================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2001 COMMISSION FILE NO. 1-13683
DELCO REMY INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Delaware 35-1909253
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2902 Enterprise Drive
Anderson, Indiana 46013
(Address of principal executive offices) (Zip Code)
(765) 778-6499
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last
report)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS.
Yes X No _
-
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE REGISTRANT'S
CLASSES OF COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE.
Number of common shares outstanding
Class as of May 7, 2001
---------------------- -----------------------------------
Common Stock - Class A 1,000
Common Stock - Class B 350,187.63
Common Stock - Class C 2,019,387.42
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Delco Remy International, Inc. and Subsidiaries
INDEX
PART I FINANCIAL INFORMATION Page
Item 1 Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets.......................... 3
Condensed Consolidated Statements of Operations................ 4
Condensed Consolidated Statements of Cash Flows................ 5
Notes to Condensed Consolidated Financial Statements........... 6
Item 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations.......................................... 16
PART II OTHER INFORMATION
Item 5 Other Information.............................................. 19
Item 6 Exhibits and Reports on Form 8-K............................... 19
SIGNATURES ............................................................... 20
2
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
Delco Remy International, Inc. and Subsidiaries
(Unaudited)
March 31, December 31,
2001 2000
--------------------------- ---------------------------
(in thousands)
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 Notes to Condensed Consolidated Financial Statements
3
Condensed Consolidated Statements of Operations
Delco Remy International, Inc. and Subsidiaries
(Unaudited)
Three-Month Period
Ended March 31
----------------------------------------------
2001 2000
--------------------- ---------------------
(in thousands)
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 21,014
subsidiaries and loss from unconsolidated joint ventures 477
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 Notes to Condensed Consolidated Financial Statements
4
Condensed Consolidated Statements of Cash Flows
Delco Remy International, Inc. and Subsidiaries
(Unaudited)
Three-Month Period
Ended March 31
---------------------------------------
2001 2000
---------------- ----------------
(in thousands)
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
5
DELCO REMY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(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 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.
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 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 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.
6
4. Additional Balance Sheet Information
March 31, December 31,
Inventory: 2001 2000
-------------------- --------------------
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 Currency
Translation Unrealized Losses on Unrealized Losses on Accumulated Other
Adjustment Currency Hedges Interest Rate Swaps Comprehensive 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
Benefits Exit/Impairment Costs Total
------------------ ---------------------- ------------------
Reserve at December 31, 2000 $7,362 $330 $7,692
Payments and charges in the three-month (927)
period ended March 31, 2001 (9) (936)
Reserve established in acquisition of
business 846 375 1,221
------------------ ---------------------- ------------------
Reserve at March 31, 2001 $7,281 $696 $7,977
================== ====================== ==================
7
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
------------------------------------
Actual Pro 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 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
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.
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. 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
Power Investments Marine, 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.
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
Reman Holdings, Inc. Remy Componentes S. de R. L. de C. V.
Remy International, Inc. Delco Remy Belgium BVBA
Magnum Power Products, LLC
Elmot-DR, Sp.z.o.o.
XL Component Distribution Ltd.
- ------------------------------------------------------------------------------------------------------------
9
Delco Remy International, Inc. and Subsidiaries
Condensed Consolidating Statement of Operations
For the Three Month Period Ended March 31, 2001
(Unaudited)
Delco Remy
International Inc. Non-
(Parent Subsidiary Guarantor
Company Only) Guarantors Subsidiaries Eliminations Consolidated
------------------ ---------- ------------ --------------- ------------
Net sales $ - $265,618 $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) income 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.
10
Delco Remy International, Inc. and Subsidiaries
Condensed Consolidating Statement of Operations
For the Three Month Period Ended March 31, 2000
(Unaudited)
Delco Remy
International Inc. Non-
(Parent Subsidiary Guarantor
Company 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.
11
Delco Remy International, Inc. and Subsidiaries
Condensed Consolidating Balance Sheet
March 31, 2001
(Unaudited)
Delco Remy
International Inc. Non-
(Parent Subsidiary Guarantor
Company 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)
Stock purchase plan - - - - -
--------------------- ---------- ------------ ------------ ------------
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.
12
Delco Remy International, Inc. and Subsidiaries
Condensed Consolidating Balance Sheet
December 31, 2000
Delco Remy
International Inc. Non-
(Parent Subsidiary Guarantor
Company 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.
13
Delco Remy International, Inc. and Subsidiaries
Condensed Consolidating Statement of Cash Flows
For the Three Month Period Ended March 31, 2001
(Unaudited)
Delco Remy
International Inc. Non-
(Parent Subsidiary Guarantor
Company Only) Guarantors Subsidiaries Eliminations Consolidated
------------------ ---------- ------------ ------------ ------------
Operating activities:
Net income (loss) $ (1,888) $ (778) $ 6,701 $ (5,923)(a) $ (1,888)
Adjustments to reconcile net income (loss) to net cash
provided by (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 provided by (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 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.
14
Delco Remy International, Inc. and Subsidiaries
Condensed Consolidating Statement of Cash Flows
For the Three Month Period Ended March 30, 2000
(Unaudited)
Delco Remy
International Inc. Non-
(Parent Subsidiary Guarantor
Company 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 under revolving line of credit and
other - 56,989 (1,328) - 55,661
-------- -------- -------- -------- --------
Net cash provided by financing activities - 56,989 (1,328) - 55,661
Effect of exchange rate changes on cash - - - - -
-------- -------- -------- -------- --------
Net increase (decrease) 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.
15
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
For the Three Months
Ended March 31, 2001
---------------------------------------
2001 2000
----------------- -----------------
(Thousands of Dollars) Amount % Amount %
-------- ----- -------- -----
Net sales $261,663 100.0% $276,115 100.0%
Cost of goods sold 213,376 81.5% 214,614 77.7%
-------- ----- -------- -----
Gross profit 48,287 18.5% 61,501 22.3%
Selling, general and administrative expenses 28,140 10.8% 27,552 10.0%
Amortization of goodwill and intangibles 1,289 0.5% 1,445 0.5%
-------- ----- -------- -----
Operating income 18,858 7.2% 32,504 11.8%
Interest expense (13,294) (5.1)% (11,103) (4.0)%
Other non-operating expense (5,087) (1.9)% (387) (0.1)%
-------- ----- -------- -----
Income before income taxes, minority interest in
income of subsidiaries and loss from
unconsolidated joint ventures 477 0.2% 21,014 7.6%
Income tax expense 152 0.1% 7,868 2.8%
Minority interest in income of subsidiaries (1,822) (0.7)% (1,717) (0.6)%
Loss from unconsolidated joint ventures (391) (0.1)% (28) 0.0%
-------- ----- -------- -----
Net income (loss) $ (1,888) (0.7)% $ 11,401 4.1%
======== ===== ======== =====
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%, from the
first quarter of 2000. This decline was due to lower demand in the heavy duty
and automotive OEM markets ($38.0 million), partially offset by the acquisitions
of Knopf and Elmot in 2000 and XL in February 2001 ($14.7 million) and increased
demand in the electrical and powertrain/drivetrain products ($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.
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.
16
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 ($0.9 million) and
operations ($.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 The Company's 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.
Liquidity and Capital Resources
- -------------------------------
The Company's short-term liquidity needs include required debt service,
including capital lease payments, day to day operating expenses, working capital
requirements and the funding of capital expenditures. Long-term liquidity
requirements include principal payments of long-term debt and the funding of
acquisitions. The company's principal sources of cash to fund its short-term
liquidity needs consist of cash generated by operations and borrowings under the
Senior Credit Facility. At March 31, 2001, borrowings under the Senior Credit
Facility were $193.4 million and utilization of letters of credit totaled $11.9
million, leaving $94.7 million available under the $300 million facility.
Immediately upon issuance of the 11% Senior Subordinated debt on April 26, 2001,
availability under the Senior Credit Facility increased approximately $137
million.
In the first quarter ended March 31, 2001, cash used in operating activities 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
2000 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 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 the Company's 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.
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.
17
Seasonality
The Company's business is moderately seasonal, as its major OEM customers
historically have one- to two-week operations shutdowns each July. In response,
the Company typically has shut down its own operations for one week each July,
depending on backlog, scheduled maintenance and inventory buffers, as well as an
additional week during the December holidays. Consequently, the Company's third
and fourth quarter results reflect the effects of these shutdowns.
Foreign Sales
Approximately 22.8% of the Company's net sales in the first quarter ending March
31, 2001 were derived from sales made to customers in foreign countries. Because
of these foreign sales, the Company's business is subject to the risks of doing
business abroad, including currency exchange rate fluctuations, limits on
repatriation of funds, compliance with foreign laws and other economic and
political uncertainties.
18
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
The Company filed the following reports on Form 8-K during the quarter
ended March 31, 2001:
1. Press release dated January 19, 2001 regarding the Company's earnings
expectations.
2. Press release dated February 26, 2001 regarding completion of the tender
offer for the Company's class A common stock.
19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DELCO REMY INTERNATIONAL, INC.
------------------------------
(Registrant)
Date: May 15, 2001 By: /s/ J. Timothy Gargaro
--------------------------------
J. Timothy Gargaro
Senior Vice President and
Chief Financial Officer
By: /s/ Richard L. Reinhart
--------------------------------
Richard L. Reinhart
Vice President and Controller
Chief Accounting Officer
20