1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TWO-MONTH PERIOD ENDED SEPTEMBER 30, 2000 COMMISSION FILE NO. 1-13683
DELCO REMY INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 35-1909253
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2902 ENTERPRISE DRIVE
ANDERSON, INDIANA 46013
(Address of principal executive offices) (Zip Code)
(765) 778-6499
(Registrant's telephone number, including area code)
FORMER FISCAL YEAR -- JULY 31
(Former name, former address and former fiscal year,
if changed since last report)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS.
Yes X No
--- ---
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE REGISTRANT'S
CLASSES OF COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE.
Number of common shares outstanding
Class as of November 7, 2000
- ------------------------ -----------------------------------
Common Stock - Class A 18,118,058
Common Stock - Class B 6,278,055
================================================================================
2
DELCO REMY INTERNATIONAL, INC. AND SUBSIDIARIES
INDEX
PART I FINANCIAL INFORMATION PAGE
----
Item 1 Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets........................................... 3
Condensed Consolidated Statements of Operations................................. 4
Condensed Consolidated Statements of Cash Flows................................. 5
Notes to Condensed Consolidated Financial Statements............................ 6
Item 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations........................................................... 17
PART II OTHER INFORMATION
Item 5 Other Information............................................................... 20
Item 6 Exhibits and Reports on Form 8-K................................................ 20
SIGNATURES ................................................................................ 21
2
3
CONDENSED CONSOLIDATED BALANCE SHEETS
DELCO REMY INTERNATIONAL, INC. AND SUBSIDIARIES
(UNAUDITED)
SEPTEMBER 30, JULY 31,
2000 2000
------------- ----------
(IN THOUSANDS OF DOLLARS)
ASSETS
Current assets:
Cash and cash equivalents $ 15,253 $ 17,822
Trade accounts receivable, net 174,983 169,563
Other receivables 18,717 15,233
Inventories 286,563 268,153
Deferred income taxes 15,875 18,145
Other current assets 8,179 8,864
--------- ---------
Total current assets 519,570 497,780
Property and equipment 302,326 297,574
Less accumulated depreciation 99,610 95,663
--------- ---------
Property and equipment, net 202,716 201,911
Deferred financing costs 9,137 9,432
Goodwill (net of accumulated amortization) 169,756 171,032
Investments in joint ventures 5,442 5,333
Other assets 3,546 3,752
--------- ---------
Total assets $ 910,167 $ 889,240
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 146,500 $ 141,944
Accrued interest payable 8,335 10,858
Accrued non-recurring charges 16,247 24,778
Other liabilities and accrued expenses 32,767 40,085
Current debt 7,347 7,454
--------- ---------
Total current liabilities 211,196 225,119
Deferred income taxes 6,619 10,027
Long-term debt, less current portion 520,797 484,270
Post-retirement benefits other than pensions 21,979 21,639
Accrued pension benefits 1,582 1,286
Other noncurrent liabilities 3,798 3,886
Commitments and contingencies
Minority interest in subsidiaries 27,557 25,187
Stockholders' equity:
Common stock:
Class A shares 182 182
Class B shares 63 63
Paid-in capital 104,176 104,176
Retained earnings 25,895 24,570
Accumulated other comprehensive loss (13,346) (10,837)
Stock purchase plan (331) (328)
--------- ---------
Total stockholders' equity 116,639 117,826
--------- ---------
Total liabilities and stockholders' equity $ 910,167 $ 889,240
========= =========
See Notes to Condensed Consolidated Financial Statements
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4
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
DELCO REMY INTERNATIONAL, INC. AND SUBSIDIARIES
(UNAUDITED)
TWO-MONTH PERIOD
ENDED SEPTEMBER 30
----------------------
2000 1999
--------- ---------
(in thousands, except
per share data)
Net sales $ 183,210 $ 180,881
Cost of goods sold 149,660 142,209
--------- ---------
Gross profit 33,550 38,672
Selling, general and administrative expenses 19,861 21,059
Amortization of goodwill and intangibles 1,011 994
--------- ---------
Operating income 12,678 16,619
Interest expense and other non-operating expenses (8,686) (7,964)
--------- ---------
Income before income taxes, minority interest in
income of subsidiaries and loss from unconsolidated
joint ventures 3,992 8,655
Income taxes 1,278 3,320
Minority interest in income of subsidiaries (1,233) (1,222)
Loss from unconsolidated joint ventures (156) (6)
--------- ---------
Net income $ 1,325 $ 4,107
========= =========
Basic earnings per common share $ 0.05 $ 0.17
========= =========
Diluted earnings per common share $ 0.05 $ 0.16
========= =========
See Notes to Condensed Consolidated Financial Statements
4
5
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
DELCO REMY INTERNATIONAL, INC. AND SUBSIDIARIES
(UNAUDITED)
TWO-MONTH PERIOD
ENDED SEPTEMBER 30
--------------------
2000 1999
-------- --------
(IN THOUSANDS OF DOLLARS)
OPERATING ACTIVITIES:
Net income $ 1,325 $ 4,107
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation 4,527 4,031
Amortization 1,011 994
Minority interest in income of subsidiaries 1,233 1,222
Loss from unconsolidated joint ventures 156 6
Deferred income taxes 2,270 --
Post-retirement benefits other than pensions 340 443
Accrued pension benefits 296 79
Non-cash interest expense 296 292
Changes in operating assets and liabilities,
net of acquisitions:
Accounts receivable (5,420) (31,349)
Inventories (18,410) (3,882)
Accounts payable 4,556 7,433
Other current assets and liabilities (10,372) 344
Cash payments for non-recurring charges (8,531) (463)
Other non-current assets and liabilities, net (6,432) (1,762)
-------- --------
Net cash used in operating activities (33,155) (18,505)
INVESTING ACTIVITIES:
Acquisitions, net of cash acquired -- (5,733)
Purchases of property and equipment (5,488) (7,281)
-------- --------
Net cash used in investing activities (5,488) (13,014)
FINANCING ACTIVITIES:
Net borrowings under revolving line of credit and other 36,074 27,413
-------- --------
Net cash provided by financing activities 36,074 27,413
Effect of exchange rate changes on cash -- --
-------- --------
Net decrease in cash and cash equivalents (2,569) (4,106)
Cash and cash equivalents at beginning of period 17,822 15,309
-------- --------
Cash and cash equivalents at end of period $ 15,253 $ 11,203
======== ========
See Notes to Condensed Consolidated Financial Statements
5
6
DELCO REMY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(IN THOUSANDS OF DOLLARS)
1. BASIS OF PRESENTATION
Effective at the close of business on September 30, 2000, the Company changed
its fiscal year from July 31 to December 31 and will file a transition report
on Form 10-K for the five-month period ended December 31, 2000. In accordance
with the SEC's transition reporting rules, the Company has elected to present
interim financial statements for the two-month period ending September 30, 2000
with unaudited results for the comparable period in 1999. The accompanying
unaudited condensed consolidated financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of normal
recurring adjustments) considered necessary for a fair presentation have been
included. Operating results for the two-month period ended September 30, 2000
are not necessarily indicative of the results that may be expected for the
five-month transition period or full calendar year. The balance sheet at July
31, 2000 has been derived from the audited financial statements at that date but
does not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. For further
information, refer to the consolidated financial statements and footnotes
thereto for the year ended July 31, 2000 in Form 10-K.
2. ADDITIONAL BALANCE SHEET INFORMATION
SEPTEMBER 30, JULY 31,
Inventory: 2000 2000
------------- --------
Raw material $157,882 $132,713
Work-in-process 47,075 52,605
Finished goods 81,606 82,835
-------- --------
Total $286,563 $268,153
======== ========
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3. COMPREHENSIVE INCOME (LOSS)
The Company's other comprehensive income (loss) consists of unrealized net gains
and losses on the translation of the assets and liabilities of its foreign
operations and unrealized gains on non-deliverable currency forward contracts
(see Note 6). Total comprehensive income (loss) was ($1,184) and $3,102 in the
two-month periods ending September 30, 2000 and 1999, respectively. The before
tax gain (loss), income tax benefit and accumulated balance are as follows:
TWO-MONTH PERIOD ENDED
SEPTEMBER 30
----------------------
2000 1999
-------- --------
Before tax unrealized gain (loss):
Foreign currency translation adjustment $ (3,996) $ (1,631)
Non-deliverable forwards 306 --
-------- --------
Total (3,690) (1,631)
Income tax benefit (1,181) (626)
-------- --------
After tax unrealized loss $ (2,509) $ (1,005)
======== ========
Accumulated other comprehensive loss $(13,346) $ (7,521)
======== ========
4. EARNINGS PER SHARE
Basic earnings per share is computed by dividing net income available to common
stockholders by the weighted average number of common stock shares outstanding
during the period. 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 period plus potential dilutive instruments,
including stock options, warrants and the stock purchase plan.
The following table sets forth the numerator and denominator for the computation
of basic and diluted earnings per share:
TWO-MONTH PERIOD
ENDED SEPTEMBER 30
-------------------------
2000 1999
----------- -----------
NUMERATOR:
Net income $ 1,325 $ 4,107
=========== ===========
DENOMINATOR:
Denominator for basic earnings per share
(weighted average shares) 24,300,913 24,179,113
Effect of dilutive securities:
Warrants 1,679,752 1,679,796
Stock purchase plan and stock options 63,699 95,881
----------- -----------
Denominator for diluted earnings per share
(weighted average shares and assumed
conversions) 26,044,364 25,954,790
=========== ===========
5. 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 the fourth
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8
quarter of fiscal year 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.
At September 30, 2000, 445 employees had been terminated under terms of the
agreements. A total of $5,011 was paid in fiscal 2000 and approximately $15,700
is expected to be paid in the five-month period ending December 31, 2000.
Payments of approximately $4,000, $2,000 and $400 are expected 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.
The following table summarizes the reserve for non-recurring charges:
TERMINATION EXIT/IMPAIRMENT
BENEFITS COSTS TOTAL
----------- --------------- --------
Reserve at July 31, 2000 $ 24,223 $ 555 $ 24,778
Payments and charges in the two-month
period ended September 30, 2000 (8,531) -- (8,531)
-------- -------- --------
Reserve at September 30, 2000 $ 15,692 $ 555 $ 16,247
======== ======== ========
6. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities ("SFAS No. 133"). 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. The Company adopted SFAS No. 133 on August 1,
2000. Since the Company's holdings in such instruments are minimal, adoption
did not have a material effect on the financial statements.
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
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 Korean
subsidiary to a U.S. subsidiary against fluctuations between the 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 3). 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.
Realized gains totaling $96, before income tax, were included in non-operating
income during the two-month period ending September 30, 2000. Unrealized gains
totaling $306, after income taxes, were charged to other comprehensive income
based on changes in the fair value of the forward contracts, all of which
mature within twelve months.
8
9
7. FINANCIAL INFORMATION FOR SUBSIDIARY GUARANTORS AND NON-GUARANTOR
SUBSIDIARIES
The Company conducts a significant portion of its business through subsidiaries.
The Senior Notes and the Senior Subordinated Notes are fully and unconditionally
guaranteed, jointly and severally, by certain direct and indirect subsidiaries
(the Subsidiary Guarantors). Certain of the Company's subsidiaries do not
guarantee the Senior Notes or the Senior Subordinated Notes (the Non-Guarantor
Subsidiaries). The claims of creditors of Non-Guarantor Subsidiaries have
priority over the rights of the Company to receive dividends or distributions
from such subsidiaries.
Presented below is condensed consolidating financial information for the
Company, the Subsidiary Guarantors and the Non-Guarantor Subsidiaries at
September 30, 2000 and July 31, 2000 and for the two month periods ended
September 30, 2000 and 1999.
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.
9
10
The following table sets forth the Guarantor and direct Non-Guarantor
Subsidiaries:
- ----------------------------------------------------------------------------------------------
GUARANTOR SUBSIDIARIES NON-GUARANTOR SUBSIDIARIES
- ----------------------------------------------------------------------------------------------
Delco Remy America, Inc. Delco Remy Hungary RT (formerly Autovill RT Ltd.)
Nabco, Inc. Power Investments Canada Ltd.
The A&B Group, Inc. Delco Remy UK Limited
A&B Enterprises, Inc. Delco Remy International (Europe) GmbH
Dalex, Inc. Remy India Holdings, Inc.
A&B Cores, Inc. Remy Korea Holdings, Inc.
R&L Tool Company, Inc. Alberta Ltd.
MCA, Inc. of Mississippi World Wide Automotive Distributors, Inc.
Power Investments, Inc. Kraftube, Inc.
Franklin Power Products, Inc. Tractech (Ireland) Ltd.
International Fuel Systems, Inc. Central Precision Limited
Marine Drive Systems, Inc. Electro Diesel Rebuild BVBA
Marine Corporation of America Electro Rebuild Tunisia S.A.R.L. (Tunisia)
Powrbilt Products, Inc. Delco Remy Mexico, S. de R.L. de C.V.
World Wide Automotive, Inc. Publitech, Inc.
Ballantrae Corporation Delco Remy Brazil, Ltda.
Tractech Inc. Western Reman Ltd. (Canada)
Williams Technologies, Inc. Engine Rebuilders Ltd.
Western Reman, Inc. Reman Transport Ltd.
Engine Master, L.P. Delco Remy Remanufacturing
M & M Knopf Auto Parts, Inc. Delco Remy Germany GmbH
Remy Componentes S. de R. L. de C. V.
Delco Remy Belgium BVBA
Magnum Power Products, LLC
Elmot-DR, Sp.z.o.o.
- ----------------------------------------------------------------------------------------------
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DELCO REMY INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE TWO MONTH PERIOD ENDED SEPTEMBER 30, 2000
(UNAUDITED)
(IN THOUSANDS OF DOLLARS)
DELCO REMY
INTERNATIONAL NON-
INC. (PARENT SUBSIDIARY GUARANTOR
COMPANY ONLY) GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------- ---------- ------------ -------------- ------------
Net sales $ -- $ 187,319 $ 73,135 $ (77,244)(a) $ 183,210
Cost of goods sold -- 164,574 62,330 (77,244)(a) 149,660
--------- --------- --------- --------- ---------
Gross profit -- 22,745 10,805 -- 33,550
Selling, general and administrative expenses 2,258 12,484 5,119 -- 19,861
Amortization of goodwill and intangibles 10 805 196 -- 1,011
--------- --------- --------- --------- ---------
Operating income (loss) (2,268) 9,456 5,490 -- 12,678
Interest expense and other non-operating
expenses (5,873) (2,703) (110) -- (8,686)
--------- --------- --------- --------- ---------
Income (loss) before income taxes, minority
interest in income of subsidiaries, loss
from unconsolidated joint ventures and
equity in earnings of subsidiaries (8,141) 6,753 5,380 -- 3,992
Income taxes (benefit) (2,912) 2,857 1,333 -- 1,278
Minority interest in income of subsidiaries -- (642) (591) -- (1,233)
Loss from unconsolidated joint ventures -- -- (156) -- (156)
Equity in earnings of subsidiaries 6,554 -- -- (6,554)(b) --
--------- --------- --------- --------- ---------
Net income (loss) $ 1,325 $ 3,254 $ 3,300 $ (6,554) $ 1,325
========= ========= ========= ========= =========
- -------------------------------------------------------------------------
(a) Elimination of intercompany sales and cost of sales.
(b) Elimination of equity in net income of consolidated subsidiaries.
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12
DELCO REMY INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE TWO MONTH PERIOD ENDED SEPTEMBER 30, 1999
(UNAUDITED)
(IN THOUSANDS OF DOLLARS)
DELCO REMY
INTERNATIONAL NON-
INC. (PARENT SUBSIDIARY GUARANTOR
COMPANY ONLY) GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------------- ---------- ------------ ------------ ------------
Net sales $ -- $ 181,911 $ 59,216 $ (60,246)(a) $ 180,881
Cost of goods sold -- 154,685 47,770 (60,246)(a) 142,209
--------- --------- --------- --------- ---------
Gross profit -- 27,226 11,446 -- 38,672
Selling, general and administrative
expenses 2,937 12,977 5,145 -- 21,059
Amortization of goodwill and intangibles 11 752 231 -- 994
--------- --------- --------- --------- ---------
Operating income (loss) (2,948) 13,497 6,070 -- 16,619
Interest expense and other non-operating
expenses (4,619) (2,898) (447) -- (7,964)
--------- --------- --------- --------- ---------
Income (loss) before income taxes, minority
interest in income of subsidiaries, loss
from unconsolidated joint ventures and
equity in earnings of subsidiaries (7,567) 10,599 5,623 -- 8,655
Income taxes (benefit) (2,549) 4,171 1,698 -- 3,320
Minority interest in income of subsidiaries -- (470) (752) -- (1,222)
Loss from unconsolidated joint ventures -- -- (6) -- (6)
Equity in earnings of subsidiaries 9,125 -- -- (9,125)(b) --
--------- --------- --------- --------- ---------
Net income (loss) $ 4,107 $ 5,958 $ 3,167 $ (9,125) $ 4,107
========= ========= ========= ========= =========
- ---------------------------------------------------------------------
(a) Elimination of intercompany sales and cost of sales.
(b) Elimination of equity in net income of consolidated subsidiaries.
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13
DELCO REMY INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET
SEPTEMBER 30, 2000
(UNAUDITED)
(IN THOUSANDS OF DOLLARS)
DELCO REMY
INTERNATIONAL NON-
INC. (PARENT SUBSIDIARY GUARANTOR
COMPANY ONLY) GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------------- ---------- ------------ ------------ ------------
Assets
Current assets:
Cash and cash equivalents $ -- $ 363 $ 14,890 $ -- $ 15,253
Trade accounts receivable, net -- 145,338 29,645 -- 174,983
Other receivables -- 7,937 10,780 -- 18,717
Inventories -- 239,711 48,901 (2,049)(c) 286,563
Deferred income taxes -- 14,410 1,465 -- 15,875
Other current assets -- 5,222 2,957 -- 8,179
--------- --------- --------- --------- ---------
Total current assets -- 412,981 108,638 (2,049) 519,570
Property and equipment 40 215,836 86,450 -- 302,326
Less accumulated depreciation 40 85,262 14,308 -- 99,610
--------- --------- --------- --------- ---------
Property and equipment, net -- 130,574 72,142 -- 202,716
Deferred financing costs 7,079 2,058 -- -- 9,137
Goodwill, net (195) 147,114 22,837 -- 169,756
Investments in affiliates 500,758 -- -- (495,316)(a) 5,442
Other assets 671 601 2,274 -- 3,546
--------- --------- --------- --------- ---------
Total assets $ 508,313 $ 693,328 $ 205,891 $(497,365) $ 910,167
========= ========= ========= ========= =========
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 2,506 $ 99,591 $ 44,403 $ -- $ 146,500
Intercompany accounts 69,680 (49,810) (19,269) (601)(c) --
Accrued interest payable 6,127 453 1,755 -- 8,335
Accrued non-recurring charges -- 12,341 3,906 -- 16,247
Other liabilities and accrued expenses 4,235 23,504 5,028 -- 32,767
Current debt -- 1,509 5,838 -- 7,347
--------- --------- --------- --------- ---------
Total current liabilities 82,548 87,588 41,661 (601) 211,196
Deferred income taxes 8,613 -- (1,994) -- 6,619
Long-term debt, less current portion 285,000 221,494 14,303 -- 520,797
Post-retirement benefits other than pensions -- 21,979 -- -- 21,979
Accrued pension benefits -- 926 656 -- 1,582
Other non-current liabilities 2,167 1,001 630 -- 3,798
Minority interest in subsidiaries -- 9,706 17,851 -- 27,557
Stockholders' equity:
Common stock:
Class A shares 182 -- -- -- 182
Class B shares 63 -- -- -- 63
Paid-in capital 104,176 -- -- -- 104,176
Subsidiary investment -- 271,965 91,000 (362,965)(a) --
Retained earnings 25,895 78,669 55,130 (133,799)(b) 25,895
Accumulated other comprehensive loss -- -- (13,346) -- (13,346)
Stock purchase plan (331) -- -- -- (331)
--------- --------- --------- --------- ---------
Total stockholders' equity 129,985 350,634 132,784 (496,764) 116,639
--------- --------- --------- --------- ---------
Total liabilities and stockholders' equity $ 508,313 $ 693,328 $ 205,891 $(497,365) $ 910,167
========= ========= ========= ========= =========
- -----------------------------------------------------------------
(a) Elimination of investments in subsidiaries.
(b) Elimination of investments in subsidiaries' earnings.
(c) Elimination of intercompany profit in inventory.
13
14
DELCO REMY INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET
JULY 31, 2000
(UNAUDITED)
(IN THOUSANDS OF DOLLARS)
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, net -- 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
Investments 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 restructuring 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.
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DELCO REMY INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE TWO MONTH PERIOD ENDED SEPTEMBER 30, 2000
(UNAUDITED)
(IN THOUSANDS OF DOLLARS)
DELCO REMY
INTERNATIONAL NON-
INC. (PARENT SUBSIDIARY GUARANTOR
COMPANY ONLY) GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------------- ---------- ------------ ------------ ------------
OPERATING ACTIVITIES:
Net income $ 1,325 $ 3,254 $ 3,300 $ (6,554)(a) $ 1,325
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities:
Depreciation -- 3,007 1,520 -- 4,527
Amortization 10 805 196 -- 1,011
Minority interest in income of
subsidiaries -- 642 591 -- 1,233
Loss from unconsolidated joint ventures -- -- 156 -- 156
Equity in earnings of subsidiary (6,554) -- -- 6,554(a) --
Deferred income taxes 960 -- 1,310 -- 2,270
Post-retirement benefits other than
pensions -- 340 -- -- 340
Accrued pension benefits -- 264 32 -- 296
Non-cash interest expense 182 114 -- -- 296
Changes in operating assets and
liabilities, net of acquisitions:
Accounts receivable -- (5,067) (353) -- (5,420)
Inventories -- (18,766) 356 -- (18,410)
Accounts payable 1,250 (6,104) 9,410 -- 4,556
Other current assets and liabilities (2,563) 2,008 (9,817) -- (10,372)
Intercompany accounts (4,232) 6,331 (2,099) -- --
Cash payments for non-recurring charges -- (8,807) 276 -- (8,531)
Other non-current assets and
liabilities, net 9,622 (12,042) (4,012) -- (6,432)
-------- -------- -------- -------- --------
Net cash provided by (used in) operating
activities -- (34,021) 866 -- (33,155)
INVESTING ACTIVITIES:
Purchases of property and equipment -- (2,787) (2,701) -- (5,488)
-------- -------- -------- -------- --------
Net cash used in investing activities -- (2,787) (2,701) -- (5,488)
FINANCING ACTIVITIES:
Net borrowings (repayments) under revolving
line of credit and other -- 36,505 (431) -- 36,074
-------- -------- -------- -------- --------
Net cash provided by (used in) financing
activities -- 36,505 (431) -- 36,074
Effect of exchange rate changes on cash -- -- -- -- --
-------- -------- -------- -------- --------
Net decrease in cash and cash
equivalents -- (303) (2,266) -- (2,569)
Cash and cash equivalents at beginning of
period -- 666 17,156 -- 17,822
-------- -------- -------- -------- --------
Cash and cash equivalents at end of period $ -- $ 363 $ 14,890 $ -- $ 15,253
======== ======== ======== ======== ========
- -----------------------------------------------------------------
(a) Elimination of equity in earnings of subsidiaries.
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DELCO REMY INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE TWO MONTH PERIOD ENDED SEPTEMBER 30, 1999
(UNAUDITED)
(IN THOUSANDS OF DOLLARS)
DELCO REMY
INTERNATIONAL NON-
INC. (PARENT SUBSIDIARY GUARANTOR
COMPANY ONLY) GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------------- ----------- ------------ ------------ ------------
OPERATING ACTIVITIES:
Net income $ 4,107 $ 5,958 $ 3,167 $ (9,125) $ 4,107
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities:
Depreciation -- 3,314 717 -- 4,031
Amortization 11 752 231 -- 994
Minority interest in income of
subsidiaries -- 470 752 -- 1,222
Loss from unconsolidated joint ventures -- -- 6 -- 6
Equity in earnings of subsidiaries (9,125) -- -- 9,125(a) --
Post-retirement benefits other than
pensions -- 443 -- -- 443
Accrued pension benefits -- 79 -- -- 79
Non-cash interest expense 182 110 -- -- 292
Changes in operating assets and
liabilities, net of acquisitions:
Accounts receivable -- (23,828) (7,521) -- (31,349)
Inventories 314 (3,673) (523) -- (3,882)
Accounts payable (336) 7,114 655 -- 7,433
Intercompany accounts 10,038 (1,465) (8,573) -- --
Other current assets and liabilities 744 (3,503) 3,103 -- 344
Cash payments for non-recurring charges -- (463) -- -- (463)
Other non-current assets and
liabilities, net (42) (9,340) 7,620 -- (1,762)
-------- -------- -------- -------- --------
Net cash provided by (used in) operating
activities 5,893 (24,032) (366) -- (18,505)
INVESTING ACTIVITIES:
Acquisitions, net of cash acquired (5,893) 120 40 -- (5,733)
Purchases of property and equipment -- (2,788) (4,493) -- (7,281)
-------- -------- -------- -------- --------
Net cash used in investing activities (5,893) (2,668) (4,453) -- (13,014)
FINANCING ACTIVITIES:
Net borrowings under revolving line of
credit and other -- 26,951 462 -- 27,413
-------- -------- -------- -------- --------
Net cash provided by financing activities -- 26,951 462 -- 27,413
Effect of exchange rate changes on cash -- -- -- -- --
-------- -------- -------- -------- --------
Net increase (decrease) in cash and cash
equivalents -- 251 (4,357) -- (4,106)
Cash and cash equivalents at beginning of
period -- (242) 15,551 -- 15,309
-------- -------- -------- -------- --------
Cash and cash equivalents at end of period $ -- $ 9 $ 11,194 $ -- $ 11,203
======== ======== ======== ======== ========
- -----------------------------------------------------------------
(a) Elimination of equity in earnings of subsidiaries.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
FOR THE TWO MONTHS
ENDED SEPTEMBER 30
------------------------------------------
2000 1999
------------------------------------------
(THOUSANDS OF DOLLARS) AMOUNT % AMOUNT %
------------------------------------------
Net sales $ 183,210 100.0% $ 180,881 100.0%
Cost of goods sold 149,660 81.7% 142,209 78.6%
--------- ----- --------- -----
Gross profit 33,550 18.3% 38,672 21.4%
Selling, general and administrative expenses 19,861 10.8% 21,059 11.6%
Amortization of goodwill and intangibles 1,011 0.6% 994 0.6%
--------- ----- --------- -----
Operating income 12,678 6.9% 16,619 9.2%
Interest expense and other non-operating expenses (8,686) (4.8) (7,964) (4.4)%
Income taxes 1,278 0.7% 3,320 1.8%
Minority interest (1,233) (0.7) (1,222) (0.7)%
Loss from unconsolidated joint ventures (156) 0.0% (6) 0.0%
--------- ----- --------- -----
Net income $ 1,325 0.7% $ 4,107 2.3%
========= ==== ========= =====
TWO MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO TWO MONTHS ENDED SEPTEMBER 30,
1999
Net Sales Net sales of $183.2 million in the two-month period of calendar year
2000 increased $2.3 million, or 1.3%, from the comparable period in calendar
year 1999. This increase was due to the acquisition of Knopf and Elmot ($12.3
million) and higher sales of electrical products in the aftermarket ($0.8
million), partially offset by lower demand in the heavy duty and automotive OEM
markets ($9.3 million) and powertrain/drivetrain aftermarket ($1.5 million).
Gross Profit Gross profit of $33.6 million was down $5.1 million, or 13.2%, and
as a percentage of net sales was 18.3% compared with 21.4% in the same period
last year. These declines were due to lower volume, one-time new product
start-up costs for automotive OEM products and heavy duty plant rearrangement
costs in connection with the implementation of lean initiatives ($7.5 million);
lower aftermarket powertrain/drivetrain volume ($.2 million); partially offset
by acquisitions ($2.6 million).
Selling, General and Administrative Expenses Selling, general and administrative
(SG&A) expenses declined $1.2 million, or 5.7%, and as a percentage of sales
improved to 10.8% from 11.6% reported in the same period last year. These
improvements reflect cost savings realized from the manufacturing realignment
plan initiated in May 2000, partially offset by costs relative to acquisitions.
Operating Income Operating income of $12.7 million declined $3.9 million, or
23.7%, and as a percentage of sales was 6.9% versus 9.2% in the comparable
period of 1999. This decline reflected the sales, gross profit and SG&A issues
discussed above.
Interest Expense and Other Non-operating Expenses Interest expense of $8.9
million in the two-month period ending September 30, 2000 compares with $7.8
million in the comparable period of 1999. This increase was due to higher
average levels of debt as a result of acquisitions ($0.8 million) and changes on
floating rate debt due to interest rate increases by the Federal Reserve ($0.2
million).
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Income Taxes The Company's consolidated effective income tax rate of 32.0% was
down from 38.4% one year ago due primarily to the implementation of various tax
planning initiatives and increased utilization of certain foreign
subsidiaries.
LIQUIDITY AND CAPITAL RESOURCES
The Company's short-term liquidity needs include required debt service,
including capital lease payments, day to day operating expenses, working capital
requirements and the funding of capital expenditures. Long-term liquidity
requirements include principal payments of long-term debt and the funding of
acquisitions. The Company's principal sources of cash to fund its short-term
liquidity needs consist of cash generated by operations and borrowing under the
Senior Credit Facility. As of September 30, 2000, borrowings under the Senior
Credit Facility were $184.6 million and utilization of letters of credit totaled
$11.9 million, leaving $103.5 million available under the $300 million facility.
In the two-month period ending September 30, 2000, cash used in operating
activities was $33.2 million compared with $18.5 million in the same period of
1999. The increased usage was due primarily to lower earnings and cash payments
relative to employee termination plans. Cash used to fund increases in working
capital was approximately $30.0 million in both years. Accounts receivable
increased $5.4 million in 2000 versus a $31.3 million increase in 1999. In 2000,
sales growth was offset by strong collections. The 1999 increase reflected very
strong first quarter sales compared with the prior year fourth quarter.
Inventory increased $18.4 million in 2000 compared with a $3.9 million increase
in 1999. The $18.4 million increase in 2000 was due primarily to seasonal
fluctuations on core returns in the aftermarket and additional inventory
resulting from the changeover to new products in the Company's OEM manufacturing
facilities. The $10.4 million increase in other current assets and liabilities
reflects net cash payments relative to various accrued expense.
In August 1999, the Company acquired Engine Master. Capital expenditures of
$5.5 million in 2000 were $1.8 million below the prior year period. Total
capital spending in the five-month period ending December 31, 2000 is expected
to be approximately $15.0 million.
The increase in net borrowing under the revolving line of credit and other debt
of $36.1 million through two months reflects funding of working capital
(primarily seasonally high inventories) and payments relative to non-recurring
charges.
In August 1999, the Company acquired Engine Master. Capital expenditures of $5.5
million in 2000 were $1.8 million below the prior year period. Total capital
spending in the five-month period ending December 31, 2000 is expected to be
approximately $15.0 million.
The increase in net borrowing under the revolving line of credit and other debt
of $36.1 million through two months reflects funding of working capital and
payments relative to non-recurring charges.
The Company believes that cash generated from operations, together with the
amounts available under the Senior Credit Facility, will be adequate to meet its
debt service requirements, capital expenditures and working capital needs for
the foreseeable future, although no assurance can be given in this regard. The
Company's future operating performance and ability to service, extend, or
refinance its indebtedness will be subject to future economic conditions and to
financial, business and other factors that are beyond the Company's control.
SEASONALITY
The Company's business is moderately seasonal, as its major OEM customers
historically have one- to two-week summer shutdowns of operations during the
third quarter. In addition, the Company typically has shut down its own
operations for one week each July, depending on backlog, scheduled maintenance
and
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inventory buffers, as well as an additional week during the December holidays.
Consequently, the Company's third and fourth quarter results reflect the
effects of these shutdowns.
FOREIGN SALES
Approximately 20.6% of the Company's net sales in the two-month period ending
September 30, 2000 were derived from sales made to customers in foreign
countries, compared with 22.3% for the fiscal year ended July 31, 2000. Because
of these foreign sales, the Company's business is subject to the risks of doing
business abroad, including currency exchange rate fluctuations, limits on
repatriation of funds, compliance with foreign laws and other economic and
political uncertainties.
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PART II OTHER INFORMATION
ITEM 5. OTHER INFORMATION
DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS
From time to time, the Company makes oral and written statements that may
constitute "forward-looking statements" as defined in the Private Securities
Litigation Reform Act of 1995 (the "Act") or by the SEC in its rules,
regulations and releases. The Company desires to take advantage of the "safe
harbor" provisions in the Act for forward-looking statements made from time to
time, including, but not limited to, the forward-looking statements relating to
the future performance of the Company contained in Management's Discussion and
Analysis, and Notes to Condensed Consolidated Financial Statements and other
statements made in this Form 10-Q and in other filings with the SEC.
The Company cautions readers that any such forward-looking statements are based
on assumptions that the Company believes are reasonable, but are subject to a
wide range of risks including, but not limited to risks associated with the
uncertainty of future financial results, acquisitions, additional financing
requirements, development of new products and services, the effect of
competitive products or pricing, the effect of economic conditions and other
uncertainties. Due to these uncertainties, the Company cannot assure readers
that any forward-looking statements will prove to have been correct.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 Financial Data Schedule (Filed via EDGAR only)
(b) The Company filed the following report on Form 8-K during the
two-month period ended September 30, 2000:
Change in fiscal year from July 31 to December 31.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DELCO REMY INTERNATIONAL, INC.
------------------------------------
(Registrant)
Date: November 13, 2000 By: /s/ J. Timothy Gargaro
--------------------------------
J. Timothy Gargaro
Senior Vice President and
Chief Financial Officer
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