the costs of the correction will be material.
We have commenced a series of environmental, health and safety reviews to
confirm our compliance with environmental laws and employee safety laws. We do
not believe that the costs of the reviews and of response to any matters we
discover will be material.
Based on our experience to date, we believe that the future cost of
compliance with existing environmental laws, regulations and ordinances (or
liability for known environmental claims) will not have a material adverse
effect on our business, financial condition or results of operations. However,
future events, like changes in existing laws and regulations or their
interpretation, may give rise to additional compliance costs or liabilities
that could have a material adverse effect on our business, financial condition
or results of operations. Compliance with more stringent laws or regulations,
as well as more vigorous enforcement policies of regulatory agencies or
stricter or different interpretations of existing laws, may require additional
expenditures by us that may be material.
Some environmental laws hold current owners or operators of land or
businesses liable for their own and for previous owners' or operators' releases
of hazardous or toxic substances, materials or wastes, pollutants or
contaminants, including petroleum and petroleum products, which we refer to as
hazardous substances. Because of our operations, the long history of industrial
uses at some of our facilities, the operations of predecessor owners or
operators of some of the businesses, and the use, production and release of
hazardous substances at these sites, we are affected by the liability
provisions of environmental laws. Some of our facilities have experienced
various levels of regulatory scrutiny in the past and are, or may become,
subject to further regulatory inspections, future requests for investigation or
liability for past disposal practices.
During the environmental due diligence performed in connection with our
separation from GM in July 1994, we and GM identified some on-site pre-closing
environmental conditions including the presence of some hazardous substances in
the soil at our Meridian, Mississippi property and in the soil and groundwater
at our Anderson, Indiana property. At the time, GM reported the presence of
these substances in the groundwater at Anderson to the EPA and the Indiana
Department of Environmental Management, and we understand that GM
52
continues to work with EPA to resolve these issues. We are in the process of
vacating the Anderson and Meridian facilities and terminating these leases and
subleases with GM. Based on our experience to date, the terms of the
indemnification in the GM acquisition agreement and GM's continuing performance
in responding to these conditions, we do not believe that we will expend
material costs in responding to these on-site environmental conditions or in
terminating our leases or subleases.
In connection with our acquisition of facilities and businesses from GM,
Nabco, Inc., A&B Group, Inc., Autovill, Power Investments, Inc., World Wide
Automotive, Ballantrae Corporation, Lucas Varity, Electro Diesel Rebuild,
Electro Rebuild Tunisia, Atlantic Reman Limited, Williams Technologies, Elmot
and M&M Knopf, we obtained various indemnities for some claims related to on-
site and/or off-site environmental conditions and violations of environmental
laws which arose prior to the acquisitions. The environmental indemnities are
subject to certain deductibles, caps, cost sharing and time limitations
depending on the nature and timing of the environmental claim.
The Comprehensive Environmental Response, Compensation, and Liability Act,
as amended by the Superfund Amendments and Reauthorization Act of 1986, which
we refer to as CERCLA, provides for responses to and joint and several
liability for releases of specific hazardous substances into the environment.
We have received requests for information or notifications of potential
liability from EPA under CERCLA for certain off-site locations. We have not
incurred any significant costs relating to these matters, and based on the
existence of indemnification agreements from our predecessors and their
assumption of liabilities to date and other legal defenses, we believe that we
will not incur material costs in the future in responding to conditions at
these sites.
The Resource Conservation and Recovery Act and the regulations thereunder
and similar state counterparts to this law regulate hazardous wastes. The
Anderson, Indiana facilities we leased from GM were once part of a larger
industrial complex owned and operated by GM. Since 1990 (when it was owned by
GM), this complex has been undergoing corrective action under the Resource
Conservation and Recovery Act. In connection with the Resource Conservation and
Recovery Act corrective action requirements, GM has been investigating various
solid waste management units and areas of concern identified in the federal and
state Resource Conservation and Recovery Act permits. Some of these solid waste
management units and areas of concern are located on portions of the Anderson,
Indiana properties leased by us from GM and some solid waste management units
had been used by us. The costs of responding to releases, if any, from those
solid waste management units used by us would presumptively be borne by us. To
date, no claims for any of these costs have been made. Subject to the terms and
conditions of GM's environmental indemnity provided in connection with our
separation from GM, GM is required to indemnify us for some of these areas.
One of our facilities in Franklin, Indiana has been undergoing a Resource
Conservation and Recovery Act investigation and clean-up of volatile organic
compounds in the soil and groundwater under an EPA Administrative Order on
Consent, which we refer to as the EPA Order, issued to both Franklin Power
Products, one of our subsidiaries, and Amphenol Corporation, a prior owner of
the property. Under the EPA Order, Franklin Power Products and Amphenol
Corporation are jointly addressing this matter. Amphenol indemnified Franklin
Power Products for specific liabilities associated with the EPA Order, and
Amphenol has satisfied and continues to satisfy the requirements of the EPA
Order. Based on our experience to date and the indemnities from Amphenol and
the sellers of Franklin Power Products to us, we believe that future costs
associated with this site will not have a material adverse effect on our
results of operations, business or financial condition.
Our Marion, Michigan facility was listed on Michigan's state list of sites
under the Michigan version of CERCLA in 1993 because of suspected releases of
hazardous substances, primarily volatile organic compounds (mineral spirits),
to the soils and groundwater at the facility. An investigation conducted by
Nabco prior to its acquisition by us determined that the levels of volatile
organic compounds in the soils and groundwater are below the applicable state
clean-up levels. We proposed no further action at this facility. Although the
Michigan environmental authority has not accepted this conclusion, it has taken
no action on this matter for several years. Even if the Michigan environmental
authority was to require remedial action relating to this site, we do not
believe that we would expend material costs in connection with the conditions
giving rise to this listing.
53
Backlog
The majority of our products are not on a backlog status. They are produced
from readily available materials and have a relatively short manufacturing
cycle. For products supplied by outside suppliers, we generally purchase
products from more than one source. We expect to be capable of handling the
anticipated sales volumes for the next fiscal year.
Legal Proceedings
From time to time, we are party to legal actions in the normal course of our
business. We believe we are not currently party to any proceedings that, if
adversely determined, would have a material adverse effect on our business,
financial condition and results of operations.
Seasonality
Our business is seasonal, since our major OEM customers historically have
one- or two-week operations shutdowns each July. In response, we typically shut
down our 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. Our results for July and December reflect the effects of
these shutdowns. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
54
THE EXCHANGE OFFER
Purpose and Effect of the Exchange Offer
We issued and sold the old notes to the initial purchasers on April 26,
2001. The initial purchasers subsequently sold the old notes to qualified
institutional buyers in reliance on Rule 144A under the Securities Act. Because
the old notes are subject to transfer restrictions, we, the subsidiary
guarantors and the initial purchasers entered into a registration rights
agreement dated April 19, 2001 under which we agreed:
. on or before July 25, 2001, to prepare and file with the SEC the
registration statement of which this prospectus is a part;
. on or before September 23, 2001, to use our best efforts to cause the
registration statement to become effective under the Securities Act;
. upon the effectiveness of the registration statement, to offer the new
notes in exchange for surrender of the old notes; and
. to keep the exchange offer open for not less than 30 days (or longer if
required by applicable law) after the date notice of the exchange offer
is mailed to the holders of the old notes.
The registration statement is intended to satisfy in part our obligations
relating to the old notes under the registration rights agreement.
Under existing interpretations of the SEC, the new notes will be freely
transferable by holders other than our affiliates after the exchange offer
without further registration under the Securities Act if the holder of the new
notes represents that:
. it is acquiring the new notes in the ordinary course of its business;
. it has no arrangement or understanding with any person to participate in
the distribution of the new notes; and
. it is not our affiliate, as that term is interpreted by the SEC.
However, broker-dealers receiving new notes in the exchange offer will have
a prospectus delivery requirement regarding resales of the new notes. The SEC
has taken the position that broker-dealers receiving new notes in the exchange
offer may fulfill their prospectus delivery requirements relating to new notes
(other than a resale of an unsold allotment from the original sale of the old
notes) with this prospectus. Under the registration rights agreement, we are
required to allow broker-dealers receiving new notes in the exchange offer and
other persons, if any, with similar prospectus delivery requirements to use
this prospectus in connection with the resale of the new notes. Each broker-
dealer that receives new notes for its own account in exchange for old notes,
where the old notes were acquired by the broker-dealer as a result of market-
making activities or other trading activities, must acknowledge that it will
deliver a prospectus in connection with any resale of the new notes. See "Plan
of Distribution."
Terms of The Exchange Offer; Period For Tendering Old Notes
Upon the terms and subject to the conditions set forth in this prospectus
and in the accompanying letter of transmittal (which together constitute the
exchange offer), we will accept for exchange old notes which are properly
tendered on or prior to the expiration date of the exchange offer and not
withdrawn as permitted below. The expiration date of the exchange offer shall
be 5:00 p.m., New York City time, on , 2001, unless extended by us, in our
sole discretion.
As of the date of this prospectus, $165.0 million aggregate principal amount
of the old notes are outstanding. This prospectus, together with the letter of
transmittal, is first being sent on or about , 2001 to all holders of old
notes known to us. Our obligation to accept old notes for exchange
55
pursuant to the exchange offer is subject to conditions as set forth under "--
Conditions to the Exchange Offer" below.
We expressly reserve the right, at any time or from time to time, to extend
the period of time during which the exchange offer is open, and thereby delay
acceptance for any exchange of any old notes, by giving notice of the extension
to the holders of old notes as described below. During any extension, all old
notes previously tendered will remain subject to the exchange offer and may be
accepted for exchange by us. Any old notes not accepted for exchange for any
reason will be returned without expense to the tendering holder as promptly as
practicable after the expiration or termination of the exchange offer.
We expressly reserve the right to amend or terminate the exchange offer, and
not to accept for exchange any old notes not previously accepted for exchange,
upon the occurrence of any of the conditions of the exchange offer specified
below under "--Conditions to the Exchange Offer." We will give notice of any
extension, amendment, non-acceptance or termination to the holders of the old
notes as promptly as practicable, the notice in the case of any extension to be
issued no later than 9:00 a.m., New York City time, on the next business day
after the previously scheduled expiration date of the exchange offer.
Holders of old notes do not have any appraisal or dissenters' rights under
the Delaware General Corporation Law in connection with the exchange offer.
Procedures for Tendering Old Notes
The tender to us of old notes by a holder of old notes as set forth below
and the acceptance of the tender by us will constitute a binding agreement
between the tendering holder and us upon the terms and subject to the
conditions set forth in this prospectus and in the accompanying letter of
transmittal. Except as set forth below, a holder who wishes to tender old notes
for exchange under the exchange offer must transmit a properly completed and
duly executed letter of transmittal, including all other documents required by
the letter of transmittal, to First Union National Bank at the address set
forth below under "--Exchange Agent" on or prior to the expiration date of the
exchange offer. In addition, the exchange agent must receive:
. certificates for the old notes along with the letter of transmittal, or
. prior to the expiration date of the exchange offer, a timely
confirmation of a book-entry transfer of the old notes into the exchange
agent's account at The Depository Trust Company in accordance with the
procedure for book-entry transfer described below, or
. the holder must comply with the guaranteed delivery procedure described
below.
The method of delivery of old notes, letters of transmittal and all other
required documents is at your election and risk. If delivery is by mail, we
recommend that you use registered mail, properly insured, with return receipt
requested. In all cases, you should allow sufficient time to assure timely
delivery. You should not send letters of transmittal or old notes to us.
Signatures on a letter of transmittal or a notice of withdrawal, as the case
may be, must be guaranteed unless the old notes surrendered for exchange are
tendered:
. by a registered holder of the old notes who has not completed the box
entitled "Special Issuance Instruction" or "Special Delivery
Instruction" on the letter of transmittal; or
. for the account of a firm which is a member of a registered national
securities exchange or a member of the National Association of
Securities Dealers, Inc. or a commercial bank or trust company having an
office or correspondent in the United States.
In the event that signatures on a letter of transmittal or a notice of
withdrawal, as the case may be, are required to be guaranteed, the guarantees
must be by a firm which is a member of a registered national securities
exchange or a member of the National Association of Securities Dealers, Inc. or
by a commercial
56
bank or trust company having an office or correspondent in the United States.
If old notes are registered in the name of a person other than a signer of the
letter of transmittal, the old notes surrendered for exchange must be endorsed
by, or be accompanied by a written instrument or instruments of transfer or
exchange, in satisfactory form as determined by us in our sole discretion, duly
executed by the registered holder with the signature on the old notes or the
written instrument or instruments of transfer or exchange guaranteed by a firm
which is a member of a registered national securities exchange or a member of
the National Association of Securities Dealers, Inc. or a commercial bank or
trust company having an office or correspondent in the United States.
Any beneficial owner whose old notes are registered in the name of a broker,
dealer, commercial bank, trust company or other nominee, and who wishes to
tender, should contact the registered holder promptly and instruct the
registered holder to tender on the beneficial owner's behalf. If the beneficial
owner wishes to tender on the owner's own behalf, the owner must, prior to
completing and executing the letter of transmittal and delivering the owner's
old notes, either (1) make appropriate arrangements to register ownership of
the old notes in the owner's name or (2) obtain a properly completed bond power
from the registered holder. The transfer of registered ownership may take
considerable time.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of old notes tendered for exchange will be determined
by us in our sole discretion. This determination shall be final and binding. We
reserve the absolute right to reject any and all tenders of any old notes not
properly tendered or to not accept any old notes which acceptance might, in our
judgment or our counsel's judgment, be unlawful. We also reserve the absolute
right to waive any defects or irregularities or conditions of the exchange
offer as to any old notes either before or after the expiration date of the
exchange offer (including the right to waive the ineligibility of any holder
who seeks to tender old notes in the exchange offer). The interpretation of the
terms and conditions of the exchange offer as to any old notes either before or
after the expiration date of the exchange offer (including the letter of
transmittal and the instructions to the letter of transmittal) by us shall be
final and binding on all parties. Unless waived, any defects or irregularities
in connection with tenders of old notes for exchange must be cured within a
reasonable period of time as we shall determine. Neither we, the exchange agent
nor any other person shall be under any duty to give notification of any defect
or irregularity regarding any tender of old notes for exchange, nor shall any
of them incur any liability for failure to give notification.
If the letter of transmittal or any old notes or powers of attorney are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, these persons should so indicate when signing, and, unless waived by
us, proper evidence satisfactory to us of their authority to so act must be
submitted.
By tendering, each holder of old notes will represent to us in writing that,
among other things:
. the new notes acquired in the exchange offer are being obtained in the
ordinary course of business of the holder and any beneficial holder;
. neither the holder nor any beneficial holder has an arrangement or
understanding with any person to participate in the distribution of the
new notes; and
. neither the holder nor any other person is an "affiliate," as defined
under Rule 405 of the Securities Act, of our company. If the holder is
not a broker-dealer, the holder must represent that it is not engaged in
nor does it intend to engage in distribution of the new notes.
If any holder or any other person is an "affiliate," as defined under Rule
405 of the Securities Act, of ours, or is engaged in, or intends to engage in,
or has an arrangement or understanding with any person to participate in, a
distribution of the new notes to be acquired in the exchange offer, the holder
or any other person must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale transaction.
57
If the holder is a broker-dealer, the holder must represent that it will
receive new notes for its own account in exchange for old notes that were
acquired as a result of market-making activities or other trading activities.
Each broker-dealer that receives new notes for its own account in exchange for
old notes, where the old notes were acquired by the broker-dealer as a result
of market-making activities or other trading activities, must acknowledge that
it will deliver a prospectus in connection with any resale of the new notes.
See "Plan of Distribution."
Acceptance of Old Notes For Exchange; Delivery Of New Notes
Upon satisfaction or waiver of all of the conditions to the exchange offer,
we will accept, promptly after the expiration date of the exchange offer, all
old notes properly tendered, and will issue the new notes promptly after
acceptance of the old notes. See "--Conditions to the Exchange Offer" below.
For purposes of the exchange offer, we shall be deemed to have accepted
properly tendered old notes for exchange when, as and if we have given oral and
written notice to the exchange agent.
The new notes will bear interest from the most recent date to which interest
has been paid on the old notes, or if no interest has been paid on the old
notes, from April 26, 2001. Accordingly, registered holders of new notes on the
relevant record date for the first interest payment date following the
consummation of the exchange offer will receive interest accruing from the most
recent date to which interest has been paid or, if no interest has been paid,
from April 26, 2001. Old notes accepted for exchange will cease to accrue
interest from and after the date of consummation of the exchange offer. Holders
of old notes whose old notes are accepted for exchange will not receive any
payment for accrued interest on the old notes otherwise payable on any interest
payment date the record date for which occurs on or after consummation of the
exchange offer and will be deemed to have waived their rights to receive
accrued interest on the old notes.
In all cases, issuance of new notes for old notes that are accepted for
exchange in the exchange offer will be made only after timely receipt by the
exchange agent of (1) certificates for the old notes or a timely confirmation
of a book-entry transfer of the old notes into the exchange agent's account at
The Depository Trust Company, (2) a properly completed and duly executed letter
of transmittal and (3) all other required documents. If any tendered old notes
are not accepted for any reason set forth in the terms and conditions of the
exchange offer or if old notes are submitted for a greater principal amount
than the holder desires to exchange, the unaccepted or non-exchanged old notes
will be returned without expense to the tendering holder of the old notes (or,
in the case of old notes tendered by book-entry transfer into the exchange
agent's account at The Depository Trust Company according to the book-entry
transfer procedures described below, the non-exchanged old notes will be
credited to an account maintained with the Depository Trust Company) as
promptly as practicable after the expiration of the exchange offer.
Book-Entry Transfer
Any financial institution that is a participant in The Depository Trust
Company's systems may make book-entry delivery of old notes by causing The
Depository Trust Company to transfer the old notes into the exchange agent's
account at The Depository Trust Company in accordance with The Depository Trust
Company's procedures for transfer. However, although delivery of old notes may
be effected through book-entry transfer at The Depository Trust Company, the
letter of transmittal or facsimile of the letter of transmittal with any
required signature guarantees and any other required documents must, in any
case, be transmitted to and received by the exchange agent at the address set
forth below under "--Exchange Agent" on or prior to the expiration date of the
exchange offer, unless the holder has strictly complied with the guaranteed
delivery procedures described below.
We understand that the exchange agent has confirmed with The Depository
Trust Company that any financial institution that is a participant in The
Depository Trust Company's system may utilize The Depository Trust Company's
Automated Tender Offer Program to tender old notes. We further understand that
the exchange agent will request, within two business days after the date the
exchange offer commences, that The
58
Depository Trust Company establish an account for the old notes for the purpose
of facilitating the exchange offer, and any participant may make book-entry
delivery of old notes by causing The Depository Trust Company to transfer the
old notes into the exchange agent's account in accordance with The Depository
Trust Company's Automated Tender Offer Program procedures for transfer.
However, the exchange of the old notes so tendered will only be made after
timely confirmation of the book-entry transfer and timely receipt by the
exchange agent of, in addition to any other documents required, an appropriate
letter of transmittal with any required signature guarantee and an agent's
message, which is a message, transmitted by The Depository Trust Company and
received by the exchange agent and forming part of a confirmation of a book-
entry transfer, which states that The Depository Trust Company has received an
express acknowledgment from a participant tendering old notes which are the
subject of the confirmation of a book-entry transfer and that the participant
has received and agrees to be bound by the terms of the letter of transmittal
and that we may enforce the agreement against that participant.
Guaranteed Delivery Procedures
If a registered holder of the old notes desires to tender the old notes and
the old notes are not immediately available, or time will not permit the
holder's old notes or other required documents to reach the exchange agent
before the expiration date of the exchange offer, or the procedure for book-
entry transfer cannot be completed on a timely basis, a tender may nonetheless
be effected if:
. the tender is made through a firm which is a member of a registered
national securities exchange or a member of the National Association of
Securities Dealers, Inc. or a commercial bank or trust company having an
office or correspondent in the United States;
. prior to the expiration date of the exchange offer, the exchange agent
received from the firm which is a member of a registered national
securities exchange or a member of the National Association of
Securities Dealers, Inc. or commercial bank or trust company having an
office or correspondent in the United States a properly completed and
duly executed letter of transmittal (or a facsimile of the letter of
transmittal) and Notice of Guaranteed Delivery, substantially in the
form provided by us (by telegram, telex, facsimile transmission, mail or
hand delivery), setting forth the name and address of the holder of old
notes and the amount of old notes tendered, stating that the tender is
being made and guaranteeing that within five New York Stock Exchange
trading days after the date of execution of the Notice of Guaranteed
Delivery, the certificates for all physically tendered old notes, in
proper form for transfer, or a confirmation of a book-entry transfer, as
the case may be, and any other documents required by the letter of
transmittal will be deposited by the firm which is a member of a
registered national securities exchange or a member of the National
Association of Securities Dealers, Inc. or commercial bank or trust
company having an office or correspondent in the United States with the
exchange agent; and
. the certificates for all physically tendered old notes, in proper form
for transfer, or a confirmation of a book-entry transfer, as the case
may be, and all other documents required by the letter of transmittal
are received by the exchange agent within five New York Stock Exchange
trading days after the date of execution of the Notice of Guaranteed
Delivery.
Withdrawal Rights
Tenders of old notes may be withdrawn at any time prior to the expiration
date of the exchange offer. For a withdrawal to be effective, a written notice
of withdrawal must be received by the exchange agent at the address set forth
below under "--Exchange Agent." Any notice of withdrawal must:
. specify the name of the person having tendered the old notes to be
withdrawn;
. identify the old notes to be withdrawn (including the principal amount
of the old notes); and
. where certificates for old notes have been transmitted specify the name
in which the old notes are registered, if different from that of the
withdrawing holder.
59
If certificates for old notes have been delivered or otherwise identified to
the exchange agent, then, prior to the release of the certificates, the
withdrawing holder must also submit the serial numbers of the particular
certificates to be withdrawn and a signed notice of withdrawal with signatures
guaranteed by a firm which is a member of a registered national securities
exchange or a member of the National Association of Securities Dealers, Inc. or
a commercial bank or trust company having an office or correspondent in the
United States unless the holder is a firm which is a member of a registered
national securities exchange or a member of the National Association of
Securities Dealers, Inc. or a commercial bank or trust company having an office
or correspondent in the United States.
If old notes have been tendered in accordance with the procedure for book-
entry transfer described above, any notice of withdrawal must specify the name
and number of the account at The Depository Trust Company to be credited with
the withdrawn old notes and otherwise comply with the procedures of the
facility. All questions as to the validity, form and eligibility (including
time of receipt) of the notices will be determined by us, whose determination
shall be final and binding on all parties. Any old notes so withdrawn will be
deemed not to have been validly tendered for exchange for purposes of the
exchange offer. Any old notes which have been tendered for exchange but which
are not exchanged for any reason will be returned to the holder without cost to
the holder (or in the case of old notes tendered by book-entry transfer into
the exchange agent's account at The Depository Trust Company according to the
book-entry transfer procedures described above, the old notes will be credited
to an account maintained with The Depository Trust Company for the old notes)
as soon as practicable after withdrawal, rejection of tender or termination of
the exchange offer. Properly withdrawn old notes may be retendered by following
one of the procedures described under "--Procedures for Tendering Old Notes"
above at any time on or prior to the expiration date of the exchange offer.
Conditions To The Exchange Offer
Notwithstanding any other provision of the exchange offer, we shall not be
required to accept for exchange, or to issue new notes in exchange for, any old
notes and may terminate or amend the exchange offer if at any time before the
acceptance of the old notes for exchange or the exchange of new notes for the
old notes, we determine that:
. the exchange offer does not comply with any applicable law or any
applicable interpretation of the staff of the Securities and Exchange
Commission;
. we have not received all applicable governmental approvals; or
. any actions or proceedings of any governmental agency or court exist
which could materially impair our ability to consummate the exchange
offer.
The foregoing conditions are for our sole benefit and may be asserted by us
regardless of the circumstances giving rise to any condition or may be waived
by us in whole or in part at any time and from time to time in our reasonable
discretion. Our failure at any time to exercise any of the foregoing rights
shall not be deemed a waiver of that right and each right shall be deemed an
ongoing right which may be asserted at any time and from time to time.
In addition, we will not accept for exchange any old notes tendered, and no
new notes will be issued in exchange for any old notes, if at that time any
stop order shall be threatened or in effect with respect to the registration
statement of which this prospectus constitutes a part or the qualification of
the indenture under the Trust Indenture Act of 1939, as amended. In any event
we are required to use every reasonable effort to obtain the withdrawal of any
stop order at the earliest possible time.
Exchange Agent
First Union National Bank has been appointed as the exchange agent for the
exchange offer. All executed letters of transmittal should be directed to the
exchange agent at the address set forth below. Questions and
60
requests for assistance, requests for additional copies of this prospectus or
of the letter of transmittal and requests for Notices of Guaranteed Delivery
should be directed to the exchange agent addressed as follows:
First Union National Bank
First Union Customer Information Center
Corporate Trust Operations--NC1153
1525 West W.T. Harris Boulevard--3C3
Charlotte, NC 28288
Attention: Laura Richardson
Delivery other than as set forth above will not constitute a valid delivery.
Fees and Expenses
We will not make any payments to brokers, dealers or others soliciting
acceptances of the exchange offer. The principal solicitation is being made by
mail; however, additional solicitations may be made in person or by telephone
by our officers and employees.
The expenses to be incurred in connection with the exchange offer will be
paid by us. These expenses include fees and expenses of the exchange agent and
trustee under the indenture governing the notes, accounting and legal fees and
printing costs, among others.
Accounting Treatment
The new notes will be recorded at the same carrying amount as the old notes,
which is the principal amount as reflected in our accounting records on the
date of the exchange and, accordingly, no gain or loss will be recognized. The
debt issuance costs will be capitalized and amortized to interest expense over
the term of the new notes.
Transfer Taxes
Holders who tender their old notes for exchange will not be obligated to pay
any transfer taxes in connection with the tender, except that holders who
instruct us to register new notes in the name of, or request that old notes not
tendered or not accepted in the exchange offer be returned to, a person other
than the registered tendering holder will be responsible for the payment of any
applicable transfer tax thereon.
Consequences Of Failure To Exchange; Resales Of New Notes
Holders of old notes who do not exchange their old notes for new notes in
the exchange offer will continue to be subject to the restrictions on transfer
of the old notes as set forth in the legend on the old notes as a consequence
of the issuance of the old notes in accordance with exemptions from, or in
transactions not subject to, the registration requirements of, the Securities
Act and applicable state securities laws. Old notes not exchanged in accordance
with the exchange offer will continue to accrue interest at 11% per annum and
will otherwise remain outstanding in accordance with their terms. Holders of
old notes do not have any appraisal or dissenters' rights under the Delaware
General Corporation Law in connection with the exchange offer. In general, the
old notes may not be offered or sold unless registered under the Securities
Act, except in accordance with an exemption from, or in a transaction not
subject to, the Securities Act and applicable state securities laws. We do not
currently anticipate that we will register the old notes under the Securities
Act. However, (1) if because of any change in law or in applicable
interpretations by the staff of the SEC, we are not permitted to effect the
exchange offer, (2) if the exchange offer is not consummated by October 23,
2001, (3) if any initial purchaser so requests that the old notes not eligible
be exchanged for new notes in the exchange offer and held by it following
consummation of the exchange offer or (4) if any holder of old notes (other
than a broker-dealer that receives new notes for its own account in exchange
for old notes, where the old
61
notes were acquired by the broker-dealer as a result of market-making or other
trading activities) is not eligible to participate in the exchange offer or, in
the case of any holder of old notes (other than a broker-dealer that receives
new notes for its own account in exchange for old notes, where the old notes
were acquired by the broker-dealer as a result of market-making or other
trading activities) that participates in the exchange offer, does not receive
new notes in exchange for old notes that may be sold without restriction under
state and federal securities laws, we are obligated to file a shelf
registration statement on the appropriate form under the Securities Act
relating to the old notes held by such persons.
Based on interpretive letters issued by the staff of the SEC to third
parties in unrelated transactions, we are of the view that new notes issued in
accordance with the exchange offer may be offered for resale, resold or
otherwise transferred by the holders (other than (1) any holder which is an
"affiliate" of us within the meaning of Rule 405 under the Securities Act or
(2) any broker-dealer that purchases notes from us to resell in accordance with
Rule 144A or any other available exemption) without compliance with the
registration and prospectus delivery provisions of the Securities Act, provided
that the new notes are acquired in the ordinary course of the holders' business
and the holders have no arrangement or understanding with any person to
participate in the distribution of the new notes. If any holder has any
arrangement or understanding regarding the distribution of the new notes to be
acquired in accordance with the exchange offer, the holder (1) could not rely
on the applicable interpretations of the staff of the SEC and (2) must comply
with the registration and prospectus delivery requirements of the Securities
Act in connection with a secondary resale transaction. A broker-dealer who
holds old notes that were acquired for its own account as a result of market-
making or other trading activities may be deemed to be an "underwriter" within
the meaning of the Securities Act and must, therefore, deliver a prospectus
meeting the requirements of the Securities Act in connection with any resale of
new notes. Each broker-dealer that receives new notes for its own account in
exchange for old notes, where the old notes were acquired by the broker-dealer
as a result of market-making activities or other trading activities, must
acknowledge in the letter of transmittal that it will deliver a prospectus in
connection with any resale of the new notes. See "Plan of Distribution." We
have not requested the staff of the SEC to consider the exchange offer in the
context of a no-action letter, and there can be no assurance that the staff
would take positions similar to those taken in the interpretive letters
referred to above if we were to make a no-action request.
In addition, to comply with the securities laws of applicable jurisdictions,
the new notes may not be offered or sold unless they have been registered or
qualified for sale in the applicable jurisdictions or an exemption from
registration or qualification is available and is complied with. We have
agreed, under the registration rights agreement and subject to specified
limitations therein, to register or qualify the new notes for offer or sale
under the securities or blue sky laws of the applicable jurisdictions in the
United States as any selling holder of the notes reasonably requests in
writing.
62
MANAGEMENT
Directors, Executive Officers and Key Employees
The following table sets forth the names and ages for each of our directors,
executive officers and key employees and the positions they hold:
Name Age Position
- ---- --- --------
Harold K. Sperlich...... 71 Chairman of the Board of Directors
Thomas J. Snyder........ 56 President, Chief Executive Officer and Director
J. Timothy Gargaro...... 47 Senior Vice President and Chief Financial Officer
Joseph P. Felicelli..... 54 Group Vice President, Aftermarket
Susan E. Goldy.......... 47 Senior Vice President and General Counsel
Roderick English........ 49 Senior Vice President, Human Resources and Communication
David E. Stoll.......... 58 Vice President, Treasurer and Secretary
Steven P. Clemens....... 39 Vice President and Assistant Treasurer
Richard L. Reinhart..... 46 Vice President and Corporate Controller
Patrick C. Mobouck...... 47 Vice President--Managing Director, Europe
Richard L. Stanley...... 45 President, Delco Remy America
Allen R. Wilkie......... 51 Vice President and Operations Controller
E.H. Billig............. 74 Vice Chairman of the Board of Directors
Richard M. Cashin, Jr... 48 Director
Michael A. Delaney...... 47 Director
James R. Gerrity........ 59 Director
Robert J. Schultz....... 71 Director
Joseph M. Silvestri..... 40 Director
Set forth below is a brief description of the business experience of each of
our directors, executive officers and key employees.
Harold K. Sperlich, Chairman of the Board of Directors. Mr. Sperlich has
been Chairman of the Board of Directors since our inception in 1994. Since
retiring from Chrysler Corporation in 1988, having served as its President, Mr.
Sperlich has served as a consultant to the automotive industry. Before joining
Chrysler in 1977, Mr. Sperlich held several senior administrative and operating
posts with Ford Motor Company.
Thomas J. Snyder, President, Chief Executive Officer and Director. Mr.
Snyder was elected Chief Executive Officer effective January 1, 2000. He was
elected President, Chief Operating Officer and Director when we were founded in
1994. From 1973 to 1994, he held a variety of managerial and executive
positions with the Delco Remy Division of General Motors Corporation. He is a
member of the Board of the Indiana Chamber of Commerce and of Saint John's
Health Systems. He is a member of the Board of Visitors of Hudson Institute and
of Indiana University's Kelley School of Business in Indianapolis.
J. Timothy Gargaro, Senior Vice President and Chief Financial Officer. Mr.
Gargaro joined Delco Remy in May 2000 from Lear Corporation. At Lear since
1993, Mr. Gargaro held several senior level finance positions within the
organization. He served as Vice President of Finance for Lear's Ford and
Chrysler divisions and Chief Financial Officer of European Operations in
Frankfurt, Germany. Prior to Lear, he was the Chief Financial Officer of Ring
Screw Works since 1989.
Joseph P. Felicelli, Group Vice President, Aftermarket. Mr. Felicelli has
been Group Vice President since September 1997. Prior to joining us, Mr.
Felicelli served in various management positions for Cooper Industries.
63
Susan E. Goldy, Esquire, Senior Vice President and General Counsel. Ms.
Goldy has been Senior Vice President and General Counsel since February 2000.
Prior to that, she had been Vice President and General Counsel since 1997.
Before joining us, she was a partner in the Dechert law firm.
Roderick English, Senior Vice President, Human Resources and
Communications. Mr. English has been Senior Vice President of Human Resources
and Communications since November 1997. Prior to that, Mr. English had been
Senior Vice President of Human Resources and Communications at Delco Remy
America since our inception in 1994. Mr. English joined the Delco Remy Division
of GM in 1976 and became Plant Manager of plant 17 in 1992. Prior to that, Mr.
English served as Divisional Manager of Labor Relations since 1989.
David E. Stoll, Vice President, Treasurer and Secretary. Mr. Stoll was Vice
President, Controller and Secretary since our inception in 1994. During fiscal
year 2000, he was elected to the position of treasurer. Prior to joining us, he
was Vice President of Finance of Dyneer Corporation since 1987 and, prior to
that, served as corporate controller since 1973.
Steven P. Clemens, Vice President and Assistant Treasurer. Mr. Clemens
joined us in January 2001. Prior to joining us, Mr. Clemens had been Managing
Director for Banc One Capital Markets, Inc. since 1997. Prior to that, he
served as a loan officer for NBD Bank.
Richard L. Reinhart, Vice President and Controller. Mr. Reinhart joined us
in January 2001. Prior to that, Mr. Reinhart had been with Lear Corporation
since November 1996, most recently as Financial Director of Lear's Ford
European Group. Prior to Lear, Mr. Reinhart had been with Allied Signal since
1978 in various management positions, most recently as Group Controller of the
Filter and Spark Plug Group in Allied Signal's Automotive Sector.
Patrick C. Mobouck, Vice President-Managing Director, Europe. Mr. Mobouck
has been Vice President-Managing Director, Europe since July 1997. He has also
been Chairman of Autovill since August 1997. Before joining us, Mr. Mobouck was
with Monroe Auto Equipment since 1987, most recently as Managing Director-
Europe, Middle East and Africa.
Richard L. Stanley, President, Delco Remy America. Mr. Stanley has been
President of Delco Remy America since November 1998. Prior to that, Mr. Stanley
had been Senior Vice President, Automotive Systems since our inception in 1994.
Mr. Stanley joined the Delco Remy Division of GM in 1978, serving most recently
as Director of Customer Programs since 1992 and as European Chief Engineer
since 1988.
Allen R. Wilkie, Vice President and Operations Controller. Mr. Wilkie has
been Vice President and Operations Controller since June 2000 and Operations
Controller since March 1996. Prior to that, Mr. Wilkie served as Vice
President, Controller of Ameron International, Inc. from March 1994 through
March 1996.
E.H. Billig, Vice Chairman of the Board of Directors. Mr. Billig has been
Vice Chairman of the Board of Directors since our inception in 1994. Mr. Billig
has been Chairman of the Board of MSX International, Inc. since 1997, where he
was also Chief Executive Officer until January 2000. He was formerly President
and Chief Operating Officer of MascoTech, Inc. He is also a director of Titan
Wheel International, Inc.
Richard M. Cashin, Jr., Director. Mr. Cashin has been a director since our
inception in 1994. Mr. Cashin was President from 1994 to April 2000 and a
Managing Director of Citicorp Venture Capital Ltd., which we refer to as CVC,
for more than five years. Since April, he is a partner of Cashin Capital
Partners, a private equity investment firm. Mr. Cashin is the sole manager of
DRI Group. In addition, Mr. Cashin serves as a director of Lifestyle
Furnishings International Ltd., Fairchild Semiconductor Corporation, Freedom
Forge, Euromax International, Plc., Hoover Group, Inc., Gerber Childrenswear
Inc., JAC Holdings, GVC Holdings, MSX International, Inc. Titan Wheel
International, Inc., and Flender AG.
64
Michael A. Delaney, Director. Mr. Delaney has been a director since our
inception in 1994. Mr. Delaney has been a Managing Director of CVC since 1995
and a Vice President for more than the past five years. Mr. Delaney is Vice
President and Managing Director of Court Square. Mr. Delaney is also a director
of GVC Holdings, JAC Holdings, SC Processing, Inc., MSX International, Inc.,
International Knife and Saw Inc., Great Lakes Dredge and Dock Corporation,
Trianon Industries Inc., ChipPac Inc. and Strategic Industries Inc.
James R. Gerrity, Director. Mr. Gerrity has been a director since our
inception in 1994. From 1986 to 1993, Mr. Gerrity was President and a director
of Dyneer Corporation. Mr. Gerrity currently is a director of Wescor Graphics,
Inc., Ballantrae Corporation and Flender AG.
Robert J. Schultz, Director. Mr. Schultz became a director in 1997. Mr.
Schultz retired as Vice Chairman and a member of the Board of Directors of GM
in 1993. Mr. Schultz joined GM in 1955 and served as General Manager of GM's
Delco Electronics Division and Group Executive of Chevrolet-Pontiac-GM of
Canada . Mr. Schultz is also a director of MCT Corporation, and was Chairman of
the Board of OEA, Inc. until its sale earlier this year. He is also a member of
the Board of Trustees of California Institute of Technology.
Joseph M. Silvestri, Director. Mr. Silvestri became a director in 2001. Mr.
Silvestri has been Vice President of CVC since 1990. Mr. Silvestri is also Vice
President of Court Square. Mr. Silvestri is also a director of Triumph Group,
Euramax International, MacDermid and ISG Resources.
Director Compensation and Arrangements
Mr. Sperlich received $110,625 in directors fees during the five-month
period ending December 31, 2000 for services related to special projects (in
connection with acquisitions and strategic alliances) undertaken by him at the
direction of the board of directors.
In connection with the merger of DRI Acquisition into our company, the board
of directors formed a special committee to evaluate the terms of the tender
offer and merger. The members of the special committee were Mr. Sperlich and
Mr. Schultz. In connection with Mr. Sperlich's and Mr. Schultz's service on the
special committee, each received $1,000 per meeting of the special committee
attended as compensation, plus reimbursement for all out of pocket expenses
incurred in attending those meetings.
We currently contemplate that those persons listed above as one of our
directors may receive compensation for services performed as a director.
65
Executive Compensation
The following table sets forth, for the five-month transition period ending
December 31, 2000 and the three years ending July 31, 2000, the information
regarding the cash compensation paid by us, as well as other compensation paid
or accrued for that period, to each of our executive officers named below, in
all capacities in which they served.
Summary Compensation Table
Long Term
Compensation(1)
---------------
Compensation Securities
Name and Principal ------------------ Underlying All Other
Position Year Salary($) Bonus($) Options(#) Compensation($)
------------------ ---- --------- -------- --------------- ---------------
(dollars in
thousands)
Harold K. Sperlich...... 2000(2) -- 206.3 -- 110.6(4)
Chairman of the Board 2000 123.6 262.2 7,000 252.2(4)
1999 295.0 292.4 7,000 23.9(4)
1998 275.0 280.5 6,900 29.6(4)
Thomas J. Snyder........ 2000(2) 158.3 244.7 52,100 5.5(5)
President and Chief
Executive Officer 2000 350.0 387.3 7,000 17.3(5)
1999 295.0 292.4 7,000 13.8(5)
1998 275.0 280.5 6,900 9.7(5)
J. Timothy Gargaro(3)... 2000(2) 105.8 37.7 16,000 1.4(6)
Senior Vice President
and 2000 62.5 62.7 20,000 0.2(6)
Chief Financial Officer 1999 -- -- -- --
1998 -- -- -- --
Joseph P. Felicelli..... 2000(2) 110.3 80.4 16,575 5.8(7)
Group Vice President,
Aftermarket 2000 260.0 103.3 5,000 10.8(7)
1999 235.0 92.4 5,000 13.7(7)
1998 193.3 115.3 5,500 8.8(7)
Richard L. Stanley...... 2000(2) 117.3 143.4 17,550 1.2(8)
President, Delco Remy
America 2000 275.0 218.6 5,000 11.2(8)
1999 220.0 135.6 5,000 7.0(8)
1998 175.0 127.3 4,400 4.9(8)
Susan E. Goldy.......... 2000(2) 104.2 102.9 12,150 9.2(9)
Senior Vice President 2000 245.0 162.8 3,500 22.5(9)
and General
Counsel 1999 230.0 136.7 3,500 23.1(9)
1998 225.2 125.3 5,300 22.6(9)
- ---------------------
(1) All options held by our executive officers and directors listed in this
table were subsequently cancelled on March 14, 2001. See the Section below
entitled "Stock Options" for more information.
(2) For the five-month transition period ending December 31, 2000.
(3) Mr. Gargaro joined us in May 2000.
(4) Includes the following: (i) $5,509 and $1,375 in matching contributions
under our 401(k) Plan in fiscal years 1999 and 1998, respectively; (ii)
$6,824, $2,000 and $3,146 in salaried medical retiree benefits in fiscal
years 2000, 1999 and 1998 respectively; (iii) $9,601, $16,385 and $25,040
in premiums paid under a life insurance policy in fiscal years 2000, 1999
and 1998, respectively; and (iv) $110,625 and $235,733 in directors fees
in the five-month transition period ending December 31, 2000 and fiscal
year 2000, respectively. See the section above entitled "Director
Compensation and Arrangements" for more information.
(5) Includes the following: (i) $7,778, $5,875 and $2,578 in matching
contributions under our 401(k) Plan in fiscal years 2000, 1999 and 1998,
respectively; and (ii) $5,512, $9,542, $7,947 and $7,139 in premiums
66
paid under a life insurance policy in the five-month transition period
ending December 31, 2000 and the fiscal years 2000, 1999 and 1998,
respectively.
(6) Includes the following: (i) $235 in salaried medical retiree benefits in
the fiscal year 2000; and (ii) $1,365 in premiums paid under a life
insurance policy in the five-month transition period ending December 31,
2000.
(7) Includes the following in the five-month transition period ending
December 31, 2000 and fiscal years 2000, 1999 and 1998, respectively: (i)
$967, $3,821, $6,919 and $3,850 in matching contributions under our
401(k) Plan; (ii) $2,000, $2,000, $2,000 and $2,000 in salaried medical
retiree benefits; and (iii) $2,799, $4,930, $4,759 and $2,967 in premiums
paid under a life insurance policy.
(8) Includes the following: (i) $9,216, $5,826 and $3,142 in matching
contributions under our 401(k) Plan in fiscal years 2000, 1999 and 1998,
respectively; and (ii) $1,178, $1,958, $1,138 and $1,797 in premiums paid
under a life insurance policy in the five-month transition period ending
December 31, 2000 and fiscal years 2000, 1999 and 1998 respectively.
(9) Includes the following: (i) $3,683, $4,211 and $3,097 in matching
contributions under our 401(k) Plan in fiscal years 2000, 1999 and 1998,
respectively; (ii) $2,000, $2,000, $2,000 and $2,700 in salaried medical
retiree benefits in the five-month transition period ending December 31,
2000 and fiscal years 2000, 1999 and 1998, respectively; (iii) $1,294,
$2,310, $2,240 and $1,567 in premiums paid under a life insurance policy
in the five-month transition period ending December 31, 2000 and fiscal
years 2000, 1999 and 1998, respectively; and (iv) $5,939, $14,525,
$14,622 and $15,233 in living allowances in the five-month transition
period ending December 31, 2000 and fiscal years 2000, 1999 and 1998,
respectively.
Stock Options
In conjunction with the merger of DRI Acquisition into our company on March
14, 2001, all previously existing stock options held by our executive officers
and directors were cancelled and both of our previously existing stock option
plans were terminated. There are currently no options outstanding to purchase
securities of our company.
Retirement Plans
Delco Remy America, Inc., our wholly-owned subsidiary, established the
Delco Remy America Salaried Retirement Plan primarily to provide eligible
salaried employees with a monthly pension benefit after retirement for life.
As of December 31, 2000, our named executive officers have been credited with
the following amounts of service under the retirement plan: Harold K.
Sperlich--6.4 years; Thomas J. Snyder--38.4 years; J. Timothy Gargaro--0.7
years; Joseph P. Felicelli--3.4 years; Richard L. Stanley--22.8 years, and
Susan E. Goldy--4 years.
Change of Control Agreements
We executed change of control agreements with the following executive
officers: Mr. Snyder, Mr. Gargaro, Mr. Felicelli, Mr. Stanley, Ms. Goldy, Mr.
English and Mr. Mobouck. These agreements entitle each of the eligible
executive officers to receive payments and benefits upon the occurrence of a
change of control of our company followed by a termination of the executive's
employment within the two years immediately following the change of control
under specified circumstances. In the case of Mr. Snyder, the total payment
will be equal to $2.7 million, and he will be entitled to receive continuation
of medical, dental and life insurance benefits until his sixty-fifth birthday.
Each eligible executive officer other than Mr. Snyder will receive a payment
of $1.0 million (or if the termination occurs after the first two years
following execution of the change of control agreements, three times his or
her average compensation in the three full calendar years immediately
preceding the termination of employment) and continuation of medical, dental
and life insurance benefits for a period of one year after the termination of
employment with us.
Payments and other benefits received by Mr. Snyder will be subject to
gross-up tax treatment so that we will compensate Mr. Snyder for any excise
taxes applicable to payments and other benefits, including the gross-
67
up payment, received by him upon a change of control. Payments and other
benefits received by the other eligible executives will be subject to cut-back
treatment so that any payments or other benefits to be received by any of them
will be reduced to a level which eliminates any excise taxes. Under some
circumstances, the present value of the payments and other benefits to be
provided to the executives in connection with a change of control will not be
deductible by us.
Amendments to Benefit Plans
As a condition to the execution of the change of control agreements, we
required the applicable executive officers to agree to amendments to our
benefit plans. We amended the definition of "Change in Control" in the Delco
Remy International, Inc. Supplemental Executive Retirement Plan, which we refer
to as the executive retirement plan, to conform to the definition contained in
the change of control agreements. In addition, we amended the executive
retirement plan to provide that, upon a change in control, our company will not
be required to place any funds in trust unless our board of directors
determines in good faith that the change in control or any related or
contemplated financing transaction will impair in any material respect the
financial condition or creditworthiness of our company or any other surviving
successor or entity. We further amended the executive retirement plan to remove
the provision providing for accelerated vesting of benefits upon a change in
control. All affected persons consented to the amendments.
Split-Dollar Insurance Agreements
We entered into Collateral Assignment Split-Dollar Insurance Agreements,
effective as of August 1, 2000, with some of our key management employees. The
employees own the life insurance policies. However, they have assigned the
policies to us as security for the repayment of premiums paid by us. Our
interest in the cash value of the policy is equal to the premium paid by us,
and the employees have a remaining interest in the cash value. If an employee
dies while the collateral assignment is in place, we have a right to receive a
portion of the death benefit equal to the amount of the premiums previously
paid by us, with any excess payable to designated beneficiaries of the
employee. Under the agreements, the employee is provided with life insurance
protection under a universal life insurance product. The collateral assignment
will terminate on the first to occur of the following events:
. total cessation of our business;
. bankruptcy, receivership or dissolution of our company;
. surrender or cancellation of the policy by the employee;
. employee entering into competition with us or one of our affiliates;
. the delivery by the employee of a written notice terminating the
agreement;
. death of the employee;
. termination of the employee's employment with us for cause; or
. as of the date the employee turns 65.
Upon the occurrence of any of these events other than death of an employee, the
employee has an option to tender an amount equal to the amount of the premiums
paid by us under the agreements, and upon receipt of the repayment we will
release the assignment of the policy by the employee. Messrs Snyder, Gargaro,
Felicelli, English and Stanley and Ms. Goldy are parties to the agreements.
As a condition to execution of the change of control agreements, we required
the applicable executives to agree to amend the agreements to conform the
definition of change in control to the definition included in the change of
control agreements. We also amended the agreements to provide that our
obligations to place substantial sums in trust for the benefit of the
beneficiaries in connection with a change in control will be triggered only if
our board of directors determines in good faith that the change in control or
any related or
68
contemplated financing transaction will impair in any material respect the
financial condition or creditworthiness of our company or any other surviving
or successor entity.
Employment Agreement
We entered into an employment agreement with Mr. Snyder which provides for
his employment until July 2001. Mr. Snyder's agreement will automatically
extend for successive additional 12-month periods after July 2001 until notice
by either us or Mr. Snyder. Mr. Snyder receives an annual base salary of
$350,000, subject to merit increases as determined by our board of directors,
plus annual performance bonuses as determined by the board of directors. The
agreement provides that Mr. Snyder may not engage in any business competitive
with us while employed by us and for a period of one year thereafter.
69
OWNERSHIP OF CAPITAL STOCK
The following table sets forth certain information regarding the beneficial
ownership of our preferred stock and common stock as of May 1, 2001.
Number and Percent of Shares
-----------------------------------------------------------------------------------
Preferred Stock Class A Stock(1) Class B Stock(1) Class C Stock(1)
----------------------- ---------------- --------------------- --------------------
Name of Beneficial Owner Number Percent Number Percent Number Percent Number Percent
- ------------------------ ------------ ------- -------- ------- ---------- ------- ------------ -------
Court Square Capital 1,741,317.00(3) 83.22% 1,000.00 100% 205,037.78(3) 29.64% 1,677,843.18 100%
Limited(2).............
399 Park Avenue
New York, New York
10043
Berkshire Hathaway Inc. 460,404.96 22.00% -- -- 498,098.94 72.01% -- --
......................
1440 Keewit Plaza
Omaha, Nebraska 68131
DRI Group LLC(4)........ 198,136.02 9.47% -- -- 214,357.68 30.99% -- --
c/o Court Square
Capital Limited
399 Park Avenue
New York, New York
10043
Harold K. Sperlich...... -- -- -- -- -- -- -- --
Thomas J. Snyder(5)..... 9,174.56 0.44% -- -- 51,425.69 7.43% -- --
J. Timothy Gargaro...... -- -- -- -- -- -- -- --
Joseph P. Felicelli..... 1,257.73 0.06% -- -- 13,465.97 1.95% -- --
Susan E. Goldy.......... 1,921.06 0.09% -- -- 14,078.34 2.04% -- --
Roderick English........ 2,618.84 0.13% -- -- 14,833.25 2.14% -- --
Patrick C. Mobouck...... 327.36 0.02% -- -- 13,354.16 1.93% -- --
Richard Stanley......... 5,728.72 0.27% -- -- 19,697.73 2.85% -- --
E.H. Billig............. -- -- -- -- -- -- -- --
Richard M. Cashin,
Jr.(6)................. 8,614.61 0.41% -- -- 9,319.90 1.35% -- --
Michael A. Delaney...... -- -- -- -- -- -- -- --
James R. Gerrity(7)..... 4,307.30 0.21% -- -- 4,659.94 0.67% -- --
Robert J. Schultz....... -- -- -- -- -- -- -- --
Joseph M. Silvestri..... -- -- -- -- -- -- -- --
All directors and
executive officers as a
group (9 persons)...... 35,535.27 1.70% -- -- 145,149.84 20.98% -- --
- ---------------------
(1) The original holders of the voting Class A Common Stock are entitled to a
number of votes equal to 51% of the total number of votes entitled to be
cast by the holders collectively owning all of the Class A Common Stock
and the Class B Common Stock. The holders of Class B Common Stock are
entitled to one vote for each share held of record on all matters
submitted to a vote of the stockholders. Except as required by law, the
holders of Class C Common Stock have no voting rights. The Class A Common
is convertible into an equal number of shares of Class B Common Stock, the
Class B Common Stock is convertible into an equal number of shares of
Class C Common Stock and the Class C Common Stock is convertible into an
equal number of shares of Class B Common Stock.
(2) Court Square is a Delaware corporation principally engaged in the business
of making leveraged acquisitions. Court Square is owned by Citicorp
Banking Corporation, a Delaware corporation. Citicorp, a Delaware
corporation, owns all of the outstanding capital stock of Citicorp Banking
Corporation. Citigroup Holdings Company, a Delaware corporation, owns all
of the outstanding common stock of Citicorp. Citigroup Inc., a Delaware
corporation, or Citigroup, owns all the outstanding common stock of
Citigroup Holdings Company.
(3) All shares of Class B Common Stock and 189,521.41 shares of preferred
stock reported for Court Square above are held by DRI Group. Court Square
may be deemed to beneficially own these shares as a result of its
affiliation with DRI Group. Court Square disclaims beneficial ownership of
all shares held by DRI Group, except for those shares reported by Court
Square above.
(4) DRI Group is a Delaware limited liability company owned by Court Square
and Richard M. Cashin, Jr., one of our directors. Court Square holds
2,200,000 Class B common units of DRI Group that it received in exchange
for 2,200,000 shares of our Class A common stock prior to the going
private transaction, which
70
we refer to as the Old Class A Common Stock. Mr. Cashin holds 100,000 Class
A common units of DRI Group that he received in exchange for 100,000 shares
of Old Class A Common Stock.
(5) Includes 1,292.19 shares of Preferred Stock and 14,397.98 shares of Class
B Common Stock held by Daisy Farm Limited Partnership of which Mr. Snyder
is the general partner.
(6) Richard M. Cashin, Jr., who is one of our directors, is affiliated with
DRI Group in the capacities described under "Management--Directors,
Executive Officers and Key Employees" and footnote (4) above. All shares
reported for Mr. Cashin above are held by DRI Group. Mr. Cashin may be
deemed to beneficially own these shares as a result of his affiliation
with DRI Group. Mr. Cashin disclaims beneficial ownership of all shares
held by DRI Group, except for those shares reported by Mr. Cashin above.
(7) Includes 3,877 shares of preferred stock and 431 shares of preferred
stock held by The James R. Gerrity Living Trust and The Susan Gerrity
Living Trust, respectively, and 4,194 shares of Class B Common Stock and
466 shares of Class B Common Stock held by The James R. Gerrity Living
Trust and The Susan Gerrity Living Trust, respectively.
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DESCRIPTION OF CAPITAL STOCK
Preferred Stock
Our Amended and Restated Certificate of Incorporation provides that we may
issue 3,500,000 shares of preferred stock, all of which will be designated as
12% Series A Cumulative Compounding Preferred Stock. The preferred stock will
have a stated value of $100 per share and will be entitled to semi-annual
dividends commencing September 15, 2001, when, as and if declared, which
dividends are cumulative, whether or not earned or declared, and accrue at a
rate of 12%, compounding annually. As of the date of this prospectus,
2,092,549.91 shares of our preferred stock were outstanding. The vote of a
majority of the outstanding shares of the preferred stock, voting as a separate
class, will be required to (1) create, authorize or issue any other class or
series of stock entitled to a preference prior to the preferred stock upon any
dividend or distribution or any liquidation, distribution of assets,
dissolution or winding up of the Company, or increase the authorized amount of
any such other class or series, or (2) amend our Certificate of Incorporation
if the amendment would adversely affect the relative rights and preferences of
the holders of the preferred stock. Except as described above or as otherwise
required by law, the preferred stock is not entitled to vote.
We may not pay any dividend upon capital stock junior to the preferred
stock, except for a dividend payable in capital stock junior to the preferred
stock (including the common stock or junior stock), or redeem or otherwise
acquire shares of junior stock, unless all cumulative dividends on the
preferred stock have been paid in full. Upon liquidation, dissolution or
winding up, holders of preferred stock are entitled to receive out of our
legally available assets, before any amount is paid to holders of junior stock,
an amount equal to $100 per share of preferred stock, plus all accrued and
unpaid dividends to the date of final distribution. If our available assets are
insufficient to pay the holders of the outstanding shares of preferred stock in
full, the assets, or the proceeds from the sale of the assets, will be
distributed ratably among the holders of the preferred stock. The preferred
stock is not mandatorily redeemable prior to April 16, 2021. We anticipate that
the dividends on the preferred stock will be declared and accrued but not paid.
Our ability to pay cash dividends, and to redeem the preferred stock, is
subject to restrictions contained in the senior credit facility, the 8 5/8%
Senior Notes Due 2007, the 10 5/8% Senior Subordinated Notes Due 2006 and the
notes.
Common Stock
Our Amended and Restated Certificate of Incorporation provides that we may
issue 12,001,000 shares of common stock, divided into three classes consisting
of 1,000 shares of Class A Common Stock, 6,000,000 shares of Class B Common
Stock and 6,000,000 shares of Class C Common Stock. As of the date of this
prospectus, 2,370,575.05 shares of our common stock were outstanding.
The holders of Class A Common Stock are entitled to vote on all matters
submitted to a vote of the stockholders. The original holders of Class A Common
Stock, or Court Square, Citicorp or Citibank, N.A. or any direct or indirect
subsidiary of Citicorp or Citibank, N.A., in each case, to the extent that the
entity is the owner of Class A Common Stock, are entitled to that number of
votes equal to, in the aggregate, 51% of the total number of votes entitled to
be cast by the holders collectively owning all of the outstanding shares of
Class A Common Stock and Class B Common Stock. The number of votes to be cast
by the holder of Class A Common Stock may vary and is determined, in each
instance, prior to a vote of stockholders. If at any time the aggregate
principal amount of indebtedness outstanding under our (1) Indenture dated
August 1, 1996 among us, certain of our subsidiaries and National City Bank of
Indiana; and (2) Indenture dated December 22, 1997 among us, certain of our
subsidiary guarantors and United States Trust Company of New York is less than
$50,000,000, the holder of Class A Common Stock will be entitled to one vote
for each share of Class A Common Stock held. So long as the holders of the
Class A Common Stock are entitled to more than one vote per share, in any
election of our directors, 21% (rounded up to the nearest whole director) of
the directors to be elected shall be elected by a majority of the votes cast by
the holders of shares of outstanding Class B Common Stock other than Court
Square or any person that is or is deemed to be in the consolidated tax group
of which Court Square is a member.
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The holders of Class B Common Stock are entitled to one vote for each share
held of record on all matters submitted to a vote of the stockholders. We
cannot amend our Amended and Restated Certificate of Incorporation, enter into
any plan of liquidation, recapitalization, reorganization, reclassification,
consolidation or merger, sell all or substantially all of our assets or stock
or enter into any other business combination without the approval of a majority
of the holders of Class B Common Stock. Except as required by law, the holders
of Class C Common Stock have no voting rights.
Under our Amended and Restated Certificate of Incorporation, shares of Class
A Common Stock are convertible into an equal number of shares of Class B Common
Stock. Shares of Class B Common Stock are convertible into an equal number of
shares of Class C Common Stock. Shares of Class C Common Stock are convertible
into an equal number of shares of Class B Common Stock. In the case of a
conversion from Class C Common Stock, which is nonvoting, into Class B Common
Stock, which is voting, the holder of shares to be converted would be permitted
under applicable law to hold the total number of shares of Class B Common Stock
which would be held upon conversion.
Securities Transfer, Recapitalization and Holders Agreement
In connection with our recapitalization, our stockholders entered into the
Securities Transfer, Recapitalization and Holders Agreement dated March 14,
2001, which we refer to as the Stockholders Agreement, containing certain
agreements among the stockholders regarding our capital stock and corporate
governance.
According to our Stockholders Agreement, so long as Court Square owns at
least 5% of our common stock outstanding, Court Square has the right to
designate observers to attend meetings of our Board of Directors. The
Stockholders Agreement contains provisions which, with certain exceptions,
restrict the ability of the stockholders to transfer any of our common stock or
preferred stock. Subject to some conditions, if holders of at least 50% of our
common stock approve the sale of the company, each stockholder has agreed to
consent to the sale and, if the sale includes the sale of stock, each
stockholder has agreed to sell all of the stockholder's common stock on the
terms and conditions approved by holders of a majority of our common stock then
outstanding. Subject to some limitations, neither Court Square nor DRI Group
may sell any of their shares of our common stock without offering the other
stockholders a pro rata opportunity to participate in the sale.
The Stockholders Agreement also provides for certain additional restrictions
on transfer of our shares by our executive officers and other employees, whom
we refer to as our management investors, including our right to repurchase
certain shares upon termination of the management investor's employment prior
to March 14, 2006, at a formula price, and the grant of a right of first
refusal in our favor in the event a management investor elects to transfer his
shares of common stock.
Preferred Stockholders Agreement
In connection with our recapitalization, our stockholders entered into a
Preferred Stockholders Agreement dated March 14, 2001, which we refer to as the
Preferred Stockholders Agreement, containing additional agreements among the
stockholders regarding our preferred stock. Subject to some limitations,
neither Court Square nor DRI Group may sell any of their shares of our
preferred stock without offering the other stockholders a pro rata opportunity
to participate in the sale. Subject to some conditions, if holders of at least
50% of our common stock approve the sale of our company, each stockholder has
agreed to consent to the sale and, if the sale includes the sale of stock, each
stockholder has agreed to sell all of the stockholder's preferred stock on the
terms and conditions approved by holders of a majority of our common stock then
outstanding.
Registration Rights Agreement
In connection with their entry into the Stockholders Agreement, we, Court
Square, World Equity Partners, L.P., DRI Group, the management investors and
some of our other stockholders entered into a Registration
73
Rights Agreement dated March 14, 2001, which we refer to as the Registration
Rights Agreement. According to the Registration Rights Agreement, upon the
written request of Court Square we will prepare and file a registration
statement with the SEC concerning the distribution of all or part of the shares
held by that party and use our best efforts to cause the registration statement
to become effective. If at any time we file a registration statement for common
stock pursuant to a request by Court Square or otherwise, we will allow the
other parties to the Registration Rights Agreement to have their shares of
common stock (or a portion of their shares under certain circumstances)
included in the registered offering of our common stock. We are not bound by
this requirement if we are filing a registration statement on Form S-8, Form S-
4 or any similar form, a registration statement filed in connection with a
share exchange or an offering solely to our employees or existing stockholders,
or a registration statement registering a unit offering. We will pay the
registration expenses of the selling stockholders (other than underwriting
commissions, brokerage fees and transfer taxes applicable to the shares sold by
the stockholders or the fees and expenses of any accountants or other
representatives retained by a selling stockholder).
74
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On February 7, 2001, we entered into an Agreement and Plan of Merger with
Court Square and DRI Acquisition LLC, which we refer to as DRI Acquisition,
which provided for the consummation of a cash tender offer for 9,716,135 shares
of our Old Class A Common Stock not then owned by Court Square at $9.50 per
share and the merger of DRI Acquisition with and into our company.
On February 23, 2001, at 12:00 midnight New York City time, the tender offer
terminated and, after giving effect to the tender offer, DRI Acquisition and
Court Square owned more than 90% of the issued and outstanding Old Class A
Common Stock. Court Square contributed shares of Old Class A Common Stock to
enable DRI Acquisition to consummate the merger without the need for action by
our other stockholders. On March 14, 2001, DRI Acquisition merged with and into
us and we became the surviving corporation in the merger.
In connection with the completion of the merger, we amended our Certificate
of Incorporation to recapitalize our capital stock into three classes of common
stock, Class A, Class B and Class C, and one class of preferred stock. See
"Description of Capital Stock." We also entered into the Stockholders
Agreement, the Preferred Stockholders Agreement, and the Registration Rights
Agreement, together with DRI Acquisition, Court Square, DRI Group, World Equity
Partners, L.P. and some of our managers and directors. See "Description of
Capital Stock--Securities Transfer, Recapitalization and Holders Agreement,"
"--Preferred Stockholders Agreement," "--Registration Rights Agreement" and
"Ownership of Capital Stock."
Also in connection with the merger, we:
. issued a new warrant to World Equity Partners, L.P., which has since been
exercised and the shares obtained have been sold to Berkshire Hathaway
Inc.;
. executed change of control agreements with some of our executive
officers;
. amended some of our benefit plans; and
. entered into Collateral Assignment Split-Dollar Insurance Agreements with
some members of our key management.
See "Description of Capital Stock--Warrant to Purchase Preferred Stock and
Class B Common Stock," "Management--Change of Control Agreements," "--
Amendments to Benefit Plans," "--Split-Dollar Insurance Agreements."
As a result of these transactions, Court Square and DRI Group together own
beneficially about 94.3% of our outstanding common stock. However, either
entity may from time to time consider selling a portion of its holdings.
In connection with our separation from GM in July 1994, Thomas J. Snyder,
President, Chief Executive Officer and a director, received a loan from us to
purchase Old Class A Common Stock. The outstanding balance of the loan and
accrued interest was about $89,000 and was fully repaid in March 2001.
Court Square has agreed to provide advisory services to us. Pursuant to the
terms of the advisory agreement, Court Square was paid about $300,000 upon
consummation of the offering of the old notes.
An investment fund administered by an affiliate of Court Square acquired an
aggregate principal amount of $15 million of the old notes in connection with
the offering of the old notes.
75
DESCRIPTION OF OTHER INDEBTEDNESS
Senior Credit Facility
General. On December 16, 1997, we entered into a fourth amended and restated
financing agreement with a syndicate of lenders led by Bank One, Indiana, N.A.,
which we refer to as Bank One. The amended and restated financing agreement, as
further amended in connection with the sale of the old notes, provides for up
to $300 million of revolving credit availability, which we refer to as the
Senior Credit Facility. Each of our domestic operating subsidiaries are parties
to the Senior Credit Facility. The obligations under the Senior Credit Facility
of each domestic operating subsidiary is unconditionally guaranteed by each
other domestic operating subsidiary and each of our company and our domestic
subsidiaries which are holding companies. The obligations under the Senior
Credit Agreement are secured by a first lien on substantially all of our assets
and the assets of our domestic subsidiaries, including a pledge of the stock of
our domestic subsidiaries. The obligations and the guarantees arising under the
Senior Credit Agreement rank pari passu with the 8 5/8% Senior Notes Due 2007
and rank senior to all our other indebtedness.
The amount available to us for borrowing under the Senior Credit Facility is
$300 million, which is available for general corporate purposes, including
acquisitions, and is referred to as the Commitment Amount. Our available
borrowings under the Senior Credit Facility are subject to satisfaction of
specific requirements, including compliance with financial covenants in the
facility and specific debt incurrence tests under the indentures governing the
8 5/8% Senior Notes Due 2007, the 10 5/8% Senior Subordinated Notes Due 2006
and these notes. The Senior Credit Facility terminates on October 31, 2003.
There is a sub-limit for letters of credit equal to the lesser of (1) the Line
of Credit less all Revolving Loans (as defined in the Senior Credit Facility)
at the time of the issuance of a letter of credit and (2) $30 million.
Interest Rates. Generally, interest on outstanding borrowings under the
Senior Credit Facility is payable monthly and accrues at an annual rate equal
to, at our option, either the Base Rate or the LIBOR-Based Rate. The "Base
Rate" is equal to the higher of (1) the rate of interest established and quoted
from time to time by Bank One as its prime rate and (2) 0.5% per annum above
the latest federal funds rate, plus the Applicable Spread. The "LIBOR-Based
Rate" means a rate of interest equal to the sum of the London Interbank Offered
Rate, plus the Applicable Spread. The "London Interbank Offered Rate" means the
rate of interest at which dollar deposits in immediately available funds are
offered to the principal banks in the London interbank market by other
principal banks in that market two business days prior to the beginning of the
applicable interest period, plus the increased costs in maintaining the
deposits. The "Applicable Spread" will range from 1.25% to 2.50%, if
determining a LIBOR-Based Rate, and from 0.00% to 0.75%, if determining a
prime-based rate or a fed funds-based rate, depending upon our ratio of total
funded debt to EBITDA (as defined in the Senior Credit Facility).
Maturity and Optional Prepayments. All borrowings under the Senior Credit
Facility will mature on October 31, 2003, except that the aggregate principal
amount outstanding may not exceed the Commitment Amount at any time. Borrowings
under the Senior Credit Facility are prepayable at any time without premium or
penalty, except that any prepayment of a LIBOR-Based Rate loan that is made
prior to the end of the applicable interest period will be subject to
reimbursement of breakage costs.
Covenants. The Senior Credit Facility contains certain customary covenants,
including:
. reporting and other affirmative covenants;
. financial covenants, including ratio of senior funded debt to EBITDA,
ratio of funded debt to EBITDA, ratio of EBIT (as defined in the Senior
Credit Facility) to cash interest, fixed charge coverage ratio and
minimum current ratio; and
. negative covenants, including restrictions on incurrence of other
indebtedness, amendments with respect to other indebtedness (including
the notes), payment of cash dividends and other distributions to
76
stockholders, liens in favor of parties other than the lenders under the
Senior Credit Facility, certain guarantees of obligations of or advances
to others, sales of material assets not in the ordinary course of
business, certain acquisitions of assets, engaging in transactions with
affiliates, repayment of subordinated debt, making of certain investments
and capital expenditures.
Events of Default. The Senior Credit Facility also contains customary events
of default, including:
. non-payment of principal, interest or fees;
. violation of covenants; inaccuracy of representations or warranties;
. cross-default to certain other indebtedness including the notes;
. bankruptcy;
. a change of control of our company or specific domestic subsidiaries of
our company; and
. any failure to apply proceeds of an underwritten public offering of our
equity securities as required by the Senior Credit Facility.
Fees. We will pay, on a quarterly basis, a per annum fee on the unused
commitment amount ranging from 0.25% to 0.50% based on the ratio of total
funded debt to EBITDA.
8 5/8% Senior Notes Due 2007
On December 22, 1997, we issued 8 5/8% Senior Notes Due 2007, which we refer
to as the senior notes, in an aggregate principal amount of $145 million. The
senior notes accrue interest at the rate of 8 5/8% per annum, are payable in
cash semi-annually on June 15 and December 15, and are due December 15, 2007.
The senior notes are fully and unconditionally guaranteed on a senior basis by
our material domestic subsidiaries.
The senior notes were issued under an indenture dated as of December 22,
1997. The indenture contains covenants by us in favor of the holders of the
senior notes, who we refer to as the senior note holders. These covenants
include certain restrictions on our ability and the ability of certain of our
subsidiaries to:
. incur indebtedness, except for permitted indebtedness;
. pay dividends or purchase or redeem stock or repay before maturity any
obligation subordinate to the senior notes;
. incur future restrictions on the ability to pay dividends and transfer
assets;
. sell assets and capital stock of subsidiaries;
. engage in transactions with affiliates;
. incur or permit to exist liens on their assets, except for permitted
liens; and
. engage in mergers, consolidations or transfers of all or substantially
all their assets.
The senior notes are effectively subordinate in right of payment to all our
senior secured indebtedness, including the Senior Credit Facility.
The senior notes are redeemable in whole or in part at our option at any
time on or after December 15, 2002, at a price beginning at 104.313% of the
aggregate principal amount to be redeemed, declining ratably to 100% on and
after December 15, 2005.
Upon the occurrence of specific changes in control of our company, each
senior note holder has the right to require us to purchase all or a portion of
the senior note holder's notes at a price equal to 101% of the aggregate
principal amount of the senior notes. Our and some of our subsidiaries' failure
to pay specific
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indebtedness when due constitutes, among other things, an event of default
under the senior notes and can lead to the acceleration of the payment of the
senior notes.
10 5/8% Senior Subordinated Notes Due 2006
On August 2, 1996, we issued $140 million aggregate principal amount of 10
5/8% Senior Subordinated Notes Due 2006, which we refer to as the 1996 senior
subordinated notes. Interest on the 1996 senior subordinated notes accrues at
10 5/8% per annum and is payable in cash semi-annually on February 1 and August
1 and are due August 1, 2006. The 1996 senior subordinated notes are fully and
unconditionally guaranteed on a senior subordinated basis by our material
domestic subsidiaries. The 1996 senior subordinated notes are subordinate in
right of payment to all our senior indebtedness, including the Senior Credit
Facility and the 8 5/8% Senior Notes Due 2007, and will rank pari passu with
the new notes, like the old notes.
The 1996 senior subordinated notes were issued under an indenture dated as
of August 1, 1996. The indenture contains covenants by us in favor of the
holders of the 1996 senior subordinated notes, who we refer to as the 1996 note
holders. These covenants include certain restrictions on our ability and the
ability of certain of our subsidiaries to:
. incur indebtedness, except for permitted indebtedness;
. pay dividends or purchase or redeem stock or repay before maturity any
obligation subordinate to the 1996 senior subordinated notes;
. incur future restrictions on the ability to pay dividends and transfer
assets;
. sell assets and capital stock of subsidiaries;
. engage in transactions with affiliates;
. incur or permit to exist liens on assets, except for permitted liens; and
. engage in mergers, consolidations or transfers of all or substantially
all their assets.
The 1996 senior subordinated notes are redeemable in whole or in part at our
option at any time on or after August 1, 2001, at a price beginning at 105.313%
of the aggregate principal amount to be redeemed, declining ratably to 100% on
and after August 1, 2004.
Upon the occurrence of specific changes in control of our company, each 1996
note holder has the right to require us to purchase all or a portion of the
1996 note holder's notes at a price equal to 101% of the aggregate principal
amount of the 1996 senior subordinated notes. Our and some of our subsidiaries'
failure to pay specific indebtedness when due constitutes, among other things,
an event of default under the 1996 senior subordinated notes and can lead to
the acceleration of the payment of the 1996 senior subordinated notes.
GM Contingent Purchase Price Note
General. In connection with our separation from GM in July 1994, Delco Remy
America issued to GM a contingent purchase price note, which we refer to as the
GM note. The GM note is payable in five equal consecutive annual installments
commencing on July 31, 2004. The amount of the payment will be based on a
percentage of our average earnings in the three year period ending December 31,
2003 in excess of certain imputed earnings.
Amount Payable. The principal amount of this GM note is calculated by:
. multiplying five by (1) the sum of EBIT (as defined below) for the three
years ended December 31, 2001, 2002 and 2003 divided by three minus (2)
the average three-year Imputed Return (as defined below) on any
additional investment made by us (whether financed in the form of debt or
equity) to fund any acquisition we made after June 31, 1994 and on our
balance sheet for any one or more of December 31,
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2001, 2002 and 2003, which we refer to as the additional investments. For
purposes of the GM note, "EBIT" means net income plus the provision for
income taxes and interest expense, plus or minus any extraordinary charges
or credits or nonrecurring charges or credits, as the case may be,
included in the determination of net income, as reflected on our company's
audited consolidated financial statements for the period in question, and
"Imputed Return" for any year means an amount determined by multiplying
(A) 0.175 times the additional investment times (B) the number of days the
investment(s) was outstanding during that year divided by 365 days;
. subtracting from the total in (A) above, the sum of the outstanding
principal plus accrued but unpaid interest thereon of all senior,
mezzanine, subordinated and all other debt and redeemable preferred stock
as reflected on our company's audited consolidated balance sheet as of
December 31, 2003, which we refer to as the senior obligations. The
senior obligations do not include the outstanding balance of any of the
foregoing as of December 31, 2003 to the extent that the original
proceeds from the debt or redeemable preferred stock was accounted for as
an additional investment; and
. multiplying the result by the percentage obtained by dividing 100,000 (as
adjusted for stock splits, reverse stock splits and stock dividends) by
the total number of shares of all classes of our common stock outstanding
on a fully diluted basis as of the date of determination, excluding any
shares issued subsequent to July 31, 1994 to the extent the proceeds
therefrom have been accounted for as an additional investment.
Interest Rate. No interest accrues on the contingent payment.
Subordination Terms. The GM note is subordinated in right of payment to our
senior credit facility under the terms of a subordination agreement, by and
among Delco Remy America and the lenders under the senior credit facility.
Under the terms of the subordination agreement, Delco Remy America may make
payments of interest and principal on the GM note when due unless a
representative of the lenders under the senior credit facility gives notice to
GM that an event of default has occurred under the senior credit facility,
which we refer to as a suspension notice. GM may not receive any payments or
take any legal action for the collection of the GM note during the 179-day
period on or from the receipt of a suspension notice (or a shorter period if
the event of default under the senior credit facility is waived or cured).
Ballantrae Subordinated Debt
In 1996, Tractech Inc. issued a note, which we refer to as the Ballantrae
subordinated debt, in favor of Dyneer Corporation, which we refer to as Dyneer,
in the original principal amount of $10.0 million. Tractech has repaid all but
$750,000 of the outstanding principal amount of the Ballantrae subordinated
debt. The Ballantrae subordinated debt:
. matures on October 31, 2006; and
. bears interest at a rate of 11% per annum.
Tractech may prepay the remaining balance of the Ballantrae subordinated
debt at any time in whole or in part without premium or penalty. Tractech has
the right to set-off $750,000 against the outstanding amount of the Ballantrae
subordinated debt within 30 days of the entry of a final non-appealable order
by a court of competent jurisdiction in specific patent litigation, if the
order fails to grant Tractech the unfettered and exclusive right to make,
manufacture, have made, market and sell a particular line of differentials
without geographic or other restrictions and without cash payments.
Tractech's obligations under the Ballantrae subordinated debt are guaranteed
by Ballantrae Corporation, which we call Ballantrae, and the Ballantrae
subordinated debt is subject to the Subordination Agreement dated as of October
24, 1996, among Tractech, Dyneer, Ballantrae Corporation and Bank One, Indiana,
N.A. and the Subordination Pledge Agreement dated as of October 24, 1996
between Ballantrae and Dyneer, by which Ballantrae pledged all of the capital
stock of Tractech to Dyneer.
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DESCRIPTION OF NOTES
Delco Remy International, Inc. issued the Notes under an Indenture (the
"Indenture") among itself, its material domestic subsidiaries and First Union
National Bank, as trustee (the "Trustee"). The terms of the Notes include those
stated in the Indenture and those made part of the Indenture by reference to
the Trust Indenture Act of 1939 (the "Trust Indenture Act").
Certain terms used in this description are defined under the subheading "--
Certain Definitions." In this description, the word "Company" refers only to
Delco Remy International, Inc. and not to any of its subsidiaries.
The following description is only a summary of the material provisions of
the Indenture and the Registration Rights Agreement. We urge you to read the
Indenture and the Registration Rights Agreement because they, not this
description, define your rights as Holders of these Notes. You may request
copies of these agreements at our address set forth under the heading "Notice
to Investors."
Brief Description of the Notes
These Notes:
. are unsecured senior subordinated obligations of the Company;
. are subordinated in right of payment to all existing and future Senior
Indebtedness of the Company;
. are senior in right of payment to any future Subordinated Obligations of
the Company;
. are guaranteed by each Subsidiary Guarantor; and
. are subject to registration with the SEC pursuant to the Registration
Rights Agreement.
Principal, Maturity and Interest
The Company issued the Notes initially with a maximum aggregate principal
amount of $165.0 million. The Company will issue the Notes in denominations of
$1,000 and any integral multiple of $1,000. The Notes will mature on May 1,
2009. Subject to our compliance with the covenant described under the
subheading "--Certain Covenants--Limitation on Indebtedness," we are permitted
to issue more Notes under the Indenture (the "Additional Notes"). The Notes and
the Additional Notes, if any, will be treated as a single class for all
purposes of the Indenture, including waivers, amendments, redemptions and
offers to purchase. Unless the context otherwise requires, for all purposes of
the Indenture and this "Description of Notes," references to the Notes include
any Additional Notes actually issued.
Interest on the Notes will accrue at the rate of 11% per annum and will be
payable semi-annually in arrears on May 1 and November 1, commencing on
November 1, 2001. We will make each interest payment to the Holders of record
of these Notes on the immediately preceding April 15 and October 15. We will
pay interest on overdue principal at 1% per annum in excess of the above rate
and will pay interest on overdue installments of interest at such higher rate
to the extent lawful.
Interest on these Notes will accrue from the date of original issuance or,
if interest has already been paid, from the date it was most recently paid.
Interest will be computed on the basis of a 360-day year comprised of twelve
30-day months.
Additional interest may accrue on the Notes in certain circumstances
pursuant to the Registration Rights Agreement.
Optional Redemption
Except as set forth below, we will not be entitled to redeem the Notes at
our option prior to May 1, 2005.
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On and after May 1, 2005, we will be entitled at our option to redeem all
or a portion of the Notes upon not less than 30 nor more than 60 days' prior
notice, at the redemption prices (expressed in percentages of principal
amount), plus accrued interest to the redemption date (subject to the right of
Holders of record on the relevant record date to receive interest due on the
relevant interest payment date), if redeemed during the 12-month period
commencing on May 1 of the years set forth below:
Redemption
Period Price
------ ----------
2005........................................................... 105.500%
2006........................................................... 103.667%
2007........................................................... 101.833%
2008 and thereafter............................................ 100.000%
In addition, before May 1, 2004, we may at our option on one or more
occasions redeem Notes (which includes Additional Notes, if any) in an
aggregate principal amount not to exceed 35% of the aggregate principal amount
of the Notes (which includes Additional Notes, if any) originally issued at a
redemption price (expressed as a percentage of principal amount) of 111%, plus
accrued and unpaid interest to the redemption date, with the net cash proceeds
from one or more Public Equity Offerings; provided, however, that
(1) at least 65% of such aggregate principal amount of Notes (which
includes Additional Notes, if any) remains outstanding immediately after
the occurrence of each such redemption (other than Notes held, directly or
indirectly, by the Company or its Affiliates); and
(2) each such redemption occurs within 90 days after the date of the
related Public Equity Offering.
Selection and Notice of Redemption
If we are redeeming less than all the Notes at any time, the Trustee will
select Notes on a pro rata basis, by lot or by any other method as the Trustee
in its sole discretion deems to be fair and appropriate.
We will redeem Notes of $1,000 or less in whole and not in part. We will
cause notices of redemption to be mailed by first-class mail at least 30 but
not more than 60 days before the redemption date to each Holder of Notes to be
redeemed at its registered address.
If any Note is to be redeemed in part only, the notice of redemption that
relates to that Note will state the portion of the principal amount thereof to
be redeemed. We will issue a new Note in a principal amount equal to the
unredeemed portion of the original Note in the name of the Holder upon
cancellation of the original Note. Notes called for redemption become due on
the date fixed for redemption. On and after the redemption date, interest
ceases to accrue on Notes or portions of them called for redemption.
Mandatory Redemption; Offers to Purchase; Open Market Purchases
We are not required to make any mandatory redemption or sinking fund
payments with respect to the Notes. However, under certain circumstances, we
may be required to offer to purchase Notes as described under the captions "--
Change of Control" and "--Certain Covenants--Limitation on Sales of Assets and
Subsidiary Stock." We may at any time and from time to time purchase Notes in
the open market or otherwise.
Guarantees
The Subsidiary Guarantors will jointly and severally guarantee, on a senior
subordinated basis, our obligations under the Notes. The obligations of each
Subsidiary Guarantor under its Subsidiary Guarantee will be limited as
necessary to prevent that Subsidiary Guarantee from constituting a fraudulent
conveyance under applicable law. See "Risk Factors--A subsidiary guarantee
could be voided if it constitutes a fraudulent transfer under U.S. bankruptcy
laws or comparable state laws, which could result in the holders of notes not
being able to rely on that subsidiary guarantor to satisfy claims."
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Each Subsidiary Guarantor that makes a payment under its Subsidiary
Guarantee will be entitled to a contribution from each other Subsidiary
Guarantor in an amount equal to such other Subsidiary Guarantor's pro rata
portion of such payment based on the respective net assets of all the
Subsidiary Guarantors at the time of such payment determined in accordance with
GAAP.
If a Subsidiary Guarantee were rendered voidable, it could be subordinated
by a court to all other indebtedness (including guarantees and other contingent
liabilities) of the applicable Subsidiary Guarantor, and, depending on the
amount of such indebtedness, a Subsidiary Guarantor's liability on its
Subsidiary Guarantee could be reduced to zero. See "Risk Factors--A subsidiary
guarantee could be voided if it constitutes a fraudulent transfer under U.S.
bankruptcy laws or comparable state laws, which could result in the holders of
notes not being able to rely on that subsidiary guarantor to satisfy claims."
The Subsidiary Guarantee of a Subsidiary Guarantor will be released:
(1) upon the sale or other disposition (including by way of
consolidation or merger) of a Subsidiary Guarantor; or
(2) upon the sale or disposition of all or substantially all of the
assets of a Subsidiary Guarantor;
in each case other than to the Company or a Restricted Subsidiary and as
permitted by the Indenture.
Ranking
Senior Indebtedness versus Notes
The payment of the principal of, premium, if any, and interest on the Notes
and the payment of any Subsidiary Guarantee will be subordinate in right of
payment, as set forth in the Indenture, to the prior payment in full of all
Senior Indebtedness of the Company or the relevant Subsidiary Guarantor, as the
case may be, whether outstanding on the Issue Date or thereafter incurred,
including the obligations of the Company and such Subsidiary Guarantor with
respect to the Senior Credit Facility and the Company's 8 5/8% Senior Notes Due
2007 (the "8 5/8% Senior Notes").
As of March 31, 2001, after giving pro forma effect to the sale of the Notes
and the use of the net proceeds as described under the heading "Use of
Proceeds:"
(1) the Company's Senior Indebtedness would have been about $200.1
million, including its guarantee of about $55.1 million of secured Senior
Indebtedness of its subsidiaries under the Senior Credit Facility and $145
million of Senior Indebtedness of the Company represented by the 8
5/8% Senior Notes; and
(2) the Senior Indebtedness of the Subsidiary Guarantors would have been
about $220.4 million, including their secured Senior Indebtedness under the
Senior Credit Facility and their guarantees of Senior Indebtedness of the
Company under the 8 5/8% Senior Notes.
Although the Indenture contains limitations on the amount of additional
Indebtedness that the Company and the Subsidiary Guarantors may incur, under
certain circumstances the amount of such Indebtedness could be substantial and,
in any case, such Indebtedness may be Senior Indebtedness. See "--Certain
Covenants--Limitation on Indebtedness."
Liabilities of Subsidiaries versus Notes
All of our operations are conducted through our subsidiaries. Our foreign
subsidiaries and some of our immaterial domestic subsidiaries are not
guaranteeing the Notes. Claims of creditors of such non-guarantor subsidiaries,
including trade creditors holding indebtedness or guarantees issued by such
non-guarantor subsidiaries, and claims of preferred stockholders of such non-
guarantor subsidiaries generally will have
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priority with respect to the assets and earnings of such non-guarantor
subsidiaries over the claims of our creditors, including Holders of the Notes,
even if such claims do not constitute Senior Indebtedness. Accordingly, the
Notes will be effectively subordinated to creditors (including trade creditors)
and preferred stockholders, if any, of such non-guarantor subsidiaries.
At March 31, 2001, after giving pro forma effect to the sale of the Notes
and the use of the net proceeds as described under the heading "Use of
Proceeds," the total liabilities of our subsidiaries (other than the Subsidiary
Guarantors) would have been about $70.7 million, including trade payables.
Although the Indenture limits the incurrence of Indebtedness and preferred
stock of certain of our subsidiaries, such limitation is subject to a number of
significant qualifications. Moreover, the Indenture does not impose any
limitation on the incurrence by such subsidiaries of liabilities that are not
considered Indebtedness under the Indenture. See "--Certain Covenants--
Limitation on Indebtedness."
Other Senior Subordinated Indebtedness versus Notes
Only Indebtedness of the Company or a Subsidiary Guarantor that is Senior
Indebtedness will rank senior to the Notes and the relevant Subsidiary
Guarantee in accordance with the provisions of the Indenture. The Notes and
each Subsidiary Guarantee will in all respects rank pari passu with all other
Senior Subordinated Indebtedness of the Company and the relevant Subsidiary
Guarantor, respectively, including the obligations of the Company and such
Subsidiary Guarantor with respect to the Company's 10 5/8% Senior Subordinated
Notes Due 2006 (the "10 5/8% Senior Subordinated Notes") and the GM Note.
As of March 31, 2001, after giving pro forma effect to the sale of the Notes
and the use of the net proceeds as described under the heading "Use of
Proceeds:"
(1) the Company's Senior Subordinated Indebtedness would have been about
$302.9 million, consisting of the Notes and $140.0 million of Senior
Subordinated Indebtedness represented by the 10 5/8% Senior Subordinated
Notes; and
(2) the Senior Subordinated Indebtedness of the Subsidiary Guarantors
would have been about $302.9 million, consisting of the GM Note and their
respective guarantees of Senior Subordinated Indebtedness of the Company
represented by the Notes and the 10 5/8% Senior Subordinated Notes.
We and the Subsidiary Guarantors have agreed in the Indenture that we and
they will not Incur, directly or indirectly, any Indebtedness that is
contractually subordinated or junior in right of payment to our Senior
Indebtedness or the Senior Indebtedness of such Subsidiary Guarantors, unless
such Indebtedness is Senior Subordinated Indebtedness of the applicable Person
or is expressly subordinated in right of payment to Senior Subordinated
Indebtedness of such Person. The Indenture does not treat unsecured
Indebtedness as subordinated or junior to Secured Indebtedness merely because
it is unsecured.
Payment of Notes
We are not permitted to pay principal of, premium, if any, or interest on
the Notes or make any deposit pursuant to the provisions described under "--
Defeasance" below and may not purchase, redeem or otherwise retire any Notes
(collectively, "pay the Notes") if either of the following occurs (a "Payment
Default"):
(1) any Senior Indebtedness of the Company is not paid in full in cash
when due; or
(2) any other default on Senior Indebtedness of the Company occurs and
the maturity of such Senior Indebtedness is accelerated in accordance with
its terms;
unless, in either case, the Payment Default has been cured or waived and any
such acceleration has been rescinded or such Senior Indebtedness has been paid
in full in cash. Regardless of the foregoing, we are permitted to pay the Notes
if we and the Trustee receive written notice approving such payment from the
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Representatives of all Senior Indebtedness with respect to which the Payment
Default has occurred and is continuing.
During the continuance of any default (other than a Payment Default) with
respect to any Designated Senior Indebtedness pursuant to which the maturity
thereof may be accelerated without further notice (except such notice as may be
required to effect such acceleration) or the expiration of any applicable grace
periods, we are not permitted to pay the Notes for a period (a "Payment
Blockage Period") commencing upon the receipt by the Trustee (with a copy to
us) of written notice (a "Blockage Notice") of such default from the
Representative of such Designated Senior Indebtedness specifying an election to
effect a Payment Blockage Period and ending 179 days thereafter. The Payment
Blockage Period will end earlier if such Payment Blockage Period is terminated:
(1) by written notice to the Trustee and us from the Person or Persons
who gave such Blockage Notice;
(2) because the default giving rise to such Blockage Notice is cured,
waived or otherwise no longer continuing; or
(3) because such Designated Senior Indebtedness has been discharged or
repaid in full in cash.
Notwithstanding the provisions described above, unless the holders of such
Designated Senior Indebtedness or the Representative of such Designated Senior
Indebtedness have accelerated the maturity of such Designated Senior
Indebtedness, we are permitted to resume paying the Notes after the end of such
Payment Blockage Period. The Notes shall not be subject to more than one
Payment Blockage Period in any consecutive 360-day period irrespective of the
number of defaults with respect to Designated Senior Indebtedness during such
period.
Upon any payment or distribution of the assets of the Company upon a total
or partial liquidation or dissolution or reorganization of or similar
proceeding relating to the Company or its property:
(1) the holders of Senior Indebtedness of the Company will be entitled
to receive payment in full in cash of such Senior Indebtedness before the
Holders of the Notes are entitled to receive any payment;
(2) until the Senior Indebtedness of the Company is paid in full in
cash, any payment or distribution to which Holders of the Notes would be
entitled but for the subordination provisions of the Indenture will be made
to holders of such Senior Indebtedness as their interests may appear,
except that Holders of Notes may receive certain Capital Stock and
subordinated debt obligations; and
(3) if a distribution is made to Holders of the Notes that, due to the
subordination provisions, should not have been made to them, such Holders
of the Notes are required to hold it in trust for the holders of Senior
Indebtedness of the Company and pay it over to them as their interests may
appear.
If payment of the Notes is accelerated because of an Event of Default, the
Company or the Trustee must promptly notify the holders of Designated Senior
Indebtedness or the Representative of such Designated Senior Indebtedness of
the acceleration. If any Designated Senior Indebtedness is outstanding, neither
the Company nor any Subsidiary Guarantor may pay the Notes until five Business
Days after the Representatives of all the issues of Designated Senior
Indebtedness receive notice of such acceleration and, thereafter, may pay the
Notes only if the Indenture otherwise permits payment at that time.
A Subsidiary Guarantor's obligations under its Subsidiary Guarantee are
senior subordinated obligations. As such, the rights of Noteholders to receive
payment by a Subsidiary Guarantor pursuant to its Subsidiary Guarantee will be
subordinated in right of payment to the rights of holders of Senior
Indebtedness of such Subsidiary Guarantor. The terms of the subordination
provisions described above with respect to the Company's obligations under the
Notes apply equally to a Subsidiary Guarantor and the obligations of such
Subsidiary Guarantor under its Subsidiary Guarantee.
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By reason of the subordination provisions contained in the Indenture, in the
event of a liquidation or insolvency proceeding, creditors of the Company or a
Subsidiary Guarantor who are holders of Senior Indebtedness of the Company or a
Subsidiary Guarantor, as the case may be, may recover more, ratably, than the
Holders of the Notes, and creditors of ours who are not holders of Senior
Indebtedness may recover less, ratably, than holders of Senior Indebtedness and
may recover more, ratably, than the Holders of the Notes.
The terms of the subordination provisions described above will not apply to
payments from money or the proceeds of U.S. Government Obligations held in
trust by the Trustee for the payment of principal of and interest on the Notes
pursuant to the provisions described under "--Defeasance."
Registered Exchange Offer; Registration Rights
We have agreed pursuant to the Registration Rights Agreement that we will,
subject to certain exceptions,
(1) within 90 days after the Issue Date, file a registration statement
(the "Exchange Offer Registration Statement") with the SEC with respect to
a registered offer (the "Registered Exchange Offer") to exchange the Notes
for new notes of the Company (the "Exchange Notes") having terms
substantially identical in all material respects to the Notes (except that
the Exchange Notes will not contain terms with respect to transfer
restrictions);
(2) to use our best efforts to cause the Exchange Offer Registration
Statement to be declared effective under the Securities Act within 150 days
after the Issue Date;
(3) as soon as practicable after the effectiveness of the Exchange Offer
Registration Statement (the "Effectiveness Date"), to offer the Exchange
Notes in exchange for surrender of the Notes; and
(4) to keep the Registered Exchange Offer open for not less than 30 days
(or longer if required by applicable law) after the date notice of the
Registered Exchange Offer is mailed to the Holders of the Notes.
For each Note tendered to us pursuant to the Registered Exchange Offer, we
will issue to the Holder of such Note an Exchange Note having a principal
amount equal to that of the surrendered Note. Interest on each Exchange Note
will accrue from the last interest payment date on which interest was paid on
the Note surrendered in exchange therefor, or, if no interest has been paid on
such Note, from the date of its original issue.
Under existing SEC interpretations, the Exchange Notes will be freely
transferable by Holders other than our affiliates after the Registered Exchange
Offer without further registration under the Securities Act if the holder of
the Exchange Notes represents to us in the Registered Exchange Offer that it is
acquiring the Exchange Notes in the ordinary course of its business, that it
has no arrangement or understanding with any person to participate in the
distribution of the Exchange Notes and that it is not an affiliate of the
Company, as such terms are interpreted by the SEC; provided, however, that
broker-dealers ("Participating Broker-Dealers") receiving Exchange Notes in the
Registered Exchange Offer will have a prospectus delivery requirement with
respect to resales of such Exchange Notes. The SEC has taken the position that
Participating Broker-Dealers may fulfill their prospectus delivery requirements
with respect to Exchange Notes (other than a resale of an unsold allotment from
the original sale of the Notes) with the prospectus contained in the Exchange
Offer Registration Statement.
Under the Registration Rights Agreement, the Company is required to allow
Participating Broker-Dealers and other persons, if any, with similar prospectus
delivery requirements to use the prospectus contained in the Exchange Offer
Registration Statement in connection with the resale of such Exchange Notes for
180 days following the effective date of such Exchange Offer Registration
Statement (or such shorter period during which Participating Broker-Dealers are
required by law to deliver such prospectus).
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A Holder of Notes (other than certain specified Holders) who wishes to
exchange such Notes for Exchange Notes in the Registered Exchange Offer will be
required to represent that any Exchange Notes to be received by it will be
acquired in the ordinary course of its business and that at the time of the
commencement of the Registered Exchange Offer it has no arrangement or
understanding with any person to participate in the distribution (within the
meaning of the Securities Act) of the Exchange Notes and that it is not an
"affiliate" of the Company, as defined in Rule 405 of the Securities Act, or if
it is an affiliate, that it will comply with the registration and prospectus
delivery requirements of the Securities Act to the extent applicable.
In the event that:
(1) applicable interpretations of the staff of the SEC do not permit us
to effect such a Registered Exchange Offer;
(2) for any other reason we do not consummate the Registered Exchange
Offer within 180 days of the Issue Date;
(3) an initial purchaser shall notify us following consummation of the
Registered Exchange Offer that Notes held by it are not eligible to be
exchanged for Exchange Notes in the Registered Exchange Offer; or
(4) certain Holders are prohibited by law or SEC policy from
participating in the Registered Exchange Offer or may not resell the
Exchange Notes acquired by them in the Registered Exchange Offer to the
public without delivering a prospectus,
then, we will, subject to certain exceptions,
(1) promptly file a shelf registration statement (the "Shelf
Registration Statement") covering resales of the Notes or the Exchange
Notes, as the case may be;
(2) (A) in the clause (1) above, use our best efforts to cause the Shelf
Registration Statement to be declared effective under the Securities Act on
or prior to the 150th calendar day following the Issue Date and (B) in the
case of clause (2), (3) or (4) above, use our best efforts to cause the
Shelf Registration Statement to be declared effective under the Securities
Act on or prior to the 60th day after the date on which the Shelf
Registration Statement is required to be filed; and
(3) keep the Shelf Registration Statement effective until the earliest
of (A) the time when the Notes covered by the Shelf Registration Statement
can be sold pursuant to Rule 144 without any limitations under clauses (c),
(e), (f) and (h) of Rule 144, (B) two years from the effective date of the
Shelf Registration Statement (or until one year from the effective date of
the Shelf Registration Statement if the Shelf Registration Statement is
filed at the request of an initial purchaser) and (C) the date on which all
Notes registered thereunder are disposed of in accordance therewith.
We will, in the event a Shelf Registration Statement is filed, among other
things, provide to each Holder for whom such Shelf Registration Statement was
filed copies of the prospectus which is a part of the Shelf Registration
Statement, notify each such Holder when the Shelf Registration Statement has
become effective and take certain other actions as are required to permit
unrestricted resales of the Notes or the Exchange Notes, as the case may be. A
Holder selling such Notes or Exchange Notes pursuant to the Shelf Registration
Statement generally would be required to be named as a selling security holder
in the related prospectus and to deliver a prospectus to purchasers, will be
subject to certain of the civil liability provisions under the Securities Act
in connection with such sales and will be bound by the provisions of the
Registration Rights Agreement that are applicable to such Holder (including
certain indemnification obligations).
We will pay additional cash interest on the applicable Notes and Exchange
Notes, subject to certain exceptions,
(1) if the Company fails to file an Exchange Offer Registration
Statement with the SEC on or prior to the 90th day after the Issue Date;
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(2) if the Exchange Offer Registration Statement or, if obligated to
file a Shelf Registration Statement pursuant to clause 2(A) above, a Shelf
Registration Statement is not declared effective by the SEC on or prior to
the 150th day after the Issue Date;
(3) if the Exchange Offer is not consummated on or before the 40th day
after the Exchange Offer Registration Statement is declared effective;
(4) if obligated to file the Shelf Registration Statement, the Company
fails to file the Shelf Registration Statement with the SEC on or prior to
the 45th day after the date (the "Shelf Filing Date") on which the
obligation to file a Shelf Registration Statement arises;
(5) if obligated to file a Shelf Registration Statement pursuant to
clause 2(B) above, the Shelf Registration Statement is not declared
effective on or prior to the 60th day after the Shelf Filing Date; or
(6) after the Exchange Offer Registration Statement or the Shelf
Registration Statement, as the case may be, is declared effective, such
Registration Statement thereafter ceases to be effective or usable (subject
to certain exceptions) in accordance with and during the periods specified
in the Registration Rights Agreement;
(each such event referred to in the preceding clauses (1) through (6) a
"Registration Default"), from and including the date on which any such
Registration Default shall occur to but excluding the date on which all
Registration Defaults have been cured.
The rate of the additional interest will be 0.50% per annum for the first
90-day period immediately following the occurrence of a Registration Default,
and such rate will increase by an additional 0.50% per annum with respect to
each subsequent 90-day period until all Registration Defaults have been cured,
up to a maximum additional interest rate of 2.0% per annum. We will pay such
additional interest on regular interest payment dates. Such additional interest
will be in addition to any other interest payable from time to time with
respect to the Notes and the Exchange Notes.
All references in the Indenture, in any context, to any interest or other
amount payable on or with respect to the Notes shall be deemed to include any
additional interest pursuant to the Registration Rights Agreement.
If we effect the Registered Exchange Offer, we will be entitled to close the
Registered Exchange Offer 30 days after the commencement thereof provided that
we have accepted all Notes theretofore validly tendered in accordance with the
terms of the Registered Exchange Offer.
Change of Control
Upon the occurrence of any of the following events (each a "Change of
Control"), each Holder shall have the right to require that the Company
repurchase such Holder's Notes at a purchase price in cash equal to 101% of the
principal amount thereof on the date of purchase plus accrued and unpaid
interest, if any, to the date of purchase (subject to the right of Holders of
record on the relevant record date to receive interest due on the relevant
interest payment date):
(1) prior to the first public offering of common stock of the Company
after the Issue Date, the Permitted Holders cease to be the "beneficial
owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act),
directly or indirectly, of a majority in the aggregate of the total voting
power of the Voting Stock of the Company, whether as a result of issuance
of securities of the Company, any merger, consolidation, liquidation or
dissolution of the Company, any direct or indirect transfer of securities
by the Permitted Holders or otherwise (for purposes of this clause (1) and
clause (2) below, the Permitted Holders shall be deemed to beneficially own
any Voting Stock of any Person (the "specified entity") held by any other
Person (the "parent entity") so long as the Permitted Holders beneficially
own (as so defined), directly or indirectly, in the aggregate a majority of
the voting power of the Voting Stock of the parent entity);
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(2) any "person" (as such term is used in Sections 13(d) and 14(d) of
the Exchange Act), other than one or more Permitted Holders, is or becomes
the beneficial owner (as defined in clause (1) above, except that for
purposes of this clause (2) such person shall be deemed to have "beneficial
ownership" of all shares that any such person has the right to acquire,
whether such right is exercisable immediately or only after the passage of
time), directly or indirectly, of more than 35% of the total voting power
of the Voting Stock of the Company; provided, however, that the Permitted
Holders beneficially own (as defined in clause (1) above), directly or
indirectly, in the aggregate a lesser percentage of the total voting power
of the Voting Stock of the Company than such other person and do not have
the right or ability by voting power, contract or otherwise to elect or
designate for election a majority of the Board of Directors (for the
purposes of this clause (2), such other person shall be deemed to
beneficially own any Voting Stock of a specified entity held by a parent
entity, if such other person is the beneficial owner (as defined in this
clause (2)), directly or indirectly, of more than 35% of the voting power
of the Voting Stock of such parent entity and the Permitted Holders
beneficially own (as defined in clause (1) above), directly or indirectly,
in the aggregate a lesser percentage of the voting power of the Voting
Stock of such parent entity and do not have the right or ability by voting
power, contract or otherwise to elect or designate for election a majority
of the board of directors of such parent entity);
(3) individuals who on the Issue Date constituted the Board of Directors
(together with any new directors whose election by such Board of Directors
or whose nomination for election by the stockholders of the Company was
approved by a vote of a majority of the directors of the Company then still
in office who were either directors on the Issue Date or whose election or
nomination for election was previously so approved) cease for any reason to
constitute a majority of the Board of Directors then in office;
(4) the merger or consolidation of the Company with or into another
Person or the merger of another Person with or into the Company, or the
sale of all or substantially all the assets of the Company (determined on a
consolidated basis) to another Person (other than any merger or
consolidation with or into, or any sale to, a Person that is controlled by
the Permitted Holders), other than a transaction following which (A) in the
case of a merger or consolidation transaction, holders of securities that
represented 100% of the Voting Stock of the Company immediately prior to
such transaction (or other securities into which such securities are
converted as part of such merger or consolidation transaction) own directly
or indirectly at least a majority of the voting power of the Voting Stock
of the surviving Person in such merger or consolidation transaction
immediately after such transaction and (B) in the case of a sale of assets
transaction, the transferee Person becomes the obligor in respect of the
Notes and a Subsidiary of the transferor of such assets; or
(5) the adoption of a plan relating to the liquidation or dissolution of
the Company.
Within 30 days following any Change of Control (but subject to compliance
with the immediately succeeding paragraph), we will mail a notice to each
Holder with a copy to the Trustee (the "Change of Control Offer") stating:
(1) that a Change of Control has occurred and that such Holder has the
right to require us to purchase such Holder's Notes at a purchase price in
cash equal to 101% of the principal amount thereof on the date of purchase,
plus accrued and unpaid interest, if any, to the date of purchase (subject
to the right of Holders of record on the relevant record date to receive
interest on the relevant interest payment date);
(2) the circumstances and relevant facts regarding such Change of
Control (including relevant financial information);
(3) the purchase date (which shall be no earlier than 30 days nor later
than 60 days from the date such notice is mailed); and
(4) the instructions, as determined by us, consistent with the covenant
described hereunder, that a Holder must follow in order to have its Notes
purchased.
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We will not be required to make a Change of Control Offer following a Change
of Control if a third party makes the Change of Control Offer in the manner, at
the times and otherwise in compliance with the requirements set forth in the
Indenture applicable to a Change of Control Offer made by us and purchases all
Notes validly tendered and not withdrawn under such Change of Control Offer.
We will comply, to the extent applicable, with the requirements of Section
14(e) of the Exchange Act and any other securities laws or regulations in
connection with the repurchase of Notes as a result of a Change of Control. To
the extent that the provisions of any securities laws or regulations conflict
with the provisions of the covenant described hereunder, we will comply with
the applicable securities laws and regulations and shall not be deemed to have
breached our obligations under the covenant described hereunder by virtue of
our compliance with such securities laws or regulations.
The Change of Control purchase feature of the Notes may in certain
circumstances make more difficult or discourage a sale or takeover of the
Company and, thus, the removal of incumbent management. The Change of Control
purchase feature is a result of negotiations between the Company and the
initial purchasers. We have no present intention to engage in a transaction
involving a Change of Control, although it is possible that we could decide to
do so in the future. Subject to the limitations discussed below, we could, in
the future, enter into certain transactions, including acquisitions,
refinancings or other recapitalizations, that would not constitute a Change of
Control under the Indenture, but that could increase the amount of indebtedness
outstanding at such time or otherwise affect our capital structure or credit
ratings. Restrictions on our ability to Incur additional Indebtedness are
contained in the covenants described under "--Certain Covenants--Limitation on
Indebtedness" and "--Limitation on Liens." Such restrictions can only be waived
with the consent of the Holders of a majority in principal amount of the Notes
then outstanding. Except for the limitations contained in such covenants,
however, the Indenture will not contain any covenants or provisions that may
afford holders of the Notes protection in the event of a highly leveraged
transaction.
The occurrence of certain of the events which would constitute a Change of
Control would constitute a default under the Senior Credit Facility. Future
indebtedness that we may incur may contain prohibitions on the occurrence of
certain events that would constitute a Change of Control or require the
repurchase of such indebtedness upon a Change of Control. Moreover, the
exercise by the Holders of their right to require us to repurchase the Notes
could cause a default under such indebtedness, even if the Change of Control
itself does not, due to the financial effect of such repurchase on us. Finally,
our ability to pay cash to the Holders of Notes following the occurrence of a
Change of Control may be limited by our then existing financial resources.
There can be no assurance that sufficient funds will be available when
necessary to make any required repurchases. The Company's failure to purchase
the Notes in connection with a Change of Control would result in a default
under the Indenture which would, in turn, constitute a default under the Senior
Credit Facility. In those circumstances, the subordination provisions in the
Indenture would likely restrict payment to the Holders of the Notes.
The provisions under the Indenture relative to our obligation to make an
offer to repurchase the Notes as a result of a Change of Control may be waived
or modified with the written consent of the Holders of a majority in principal
amount of the Notes.
Book-Entry, Delivery and Form
We will initially issue the Notes in the form of one or more global notes
(the "Global Note"). The Global Note will be deposited with, or on behalf of,
the Depository and registered in the name of the Depository or its nominee.
Except as set forth below, the Global Note may be transferred, in whole and not
in part, only to the Depository or another nominee of the Depository. You may
hold your beneficial interests in the Global Note directly through the
Depository if you have an account with the Depository or indirectly through
organizations which have accounts with the Depository.
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The Depository has advised the Company as follows: the Depository is a
limited-purpose trust company organized under the laws of the State of New
York, a member of the Federal Reserve System, a "clearing corporation" within
the meaning of the New York Uniform Commercial Code, and "a clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. The
Depository was created to hold securities of institutions that have accounts
with the Depository ("participants") and to facilitate the clearance and
settlement of securities transactions among its participants in such securities
through electronic book-entry changes in accounts of the participants, thereby
eliminating the need for physical movement of securities certificates. The
Depository's participants include securities brokers and dealers (which may
include the initial purchasers), banks, trust companies, clearing corporations
and certain other organizations. Access to the Depository's book-entry system
is also available to others such as banks, brokers, dealers and trust companies
(collectively, the "indirect participants") that clear through or maintain a
custodial relationship with a participant, whether directly or indirectly.
The Company expects that pursuant to procedures established by the
Depository, upon the deposit of the Global Note with the Depository, the
Depository will credit, on its book-entry registration and transfer system, the
principal amount of Notes represented by such Global Note to the accounts of
participants. The accounts to be credited shall be designated by the initial
purchasers. Ownership of beneficial interests in the Global Note will be
limited to participants or persons that may hold interests through
participants. Ownership of beneficial interests in the Global Note will be
shown on, and the transfer of those ownership interests will be effected only
through, records maintained by the Depository (with respect to participants'
interests), the participants and the indirect participants (with respect to the
owners of beneficial interests in the Global Note other than participants). The
laws of some jurisdictions may require that certain purchasers of securities
take physical delivery of such securities in definitive form. Such limits and
laws may impair the ability to transfer or pledge beneficial interests in the
Global Note.
So long as the Depository, or its nominee, is the registered holder and
owner of the Global Note, the Depository or such nominee, as the case may be,
will be considered the sole legal owner and holder of any related Notes
evidenced by the Global Note for all purposes of such Notes and the Indenture.
Except as set forth below, as an owner of a beneficial interest in the Global
Note, you will not be entitled to have the Notes represented by the Global Note
registered in your name, will not receive or be entitled to receive physical
delivery of certificated Notes and will not be considered to be the owner or
holder of any Notes under the Global Note. We understand that under existing
industry practice, in the event an owner of a beneficial interest in the Global
Note desires to take any action that the Depository, as the holder of the
Global Note, is entitled to take, the Depository would authorize the
participants to take such action, and the participants would authorize
beneficial owners owning through such participants to take such action or would
otherwise act upon the instructions of beneficial owners owning through them.
We will make payments of principal of, premium, if any, and interest on
Notes represented by the Global Note registered in the name of and held by the
Depository or its nominee to the Depository or its nominee, as the case may be,
as the registered owner and holder of the Global Note.
We expect that the Depository or its nominee, upon receipt of any payment of
principal of, premium, if any, or interest on the Global Note will credit
participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the principal amount of the Global Note as
shown on the records of the Depository or its nominee. We also expect that
payments by participants or indirect participants to owners of beneficial
interests in the Global Note held through such participants or indirect
participants will be governed by standing instructions and customary practices
and will be the responsibility of such participants or indirect participants.
We will not have any responsibility or liability for any aspect of the records
relating to, or payments made on account of, beneficial ownership interests in
the Global Note for any Note or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interests or for any other aspect
of the relationship between the Depository and its participants or indirect
participants or the relationship between such participants or indirect
participants and the owners of beneficial interests in the Global Note owning
through such participants.
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Although the Depository has agreed to the foregoing procedures in order to
facilitate transfers of interests in the Global Note among participants of the
Depository, it is under no obligation to perform or continue to perform such
procedures, and such procedures may be discontinued at any time. Neither the
Trustee nor the Company will have any responsibility or liability for the
performance by the Depository or its participants or indirect participants of
their respective obligations under the rules and procedures governing their
operations.
Certificated Notes
Subject to certain conditions, the Notes represented by the Global Note are
exchangeable for certificated Notes in definitive form of like tenor in
denominations of $1,000 and integral multiples thereof if:
(1) the Depository notifies us that it is unwilling or unable to
continue as Depository for the Global Note or the Depository ceases to be a
clearing agency registered under the Exchange Act and, in either case, we
are unable to locate a qualified successor within 90 days;
(2) we in our discretion at any time determine not to have all the Notes
represented by the Global Note; or
(3) a default entitling the Holders of the Notes to accelerate the
maturity thereof has occurred and is continuing.
Any Note that is exchangeable as above is exchangeable for certificated
Notes issuable in authorized denominations and registered in such names as the
Depository shall direct. Subject to the foregoing, the Global Note is not
exchangeable, except for a Global Note of the same aggregate denomination to be
registered in the name of the Depository or its nominee. In addition, such
certificates will bear the legend referred to under "Transfer Restrictions"
(unless we determine otherwise in accordance with applicable law), subject,
with respect to such certificated Notes, to the provisions of such legend.
Same-Day Payment
The Indenture requires us to make payments in respect of Notes (including
principal, premium and interest) by wire transfer of immediately available
funds to the U.S. dollar accounts with banks in the United States specified by
the Holders thereof or, if no such account is specified, by mailing a check to
each such Holder's registered address.
Certain Covenants
The Indenture contains covenants including, among others, the following:
Limitation on Indebtedness
(a) The Company shall not, and shall not permit any Restricted Subsidiary
to, Incur, directly or indirectly, any Indebtedness unless, on the date of such
Incurrence, the Consolidated Coverage Ratio exceeds 2.00 to 1.
(b) Notwithstanding the foregoing paragraph (a), the Company and its
Restricted Subsidiaries may Incur any or all of the following Indebtedness:
(1) Indebtedness Incurred pursuant to the Senior Credit Facility or any
Permitted Receivables Financing; provided, however, that, after giving
effect to any such Incurrence, the aggregate principal amount of such
Indebtedness then outstanding does not exceed the greater of (A) $300.0
million (less any permanent reductions in the amount of available
borrowings thereunder) and (B) the sum of (i) 75% of the book value of the
inventory of the Company and its Restricted Subsidiaries and (ii) 85% of
the book value of the accounts receivable of the Company and its Restricted
Subsidiaries, in each case determined in accordance with GAAP;
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(2) Indebtedness of the Company owed to and held by any Wholly Owned
Subsidiary or Indebtedness of a Restricted Subsidiary owed to and held by
the Company or a Wholly Owned Subsidiary; provided, however, that any
subsequent issuance or transfer of any Capital Stock which results in any
such Wholly Owned Subsidiary ceasing to be a Wholly Owned Subsidiary or any
subsequent transfer of such Indebtedness (other than to the Company or a
Wholly Owned Subsidiary) shall be deemed, in each case, to constitute the
Incurrence of such Indebtedness of the issuer thereof;
(3) Indebtedness of the Company or a Restricted Subsidiary owed to and
held by any Non-Wholly Owned Subsidiary; provided, however, that (A) any
such Indebtedness shall be unsecured Subordinated Obligations of the
Company or such Restricted Subsidiary, as applicable, and (B) any
subsequent issuance or transfer of any Capital Stock of such Non-Wholly
Owned Subsidiary or any subsequent transfer of such Indebtedness (other
than to the Company, a Wholly Owned Subsidiary or another Non-Wholly Owned
Subsidiary) shall be deemed to constitute the Incurrence of such
Indebtedness by the issuer thereof;
(4) Indebtedness represented by the Notes and the Exchange Notes (other
than any Additional Notes);
(5) Indebtedness outstanding on the Issue Date (other than Indebtedness
described in clause (1), (2) or (3) of this covenant);
(6) Refinancing Indebtedness in respect of Indebtedness Incurred
pursuant to paragraph (a) or pursuant to clause (4), (5), (9), (12) or this
clause (6);
(7) Indebtedness in respect of performance bonds, bankers' acceptances,
letters of credit and surety or appeal bonds entered into by the Company
and the Restricted Subsidiaries in the ordinary course of their business;
(8) Hedging Obligations consisting of Interest Rate Agreements and
Currency Agreements entered into in the ordinary course of business and not
for the purpose of speculation; provided, however, that such Interest Rate
Agreements and Currency Agreements do not increase the Indebtedness of the
Company outstanding at any time other than as a result of fluctuations in
foreign currency exchange rates or interest rates or by reason of fees,
indemnities and compensation payable thereunder;
(9) Purchase Money Indebtedness and Capital Lease Obligations Incurred
to finance the acquisition by the Company or a Restricted Subsidiary of any
assets in the ordinary course of business and which, together with all
Refinancing Indebtedness Incurred in respect of Indebtedness previously
Incurred pursuant to this clause (9), do not exceed $50.0 million in the
aggregate at any time outstanding;
(10) Indebtedness represented by the Subsidiary Guarantees and
Guarantees of Indebtedness Incurred pursuant to clauses (1), (4), (5) and
(6) above;
(11) Indebtedness arising from the honoring by a bank or other financial
institution of a check, draft or similar instrument inadvertently (except
in the case of daylight overdrafts) drawn against insufficient funds in the
ordinary course of business, provided that such Indebtedness is
extinguished within five Business Days of Incurrence;
(12) Indebtedness of the Company and its Restricted Subsidiaries, to the
extent the proceeds thereof are immediately used after the Incurrence
thereof to purchase Notes tendered in an offer to purchase made as a result
of a Change of Control;
(13) Indebtedness of the Company and its Restricted Subsidiaries arising
from agreements providing for indemnification, adjustment of purchase price
or similar obligations, in any case Incurred in connection with the
disposition of any assets of the Company or any Restricted Subsidiary
(other than Guarantees of Indebtedness Incurred by any Person acquiring all
or any portion of such assets for the purpose of financing such
acquisition), in a principal amount not to exceed the gross proceeds
actually received by the Company or any Restricted Subsidiary in connection
with such disposition; and
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(14) Indebtedness in an aggregate principal amount which, together with
all other Indebtedness of the Company outstanding on the date of such
Incurrence (other than Indebtedness permitted by clauses (1) through (13)
above or paragraph (a) above) does not exceed $100.0 million.
(c) Notwithstanding the foregoing, the Company shall not, and shall not
permit any Restricted Subsidiary to, Incur any Indebtedness pursuant to the
foregoing paragraph (b) if the proceeds thereof are used, directly or
indirectly, to Refinance (1) any Subordinated Obligations unless such
Indebtedness shall be subordinated to the Notes and the Subsidiary Guarantees,
as applicable, to at least the same extent as such Subordinated Obligations or
(2) any Senior Subordinated Indebtedness unless such Indebtedness shall be
Senior Subordinated Indebtedness or shall be subordinated to the Notes and the
Subsidiary Guarantees, as applicable; provided, however, that clause (2) above
shall not prohibit the Refinancing of all or any part of the GM Note with
Refinancing Indebtedness if, at the time of such Incurrence, no Default shall
have occurred and be continuing (or would result therefrom).
(d) For purposes of determining compliance with the foregoing covenant, (1)
in the event that an item of Indebtedness meets the criteria of more than one
of the types of Indebtedness described above, the Company, in its sole
discretion, will classify such item of Indebtedness at the time of Incurrence
and only be required to include the amount and type of such Indebtedness in one
of the above clauses (provided that any Indebtedness classified as Incurred
pursuant to clause (b)(14) above may later be reclassified as having been
Incurred pursuant to paragraph (a) above to the extent that such reclassified
Indebtedness could be Incurred pursuant to paragraph (a) above at the time of
such reclassification) and (2) an item of Indebtedness may be divided and
classified in more than one of the types of Indebtedness described above.
(e) Notwithstanding paragraphs (a) and (b) above, the Company shall not, and
shall not permit any Subsidiary Guarantor to, Incur (1) any Indebtedness if
such Indebtedness is subordinate or junior in ranking in any respect to any
Senior Indebtedness of the Company or such Subsidiary Guarantor, as applicable,
unless such Indebtedness is Senior Subordinated Indebtedness or is expressly
subordinated in right of payment to Senior Subordinated Indebtedness or (2) any
Secured Indebtedness that is not Senior Indebtedness of the Company or such
Subsidiary Guarantor, as applicable, unless contemporaneously therewith
effective provision is made to secure the Notes or the Subsidiary Guarantee, as
applicable, equally and ratably with such Secured Indebtedness for so long as
such Secured Indebtedness is secured by a Lien.
Limitation on Restricted Payments
(a) The Company shall not, and shall not permit any Restricted Subsidiary,
directly or indirectly, to make a Restricted Payment if at the time the Company
or such Restricted Subsidiary makes such Restricted Payment:
(1) a Default shall have occurred and be continuing (or would result
therefrom);
(2) the Company is not able to Incur an additional $1.00 of Indebtedness
pursuant to paragraph (a) of the covenant described under "--Limitation on
Indebtedness"; or
(3) the aggregate amount of such Restricted Payment together with all
other Restricted Payments (the amount of any payments made in property
other than in cash to be valued at the fair market value of such property,
as determined in good faith by the Board of Directors) declared or made
since the Issue Date would exceed the sum (without duplication) of:
(A) 50% of the Consolidated Net Income accrued during the period
(treated as one accounting period) from the beginning of the fiscal
quarter immediately following the fiscal quarter during which the Notes
are originally issued to the end of the most recent fiscal quarter
ending at least 45 days (or, if less, the number of days after the end
of such fiscal quarter as the consolidated financial statements of the
Company shall be provided to the Noteholders pursuant to the Indenture)
prior to the date of such Restricted Payment (or, in case such
Consolidated Net Income accrued during such period (treated as one
accounting period) shall be a deficit, minus 100% of such deficit);
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(B) the aggregate Net Cash Proceeds received by the Company from the
issuance or sale of its Capital Stock (other than Disqualified Stock)
subsequent to the Issue Date (other than an issuance or sale to a
Subsidiary of the Company and other than an issuance or sale to an
employee stock ownership plan or to a trust established by the Company
or any of its Subsidiaries for the benefit of their employees to the
extent that the purchase by such plan or trust is financed by
Indebtedness of such plan or trust to the Company or any Subsidiary or
for which the Company or any Subsidiary is liable, directly or
indirectly, as a guarantor or otherwise (including by the making of
cash contributions to such plan or trust which are used to pay interest
or principal on such Indebtedness));
(C) the amount by which Indebtedness of the Company or its
Restricted Subsidiaries is reduced on the Company's balance sheet upon
the conversion or exchange (other than by a Subsidiary of the Company)
subsequent to the Issue Date, of any Indebtedness of the Company or its
Restricted Subsidiaries convertible or exchangeable for Capital Stock
(other than Disqualified Stock) of the Company (less the amount of any
cash, or the fair value of any other property, distributed by the
Company or any Restricted Subsidiary upon such conversion or exchange);
and
(D) an amount equal to the sum of (i) the net reduction in
Investments (other than Permitted Investments) made by the Company or
any Restricted Subsidiary in any Person resulting from repurchases,
repayments or redemptions of such Investments by such Person, proceeds
realized on the sale of such Investments and proceeds representing the
return of capital (excluding dividends and distributions), in each case
received by the Company or any Restricted Subsidiary, and (ii) to the
extent such Person is an Unrestricted Subsidiary, the portion
(proportionate to the Company's equity interest in such Subsidiary) of
the fair market value of the net assets of an Unrestricted Subsidiary
at the time such Unrestricted Subsidiary is designated a Restricted
Subsidiary; provided, however, that the foregoing sum shall not exceed,
in the case of any Person or Unrestricted Subsidiary, the amount of
Investments (other than Permitted Investments) previously made (and
treated as a Restricted Payment) by the Company or any Restricted
Subsidiary in such Person or Unrestricted Subsidiary.
(b) The provisions of the foregoing paragraph (a) shall not prohibit:
(1) any purchase or redemption of Capital Stock or Subordinated
Obligations of the Company or any Restricted Subsidiary made by exchange
for, or out of the proceeds of the substantially concurrent sale of,
Capital Stock of the Company (other than Disqualified Stock and other than
Capital Stock issued or sold to a Subsidiary of the Company or an employee
stock ownership plan or to a trust established by the Company or any of its
Subsidiaries for the benefit of their employees to the extent that the
purchase by such plan or trust is financed by Indebtedness of such plan or
trust to the Company or any Subsidiary or for which the Company or any
Subsidiary is liable, directly or indirectly, as a guarantor or otherwise
(including by the making of cash contributions to such plan or trust which
are used to pay interest or principal on such Indebtedness)); provided,
however, that (A) such purchase or redemption shall be excluded in the
calculation of the amount of Restricted Payments and (B) the Net Cash
Proceeds from such sale shall be excluded from the calculation of amounts
under clause (3)(B) of paragraph (a) above;
(2) any purchase or redemption of (A) Subordinated Obligations of the
Company made by exchange for, or out of the proceeds of the substantially
concurrent sale of, Indebtedness of the Company which is permitted to be
Incurred pursuant to paragraphs (b) and (c) of the covenant described under
"--Limitation on Indebtedness" or (B) Subordinated Obligations of a
Restricted Subsidiary made by exchange for, or out of the proceeds of the
substantially concurrent sale of, Indebtedness of such Restricted
Subsidiary or the Company which is permitted to be Incurred pursuant to
paragraphs (b) and (c) of the covenant described under "--Limitation on
Indebtedness"; provided, however, that such purchase or redemption shall be
excluded in the calculation of the amount of Restricted Payments;
(3) any purchase or redemption of (A) Disqualified Stock of the Company
made by exchange for, or out of the proceeds of the substantially
concurrent sale of, Disqualified Stock of the Company or (B) Disqualified
Stock of a Restricted Subsidiary made by exchange for, or out of the
proceeds of the substantially concurrent sale of, Disqualified Stock of
such Restricted Subsidiary or the Company;
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provided, however, that (i) at the time of such exchange, no Default shall
have occurred and be continuing or would result therefrom and (ii) such
purchase or redemption will be excluded in the calculation of the amount of
Restricted Payments;
(4) any purchase or redemption of Subordinated Obligations from Net
Available Cash to the extent permitted by the covenant described under "--
Limitation on Sales of Assets and Subsidiary Stock"; provided, however,
that such purchase or redemption will be excluded in the calculation of the
amount of Restricted Payments;
(5) upon the occurrence of a Change of Control and within 60 days after
the completion of the offer to repurchase the Notes pursuant to the
covenant described under "--Change of Control" above (including the
purchase of all Notes tendered), any purchase or redemption of Subordinated
Obligations required pursuant to the terms thereof as a result of such
Change of Control at a purchase or redemption price not to exceed the
outstanding principal amount thereof, plus accrued and unpaid interest
thereon, if any; provided, however, that (A) at the time of such purchase
or redemption, no Default shall have occurred and be continuing (or would
result therefrom), (B) the Company would be able to Incur an additional
$1.00 of Indebtedness pursuant to paragraph (a) of the covenant described
under "--Limitation on Indebtedness" after giving pro forma effect to such
Restricted Payment, (C) such purchase or redemption is not made, directly
or indirectly, from the proceeds of (or made in anticipation of) any
Issuance of Indebtedness by the Company or any Subsidiary and (D) such
purchase or redemption will be included in the calculation of the amount of
Restricted Payments;
(6) dividends paid within 60 days after the date of declaration thereof
if at such date of declaration such dividend would have complied with this
covenant; provided, however, that at the time of payment of such dividend,
no other Default shall have occurred and be continuing (or would result
therefrom); provided further, however, that such dividend shall be included
in the calculation of the amount of Restricted Payments;
(7) the repurchase of shares of, or options to purchase shares of,
common stock of the Company or any of its Subsidiaries from employees,
former employees, directors or former directors of the Company or any of
its Subsidiaries (or permitted transferees of such employees, former
employees, directors or former directors), pursuant to the terms of the
agreements (including employment agreements) or plans (or amendments
thereto) approved by the Board of Directors under which such individuals
purchase or sell or are granted the option to purchase or sell, shares of
such common stock; provided, however, that the aggregate amount of such
repurchases shall not exceed the sum of (A) $10.0 million and (B) the
aggregate amount of cash received by the Company after the Issue Date from
the sale of such shares to, or the exercise of options to purchase such
shares by, employees or directors of the Company or any of its
Subsidiaries; provided further, however, that such repurchases shall be
included in the calculation of the amount of Restricted Payments;
(8) any Investment in any Person engaged in a Related Business in an
aggregate amount which, when added together with the amount of all the
Investments made pursuant to this clause (8) which at such time have not
been repaid through repayments of loans or advances or other transfers of
assets, does not exceed the greater of $35.0 million or 3.5% of Total
Assets (with the fair market value of each Investment being measured at the
time made and without giving effect to subsequent changes in value);
provided, however, that such Investments shall be excluded in the
calculation of the amount of Restricted Payments; or
(9) the distribution, as a dividend or otherwise, of shares of Capital
Stock or assets of an Unrestricted Subsidiary provided that the fair market
value (as determined in good faith by the Board of Directors of the
Company) of such shares of Capital Stock or assets shall not exceed the
amount of the Investments that were made (and not subsequently reduced
pursuant to clause 3(D) of paragraph (a) above) by the Company in such
Unrestricted Subsidiary (and its Subsidiaries after giving effect to such
distribution) and were treated as Restricted Payments or were included in
the calculation of the amount of the Restricted Payments previously made;
provided, however, that (A) such distributions shall be excluded in the
95
calculation of the amount of Restricted Payments, and (B) any net reduction
in Investments in such Unrestricted Subsidiary resulting from such
distribution shall be excluded from the calculation of amounts under clause
3(D) of paragraph (a) above.
Limitation on Restrictions on Distributions from Restricted Subsidiaries
The Company shall not, and shall not permit any Restricted Subsidiary to,
create or otherwise cause or permit to exist or become effective any consensual
encumbrance or consensual restriction on the ability of any Restricted
Subsidiary (a) to pay dividends or make any other distributions on its Capital
Stock to the Company or a Restricted Subsidiary or pay any Indebtedness owed to
the Company, (b) to make any loans or advances to the Company or (c) transfer
any of its property or assets to the Company, except:
(1) any encumbrance or restriction pursuant to an agreement in effect at
or entered into on the Issue Date;
(2) any encumbrance or restriction with respect to a Restricted
Subsidiary pursuant to an agreement relating to any Indebtedness Incurred
by such Restricted Subsidiary which was entered into on or prior to the
date on which such Restricted Subsidiary was acquired by the Company (other
than as consideration in, or to provide all or any portion of the funds or
credit support utilized to consummate, the transaction or series of related
transactions pursuant to which such Restricted Subsidiary became a
Restricted Subsidiary or was acquired by the Company) and outstanding on
such date;
(3) any encumbrance or restriction pursuant to an agreement effecting a
Refinancing of Indebtedness Incurred pursuant to an agreement referred to
in clause (1) or (2) of this covenant (or effecting a Refinancing of such
Refinancing Indebtedness pursuant to this clause (3)) or contained in any
amendment to an agreement referred to in clause (1) or (2) of this covenant
or this clause (3); provided, however, that the encumbrances and
restrictions with respect to such Restricted Subsidiary contained in any
such refinancing agreement or amendment are no more restrictive in any
material respect than the encumbrances and restrictions with respect to
such Restricted Subsidiary contained in such agreements;
(4) any encumbrance or restriction consisting of customary non-
assignment provisions in leases governing leasehold interests to the extent
such provisions restrict the transfer of the lease or the property leased
thereunder;
(5) in the case of clause (c) above, any restriction contained in
security agreements or mortgages securing Indebtedness of a Restricted
Subsidiary to the extent such restrictions restrict the transfer of the
property subject to such security agreements or mortgages;
(6) any restriction with respect to a Restricted Subsidiary imposed
pursuant to an agreement entered into for the sale or disposition of all or
substantially all the Capital Stock or assets of such Restricted Subsidiary
pending the closing of such sale or disposition;
(7) any encumbrance or restriction with respect to any Receivables
Subsidiary pursuant to an agreement related to Indebtedness of the
Receivables Subsidiary which is permitted under the covenant described
under "--Limitation on Indebtedness" or pursuant to any agreement relating
to a Financing Disposition to or by the Receivables Subsidiary;
(8) any encumbrance or restriction with respect to the disposition or
distribution of assets or property and contained in joint venture
agreements and other similar agreements entered into in the ordinary course
of business; and
(9) any restriction contained in any agreement or instrument governing
Capital Stock (other than Disqualified Stock) of any Restricted Subsidiary
that is in effect on the date such Restricted Subsidiary is acquired by the
Company or a Restricted Subsidiary.
96
Limitation on Sales of Assets and Subsidiary Stock
The Company shall not, and shall not permit any Restricted Subsidiary to,
consummate any Asset Disposition unless the Company or such Restricted
Subsidiary receives consideration at the time of such Asset Disposition at
least equal to the fair market value (including as to the value of all non-cash
consideration), as determined in good faith by the Board of Directors, of the
shares and assets subject to such Asset Disposition and at least 75% (or 100%
in the case of lease payments) of the consideration thereof received by the
Company or such Restricted Subsidiary is in the form of cash or cash
equivalents. In the event and to the extent that the Net Available Cash
received by the Company or any Restricted Subsidiary from one or more Asset
Dispositions occurring on or after the Issue Date exceeds $10.0 million, then
the Company or such Restricted Subsidiary shall:
(1) within 360 days after the date such Net Available Cash so received
exceeds $10.0 million and to the extent the Company or such Restricted
Subsidiary elects (or is required by the terms of any Senior Indebtedness)
to (A) apply an amount equal to such excess Net Available Cash to prepay,
repay or purchase Senior Indebtedness of the Company or such Restricted
Subsidiary, in each case owing to a Person other than the Company or any
Affiliate of the Company, or (B) invest (or enter into a binding commitment
to invest, provided that such commitment shall be subject only to customary
conditions (other than financing) and such investment shall be consummated
within 360 days after the end of such 360-day period) an equal amount, or
the amount not so applied pursuant to clause (A), in Additional Assets
(including by means of an Investment in Additional Assets by a Restricted
Subsidiary with Net Available Cash received by the Company or another
Restricted Subsidiary); and
(2) apply such excess Net Available Cash (to the extent not applied
pursuant to clause (1)) as provided in the following paragraphs of the
covenant described hereunder;
provided, however, that in connection with any prepayment, repayment or
purchase of Senior Indebtedness pursuant to clause (A) above, the Company or
such Restricted Subsidiary shall retire such Senior Indebtedness and shall
cause the related loan commitment (if any) to be permanently reduced in an
amount equal to the principal amount so prepaid, repaid or purchased. The
amount of such excess Net Available Cash required to be applied pursuant to
clause (2) above and not theretofore so applied shall constitute "Excess
Proceeds." Pending application of Net Available Cash pursuant to this
provision, such Net Available Cash shall be invested in Temporary Cash
Investments.
If at any time the aggregate amount of Excess Proceeds not theretofore
subject to an Excess Proceeds Offer (as defined below) totals at least $10.0
million, the Company shall, not later than 30 days after the end of the period
during which the Company is required to apply such Excess Proceeds pursuant to
clause (1) of the immediately preceding paragraph (or, if the Company so
elects, at any time within such period), make an offer (an "Excess Proceeds
Offer") to purchase from the Holders (and to holders of other Senior
Subordinated Indebtedness designated by the Company) on a pro rata basis an
aggregate principal amount of Notes (and such other Senior Subordinated
Indebtedness) equal to the Excess Proceeds (rounded down to the nearest
multiple of $1,000) on such date, pursuant to and subject to the conditions
(including prorationing in the event of over-subscription) contained in the
Indenture. Upon completion of an Excess Proceeds Offer, the amount of Excess
Proceeds remaining after application pursuant to such Excess Proceeds Offer
(including payment of the purchase price for Notes duly tendered) may be used
by the Company for any corporate purpose (to the extent not otherwise
prohibited by the Indenture).
For the purposes of this covenant, the following are deemed to be cash: (x)
the assumption of Senior Indebtedness of the Company or any Restricted
Subsidiary and the release of the Company or such Restricted Subsidiary from
all liability on such Indebtedness in connection with such Asset Disposition
and (y) securities received by the Company or any Restricted Subsidiary from
the transferee that are promptly converted by the Company or such Restricted
Subsidiary into cash.
The Company shall comply, to the extent applicable, with the requirements of
Section 14(e) of the Exchange Act and any other securities laws or regulations
thereunder in the event that such Excess Proceeds
97
are received by the Company under the covenant described hereunder and the
Company is required to repurchase Notes as described above. To the extent that
the provisions of any securities laws or regulations conflict with the
provisions of the covenant described hereunder, the Company shall comply with
the applicable securities laws and regulations and shall not be deemed to have
breached its obligations under the covenant described hereunder by virtue
thereof.
Limitation on Affiliate Transactions
(a) The Company shall not, and shall not permit any Restricted Subsidiary
to, enter into or permit to exist any transaction (including the purchase,
sale, lease or exchange of any property, employee compensation arrangements or
the rendering of any service) with any Affiliate of the Company (an "Affiliate
Transaction") unless:
(1) the terms thereof are no less favorable to the Company or such
Restricted Subsidiary than those that could be obtained at the time of such
transaction in arm's-length dealings with a Person who is not such an
Affiliate;
(2) if such Affiliate Transaction involves an amount in excess of $5.0
million, the terms thereof (A) are set forth in writing, (B) comply with
clause (1) and (C) have been approved by a majority of the disinterested
members of the Board of Directors; and
(3) if such Affiliate Transaction involves an amount in excess of $10.0
million, the terms thereof (A) comply with clause (2) and (B) have been
determined by a nationally recognized investment banking firm to be fair,
from a financial standpoint, to the Company or such Restricted Subsidiary,
as the case may be; provided, however, that no such opinion shall be
required with respect to any Financing Disposition.
(b) The provisions of the foregoing paragraph (a) shall not prohibit:
(1) any Restricted Payment permitted to be paid pursuant to the covenant
described under "--Limitation on Restricted Payments;"
(2) any issuance of securities, or other payments, awards or grants in
cash, securities or otherwise pursuant to, or the funding of, employment
arrangements, stock options and stock ownership plans in the ordinary
course of business and approved by the Board of Directors;
(3) the grant of stock options or similar rights to employees and
directors of the Company in the ordinary course of business and pursuant to
plans approved by the Board of Directors;
(4) loans or advances to employees in the ordinary course of business of
the Company or its Restricted Subsidiaries;
(5) fees, compensation or employee benefit arrangements paid to and
indemnity provided for the benefit of directors, officers or employees of
the Company or any Subsidiary in the ordinary course of business;
(6) management fees or compensation paid to any CVC Investor; provided,
however, that the amount of such fees and compensation payable to all CVC
Investors in any twelve-month period shall not exceed $1.5 million in the
aggregate;
(7) the issuance or sale of any Capital Stock (other than Disqualified
Stock) of the Company; or
(8) any Affiliate Transaction between the Company and a Restricted
Subsidiary or between Restricted Subsidiaries in the ordinary course of
business (so long as the other stockholders of any participating Restricted
Subsidiaries which are not Wholly Owned Restricted Subsidiaries are not
themselves Affiliates of the Company).
98
Limitation on the Issuance or Sale of Capital Stock of Restricted Subsidiaries
The Company shall not:
(1) sell, pledge, hypothecate or otherwise dispose of any shares of
Capital Stock of a Restricted Subsidiary (other than pledges of Capital
Stock securing Indebtedness under paragraph (b)(1) of the covenant
described under "--Limitation on Indebtedness"); or
(2) permit any Restricted Subsidiary, directly or indirectly, to issue
or sell or otherwise dispose of any shares of its Capital Stock other than
(A) to the Company or a Wholly Owned Subsidiary, (B) directors' qualifying
shares, (C) if, immediately after giving effect to such issuance or sale,
such Restricted Subsidiary would no longer constitute a Restricted
Subsidiary or (D) with respect to the common stock of any Restricted
Subsidiary, in a Public Equity Offering as a result of or after which a
Public Market exists; provided, however, that, in the case of clauses (C)
and (D), such issuance, sale or disposition or Public Equity Offering
complies with the covenant described under "--Limitation on Sales of Assets
and Subsidiary Stock." Upon any issuance or sale of Capital Stock pursuant
to clause (C) above and delivery of a supplemental indenture to the Trustee
in accordance with the terms of the Indenture, any such Restricted
Subsidiary that is a Subsidiary Guarantor shall be released from all its
obligations under its Subsidiary Guarantee.
Limitation on Liens
The Company shall not, and shall not permit any Restricted Subsidiary to,
directly or indirectly, Incur or permit to exist any Lien of any nature
whatsoever on any property of the Company or any Restricted Subsidiary
(including Capital Stock of a Restricted Subsidiary), whether owned at the
Issue Date or thereafter acquired, which secures Indebtedness that ranks pari
passu with or subordinated to the Notes or the Subsidiary Guarantee unless:
(1) if such Lien secures Indebtedness that ranks pari passu with the
Notes and the Subsidiary Guarantee, the Notes are secured on an equal and
ratable basis with the obligations so secured until such time as such
obligation is no longer secured by a Lien; or
(2) if such Lien secures Indebtedness that is subordinated to the Notes
and the Subsidiary Guarantee, such Lien shall be subordinated to a Lien
granted to the Holders in the same collateral as that securing such Lien to
the same extent as such subordinated Indebtedness is subordinated to the
Note and the Subsidiary Guarantee.
Merger and Consolidation
The Company shall not consolidate with or merge with or into, or convey,
transfer or lease, in one transaction or a series of transactions, all or
substantially all its assets to, any Person, unless:
(1) the resulting, surviving or transferee Person (the "Successor
Company") shall be a Person organized and existing under the laws of the
United States of America, any State thereof or the District of Columbia and
the Successor Company (if not the Company) shall expressly assume, by an
indenture supplemental thereto, executed and delivered to the Trustee, in
form satisfactory to the Trustee, all the obligations of the Company under
the Notes and the Indenture;
(2) immediately after giving effect to such transaction (and treating
any Indebtedness which becomes an obligation of the Successor Company or
any Subsidiary as a result of such transaction as having been Incurred by
such Successor Company or such Subsidiary at the time of such transaction),
no Default shall have occurred and be continuing;
(3) except in the case of a merger the sole purpose of which is to
change the Company's jurisdiction of incorporation, immediately after
giving effect to such transaction, the Successor Company would be able to
Incur an additional $1.00 of Indebtedness pursuant to paragraph (a) of the
covenant described under "--Limitation on Indebtedness"; and
99
(4) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that such
consolidation, merger or transfer and such supplemental indenture (if any)
comply with the Indenture.
Notwithstanding the foregoing clauses (2) and (3), any Restricted Subsidiary
may consolidate with, merge into or transfer all or part of its properties and
assets to the Company.
The Successor Company shall be the successor to the Company and shall
succeed to, and be substituted for, and may exercise every right and power of,
the Company under the Indenture, but the predecessor Company in the case of a
conveyance, transfer or lease shall not be released from the obligation to pay
the principal of and interest on the Notes.
The Company shall not permit any Subsidiary Guarantor to consolidate with or
merge with or into, or convey, transfer or lease, in one transaction or a
series of transactions, all or substantially all its assets to, any Person,
unless:
(1) the resulting, surviving or transferee Person (if not such
Subsidiary) shall be a Person organized and existing under the laws of the
United States of America, any State thereof or the District of Columbia and
the Successor Company (if not such Subsidiary) shall expressly assume, by a
supplemental indenture, in form satisfactory to the Trustee, all the
obligations of such Subsidiary under its Subsidiary Guarantee;
(2) immediately after giving effect to such transaction on a pro forma
basis (and treating any Indebtedness which becomes an obligation of the
resulting, surviving or transferee Person as a result of such transaction
as having been Incurred by such Person at the time of such transaction), no
Default shall have occurred and be continuing; and
(3) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that such
consolidation, merger or transfer and such supplemental indenture (if any)
comply with the Indenture.
The provisions of clauses (1) and (3) above shall not apply to any
transactions which constitute an Asset Disposition if the Company has complied
with the applicable provisions of the covenant described under "--Limitation on
Sales of Assets and Subsidiary Stock" above.
Future Guarantors
The Company shall cause each Domestic Restricted Subsidiary to execute and
deliver to the Trustee a supplemental indenture pursuant to which such
Restricted Subsidiary will Guarantee payment of the Notes on the same terms and
conditions as those set forth in the Indenture. Each Subsidiary Guarantee will
be limited in amount to an amount not to exceed the maximum amount that can be
Guaranteed by the applicable Subsidiary Guarantor without rendering such
Subsidiary Guarantee voidable under applicable law relating to fraudulent
conveyance or fraudulent transfer or similar laws affecting the rights of
creditors generally.
SEC Reports
Notwithstanding that the Company may not be subject to the reporting
requirements of Section 13 or 15(d) of the Exchange Act, the Company shall file
with the SEC and provide the Trustee and Note Holders with annual reports and
information, documents and other reports as are specified in those Sections and
applicable to a U.S. corporation subject to those Sections, the information,
documents and other reports to be so filed and provided at the times specified
for the filing of the information, documents and reports under those Sections;
provided, however, that the Company shall not be required to file any report,
document or other information with the SEC if the SEC does not permit the
filing.
In addition, the Company shall furnish to the Holders of the Notes and to
prospective investors, upon the requests of such Holders, any information
required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act
so long as the Notes are not freely transferable under the Securities Act.
100
Defaults
An Event of Default is defined in the Indenture as:
(1) a default in the payment of interest on the Notes when due (whether
or not such payment is prohibited by the provisions described under
"Subordination" above), continued for 30 days;
(2) a default in the payment of principal of any Note when due at its
Stated Maturity, upon optional redemption, upon required repurchase, upon
declaration or otherwise (whether or not such payment is prohibited by the
provisions described under "Subordination" above);
(3) the failure by the Company to comply with its obligations under "--
Certain Covenants--Merger and Consolidation" above;
(4) the failure by the Company to comply for 30 days after notice with
any of its obligations under the covenants described above under "--Change
of Control" or "--Certain Covenants" (other than a failure to purchase
Notes);
(5) the failure by the Company to comply for 30 days after notice with
its other agreements contained in the Indenture;
(6) Indebtedness of the Company or any Significant Subsidiary is not
paid within any applicable grace period after final maturity or is
accelerated by the holders thereof because of a default and the total
amount of such Indebtedness unpaid or accelerated exceeds $10.0 million and
such failure continues for 10 days after notice (the "cross acceleration
provision");
(7) certain events of bankruptcy, insolvency or reorganization of the
Company or a Significant Subsidiary (the "bankruptcy provisions");
(8) any judgment or decree for the payment of money in excess of $10.0
million is rendered against the Company or a Significant Subsidiary,
remains outstanding for a period of 60 days following such judgment and is
not discharged, waived or stayed within 10 days after notice (the "judgment
default provision"); or
(9) a Subsidiary Guarantee ceases or otherwise fails to be in full force
and effect (other than in accordance with the terms of such Subsidiary
Guarantee) or a Subsidiary Guarantor denies or disaffirms its obligations
under its Subsidiary Guarantee and such Default continues for 10 days.
However, a default under clause (4), (5), (6) or (8) will not constitute an
Event of Default until the Trustee or the Holders of 25% in principal amount of
the outstanding Notes notify the Company of the default and the Company does
not cure such default within the time specified in clauses (4), (5), (6) and
(8) hereof after receipt of such notice.
If an Event of Default occurs and is continuing, the Trustee or the Holders
of at least 25% in principal amount of the outstanding Notes may declare the
principal of and accrued but unpaid interest on all the Notes to be due and
payable. Upon such a declaration, such principal and interest shall be due and
payable immediately. If an Event of Default relating to certain events of
bankruptcy, insolvency or reorganization of the Company occurs and is
continuing, the principal of and interest on all the Notes will ipso facto
become and be immediately due and payable without any declaration or other act
on the part of the Trustee or any Holders of the Notes. Under certain
circumstances, the Holders of a majority in principal amount of the outstanding
Notes may rescind any such acceleration with respect to the Notes and its
consequences.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, in case an Event of Default occurs and is continuing, the Trustee will
be under no obligation to exercise any of the rights or powers under the
Indenture at the request or direction of any of the Holders unless such Holders
have offered to the Trustee reasonable indemnity or security against any loss,
liability or expense. Except to enforce the right to receive
101
payment of principal, premium (if any) or interest when due, no Holder may
pursue any remedy with respect to the Indenture or the Notes unless:
(1) such Holder has previously given the Trustee notice that an Event of
Default is continuing;
(2) Holders of at least 25% in principal amount of the outstanding Notes
have requested the Trustee to pursue the remedy;
(3) such Holders have offered the Trustee reasonable security or
indemnity against any loss, liability or expense;
(4) the Trustee has not complied with such request within 60 days after
the receipt thereof and the offer of security or indemnity; and
(5) the Holders of a majority in principal amount of the outstanding
Notes have not given the Trustee a direction inconsistent with such request
within such 60-day period.
Subject to certain restrictions, the Holders of a majority in principal
amount of the outstanding Notes are given the right to direct the time, method
and place of conducting any proceeding for any remedy available to the Trustee
or of exercising any trust or power conferred on the Trustee. The Trustee,
however, may refuse to follow any direction that conflicts with law or the
Indenture or that the Trustee determines is unduly prejudicial to the rights of
any other Holder or that would involve the Trustee in personal liability.
The Indenture provides that if a Default occurs and is continuing and is
known to the Trustee, the Trustee must mail to each Holder notice of the
Default within 90 days after it occurs. Except in the case of a Default in the
payment of principal of or interest on any Note, the Trustee may withhold
notice if and so long as a committee of its trust officers determines that
withholding notice is not opposed to the interest of the Holders. In addition,
the Company is required to deliver to the Trustee, within 120 days after the
end of each fiscal year, a certificate indicating whether the signers thereof
know of any Default that occurred during the previous year. The Company also is
required to deliver to the Trustee, within 30 days after the occurrence
thereof, written notice of any event which would constitute certain Defaults,
their status and what action the Company is taking or proposes to take in
respect thereof.
Amendments and Waivers
Subject to certain exceptions, the Indenture may be amended with the consent
of the Holders of a majority in principal amount of the Notes then outstanding
(including consents obtained in connection with a tender offer or exchange for
the Notes) and any past default or compliance with any provisions may also be
waived with the consent of the Holders of a majority in principal amount of the
Notes then outstanding. However, without the consent of each Holder of an
outstanding Note affected thereby, no amendment may, among other things:
(1) reduce the amount of Notes whose Holders must consent to an
amendment;
(2) reduce the rate of or extend the time for payment of interest on any
Note;
(3) reduce the principal of or extend the Stated Maturity of any Note;
(4) reduce the amount payable upon the redemption of any Note or change
the time at which any Note may be redeemed as described under "--Optional
Redemption" above;
(5) make any Note payable in money other than that stated in the Note;
(6) impair the right of any Holder to institute suit for the enforcement
of any payment on or with respect to such Holder's Notes or any Subsidiary
Guarantee;
(7) make any change in the amendment provisions which require each
Holder's consent or in the waiver provisions;
(8) make any change to the subordination provisions of the Indenture
that would adversely affect the Noteholders; or
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(9) make any change in any Subsidiary Guaranty that would adversely
affect the Noteholders.
Without the consent of any Holder, the Company and Trustee may amend the
Indenture to cure any ambiguity, omission, defect or inconsistency, to provide
for the assumption by a successor corporation of the obligations of the Company
under the Indenture, to provide for uncertificated Notes in addition to or in
place of certificated Notes (provided that the uncertificated Notes are issued
in registered form for purposes of Section 163(f) of the Code, or in a manner
such that the uncertificated Notes are described in Section 163(f)(2)(B) of the
Code), to add guarantees with respect to the Notes, to release Subsidiary
Guarantors when permitted by the Indenture, to secure the Notes, to add to the
covenants of the Company for the benefit of the Holders or to surrender any
right or power conferred upon the Company, to make any change that does not
adversely affect the rights of any Holder or to comply with any requirement of
the SEC in connection with the qualification of the Indenture under the Trust
Indenture Act. However, no amendment may be made to the subordination
provisions of the Indenture that adversely affects the rights of any holder of
Senior Indebtedness then outstanding unless the holders of such Senior
Indebtedness (or their Representative) consent to such change.
The consent of the Holders is not necessary under the Indenture to approve
the particular form of any proposed amendment. It is sufficient if such consent
approves the substance of the proposed amendment.
After an amendment under the Indenture becomes effective, the Company is
required to mail to Holders a notice briefly describing such amendment.
However, the failure to give such notice to all Holders, or any defect therein,
will not impair or affect the validity of the amendment.
Transfer
Certificated Notes will be issued in registered form and will be
transferable only upon the surrender of the Notes being transferred for
registration of transfer. The Company may require payment of a sum sufficient
to cover any tax, assessment or other governmental charge payable in connection
with certain transfers and exchanges.
Defeasance
The Company at any time may terminate all its obligations under the Notes
and the Indenture ("legal defeasance"), except for certain obligations,
including those respecting the defeasance trust and obligations to register the
transfer or exchange of the Notes, to replace mutilated, destroyed, lost or
stolen Notes and to maintain a registrar and paying agent in respect of the
Notes. The Company at any time may terminate its obligations under "--Change of
Control" and under the covenants described under "--Certain Covenants" (other
than the covenant described under "--Merger and Consolidation"), the operation
of the cross acceleration provision, the bankruptcy provisions with respect to
Significant Subsidiaries and the judgment default provision described under "--
Defaults" above and the limitations contained in clause (3) of the first
paragraph under "--Certain Covenants--Merger and Consolidation" above
("covenant defeasance").
The Company may exercise its legal defeasance option notwithstanding its
prior exercise of its covenant defeasance option. If the Company exercises its
legal defeasance option, payment of the Notes may not be accelerated because of
an Event of Default with respect thereto. If the Company exercises its covenant
defeasance option, payment of the Notes may not be accelerated because of an
Event of Default specified in clause (4), (6), (7) (with respect only to
Significant Subsidiaries) or (8) under "--Defaults" above or because of the
failure of the Company to comply with clause (3) of the first paragraph under
"--Certain Covenants--Merger and Consolidation" above. If the Company exercises
its legal defeasance option or its covenant defeasance option, each Subsidiary
Guarantor will be released from all of its obligations with respect to its
Subsidiary Guarantee.
In order to exercise either defeasance option, the Company must irrevocably
deposit in trust (the "defeasance trust") with the Trustee money or U.S.
Government Obligations for the payment of principal and
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interest on the Notes to redemption or maturity, as the case may be, and must
comply with certain other conditions, including delivery to the Trustee of an
Opinion of Counsel to the effect that Holders of the Notes will not recognize
income, gain or loss for Federal income tax purposes as a result of such
deposit and defeasance and will be subject to Federal income tax on the same
amount and in the same manner and at the same times as would have been the case
if such deposit and defeasance had not occurred (and, in the case of legal
defeasance only, such Opinion of Counsel must be based on a ruling of the
Internal Revenue Service or other change in applicable Federal income tax law).
Concerning the Trustee
First Union National Bank is to be the Trustee under the Indenture and has
been appointed by the Company as Registrar and Paying Agent with regard to the
Notes.
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any
such claim as security or otherwise. The Trustee will be permitted to engage in
other transactions; provided, however, if it acquires any conflicting interest
it must either eliminate such conflict within 90 days, apply to the SEC for
permission to continue or resign.
The Holders of a majority in principal amount of the outstanding Notes will
have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that if an Event of Default occurs
(and is not cured), the Trustee will be required, in the exercise of its power,
to use the degree of care of a prudent man in the conduct of his own affairs.
Subject to such provisions, the Trustee will be under no obligation to exercise
any of its rights or powers under the Indenture at the request of any Holder of
Notes, unless such Holder shall have offered to the Trustee security and
indemnity satisfactory to it against any loss, liability or expense and then
only to the extent required by the terms of the Indenture.
No Personal Liability of Directors, Officers, Employees and Stockholders
No director, officer, employee, incorporator or stockholder of the Company
or any Subsidiary Guarantor will have any liability for any obligations of the
Company or any Subsidiary Guarantor under the Notes, any Subsidiary Guarantee
or the Indenture or for any claim based on, in respect of, or by reason of such
obligations or their creation. Each Holder of the Notes by accepting a Note
waives and releases all such liability. The waiver and release are part of the
consideration for issuance of the Notes. Such waiver and release may not be
effective to waive liabilities under the U.S. federal securities laws, and it
is the view of the SEC that such a waiver is against public policy.
Governing Law
The Indenture provides that it and the Notes will be governed by, and
construed in accordance with, the laws of the State of New York without giving
effect to applicable principles of conflicts of law to the extent that the
application of the law of another jurisdiction would be required thereby.
Certain Definitions
"Additional Assets" means:
(1) any property or assets (other than Indebtedness and Capital Stock)
in a Related Business;
(2) the Capital Stock of a Person that becomes a Restricted Subsidiary
as a result of the acquisition of such Capital Stock by the Company or
another Restricted Subsidiary; or
(3) Capital Stock constituting a minority interest in any Person that at
such time is a Restricted Subsidiary;
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provided, however, that any such Restricted Subsidiary described in clause (2)
or (3) above is primarily engaged in a Related Business.
"Affiliate" of any specified Person means any other Person, directly or
indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing. For
purposes of the provisions described under "--Certain Covenants--Limitation on
Restricted Payments," "--Certain Covenants--Limitation on Affiliate
Transactions" and "--Certain Covenants--Limitations on Sales of Assets and
Subsidiary Stock" only, "Affiliate" shall also mean any beneficial owner of
Capital Stock representing 10% or more of the total voting power of the Voting
Stock (on a fully diluted basis) of the Company or of rights or warrants to
purchase such Capital Stock (whether or not currently exercisable) and any
Person who would be an Affiliate of any such beneficial owner pursuant to the
first sentence hereof.
"Asset Disposition" means any sale, lease, transfer or other disposition (or
series of related sales, leases, transfers or dispositions) by the Company or
any Restricted Subsidiary, including any disposition by means of a merger,
consolidation or similar transaction (each referred to for the purposes of this
definition as a "disposition"), of:
(1) any shares of Capital Stock of a Restricted Subsidiary (other than
directors' qualifying shares and, to the extent required by local ownership
laws in foreign countries, shares owned by foreign shareholders);
(2) all or substantially all the assets of any division, business
segment or comparable line of business of the Company or any Restricted
Subsidiary; or
(3) any other assets of the Company or any Restricted Subsidiary outside
of the ordinary course of business of the Company or such Restricted
Subsidiary
(other than, in the case of (1), (2) and (3) above,
(A) a disposition by a Restricted Subsidiary to the Company or by
the Company or a Restricted Subsidiary to a Wholly Owned Subsidiary;
and
(B) for purposes of the covenant described under "--Certain
Covenants--Limitation on Sales of Assets and Subsidiary Stock" only,
(i) a disposition that constitutes a Permitted Investment or a
Restricted Payment permitted by the covenant described under "--Certain
Covenants--Limitation on Restricted Payments" and (ii) a disposition of
accounts receivable (and related assets) in connection with a Permitted
Receivables Financing).
"Asset Purchase Agreement" means the Asset Purchase Agreement dated July 13,
1994, by and among the Company, DRA and General Motors Corporation.
"Attributable Debt" in respect of a Sale/Leaseback Transaction means, as at
the time of determination, the present value (discounted at the interest rate
borne by the Notes, compounded annually) of the total obligations of the lessee
for rental payments during the remaining term of the lease included in such
Sale/Leaseback Transaction (including any period for which such lease has been
extended).
"Average Life" means, as of the date of determination, with respect to any
Indebtedness or Preferred Stock, the quotient obtained by dividing:
(1) the sum of the products of numbers of years from the date of
determination to the dates of each successive scheduled principal payment
of such Indebtedness or redemption or similar payment with respect to such
Preferred Stock multiplied by the amount of such payment by
105
(2) the sum of all such payments.
"Bank Indebtedness" means any and all amounts payable under or in respect of
the Senior Credit Facility including principal, premium (if any), interest
(including interest accruing on or after the filing of any petition in
bankruptcy or for reorganization relating to the Company whether or not a claim
for post-filing interest is allowed in such proceedings), fees, charges,
expenses, reimbursement obligations, Guarantees and all other amounts payable
thereunder or in respect thereof.
"Board of Directors" means the Board of Directors of the Company or any
committee thereof duly authorized to act on behalf of such Board.
"Business Day" means each day which is not a Legal Holiday.
"Capital Lease Obligations" means an obligation that is required to be
classified and accounted for as a capital lease for financial reporting
purposes in accordance with GAAP, and the amount of Indebtedness represented by
such obligation shall be the capitalized amount of such obligation determined
in accordance with GAAP; and the Stated Maturity thereof shall be the date of
the last payment of rent or any other amount due under such lease prior to the
first date upon which such lease may be terminated by the lessee without
payment of a penalty.
"Capital Stock" of any Person means any and all shares, interests, rights to
purchase, warrants, options, participations or other equivalents of or
interests in (however designated) equity of such Person, including any
Preferred Stock, but excluding any debt securities convertible into such
equity.
"Code" means the Internal Revenue Code of 1986, as amended.
"Consolidated Coverage Ratio" as of any date of determination means the
ratio of (x) the aggregate amount of EBITDA for the period of the most recent
four consecutive fiscal quarters ending at least 45 days (or, if less, the
number of days after the end of such fiscal quarter as the consolidated
financial statements of the Company shall be provided to the Noteholders
pursuant to the Indenture) prior to the date of such determination to (y)
Consolidated Interest Expense for such four fiscal quarters; provided, however,
that:
(1) if the Company or any Restricted Subsidiary has Incurred any
Indebtedness since the beginning of such period that remains outstanding on
such date of determination or if the transaction giving rise to the need to
calculate the Consolidated Coverage Ratio is an Incurrence of Indebtedness,
or both, EBITDA and Consolidated Interest Expense for such period shall be
calculated after giving effect on a pro forma basis to such Indebtedness as
if such Indebtedness had been Incurred on the first day of such period and
the discharge of any other Indebtedness repaid, repurchased, defeased or
otherwise discharged with the proceeds of such new Indebtedness as if such
discharge had occurred on the first day of such period (except that, in the
case of Indebtedness used to finance working capital needs incurred under a
revolving credit or similar arrangement, the amount thereof shall be deemed
to be the average daily balance of such Indebtedness during such four-
fiscal-quarter period);
(2) if since the beginning of such period the Company or any Restricted
Subsidiary shall have made any Asset Disposition, the EBITDA for such
period shall be reduced by an amount equal to the EBITDA (if positive)
directly attributable to the assets which are the subject of such Asset
Disposition for such period, or increased by an amount equal to the EBITDA
(if negative), directly attributable thereto for such period and
Consolidated Interest Expense for such period shall be reduced by an amount
equal to the Consolidated Interest Expense directly attributable to any
Indebtedness of the Company or any Restricted Subsidiary repaid,
repurchased, defeased, assumed by a third person (to the extent the Company
and its Restricted Subsidiaries are no longer liable for such Indebtedness)
or otherwise discharged with respect to the Company and its continuing
Restricted Subsidiaries in connection with such Asset Disposition for such
period (or, if the Capital Stock of any Restricted Subsidiary is sold, the
Consolidated Interest Expense for such period directly attributable to the
Indebtedness of such Restricted Subsidiary to the extent the
106
Company and its continuing Restricted Subsidiaries are no longer liable for
such Indebtedness after such sale);
(3) if the Company or any Restricted Subsidiary has repaid, repurchased,
defeased or otherwise discharged any Indebtedness since the beginning of
such period or if any Indebtedness is to be repaid, repurchased, defeased
or otherwise discharged (in each case other than Indebtedness Incurred
under any revolving credit facility unless such Indebtedness has been
permanently repaid and has not been replaced) on the date of the
transaction giving rise to the need to calculate the Consolidated Coverage
Ratio, EBITDA and Consolidated Interest Expense for such period shall be
calculated on a pro forma basis as if such discharge had occurred on the
first day of such period and as if the Company or such Restricted
Subsidiary has not earned the interest income actually earned during such
period in respect of cash or Temporary Cash Investments used to repay,
repurchase, defease or otherwise discharge such Indebtedness;
(4) if since the beginning of such period the Company or any Restricted
Subsidiary (by merger or otherwise) shall have made an Investment in any
Restricted Subsidiary (or any Person which becomes a Restricted Subsidiary)
or an acquisition of assets, which acquisition constitutes all or
substantially all of an operating unit of a business, including any such
Investment or acquisition occurring in connection with a transaction
requiring a calculation to be made hereunder, EBITDA and Consolidated
Interest Expense for such period shall be calculated after giving pro forma
effect thereto (including the Incurrence of any Indebtedness) as if such
Investment or acquisition occurred on the first day of such period; and
(5) if since the beginning of such period any Person (that subsequently
became a Restricted Subsidiary or was merged with or into the Company or
any Restricted Subsidiary since the beginning of such period) shall have
made any Asset Disposition, any Investment or acquisition of assets that
would have required an adjustment pursuant to clause (3) or (4) above if
made by the Company or a Restricted Subsidiary during such period, EBITDA
and Consolidated Interest Expense for such period shall be calculated after
giving pro forma effect thereto as if such Asset Disposition, Investment or
acquisition occurred on the first day of such period.
For purposes of this definition, whenever pro forma effect is to be given to an
acquisition of assets, the amount of income or earnings relating thereto and
the amount of Consolidated Interest Expense associated with any Indebtedness
Incurred in connection therewith, the pro forma calculations shall be
determined in good faith by a responsible financial or accounting Officer of
the Company. If any Indebtedness bears a floating rate of interest and is being
given pro forma effect, the interest of such Indebtedness shall be calculated
as if the rate in effect on the date of determination had been the applicable
rate for the entire period (taking into account any Interest Rate Agreement
applicable to such Indebtedness if such Interest Rate Agreement has a remaining
term in excess of 12 months).
"Consolidated Interest Expense" means, for any period, the total interest
expense of the Company and its consolidated Restricted Subsidiaries, plus, (a)
to the extent not included in such total interest expense, and to the extent
incurred by the Company or its Restricted Subsidiaries:
(1) interest expense attributable to Capital Lease Obligations;
(2) amortization of debt discount;
(3) capitalized interest;
(4) non-cash interest expenses;
(5) commissions, discounts and other fees and charges owed with respect
to letters of credit and bankers' acceptance financing;
(6) net costs associated with Hedging Obligations (including
amortization of fees);
(7) Preferred Stock dividends in respect of all Preferred Stock held by
Persons other than the Company or a Wholly Owned Subsidiary;
107
(8) interest incurred in connection with Investments in discontinued
operations;
(9) interest actually paid on any Indebtedness of any other Person that
is Guaranteed by the Company or any Restricted Subsidiary; and
(10) the cash contributions to any employee stock ownership plan or
similar trust to the extent such contributions are used by such plan or
trust to pay interest or fees to any Person (other than the Company or any
Wholly Owned Subsidiary) in connection with Indebtedness Incurred by such
plan or trust;
minus, (b) to the extent included in such total interest expense, amortization
of deferred financing costs, fees and expenses.
"Consolidated Net Income" means, for any period, the net income of the
Company and its consolidated Subsidiaries; provided, however, that there shall
not be included in such Consolidated Net Income:
(1) any net income (or loss) of any Person if such Person is not a
Restricted Subsidiary, except that subject to the exclusion contained in
clause (4) below, the Company's equity in the net income of any such Person
for such period shall be included in such Consolidated Net Income up to the
aggregate amount of cash actually distributed by such Person during such
period to the Company or a Restricted Subsidiary as a dividend or other
distribution (subject, in the case of a dividend or other distribution paid
to a Restricted Subsidiary, to the limitations contained in clause (3)
below);
(2) for purposes of subclause (a)(3)(A) of the covenant described under
"--Certain Covenants--Limitation on Restricted Payments" only, any net
income (or loss) of any Person acquired by the Company or a Subsidiary in a
pooling of interests transaction for any period prior to the date of such
acquisition;
(3) any net income of any Restricted Subsidiary if such Restricted
Subsidiary is subject to restrictions, directly or indirectly, on the
payment of dividends or the making of distributions by such Restricted
Subsidiary, directly or indirectly, to the Company, except that (A) subject
to the exclusion contained in clause (4) below, the Company's equity in the
net income of any such Restricted Subsidiary for such period shall be
included in such Consolidated Net Income up to the aggregate amount of cash
that could have been distributed by such Restricted Subsidiary consistent
with such restriction during such period to the Company or another
Restricted Subsidiary as a dividend or other distribution (subject, in the
case of a dividend or other distribution paid to another Restricted
Subsidiary, to the limitation contained in this clause) and (B) the
Company's equity in a net loss of any such Restricted Subsidiary for such
period shall be included in determining such Consolidated Net Income;
(4) any gain (or loss) realized upon the sale or other disposition of
any assets of the Company or its consolidated Subsidiaries (including
pursuant to any sale-and-leaseback arrangement) which is not sold or
otherwise disposed of in the ordinary course of business and any gain (or
loss) realized upon the sale or other disposition of any Capital Stock of
any Person;
(5) extraordinary gains or losses;
(6) the cumulative effect of a change in accounting principles; and
(7) any noncash compensation expense realized for grants of performance
shares, stock options or other stock awards to officers, directors and
employees of the Company or any Restricted Subsidiary.
Notwithstanding the foregoing, for the purposes of the covenant described
under "--Certain Covenants-- Limitation on Restricted Payments" only, there
shall be excluded from Consolidated Net Income any repurchases, repayments or
redemptions of Investments, proceeds realized on the sale of Investments or
return of capital to the Company or a Restricted Subsidiary to the extent such
repurchases, repayments, redemptions, proceeds or returns increase the amount
of Restricted Payments permitted under such covenant pursuant to clause
(a)(3)(D) thereof.
"Court Square" means Court Square Capital Limited, a Delaware corporation.
108
"Currency Agreement" means, with respect to any Person, any foreign exchange
contract, currency swap agreement or other similar agreement to which such
Person is a party or a beneficiary.
"CVC" means (i) any Subsidiary of Citigroup Inc., a Delaware corporation,
including Citicorp Venture Capital Ltd., a New York corporation, and Court
Square; or (ii) any investment vehicle that (A) is sponsored or managed
(whether through ownership of securities having a majority of the voting power
or through the management of investments) by any Subsidiary included in clause
(i) hereof and (B) contains, as a part of its name, "Citigroup," "CVC" or any
variant thereof; or (iii) World Equity Partners, L.P., a Delaware limited
partnership.
"CVC Investor" means (i) CVC; (ii) any officer, employee, director or
general partner of CVC or the general partner of any investment vehicle
included in the definition of CVC; and (iii) any trust, partnership or other
entity established solely for the benefit of the Persons included in (i) or
(ii) hereof.
"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"Designated Senior Indebtedness" means:
(1) the Bank Indebtedness; and
(2) any other Senior Indebtedness of the Company which, at the date of
determination, has an aggregate principal amount outstanding of, or under
which, at the date of determination, the holders thereof are committed to
lend up to, at least $10.0 million and is specifically designated by the
Company in the instrument evidencing or governing such Senior Indebtedness
as "Designated Senior Indebtedness" for purposes of the Indenture.
"Disqualified Stock" means, with respect to any Person, any Capital Stock
which by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable) or upon the happening of any
event:
(1) matures or is mandatorily redeemable pursuant to a sinking fund
obligation or otherwise;
(2) is convertible or exchangeable, at the option of the holder thereof,
for Indebtedness or Disqualified Stock; or
(3) is redeemable at the option of the holder thereof, in whole or in
part;
in each case on or prior to the first anniversary of the Stated Maturity of the
Notes.
"Domestic Restricted Subsidiary" means any Restricted Subsidiary of the
Company other than a Foreign Restricted Subsidiary.
"DRA" means Delco Remy America, Inc., a Delaware corporation and a Wholly
Owned Subsidiary.
"EBITDA" for any period means the sum of Consolidated Net Income plus
Consolidated Interest Expense plus, without duplication, the following to the
extent deducted in calculating such Consolidated Net Income:
(1) income tax expense;
(2) depreciation expense;
(3) amortization expense; and
(4) all other non-cash items reducing Consolidated Net Income (other
than items that will require cash payments and for which an accrual or
reserve is, or is required by GAAP to be, made, other than accruals for
post-retirement benefits other than pensions) less all non-cash items
increasing Consolidated Net Income;
109
in each case for such period. Notwithstanding the foregoing, the provision for
taxes based on the income or profits of, and the depreciation and amortization
of, a Subsidiary of the Company shall be added to Consolidated Net Income to
compute EBITDA only to the extent (and in the same proportion) that the net
income of such Subsidiary was included in calculating Consolidated Net Income.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Financing Disposition" means any sale of any accounts receivable, or
interest therein, by the Company or any Subsidiary to any Receivables
Subsidiary, or by the Receivables Subsidiary, pursuant to a Permitted
Receivables Financing.
"Foreign Restricted Subsidiary" means any Restricted Subsidiary of the
Company which is not organized under the laws of the United States of America
or any State thereof or the District of Columbia.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect as of the Issue Date, including those set forth in:
(1) the opinions and pronouncements of the Accounting Principles Board
of the American Institute of Certified Public Accountants;
(2) statements and pronouncements of the Financial Accounting Standards
Board; and
(3) such other statements by such other entity as approved by a
significant segment of the accounting profession.
"GM Note" means the Contingent Purchase Price Note issued by DRA pursuant
to the Asset Purchase Agreement.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness or other obligation of
any Person and any obligation, direct or indirect, contingent or otherwise, of
such Person:
(1) to purchase or pay (or advance or supply funds for the purchase or
payment of) such Indebtedness or other obligation of such Person (whether
arising by virtue of partnership arrangements, or by agreements to keep-
well, to purchase assets, goods, securities or services, to take-or-pay or
to maintain financial statement conditions or otherwise); or
(2) entered into for the purpose of assuring in any other manner the
obligee of such Indebtedness or other obligation of the payment thereof or
to protect such obligee against loss in respect thereof (in whole or in
part);
provided, however, that the term "Guarantee" shall not include endorsements
for collection or deposit in the ordinary course of business. The term
"Guarantee" used as a verb has a corresponding meaning. The term "Guarantor"
shall mean any Person Guaranteeing any obligation.
"Hedging Obligations" of any Person means the obligations of such Person
pursuant to any Interest Rate Agreement or Currency Agreement.
"Holder" or "Noteholder" means the Person in whose name a Note is
registered on the Registrar's books.
"Incur" means issue, assume, Guarantee, incur or otherwise become liable
for; provided, however, that any Indebtedness or Capital Stock of a Person
existing at the time such Person becomes a Subsidiary (whether by merger,
consolidation, acquisition or otherwise) shall be deemed to be Incurred by
such Subsidiary at the time it becomes a Subsidiary; provided further,
however, that in the case of a discount security, neither the accrual of
interest nor the accretion of original issue discount shall be considered an
Incurrence of Indebtedness, but the entire face amount of such security shall
be deemed Incurred upon the issuance of such security. The term "Incurrence"
when used as a noun shall have a correlative meaning.
110
"Indebtedness" means, with respect to any Person on any date of
determination (without duplication):
(1) the principal of and premium (if any) in respect of (A) indebtedness
of such Person for money borrowed and (B) indebtedness evidenced by notes,
debentures, bonds or other similar instruments for the payment of which
such Person is responsible or liable;
(2) all Capital Lease Obligations of such Person and all Attributable
Debt in respect of Sale/Leaseback Transactions entered into by such Person;
(3) all obligations of such Person issued or assumed as the deferred
purchase price of property or services, all conditional sale obligations of
such Person and all obligations of such Person under any title retention
agreement (but excluding trade accounts payables arising in the ordinary
course of business), which purchase price or obligation is due more than
six months after the date of placing such property in service or taking
delivery and title thereto or the completion of such services (provided
that, in the case of obligations of an acquired Person assumed in
connection with an acquisition of such Person, such obligations would
constitute Indebtedness of such Person);
(4) all obligations of such Person for the reimbursement of any obligor
on any letter of credit, banker's acceptance or similar credit transaction
(other than obligations with respect to letters of credit securing
obligations (other than obligations described in clauses (1) through (3)
above) entered into in the ordinary course of business of such Person to
the extent such letters of credit are not drawn upon or, if and to the
extent drawn upon, such drawing is reimbursed no later than the tenth
Business Day following receipt by such Person of a demand for reimbursement
following payment on the letter of credit);
(5) the amount of all obligations of such Person with respect to the
redemption, repayment or other repurchase of any Disqualified Stock or,
with respect to any Subsidiary of such Person, any Preferred Stock (but
excluding, in each case, any accrued dividends);
(6) all obligations of the type referred to in clauses (1) through (5)
of other Persons and all dividends of other Persons for the payment of
which, in either case, such Person is responsible or liable, directly or
indirectly, as obligor, guarantor or otherwise, including by means of any
Guarantee;
(7) all obligations of the type referred to in clauses (1) through (6)
of other Persons secured by any Lien on any property or asset of such
Person (whether or not such obligation is assumed by such Person), the
amount of such obligation being deemed to be the lesser of the value of
such property or assets or the amount of the obligation so secured; and
(8) to the extent not otherwise included in this definition, Hedging
Obligations of such Person.
The amount of Indebtedness of any Person at any date shall be the
outstanding balance at such date of all unconditional obligations as described
above and the maximum liability, upon the occurrence of the contingency giving
rise to the obligation, of any contingent obligations as described above at
such date; provided, however, that the amount outstanding at any time of any
Indebtedness issued with original issue discount shall be deemed to be the
face amount of such Indebtedness less the remaining unamortized portion of the
original issue discount of such Indebtedness at such time as determined in
conformity with GAAP; provided further, however, that the outstanding
principal amount of the GM Note shall be deemed to be zero until the last day
of the fiscal year or other period with respect to which the amount due
thereunder shall be determined.
"Interest Rate Agreement" means any interest rate swap agreement, interest
rate cap agreement or other financial agreement or arrangement designed to
protect the Company or any Restricted Subsidiary against fluctuations in
interest rates.
"Investment" in any Person means any direct or indirect advance, loan
(other than advances to customers in the ordinary course of business that are
recorded as accounts receivable on the balance sheet of such Person) or other
extensions of credit (including by way of Guarantee or similar arrangement) or
capital contribution to
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(by means of any transfer of cash or other property to others or any payment
for property or services for the account or use of others), or any purchase or
acquisition of Capital Stock, Indebtedness or other similar instruments issued
by such Person.
For purposes of the definition of "Unrestricted Subsidiary," the definition
of "Restricted Payment" and the covenant described under "--Certain Covenants--
Limitation on Restricted Payments:"
(1) "Investment" shall include the portion (proportionate to the
Company's equity interest in such Subsidiary) of the fair market value of
the net assets of any Subsidiary of the Company at the time that such
Subsidiary is designated an Unrestricted Subsidiary; provided, however,
that upon a redesignation of such Subsidiary as a Restricted Subsidiary,
the Company shall be deemed to continue to have a permanent "Investment" in
an Unrestricted Subsidiary equal to an amount (if positive) equal to (x)
the Company's "Investment" in such Subsidiary at the time of such
redesignation less (y) the portion (proportionate to the Company's equity
interest in such Subsidiary) of the fair market value of the net assets of
such Subsidiary at the time of such redesignation; and
(2) any property transferred to or from an Unrestricted Subsidiary shall
be valued at its fair market value at the time of such transfer, in each
case as determined in good faith by the Board of Directors.
"Issue Date" means the date on which the Notes are originally issued.
"Joint Venture" means, in respect of any Person, any corporation,
association, partnership or other business entity of which not less than 20%
and not more than 80% of the total voting power of shares of Capital Stock or
other interests (including partnership interests) entitled (without regard to
the occurrence of any contingency) to vote in the election of directors,
managers or trustees thereof is at the time owned or controlled, directly or
indirectly, by (1) such Person, (2) such Person and one or more Subsidiaries of
such Person or (3) one or more Subsidiaries of such Person.
"Legal Holiday" means a Saturday, a Sunday or a day on which banking
institutions are not required to be open in the State of New York.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including any conditional sale or other title retention
agreement or lease in the nature thereof).
"Management Investors" means each of the officers, employees and directors
of the Company who own Voting Stock of the Company, in each case so long as
such person shall remain an officer, employee or director of the Company.
"Net Available Cash" from an Asset Disposition means cash payments received
therefrom (including any cash payments received by way of deferred payment of
principal pursuant to a note or installment receivable or otherwise, but only
as and when received, but excluding any other consideration received in the
form of assumption by the acquiring Person of Indebtedness or other obligations
relating to such properties or assets or received in any other noncash form) in
each case net of:
(1) all legal, title and recording tax expenses, commissions and other
fees and expenses incurred, and all Federal, state, provincial, foreign and
local taxes required to be paid or accrued as a liability under GAAP, as a
consequence of such Asset Disposition;
(2) all payments made on any Indebtedness which is secured by any assets
subject to such Asset Disposition, in accordance with the terms of any Lien
upon or other security agreement of any kind with respect to such assets,
or which must by its terms, or in order to obtain a necessary consent to
such Asset Disposition, or by applicable law be, repaid out of the proceeds
from such Asset Disposition;
(3) all distributions and other payments required to be made to minority
interest holders in Subsidiaries or Joint Ventures as a result of such
Asset Disposition; and
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(4) the deduction of appropriate amounts provided by the seller as a
reserve, in accordance with GAAP, against any liabilities associated with
the property or other assets disposed in such Asset Disposition and
retained by the Company or any Restricted Subsidiary after such Asset
Disposition.
"Net Cash Proceeds," with respect to any issuance or sale of Capital Stock,
means the cash proceeds of such issuance or sale net of attorneys' fees,
accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees actually incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result thereof.
"Non-Wholly Owned Subsidiary" means a Restricted Subsidiary all the Capital
Stock (other than, to the extent required by local ownership laws in foreign
countries, shares owned by foreign shareholders) of which is owned by (i) the
Company or one or more Wholly Owned Subsidiaries and (ii) any of the directors,
officers, employees or former owners of such Restricted Subsidiary.
"Permitted Holders" means the CVC Investors, the Management Investors and,
in the case of any individual who is a Permitted Holder, any Permitted
Transferee (as defined in the Stockholders Agreement except a Permitted
Transferee by virtue of Section 3.5(b)(iv) of the Stockholders Agreement) of
such individual; provided, however, that in no event shall any Persons (other
than CVC), collectively, be deemed "Permitted Holders" with respect to more
than 30% of the total voting power of all classes of Voting Stock of the
Company.
"Permitted Investment" means an Investment by the Company or any Restricted
Subsidiary in:
(1) the Company;
(2) a Restricted Subsidiary or a Person that will, upon the making of
such Investment, become a Restricted Subsidiary; provided, however, that
the primary business of such Restricted Subsidiary is a Related Business;
(3) another Person if as a result of such Investment such other Person
is merged or consolidated with or into, or transfers or conveys all or
substantially all its assets to, the Company or a Domestic Restricted
Subsidiary; provided, however, that such Person's primary business is a
Related Business;
(4) Temporary Cash Investments;
(5) receivables owing to the Company or any Restricted Subsidiary if
created or acquired in the ordinary course of business and payable or
dischargeable in accordance with customary trade terms; provided, however,
that such trade terms may include such concessionary trade terms as the
Company or any such Restricted Subsidiary deems reasonable under the
circumstances;
(6) payroll, travel and similar advances to cover matters that are
expected at the time of such advances ultimately to be treated as expenses
for accounting purposes and that are made in the ordinary course of
business;
(7) loans or advances to employees made in the ordinary course of
business consistent with past practices of the Company or such Restricted
Subsidiary and not exceeding $2.0 million in the aggregate outstanding at
any time;
(8) stock, obligations or securities received in settlement of debts
created in the ordinary course of business and owing to the Company or any
Restricted Subsidiary or in satisfaction of judgments; and
(9) any Person to the extent such Investment represents the non-cash
portion of the consideration received for an Asset Disposition as permitted
pursuant to the covenant described under "--Certain Covenants--Limitation
on Sales of Assets and Subsidiary Stock."
"Permitted Receivables Financing" means any financing pursuant to which the
Company or any Restricted Subsidiary may sell, convey or otherwise transfer to
a Receivables Subsidiary or any other Person
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(in the case of a transfer by a Receivables Subsidiary), or grant a security
interest in, any accounts receivable (and related assets) of the Company or any
Restricted Subsidiary; provided, however, that:
(1) the covenants, events of default and other provisions applicable to
such financing shall be customary for such transactions and shall be on
market terms (as determined in good faith by the Board of Directors) at the
time such financing is entered into;
(2) the interest rate applicable to such financing shall be a market
interest rate (as determined in good faith by the Board of Directors) at
the time such financing is entered into; and
(3) such financing shall be non-recourse to the Company and its
Subsidiaries (other than a Receivables Subsidiary) except to a limited
extent customary for such transactions.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization,
government or any agency or political subdivision thereof or any other entity.
"Preferred Stock," as applied to the Capital Stock of any corporation, means
Capital Stock of any class or classes (however designated) which is preferred
as to the payment of dividends, or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such corporation, over
shares of Capital Stock of any other class of such corporation.
"principal" of a Note means the principal of the Note plus the premium, if
any, payable on the Note which is due or overdue or is to become due at the
relevant time.
"Public Equity Offering" means an underwritten primary public offering of
common stock of the Company (or, for purposes of the covenant described under
"--Limitation on the Sale or Issuance of Capital Stock of Restricted
Subsidiaries," any Restricted Subsidiary) pursuant to an effective registration
statement under the Securities Act.
"Public Market" means any time after (i) a Public Equity Offering has been
consummated with respect to a Restricted Subsidiary and (ii) at least 10% of
the total issued and outstanding common stock of such Restricted Subsidiary has
been distributed by means of an effective registration statement under the
Securities Act or sales pursuant to Rule 144 under the Securities Act.
"Purchase Money Indebtedness" mean Indebtedness:
(1) consisting of the deferred purchase price of property, conditional
sale obligations, obligations under any title retention agreement, other
purchase money obligations and obligations in respect of industrial revenue
bonds or similar Indebtedness, in each case where the maturity of such
Indebtedness does not exceed the anticipated useful life of the asset being
financed; and
(2) incurred to finance the acquisition by the Company or a Restricted
Subsidiary of such asset, including additions and improvements;
provided, however, that any Lien arising in connection with any such
Indebtedness shall be limited to the specified asset being financed or, in the
case of real property or fixtures, including additions and improvements, the
real property on which such asset is attached; and provided further, however,
that such Indebtedness is Incurred within 90 days after such acquisition of
such asset by the Company or Restricted Subsidiary.
"Receivables Subsidiary" means a bankruptcy-remote, special-purpose Wholly
Owned Subsidiary formed in connection with a Permitted Receivables Financing.
"Refinance" means, in respect of any Indebtedness, to refinance, extend,
renew, refund, repay, prepay, redeem, defease or retire, or to issue other
Indebtedness in exchange or replacement for, such Indebtedness. "Refinanced"
and "Refinancing" shall have correlative meanings.
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"Refinancing Indebtedness" means Indebtedness that Refinances any
Indebtedness of the Company or any Restricted Subsidiary existing on the Issue
Date or Incurred in compliance with the Indenture; provided, however, that:
(1) such Refinancing Indebtedness has a Stated Maturity no earlier than
the Stated Maturity of the Indebtedness being Refinanced;
(2) such Refinancing Indebtedness has an Average Life at the time such
Refinancing Indebtedness is Incurred that is equal to or greater than the
Average Life of the Indebtedness being Refinanced;
(3) such Refinancing Indebtedness has an aggregate principal amount (or
if Incurred with original issue discount, an aggregate issue price) that is
equal to or less than the aggregate principal amount (or if Incurred with
original issue discount, the aggregate accreted value) then outstanding or
committed (plus fees and expenses, including any premium and defeasance
costs) under the Indebtedness being Refinanced;
provided further, however, that Refinancing Indebtedness shall not include (x)
Indebtedness of a Subsidiary that Refinances Indebtedness of the Company or (y)
Indebtedness of the Company or a Restricted Subsidiary that Refinances
Indebtedness of an Unrestricted Subsidiary. For purposes of this definition,
the Average Life and the aggregate principal amount of the GM Note at the time
of any Refinancing thereof shall be determined by a responsible financial or
accounting Officer of the Company based on a good faith estimate of the amount
of the contingent payment that will become due and payable under such note and
the timing of the scheduled installments thereof in accordance with the terms
of such note.
"Related Business" means any business related, ancillary or complementary
(as determined in good faith by the Board of Directors) to the businesses of
the Company and the Restricted Subsidiaries on the Issue Date.
"Representative" means any trustee, agent or representative (if any) for an
issue of Senior Indebtedness of the Company.
"Restricted Payment" means, with respect to any Person:
(1) the declaration or payment of any dividends or any other
distributions on or in respect of its Capital Stock (including any payment
in connection with any merger or consolidation involving such Person) or
similar payment to the holders of its Capital Stock, except dividends or
distributions payable solely in its Capital Stock (other than Disqualified
Stock) and except dividends or distributions payable solely to the Company
or a Restricted Subsidiary (and, if such Restricted Subsidiary is not
wholly owned, to its other shareholders on a pro rata basis or on a basis
that results in the receipt by the Company or a Restricted Subsidiary of
dividends or distributions of greater value than it would receive on a pro
rata basis);
(2) the purchase, redemption or other acquisition or retirement for
value of any Capital Stock of the Company held by any Person or of any
Capital Stock of a Restricted Subsidiary held by any Affiliate of the
Company (other than a Restricted Subsidiary), including the exercise of any
option to exchange any Capital Stock (other than into Capital Stock of the
Company that is not Disqualified Stock);
(3) the purchase, repurchase, redemption, defeasance or other
acquisition or retirement for value, prior to scheduled maturity, scheduled
repayment or scheduled sinking fund payment, of any Subordinated
Obligations (other than the purchase, repurchase or other acquisition of
Subordinated Obligations purchased in anticipation of satisfying a sinking
fund obligation, principal installment or final maturity, in each case due
within one year of the date of acquisition); or
(4) the making of any Investment in any Person (other than a Permitted
Investment).
"Restricted Subsidiary" means any Subsidiary of the Company that is not an
Unrestricted Subsidiary.
"Sale/Leaseback Transaction" means an arrangement relating to property now
owned or hereafter acquired whereby the Company or a Restricted Subsidiary
transfers such property to a Person and the Company or a Restricted Subsidiary
leases it from such Person.
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"SEC" means the Securities and Exchange Commission.
"Secured Indebtedness" means any Indebtedness of the Company secured by a
Lien. "Secured Indebtedness" of any Subsidiary Guarantor has a correlative
meaning.
"Senior Credit Facility" means the revolving credit facility made available
pursuant to the Fourth Amended and Restated Financing Agreement, as amended as
of April 19, 2001, among certain subsidiaries of the Company, as borrowers, the
Company and certain subsidiaries of the Company, as guarantors, the lenders
from time to time party thereto and Bank One, Indiana, National Association, as
agent, as the same may be amended, waived, modified, Refinanced or replaced
from time to time (except to the extent that any such amendment, waiver,
modification, replacement or Refinancing would be prohibited by the terms of
the Indenture).
"Senior Indebtedness" of the Company means:
(1) Indebtedness of the Company, whether outstanding on the Issue Date
or thereafter Incurred, including the Guarantees by the Company of all Bank
Indebtedness; and
(2) accrued and unpaid interest (including interest accruing on or after
the filing of any petition in bankruptcy or for reorganization relating to
the Company whether or not a claim for post-filing interest is allowed in
such proceeding) in respect of (A) indebtedness of the Company for money
borrowed and (B) indebtedness evidenced by notes, debentures, bonds or
other similar instruments for the payment of which the Company is
responsible or liable;
unless, in the instrument creating or evidencing the same or pursuant to which
the same is outstanding, it is provided that such obligations are subordinate
or pari passu in right of payment to the Notes; provided, however, that Senior
Indebtedness shall not include:
(1) any obligation of the Company to any Subsidiary;
(2) any liability for Federal, state, local or other taxes owed or owing
by the Company;
(3) any accounts payable or other liability to trade creditors arising
in the ordinary course of business (including guarantees thereof or
instruments evidencing such liabilities);
(4) any Indebtedness of the Company (and any accrued and unpaid interest
in respect thereof) which is subordinate or junior in any respect (other
than as a result of the Indebtedness being unsecured) to any other
Indebtedness or other obligation of the Company, including any Senior
Subordinated Indebtedness and any Subordinated Obligations;
(5) any obligations with respect to any Capital Stock; or
(6) that portion of any Indebtedness which at the time of Incurrence is
Incurred in violation of the Indenture.
"Senior Indebtedness" of any Subsidiary Guarantor has a correlative meaning.
"Senior Subordinated Indebtedness" of the Company means the Notes, the 10
5/8% Senior Subordinated Notes and any other Indebtedness of the Company that
specifically provides that such Indebtedness is to rank pari passu with the
Notes in right of payment and is not subordinated by its terms in right of
payment to any Indebtedness or other obligation of the Company which is not
Senior Indebtedness. "Senior Subordinated Indebtedness" of any Subsidiary
Guarantor has a correlative meaning; provided, however, that "Senior
Subordinated Indebtedness" of DRA shall specifically include (1) the Subsidiary
Guarantee of DRA and (2) the GM Note (and any Senior Subordinated Indebtedness
Incurred to Refinance such note).
"Significant Subsidiary" means any Restricted Subsidiary that would be a
"Significant Subsidiary" of the Company within the meaning of Rule 1-02 under
Regulation S-X promulgated by the SEC.
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"Stated Maturity" means, with respect to any security, the date specified in
such security as the fixed date on which the final payment of principal of such
security is due and payable, including pursuant to any mandatory redemption
provision (but excluding any provision providing for the repurchase of such
security at the option of the holder thereof upon the happening of any
contingency unless such contingency has occurred).
"Stockholders Agreement" means the Securities Transfer, Recapitalization and
Holders Agreement among the stockholders of the Company as in effect on the
Issue Date.
"Subordinated Obligation" means any Indebtedness of the Company (whether
outstanding on the Issue Date or thereafter Incurred) which is subordinate or
junior in right of payment to the Notes pursuant to a written agreement to that
effect. "Subordinated Obligation" of any Subsidiary Guarantor has a correlative
meaning.
"Subsidiary" means, in respect of any Person, any corporation, association,
partnership or other business entity of which more than 50% of the total voting
power of shares of Capital Stock or other interests (including partnership
interests) entitled (without regard to the occurrence of any contingency) to
vote in the election of directors, managers or trustees thereof is at the time
owned or controlled, directly or indirectly, by:
(1) such Person;
(2) such Person and one or more Subsidiaries of such Person; or
(3) one or more Subsidiaries of such Person.
"Subsidiary Guarantee" means the Guarantee by a Subsidiary Guarantor of the
Company's obligations with respect to the Notes.
"Subsidiary Guarantor" means each Subsidiary designated as such on the
signature pages of the Indenture and any other Subsidiary that has issued a
Subsidiary Guarantee.
"Temporary Cash Investments" means any of the following:
(1) any investment in direct obligations of the United States of America
or any agency thereof or obligations guaranteed by the United States of
America or any agency thereof;
(2) investments in time deposit accounts, certificates of deposit and
money market deposits maturing within 180 days of the date of acquisition
thereof issued by a bank or trust company which is organized under the laws
of the United States of America, any state thereof or any foreign country
recognized by the United States, and which bank or trust company has
capital, surplus and undivided profits aggregating in excess of $50.0
million (or the foreign currency equivalent thereof) and has outstanding
debt which is rated "A" (or such similar equivalent rating) or higher by at
least one nationally recognized statistical rating organization (as defined
in Rule 436 under the Securities Act) or any money-market fund sponsored by
an registered broker dealer or mutual fund distributor;
(3) repurchase obligations with a term of not more than 30 days for
underlying securities of the types described in clause (1) above entered
into with a bank meeting the qualifications described in clause (2) above;
(4) investments in commercial paper, maturing not more than 90 days
after the date of acquisition, issued by a corporation (other than an
Affiliate of the Company) organized and in existence under the laws of the
United States of America, any State thereof or the District of Columbia or
any foreign country recognized by the United States of America with a
rating at the time as of which any investment therein is made of "P-1" (or
higher) according to Moody's Investors Service, Inc. or "A-1" (or higher)
according to Standard and Poor's Ratings Group; and
(5) investments in securities with maturities of six months or less from
the date of acquisition issued or fully guaranteed by any state,
commonwealth or territory of the United States of America, or by any
117
political subdivision or taxing authority thereof, and rated at least "A"
by Standard & Poor's Ratings Group or "A" by Moody's Investors Service,
Inc.
"Total Assets" means at any time the total consolidated assets (determined
in accordance with GAAP) of the Company and the Restricted Subsidiaries, as of
the most recent date for which the Company prepares a consolidated balance
sheet in the ordinary course of business.
"Unrestricted Subsidiary" means:
(1) any Subsidiary of the Company that at the time of determination
shall be designated an Unrestricted Subsidiary by the Board of Directors in
the manner provided below;
(2) any Subsidiary of an Unrestricted Subsidiary; and
(3) Autovill Holdings, Inc., Remy Mexico Holdings, Inc., Remy South
America Holdings, Inc., Remy Korea Holdings, Inc., Kraftube, Inc. and
Electro Diesel Rebuild bvba (in each case as to which the Company
represents and warrants that such Subsidiary is an Unrestricted Subsidiary
under the indentures for the 8 5/8% Senior Notes and the 10 5/8% Senior
Subordinated Notes).
The Board of Directors may designate any Subsidiary of the Company
(including any newly acquired or newly formed Subsidiary) to be an Unrestricted
Subsidiary unless such Subsidiary or any of its Subsidiaries owns any Capital
Stock or Indebtedness of, or holds any Lien on any property of, the Company or
any other Subsidiary of the Company that is not a Subsidiary of the Subsidiary
to be so designated; provided, however, that either (A) the Subsidiary to be so
designated has total assets of $1,000 or less or (B) if such Subsidiary has
assets greater than $1,000, such designation would be permitted under the
covenant described under "--Certain Covenants--Limitation on Restricted
Payments."
The Board of Directors may designate any Unrestricted Subsidiary to be a
Restricted Subsidiary; provided, however, that immediately after giving effect
to such designation (x) the Company could Incur $1.00 of additional
Indebtedness under paragraph (a) of the covenant described under "--Certain
Covenants--Limitation on Indebtedness" and (y) no Default shall have occurred
and be continuing. Any such designation by the Board of Directors shall be by
the Company to the Trustee by promptly filing with the Trustee a copy of the
board resolution giving effect to such designation and an Officers' Certificate
certifying that such designation complied with the foregoing provisions.
"U.S. Government Obligations" means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States of
America (including any agency or instrumentality thereof) for the payment of
which the full faith and credit of the United States of America is pledged and
which are not callable at the issuer's option.
"Voting Stock" of a Person means all classes of Capital Stock or other
interests (including partnership interests) of such Person then outstanding and
normally entitled (without regard to the occurrence of any contingency) to vote
in the election of directors, managers or trustees thereof.
"Wholly Owned Subsidiary" means a Restricted Subsidiary all the Capital
Stock of which (other than directors' qualifying shares) is owned by the
Company and/or one or more Wholly Owned Subsidiaries.
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UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the material United States federal income tax
consequences of the exchange offer and the ownership and disposition of the new
notes. Unless otherwise stated, this summary deals only with the new notes
received in the exchange offer in exchange for the old notes that were
purchased for cash on original issue. This summary assumes that the old notes
were and the new notes are held as capital assets. For purposes of this
summary, U.S. holders are holders of new notes that are:
(1) citizens or residents of the United States,
(2) corporations or other entities taxable as corporations created or
organized in or under the laws of the United States, any state thereof or
the District of Columbia,
(3) estates, the income of which is subject to United States federal
income taxation regardless of its source, or
(4) trusts if (A) a court within the United States is able to exercise
primary supervision over the administration of the trust and (B) one or
more United States persons have the authority to control all substantial
decisions of the trust.
For purposes of this summary, non-U.S. holders are holders of new notes that
are not U.S. holders.
If a partnership or other entity treated as a partnership for United States
federal income tax purposes holds new notes, the tax treatment of a partner
will generally depend on the status of the partner and the activities of the
partnership. If you are a partner of a partnership holding notes, we suggest
that you consult your tax advisor.
This summary does not deal with special classes of holders such as banks,
thrifts, real estate investment trusts, regulated investment companies,
insurance companies, dealers in securities or currencies, or tax-exempt
investors and does not discuss securities held as part of a hedge, straddle,
"synthetic security" or other integrated transaction.
This summary also does not address the tax consequences to persons that have
a functional currency other than the U.S. dollar or the tax consequences to
shareholders, partners or beneficiaries of a holder of securities. Further, it
does not include any description of any alternative minimum tax consequences or
the tax laws of any state or local government or of any foreign government that
may be applicable to the notes.
This summary is based on the Internal Revenue Code, the Treasury regulations
promulgated thereunder and administrative and judicial interpretations thereof,
all as of the date hereof, and all of which are subject to change, possibly on
a retroactive basis.
You should consult with your own tax advisor regarding the federal, state,
local and foreign income, franchise, personal property, and any other tax
consequences of the exchange offer and the ownership and disposition of the new
notes.
Tax Consequences to U.S. Holders
This subsection describes the material United States federal income tax
consequences of the exchange after and of owning, selling and disposing of the
new notes.
The Exchange Offer
The exchange of old notes for new notes in the exchange offer should not be
a taxable event for holders because there should not be a significant
modification of the terms of the notes. Instead, the notes will be treated as a
continuation of the old notes for federal income tax purposes. Therefore, if
you exchange your old note for new notes pursuant to the exchange offer:
(1) you will not recognize gain or loss in connection with the exchange
offer;
119
(2) you will have the same tax basis in the new notes that you had in
the old notes immediately prior to the exchange offer;
(3) you will have the same holding period in the new notes that you had
in the old notes immediately prior to the exchange; and
(4) the federal income tax consequences associated with owning the old
notes will continue to apply to the new notes.
Interest Income
Under applicable Treasury Regulations, the old notes are not treated as
having been issued with original issue discount because the difference between
the old note's stated redemption price at maturity ($1,000 per note) and its
issue price ($986.98) is considered to be de minimis.
Because the new notes are treated as a continuation of the old notes, a new
note received in the exchange offer for an old note will have the same original
issue discount characteristics as the old note for which it is exchanged. As a
result:
. If you are a cash method taxpayer, you must report the stated interest on
the new note in your income when it is received by you.
. If you are an accrual method taxpayer, you must report the stated
interest on the new note as it accrues.
. You will not be required to include the de minimis original issue
discount in your income as it accrues. Instead, you will include such
discount in your computation of gain or loss when you sell, exchange or
otherwise dispose of the new note (including by way of retirement or
redemption).
Sale or Exchange of Notes
A holder will generally recognize taxable gain or loss equal to the
difference between the amount realized on the sale, exchange or other
disposition of the new note and the holder's adjusted tax basis in the new
note. A holder's adjusted tax basis in the new note generally will be the
initial purchase price paid therefor. A holder who exchanged old notes for new
notes in the exchange offer will have the same basis in the new note that the
holder had in the old note. Gain recognized on the sale of a new note will be
long term capital gain provided the holder's holding period for the new note
exceeds one year. A holder's holding period for the old notes will be added to
the holder's holding period in the new notes, if the holder participates in the
exchange offer. In the case of a holder other than a corporation, the current
maximum marginal United States federal income tax rate applicable to long term
capital gain recognized on the sale of a note is 20%.
If the selling price is less than the holder's adjusted tax basis, the
holder will recognize a capital loss. Subject to certain limited exceptions,
capital losses cannot be applied to offset ordinary income for United States
federal income tax purposes.
Information Reporting and Backup Withholding Tax
In general, information reporting requirements will apply to payments of
principal and interest on the new notes and payments of the proceeds of the
sale of the notes, and a backup withholding tax (at varying rates up to 31%)
may apply to those payments if:
(1) the holder fails to furnish or certify his correct taxpayer
identification number to us in the manner required,
(2) we are notified by the Internal Revenue Service that the holder has
failed to report payments of interest and dividends properly, or
120
(3) under certain circumstances, the holder fails to certify that the
holder has not been notified by the Internal Revenue Service that the
holder is subject to backup withholding for failure to report interest and
dividend payments.
Any amounts withheld under the backup withholding rules from a payment to a
holder will be allowed as a credit against the holder's United States federal
income tax and may entitle the holder to a refund, provided that the required
information is furnished to the Internal Revenue Service.
Non-U.S. Holders of New Notes
The rules governing United States federal income taxation of a beneficial
owner of new notes that, for United States federal income tax purposes, is a
holder who is not a United States person as that term is defined in the
Internal Revenue Code are complex and no attempt will be made herein to provide
more than a summary of those rules. Non-U.S. holders should consult with their
own tax advisors to determine the effect of federal, state, local and foreign
income tax laws, as well as treaties, with regard to an investment in the
notes, including any reporting requirements.
This discussion assumes that the note or interest payment is not subject to
the rules of Section 871(h)(4)(A) of the Internal Revenue Code, relating to
interest payments that are determined by reference to income, profits, changes
in value of property or other attributes of Delco Remy or a related party.
Interest Income
Generally, interest income of a non-U.S. holder that is not effectively
connected with a United States trade or business will be subject to a
withholding tax at a 30% rate (or, if applicable, a lower tax rate specified by
a treaty). However, interest income earned on a new note held by a non-U.S.
holder will qualify for the "portfolio interest" exemption and therefore will
not be subject to United States federal income tax or withholding tax, provided
that the interest income is not effectively connected with a United States
trade or business of the non-U.S. holder and provided that:
(1) the non-U.S. holder does not actually or constructively own 10% of
more of the total combined voting power of all classes of our stock
entitled to vote;
(2) the non-U.S. holder is not a controlled foreign corporation that is
related to us through stock ownership;
(3) the non-U.S. holder is not a bank which acquired the note in
consideration for an extension of credit made pursuant to a loan agreement
entered into in the ordinary course of business; and
(4) either (A) the non-U.S. holder certifies to us or our or its agent,
under penalties of perjury, that it is not a United States person and
provides its name and address or (B) an authorized representative of a
securities clearing organization, bank or other financial institution that
holds customer securities in the ordinary course of its trade or business
and holds the notes in that capacity, certifies to us or our agent, under
penalties of perjury, that such a statement on Form W-8BEN or a similar
substitute has been received from the beneficial owner by it or by a
financial institution between it and the beneficial owner and furnishes to
us or our agent a copy thereof.
Except to the extent that an applicable treaty otherwise provides, a non-
U.S. holder generally will be taxed with respect to interest in the same manner
as a holder that is a United States person if the interest is effectively
connected with a United States trade or business of the non-U.S. holder.
Effectively connected interest income received or accrued by a corporate non-
U.S. holder may also, under certain circumstances, be subject to an additional
"branch profits" tax at a 30% rate (or, if applicable, at a lower tax rate
specified by a treaty). Even though such effectively connected income is
subject to income tax, and may be subject to the branch profits tax, it is not
subject to withholding tax if the non-U.S. holder delivers a properly executed
Internal Revenue Service Form W-8ECI (or successor form) to the payor.
121
Sale or Exchange of New Notes
A non-U.S. holder generally will not be subject to United States federal
income tax or withholding tax on any gain realized on the sale, exchange or
other disposition of a new note unless:
(1) the gain is effectively connected with the conduct of a United
States trade or business of the non-U.S. holder,
(2) in the case of a non-U.S. holder who is an individual, such holder
is present in the United States for a period or periods aggregating 183
days or more during the taxable year of the disposition, or
(3) the non-U.S. holder is subject to tax pursuant to the provisions of
the Internal Revenue Code applicable to certain United States expatriates.
Information Reporting and Backup Withholding Tax
United States backup withholding tax will not apply to payments on the new
notes to a non-U.S. holder if the statement described in "Interest Income" is
duly provided by such holder, provided that the payor does not have actual
knowledge that the holder is a United States person. Information reporting may
still apply with respect to payments of interest. Information reporting and
backup withholding tax will not apply to payments of the proceeds of the sale
of new notes to a non-U.S. holder effected by a broker, provided that either a
sale occurs through a foreign office of a foreign broker that has no connection
with the United States, as described in applicable regulations or such broker
has in its records certain documentary evidence allowed by Treasury regulations
that the beneficial owner is a non-U.S. holder, certain other conditions are
met, and the broker does not have actual knowledge that the holder is a United
States person.
The United States federal income tax discussion set forth above is included for
general information only and may not be applicable depending upon a holder's
particular situation. Holders should consult their tax advisors with respect to
the tax consequences to them of the purchase, ownership and disposition of the
notes, including the tax consequences under state, local, foreign and other tax
laws and the possible effects of changes in United States federal or other tax
laws.
122
PLAN OF DISTRIBUTION
Each broker-dealer that receives new notes for its own account pursuant to
the exchange offer must acknowledge that it will deliver a prospectus in
connection with any resale of the new notes. This prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of new notes received in exchange for old notes where
the old notes were acquired as a result of market-making activities or other
trading activities. We have agreed that, for a period of 180 days after the
expiration date of the exchange offer, we will make this prospectus, as amended
or supplemented, available to any broker-dealer for use in connection with any
such resale. In addition, until , 2001 (90 days after the date of this
prospectus), all dealers effecting transactions in the new notes may be
required to deliver a prospectus.
We will not receive any proceeds from any sale of new notes by broker-
dealers. New notes received by broker-dealers for their own account pursuant to
the exchange offer may be sold from time to time in one or more transactions in
the over-the-counter market, in negotiated transactions, through the writing of
options on the new notes or a combination of those methods of resale, at market
prices prevailing at the time of resale, at prices related to prevailing market
prices or negotiated prices. Any resale may be made directly to purchasers or
to or through brokers or dealers who may receive compensation in the form of
commissions or concessions from any such broker-dealer or the purchasers of any
of the new notes. Any broker-dealer that resells new notes that were received
by it for its own account pursuant to the exchange offer and any broker or
dealer that participates in a distribution of the new notes may be deemed to be
an "underwriter" within the meaning of the Securities Act and any profit on any
resale of new notes and any commissions or concessions received by any such
persons may be deemed to be underwriting compensation under the Securities Act.
The letter of transmittal states that, by acknowledging that it will deliver
and by delivering a prospectus, a broker-dealer will not be deemed to admit
that it is an "underwriter" within the meaning of the Securities Act.
For a period of 180 days after the expiration date of the exchange offer, we
will promptly send additional copies of this prospectus and any amendment or
supplement to this prospectus to any broker-dealer that requests such documents
in the letter of transmittal. We have agreed to pay all expenses incident to
the exchange offer (including the expenses of one counsel for the holders of
the notes) other than commissions or concessions of any brokers or dealers and
will indemnify the holders of the securities (including any broker-dealers)
against certain liabilities, including liabilities under the Securities Act.
LEGAL MATTERS
Certain legal matters regarding the validity of the new notes offered by
this prospectus will be passed upon for the Company by Dechert, Philadelphia,
Pennsylvania.
EXPERTS
The consolidated financial statements of the Company as of December 31, 2000
and July 31, 2000 and 1999 and for the five months ended December 31, 2000 and
for each of the three years in the period ended July 31, 2000 included in this
prospectus and registration statement have been audited by Ernst & Young LLP,
independent auditors, as stated in their report thereon appearing herein, and
are included in reliance upon such report given on the authority of such firm
as experts in accounting and auditing.
123
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Financial Statements of Delco Remy International, Inc.:
Audited Financial Statements
Report of Independent Auditors.......................................... F-2
Consolidated Statements of Operations for the five months ended December
31, 2000 and 1999 and three years ended July 31, 2000.................. F-3
Consolidated Balance Sheets at December 31, 2000, July 31, 2000 and July
31, 1999............................................................... F-4
Consolidated Statements of Stockholders' Equity (Deficit) for the five
months ended December 31, 2000 and three years ended July 31, 2000..... F-5
Consolidated Statements of Cash Flows for the five months ended December
31, 2000 and 1999 and three years ended July 31, 2000.................. F-6
Notes to Consolidated Financial Statements.............................. F-7
Unaudited Quarterly Financial Statements
Condensed Consolidated Statements of Operations for the three months
ended March 31, 2001 and 2000.......................................... F-43
Condensed Consolidated Balance Sheets as of March 31, 2001 and December
31, 2000............................................................... F-44
Condensed Consolidated Statements of Cash Flows for the three months
ended March 31, 2001 and 2000.......................................... F-45
Notes to Condensed Consolidated Financial Statements.................... F-46
F-1
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and
Board of Directors of
Delco Remy International, Inc.:
We have audited the accompanying consolidated balance sheets of Delco Remy
International, Inc. as of December 31, 2000 and July 31, 2000 and 1999, and the
related consolidated statements of operations, stockholders' equity (deficit),
and cash flows for the five months ended December 31, 2000 and for each of the
three years in the period ended July 31, 2000. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Delco Remy International, Inc. at December 31, 2000 and July 31, 2000 and
1999, and the consolidated results of its operations and cash flows for the
five months ended December 31, 2000 and for each of the three years in the
period ended July 31, 2000, in conformity with accounting principles generally
accepted in the United States.
ERNST & YOUNG LLP
Indianapolis, Indiana
February 22, 2001,
except for Notes 1, 2, 8 and 18,
as to which the date is March 15, 2001
F-2
DELCO REMY INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except for per share data)
Five Months Ended
December 31 Year Ended July 31
--------------------- ------------------------------
2000 1999 2000 1999 1998
-------- ----------- ---------- -------- --------
(Unaudited)
Net sales................ $443,066 $446,806 $1,090,938 $953,706 $815,313
Cost of goods sold....... 355,515 356,369 862,172 770,902 667,798
-------- -------- ---------- -------- --------
Gross profit............. 87,551 90,437 228,766 182,804 147,515
Selling, general and
administrative
expenses................ 44,146 45,460 108,051 88,795 76,937
Amortization of goodwill
and intangibles......... 2,625 2,475 6,043 5,203 3,478
Non-recurring charges.... -- -- 35,222 -- 26,515
-------- -------- ---------- -------- --------
Operating income......... 40,780 42,502 79,450 88,806 40,585
Interest expense......... (21,790) (19,650) (48,766) (45,505) (40,291)
Non-operating income
(expense)............... 48 (147) 288 -- (428)
-------- -------- ---------- -------- --------
Income (loss) before
income taxes (benefit),
minority interest in
income of subsidiaries,
income (loss) from
unconsolidated joint
ventures, preferred
dividend requirement of
subsidiary, deemed
dividend on preferred
stock conversion and
extraordinary item...... 19,038 22,705 30,972 43,301 (134)
Income taxes (benefit)... 6,094 8,605 11,460 16,454 (52)
Minority interest in
income of subsidiaries.. (2,778) (2,841) (6,742) (3,921) (2,389)
Income (loss) from
unconsolidated joint
ventures................ (467) (13) (352) 5,420 2,568
Preferred dividend
requirement of
subsidiary.............. -- -- -- -- (645)
Deemed dividend on
preferred stock
conversion.............. -- -- -- -- (1,639)
-------- -------- ---------- -------- --------
Income (loss) before
extraordinary item...... 9,699 11,246 12,418 28,346 (2,187)
Extraordinary item:
Write-off of debt
issuance costs (less
applicable income tax
benefit of $1,172).... -- -- -- -- (1,833)
-------- -------- ---------- -------- --------
Net income (loss)........ $ 9,699 $ 11,246 $ 12,418 $ 28,346 $ (4,020)
======== ======== ========== ======== ========
Basic earnings (loss) per
share:
Income (loss) before
extraordinary item.... $ .40 $ .46 $ .51 $ 1.19 $ (.11)
Extraordinary item..... -- -- -- -- (.09)
-------- -------- ---------- -------- --------
Net income (loss)...... $ .40 $ .46 $ .51 $ 1.19 $ (.20)
======== ======== ========== ======== ========
Diluted earnings (loss)
per share:
Income (loss) before
extraordinary item.... $ .37 $ .43 $ .48 $ 1.09 $ (.11)
Extraordinary item..... -- -- -- -- (.09)
-------- -------- ---------- -------- --------
Net income (loss)...... $ .37 $ .43 $ .48 $ 1.09 $ (.20)
======== ======== ========== ======== ========
See Accompanying Notes
F-3
DELCO REMY INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except for share and per share data)
July 31
December 31, ------------------
2000 2000 1999
------------ -------- --------
ASSETS
Current assets:
Cash and cash equivalents................... $ 24,380 $ 17,822 $ 15,309
Trade accounts receivable (less allowance
for doubtful accounts of $3,115, $2,970 and
$2,105).................................... 173,466 169,563 147,988
Other receivables........................... 16,205 15,233 15,496
Inventories................................. 293,824 268,153 232,165
Deferred income taxes....................... 16,539 18,145 14,997
Other current assets........................ 8,909 8,864 2,903
-------- -------- --------
Total current assets...................... 533,323 497,780 428,858
Property and equipment........................ 305,583 297,574 258,727
Less accumulated depreciation................. 105,743 95,663 63,532
-------- -------- --------
Property and equipment, net................... 199,840 201,911 195,195
Deferred financing costs...................... 8,694 9,432 11,192
Goodwill (less accumulated amortization of
$23,485, $20,891 and $15,296)................ 169,238 171,032 137,429
Investments in joint ventures................. 7,016 5,333 4,756
Other assets.................................. 6,359 3,752 5,233
-------- -------- --------
Total assets.............................. $924,470 $889,240 $782,663
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................ $156,075 $141,944 $119,339
Accrued interest payable.................... 9,133 10,858 11,603
Accrued non-recurring charges............... 7,692 24,778 5,866
Other liabilities and accrued expenses...... 33,790 40,085 37,105
Current debt................................ 8,107 7,454 12,596
-------- -------- --------
Total current liabilities................. 214,797 225,119 186,509
Deferred income taxes......................... 10,155 10,027 4,568
Long-term debt, less current portion.......... 519,284 484,270 434,931
Post-retirement benefits other than pensions.. 22,794 21,639 21,050
Accrued pension benefits...................... 4,424 1,286 2,719
Other non-current liabilities................. 3,884 3,886 3,545
Commitments and contingencies.................
Minority interest in subsidiaries............. 28,014 25,187 19,821
Stockholders' equity:
Common stock:
Class A Shares (par value $.01; authorized
49,400,000; issued 18,118,056 in 2000 and
1999).................................... 182 182 182
Class B Shares (par value $.01; authorized
17,600,000; issued 6,278,055 in 2000 and
1999).................................... 63 63 63
Paid-in capital............................. 104,176 104,176 104,176
Retained earnings........................... 34,269 24,570 12,152
Accumulated other comprehensive loss........ (17,236) (10,837) (6,516)
Stock purchase plan......................... (336) (328) (537)
-------- -------- --------
Total stockholders' equity................ 121,118 117,826 109,520
-------- -------- --------
Total liabilities and stockholders'
equity................................... $924,470 $889,240 $782,663
======== ======== ========
See Accompanying Notes
F-4
DELCO REMY INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(in thousands)
Class Class Accumulated
A B Retained Other Stock
Common Common Paid-In Earnings Comprehensive Purchase
Stock Stock Capital (Deficit) Loss Plan Total
------ ------ -------- --------- ------------- -------- --------
Balance at August 1,
1997................... $ 88 $65 $ 6,677 $(12,174) $ (1,752) $(2,701) $ (9,797)
Issuance of common
stock................. 92 -- 99,715 -- -- -- 99,807
Repurchase of common
stock................. -- -- -- -- -- 572 572
Conversion of Class B
common stock to Class
A common stock........ 2 (2) -- -- -- -- --
Net loss............... -- -- -- (4,020) -- -- (4,020)
Currency translation
adjustment............ -- -- -- -- (2,322) -- (2,322)
--------
Comprehensive loss..... -- -- -- -- -- -- (6,342)
---- --- -------- -------- -------- ------- --------
Balance at July 31,
1998................... 182 63 106,392 (16,194) (4,074) (2,129) 84,240
Repurchase of common
stock................. -- -- (340) -- -- (284) (624)
Other.................. -- -- (1,876) -- -- 1,876 --
Net income............. -- -- -- 28,346 -- -- 28,346
Currency translation
adjustment............ -- -- -- -- (2,442) -- (2,442)
--------
Comprehensive income... -- -- -- -- -- -- 25,904
---- --- -------- -------- -------- ------- --------
Balance at July 31,
1999................... 182 63 104,176 12,152 (6,516) (537) 109,520
Other.................. -- -- -- -- -- 209 209
Net income............. -- -- -- 12,418 -- -- 12,418
Currency translation
adjustment............ -- -- -- -- (4,321) -- (4,321)
--------
Comprehensive income... -- -- -- -- -- -- 8,097
---- --- -------- -------- -------- ------- --------
Balance at July 31,
2000................... 182 63 104,176 24,570 (10,837) (328) 117,826
Cumulative effect of
accounting change for
derivative
instruments........... -- -- -- -- 241 -- 241
Other.................. -- -- -- -- -- (8) (8)
Net income............. -- -- -- 9,699 -- -- 9,699
Currency translation
adjustment............ -- -- -- -- (1,747) -- (1,747)
Unrealized losses on
derivative
instruments........... -- -- -- -- (4,893) -- (4,893)
--------
Comprehensive income... -- -- -- -- -- -- 3,059
---- --- -------- -------- -------- ------- --------
Balance at December 31,
2000................... $182 $63 $104,176 $ 34,269 $(17,236) $ (336) $121,118
==== === ======== ======== ======== ======= ========
See Accompanying Notes
F-5
DELCO REMY INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Five Months Ended
December 31 Year Ended July 31
-------------------- ---------------------------
2000 1999 2000 1999 1998
------- ----------- -------- ------- --------
(Unaudited)
Operating Activities:
Net income (loss)........... $ 9,699 $11,246 $ 12,418 $28,346 $ (4,020)
Extraordinary item.......... -- -- -- -- 2,095
Adjustments to reconcile net
income (loss) to net cash
provided by (used
in) operating activities:
Depreciation................ 10,978 11,147 26,126 18,358 13,591
Amortization................ 2,625 2,475 6,043 5,203 3,478
Minority interest in income
of subsidiaries............ 2,778 2,841 6,742 3,921 2,389
(Income) loss from
unconsolidated joint
ventures................... 467 13 352 (5,420) (2,568)
Deferred income taxes--
current.................... 1,606 -- (3,148) 6,656 1,713
Post-retirement benefits
other than pensions........ 1,155 1,646 589 4,555 3,818
Accrued pension benefits.... 3,138 (133) (1,433) (1,909) 86
Non-cash interest expense... 740 733 1,763 1,648 2,387
Deemed dividend on
preferred stock
conversion................. -- -- -- -- 1,639
Preferred dividend
requirement of
subsidiary................. -- -- -- -- 645
Changes in operating assets
and liabilities, net of
acquisitions:
Accounts receivable........ (3,903) (18,575) (1,580) 4,621 (8,432)
Inventories................ (25,671) (9,019) (18,212) (17,705) (17,400)
Accounts payable........... 14,131 11,140 15,835 13,634 (7,573)
Other current assets and
liabilities............... (9,300) 1,542 (15,391) (6,645) (4,888)
Non-recurring charges...... -- -- 35,222 -- 26,515
Cash payments for non-
recurring charges......... (16,839) (717) (8,900) (14,941) (19,204)
Other non-current assets
and liabilities, net...... (7,000) 2,216 13,292 2,764 (5,577)
------- ------- -------- ------- --------
Net cash provided by (used
in) operating
activities............... (15,396) 16,555 69,718 43,086 (11,306)
Investing Activities:
Acquisitions, net of cash
acquired................... -- (5,733) (68,005) (48,321) (35,722)
Purchases of property and
equipment.................. (11,824) (20,175) (38,371) (25,066) (24,190)
Investments in joint
ventures................... -- -- -- -- (9,355)
------- ------- -------- ------- --------
Net cash used in investing
activities............... (11,824) (25,908) (106,376) (73,387) (69,267)
Financing Activities:
Proceeds from initial public
offering................... -- -- -- -- 51,336
Proceeds from issuance of
long-term debt............. -- -- -- -- 141,375
Payments on long-term debt.. -- -- -- -- (145,786)
Net borrowings under
revolving line of credit
and other.................. 35,305 5,514 41,006 38,048 32,198
Distributions to minority
interests.................. (322) -- (1,200) -- --
------- ------- -------- ------- --------
Net cash provided by
financing activities..... 34,983 5,514 39,806 38,048 79,123
Effect of exchange rate
changes on cash............. (1,205) (108) (635) (551) (487)
------- ------- -------- ------- --------
Net increase (decrease) in
cash and cash equivalents... 6,558 (3,947) 2,513 7,196 (1,937)
Cash and cash equivalents at
beginning of year........... 17,822 15,309 15,309 8,113 10,050
------- ------- -------- ------- --------
Cash and cash equivalents at
end of year................. $24,380 $11,362 $ 17,822 $15,309 $ 8,113
======= ======= ======== ======= ========
See Accompanying Notes
F-6
DELCO REMY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000
(dollars in thousands)
1. ORGANIZATION AND ACQUISITIONS
See Note 18 for a discussion of the Company's acquisition by Court Square
Capital Limited ("Court Square"), the subsequent merger of a subsidiary of
Court Square into the Company and the Company's recapitalization, all effective
March 14, 2001.
Delco Remy America Acquisition
On July 31, 1994, Delco Remy International, Inc. (the "Company" or "DRI")
through a wholly-owned subsidiary, Delco Remy America, Inc. ("DRA"), purchased
substantially all of the assets, other than facilities, and assumed certain
liabilities of specific business activities of the Delco Remy Division of
General Motors Corporation (the "GM Acquisition"). The specific business
activities purchased are engaged in the design, manufacture, remanufacture and
sale of heavy duty starter motors and generators, automotive starter motors,
and related components.
The aggregate purchase price of the GM Acquisition of $155,665 (including
fees and expenses) was accounted for as a purchase. The Company issued (i)
common stock of $1,531, (ii) preferred stock of $11,507 and (iii) debt of
$158,200 to fund the purchase and provide capital for general corporate
purposes. The GM Acquisition resulted in the recording of approximately $17,600
of goodwill which is being amortized over 15 years. While the GM Acquisition
was recorded based on the best estimates available, certain purchase price
adjustments as of the July 31, 1994 purchase date have not been determined or
agreed to by General Motors Corporation ("GM") and DRI. When finalized, the
resolution of these items could result in a charge or credit to operations,
which the Company does not expect to be material. The accompanying consolidated
financial statements reflect the consolidated results of operations and cash
flows for the Company subsequent to the GM Acquisition. The Company had no
operations prior to July 31, 1994.
GM is entitled to receive an additional contingent purchase payment which
will be paid beginning in 2004 and will be based upon a percentage of average
earnings of the Company in the three year period ending December 31, 2003 in
excess of certain imputed earnings. Since the additional contingent purchase
price, if any, is based upon future operations of the Company which cannot be
determined at this time, no provision for such payment has been made in the
accompanying consolidated financial statements. The additional contingent
purchase price, if any, will increase the goodwill recorded for the GM
Acquisition and will be amortized over the remaining useful life of the GM
Acquisition goodwill.
Concurrent with the GM Acquisition, the Company entered into certain supply
agreements with GM whereby the Company would be the sole-source supplier to GM
for component parts manufactured by the Company at the date of the GM
Acquisition. The supply agreement for automotive starter motors has an initial
term of ten years, while the supply agreement for heavy duty starter motors and
generators had an initial term of six years. In fiscal year 1999, the Company
and GM amended the agreement for the Company's price of automotive products and
extended the agreement term to August 31, 2008. The Supply Agreement for heavy
duty products terminated on July 31, 2000. Sales to GM were not adversely
affected and the Company now has the ability to provide an expanded heavy duty
product offering to GM and other customers. GM's obligations to distribute the
Company's automotive aftermarket products terminates on July 31, 2009.
Fiscal Year 2000 Acquisitions
In August 1999, the Company, through a wholly-owned subsidiary, purchased
the assets of Engine Master, a remanufacturer of gasoline engines located in
Dallas, Texas, for $5,844 in cash. The acquisition was treated
F-7
DELCO REMY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
as a purchase for accounting purposes and resulted in goodwill of $1,076 which
is being amortized over 35 years.
In March 2000, the Company, through a wholly-owned subsidiary, purchased
100% of the capital shares of M&M Knopf Auto Parts, Inc. ("Knopf") from certain
shareholders. The purchase price of $61,322, net of cash acquired and including
the payoff of certain debt of Knopf, was funded through proceeds from the
Company's Senior Credit Facility and is subject to certain adjustments. The
acquisition was accounted for as a purchase. Resulting goodwill of
approximately $37,000 is being amortized over 30 years. The purchase price is
subject to an additional contingent payment of cash and/or common stock of the
Company in fiscal year 2005, subject to the achievement by Knopf of certain
earnings goals. The amount of this payment cannot currently be determined. This
additional contingent purchase price, if any, will increase the goodwill
recorded for the acquisition and will be amortized over its remaining useful
life. Results of operations for Knopf are included in the Company's financial
statements effective March 10, 2000. Knopf is engaged in automotive component
recovery and exchange.
In April 2000, the Company, through a wholly-owned subsidiary, purchased
100% of the capital shares of Elmot-DR Sp z.o.o, a Polish manufacturer of
starters and alternators for the OEM and aftermarket in Europe, for $839 in
cash, net of cash acquired. The acquisition was treated as a purchase for
accounting purposes with no resulting goodwill.
Fiscal Year 1999 Acquisitions
On November 13, 1998, the Company, through a wholly-owned subsidiary,
purchased all of the common stock of Williams Technologies, Inc. ("Williams")
for $38,840 in cash, net of cash acquired and less Williams' intercompany and
third-party debt. 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 $21,104 which is being
amortized over 35 years. 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. Results of
operations for Williams are included in the Company's consolidated results from
the acquisition date.
On June 25, 1999, the Company, through a wholly-owned subsidiary, purchased
31% of the capital shares of Delco Remy Korea (formerly Remy Korea Limited)
from certain shareholders for $6,204 in cash, net of cash acquired. The
purchase was funded through proceeds from the Company's Senior Credit Facility.
This investment increased the Company's ownership position in Delco Remy Korea
to 81%. The acquisition was treated as a purchase for accounting purposes with
no resulting goodwill. During fiscal year 1997, the Company acquired a 50%
interest in Delco Remy Korea for approximately $5,300. Effective June 25, 1999,
the Company accounted for Delco Remy Korea as a consolidated subsidiary. It was
accounted for under the equity method prior to that date. Delco Remy Korea is a
manufacturer of automotive starter motors and parts for the U.S. original
equipment market, as well as customers in Asian markets.
Fiscal Year 1998 Acquisitions and Investments
On December 22, 1997, the Company acquired all of the capital stock of
Ballantrae for $53,900, including assumed debt, a working capital adjustment
and fees and expenses. The Company exchanged 1,918,623 shares of its Common
Stock with a value of approximately $23,023 for the equity of Ballantrae and
repaid approximately $29,500 of Ballantrae's debt. The acquisition was treated
as a purchase for accounting purposes and is included in the consolidated
financial statements of the Company beginning with the acquisition date. The
acquisition resulted in goodwill of $24,580, which is being amortized over 35
years. Ballantrae operates
F-8
DELCO REMY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
through two subsidiaries: Tractech, a leading producer of traction control
systems for heavy duty original equipment manufacturers and the aftermarket;
and Kraftube, Inc., a tubing assembly business which sells products to
compressor manufacturers for commercial air conditioners and refrigeration
equipment.
On March 5, 1998, the Company acquired certain assets from Atlantic Reman
Limited, which is a Canadian Ford Authorized Remanufacturer for the Maritime
Provinces in Canada, for $1,277. It remanufactures and distributes engines,
starters, alternators and water pumps to Ford, General Motors, and Chrysler
dealers in Canada.
In March 1998, the Company acquired 37% of Sahney Paris Rhone Ltd. ("SPR"),
an Indian remanufacturer of starters and alternators which sells principally to
the Indian market. SPR is accounted for under the equity method.
The Company acquired the starter and alternator remanufacturing operations
of Lucas Varity in the United Kingdom on April 6, 1998. The purchase price was
$4,773 (including fees and expenses), and resulting goodwill of $535 is being
amortized over 35 years. The acquisition was accounted for as a purchase and is
included in the consolidated financial statements from date of acquisition.
Located in England, the Lucas line of remanufactured starters and alternators
is a market leader in the U.K. independent aftermarket.
On July 16, 1998, the Company acquired Electro Diesel Rebuild ("EDR") in
Belgium and Electro Rebuild Tunisia located in Tunisia, which produce heavy
duty and automotive starters and alternators for the European replacement
market. The purchase price was $7,586 (including fees and expenses) and was
funded by the proceeds from a loan facility. Resulting goodwill of $4,663 is
being amortized over 35 years. The acquisition is being accounted for as a
purchase and is included in the consolidated financial statements from the date
of acquisition.
Unaudited Pro Forma Results of Operations
The unaudited pro forma consolidated results of operations, assuming the
Williams, Delco Remy Korea and Knopf acquisitions had been consummated as of
the beginning of the preceding fiscal year, are as follows:
Year Ended July 31
---------------------
2000 1999
---------- ----------
Net sales.......................................... $1,132,506 $1,052,335
Operating income................................... 87,190 114,965
Net income......................................... 15,123 32,270
Basic earnings per share........................... 0.62 1.35
Diluted earnings per share......................... 0.58 1.24
There were no acquisitions in the five month period ended December 31, 2000.
The pro forma consolidated financial information has been prepared for
comparative purposes only and does not purport to present what the Company's
consolidated results of operations would actually have been if the operations
were combined during the periods presented and is not intended to project
future results or trends of operations.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Principles of Consolidation
The consolidated financial statements include the accounts of DRI and its
subsidiaries. All intercompany accounts and transactions have been eliminated
in consolidation.
Certain prior year amounts have been reclassified to conform to the current
year's presentation.
F-9
DELCO REMY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company changed its fiscal year to December 31, effective August 1,
2000. Prior to August 1, 2000, the fiscal year ended on July 31. Accordingly,
the Company's audited financial statements include a balance sheet at December
31, 2000 and statements of operations, stockholders' equity and cash flows for
the five-month transition period ended December 31, 2000. For comparative
purposes, the Company has included unaudited statements of operations and cash
flows for the five-month period ended December 31, 1999.
Nature of Operations
The Company designs, manufactures, remanufactures and distributes
electrical, powertrain/drivetrain and related components and provides core
exchange services for automobiles and light trucks, medium- and heavy-duty
trucks and other heavy-duty and industrial applications. Products include
starter motors, alternators, engines, transmissions, torque converters, fuel
systems and traction control systems. The Company serves the aftermarket and
original equipment manufacturer market, principally in North America, as well
as Europe, Latin America and Asia Pacific.
Cash and Cash Equivalents
Cash and cash equivalents includes all cash balances and highly liquid
investments held primarily in repurchase agreements collateralized by U.S.
Government securities with a maturity of ninety days or less when purchased.
The carrying amount of cash equivalents approximates fair value.
Concentrations of Credit Risk and Other Risks
Substantially all of the Company's accounts receivable are due from
customers in the original equipment and aftermarket automotive industries, both
in the U.S. and internationally. The Company performs periodic credit
evaluations of its customers' financial condition and generally does not
require collateral. Credit losses are provided for in the financial statements
and have been consistently within management's expectations. The Company
invests its temporary cash in high credit quality financial institutions and
investment grade short-term investments and limits the amount of credit
exposure to any one entity.
The percentage of the Company's labor force covered by a collective
bargaining agreement is 25.8%. None of the agreements expire within one year.
The Company conducts a significant portion of its business with GM. See Note
11.
Derivative Financial Instruments
Effective August 1, 2000, the Company adopted Statement of Financial
Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging
Activities. This statement establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities. It requires that all derivatives
be recognized on the balance sheet at fair value. Changes in fair values of
derivatives are accounted for based upon their intended use and designation.
In the normal course of business, operations of the Company are exposed to
continuing fluctuations in foreign currency values, interest rates and
commodity prices that can affect the cost of operating, investing and
financing. Accordingly, the Company addresses a portion of these risks through
a controlled program of risk management that includes the use of derivative
financial instruments. The Company's objective is to reduce earnings and cash
flow volatility associated with these fluctuations. The Company's derivative
activities, all of which are for purposes other than trading, are initiated
within the guidelines of established policies and procedures designed to manage
market risk. The Company does not enter into any derivative transactions for
F-10
DELCO REMY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
speculative purposes. From time to time, the Company enters into foreign
currency exchange agreements to manage its exposure arising from fluctuating
exchange rates related to specific transactions.
In order to hedge anticipated U.S. dollar-denominated intercompany sales of
inventory by its South Korean subsidiary to a U.S. subsidiary against
fluctuations between the South Korean Won and U.S. dollar, the Company has
entered into a series of non-deliverable currency forward contracts. At
maturity, each contract is settled at the difference between fair value and
contract value. These derivative contracts have been designated as a cash flow
hedge and, accordingly, changes in fair value are charged to other
comprehensive income (see Note 10). Realized gains and losses recorded upon
settlement are charged to earnings in the periods in which earnings are
impacted by the variability of the cash flows of the settled intercompany sale.
In November 2000, the Company entered into an interest rate swap to hedge the
exposure on a portion of the variable rate debt. The swap converts the libor-
based rate to a fixed rate of 6.51% on debt of $100,000 for a period of two
years. This swap has been designated as a cash flow hedge and changes in fair
value are charged to other comprehensive income (see Note 10). Realized gains
and losses are charged to earnings as interest expense in the periods in which
earnings are impacted by the variability of the cash flows of the interest
paid. The notional amounts of the Company's foreign exchange contracts are
summarized as follows:
July 31
December 31, -----------------------------
2000 2000 1999
--------------- --------------- -------------
Book Fair Book Fair Book Fair
Value Value Value Value Value Value
------- ------- ------- ------- ------ ------
Forwards........................ $ 6,353 $ 5,914 $ 6,436 $ 6,048 $6,179 $6,259
Non-deliverable forwards........ 37,536 33,152 62,602 62,829 -- --
The market value of the interest rate swap at December 31, 2000 was
$(1,500).
Inventories
Inventories are carried at lower of cost or market determined on the first-
in, first-out (FIFO) method. Raw materials also include supplies and repair
parts which consist of materials consumed in the manufacturing process but not
directly incorporated into the finished products. Inventories at December 31,
2000 and July 31, 2000 and 1999 consist of the following:
July 31
December 31, -----------------
2000 2000 1999
------------ -------- --------
Raw materials................................. $154,550 $132,713 $121,725
Work-in-process............................... 51,668 52,605 50,725
Finished goods................................ 87,606 82,835 59,715
-------- -------- --------
$293,824 $268,153 $232,165
======== ======== ========
Property and Equipment
Property and equipment are stated at cost and include certain expenditures
for leased facilities. Depreciation is calculated primarily using the straight-
line method over the estimated useful lives of the related assets (15 to 40
years for buildings and 3 to 15 years for machinery and equipment).
Goodwill
Goodwill represents the excess of purchase price over fair value of the net
assets acquired and is being amortized by the straight-line method over 15 to
35 years.
F-11
DELCO REMY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The carrying amount of goodwill is regularly reviewed for indicators of
impairment in value, which in the view of management are other than temporary,
including unexpected or adverse changes in the following: (i) the economic or
competitive environments in which the Company operates; (ii) profitability
analysis and (iii) cash flow analysis. If facts and circumstances suggest that
a subsidiary's net assets are impaired, the Company assesses the fair value of
the underlying business and reduces goodwill to an amount that results in the
book value of the subsidiary approximating fair value.
Investments in Joint Ventures
Investments in companies representing an ownership interest of 20% to 50%
are accounted for by the equity method. Joint ventures consisted of a 37%
interest in Sahney Paris Rhone Ltd. ("SPR") in fiscal 1999 and fiscal 2000 and
a 50% interest in Delco Remy Korea through June 25, 1999. Subsequent to that
date, Delco Remy Korea was accounted for as a consolidated subsidiary (see Note
1). The Company's investment in SPR and its share of SPR's earnings were not
significant relative to consolidated assets and earnings for the five months
ended December 31, 2000 and in fiscal years 2000 and 1999.
Long-Term Assets
The Company records impairment losses on long-lived assets used in
operations when events and circumstances indicate that the assets might be
impaired and the undiscounted cash flows estimated to be generated by those
assets are less than the carrying amounts of those assets.
Recognition of Revenue
Substantially all of the Company's revenue is recognized at the time product
is shipped. The Company's remanufacturing operations obtain used diesel and
gasoline engines, fuel systems, transmissions, starter motors and generators,
commonly known as cores, from its customers as trade-ins. Net sales and cost of
goods sold are reduced by $83,558, $185,324, $156,383, and $160,731 for the
five months ended December 31, 2000 and fiscal years 2000, 1999 and 1998,
respectively, to reflect the cost of cores for remanufactured product shipped.
Foreign Currency Translation
Financial statements of foreign subsidiaries are translated into U.S.
dollars using the exchange rate at each balance sheet date for assets and
liabilities and at the average exchange rate for each year for revenue and
expenses. Translation adjustments are recorded as a separate component of
stockholders' equity and reflected in comprehensive income (loss).
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 Company's stock purchase
plan. The effect of warrants and the stock purchase plan on diluted earnings
per share is determined through the application of the treasury stock method,
whereby proceeds received by the Company based on assumed exercises are
hypothetically used to repurchase the Company's common stock at the average
market price during the period. Stock options did not affect the calculation of
diluted earnings per share in fiscal years 2000 and 1999 because the exercise
price of stock options outstanding was greater than the market price. Stock
options, warrants, and stock purchase plans did not affect the
F-12
DELCO REMY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
calculation of the weighted average shares for the diluted loss per share in
fiscal year 1998 because their effect would have been antidilutive.
The following table sets forth the computation of basic and diluted earnings
(loss) per share:
Five Months
Ended Year Ended July 31
December 31, --------------------------------
2000 2000 1999 1998
------------ ---------- ---------- ----------
Numerator:
Income (loss) from
continuing operations...... $ 9,699 $ 12,418 $ 28,346 $ (2,187)
Extraordinary item.......... -- -- -- (1,833)
---------- ---------- ---------- ----------
Numerator for basic and
diluted earnings (loss) per
share...................... $ 9,699 $ 12,418 $ 28,346 $ (4,020)
========== ========== ========== ==========
Denominator:
Denominator for basic
earnings (loss) per share--
weighted average shares.... 24,317,713 24,243,163 23,913,848 19,981,240
Effect of dilutive
securities:
Warrants................... 1,679,728 1,679,757 1,679,804 --
Stock options.............. 2,574 -- -- --
Stock purchase plan........ 64,540 79,286 351,335 --
---------- ---------- ---------- ----------
Denominator for diluted
earnings (loss) per share.. 26,064,555 26,002,206 25,944,987 19,981,240
========== ========== ========== ==========
On November 20, 1997, the Company authorized a 16.8-to-1 stock split which
was effective on December 19, 1997. All share and per share amounts have been
adjusted to reflect this split.
See Note 18 for a discussion of the Company's acquisition by Court Square
Capital Limited ("Court Square"), the subsequent merger of a subsidiary of
Court Square into the Company and the Company's recapitalization, all effective
March 14, 2001.
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 and unrealized gains and losses on currency instruments and interest
rate swaps. See Note 10.
Fair Value of Financial Instruments
The Company's financial instruments generally consist of cash and cash
equivalents, trade and other receivables, accounts payable and long-term debt.
The fair value of the Company's fixed rate debt was estimated using a
discounted cash flow analysis based upon the Company's current incremental
borrowing rates. With the exception of the Senior Notes and the Senior
Subordinated Notes, the carrying amounts of these financial instruments
approximated their fair value at December 31, 2000 and at July 31, 2000 and
1999. At December 31, 2000, the Senior Notes have a face value of $145,000 and
a fair value of $133,067 and the Senior Subordinated Notes have a face value of
$140,000 and a fair value of $118,146.
Use of Estimates
Preparation of the consolidated financial statements requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent liabilities at
F-13
DELCO REMY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
the date of the consolidated financial statements, and the reported amounts of
revenue and expense during the year. Actual results could differ from those
estimates.
Impact of Recently Issued Accounting Standards
The Emerging Issues Task Force ("EITF") of the Financial Accounting
Standards Board issued a final consensus on EITF 00-10, Accounting for Shipping
and Handling Fees and Costs. This standard addresses the income statement
classification for shipping and handling fees and costs. The Company adopted
the provisions of this standard in the transition period ended December 31,
2000. Adoption did not have a material effect on the Company's financial
statements.
3. NON-RECURRING CHARGES
In May 2000, the Company completed plans for the realignment of certain
manufacturing facilities in the United States, Canada and the United Kingdom. A
one-time charge of $35,222 was recorded in June 2000 for the estimated cost of
the plan. The reserve included $27,098 for the estimated cost of various
voluntary and involuntary employee separation programs associated with the
resulting workforce reductions. A total of $5,011 was paid in fiscal year 2000,
$15,961 was paid in the five months ended December 31, 2000 and $3,100, $2,842
and $184 are estimated to be paid in calendar years 2001, 2002 and 2003,
respectively. The reserve also includes $8,124, net of salvage value, for the
write-down of certain production assets which will no longer be used as a
result of the realignment. Additionally, a reserve of $1,050 was established in
connection with the acquisition of Elmot in March 2000.
In May 1998, the Company offered an incentive separation payment to DRA
hourly employees through an employee termination program. A total of 337
employees accepted the Company's offer. A reserve of $26,515 was established
for these separation costs, $9,974 of which were paid in fiscal year 1998,
$11,565 of which were paid in fiscal year 1999, and $3,889 of which were paid
in fiscal year 2000. An additional $900 was paid in the five months ended
December 31, 2000 and $187 will be paid in calendar year 2001.
In May 1997, the Company decided to realign the manufacturing operations of
DRA to utilize focus factory manufacturing concepts and to close the Company's
operations in the old vertically-integrated factories that were leased from GM.
These decisions resulted in the impairment of certain production assets with a
carrying amount of $30,321 ($25,279 of which was property and equipment and
$5,042 of which was related tooling and other supplies) which the Company sold
or otherwise disposed of. In fiscal year 1998, the reserve established for this
charge was reduced $5,366 to reflect the utilization of certain assets
previously targeted for disposal. The Company estimated the loss on disposal
including related costs at $26,260. In addition, the Company estimated a cost
of $8,240 for reducing its workforce through several transition programs. In
fiscal year 1998, this reserve was increased $5,232 to reflect greater than
anticipated participation in the various workforce transition programs. Some of
the operations for the closed facilities were transferred to the new focus
factories and others were outsourced.
F-14
DELCO REMY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following table summarizes the provisions and reserves for non-recurring
charges:
Termination Exit/Impairment
Benefits Costs Total
----------- --------------- -------
Reserve at August 1, 1997............. $ 8,240 $29,137 $37,377
Provision in 1998..................... 26,515 -- 26,515
Change in estimate.................... 5,232 (5,366) (134)
Payments and charges in 1998.......... (19,204) (9,035) (28,239)
------- ------- -------
Reserve at July 31, 1998.............. 20,783 14,736 35,519
Payments and charges in 1999.......... (15,808) (13,845) (29,653)
------- ------- -------
Reserve at July 31, 1999.............. 4,975 891 5,866
Provision in 2000..................... 27,098 8,124 35,222
Payments and charges in 2000.......... (8,900) (8,460) (17,360)
Reserve established in acquisition of
business............................. 1,050 -- 1,050
------- ------- -------
Reserve at July 31, 2000.............. 24,223 555 24,778
Payments and charges in the five month
transition period.................... (16,861) (225) (17,086)
------- ------- -------
Reserve at December 31, 2000.......... $ 7,362 $ 330 $ 7,692
======= ======= =======
4. ALLOWANCE FOR DOUBTFUL ACCOUNTS
The activity in the allowance for doubtful accounts is as follows:
Five Months
Ended Year Ended July 31
December 31, ----------------------
2000 2000 1999 1998
------------ ------ ------ ------
Balance at beginning of period........ $2,970 $2,105 $2,083 $2,935
Additions charged to costs and ex-
penses............................... 1,334 1,401 1,984 1,037
Acquisition of certain businesses..... -- 1,049 50 28
Uncollectible accounts written off,
net of recoveries.................... (1,189) (1,585) (2,012) (1,917)
------ ------ ------ ------
Balance at end of period.............. $3,115 $2,970 $2,105 $2,083
====== ====== ====== ======
5. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
July 31
December 31, -----------------
2000 2000 1999
------------ -------- --------
Land and buildings........................... $ 21,228 $ 19,231 $ 16,281
Buildings under capital leases............... 25,585 25,312 22,304
Leasehold improvements....................... 10,459 10,409 10,737
Machinery and equipment...................... 248,311 242,622 209,405
-------- -------- --------
$305,583 $297,574 $258,727
======== ======== ========
F-15
DELCO REMY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
6. LONG-TERM DEBT
Borrowings under long-term debt arrangements consist of the following:
July 31
December 31, -----------------
2000 2000 1999
------------ -------- --------
Senior Credit Facility:
Revolving acquisition loans................. $182,403 $146,884 $ 96,784
Senior Subordinated Notes.................... 140,000 140,000 140,000
Senior Notes................................. 145,000 145,000 145,000
GM Subordinated Debenture.................... 18,873 18,802 18,630
Other, including capital lease obligations... 41,115 41,038 47,113
-------- -------- --------
527,391 491,724 447,527
Less current portion......................... 8,107 7,454 12,596
-------- -------- --------
$519,284 $484,270 $434,931
======== ======== ========
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 $300,000 for general purposes
(including acquisitions). The Senior Credit Facility terminates on October 31,
2003. The Company has the option of paying an interest rate of one bank's prime
rate or a LIBOR-based rate. The weighted average interest on amounts
outstanding at December 31, 2000, July 31, 2000 and 1999 was 8.67%, 8.15% and
7.21%, respectively. At December 31, 2000, approximately $105,700 was available
under the Senior Credit Facility.
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.
Senior Subordinated Notes
On August 2, 1996, the Company issued $140,000 of 10 5/8% Senior
Subordinated Notes due August 1, 2006 (the "Senior Subordinated Notes").
The Senior Subordinated Notes are unsecured senior subordinated obligations
of the Company and are subordinated in right of payment to the prior payment in
full of all existing and future senior indebtedness, pari passu with all
present and future senior subordinated indebtedness and senior to all present
and future subordinated indebtedness of the Company or the relevant subsidiary
guarantors, as defined in the indenture. The Senior Subordinated Notes will
also be effectively subordinated to any secured indebtedness to the extent of
the value of the assets securing such indebtedness.
The Senior Subordinated Notes are redeemable at the option of the Company,
in whole or in part, on or after August 1, 2001, at the redemption prices set
forth in the note agreement plus accrued and unpaid interest, if any, to the
redemption date. Interest is payable semi-annually on February 1 and August 1
of each year.
F-16
DELCO REMY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Upon the occurrence of a change of control, each holder of the Senior
Subordinated Notes will have the right to require the Company to purchase all
or a portion of such holder's notes at a price in cash equal to 101% of the
aggregate principal amount thereof plus accrued and unpaid interest, if any, to
the date of purchase.
The indenture pursuant to which the Senior Subordinated Notes were issued
contains certain covenants that, among other things, limit the ability of the
Company and its restricted subsidiaries to (i) incur additional indebtedness,
(ii) pay dividends or make other distributions with respect to capital stock
(as defined) of the Company and its restricted subsidiaries, (iii) sell assets
of the Company or its restricted subsidiaries, (iv) issue or sell restricted
subsidiary stock, (v) enter into certain transactions with affiliates, (vi)
create certain liens, (vii) enter into certain mergers and consolidations and
(viii) incur indebtedness which is subordinate to senior indebtedness and
senior to the Senior Subordinated Notes.
Senior Notes
On December 22, 1997, the Company issued $145,000 of 8 5/8% Senior Notes due
December 15, 2007 (the "Senior Notes"). The proceeds from the Senior Notes were
$141,375, net of issuance costs. The proceeds were used to repay higher
interest bearing debt.
The Senior Notes are general unsecured senior obligations of the Company and
rank pari passu in right of payment with all existing and future senior
indebtedness of the Company and senior in right of payment to all existing and
future subordinated obligations of the Company. In addition, the obligations of
the Company under the Senior Notes will be fully and unconditionally guaranteed
on a joint and several basis by each of the Company's existing and future
domestic restricted subsidiaries. The subsidiary guarantees will rank pari
passu in right of payment with all existing and future senior indebtedness of
the subsidiary guarantors and senior in right of payment to all existing and
future subordinate obligations of the subsidiary guarantors. The Senior Notes
and the subsidiary guarantees will be effectively subordinated to all existing
and future secured indebtedness of the Company and the subsidiary guarantors as
well as to any liabilities of subsidiaries other than subsidiary guarantors.
The Senior Notes are redeemable at the option of the Company, in whole or in
part, at any time on or after December 15, 2002, at the redemption prices set
forth in the note agreement plus accrued and unpaid interest, if any, to the
date of redemption. Interest is payable semi-annually on June 15 and December
15 of each year.
Upon the occurrence of a change of control (as defined), each holder of the
Senior Notes will have the right to require the Company to purchase all or a
portion of such holder's notes at a purchase price equal to 101% of the
principal amount thereof, plus accrued and unpaid interest, if any, to the date
of purchase.
The indenture pursuant to which the Senior Notes were issued contains
certain covenants that, among other things, limit the ability of the Company
and its restricted subsidiaries to (i) incur additional indebtedness, (ii) pay
dividends or make other distributions with respect to capital stock (as
defined) of the Company and its restricted subsidiaries, (iii) sell assets of
the Company or its restricted subsidiaries, (iv) issue or sell restricted
subsidiary stock, (v) enter into certain transactions with affiliates, (vi)
create certain liens, (vii) enter into certain mergers and consolidations and
(viii) incur indebtedness which is subordinate to senior indebtedness and
senior to the Senior Subordinated Notes.
GM Subordinated Debenture
On December 22, 1997, the Company converted preferred stock into a
subordinated debenture with General Motors (the "GM Subordinated Debenture").
The debenture bears interest at the rate of 8% annually
F-17
DELCO REMY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
and will mature on July 31, 2004. The Company is amortizing the discount from
the maturity value of $19,488 using the straight-line method.
Capital Lease Obligations
Capital leases have been capitalized using interest rates ranging from 8.1%
to 15.2%. The net book value of assets under capital leases were $15,322,
$16,026 and $17,832 at December 31, 2000 and July 31, 2000 and 1999,
respectively.
Other
Total cash interest paid for the transition period and fiscal years 2000,
1999 and 1998 was $22,636, $46,835, $41,502, and $33,397, respectively.
Required principal payments of long-term debt and capitalized leases are as
follows:
2001................................ $ 8,107
2002................................ 4,240
2003................................ 186,350
2004................................ 23,648
2005................................ 4,434
Thereafter.......................... 300,612
--------
$527,391
========
7. EMPLOYEE BENEFIT PLANS
Agreements with GM
In connection with the GM Acquisition, the Company and GM agreed to allocate
the responsibility for employee pension benefits and post-retirement health
care and life insurance on a pro-rata basis between DRA and GM. The allocation
is primarily determined upon years of service with DRA and aggregate years of
service with DRA and GM. Effective August 1, 1994, DRA established hourly and
salaried pension and post-retirement health care and life insurance plans which
are similar to the respective GM plans.
Pension and Post-Retirement Health Care and Life Insurance Plans
DRA has defined benefit pension plans covering substantially all employees.
The plan covering salaried employees provides benefits that are based upon
years of service and final estimated average compensation. Benefits for hourly
employees are based on stated amounts for each year of service. DRA's funding
policy is to contribute amounts to provide the plans with sufficient assets to
meet future benefit payment requirements consistent with actuarial
determinations of the funding requirements of federal laws. Plan assets are
primarily invested in mutual funds which invest in both debt and equity
instruments.
DRA maintains hourly and salaried benefit plans that provide post-retirement
health care and life insurance to retirees and eligible dependents. The
benefits are payable for life, although DRA retains the right to modify or
terminate the plans providing these benefits. The salaried plan has cost
sharing features such as deductibles and co-payments. Salaried employees who
were not GM employees prior to 1992 are not eligible for the above described
post-retirement benefits. It is DRA's policy to fund these benefits as claims
are incurred.
F-18
DELCO REMY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The changes in benefit obligations and plan assets, components of expense,
and assumptions for the plans are as follows:
Post-Retirement Health Care
Pension Benefits and Life Insurance Plans
-------------------------------------- -----------------------------------------
Five Months Five Months
Ended Year Ended July 31 Ended Year Ended July 31
December 31, ------------------------- December 31, ----------------------------
2000 2000 1999 1998 2000 2000 1999 1998
------------ ------- ------- ------- ------------ -------- -------- --------
Change in benefit
obligation
Benefit obligation at
beginning of year...... $24,444 $18,406 $17,656 $12,575 $ 15,734 $ 15,040 $ 13,006 $ 11,619
Service cost............ 711 2,618 2,111 2,012 959 2,782 3,538 3,384
Interest cost........... 749 1,584 1,237 930 524 1,028 924 637
Amendments.............. 636 2,496 -- (430) -- -- -- --
Actuarial (gain)/loss... (334) 752 (1,636) 3,077 1,021 (404) (2,428) (2,634)
Benefits paid........... (759) (1,202) (962) (508) (238) (330) -- --
Curtailment gains....... -- (210) -- -- -- (2,382) -- --
------- ------- ------- ------- -------- -------- -------- --------
Benefit obligation at
end of year............ $25,447 $24,444 $18,406 $17,656 $ 18,000 $ 15,734 $ 15,040 $ 13,006
======= ======= ======= ======= ======== ======== ======== ========
Change in plan assets
Fair value of plan
assets at beginning of
year................... $21,551 $16,749 $12,516 $ 9,663 $ -- $ -- $ -- $ --
Actual return on plan
assets................. (170) 1,687 1,635 1,158 -- -- -- --
Employer contributions.. -- 4,317 3,560 2,203 238 -- -- --
Benefits paid........... (645) (1,202) (962) (508) (238) -- -- --
------- ------- ------- ------- -------- -------- -------- --------
Fair value of plan
assets at end of year.. $20,736 $21,551 $16,749 $12,516 $ -- $ -- $ -- $ --
======= ======= ======= ======= ======== ======== ======== ========
Funded status........... $(4,711) $(2,893) $(1,657) $(5,140) $(18,000) $(15,734) $(15,040) $(13,006)
Unrecognized actuarial
gain................... (304) (1,014) (1,819) (322) (4,794) (5,905) (6,010) (3,488)
Unrecognized prior
service cost........... 3,276 2,621 757 834 -- -- -- --
------- ------- ------- ------- -------- -------- -------- --------
Net amount recognized... $(1,739) $(1,286) $(2,719) $(4,628) $(22,794) $(21,639) $(21,050) $(16,494)
======= ======= ======= ======= ======== ======== ======== ========
Amounts recognized in
the consolidated
balance sheet consist
of:
Accrued benefit
liability.............. $(4,424) $(3,262) $(2,719) $(4,206) $(22,794) $(21,639) $(21,050) $(16,494)
Minimum pension
liability adjustment... 2,685 1,976 -- (422) -- -- -- --
------- ------- ------- ------- -------- -------- -------- --------
Net amount recognized... $(1,739) $(1,286) $(2,719) $(4,628) $(22,794) $(21,639) $(21,050) $(16,494)
======= ======= ======= ======= ======== ======== ======== ========
Components of expense
Service costs........... $ 711 $ 2,618 $ 2,111 $ 2,012 $ 959 $ 2,782 $ 3,538 $ 3,384
Interest costs.......... 749 1,584 1,237 930 524 1,028 924 637
Expected return on plan
assets................. (866) (1,802) (1,331) (1,016) -- -- -- --
Amortization of prior
service cost........... 110 158 77 77 -- -- -- --
Recognized net actuarial
loss/(gain)............ (8) -- 8 (103) (91) (314) 93 (203)
Curtailments............ -- 266 -- -- -- -- -- --
------- ------- ------- ------- -------- -------- -------- --------
Net periodic pension
cost................... $ 696 $ 2,824 $ 2,102 $ 1,900 $ 1,392 $ 3,496 $ 4,555 $ 3,818
======= ======= ======= ======= ======== ======== ======== ========
Weighted-average
assumptions
Discount rate........... 7.75% 8.00% 7.75% 7.00% 7.75% 8.00% 7.75% 7.00%
Expected return on plan
assets................. 10.00% 10.00% 10.00% 10.00% -- -- -- --
Rate of compensation
increase............... 5.00% 5.00% 5.00% 5.00% 5.00% 5.00% 5.00% 5.00%
F-19
DELCO REMY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Measurement of the accumulated post-retirement benefit obligation was based
on a 10.00% annual rate of increase in the cost of covered health care
benefits. The rate was assumed to decrease ratably to 5.25% through 2004 and
remain level at that rate thereafter. An increase and decrease of one-
percentage-point in the assumed health care trend rates would have the
following effects on service and interest cost in the five-month period ended
December 31, 2000 and the accumulated post-retirement benefit obligation at
December 31, 2000.
1% Increase 1% Decrease
----------- -----------
Effect on total of service and interest cost compo-
nents of net periodic post-retirement health care
benefit cost....................................... $ 377 $ (284)
Effect on the health care component of the
accumulated post-retirement benefit obligation..... 4,201 (3,181)
Defined Contribution Plans
Various subsidiaries of the Company sponsor voluntary savings plans for
eligible salaried and hourly employees. These plans allow participants to make
contributions pursuant to section 401(k) of the Internal Revenue Code. Certain
of these plans have Company matching contribution provisions. Charges to
operations were $911 in the five month period ended December 31, 2000 and
$1,731, $1,227, and $953 in fiscal years 2000, 1999 and 1998, respectively.
Profit Sharing Plans
DRA sponsors profit sharing plans covering substantially all of its
employees. Distributions are determined based upon formulas established by
management and are made annually. Profit sharing expense for the five month
period ended December 31, 2000 and years ended July 31, 2000, 1999 and 1998 was
$728, $2,514, $1,804 and $918, respectively.
8. STOCKHOLDERS' EQUITY
See Note 18 for a discussion of the Company's acquisition by Court Square
Capital Limited ("Court Square"), the subsequent merger of a subsidiary of
Court Square into the Company and the Company's recapitalization, all effective
March 14, 2001.
All shares of Class A Common Stock and Class B Common Stock are identical
and entitle the holders thereof to the same rights and privileges, provided
that except as otherwise required by law, the holders of Class B Common Stock
shall have no voting rights. Each share of Class A Common Stock is convertible
into one share of Class B Common Stock and each share of Class B Common Stock
is convertible into one share of Class A Common Stock.
Stock Purchase Plan
On October 21, 1994, the Company approved a private placement memorandum
whereby the Company is authorized to offer for sale to certain members of
management of DRA up to 1,596,000 shares of Class A Common Stock. Shares issued
pursuant to this plan generally vest over three to five years. As of December
31, 2000, 1,450,400 shares were issued of which 1,383,200 shares were vested.
As of December 31, 2000, 310,800 of these shares had been issued at a price
approximating book value. Unearned compensation was amortized over the relevant
vesting periods. The stockholder notes receivable of $336, $328 and $322 at
December 31, 2000 and July 31, 2000 and 1999, respectively, are associated with
the sale of Class A Common Stock and were payable in 2000 through 2002 together
with interest at 9.25% per annum.
F-20
DELCO REMY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Initial Public Offering
On December 22, 1997, the Company issued 4,000,000 shares of Class A Common
Stock in an initial public offering at $12.00 per share. Also, on January 16,
1998, the Company issued an additional 600,000 shares of Class A Common Stock
at $12.00 per share as a result of the underwriters' exercise of their over-
allotment option. Net proceeds to the Company from such offerings, after
deduction of associated expense, were approximately $51,336.
Warrants
DRI issued warrants to purchase 1,680,000 shares of DRI Class A Common Stock
at a price of $.0012 per share. The warrants were exercisable, in whole or in
part, at any time through June 30, 2004.
Redeemable Exchangeable Preferred Stock of DRA
In connection with the GM Acquisition, DRA issued 15,000 shares of Class A
Preferred Stock (par value $.01 shares and liquidation preference $1,000 per
share) to GM (DRA Preferred Stock). The DRA Preferred Stock was exchangeable,
at the option of DRA, in whole or in part, for 8% subordinated debentures to be
issued by DRA at $1,000 per share plus accrued and unpaid dividends. As a part
of the December 22, 1997 initial offering and recapitalization, the DRA
Preferred Stock was exchanged for the 8% Subordinated Debenture. As a result, a
deemed dividend of $1,639 on the preferred stock conversion was incurred in
fiscal year 1998.
Dividends
The Company paid no dividends on its common stock. Payment of dividends was
at the discretion of the Company's Board of Directors and depended, among other
factors, upon the Company's earnings, financial condition and capital
requirements and the terms of the Company's financing agreements. The ability
of the Company to make dividend payments was also restricted by the terms of
certain of its debt instruments.
Stock Options
The Company had two fixed stock option plans which reserve shares of common
stock for issuance to executives, key employees, and directors.
In December 1997, the Company adopted the Stock-Based Incentive Compensation
Plan whereby employees of the Company are eligible to be granted incentive
stock options or non-qualified stock options. A total of 1,224,000 shares were
initially reserved for grants of stock options, stock appreciation rights, and
restricted stock awards under the plan. In December 2000, the stockholders of
the Company approved an increase of 1,224,000 shares, resulting in a total of
2,448,000 shares authorized as of December 31, 2000.
In December 1997, the Company adopted the Non-Qualified Stock Option Plan
for Non-Employee Directors whereby non-employee directors are eligible to be
granted non-qualified stock options. A total of 100,000 shares were initially
reserved for grant under the plan. In December 2000, the stockholders of the
Company approved an increase of 100,000 shares, resulting in a total of 200,000
shares authorized as of December 31, 2000. On December 16, 1997 and December
16, 1999, each non-employee director of the Company was granted options to
purchase 2,000 shares.
The exercise price of stock options granted could not be less than the fair
market value of a share of common stock on the date of the grant. Options
became exercisable in periods ranging from one to five years
F-21
DELCO REMY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
and vested ratably over a period of five years from the date of the grant.
Information regarding these option plans is as follows:
Weighted
Average Exercise
Shares Price
------- ----------------
Initial grant of options (weighted average fair
value of $5.56)................................ 258,700 $12.00
Cancelled....................................... (7,600) 12.00
-------
Outstanding as of July 31, 1998................. 251,100 12.00
Granted (weighted average fair value of $5.45).. 224,100 11.75
Cancelled....................................... (39,460) 11.92
-------
Outstanding as of July 31, 1999................. 435,740 11.88
Granted (weighted average fair value of $3.48).. 281,065 8.69
Cancelled....................................... (87,670) 11.44
-------
Outstanding as of July 31, 2000................. 629,135 10.53
Granted (weighted average fair value of $2.70).. 316,025 6.77
Cancelled....................................... (2,500) 7.63
-------
Outstanding as of December 31, 2000............. 942,660 $ 9.28
=======
At December 31, 2000, approximately 227,466 options were exercisable and
approximately 1,605,340 additional shares were available for grant under the
Company's plans. No options were exercised during the five months ended
December 31, 2000 and fiscal years 2000, 1999, or 1998.
Disclosure of pro forma information regarding net income and earnings per
share is required by FASB Statement No. 123 as if the Company has accounted for
its stock options under the fair value method as defined by that Statement.
Disclosure of this information for the five-month period ended December 31,
2000 has not been provided because these plans were cancelled in March 2001 and
the Company does not believe such disclosure would provide additional
meaningful information to stockholders. The fair value for options granted by
the Company was estimated as of the date of grant using a Black-Scholes option
pricing model with the following weighted-average assumptions:
Year Ended
July 31
----------------
2000 1999 1998
---- ---- ----
Risk-free interest rate.................................. 6.00% 5.00% 5.00%
Dividend yield........................................... 0.00% 0.00% 0.00%
Volatility factor of the expected market price of the
Company's common stock.................................. 0.22 0.30 0.30
Expected life of the options (years)..................... 7 8 8
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including expected stock price volatility.
Because the Company's stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimates, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its stock options.
For purpose of pro forma disclosures, the estimated fair value of the
options are amortized to expense over the related vesting period. Because
compensation expense is recognized over the vesting period, the initial
F-22
DELCO REMY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
impact on pro forma net income may not be representative of compensation
expense in future years, when the effect of amortization of multiple awards
would be reflected in the consolidated statements of operations. The Company's
pro forma information giving effect to the estimated compensation expense
related to stock options is as follows:
Year Ended July 31
-----------------------
2000 1999 1998
------- ------- -------
Pro forma net income (loss)........................ $12,184 $28,109 $(4,128)
Pro forma earnings (loss) per share:
Basic............................................ 0.50 1.18 (.21)
Diluted.......................................... 0.47 1.08 (.21)
9. INCOME TAXES
The following is a summary of the components of the provision for income
taxes (benefit):
Five Months
Ended Year Ended July 31
December 31, ------------------------
2000 2000 1999 1998
------------ ------- ------- -------
Current:
Federal.............................. $ 62 $ 669 $ 257 $(2,916)
State and local...................... 597 1,323 1,478 2,276
Foreign.............................. 3,289 7,157 5,214 2,834
------ ------- ------- -------
3,948 9,149 6,949 2,194
Deferred:
Federal.............................. 4,180 1,280 7,146 (1,019)
State and local...................... 54 3,350 1,703 (1,227)
Foreign.............................. (2,088) (2,319) 656 --
------ ------- ------- -------
2,146 2,311 9,505 (2,246)
------ ------- ------- -------
$6,094 $11,460 $16,454 $ (52)
====== ======= ======= =======
Income (loss) before income taxes (benefit), minority interest in income of
subsidiaries, income (loss) from unconsolidated joint ventures, preferred
dividend requirement of subsidiary and deemed dividend on preferred stock
conversion was taxed in the following jurisdictions:
Five Months
Ended Year Ended July 31
December 31, --------------------------
2000 2000 1999 1998
------------ ------- ------- --------
Domestic............................ $11,659 $ 8,031 $25,101 $(10,789)
Foreign............................. 7,888 23,174 19,844 10,655
Eliminations........................ (509) (233) (1,644) --
------- ------- ------- --------
$19,038 $30,972 $43,301 $ (134)
======= ======= ======= ========
F-23
DELCO REMY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
A reconciliation of income taxes at the United States federal statutory rate
to the effective income tax rate follows:
Five Months Year Ended July
Ended 31
December 31, ------------------
2000 2000 1999 1998
------------ ----- ---- -----
Federal statutory income tax rate......... 35.0% 35.0% 35.0% 35.0%
State and local income taxes--net of
federal tax benefit...................... 2.2 7.9 4.8 (21.7)
Foreign operations........................ (6.8) (10.6) (2.3) 43.0
Goodwill.................................. 2.2 2.4 .7 (13.3)
Other items............................... (0.6) 2.3 (.2) (4.2)
---- ----- ---- -----
Effective income tax rate................. 32.0% 37.0% 38.0% 38.8%
==== ===== ==== =====
State and local income taxes include provisions for Indiana and Michigan
which do not provide proportional benefit in loss years.
The following is a summary of the significant components of the Company's
deferred tax assets and liabilities:
July 31
December 31, ----------------
2000 2000 1999
------------ ------- -------
Deferred tax assets:
Non-recurring charges... $ 5,358 $11,079 $ 2,244
Employee benefits....... 10,514 10,096 9,648
Inventories............. 4,326 4,609 4,576
Warranty................ 2,418 2,625 3,350
Non-compete agreements.. 824 824 789
Alternative minimum tax
credits................ 3,937 3,825 5,309
Net operating loss
carryforwards.......... 15,025 12,414 7,925
Other................... 8,239 6,656 1,615
------- ------- -------
Total deferred tax
assets................... 50,641 52,128 35,456
Valuation allowance..... (7,779) (7,779) (2,507)
------- ------- -------
Deferred tax assets net of
valuation allowance...... 42,862 44,349 32,949
Deferred tax liabilities:
Depreciation............ (21,280) (20,674) (17,633)
Other................... (15,836) (15,557) (4,887)
------- ------- -------
Total deferred tax
liabilities.............. (37,116) (36,231) (22,520)
------- ------- -------
Net deferred tax asset.... $ 5,746 $ 8,118 $10,429
======= ======= =======
At December 31, 2000, the Company had unused Federal net operating loss
carryforwards of approximately $20,159 that expire between the years of 2018
and 2020. The Company also had unused alternative minimum tax credit
carryforwards of approximately $3,937 that may be carried forward indefinitely.
Income tax payments (refunds), including state taxes, for the five month period
ended December 31, 2000 and years ended July 31, 2000, 1999 and 1998 were $743,
$10,726, $617 and ($483), respectively.
No provision has been made for United States federal and state or foreign
taxes that may result from future remittances of undistributed earnings of
foreign subsidiaries ($32,680 at December 31, 2000) because it
F-24
DELCO REMY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
is expected that such earnings will be reinvested in these foreign operations
indefinitely. It is not practical to estimate the amount of taxes that might be
payable on the eventual remittances of such earnings.
10. ACCUMULATED OTHER COMPREHENSIVE LOSS
The Company's other comprehensive loss consists of unrealized net gains and
losses on the translation of the assets and liabilities of its foreign
operations, currency instruments and interest rate swaps. The before tax net
loss, related income tax benefit and accumulated balance are as follows:
Foreign Unrealized Unrealized Accumulated
Currency Losses on Losses on Other
Translation Currency Interest Rate Comprehensive
Adjustment Instruments Swaps Loss
----------- ----------- ------------- -------------
Balance at August 1,
1997..................... $ (1,752) $ -- $ -- $ (1,752)
Before tax loss........... (3,794) -- -- (3,794)
Income tax effect......... (1,472) -- -- (1,472)
--------- -------- -------- ---------
Other comprehensive loss.. (2,322) -- -- (2,322)
--------- -------- -------- ---------
Balance at July 31, 1998.. (4,074) -- -- (4,074)
Before tax loss........... (3,939) -- -- (3,939)
Income tax effect......... (1,497) -- -- (1,497)
--------- -------- -------- ---------
Other comprehensive loss.. (2,442) -- -- (2,442)
--------- -------- -------- ---------
Balance at July 31, 1999.. (6,516) -- -- (6,516)
Before tax loss........... (6,859) -- -- (6,859)
Income tax effect......... (2,538) -- -- (2,538)
--------- -------- -------- ---------
Other comprehensive loss.. (4,321) -- -- (4,321)
--------- -------- -------- ---------
Balance at July 31, 2000.. (10,837) -- -- (10,837)
Cumulative effect of
accounting change for
derivative instruments... -- 241 -- 241
Before tax loss........... (2,569) (4,561) (1,505) (8,635)
Income tax effect......... (822) (691) (482) (1,995)
--------- -------- -------- ---------
Other comprehensive loss.. (1,747) (3,870) (1,023) (6,640)
--------- -------- -------- ---------
Balance at December 31,
2000..................... $ (12,584) $ (3,629) $ (1,023) $ (17,236)
========= ======== ======== =========
11. TRANSACTIONS WITH GM
The Company and GM have entered into several transactions and agreements
related to their respective businesses. In addition to the transactions
disclosed elsewhere in the accompanying consolidated financial statements and
related notes, the Company entered into the following transactions with GM:
Five Months Ended Year Ended July 31
December 31, --------------------------
2000 2000 1999(a) 1998(a)
----------------- -------- -------- --------
Sales....................... $124,596 $332,665 $359,162 $307,048
Material purchases and costs
for services............... 2,002 4,500 34,273 52,273
- ---------------------
(a) Includes transactions with Delphi Automotive Systems Corporation which was
divested by GM in fiscal 1999.
F-25
DELCO REMY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In addition, the Company had the following balances with GM:
July 31
December 31, ---------------
2000 2000 1999
------------ ------- -------
Trade accounts receivable.................... $36,406 $32,722 $43,490
Other receivables............................ 5,704 4,768 4,990
12. LEASE COMMITMENTS
The Company occupies space and uses certain equipment under lease
arrangements. Rent expense was $4,064, $9,091, $7,793 and $8,207 for the five
month period ended December 31, 2000 and years ended July 31, 2000, 1999 and
1998, respectively. Rental commitments at December 31, 2000 for long-term non-
cancelable operating leases were as follows:
Year ending 2001................................................... $ 8,106
Year ending 2002................................................... 5,117
Year ending 2003................................................... 4,522
Year ending 2004................................................... 4,147
Year ending 2005................................................... 3,475
Thereafter......................................................... 12,653
-------
$38,020
=======
13. COMMITMENTS AND CONTINGENCIES
The Company is party to various legal actions and administrative proceedings
and subject to various claims arising in the ordinary course of business,
including those relating to commercial transactions, product liability, safety,
health, taxes, environmental and other matters. The Company believes that the
ultimate liability, if any, in excess of amounts already provided for in the
financial statements or covered by insurance on the disposition of these
matters will not have a material adverse effect on the financial position,
results of operations or cash flows of the Company.
14. BUSINESS SEGMENTS AND GEOGRAPHIC AREA INFORMATION
The Company is a global vehicular parts designer, manufacturer,
remanufacturer, marketer and distributor, and a provider of core exchange
services. Products include starter motors, alternators, engines, transmissions,
traction control systems, torque converters and fuel systems which are
principally sold or distributed to OEMs for both original equipment manufacture
and aftermarket operations, as well as to warehouse distributors and retail
automotive parts chains. It manages its business and operates in a single
reportable business segment. Because of the similar economic characteristics of
the operations, including the nature of products, production processes,
customers and methods of distribution, those operations have been aggregated
following the provisions of SFAS No. 131 for segment reporting purposes.
The Company is a multi-national corporation with operations in many
countries, including the United States, Canada, Mexico, Brazil, Hungary,
Poland, Germany, Korea, the United Kingdom, Ireland, Belgium, Tunisia and the
Netherlands. As a result, the Company's financial results could be
significantly affected by factors such as changes in foreign currency exchange
rates or weak economic conditions in the foreign markets in which the Company
distributes its products. The Company's operating results are exposed to
changes in exchange rates between the U.S. dollar and the South Korean Won, the
Mexican Peso and various European currencies. Exposure to variability in
foreign currency exchange rates is managed primarily through the use of
F-26
DELCO REMY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
natural hedges, whereby funding obligations and assets are both denominated in
the local currency. From time to time, the Company enters into exchange
agreements to manage its exposure arising from fluctuating exchange rates
related to specific transactions. Sales are attributed to geographic locations
based on the location of product production.
Five Months
Ended Year Ended July 31
December 31, ----------------------------
2000 2000 1999 1998
------------ ---------- -------- --------
Net sales to external
customers:
United States............... $381,077 $ 937,451 $845,945 $733,551
Europe...................... 27,303 62,427 46,325 23,547
Canada...................... 14,350 43,811 47,270 44,660
Asia Pacific................ 11,263 33,695 3,386 --
Other....................... 9,073 13,554 10,780 13,555
-------- ---------- -------- --------
Total net sales........... $443,066 $1,090,938 $953,706 $815,313
======== ========== ======== ========
July 31
December 31, -----------------
2000 2000 1999
------------ -------- --------
Long-lived assets:
United States............................ $296,974 $300,785 $280,785
Europe................................... 27,148 27,015 23,960
Canada................................... 13,759 12,342 11,361
Asia Pacific............................. 28,766 29,843 25,310
Other.................................... 24,500 21,475 12,389
-------- -------- --------
Total long-lived assets................ $391,147 $391,460 $353,805
======== ======== ========
Customers that accounted for a significant portion of consolidated net sales
were as follows:
Five Months
Ended Year Ended July 31
December 31, --------------------------
2000 2000 1999 1998
------------ -------- -------- --------
General Motors Corporation:
North American OE Operations... $93,696 $257,684 $241,288 $209,695
Other.......................... 30,900 74,981 117,874 97,353
International Truck and Engine
Corporation..................... 53,433 141,443 127,842 NA
Sales to International Truck and Engine Corporation accounted for less than
10% of consolidated net sales in fiscal 1998.
F-27
DELCO REMY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Following is a summary of the composition by product category of the
Company's sales to external customers. Third-party sales for core exchange
services are included in the "Other" category.
Five Months Ended Year Ended July 31
December 31, ----------------------------
2000 2000 1999 1998
----------------- ---------- -------- --------
Electrical systems............... $337,637 $ 859,045 $793,727 $697,448
Powertrain/drivetrain............ 77,313 194,303 149,279 110,370
Other............................ 28,116 37,590 10,700 7,495
-------- ---------- -------- --------
Total............................ $443,066 $1,090,938 $953,706 $815,313
======== ========== ======== ========
15. OTHER INFORMATION
Supplemental Cash Flow Information
Five Months Ended Year Ended July 31
December 31, -------------------------
2000 2000 1999 1998
----------------- ------- ------- -------
Cash paid for interest........... $22,636 $46,835 $41,502 $33,397
Cash paid for income taxes, net
of refunds received............. 743 10,726 617 (483)
Detail of acquisitions:
Fair value of assets acquired.. $ -- $45,219 $63,786 $35,135
Liabilities assumed............ -- (15,783) (33,398) (6,168)
Goodwill recorded.............. -- 38,569 23,383 29,778
Minority interest.............. -- -- (5,450) --
Common stock issued............ -- -- -- (23,023)
------- ------- ------- -------
Net cash paid for
acquisitions.................. -- 68,005 48,321 35,722
Cash acquired.................. -- 1,669 4,571 189
------- ------- ------- -------
Total.......................... $ -- $69,674 $52,892 $35,911
======= ======= ======= =======
Research and Development Costs
The Company spent approximately $7,200, $16,300, $13,500 and $13,300 in the
five month period ended December 31, 2000 and years ended July 31, 2000, 1999
and 1998, respectively, on research and development activities. All
expenditures were Company funded.
F-28
DELCO REMY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
16. 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 referred to in
Note 6, Long-term Debt, are fully and unconditionally guaranteed, jointly and
severally, by certain direct and indirect wholly-owned subsidiaries (the
Subsidiary Guarantors). Certain of the Company's subsidiaries do not guarantee
the Senior Notes and 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
December 31, 2000 and July 31, 2000 and 1999 and for the five month period
ended December 31, 2000 and the years ended July 31, 2000, 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.
The following table sets forth the Guarantor and direct Non-Guarantor
Subsidiaries:
Guarantor Subsidiaries Non-Guarantor Subsidiaries
Delco Remy America, Inc. Delco Remy Hungary RT (formerly Autovill RT Ltd.)
Nabco, Inc. Power Investments Canada Ltd.
The A&B Group, Inc. Remy UK Limited
A&B Enterprises, Inc. Delco Remy International (Europe) GmbH
Dalex, Inc. Remy India Holdings, Inc.
A&B Cores, Inc. Remy Korea Holdings, Inc.
R&L Tool Company, Inc. World Wide Automotive Distributors, Inc.
MCA, Inc. of Mississippi Kraftube, Inc.
Power Investments, Inc. Tractech (Ireland) Ltd.
Franklin Power Products, Central Precision Limited
Inc.
International Fuel Systems, Electro Diesel Rebuild BVBA
Inc.
Power Investments Marine, Electro-Rebuild Tunisia S.A.R.L.
Inc.
Marine Corporation of Delco Remy Mexico, S. de R.L. de C.V.
America
Powrbilt Products, Inc. Publitech, Inc.
World Wide Automotive, Inc. Delco Remy Brazil, Ltda.
Ballantrae Corporation Western Reman Ltd.
Tractech, Inc. Engine Rebuilders Ltd.
Williams Technologies, Inc. Reman Transport Ltd.
Western Reman, Inc. Delco Remy Remanufacturing
Engine Master, L.P. Delco Remy Germany GmbH
M&M Knopf Auto Parts, Inc. Remy Componentes S. de R.L. de C.V.
Reman Holdings, Inc. Delco Remy Belgium BVBA
Remy International, Inc. Magnum Power Products, LLC
Elmot-DR Sp. z o.o.
F-29
DELCO REMY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Condensed Consolidating Balance Sheet
December 31, 2000
------------------------------------------------------------------
Delco Remy
International Non-
Inc. (Parent Subsidiary Guarantor
Company Only) Guarantors Subsidiaries Eliminations Consolidated
------------- ---------- ------------ ------------ ------------
Assets:
Current assets:
Cash and cash
equivalents........... $ -- $ (256) $ 24,636 $ -- $ 24,380
Trade accounts
receivable............ -- 141,028 32,438 -- 173,466
Other receivables...... -- 9,886 6,319 -- 16,205
Inventories............ -- 243,410 52,465 (2,051)(c) 293,824
Deferred income taxes.. 14,256 -- 2,283 -- 16,539
Other current assets... 2,667 2,694 3,548 -- 8,909
-------- -------- -------- --------- --------
Total current assets.... 16,923 396,762 121,689 (2,051) 533,323
Property and equipment.. 40 217,644 87,899 -- 305,583
Less accumulated
depreciation........... 40 90,536 15,167 -- 105,743
-------- -------- -------- --------- --------
Property and equipment,
net.................... -- 127,108 72,732 -- 199,840
Deferred financing
costs.................. 6,806 1,888 -- -- 8,694
Goodwill, net........... -- 146,163 23,075 -- 169,238
Investment in
affiliates............. 515,616 -- -- (508,600)(a) 7,016
Other assets............ 770 3,087 2,502 -- 6,359
-------- -------- -------- --------- --------
Total assets............ $540,115 $675,008 $219,998 $(510,651) $924,470
======== ======== ======== ========= ========
Liabilities and
stockholders' equity:
Current liabilities:
Accounts payable....... $ 965 $109,727 $ 45,383 $ -- $156,075
Intercompany accounts.. 90,427 (81,466) (8,360) (601)(c) --
Accrued interest
payable............... 6,719 919 1,495 -- 9,133
Accrued non-recurring
charges............... -- 6,798 894 -- 7,692
Other liabilities and
accrued expenses...... 5,256 20,623 7,911 -- 33,790
Current debt........... -- 1,526 6,581 -- 8,107
-------- -------- -------- --------- --------
Total current
liabilities............ 103,367 58,127 53,904 (601) 214,797
Deferred income taxes... 12,209 -- (2,054) -- 10,155
Long-term debt, less
current portion........ 285,000 219,266 15,018 -- 519,284
Post-retirement benefits
other than pensions.... -- 22,794 -- -- 22,794
Accrued pension
benefits............... -- 3,751 673 -- 4,424
Other non-current
liabilities............ 2,208 971 705 -- 3,884
Minority interest in
subsidiaries........... -- 11,351 16,663 -- 28,014
Stockholders' equity:
Common stock:
Class A Shares......... 182 -- -- -- 182
Class B Shares......... 63 -- -- -- 63
Paid-in capital........ 104,176 -- -- -- 104,176
Subsidiary investment.. -- 266,087 94,172 (360,259)(a) --
Retained earnings...... 34,269 92,661 57,130 (149,791)(b) 34,269
Accumulated other
comprehensive loss.... (1,023) -- (16,213) -- (17,236)
Stock purchase plan.... (336) -- -- -- (336)
-------- -------- -------- --------- --------
Total stockholders'
equity................. 137,331 358,748 135,089 (510,050) 121,118
-------- -------- -------- --------- --------
Total liabilities and
stockholders' equity... $540,115 $675,008 $219,998 $(510,651) $924,470
======== ======== ======== ========= ========
- ---------------------
(a) Elimination of investments in subsidiaries.
(b) Elimination of investments in subsidiaries' earnings.
(c) Elimination of intercompany profit in inventory.
F-30
DELCO REMY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Condensed Consolidating Statement of Operations
For the Five Months Ended December 31, 2000
------------------------------------------------------------------
Delco Remy
International Non-
Inc. (Parent Subsidiary Guarantor
Company Only) Guarantors Subsidiaries Eliminations Consolidated
------------- ---------- ------------ ------------ ------------
Net sales............... $ -- $456,628 $171,281 $(184,843)(a) $443,066
Cost of goods sold...... -- 392,758 147,600 (184,843)(a) 355,515
-------- -------- -------- --------- --------
Gross profit............ -- 63,870 23,681 -- 87,551
Selling, general and
administrative
expenses............... 5,275 23,472 15,399 -- 44,146
Amortization of goodwill
and intangibles........ 26 2,228 371 -- 2,625
-------- -------- -------- --------- --------
Operating (loss)
income................. (5,301) 38,170 7,911 -- 40,780
Interest expense........ (13,753) (7,661) (376) -- (21,790)
Non-operating income
(expense).............. (1,124) 602 570 -- 48
-------- -------- -------- --------- --------
(Loss) income before
income tax (benefit),
minority interest in
income of subsidiaries,
loss from
unconsolidated joint
ventures and equity in
earnings of
subsidiaries........... (20,178) 31,111 8,105 -- 19,038
Income taxes (benefit).. (7,331) 12,276 1,149 -- 6,094
Minority interest in
income of
subsidiaries........... -- (1,589) (1,189) -- (2,778)
Loss from unconsolidated
joint ventures......... -- -- (467) -- (467)
Equity in earnings of
subsidiaries........... 22,546 -- -- (22,546)(b) --
-------- -------- -------- --------- --------
Net income (loss)....... $ 9,699 $ 17,246 $ 5,300 $ (22,546) $ 9,699
======== ======== ======== ========= ========
- ---------------------
(a)Elimination of intercompany sales and cost of sales.
(b)Elimination of equity in net income (loss) from consolidated subsidiaries.
F-31
DELCO REMY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Condensed Consolidating Statement of Cash Flows
For the Five Months Ended December 31, 2000
-----------------------------------------------------------------
Delco Remy
International Non-
Inc. (Parent Subsidiary Guarantor
Company Only) Guarantors Subsidiaries Eliminations Consolidated
------------- ---------- ------------ ------------ ------------
Operating Activities:
Net income (loss)....... $ 9,699 $17,246 $ 5,300 $(22,546)(a) $ 9,699
Adjustments to reconcile
net income (loss) to
net cash provided by
(used in) operating
activities:
Depreciation............ -- 7,255 3,723 -- 10,978
Amortization............ 26 2,228 371 -- 2,625
Minority interest in
income of
subsidiaries........... -- 1,589 1,189 -- 2,778
Loss from unconsolidated
joint ventures......... -- -- 467 -- 467
Equity (loss) in
earnings of
subsidiaries........... (22,546) -- -- 22,546 (a) --
Deferred income taxes-
current................ 1,114 -- 492 -- 1,606
Post-retirement benefits
other than pensions.... -- 1,155 -- -- 1,155
Accrued pension
benefits............... -- 3,089 49 -- 3,138
Non-cash interest
expense................ 455 285 -- -- 740
Changes in operating
assets and liabilities,
net of acquisitions:
Accounts receivable..... -- (758) (3,145) -- (3,903)
Inventories............. -- (22,513) (3,158) -- (25,671)
Accounts payable........ (291) 4,032 10,390 -- 14,131
Intercompany accounts... 16,998 (25,808) 8,810 -- --
Other current assets and
liabilities............ (3,508) (2,467) (3,325) -- (9,300)
Cash payments for non-
recurring charges...... -- (14,103) (2,736) -- (16,839)
Other non-current assets
and liabilities, net... (1,947) (1,530) (3,523) -- (7,000)
------- ------- ------- -------- -------
Net cash provided by
(used in) operating
activities............. -- (30,300) 14,904 -- (15,396)
Investing Activities:
Purchases of property
and equipment.......... -- (4,752) (7,072) -- (11,824)
------- ------- ------- -------- -------
Net cash used in
investing activities... -- (4,752) (7,072) -- (11,824)
Financing Activities:
Net borrowing under
revolving line of
credit and other....... -- 34,130 1,175 -- 35,305
Distributions to
minority interests..... -- -- (322) -- (322)
------- ------- ------- -------- -------
Net cash provided by
financing activities... -- 34,130 853 -- 34,983
Effect of exchange rate
changes on cash........ -- -- (1,205) -- (1,205)
------- ------- ------- -------- -------
Net increase (decrease)
in cash and cash
equivalents............ -- (922) 7,480 -- 6,558
Cash and cash
equivalents at
beginning of year...... -- 666 17,156 -- 17,822
------- ------- ------- -------- -------
Cash and cash
equivalents at end of
year................... $ -- $ (256) $24,636 $ -- $24,380
======= ======= ======= ======== =======
- ---------------------
(a) Elimination of equity in earnings of subsidiary.
F-32
DELCO REMY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Condensed Consolidating Balance Sheet
July 31, 2000
------------------------------------------------------------------
Delco Remy
International Non-
Inc. (Parent Subsidiary Guarantor
Company Only) Guarantors Subsidiaries Eliminations Consolidated
------------- ---------- ------------ ------------ ------------
Assets:
Current assets:
Cash and cash
equivalents........... $ -- $ 666 $ 17,156 $ -- $ 17,822
Trade accounts
receivable............ -- 140,270 29,293 -- 169,563
Other receivables...... -- 7,982 7,251 -- 15,233
Inventories............ -- 220,944 49,258 (2,049)(c) 268,153
Deferred income taxes.. 15,370 -- 2,775 -- 18,145
Other current assets... 1,613 2,643 4,608 -- 8,864
-------- -------- -------- --------- --------
Total current assets.... 16,983 372,505 110,341 (2,049) 497,780
Property and equipment.. 40 212,528 85,006 -- 297,574
Less accumulated
depreciation........... 40 81,865 13,758 -- 95,663
-------- -------- -------- --------- --------
Property and equipment,
net.................... -- 130,663 71,248 -- 201,911
Deferred financing
costs.................. 7,261 2,171 -- -- 9,432
Goodwill, net........... (185) 148,045 23,172 -- 171,032
Investment in
affiliates............. 488,843 -- -- (483,510)(a) 5,333
Other assets............ 671 612 2,469 -- 3,752
-------- -------- -------- --------- --------
Total assets............ $513,573 $653,996 $207,230 $(485,559) $889,240
======== ======== ======== ========= ========
Liabilities and
stockholders' equity:
Current liabilities:
Accounts payable....... $ 1,256 $105,695 $ 34,993 $ -- $141,944
Intercompany accounts.. 73,912 (56,141) (17,170) (601)(c) --
Accrued interest
payable............... 9,001 132 1,725 -- 10,858
Accrued non-recurring
charges............... -- 21,148 3,630 -- 24,778
Other liabilities and
accrued expenses...... 3,924 23,163 12,998 -- 40,085
Current debt........... -- 1,868 5,586 -- 7,454
-------- -------- -------- --------- --------
Total current
liabilities............ 88,093 95,865 41,762 (601) 225,119
Deferred income taxes... 9,574 -- 453 -- 10,027
Long-term debt, less
current portion........ 285,000 184,283 14,987 -- 484,270
Post-retirement benefits
other than pensions.... -- 21,639 -- -- 21,639
Accrued pension
benefits............... -- 662 624 -- 1,286
Other non-current
liabilities............ 2,243 985 660 (2) 3,886
Minority interest in
subsidiaries........... -- 9,060 16,127 -- 25,187
Stockholders' equity:
Common stock:
Class A Shares......... 182 -- -- -- 182
Class B Shares......... 63 -- -- -- 63
Paid-in capital........ 104,176 -- -- -- 104,176
Subsidiary investment.. -- 266,087 91,624 (357,711)(a) --
Retained earnings...... 24,570 75,415 51,830 (127,245)(b) 24,570
Accumulated other
comprehensive loss.... -- -- (10,837) -- (10,837)
Stock purchase plan.... (328) -- -- -- (328)
-------- -------- -------- --------- --------
Total stockholders'
equity................. 128,663 341,502 132,617 (484,956) 117,826
-------- -------- -------- --------- --------
Total liabilities and
stockholders' equity... $513,573 $653,996 $207,230 $(485,559) $889,240
======== ======== ======== ========= ========
- ---------------------
(a) Elimination of investments in subsidiaries.
(b) Elimination of investments in subsidiaries' earnings.
(c) Elimination of intercompany profit in inventory.
F-33
DELCO REMY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Condensed Consolidating Statement of Operations
For the Year Ended July 31, 2000
-------------------------------------------------------------------
Delco Remy
International Non-
Inc. (Parent Subsidiary Guarantor
Company Only) Guarantors Subsidiaries Eliminations Consolidated
------------- ---------- ------------ ------------ ------------
Net sales............... $ -- $1,098,395 $383,885 $(391,342)(a) $1,090,938
Cost of goods sold...... -- 928,770 324,744 (391,342)(a) 862,172
------- ---------- -------- --------- ----------
Gross profit............ -- 169,625 59,141 -- 228,766
Selling, general and
administrative
expenses............... 13,922 67,152 26,977 -- 108,051
Amortization of goodwill
and intangibles........ 108 5,064 871 -- 6,043
Non-recurring charge.... -- 30,133 5,089 -- 35,222
------- ---------- -------- --------- ----------
Operating (loss)
income................. (14,030) 67,276 26,204 -- 79,450
Interest expense........ (30,259) (16,646) (1,861) -- (48,766)
Non-operating income.... -- -- 288 -- 288
------- ---------- -------- --------- ----------
(Loss) income before
income tax (benefit),
minority interest in
income of subsidiaries,
income (loss) from
unconsolidated joint
ventures and equity in
earnings of
subsidiaries........... (44,289) 50,630 24,631 -- 30,972
Income taxes (benefit).. (13,966) 20,553 4,873 -- 11,460
Minority interest in
income of
subsidiaries........... -- (3,244) (3,498) -- (6,742)
Loss from unconsolidated
joint ventures......... -- -- (352) -- (352)
Equity in earnings of
subsidiaries........... 42,741 -- -- (42,741)(b) --
------- ---------- -------- --------- ----------
Net income (loss)....... $12,418 $ 26,833 $ 15,908 $ (42,741) $ 12,418
======= ========== ======== ========= ==========
- ---------------------
(a) Elimination of intercompany sales and cost of sales.
(b) Elimination of equity in net income (loss) from consolidated subsidiaries.
F-34
DELCO REMY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Condensed Consolidating Statement of Cash Flows
For the Five Months Ended July 31, 2000
-----------------------------------------------------------------
Delco Remy
International Non-
Inc. (Parent Subsidiary Guarantor
Company Only) Guarantors Subsidiaries Eliminations Consolidated
------------- ---------- ------------ ------------ ------------
Operating Activities:
Net income (loss)....... $12,418 $26,833 $15,908 $(42,741)(a) $ 12,418
Adjustments to reconcile
net income (loss) to
net cash provided by
(used in)
operating activities:
Depreciation............ -- 19,044 7,082 -- 26,126
Amortization............ 108 5,064 871 -- 6,043
Minority interest in
income of
subsidiaries........... -- 3,244 3,498 -- 6,742
(Income) loss from
unconsolidated joint
ventures............... -- -- 352 -- 352
Equity (loss) in
earnings of
subsidiaries........... (42,741) -- -- 42,741(a) --
Deferred income taxes-
current................ (373) -- (2,775) -- (3,148)
Post-retirement benefits
other than pensions.... -- 589 -- -- 589
Accrued pension
benefits............... -- (2,057) 624 -- (1,433)
Non-cash interest
expense................ 1,092 671 -- -- 1,763
Changes in operating
assets and liabilities,
net of acquisitions:
Accounts receivable..... -- (2,046) 466 -- (1,580)
Inventories............. -- (15,245) (2,967) -- (18,212)
Accounts payable........ 620 11,180 4,035 -- 15,835
Intercompany accounts... 75,521 (76,633) 1,112 -- --
Other current assets and
liabilities............ 3,904 (14,184) (5,111) -- (15,391)
Non-recurring charge.... -- 30,133 5,089 -- 35,222
Cash payments for non-
recurring charges...... -- (8,230) (670) -- (8,900)
Other non-current assets
and liabilities, net... 18,619 (8,150) 2,823 -- 13,292
------- ------- ------- -------- --------
Net cash provided by
(used in) operating
activities............. 69,168 (29,787) 30,337 -- 69,718
Investing Activities:
Acquisitions, net of
cash acquired.......... (69,168) -- 1,163 -- (68,005)
Purchases of property
and equipment.......... -- (17,365) (21,006) -- (38,371)
------- ------- ------- -------- --------
Net cash used in
investing activities... (69,168) (17,365) (19,843) -- (106,376)
Financing Activities:
Net borrowing under
revolving line of
credit and other....... -- 48,060 (7,054) -- 41,006
Distributions to
minority interests..... -- -- (1,200) -- (1,200)
------- ------- ------- -------- --------
Net cash provided (used
in) by financing
activities............. -- 48,060 (8,254) -- 39,806
------- ------- ------- -------- --------
Effect of exchange rate
changes on cash........ -- -- (635) -- (635)
------- ------- ------- -------- --------
Net increase in cash and
cash equivalents....... -- 908 1,605 -- 2,513
Cash and cash
equivalents at
beginning of year...... -- (242) 15,551 -- 15,309
------- ------- ------- -------- --------
Cash and cash
equivalents at end of
year................... $ -- $ 666 $17,156 $ -- $ 17,822
======= ======= ======= ======== ========
- ---------------------
(a) Elimination of equity in earnings of subsidiary.
F-35
DELCO REMY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Condensed Consolidating Balance Sheet
July 31, 1999
------------------------------------------------------------------
Delco Remy
International Non-
Inc. (Parent Subsidiary Guarantor
Company Only) Guarantors Subsidiaries Eliminations Consolidated
------------- ---------- ------------ ------------ ------------
Assets:
Current assets:
Cash and cash
equivalents........... $ -- $ (242) $ 15,551 $ -- $ 15,309
Trade accounts
receivable............ -- 122,957 25,031 -- 147,988
Other receivables...... -- 6,657 8,839 -- 15,496
Inventories............ -- 193,264 40,543 (1,642)(c) 232,165
Deferred income taxes.. -- 14,997 -- -- 14,997
Other current assets... -- 2,125 778 -- 2,903
-------- -------- -------- --------- --------
Total current assets.... -- 339,758 90,742 (1,642) 428,858
Property and equipment.. 40 202,462 56,225 -- 258,727
Less accumulated
depreciation........... 40 55,664 7,828 -- 63,532
-------- -------- -------- --------- --------
Property and equipment,
net.................... -- 146,798 48,397 -- 195,195
Deferred financing
costs.................. 8,352 2,840 -- -- 11,192
Goodwill, net........... -- 116,710 20,719 -- 137,429
Investment in
affiliates............. 381,250 14 5 (376,513)(a) 4,756
Other assets............ 2,411 858 1,964 -- 5,233
-------- -------- -------- --------- --------
Total assets............ $392,013 $606,978 $161,827 $(378,155) $782,663
======== ======== ======== ========= ========
Liabilities and
stockholders' equity:
Current liabilities:
Accounts payable....... $ 636 $ 90,185 $ 28,518 $ -- $119,339
Intercompany accounts.. (19,626) 44,513 (24,286) (601)(c) --
Accrued interest
payable............... 9,001 2,592 10 -- 11,603
Accrued non-recurring
charges............... -- 5,866 -- -- 5,866
Other liabilities and
accrued expenses...... (1,250) 27,622 10,733 -- 37,105
Current debt........... -- 1,227 11,369 -- 12,596
-------- -------- -------- --------- --------
Total current
liabilities............ (11,239) 172,005 26,344 (601) 186,509
Deferred income taxes... -- 4,560 8 -- 4,568
Long-term debt, less
current portion........ 285,000 136,867 13,064 -- 434,931
Post-retirement benefits
other than pensions.... -- 21,050 -- -- 21,050
Accrued pension
benefits............... -- 2,719 -- -- 2,719
Other non-current
liabilities............ 2,216 1,329 -- -- 3,545
Minority interest in
subsidiaries........... -- 10,663 9,158 -- 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.. -- 209,203 83,847 (293,050)(a) --
Retained earnings...... 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................. 116,036 257,785 113,253 (377,554) 109,520
-------- -------- -------- --------- --------
Total liabilities and
stockholders' equity... $392,013 $606,978 $161,827 $(378,155) $782,663
======== ======== ======== ========= ========
- ---------------------
(a) Elimination of investments in subsidiaries.
(b) Elimination of investments in subsidiaries' earnings.
(c) Elimination of intercompany profit in inventory.
F-36
DELCO REMY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Condensed Consolidating Statement of Operations
For the Year Ended July 31, 1999
------------------------------------------------------------------
Delco Remy
International Non-
Inc. (Parent Subsidiary Guarantor
Company Only) Guarantors Subsidiaries Eliminations Consolidated
------------- ---------- ------------ ------------ ------------
Net sales............... $ -- $953,652 $266,447 $(266,393)(a) $953,706
Cost of goods sold...... -- 811,669 223,982 (264,749)(a) 770,902
------- -------- -------- --------- --------
Gross profit............ -- 141,983 42,465 (1,644)(c) 182,804
Selling, general and
administrative
expenses............... 11,241 58,242 19,312 -- 88,795
Amortization of goodwill
and intangibles........ 5 4,680 518 -- 5,203
------- -------- -------- --------- --------
Operating (loss)
income................. (11,246) 79,061 22,635 (1,644) 88,806
Interest expense........ (27,693) (16,390) (1,422) -- (45,505)
------- -------- -------- --------- --------
(Loss) income before
income tax (benefit),
minority interest in
income of subsidiaries,
income from
unconsolidated joint
ventures and equity in
earnings of
subsidiaries........... (38,939) 62,671 21,213 (1,644) 43,301
Income taxes (benefit).. (4,528) 15,584 5,997 (599)(c) 16,454
Minority interest in
income of
subsidiaries........... -- (2,898) (1,023) -- (3,921)
Income from
unconsolidated joint
ventures............... -- -- 5,420 -- 5,420
Equity in earnings of
subsidiaries........... 62,757 -- -- (62,757)(b) --
------- -------- -------- --------- --------
Net income (loss)....... $28,346 $ 44,189 $ 19,613 $ (63,802) $ 28,346
======= ======== ======== ========= ========
- ---------------------
(a) Elimination of intercompany sales and cost of sales.
(b) Elimination of equity in net income (loss) from consolidated subsidiaries.
(c) Elimination of intercompany profit in inventory.
F-37
DELCO REMY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Condensed Consolidating Statement of Cash Flows
For the Year Ended July 31, 1999
-----------------------------------------------------------------
Delco Remy
International 38Non-
Inc. (Parent Subsidiary Guarantor
Company Only) Guarantors Subsidiaries Eliminations Consolidated
------------- ---------- ------------ ------------ ------------
Operating Activities:
Net income (loss)....... $28,346 $44,189 $19,613 $(63,802)(a) $28,346
Adjustments to reconcile
net income (loss) to
net cash provided by
(used in) operating
activities:
Depreciation............ 20 15,010 3,328 -- 18,358
Amortization............ 5 4,680 518 -- 5,203
Minority interest in
income of
subsidiaries........... -- 2,898 1,023 -- 3,921
Income from
unconsolidated joint
ventures............... -- -- (5,420) -- (5,420)
Equity (loss) in
earnings of
subsidiaries........... (62,757) -- -- 62,757(a) --
Deferred income taxes-
current................ 6,428 228 -- -- 6,656
Post-retirement benefits
other than pensions.... -- 4,555 -- -- 4,555
Accrued pension
benefits............... -- (1,909) -- -- (1,909)
Non-cash interest
expense................ -- 1,648 -- -- 1,648
Changes in operating
assets and liabilities,
net of acquisition:
Accounts receivable..... -- (2,634) 7,255 -- 4,621
Inventories............. -- (13,500) (5,849) 1,644(b) (17,705)
Accounts payable........ 506 6,479 6,649 -- 13,634
Intercompany accounts... 48,638 (38,324) (9,715) (599)(b) --
Other current assets and
liabilities............ (4,001) (1,662) (982) -- (6,645)
Cash payments for non-
recurring charges...... -- (14,941) -- -- (14,941)
Other non-current assets
and liabilities, net... 27,877 (19,975) (5,138) -- 2,764
------- ------- ------- -------- -------
Net cash provided by
(used in) operating
activities............. 45,062 (13,258) 11,282 -- 43,086
Investing Activities:
Acquisitions, net of
cash acquired.......... (45,042) -- (3,279) -- (48,321)
Purchase of property and
equipment.............. (20) (19,267) (5,779) -- (25,066)
------- ------- ------- -------- -------
Net cash used in
investing activities... (45,062) (19,267) (9,058) -- (73,387)
Financing Activities:
Net borrowing under
revolving line of
credit and other....... -- 32,158 5,890 -- 38,048
------- ------- ------- -------- -------
Net cash provided by
financing activities... -- 32,158 5,890 -- 38,048
Effect of exchange rate
changes on cash........ -- -- (551) -- (551)
------- ------- ------- -------- -------
Net increase (decrease)
in cash and cash
equivalents............ -- (367) 7,563 -- 7,196
Cash and cash
equivalents at
beginning of year...... -- 125 7,988 -- 8,113
------- ------- ------- -------- -------
Cash and cash
equivalents at end of
year................... $ -- $ (242) $15,551 $ -- $15,309
======= ======= ======= ======== =======
- ---------------------
(a) Elimination of equity in earnings of subsidiary.
(b) Elimination of intercompany profit in inventory.
F-38
DELCO REMY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Condensed Consolidating Statement of Operations
July 31, 1998
-------------------------------------------------------------------
Delco Remy
International Non-
Inc. (Parent Subsidiary Guarantor
Company Only) Guarantors Subsidiaries Eliminations Consolidated
------------- ---------- ------------ ------------ ------------
Net sales............... $ -- $ 833,952 $ 138,016 $ (156,655)(a) $ 815,313
Cost of goods sold...... -- 708,334 116,119 (156,655)(a) 667,798
-------- --------- --------- ---------- ---------
Gross profit............ -- 125,618 21,897 -- 147,515
Selling, general and
administrative
expenses............... 175 67,362 9,400 -- 76,937
Amortization of goodwill
and intangibles........ 191 3,088 199 -- 3,478
Non-recurring charge.... -- 26,515 -- -- 26,515
-------- --------- --------- ---------- ---------
Operating (loss)
income................. (366) 28,653 12,298 -- 40,585
Interest expense........ (24,911) (15,179) (201) -- (40,291)
Non-operating expense... -- -- (428) -- (428)
-------- --------- --------- ---------- ---------
(Loss) income before
income tax (benefit),
minority interest in
income of subsidiaries,
equity in earnings of
subsidiaries, income
from unconsolidated
joint ventures,
preferred dividend
requirement of
subsidiary and deemed
dividend on preferred
stock.................. (25,277) 13,474 11,669 -- (134)
Income taxes (benefit).. (9,415) 6,440 2,923 -- (52)
Minority interest in
income of
subsidiaries........... -- (2,027) (362) -- (2,389)
Equity in earnings of
subsidiaries........... 11,842 -- -- (11,842)(b) --
Income from
unconsolidated joint
ventures............... -- -- 2,568 -- 2,568
Preferred dividend
requirement of
subsidiary............. -- -- -- (645)(c) (645)
Deemed dividend on
preferred stock
conversion............. -- -- -- (1,639) (1,639)
-------- --------- --------- ---------- ---------
(Loss) income from
continuing operations.. (4,020) 5,007 10,952 (14,126) (2,187)
Extraordinary item:
Write-off of debt
issuance costs (net of
applicable income tax
benefit)............... -- (1,833) -- -- (1,833)
-------- --------- --------- ---------- ---------
Net (loss) income....... $ (4,020) $ 3,174 $ 10,952 $ (14,126) $ (4,020)
======== ========= ========= ========== =========
- ---------------------
(a) Elimination of intercompany sales and cost of sales.
(b) Elimination of equity in net income (loss) from consolidated subsidiaries.
(c) Recording of preferred dividend requirement of subsidiary.
F-39
DELCO REMY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Condensed Consolidating Statement of Cash Flows
For the Year Ended July 31, 1998
-----------------------------------------------------------------
Delco Remy
International Non-
Inc. (Parent Subsidiary Guarantor
Company Only) Guarantors Subsidiaries Eliminations Consolidated
------------- ---------- ------------ ------------ ------------
Operating Activities:
Net income (loss)....... $ (4,020) $ 3,174 $10,952 $(14,126)(a) $ (4,020)
Extraordinary item...... -- 2,095 -- -- 2,095
Adjustments to reconcile
net income (loss) to
net cash provided by
(used in) operating
activities:
Depreciation............ 7 12,634 950 -- 13,591
Amortization............ 191 3,088 199 -- 3,478
Minority interest in
income of
subsidiaries........... -- 2,027 362 -- 2,389
Income from
unconsolidated joint
ventures............... -- -- (2,568) -- (2,568)
Equity in earnings of
subsidiaries........... (11,842) -- -- 11,842(a) --
Deferred income taxes-
current................ (10,325) 12,012 26 -- 1,713
Post-retirement benefits
other than pensions.... -- 3,818 -- -- 3,818
Accrued pension
benefits............... -- 86 -- -- 86
Non-cash interest
expense................ -- 2,387 -- -- 2,387
Deemed dividend
requirements of
subsidiary............. -- -- -- 1,639 1,639
Preferred dividend
requirement of
subsidiary............. -- -- -- 645 645
Changes in operating
assets and liabilities,
net of acquisition:
Accounts receivable..... -- (4,136) (4,296) -- (8,432)
Inventories............. -- (15,428) (1,972) -- (17,400)
Accounts payable........ (65) (12,621) 5,113 -- (7,573)
Intercompany accounts... (98,447) 113,029 (14,582) -- --
Other current assets and
liabilities............ (6,283) 3,951 (2,556) -- (4,888)
Non-recurring charge.... -- 26,515 -- -- 26,515
Cash payments for non-
recurring charges...... -- (19,204) -- -- (19,204)
Other non-current assets
and liabilities, net... (9,914) (6,912) 11,249 -- (5,577)
-------- -------- ------- -------- --------
Net cash (used in)
provided by operating
activities............. (140,698) 126,515 2,877 -- (11,306)
Investing Activities:
Acquisitions, net of
cash acquired.......... (34,358) -- (1,364) -- (35,722)
Purchase of property and
equipment.............. -- (22,545) (1,645) -- (24,190)
Investment of joint
ventures............... (9,355) -- -- -- (9,355)
-------- -------- ------- -------- --------
Net cash used in
investing activities... (43,713) (22,545) (3,009) -- (69,267)
Financing Activities:
Proceeds from initial
public offering........ 51,336 -- -- -- 51,336
Proceeds from issuances
of long-term debt...... 141,375 -- -- -- 141,375
Payments on long-term
debt................... (8,300) (137,486) -- -- (145,786)
Net borrowing under
revolving line of
credit and other....... -- 32,137 61 -- 32,198
-------- -------- ------- -------- --------
Net cash provided by
(used in) financing
activities............. 184,411 (105,349) 61 -- 79,123
Effect of exchange rate
changes on cash........ -- -- (487) -- (487)
-------- -------- ------- -------- --------
Net decrease in cash and
cash equivalents....... -- (1,379) (558) -- (1,937)
Cash and cash
equivalents at
beginning of year...... -- 1,504 8,546 -- 10,050
-------- -------- ------- -------- --------
Cash and cash
equivalents at end of
year................... $ -- $ 125 $ 7,988 $ -- $ 8,113
======== ======== ======= ======== ========
- ---------------------
(a) Elimination of equity in earnings of subsidiary.
F-40
DELCO REMY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
17. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Two Months Three Months Five Months
Ended Ended Ended
9/30/00 12/31/00 12/31/00
---------- ------------ -----------
Transition Period Ended:
Net sales.............. $183,210 $259,856 $443,066
Gross profit........... 32,749 54,802 87,551
Net income............. 1,325 8,374 9,699
Basic earnings per
common share.......... .05 .35 .40
Diluted earnings per
common share.......... .05 .32 .37
10/31/99 1/31/00 4/30/00 7/31/00 Total Year
---------- ------------ ----------- -------- ----------
Quarter Ended:
Net sales.............. $277,189 $260,037 $274,861 $278,851 $1,090,938
Gross profit........... 56,471 52,826 60,602 58,867 228,766
Net income (loss)...... 7,974 6,907 10,199 (12,662) 12,418
Basic earnings (loss)
per common share...... .33 .29 .42 (.52) .51
Diluted earnings (loss)
per common share...... .31 .27 .39 (.52) .48
10/31/98 1/31/99 4/30/99 7/31/99 Total Year
---------- ------------ ----------- -------- ----------
Quarter Ended:
Net sales.............. $232,785 $222,324 $248,826 $249,771 $ 953,706
Gross profit........... 39,576 43,824 49,443 49,961 182,804
Net income ............ 5,388 5,856 8,174 8,928 28,346
Basic earnings per
common share.......... .23 .25 .34 .37 1.19
Diluted earnings per
common share.......... .21 .23 .32 .34 1.09
18. SUBSEQUENT EVENTS
On January 11, 2001, Citicorp Venture Capital Ltd. ("CVC"), through its
affiliates Court Square Capital Limited ("Court Square") and DRI Acquisition
LLC ("DRI Acquisition"), a Delaware limited liability company (together the
"CVC Group") commenced an initial tender offer to purchase the Company's Class
A common shares not then owned directly or indirectly by CVC and subsequently
merge DRI Acquisition with and into the Company (the "Merger"). As of December
31, 2000, CVC and its affiliates owned approximately 53% of the Company's
combined outstanding Class A and Class B common stock. The initial tender offer
price was $8.00 cash per share.
On February 7, 2001, the Company, Court Square and DRI Acquisition signed a
Merger Agreement that provided for the definitive terms of the Merger and an
increase in the purchase price to $9.50 cash per share.
On March 14, 2001, the Company entered into a Securities Transfer,
Recapitalization and Holders Agreement (the "Securities Holders Agreement")
among the Company, the CVC Group and certain of the Company's management and
directors. As a result of the Securities Holders Agreement, the CVC Group owned
greater than 90% of the Company's common stock.
On March 14, 2001 and after completion of the transactions contemplated by
the Securities Holders Agreement, the Merger was consummated and the Company
became the surviving corporation in the Merger. Upon the consummation of the
Merger, each outstanding share of the Company's Class A common stock (other
than shares of Class A common stock held by the CVC Group or held in the
treasury of the Company and
F-41
DELCO REMY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
shares of Class A common stock as to which dissenters' rights are perfected)
has been converted into the right to receive $9.50 cash per share. As a result
of the Merger, the Company became a subsidiary of Court Square.
Effective March 15, 2001, the Company's common stock, which had up to this
date traded on the New York Stock Exchange under the ticker symbol "RMY," was
delisted.
Pursuant to the above transactions, the stock purchase plan, warrants and
stock option plans described in Note 8 were canceled.
As of March 15, 2001, under the Amended and Restated Certificate of
Incorporation and as a result of the Securities Holders Agreement, the
authorized capital stock of the Company consisted of (i) 1,000 shares of Class
A Common Stock (par value $.001), of which 1,000 were issued and outstanding,
(ii) 6,000,000 shares of Class B Common Stock (par value $.001), of which
350,187.63 shares were issued and outstanding, (iii) 6,000,000 shares of Class
C Common Stock (par value $.001), of which 2,019,387.42 shares were issued and
outstanding and (iv) 3,500,000 shares of 12% Series A Cumulative compounding
Preferred Stock (par value $.01), of which 2,092,549.91 shares were issued and
outstanding. The Class A Common Stock and Class B Common Stock are voting
stock.
The Series A Preferred Stock has a stated value of $100 per share and will
be entitled to semi-annual dividends commencing September 15, 2001, when, as
and if declared, which dividends are cumulative, whether or not earned or
declared, and accrue at a rate of 12%, compounding annually.
The Company may not pay any dividend upon, or redeem or otherwise acquire
shares of capital stock junior to the preferred stock (including the Company's
common stock), except for dividends payable in junior stock, unless all
cumulative dividends on the preferred stock have been paid in full. Upon
liquidation, dissolution or winding up of the Company, holders of preferred
stock are entitled to receive out of the Company's legally available assets,
before any amount shall be paid to holders of junior stock, an amount equal to
$100 per share of preferred stock, plus all accrued and unpaid dividends to the
date of final distribution. If such available assets are insufficient to pay
the holders of the outstanding shares of preferred stock in full, such assets,
or the proceeds from the sale of the assets, will be distributed ratably among
the holders of the preferred stock. The preferred stock is not mandatorily
redeemable by the Company prior to April 16, 2021. The Company anticipates that
the dividends on the preferred stock will accrue but not be paid. The ability
to pay cash dividends, and to redeem the preferred stock, is subject to
restrictions contained in the Company's credit facility and the indentures for
our outstanding notes.
These transactions did not constitute a "change of control" as referenced in
the description of the Senior Subordinated Notes and the Senior Notes (see Note
6).
F-42
DELCO REMY INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands)
Three-Month
Period
Ended March 31
------------------
2001 2000
-------- --------
Net sales................................................. $261,663 $276,115
Cost of goods sold........................................ 213,376 214,614
-------- --------
Gross profit.............................................. 48,287 61,501
Selling, general and administrative expenses.............. 28,140 27,552
Amortization of goodwill and intangibles.................. 1,289 1,445
-------- --------
Operating income.......................................... 18,858 32,504
Interest expense.......................................... (13,294) (11,103)
Other non-operating expense............................... (5,087) (387)
-------- --------
Income before income taxes, minority interest in income of
subsidiaries and loss from unconsolidated joint
ventures................................................. 477 21,014
Income taxes.............................................. 152 7,868
Minority interest in income of subsidiaries............... (1,822) (1,717)
Loss from unconsolidated joint ventures................... (391) (28)
-------- --------
Net income (loss)....................................... $ (1,888) $ 11,401
======== ========
See Accompanying Notes
F-43
DELCO REMY INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
March 31,
2001 December 31,
(Unaudited) 2000
----------- ------------
ASSETS
Current assets:
Cash and cash equivalents............................ $ 14,398 $ 24,380
Trade accounts receivable, net....................... 188,909 173,466
Other receivables.................................... 16,887 16,205
Inventories.......................................... 300,857 293,824
Deferred income taxes................................ 16,383 16,539
Other current assets................................. 11,157 8,909
-------- --------
Total current assets............................... 548,591 533,323
Property and equipment................................. 306,302 305,583
Less accumulated depreciation.......................... 111,857 105,743
-------- --------
Property and equipment, net............................ 194,445 199,840
Deferred financing costs............................... 8,251 8,694
Goodwill (net of accumulated amortization)............. 168,503 169,238
Investments in joint ventures.......................... 8,962 7,016
Other assets........................................... 7,121 6,359
-------- --------
Total assets....................................... $935,873 $924,470
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable..................................... $155,979 $156,075
Accrued interest payable............................. 7,880 9,133
Accrued non-recurring charges........................ 7,977 7,692
Other liabilities and accrued expenses............... 43,148 33,790
Current debt......................................... 7,583 8,107
-------- --------
Total current liabilities.......................... 222,567 214,797
Deferred income taxes.................................. 9,981 10,155
Long-term debt, less current portion................... 528,646 519,284
Post-retirement benefits other than pensions........... 23,723 22,794
Accrued pension benefits............................... 4,860 4,424
Other noncurrent liabilities........................... 4,897 3,884
Commitments and contingencies..........................
Minority interest in subsidiaries...................... 28,497 28,014
Stockholders' equity:
Preferred stock--Series A............................ 21 --
Common stock:
Class A shares...................................... -- 182
Class B shares...................................... 1 63
Class C shares...................................... 2 --
Paid-in capital...................................... 231,752 104,176
Retained earnings (deficit).......................... (94,962) 34,269
Accumulated other comprehensive loss................. (24,112) (17,236)
Stock purchase plan.................................. -- (336)
-------- --------
Total stockholders' equity......................... 112,702 121,118
-------- --------
Total liabilities and stockholders' equity......... $935,873 $924,470
======== ========
See Accompanying Notes
F-44
DELCO REMY INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Three-Month
Period
Ended March 31
----------------
2001 2000
------- -------
Operating activities:
Net income (loss).......................................... $(1,888) $11,401
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation............................................. 7,003 7,128
Amortization............................................. 1,289 1,445
Changes in operating assets and liabilities, net of
acquisitions:
Accounts receivable..................................... (15,443) 13,064
Inventories............................................. (3,269) (16,618)
Accounts payable........................................ (96) 7,211
Other current assets and liabilities.................... 3,555 (4,706)
Cash payments for non-recurring charges................. (755) (567)
Other non-current assets and liabilities, net........... (1,885) 846
------- -------
Net cash provided by (used in) operating activities.... (11,489) 19,204
Investing activities:
Acquisitions, net of cash acquired......................... (2,479) (61,238)
Purchases of property and equipment........................ (3,458) (7,163)
------- -------
Net cash used in investing activities.................. (5,937) (68,401)
Financing activities:
Net borrowings under revolving line of credit and other.... 8,838 55,661
Distributions to minority interests........................ (762) --
------- -------
Net cash provided by financing activities.............. 8,076 55,661
Effect of exchange rate changes on cash...................... (632) --
------- -------
Net increase (decrease) in cash and cash equivalents......... (9,982) 6,464
Cash and cash equivalents at beginning of period............. 24,380 11,362
------- -------
Cash and cash equivalents at end of period................... $14,398 $17,826
======= =======
See Notes to Condensed Consolidated Financial Statements
F-45
DELCO REMY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2001
(Unaudited)
(dollars in thousands, except per share data)
1. BASIS OF PRESENTATION
Effective in the fourth quarter of calendar year 2000, the Company changed
its fiscal year from July 31 to December 31. Any references to "fiscal year"
are to years ending July 31. The accompanying unaudited condensed consolidated
financial statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they
do not include all of the information and notes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring adjustments)
considered necessary for a fair presentation have been included. Certain prior
year amounts have been reclassified to conform to the current year's
presentation. Operating results for the three-month period ended March 31, 2001
are not necessarily indicative of the results that may be expected for the full
year. The balance sheet at December 31, 2000 has been derived from the audited
financial statements at that date but does not include all of the information
and notes required by generally accepted accounting principles for complete
financial statements. For further information, refer to the consolidated
financial statements and notes thereto for the five-month transition period
ended December 31, 2000 and the three fiscal years ended July 31, 2000.
2. GOING PRIVATE TRANSACTION
On February 7, 2001, the Company agreed to a going private transaction with
its largest stockholder, Court Square Limited ("Court Square"), pursuant to
which Court Square made a cash tender offer for all of the Company's common
stock not owned by it. Following completion of the tender offer on February 23,
2001, DRI Acquisition LLC, an affiliate of Court Square, merged with the
Company and all remaining common stock not owned by Court Square was eliminated
and converted into the right to receive the merger consideration of $9.50 per
share. Following completion of the merger on March 14, 2001, the New York Stock
Exchange delisted the Company's common stock and the Company terminated the
registration of its common stock under the Exchange Act. For financial
accounting purposes the transaction is treated as a leveraged recapitalization
whereby the assets are not revalued and the excess purchase price of the
redeemed shares over the par value and paid in capital of the shares ($127,343)
has been charged to the Company's retained earnings.
Stockholders' equity at March 31, 2001 reflects the Company's equity
subsequent the above transactions and the paid in capital includes $209,234
attributable to the preferred stock--Series A with liquidation value of $100.00
per share.
3. ACQUISITION
On February 12, 2001, the Company acquired the assets of XL Component
Distribution Limited ("XL") for approximately $2,400. XL, headquartered in
Droitwich, Worcestershire, England, is involved in the remanufacturing,
packaging and distribution of steering racks, brake calipers, ignition
distributors, ignition leads, transmission components and rotating electrics.
Goodwill of approximately $1,300 recorded in connection with the acquisition is
being amortized over 20 years. Pro forma consolidated financial information has
not been presented because the effect on consolidated results would not be
material.
F-46
DELCO REMY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
4. ADDITIONAL BALANCE SHEET INFORMATION
March December 31,
31, 2001 2000
-------- ------------
Inventory:
Raw material......................................... $162,523 $154,550
Work-in-process...................................... 52,150 51,668
Finished goods....................................... 86,184 87,606
-------- --------
Total.............................................. $300,857 $293,824
======== ========
5. ACCUMULATED OTHER COMPREHENSIVE LOSS
The Company's other comprehensive loss consists of unrealized net gains and
losses on the translation of the assets and liabilities of its foreign
operations, currency instruments and interest rate swaps. The before tax loss,
related income tax benefit and accumulated balance are as follows:
Foreign Unrealized Unrealized Accumulated
Currency Losses on Losses on Other
Translation Currency Interest Rate Comprehensive
Adjustment Hedges Swaps Loss
----------- ---------- ------------- -------------
Balance at December 31,
2000...................... $(12,584) $(3,629) $(1,023) $(17,236)
Before tax................. (8,187) (499) (1,643) (10,329)
Income tax effect.......... (2,620) (119) (714) (3,453)
-------- ------- ------- --------
Other comprehensive loss... (5,567) (380) (929) (6,876)
-------- ------- ------- --------
Balance at March 31, 2001.. $(18,151) $(4,009) $(1,952) $(24,112)
======== ======= ======= ========
6. NON-RECURRING CHARGES
In May 2000, the Company completed plans for the realignment of certain
manufacturing facilities in the United States, Canada and the United Kingdom. A
one-time charge of $35,222 was recorded in June 2000 for the estimated cost of
the plan. The reserve included $27,098 for the estimated cost of various
voluntary and involuntary employee separation programs associated with the
resulting workforce reductions. A total of $5,011 was paid in fiscal year 2000,
$15,961 was paid in the five months ended December 31, 2000 and $3,100, $2,842
and $184 are estimated to be paid in the calendar years 2001, 2002 and 2003,
respectively. The reserve also includes $8,124, net of salvage value, for the
write-down of certain production assets which will no longer be used as a
result of the realignment. Additionally, reserves of $1,050 and $1,221 were
established in connection with the acquisition of Elmot in March 2000 and XL in
February 2001, respectively.
The following table summarizes the reserve for non-recurring charges:
Termination Exit/Impairment
Benefits Costs Total
----------- --------------- ------
Reserve at December 31, 2000.............. $7,362 $330 $7,692
Payments and charges in the three-month
period ended March 31, 2001.............. (927) (9) (936)
Reserve established in acquisition of
business................................. 846 375 1,221
------ ---- ------
Reserve at March 31, 2001................. $7,281 $696 $7,977
====== ==== ======
F-47
DELCO REMY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
7. SUBSEQUENT EVENT
On April 26, 2001, the Company issued $165,000 of 11.00% senior subordinated
debt due May 1, 2009 (the "Notes"). Net proceeds (after discounts, commissions
and expenses) of approximately $156,000 were used to retire the GM Subordinated
Debenture of $18,951 including accrued interest and repay approximately
$137,000 outstanding under the Company's Senior Credit Facility.
Interest on the Notes will accrue at 11.00% per annum and will be payable
semi-annually in arrears on May 1 and November 1, commencing on November 1,
2001.
The Notes are redeemable at the option of the Company, in whole or in part,
at any time on or after May 1, 2005, at the redemption prices set forth in the
note agreement plus accrued and unpaid interest, if any, to the date of
redemption.
The Notes are unsecured senior subordinated obligations of the Company. As
such, they are subordinated in right of payment to all existing and future
senior indebtedness of the Company and are senior in right of payment to any
future subordinated obligations of the Company. The Notes are guaranteed by
each subsidiary guarantor and are subject to registration with the SEC.
The following table sets forth the consolidated capitalization of the
Company as of March 31, 2001, on an actual basis and adjusted to give effect to
the issuance of the Notes and application of the proceeds.
March 31, 2001
---------------------
Pro
Actual Forma
-------- --------
Debt:
Senior Credit Facility.................................. $193,438 $ 56,354
8% Subordinated Debenture............................... 18,916 --
8 5/8% Senior Notes Due 2007............................ 145,000 145,000
Other Senior Debt and Capitalized Leases................ 38,875 38,875
10 5/8% Senior Subordinated Notes Due 2006.............. 140,000 140,000
11% Senior Subordinated Notes Due 2009.................. -- 162,852
-------- --------
Total Debt............................................ 536,229 543,081
Stockholders' Equity...................................... 112,702 113,372
-------- --------
Total Capitalization...................................... $648,931 $656,453
======== ========
The Company will record an extraordinary gain of approximately $670 after
tax on the early retirement of the GM subordinated Debenture in the second
quarter.
8. 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.
F-48
DELCO REMY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Presented below is condensed consolidating financial information for the
Company, the Subsidiary Guarantors and the Non-Guarantor Subsidiaries at March
31, 2001 and December 31, 2000 and for the three- month periods ended March 31,
2001 and 2000.
The equity method has been used by the Company with respect to investments
in subsidiaries. The equity method has been used by Subsidiary Guarantors with
respect to investments in Non-Guarantor Subsidiaries. Separate financial
statements for Subsidiary Guarantors are not presented based on management's
determination that they do not provide additional information that is material
to investors.
The following table sets forth the Guarantor and direct Non-Guarantor
Subsidiaries:
Guarantor Subsidiaries Non-Guarantor Subsidiaries
---------------------- --------------------------
Delco Remy America, Inc. Delco Remy Hungary RT (formerly Autovill RT Ltd.)
Nabco, Inc. Power Investments Canada Ltd.
The A&B Group, Inc. 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. World Wide Automotive Distributors, Inc.
MCA, Inc. of Mississippi Kraftube, Inc.
Power Investments, Inc. Tractech (Ireland) Ltd.
Franklin Power Products,
Inc. Central Precision Limited
International Fuel Systems,
Inc. Electro Diesel Rebuild BVBA
Power Investments Marine,
Inc. Electro-Rebuild Tunisia S.A.R.L. (Tunisia)
Marine Corporation of
America Delco Remy Mexico, S. de R.L. de C.V.
Powrbilt Products, Inc. Publitech, Inc.
World Wide Automotive, Inc. Delco Remy Brazil, Ltda.
Ballantrae Corporation Western Reman Ltd.
Tractech, Inc. Engine Rebuilders Ltd.
Williams Technologies, Inc. Reman Transport Ltd.
Western Reman, Inc. Delco Remy Remanufacturing
Engine Master, L.P. Delco Remy Germany GmbH
M&M Knopf Auto Parts, Inc. Remy Componentes S. de R. L. de C. V.
Reman Holdings, Inc. Delco Remy Belgium BVBA
Remy International, Inc. Magnum Power Products, LLC
Elmot-DR Sp. z o.o.
XL Component Distribution Ltd.
F-49
DELCO REMY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Condensed Consolidating Statement of Operations
For the Three Months Ended March 31, 2001
(Unaudited)
-----------------------------------------------------------------------
Delco Remy
International Inc. Non-
(Parent Company Subsidiary Guarantor
Only) Guarantors Subsidiaries Eliminations Consolidated
------------------ ---------- ------------ ------------ ------------
Net sales............... $ -- $265,618 $106,046 $(110,001)(a) $261,663
Cost of goods sold...... -- 232,820 90,557 (110,001)(a) 213,376
------- -------- -------- --------- --------
Gross profit............ -- 32,798 15,489 -- 48,287
Selling, general and
administrative
expenses............... 4,482 16,035 7,623 -- 28,140
Amortization of goodwill
and intangibles........ -- 1,138 151 -- 1,289
------- -------- -------- --------- --------
Operating income
(loss)................. (4,482) 15,625 7,715 -- 18,858
Interest expense........ (8,709) (4,378) (207) -- (13,294)
Other non-operating
expenses............... -- (6,335) 1,248 -- (5,087)
------- -------- -------- --------- --------
Income (loss) before
income taxes, minority
interest in income of
subsidiaries, loss from
unconsolidated joint
ventures and equity in
earnings of
subsidiaries........... (13,191) 4,912 8,756 -- 477
Income taxes (benefit).. (5,380) 4,528 1,004 -- 152
Minority interest in
income of
subsidiaries........... -- (853) (969) -- (1,822)
Loss from unconsolidated
joint ventures......... -- (309) (82) -- (391)
Equity in earnings of
subsidiaries 5,923 -- -- (5,923)(b) --
------- -------- -------- --------- --------
Net income (loss)....... $(1,888) $ (778) $ 6,701 $ (5,923) $ (1,888)
======= ======== ======== ========= ========
- ---------------------
(a) Elimination of intercompany sales and cost of sales.
(b) Elimination of equity in net income of consolidated subsidiaries.
F-50
DELCO REMY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Condensed Consolidating Statement of Operations
For the Three Months Ended March 31, 2000
(Unaudited)
-----------------------------------------------------------------------
Delco Remy
International Inc. Non-
(Parent Company Subsidiary Guarantor
Only) Guarantors Subsidiaries Eliminations Consolidated
------------------ ---------- ------------ ------------ ------------
Net sales............... $ -- $280,206 $97,627 $(101,718)(a) $276,115
Cost of goods sold...... -- 235,750 80,582 (101,718)(a) 214,614
-------- -------- ------- --------- --------
Gross profit............ -- 44,456 17,045 -- 61,501
Selling, general and
administrative
expenses............... 3,067 16,425 8,060 -- 27,552
Amortization of goodwill
and intangibles........ 16 1,278 151 -- 1,445
-------- -------- ------- --------- --------
Operating income
(loss)................. (3,083) 26,753 8,834 -- 32,504
Interest expense........ (7,237) (3,634) (232) -- (11,103)
Other non-operating
expense................ -- -- (387) -- (387)
-------- -------- ------- --------- --------
Income (loss) before
income taxes, minority
interest in income of
subsidiaries, loss from
unconsolidated joint
ventures and equity in
earnings of
subsidiaries........... (10,320) 23,119 8,215 -- 21,014
Income taxes (benefit).. (2,575) 8,951 1,492 -- 7,868
Minority interest in
income of
subsidiaries........... -- (689) (1,028) -- (1,717)
Loss from unconsolidated
joint ventures......... -- -- (28) -- (28)
Equity in earnings of
subsidiaries........... 19,146 -- -- (19,146)(b) --
-------- -------- ------- --------- --------
Net income (loss)....... $ 11,401 $ 13,479 $ 5,667 $ (19,146) $ 11,401
======== ======== ======= ========= ========
- ---------------------
(a) Elimination of intercompany sales and cost of sales.
(b) Elimination of equity in net income of consolidated subsidiaries.
F-51
DELCO REMY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Condensed Consolidating Balance Sheet
March 31, 2001 (Unaudited)
-----------------------------------------------------------------------
Delco Remy
International Inc. Non-
(Parent Company Subsidiary Guarantor
Only) Guarantors Subsidiaries Eliminations Consolidated
------------------ ---------- ------------ ------------ ------------
Assets
Current assets:
Cash and cash
equivalents........... $ -- $ 6,158 $ 8,240 $ -- $ 14,398
Trade accounts
receivable, net....... -- 158,394 30,515 -- 188,909
Other receivables...... -- 9,491 7,396 -- 16,887
Inventories............ -- 251,595 51,967 (2,705)(c) 300,857
Deferred income
taxes................. 13,774 41 2,568 -- 16,383
Other current assets... 3,691 3,322 4,144 -- 11,157
-------- -------- -------- --------- --------
Total current
assets.............. 17,465 429,001 104,830 (2,705) 548,591
Property and equipment.. 40 219,413 86,849 -- 306,302
Less accumulated
depreciation........... 21 95,473 16,363 -- 111,857
-------- -------- -------- --------- --------
Property and equipment,
net.................... 19 123,940 70,486 -- 194,445
Deferred financing
costs.................. 6,533 1,718 -- -- 8,251
Goodwill, net........... -- 146,060 22,443 -- 168,503
Investments in
affiliates............. 523,536 -- -- (514,574)(a) 8,962
Other assets............ 826 2,364 3,931 -- 7,121
-------- -------- -------- --------- --------
Total assets......... $548,379 $703,083 $201,690 $(517,279) $935,873
======== ======== ======== ========= ========
Liabilities and
stockholders' equity
Current liabilities:
Accounts payable....... $ 4,814 $115,619 $ 35,546 $ -- $155,979
Intercompany
accounts.............. 97,208 (75,684) (20,923) (601)(c) --
Accrued interest
payable............... 6,119 1,498 263 -- 7,880
Accrued non-recurring
charges............... -- 7,470 507 -- 7,977
Other liabilities and
accrued expenses...... 7,115 23,073 12,960 -- 43,148
Current debt........... -- 1,564 6,019 -- 7,583
-------- -------- -------- --------- --------
Total current
liabilities......... 115,256 73,540 34,372 (601) 222,567
Deferred income taxes... 11,012 -- (1,031) -- 9,981
Long-term debt, less
current portion........ 285,000 230,127 13,519 -- 528,646
Post-retirement benefits
other than pensions.... -- 23,723 -- -- 23,723
Accrued pension
benefits............... -- 4,124 736 -- 4,860
Other non-current
liabilities............ 2,249 1,478 1,170 -- 4,897
Minority interest in
subsidiaries........... -- 12,208 16,289 -- 28,497
Stockholders' equity:
Preferred stock--
Series A.............. 21 -- -- -- 21
Common stock:
Class A shares....... -- -- -- -- --
Class B shares....... 1 -- -- -- 1
Class C shares....... 2 -- -- -- 2
Paid-in capital........ 231,752 -- -- -- 231,752
Subsidiary
investment............ -- 266,000 94,964 (360,964)(a) --
Retained earnings
(deficit)............. (94,962) 91,883 63,831 (155,714)(b) (94,962)
Accumulated other
comprehensive loss.... (1,952) -- (22,160) -- (24,112)
-------- -------- -------- --------- --------
Total stockholders'
equity.............. 134,862 357,883 136,635 (516,678) 112,702
-------- -------- -------- --------- --------
Total liabilities and
stockholders'
equity.............. $548,379 $703,083 $201,690 $(517,279) $935,873
======== ======== ======== ========= ========
- ---------------------
(a) Elimination of investments in subsidiaries.
(b) Elimination of investments in subsidiaries' earnings.
(c) Elimination of intercompany profit in inventory.
F-52
DELCO REMY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Condensed Consolidating Balance Sheet
December 31, 2000
-----------------------------------------------------------------------
Delco Remy
International Inc. Non-
(Parent Company Subsidiary Guarantor
Only) Guarantors Subsidiaries Eliminations Consolidated
------------------ ---------- ------------ ------------ ------------
Assets
Current assets:
Cash and cash
equivalents........... $ -- $ (256) $ 24,636 $ -- $ 24,380
Trade accounts
receivable, net....... -- 141,028 32,438 -- 173,466
Other receivables...... -- 9,886 6,319 -- 16,205
Inventories............ -- 243,410 52,465 (2,051)(c) 293,824
Deferred income
taxes................. 14,256 -- 2,283 -- 16,539
Other current assets... 2,667 2,694 3,548 -- 8,909
-------- -------- -------- --------- --------
Total current
assets.............. 16,923 396,762 121,689 (2,051) 533,323
Property and equipment.. 40 217,644 87,899 -- 305,583
Less accumulated
depreciation........... 40 90,536 15,167 -- 105,743
-------- -------- -------- --------- --------
Property and equipment,
net.................... -- 127,108 72,732 -- 199,840
Deferred financing
costs.................. 6,806 1,888 -- -- 8,694
Goodwill, net........... -- 146,163 23,075 -- 169,238
Investments in
affiliates............. 515,616 -- -- (508,600)(a) 7,016
Other assets............ 770 3,087 2,502 -- 6,359
-------- -------- -------- --------- --------
Total assets......... $540,115 $675,008 $219,998 $(510,651) $924,470
======== ======== ======== ========= ========
Liabilities and
stockholders' equity
Current liabilities:
Accounts payable....... $ 965 $109,727 $ 45,383 $ -- $156,075
Intercompany
accounts.............. 90,427 (81,466) (8,360) (601)(c) --
Accrued interest
payable............... 6,719 919 1,495 -- 9,133
Accrued non-recurring
charges............... -- 6,798 894 -- 7,692
Other liabilities and
accrued expenses...... 5,256 20,623 7,911 -- 33,790
Current debt........... -- 1,526 6,581 -- 8,107
-------- -------- -------- --------- --------
Total current
liabilities......... 103,367 58,127 53,904 (601) 214,797
Deferred income taxes... 12,209 -- (2,054) -- 10,155
Long-term debt, less
current portion........ 285,000 219,266 15,018 -- 519,284
Post-retirement benefits
other than pensions.... -- 22,794 -- -- 22,794
Accrued pension
benefits............... -- 3,751 673 -- 4,424
Other non-current
liabilities............ 2,208 971 705 -- 3,884
Minority interest in
subsidiaries........... -- 11,351 16,663 -- 28,014
Stockholders' equity:
Common stock:
Class A shares....... 182 -- -- -- 182
Class B shares....... 63 -- -- -- 63
Paid-in capital........ 104,176 -- -- -- 104,176
Subsidiary
investment............ -- 266,087 94,172 (360,259)(a) --
Retained earnings...... 34,269 92,661 57,130 (149,791)(b) 34,269
Accumulated other
comprehensive loss.... (1,023) -- (16,213) -- (17,236)
Stock purchase plan.... (336) -- -- -- (336)
-------- -------- -------- --------- --------
Total stockholders'
equity.............. 137,331 358,748 135,089 (510,050) 121,118
-------- -------- -------- --------- --------
Total liabilities and
stockholders'
equity.............. $540,115 $675,008 $219,998 $(510,651) $924,470
======== ======== ======== ========= ========
- ---------------------
(a) Elimination of investments in subsidiaries.
(b) Elimination of investments in subsidiaries' earnings.
(c) Elimination of intercompany profit in inventory.
F-53
DELCO REMY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Condensed Consolidating Statement of Cash Flows
For the Three Months Ended March 31, 2001
(Unaudited)
----------------------------------------------------------------------
Delco Remy
International Inc. Non-
(Parent Company Subsidiary Guarantor
Only) Guarantors Subsidiaries Eliminations Consolidated
------------------ ---------- ------------ ------------ ------------
Operating activities:
Net income (loss)..... $ (1,888) $ (778) $ 6,701 $ (5,923)(a) $(1,888)
Adjustments to
reconcile net income
(loss) to net cash
used in operating
activities:
Depreciation.......... -- 4,972 2,031 -- 7,003
Amortization.......... -- 1,138 151 -- 1,289
Equity in earnings of
subsidiary........... (5,923) -- -- 5,923(a) --
Changes in operating
assets and
liabilities, net of
acquisitions:
Accounts receivable.. -- (13,520) (1,923) -- (15,443)
Inventories.......... -- (3,262) (7) -- (3,269)
Accounts payable..... 3,849 4,154 (8,099) -- (96)
Other current assets
and liabilities..... 716 2,997 (158) -- 3,555
Intercompany
accounts............ 4,752 711 (5,463) -- --
Cash payments for
non-recurring
charges............. -- (471) (284) -- (755)
Other non-current
assets and
liabilities, net.... (1,506) 1,722 (2,101) -- (1,885)
-------- ------- ------- -------- -------
Net cash used in
operating
activities......... -- (2,337) (9,152) -- (11,489)
Investing activities:
Acquisitions, net of
cash acquired........ -- -- (2,479) -- (2,479)
Purchases of property
and equipment........ -- (2,149) (1,309) -- (3,458)
-------- ------- ------- -------- -------
Net cash used in
investing
activities......... -- (2,149) (3,788) -- (5,937)
Financing activities:
Net borrowings
(repayments) under
revolving line of
credit and other..... -- 10,900 (2,062) -- 8,838
Distributions to
minority interests... -- -- (762) -- (762)
-------- ------- ------- -------- -------
Net cash provided by
(used in) financing
activities......... -- 10,900 (2,824) -- 8,076
Effect of exchange rate
changes on cash....... -- -- (632) -- (632)
-------- ------- ------- -------- -------
Net increase (decrease)
in cash and cash
equivalents........... -- 6,414 (16,396) -- (9,982)
Cash and cash
equivalents at
beginning of period... -- (256) 24,636 -- 24,380
-------- ------- ------- -------- -------
Cash and cash
equivalents at end of
period................ $ -- $ 6,158 $ 8,240 $ -- $14,398
======== ======= ======= ======== =======
- ---------------------
(a) Elimination of equity in earnings of subsidiaries.
F-54
DELCO REMY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Condensed Consolidating Statement of Cash Flows
For the Three Months Ended March 31, 2000
(Unaudited)
--------------------------------------------------------------------
Delco Remy
International Inc. Non-
(Parent Company Subsidiary Guarantor
Only) Guarantors Subsidiaries Eliminations Consolidated
------------------ ---------- ------------ ------------ ------------
Operating activities:
Net income (loss)..... $ 11,401 $ 13,479 $ 5,667 $(19,146) $ 11,401
Adjustments to
reconcile net income
(loss) to net cash
provided by (used in)
operating activities:
Depreciation.......... -- 5,199 1,929 -- 7,128
Amortization.......... 16 1,274 155 -- 1,445
Equity in earnings of
subsidiaries (19,146) -- -- 19,146(a) --
Changes in operating
assets and
liabilities, net of
acquisitions:
Accounts receivable.. -- 5,199 7,865 -- 13,064
Inventories.......... -- (13,040) (3,578) -- (16,618)
Accounts payable..... (47) 4,717 2,541 -- 7,211
Intercompany
accounts............ 61,517 (72,961) 11,444 -- --
Other current assets
and liabilities..... 7,135 69 (11,910) -- (4,706)
Cash payments for
non-recurring
charges............. -- (567) -- -- (567)
Other non-current
assets and
liabilities, net.... (144) 3,568 (2,578) -- 846
-------- -------- -------- -------- --------
Net cash provided by
(used in) operating
activities......... 60,732 (53,063) 11,535 -- 19,204
Investing activities:
Acquisitions, net of
cash acquired........ (60,732) -- (506) -- (61,238)
Purchases of property
and equipment........ -- (3,484) (3,679) -- (7,163)
-------- -------- -------- -------- --------
Net cash used in
investing
activities......... (60,732) (3,484) (4,185) -- (68,401)
Financing activities:
Net borrowings
(repayments) under
revolving line of
credit and other..... -- 56,989 (1,328) -- 55,661
-------- -------- -------- -------- --------
Net cash provided by
(used in) financing
activities......... -- 56,989 (1,328) -- 55,661
Effect of exchange rate
changes on cash....... -- -- -- -- --
-------- -------- -------- -------- --------
Net increase in cash
and cash equivalents.. -- 442 6,022 -- 6,464
Cash and cash
equivalents at
beginning of period... -- (111) 11,473 -- 11,362
-------- -------- -------- -------- --------
Cash and cash
equivalents at end of
period................ $ -- $ 331 $ 17,495 $ -- $ 17,826
======== ======== ======== ======== ========
- ---------------------
(a) Elimination of equity in earnings of subsidiaries.
F-55
[LOGO OF DELCO REMY]
Until , 2001, all dealers that effect transactions in these securities,
whether or not participating in this exchange offer may be required to deliver
a prospectus. This is in addition to the dealers' obligation to deliver a
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
As permitted by the Delaware General Corporation Law ("DGCL"), the Company's
Restated Certificate of Incorporation provides that directors of the Company
shall not be personally liable to the Company or its stockholders for monetary
damages for breach of fiduciary duty as a director, except for liability (i)
for any breach of the director's duty of loyalty to the Company or its
stockholders, (ii) for acts of omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 174
of the DGCL, relating to prohibited dividends or distributions or the
repurchase or redemption of stock, or (iv) for any transaction from which the
director derives an improper personal benefit. In addition, the Company's
Bylaws provide for indemnification of the Company's officers and directors to
the fullest extent permitted under Delaware law. Section 145 of the DGCL
provides that a corporation may indemnify any persons, including officers and
directors, who were or are, or are threatened to be made, parties to any
threatened, pending or completed legal action, suit or proceeding, whether
civil, criminal, administrative or investigative (other than an action by or in
the right of such corporation), by reason of the fact that such person was an
officer, director, employee or agent of such corporation or is or was serving
at the request of such corporation as an officer, director, employee or agent
of another corporation, partnership, joint venture, trust or other enterprise.
The indemnity may include expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred by such
person in connection with such action, suit or proceeding, provided such person
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the corporation's best interests and, for criminal proceedings, had
no reasonable cause to believe that his conduct was unlawful. A Delaware
corporation may indemnify officers and directors in an action by or in the
right of the corporation under the same conditions, except that no
indemnification is permitted without judicial approval if the officer or
director is adjudged to be liable to the corporation. Where an officer or
director is successful on the merits or otherwise in the defense of any action
referred to above, the corporation must indemnify him against the expenses that
such officer or director actually and reasonably incurred. Insofar as
indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers or persons controlling the Company pursuant to
the foregoing provisions, the Company has been informed that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is therefore unenforceable.
The directors and officers of the Company are insured against certain
liabilities under the registrant's directors' and officers' liability
insurance.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
The following exhibits are filed herewith unless otherwise indicated:
(1) 2.1 Agreement and Plan of Merger dated as of February 7, 2001 by and among
Court Square Capital Limited, DRI Acquisition LLC and the Company
(2) 2.2 Amendment No. 1 to Agreement and Plan of Merger
(2) 3.1 Restated Certificate of Incorporation
(2) 3.2 By-laws of the Company
II-1
(3) 4.1 Indenture, dated as of August 1, 1996, among the Company, certain
of the Company's subsidiaries signatories thereto and National City
Bank of Indiana, as trustee
(7) 4.2 Indenture governing 8 5/8% Senior Notes Due 2007 among the Company,
the Subsidiary Guarantors and United States Trust Company of New
York, as trustee, dated December 22, 1997
4.3 Indenture governing 11% Senior Subordinated Notes Due 2009 among
the Company, the Subsidiary Guarantors and First Union National
Bank, as trustee, dated April 26, 2001
4.4 Form of 11% Senior Subordinated Note Due 2009 (included in Exhibit
4.3)
4.5 Registration Rights Agreement, dated April 19, 2001, by and among
the Company, the Subsidiaries Guarantors Named Therein, Credit
Suisse First Boston Corporation and Deutsche Banc Alex. Brown, Inc.
* 5.1 Opinion of Dechert
(6) 10.1 Light Duty Starter Motor Supply Agreement, dated July 31, 1994, by
and between Delco Remy America, Inc. ("DRA") and General Motors
Corporation ("GM")
(6) 10.2 Heavy Duty Component Supply Agreement, dated July 31, 1994, by and
between DRA and GM
(6) 10.3 Distribution and Supply Agreement, dated July 31, 1994, by and
between DRA and GM
(3) 10.4 Trademark License, dated July 31, 1994, by and among DRA, DRI
International, Inc. and GM
(3) 10.5 Tradename License Agreement, dated July 31, 1994, by and among DRA,
DR International, Inc. and GM
(3) 10.6 Partnership Agreement of Delco Remy Mexico S. de R.L. de C.V.,
dated April 17, 1997
(4) 10.7 Joint Venture Agreement, dated , by and between Remy Korea
Holdings, Inc. and S.C. Kim
(2) 10.8 Securities Transfer, Recapitalization and Holders Agreement dated
March 14, 2001 by and among the Company, DRI Acquisition
Corporation, Court Square Capital Limited, World Equity Partners,
L.P., DRI Group LLC and the Continuing Investors Named therein
(2) 10.9 Registration Rights Agreement, dated March 14, 2001, by and among
the Company, Court Square Capital Limited, World Equity Partners,
L.P., DRI Group LLC and the Continuing Investors named therein
(5) 10.10 Employment Agreement, dated July 31, 1994, by and between Delco
Remy International, Inc. and Thomas J. Snyder
(6) 10.11 Form of Fourth Amended and Restated Financing Agreement, dated as
of December 16, 1997, among the Company, certain of the Company's
subsidiaries signatories thereto and Bank One, Indianapolis,
National Association, The CIT Group/Business Credit, Inc.
(3) 10.14 Contingent Purchase Price Note of DRA, in favor of GM, dated July,
31, 1994
(4) 10.15 Lease by and between ANDRA L.L.C. and DRA, dated February 9, 1995
(4) 10.16 Lease by and between Eagle I L.L.C. and DRA, dated August 11, 1995
(9) 10.20 Starter Motor Pricing Agreement, dated March 17, 1999, by and
between DRA and GM
(2) 10.21 Preferred Stockholders Agreement, dated March 14, 2001, by and
among Court Square Capital Limited, World Equity Partners, L.P.,
DRI Group LLC and the Continuing Investors named therein
(2) 10.22 Stock Purchase Warrant, dated March 14, 2001, issued by the Company
to World Equity Partners, L.P.
(11) 10.23 Letter Agreement by and between the Company and Thomas J. Snyder,
dated as of February 6, 2001
II-2
(12) 10.24 Form of Letter Agreement by and between the Company and each of J.
Timothy Gargaro, Joseph P. Felicelli, Richard L. Stanley, Susan E.
Goldy, Roderick English and Patrick Mobouck, each dated as of
February 6, 2001
(13) 10.25 Amendment Number Two to the Delco Remy International, Inc.
Supplemental Executive Retirement Plan, dated as of February 6,
2001
(14) 10.26 Form of Amendment Number Two to the Collateral Assignment Split-
Dollar Insurance Agreement by and between the Company and each of
Thomas J. Snyder, J. Timothy Gargaro, Joseph P. Felicelli, Richard
L. Stanley, Susan E. Goldy, Roderick English
12 Statement of Computation of Ratio of Earnings to Fixed Charges
21 Subsidiaries of the Registrant
23.1 Consent of Ernst & Young LLP
23.2 Consent of Dechert (included in Exhibit 5.1)
24 Powers of Attorney (included on signature pages)
25 Statement of Eligibility and Qualification of First Union National
Bank on Form T-1
99.1 Form of Letter of Transmittal
99.2 Form of Notice of Guaranteed Delivery
99.3 Letter to Holders of 11% Senior Subordinated Notes Due 2009
Concerning Offer For All Outstanding 11% Senior Subordinated Notes
Due 2009 in Exchange for 11% Senior Subordinated Notes Due 2009 of
Delco Remy International, Inc. Which Have Been Registered Under the
Securities Act of 1933, as amended
99.4 Letter to Brokers, Dealers, Commercial Banks, Trust Companies and
Other Nominees Concerning Offer For All Outstanding 11% Senior
Subordinated Notes Due 2009 in Exchange for 11% Senior Subordinated
Notes Due 2009 of Delco Remy International, Inc. Which Have Been
Registered Under the Securities Act of 1933, as amended
99.5 Letter to Clients Concerning Offer For All Outstanding 11% Senior
Subordinated Notes Due 2009 in Exchange for 11% Senior Subordinated
Notes Due 2009 of Delco Remy International, Inc. Which Have Been
Registered Under the Securities Act of 1933, as amended
99.6 Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9
* To be filed by subsequent amendment.
(1) Incorporated by reference to Exhibit (a)(8) to Amendment No. 1 to
the Solicitation/Recommendation Statement on Schedule 14D-9 filed
by the Company on February 9, 2001 (the
"Solicitation/Recommendation Statement")
(2) Incorporated by reference to the Exhibit of the same number to the
Company's Form 10-K for the year ended December 31, 2000
(3) Incorporated by reference to the Exhibit of the same number to the
Registration Statement on Form S-1 previously filed by the Company
on October 10, 1997, registering the issuance of the Company's
Class A Common Stock, par value $.01 per share (the "Equity
Registration Statement")
(4) Incorporated by reference to the Exhibit of the same number to
Amendment No. 1 to the Equity Registration Statement which was
filed by the Company on October 22, 1997
II-3
(5) Incorporated by reference to the Exhibit of the same number to
Amendment No. 2 to the Equity Registration Statement which was filed
by the Company on November 21, 1997
(6) Incorporated by reference to the Exhibit of the same number to
Amendment No. 3 to the Equity Registration Statement which was filed
by the Company on November 26, 1997
(7) Incorporated by reference to the Exhibit of the same number to
Amendment No. 4 to the Equity Registration Statement which was filed
by the Company on December 8, 1997
(8) Incorporated by reference to Exhibit 4.1 to the Company's Form 10-Q
for the quarter ended January 31, 1998
(9) Incorporated by reference to Exhibit 10.20 to the Company's Form 10-K
for the year ended July 13, 1999
(10) Incorporated by reference to Exhibit (a)(1)(I) to Amendment No. 3 to
Transition Statement filed by on Schedule 13E-3 on February 9, 2001
(11) Incorporated by reference to Exhibit (e)(4) to the
Solicitation/Recommendation Statement
(12) Incorporated by reference to Exhibit (e)(5) to the
Solicitation/Recommendation Statement
(13) Incorporated by reference to Exhibit (e)(6) to the
Solicitation/Recommendation Statement
(14) Incorporated by reference to Exhibit (e)(7) to the
Solicitation/Recommendation Statement
(b) Financial Statement Schedules:
Schedules not listed above are omitted because of the absence of the
conditions under which they are required or because the information required by
such omitted schedules is set forth in the financial statements or the notes
thereto.
ITEM 22. UNDERTAKINGS.
(a) The undersigned registrants hereby undertake:
(1) to file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with Securities and Exchange Commission pursuant to Rule 424(b) if, in
the aggregate, the changes in volume and price represent no more than a
20% change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration
statement; and
(iii) to include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement;
(2) that, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof; and
II-4
(3) to remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrants pursuant to the foregoing provisions, or otherwise, the
registrants have been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrants in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrants will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
(c) The undersigned registrants hereby undertake to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11 or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through
the date of responding to the request.
(d) The undersigned registrants hereby undertake to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-5
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Anderson,
State of Indiana, on the 20th day of July, 2001.
Delco Remy International, Inc.
Thomas J. Snyder
By: _________________________________
Thomas J. Snyder
President and Chief Executive
Officer
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
Thomas J. Snyder and Susan E. Goldy, either of whom may act without the joinder
of the other, as such person's true and lawful attorney-in-fact and agent with
full power of substitution and resubsitution, for such person and in such
person's name, place and stead, in any and all capacities to sign any and all
amendments (including post-effective amendments) to this Registration
Statement, and to file the same, with all exhibits thereto and all other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents full power and authority to do
and perform each and every act and thing requisite and necessary to be done, as
fully to all intents and purposes as such person might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and agents or
their substitute or substitutes may lawfully do or cause to be done by virtue
thereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed below by the following persons in the
capacities indicated on July 20, 2001.
Signatures Title
---------- -----
Thomas J. Snyder President, Chief Executive Officer and
_____________________________________________ Director (principal executive officer)
Thomas J. Snyder
J. Timothy Gargaro Senior Vice President and Chief Financial
_____________________________________________ Officer (principal financial officer)
J. Timothy Gargaro
Richard L. Reinhart Vice President and Corporate Controller
_____________________________________________ (principal accounting officer)
Richard L. Reinhart
E. H. Billig Director
_____________________________________________
E.H. Billig
Richard M. Cashin, Jr. Director
_____________________________________________
Richard M. Cashin, Jr.
Michael A. Delaney Director
_____________________________________________
Michael A. Delaney
James R.Gerrity Director
_____________________________________________
James R. Gerrity
Robert J. Schultz Director
_____________________________________________
Robert J. Schultz
Joseph M. Silvestri Director
_____________________________________________
Joseph M. Silvestri
Harold K. Sperlich Chairman and Director
_____________________________________________
Harold K. Sperlich
II-6
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Anderson,
State of Indiana, on the 20th day of July, 2001.
Delco Remy America, Inc.
Thomas J. Snyder
By: _________________________________
Thomas J. Snyder
Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
Thomas J. Snyder and Susan E. Goldy, either of whom may act without the joinder
of the other, as such person's true and lawful attorney-in-fact and agent with
full power of substitution and resubstitution, for such person and in such
person's name, place and stead, in any and all capacities to sign any and all
amendments (including post-effective amendments) to this Registration
Statement, and to file the same, with all exhibits thereto and all other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents full power and authority to do
and perform each and every act and thing requisite and necessary to be done, as
fully to all intents and purposes as such person might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and agents or
their substitute or substitutes may lawfully do or cause to be done by virtue
thereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed below by the following persons in the
capacities indicated on July 20, 2001.
Signatures Title
---------- -----
Thomas J. Snyder Chief Executive Officer and Director
_____________________________________________ (principal executive officer)
Thomas J. Snyder
John Cowden Vice President of Finance
_____________________________________________ (principal financial and accounting
John Cowden officer)
Richard L. Stanley Director
_____________________________________________
Richard L. Stanley
David E. Stoll Director
_____________________________________________
David E. Stoll
II-7
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Anderson,
State of Indiana, on the 20th day of July, 2001.
Remy International, Inc.
Thomas J. Snyder
By: _________________________________
Thomas J. Snyder
President and Chief Operating
Officer
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
Thomas J. Snyder and Susan E. Goldy, either of whom may act without the joinder
of the other, as such person's true and lawful attorney-in-fact and agent with
full power of substitution and resubstitution, for such person and in such
person's name, place and stead, in any and all capacities to sign any and all
amendments (including post-effective amendments) to this Registration
Statement, and to file the same, with all exhibits thereto and all other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents full power and authority to do
and perform each and every act and thing requisite and necessary to be done, as
fully to all intents and purposes as such person might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and agents or
their substitute or substitutes may lawfully do or cause to be done by virtue
thereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed below by the following persons in the
capacities indicated on July 20, 2001.
Signatures Title
---------- -----
Harold K. Sperlich Chairman and Director
_____________________________________________ (principal executive officer)
Harold K. Sperlich
David E. Stoll Secretary and Treasurer
_____________________________________________ (principal financial and accounting
David E. Stoll officer)
E.H. Billig Director
_____________________________________________
E.H. Billig
Richard M. Cashin, Jr. Director
_____________________________________________
Richard M. Cashin, Jr.
Michael A. Delaney Director
_____________________________________________
Michael A. Delaney
James R. Gerrity Director
_____________________________________________
James R. Gerrity
Thomas J. Snyder Director
_____________________________________________
Thomas J. Snyder
II-8
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Anderson,
State of Indiana, on the 20th day of July, 2001.
Reman Holdings, Inc.
Thomas J. Snyder
By: _________________________________
Thomas J. Snyder
President and Chief Operating
Officer
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
Thomas J. Snyder and Susan E. Goldy, either of whom may act without the joinder
of the other, as such person's true and lawful attorney-in-fact and agent with
full power of substitution and resubstitution, for such person and in such
person's name, place and stead, in any and all capacities to sign any and all
amendments (including post-effective amendments) to this Registration
Statement, and to file the same, with all exhibits thereto and all other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents full power and authority to do
and perform each and every act and thing requisite and necessary to be done, as
fully to all intents and purposes as such person might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and agents or
their substitute or substitutes may lawfully do or cause to be done by virtue
thereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed below by the following persons in the
capacities indicated on July 20, 2001.
Signatures Title
---------- -----
Harold K. Sperlich Chairman and Director
_____________________________________________ (principal executive officer)
Harold K. Sperlich
David E. Stoll Secretary and Treasurer
_____________________________________________ (principal financial and accounting
David E. Stoll officer)
E.H. Billig Director
_____________________________________________
E.H. Billig
Richard M. Cashin, Jr. Director
_____________________________________________
Richard M. Cashin, Jr.
Michael A. Delaney Director
_____________________________________________
Michael A. Delaney
James R. Gerrity Director
_____________________________________________
James R. Gerrity
Thomas J. Snyder Director
_____________________________________________
Thomas J. Snyder
II-9
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Anderson,
State of Indiana, on the 20th day of July, 2001.
NABCO, Inc.
Joseph P. Felicelli
By: _________________________________
Joseph P. Felicelli
Vice President
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
Thomas J. Snyder and Susan E. Goldy, either of whom may act without the joinder
of the other, as such person's true and lawful attorney-in-fact and agent with
full power of substitution and resubstitution, for such person and in such
person's name, place and stead, in any and all capacities to sign any and all
amendments (including post-effective amendments) to this Registration
Statement, and to file the same, with all exhibits thereto and all other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents full power and authority to do
and perform each and every act and thing requisite and necessary to be done, as
fully to all intents and purposes as such person might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and agents or
their substitute or substitutes may lawfully do or cause to be done by virtue
thereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed below by the following persons in the
capacities indicated on July 20, 2001.
Signatures Title
---------- -----
Joseph P. Felicelli Vice President
_____________________________________________ (principal executive officer)
Joseph P. Felicelli
David E. Stoll Secretary, Treasurer and Director
_____________________________________________ (principal financial and accounting
David E. Stoll officer)
Thomas J. Snyder Director
_____________________________________________
Thomas J. Snyder
II-10
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Anderson,
State of Indiana, on the 20th day of July, 2001.
The A&B Group, Inc.
Robert Covington
By: _________________________________
Robert Covington
Vice President--Operations
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
Thomas J. Snyder and Susan E. Goldy, either of whom may act without the joinder
of the other, as such person's true and lawful attorney-in-fact and agent with
full power of substitution and resubstitution, for such person and in such
person's name, place and stead, in any and all capacities to sign any and all
amendments (including post-effective amendments) to this Registration
Statement, and to file the same, with all exhibits thereto and all other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents full power and authority to do
and perform each and every act and thing requisite and necessary to be done, as
fully to all intents and purposes as such person might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and agents or
their substitute or substitutes may lawfully do or cause to be done by virtue
thereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed below by the following persons in the
capacities indicated on July 20, 2001.
Signatures Title
---------- -----
Robert Covington Vice President--Operations
_____________________________________________ (principal executive officer)
Robert Covington
Timothy G. Hill Chief Financial Officer
_____________________________________________ (principal financial and accounting
Timothy G. Hill officer)
Thomas J. Snyder Director
_____________________________________________
Thomas J. Snyder
David E. Stoll Director
_____________________________________________
David E. Stoll
II-11
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Anderson,
State of Indiana, on the 20th day of July, 2001.
A&B Enterprises, Inc.
Robert Covington
By: _________________________________
Robert Covington
Vice President--Operations
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
Thomas J. Snyder and Susan E. Goldy, either of whom may act without the joinder
of the other, as such person's true and lawful attorney-in-fact and agent with
full power of substitution and resubstitution, for such person and in such
person's name, place and stead, in any and all capacities to sign any and all
amendments (including post-effective amendments) to this Registration
Statement, and to file the same, with all exhibits thereto and all other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents full power and authority to do
and perform each and every act and thing requisite and necessary to be done, as
fully to all intents and purposes as such person might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and agents or
their substitute or substitutes may lawfully do or cause to be done by virtue
thereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed below by the following persons in the
capacities indicated on July 20, 2001.
Signatures Title
---------- -----
Robert Covington Vice President--Operations
_____________________________________________ (principal executive officer)
Robert Covington
David E. Stoll Secretary, Treasurer and Director
_____________________________________________ (principal financial and accounting
David E. Stoll officer)
Thomas J. Snyder Director
_____________________________________________
Thomas J. Snyder
II-12
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Anderson,
State of Indiana, on the 20th day of July, 2001.
Dalex, Inc.
Robert Covington
By: _________________________________
Robert Covington
Vice President--Operations
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
Thomas J. Snyder and Susan E. Goldy, either of whom may act without the joinder
of the other, as such person's true and lawful attorney-in-fact and agent with
full power of substitution and resubstitution, for such person and in such
person's name, place and stead, in any and all capacities to sign any and all
amendments (including post-effective amendments) to this Registration
Statement, and to file the same, with all exhibits thereto and all other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents full power and authority to do
and perform each and every act and thing requisite and necessary to be done, as
fully to all intents and purposes as such person might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and agents or
their substitute or substitutes may lawfully do or cause to be done by virtue
thereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed below by the following persons in the
capacities indicated on July 20, 2001.
Signatures Title
---------- -----
Robert Covington Vice President--Operations
_____________________________________________ (principal executive officer)
Robert Covington
David E. Stoll Secretary, Treasurer and Director
_____________________________________________ (principal financial and accounting
David E. Stoll officer)
Thomas J. Snyder Director
_____________________________________________
Thomas J. Snyder
II-13
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Anderson,
State of Indiana, on the 20th day of July, 2001.
A&B Cores, Inc.
Robert Covington
By: _________________________________
Robert Covington
Vice President--Operations
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
Thomas J. Snyder and Susan E. Goldy, either of whom may act without the joinder
of the other, as such person's true and lawful attorney-in-fact and agent with
full power of substitution and resubstitution, for such person and in such
person's name, place and stead, in any and all capacities to sign any and all
amendments (including post-effective amendments) to this Registration
Statement, and to file the same, with all exhibits thereto and all other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents full power and authority to do
and perform each and every act and thing requisite and necessary to be done, as
fully to all intents and purposes as such person might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and agents or
their substitute or substitutes may lawfully do or cause to be done by virtue
thereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed below by the following persons in the
capacities indicated on July 20, 2001.
Signature Title
--------- -----
Robert Covington Vice President--Operations
_____________________________________________ (principal executive officer)
Robert Covington
David E. Stoll Secretary, Treasurer and Director
_____________________________________________ (principal financial and accounting
David E. Stoll officer)
Thomas J. Snyder Director
_____________________________________________
Thomas J. Snyder
II-14
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Anderson,
State of Indiana, on the 20th day of July, 2001.
R&L Tool Company, Inc.
Robert Covington
By: _________________________________
Robert Covington
Vice President--Operations
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
Thomas J. Snyder and Susan E. Goldy, either of whom may act without the joinder
of the other, as such person's true and lawful attorney-in-fact and agent with
full power of substitution and resubstitution, for such person and in such
person's name, place and stead, in any and all capacities to sign any and all
amendments (including post-effective amendments) to this Registration
Statement, and to file the same, with all exhibits thereto and all other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents full power and authority to do
and perform each and every act and thing requisite and necessary to be done, as
fully to all intents and purposes as such person might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and agents or
their substitute or substitutes may lawfully do or cause to be done by virtue
thereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed below by the following persons in the
capacities indicated on July 20, 2001.
Signatures Title
---------- -----
Robert Covington Vice President--Operations
_____________________________________________ (principal executive officer)
Robert Covington
David E. Stoll Secretary, Treasurer and Director
_____________________________________________ (principal financial and accounting officer)
David E. Stoll
Thomas J. Snyder Director
_____________________________________________
Thomas J. Snyder
II-15
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Anderson,
State of Indiana, on the 20th day of July, 2001.
MCA, Inc. of Mississippi
Robert Covington
By: _________________________________
Robert Covington
Vice President--Operations
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
Thomas J. Snyder and Susan E. Goldy, either of whom may act without the joinder
of the other, as such person's true and lawful attorney-in-fact and agent with
full power of substitution and resubstitution, for such person and in such
person's name, place and stead, in any and all capacities to sign any and all
amendments (including post-effective amendments) to this Registration
Statement, and to file the same, with all exhibits thereto and all other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents full power and authority to do
and perform each and every act and thing requisite and necessary to be done, as
fully to all intents and purposes as such person might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and agents or
their substitute or substitutes may lawfully do or cause to be done by virtue
thereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed below by the following persons in the
capacities indicated on July 20, 2001.
Signatures Title
---------- -----
Robert Covington Vice President--Operations
_____________________________________________ (principal executive officer)
Robert Covington
David E. Stoll Secretary, Treasurer and Director
_____________________________________________ (principal financial and accounting officer)
David E. Stoll
Thomas J. Snyder Director
_____________________________________________
Thomas J. Snyder
II-16
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Anderson,
State of Indiana, on the 20th day of July, 2001.
Power Investments, Inc.
J. Michael Jarvis
By: _________________________________
J. Michael Jarvis
President
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
Thomas J. Snyder and Susan E. Goldy, either of whom may act without the joinder
of the other, as such person's true and lawful attorney-in-fact and agent with
full power of substitution and resubstitution, for such person and in such
person's name, place and stead, in any and all capacities to sign any and all
amendments (including post-effective amendments) to this Registration
Statement, and to file the same, with all exhibits thereto and all other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents full power and authority to do
and perform each and every act and thing requisite and necessary to be done, as
fully to all intents and purposes as such person might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and agents or
their substitute or substitutes may lawfully do or cause to be done by virtue
thereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed below by the following persons in the
capacities indicated on July 20, 2001.
Signatures Title
---------- -----
J. Michael Jarvis President and Director
_____________________________________________ (principal executive officer)
J. Michael Jarvis
David E. Stoll Secretary, Treasurer and Director
_____________________________________________ (principal financial and accounting
David E. Stoll officer)
Thomas J. Snyder Director
_____________________________________________
Thomas J. Snyder
II-17
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Anderson,
State of Indiana, on the 20th day of July, 2001.
Franklin Power Products, Inc.
J. Michael Jarvis
By: _________________________________
J. Michael Jarvis
President
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
Thomas J. Snyder and Susan E. Goldy, either of whom may act without the joinder
of the other, as such person's true and lawful attorney-in-fact and agent with
full power of substitution and resubstitution, for such person and in such
person's name, place and stead, in any and all capacities to sign any and all
amendments (including post-effective amendments) to this Registration
Statement, and to file the same, with all exhibits thereto and all other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents full power and authority to do
and perform each and every act and thing requisite and necessary to be done, as
fully to all intents and purposes as such person might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and agents or
their substitute or substitutes may lawfully do or cause to be done by virtue
thereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed below by the following persons in the
capacities indicated on July 20, 2001.
Signatures Title
---------- -----
J. Michael Jarvis President and Director
_____________________________________________ (principal executive officer)
J. Michael Jarvis
David E. Stoll Secretary, Treasurer and Director
_____________________________________________ (principal financial and accounting
David E. Stoll officer)
Thomas J. Snyder Director
_____________________________________________
Thomas J. Snyder
II-18
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Anderson,
State of Indiana, on the 20th day of July, 2001.
International Fuel Systems, Inc.
J. Michael Jarvis
By: _________________________________
J. Michael Jarvis
President
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
Thomas J. Snyder and Susan E. Goldy, either of whom may act without the joinder
of the other, as such person's true and lawful attorney-in-fact and agent with
full power of substitution and resubstitution, for such person and in such
person's name, place and stead, in any and all capacities to sign any and all
amendments (including post-effective amendments) to this Registration
Statement, and to file the same, with all exhibits thereto and all other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents full power and authority to do
and perform each and every act and thing requisite and necessary to be done, as
fully to all intents and purposes as such person might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and agents or
their substitute or substitutes may lawfully do or cause to be done by virtue
thereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed below by the following persons in the
capacities indicated on July 20, 2001.
Signatures Title
---------- -----
J. Michael Jarvis President and Director
_____________________________________________ (principal executive officer)
J. Michael Jarvis
David E. Stoll Secretary, Treasurer and Director
_____________________________________________ (principal financial and accounting
David E. Stoll officer)
Thomas J. Snyder Director
_____________________________________________
Thomas J. Snyder
II-19
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Anderson,
State of Indiana, on the 20th day of July, 2001.
Marine Corporation of America
J. Michael Jarvis
By: _________________________________
J. Michael Jarvis
President
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
Thomas J. Snyder and Susan E. Goldy, either of whom may act without the joinder
of the other, as such person's true and lawful attorney-in-fact and agent with
full power of substitution and resubstitution, for such person and in such
person's name, place and stead, in any and all capacities to sign any and all
amendments (including post-effective amendments) to this Registration
Statement, and to file the same, with all exhibits thereto and all other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents full power and authority to do
and perform each and every act and thing requisite and necessary to be done, as
fully to all intents and purposes as such person might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and agents or
their substitute or substitutes may lawfully do or cause to be done by virtue
thereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed below by the following persons in the
capacities indicated on July 20, 2001.
Signatures Title
---------- -----
J. Michael Jarvis President and Director
_____________________________________________ (principal executive officer)
J. Michael Jarvis
David E. Stoll Secretary, Treasurer and Director
_____________________________________________ (principal financial and accounting
David E. Stoll officer)
Thomas J. Snyder Director
_____________________________________________
Thomas J. Snyder
II-20
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Anderson,
State of Indiana, on the 20th day of July, 2001.
Powrbilt Products, Inc.
J. Michael Jarvis
By: _________________________________
J. Michael Jarvis
President
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
Thomas J. Snyder and Susan E. Goldy, either of whom may act without the joinder
of the other, as such person's true and lawful attorney-in-fact and agent with
full power of substitution and resubstitution, for such person and in such
person's name, place and stead, in any and all capacities to sign any and all
amendments (including post-effective amendments) to this Registration
Statement, and to file the same, with all exhibits thereto and all other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents full power and authority to do
and perform each and every act and thing requisite and necessary to be done, as
fully to all intents and purposes as such person might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and agents or
their substitute or substitutes may lawfully do or cause to be done by virtue
thereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed below by the following persons in the
capacities indicated on July 20, 2001.
Signatures Title
---------- -----
J. Michael Jarvis
_____________________________________________ President and Director
J. Michael Jarvis (principal executive officer)
David E. Stoll
_____________________________________________ Secretary, Treasurer and Director
David E. Stoll (principal financial and accounting
officer)
Thomas J. Snyder
_____________________________________________ Director
Thomas J. Snyder
II-21
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Anderson,
State of Indiana, on the 20th day of July, 2001.
World Wide Automotive, Inc.
Richard Keister
By: _________________________________
Richard Keister
President
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
Thomas J. Snyder and Susan E. Goldy, either of whom may act without the joinder
of the other, as such person's true and lawful attorney-in-fact and agent with
full power of substitution and resubstitution, for such person and in such
person's name, place and stead, in any and all capacities to sign any and all
amendments (including post-effective amendments) to this Registration
Statement, and to file the same, with all exhibits thereto and all other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents full power and authority to do
and perform each and every act and thing requisite and necessary to be done, as
fully to all intents and purposes as such person might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and agents or
their substitute or substitutes may lawfully do or cause to be done by virtue
thereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed below by the following persons in the
capacities indicated on July 20, 2001.
Signatures Title
---------- -----
Richard Keister
_____________________________________________ President and Director
Richard Keister (principal executive officer)
David E. Stoll
_____________________________________________ Secretary, Treasurer and Director
David E. Stoll (principal financial and accounting
officer)
Thomas J. Snyder
_____________________________________________ Director
Thomas J. Snyder
II-22
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Anderson,
State of Indiana, on the 20th day of July, 2001.
Ballantrae Corporation
Thomas J. Snyder
By: _________________________________
Thomas J. Snyder
President
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
Thomas J. Snyder and Susan E. Goldy, either of whom may act without the joinder
of the other, as such person's true and lawful attorney-in-fact and agent with
full power of substitution and resubstitution, for such person and in such
person's name, place and stead, in any and all capacities to sign any and all
amendments (including post-effective amendments) to this Registration
Statement, and to file the same, with all exhibits thereto and all other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents full power and authority to do
and perform each and every act and thing requisite and necessary to be done, as
fully to all intents and purposes as such person might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and agents or
their substitute or substitutes may lawfully do or cause to be done by virtue
thereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed below by the following persons in the
capacities indicated on July 20, 2001.
Signatures Title
---------- -----
Thomas J. Snyder President and Director
_____________________________________________ (principal executive officer)
Thomas J. Snyder
John David Phillips Secretary and Treasurer
_____________________________________________ (principal financial and accounting officer)
John David Phillips
David E. Stoll Director
_____________________________________________
David E. Stoll
II-23
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Anderson,
State of Indiana, on the 20th day of July, 2001.
Tractech, Inc.
Ralph McGee
By: _________________________________
Ralph McGee
President
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
Thomas J. Snyder and Susan E. Goldy, either of whom may act without the joinder
of the other, as such person's true and lawful attorney-in-fact and agent with
full power of substitution and resubstitution, for such person and in such
person's name, place and stead, in any and all capacities to sign any and all
amendments (including post-effective amendments) to this Registration
Statement, and to file the same, with all exhibits thereto and all other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents full power and authority to do
and perform each and every act and thing requisite and necessary to be done, as
fully to all intents and purposes as such person might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and agents or
their substitute or substitutes may lawfully do or cause to be done by virtue
thereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed below by the following persons in the
capacities indicated on July 20, 2001.
Signatures Title
---------- -----
James R. Gerrity Chairman and Director
_____________________________________________ (principal executive officer)
James R. Gerrity
John David Phillips Secretary, Treasurer and Director
_____________________________________________ (principal financial and accounting officer)
John David Phillips
Ralph McGee Director
_____________________________________________
Ralph McGee
II-24
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Anderson,
State of Indiana, on the 20th day of July, 2001.
Williams Technologies, Inc.
Thomas J. Snyder
By: _________________________________
Thomas J. Snyder
Vice President
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
Thomas J. Snyder and Susan E. Goldy, either of whom may act without the joinder
of the other, as such person's true and lawful attorney-in-fact and agent with
full power of substitution and resubstitution, for such person and in such
person's name, place and stead, in any and all capacities to sign any and all
amendments (including post-effective amendments) to this Registration
Statement, and to file the same, with all exhibits thereto and all other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents full power and authority to do
and perform each and every act and thing requisite and necessary to be done, as
fully to all intents and purposes as such person might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and agents or
their substitute or substitutes may lawfully do or cause to be done by virtue
thereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed below by the following persons in the
capacities indicated on July 20, 2001.
Signatures Title
---------- -----
Thomas J. Snyder Vice President and Director
_____________________________________________ (principal executive officer)
Thomas J. Snyder
David E. Stoll Secretary, Treasurer and Director
_____________________________________________ (principal financial and accounting officer)
David E. Stoll
Joseph P. Felicelli Director
_____________________________________________
Joseph P. Felicelli
II-25
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Anderson,
State of Indiana, on the 20th day of July, 2001.
Engine Master, L.P.
By: HSG I, Inc., Its General Partner
J. Michael Jarvis
By: _________________________________
J. Michael Jarvis
President
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
Thomas J. Snyder and Susan E. Goldy, either of whom may act without the joinder
of the other, as such person's true and lawful attorney-in-fact and agent with
full power of substitution and resubsitution, for such person and in such
person's name, place and stead, in any and all capacities to sign any and all
amendments (including post-effective amendments) to this Registration
Statement, and to file the same, with all exhibits thereto and all other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents full power and authority to do
and perform each and every act and thing requisite and necessary to be done, as
fully to all intents and purposes as such person might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and agents or
their substitute or substitutes may lawfully do or cause to be done by virtue
thereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed below by the following persons in the
capacities indicated on July 20, 2001.
Signatures Title
---------- -----
J. Michael Jarvis President
_____________________________________________ (principal executive officer)
J. Michael Jarvis
David E. Stoll Vice President--Finance, Secretary and
_____________________________________________ Director (principal financial and
David E. Stoll accounting officer)
Thomas J. Snyder Director
_____________________________________________
Thomas J. Snyder
II-26
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Anderson,
State of Indiana, on the 20th day of July, 2001.
M.&M. Knopf Auto Parts, Inc.
Heywood Knopf
By: _________________________________
Heywood Knopf
Chairman and Chief Executive
Officer
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
Thomas J. Snyder and Susan E. Goldy, either of whom may act without the joinder
of the other, as such person's true and lawful attorney-in-fact and agent with
full power of substitution and resubstitution, for such person and in such
person's name, place and stead, in any and all capacities to sign any and all
amendments (including post-effective amendments) to this Registration
Statement, and to file the same, with all exhibits thereto and all other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents full power and authority to do
and perform each and every act and thing requisite and necessary to be done, as
fully to all intents and purposes as such person might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and agents or
their substitute or substitutes may lawfully do or cause to be done by virtue
thereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed below by the following persons in the
capacities indicated on July 20, 2001.
Signatures Title
---------- -----
Heywood Knopf
_____________________________________________ Chairman, Chief Executive Officer and
Heywood Knopf Director (principal executive officer)
David E. Stoll
_____________________________________________ Vice President, Secretary, Treasurer and
David E. Stoll Director (principal financial and
accounting officer)
Joseph P. Felicelli
_____________________________________________ Director
Joseph P. Felicelli
Marshall Knopf
_____________________________________________ Director
Marshall Knopf
Thomas J. Snyder
_____________________________________________ Director
Thomas J. Snyder
II-27
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Anderson,
State of Indiana, on the 20th day of July, 2001.
Power Investments Marine, Inc.
J. Michael Jarvis
By: _________________________________
J. Michael Jarvis
President
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
Thomas J. Snyder and Susan E. Goldy, either of whom may act without the joinder
of the other, as such person's true and lawful attorney-in-fact and agent with
full power of substitution and resubstitution, for such person and in such
person's name, place and stead, in any and all capacities to sign any and all
amendments (including post-effective amendments) to this Registration
Statement, and to file the same, with all exhibits thereto and all other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents full power and authority to do
and perform each and every act and thing requisite and necessary to be done, as
fully to all intents and purposes as such person might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and agents or
their substitute or substitutes may lawfully do or cause to be done by virtue
thereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed below by the following persons in the
capacities indicated on July 20, 2001.
Signatures Title
---------- -----
J. Michael Jarvis President and Director
_____________________________________________ (principal executive officer)
J. Michael Jarvis
David E. Stoll Secretary, Treasurer and Director
_____________________________________________ (principal financial and accounting
David E. Stoll officer)
Thomas J. Snyder Director
_____________________________________________
Thomas J. Snyder
II-28
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Anderson,
State of Indiana, on the 20th day of July, 2001.
DR Sales, Inc.
Richard L. Stanley
By: _________________________________
Richard L. Stanley
President
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
Thomas J. Snyder and Susan E. Goldy, either of whom may act without the joinder
of the other, as such person's true and lawful attorney-in-fact and agent with
full power of substitution and resubstitution, for such person and in such
person's name, place and stead, in any and all capacities to sign any and all
amendments (including post-effective amendments) to this Registration
Statement, and to file the same, with all exhibits thereto and all other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents full power and authority to do
and perform each and every act and thing requisite and necessary to be done, as
fully to all intents and purposes as such person might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and agents or
their substitute or substitutes may lawfully do or cause to be done by virtue
thereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed below by the following persons in the
capacities indicated on July 20, 2001.
Signatures Title
---------- -----
Richard L. Stanley President
_____________________________________________ (principal executive officer)
Richard L. Stanley
David E. Stoll Vice President--Finance, Secretary and
_____________________________________________ Director (principal financial and
David E. Stoll accounting officer)
Thomas J. Snyder Director
_____________________________________________
Thomas J. Snyder
II-29
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Anderson,
State of Indiana, on the 20th day of July, 2001.
HSG II, Inc.
J. Michael Jarvis
By: _________________________________
J. Michael Jarvis
President
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
Thomas J. Snyder and Susan E. Goldy, either of whom may act without the joinder
of the other, as such person's true and lawful attorney-in-fact and agent with
full power of substitution and resubstitution, for such person and in such
person's name, place and stead, in any and all capacities to sign any and all
amendments (including post-effective amendments) to this Registration
Statement, and to file the same, with all exhibits thereto and all other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents full power and authority to do
and perform each and every act and thing requisite and necessary to be done, as
fully to all intents and purposes as such person might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and agents or
their substitute or substitutes may lawfully do or cause to be done by virtue
thereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed below by the following persons in the
capacities indicated on July 20, 2001.
Signatures Title
---------- -----
J. Michael Jarvis President
_____________________________________________ (principal executive officer)
J. Michael Jarvis
David E. Stoll Vice President--Finance, Secretary and
_____________________________________________ Director (principal financial and
David E. Stoll accounting officer)
Thomas J. Snyder Director
_____________________________________________
Thomas J. Snyder
II-30
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Anderson,
State of Indiana, on the 20th day of July, 2001.
HSG I, Inc.
J. Michael Jarvis
By: _________________________________
J. Michael Jarvis
President
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
Thomas J. Snyder and Susan E. Goldy, either of whom may act without the joinder
of the other, as such person's true and lawful attorney-in-fact and agent with
full power of substitution and resubstitution, for such person and in such
person's name, place and stead, in any and all capacities to sign any and all
amendments (including post-effective amendments) to this Registration
Statement, and to file the same, with all exhibits thereto and all other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents full power and authority to do
and perform each and every act and thing requisite and necessary to be done, as
fully to all intents and purposes as such person might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and agents or
their substitute or substitutes may lawfully do or cause to be done by virtue
thereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed below by the following persons in the
capacities indicated on July 20, 2001.
Signatures Title
---------- -----
J. Michael Jarvis President
_____________________________________________ (principal executive officer)
J. Michael Jarvis
David E. Stoll Vice President--Finance, Secretary and
_____________________________________________ Director (principal financial and
David E. Stoll accounting officer)
Thomas J. Snyder Director
_____________________________________________
Thomas J. Snyder
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