================================================================================
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 JUNE 30, 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 July 20, 2001
- ----------------------- -----------------------------------
Common Stock - Class A 1,000
Common Stock - Class B 848,286.57
Common Stock - Class C 1,677,862.79
================================================================================
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.......................................... 19
PART II OTHER INFORMATION
Item 5 Other Information.............................................. 22
Item 6 Exhibits and Reports on Form 8-K............................... 22
SIGNATURES ............................................................... 23
2
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Delco Remy International, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(in thousands)
June 30, December 31,
2001 2000
----------------------- -------------------
(unaudited)
Assets
Current assets:
Cash and cash equivalents $ 20,871 $ 24,380
Trade accounts receivable, net 199,816 173,466
Other receivables 18,442 16,205
Inventories 306,831 293,824
Deferred income taxes 15,737 16,539
Other current assets 13,874 8,909
---------------- ---------------
Total current assets 575,571 533,323
Property and equipment 312,067 305,583
Less accumulated depreciation 118,081 105,743
---------------- ---------------
Property and equipment, net 193,986 199,840
Deferred financing costs 13,826 8,694
Goodwill (net of accumulated amortization) 184,113 169,238
Investments in joint ventures 9,305 7,016
Other assets 7,037 6,359
---------------- ---------------
Total assets $ 983,838 $ 924,470
================ ===============
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 158,309 $ 156,075
Accrued interest payable 10,536 9,133
Accrued non-recurring charges 6,912 7,692
Other liabilities and accrued expenses 40,441 33,790
Current debt 7,754 8,107
---------------- ---------------
Total current liabilities 223,952 214,797
Deferred income taxes 9,990 10,155
Long-term debt, less current portion 562,574 519,284
Post-retirement benefits other than pensions 24,671 22,794
Accrued pension benefits 4,378 4,424
Other noncurrent liabilities 14,656 3,884
Commitments and contingencies
Minority interest in subsidiaries 28,234 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) (96,505) 34,269
Accumulated other comprehensive loss (19,888) (17,236)
Stock purchase plan - (336)
---------------- ---------------
Total stockholders' equity 115,383 121,118
---------------- ---------------
Total liabilities and stockholders' equity $ 983,838 $ 924,470
================ ===============
See Notes to Condensed Consolidated Financial Statements
3
Delco Remy International, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
(in thousands)
Three Month Period Six Month Period
Ended June 30 Ended June 30
-------------------------------------- ------------------------------------
2001 2000 2001 2000
---------------- ---------------- --------------- ---------------
Net sales $271,316 $283,534 $532,979 $559,649
Cost of goods sold 216,355 224,227 429,731 440,176
---------------- ---------------- --------------- ---------------
Gross profit 54,961 59,307 103,248 119,473
Selling, general and administrative expenses 24,784 28,704 52,653 54,921
Amortization of goodwill and intangibles 1,554 1,533 3,114 2,978
Non-recurring charge - 35,222 - 35,222
---------------- ---------------- --------------- ---------------
Operating income (loss) 28,623 (6,152) 47,481 26,352
Interest expense (15,353) (13,178) (28,647) (24,281)
Non-recurring merger/tender offer expenses - - (3,676) -
Other non-operating expense (1,872) (234) (3,283) (621)
---------------- ---------------- --------------- ---------------
Income (loss) before income taxes (benefit),
minority interest in income of subsidiaries
and loss from unconsolidated joint ventures 11,398 (19,564) 11,875 1,450
Income tax expense (benefit) 3,647 (7,331) 3,799 537
Minority interest in income of subsidiaries (2,500) (1,595) (4,322) (3,312)
Loss from unconsolidated joint ventures (131) (428) (522) (456)
---------------- ---------------- --------------- ---------------
Income (loss) before extraordinary item 5,120 (14,256) 3,232 (2,855)
Extraordinary item:
Gain on early extinguishment of debt, net
of income tax 698 - 698 -
---------------- ---------------- --------------- ---------------
Net income (loss) 5,818 (14,256) 3,930 (2,855)
Preferred stock dividends 7,361 - 7,361 -
---------------- ---------------- --------------- ---------------
Loss attributable to common stockholders $ (1,543) $(14,256) $ (3,431) $ (2,855)
================ ================ =============== ===============
See Notes to Condensed Consolidated Financial Statements
4
Delco Remy International, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(in thousands)
Six-Month Period
Ended June 30
-----------------------------------
2001 2000
---------------- ------------
Operating activities:
Net income (loss) $ 3,930 $ (2,855)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation 13,794 14,198
Amortization 3,114 2,978
Changes in operating assets and liabilities, net of
acquisitions:
Accounts receivable (26,309) 14,992
Inventories (4,564) (12,209)
Accounts payable 2,199 (2,847)
Other current assets and liabilities 2,678 (21,795)
Non-recurring charge - 35,222
Cash payments for non-recurring charges (1,619) (4,526)
Other non-current assets and liabilities, net 3,273 116
-------------- ----------------
Net cash provided by (used in) operating activities (3,504) 23,274
Investing activities:
Acquisitions, net of cash acquired (22,749) (61,913)
Purchases of property and equipment (8,489) (15,402)
-------------- ----------------
Net cash used in investing activities (31,238) (77,315)
Financing activities:
Net increase in debt 42,937 59,999
Deferred financing costs (5,561) -
Merger and tender offer costs (4,600) -
Distributions to minority interests (762) (1,200)
-------------- ----------------
Net cash provided by financing activities 32,014 58,799
Effect of exchange rate changes on cash (781) -
-------------- ----------------
Net increase (decrease) in cash and cash equivalents (3,509) 4,758
Cash and cash equivalents at beginning of period 24,380 11,362
-------------- ----------------
Cash and cash equivalents at end of period $ 20,871 $ 16,120
============== ================
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 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. Results of operations presented for the three-month and six-month
periods of 2000 reflect the reclassification of warranty expense, benefit costs
of manufacturing personnel and certain other expenses in the amount of $4,390
and $9,473, respectively, from selling, general and administrative expense to
cost of goods sold. This classification is consistent with the presentation for
2001 results. Operating results for the three-month and six-month periods ended
June 30, 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. Stockholders' Equity
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 June 30, 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.
During the second quarter of 2001, World Equity Partners, L.P. exercised its
warrant to purchase 144,707.31 shares of Series A Preferred Stock and 156,554.70
shares of Class B Common Stock, which were subsequently sold to Berkshire
Hathaway Inc. Also during the second quarter, Court Square Capital Limited sold
315,679.53 shares of Series A Preferred Stock and 341,524.63 shares of Class C
Common Stock to Berkshire Hathaway Inc. In accordance with the Company's Amended
and Restated Certificate of Incorporation, the Class C shares were automatically
converted into an equal number of Class B shares upon transfer.
At June 30, 2001, 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 848,286.57 shares were issued and outstanding, (iii) 6,000,000
shares of Class C Common Stock (par value $.001), of which 1,677,862.79 shares
were issued and outstanding and (iv) 3,500,000 shares of 12% Series A Cumulative
Compounding Preferred Stock (par value $.01), of which 2,237,275.36 shares were
issued and outstanding.
6
The Series A Preferred Stock has a stated value of $100.00 per share and is
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. Such dividends accrue from the
date of issuance (March 15, 2001). At June 30, 2001, preferred dividends
totaling $7,361 had been charged to retained earnings and are reflected in other
non-current liabilities.
3. Acquisitions
On February 12, 2001, the Company acquired the assets of XL Component
Distribution Limited ("XL") for approximately $2,416. 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 $2,416 recorded in connection with the acquisition is
being amortized over 20 years.
On May 4, 2001, the Company acquired 100% of the stock of Auto Matic
Transmission International A/S ("AMT") for approximately $500. AMT, based in
Soborg, Denmark, remanufactures automatic transmissions for passenger cars and
commercial vehicles.
On June 28, 2001, the Company acquired the North American remanufacturing
business of Mazda North American Operations for a cash payment of approximately
$16,616, 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. The Company will continue to remanufacture these components to
support Mazda's service and replacement parts needs in North America. Goodwill
of approximately $17,150, which reflects estimated contingent payments of
$4,800, recorded in connection with the acquisition is being amortized over 20
years.
Payments totaling $3,217 were made to the minority shareholders of World
Wide Automotive, Inc. ("World Wide"), which was acquired in May 1997. These
payments increased the Company's ownership percentage of World Wide from 82.5%
to 85.0%.
Pro forma consolidated financial information has not been presented because the
effect of these acquisitions, individually or combined, would not have a
material effect on consolidated results.
4. Additional Balance Sheet Information
June 30, December 31,
Inventory: 2001 2000
-------------------- -------------------
Raw material $175,416 $154,550
Work-in-process 57,833 51,668
Finished goods 73,582 87,606
-------------------- --------------------
Total $306,831 $293,824
==================== ====================
5. Accumulated Other Comprehensive Income (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 income
(loss), related income tax expense (benefit) and accumulated balance are as
follows:
7
Foreign Accumulated
Currency Other
Translation Interest Rate Comprehensive
Adjustment Currency 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)
Before tax 1,481 3,776 73 5,330
Income tax effect 474 604 28 1,106
--------------- --------------- --------------- --------------
Other comprehensive income 1,007 3,172 45 4,224
--------------- --------------- --------------- --------------
Balance at June 30, 2001 $(17,144) $ (837) $(1,907) $(19,888)
=============== =============== =============== ==============
The Company's total comprehensive income (loss) was as follows:
Three months ended June 30, 2001 $ 10,042
Three months ended June 30, 2000 (16,150)
Six months ended June 30, 2001 1,278
Six months ended June 30, 2000 (6,089)
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 $1,145 were established
in connection with the acquisition of Elmot-Dr, Spz.o.o. 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 six-month period
ended June 30, 2001 (1,817) (108) (1,925)
Reserve established in acquisition of
business 846 299 1,145
-------------- ------------- ------------
Reserve at June 30, 2001 $ 6,391 $ 521 $ 6,912
============== ============= ============
7. Long-term Debt
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 $157,000 were used to retire the GM Subordinated
Debenture of approximately $19,000 including accrued interest and repay
approximately $138,000 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.
8
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 Company recorded an extraordinary gain of $698 after tax on the early
retirement of the GM subordinated Debenture in the second quarter.
8. Distributions to Minority Interests
Distributions to minority interests consisted of a dividend payment of $762 to
the minority shareholders of Delco Remy Korea in the first quarter.
9. New Accounting Standards
On June 29, 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 141, Business Combinations ("SFAS 141") and
No. 142, Goodwill and Other Intangible Assets ("SFAS 142").
SFAS 141 eliminates the pooling-of-interests method of accounting for business
combinations and changes the criteria to recognize intangible assets apart from
goodwill. The requirements of SFAS 141 are effective for any business
combination initiated after June 30, 2001.
Under SFAS 142, goodwill and indefinite lived intangible assets are no longer
amortized but are reviewed annually, or more frequently if impairment indicators
arise, for impairment. Separable intangible assets that have finite lives will
continue to be amortized over their useful lives. The amortization provisions of
SFAS 142 apply to goodwill and intangible assets acquired after June 30, 2001.
With respect to goodwill and intangible assets acquired prior to July 1, 2001,
the amortization provisions of SFAS 142 are effective upon adoption. The Company
is required to adopt SFAS 142 on January 1, 2002.
The Company is assessing the effect adoption of these standards will have on its
financial statements.
10. Financial Information for Subsidiary Guarantors and Non-Guarantor
Subsidiaries
The Company conducts a significant portion of its business through subsidiaries.
The 8 5/8% Senior Notes, the 10 5/8% Senior Subordinated Notes and the 11%
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.
9
Presented below is condensed consolidating financial information for the
Company, the Subsidiary Guarantors and the Non-Guarantor Subsidiaries at June
30, 2001 and December 31, 2000 and for the three- month and six-month periods
ended June 30, 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. 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.
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
Jax Reman, LLC Elmot-DR, Sp.z.o.o.
XL Component Distribution Ltd.
Auto Matic Transmission International A/S
- -------------------------------------------------------------------------------------------------------------------
10
Delco Remy International, Inc. and Subsidiaries
Condensed Consolidating Balance Sheet
June 30, 2001
(Unaudited)
Delco Remy
International Inc. Non-
(Parent Subsidiary Guarantor
Company Only) Guarantors Subsidiaries Eliminations Consolidated
------------------ ---------- ------------ ------------ ------------
Assets
Current assets:
Cash and cash equivalents $ - $ 165 $ 20,706 $ - $ 20,871
Trade accounts receivable, net - 158,642 41,174 - 199,816
Other receivables - 9,661 8,781 - 18,442
Inventories - 250,214 58,668 (2,051)(c) 306,831
Deferred income taxes 13,774 - 1,963 - 15,737
Other current assets 3,855 4,063 5,956 - 13,874
--------- ------------ -------------- ----------- -----------
Total current assets 17,629 422,745 137,248 (2,051) 575,571
Property and equipment 40 218,746 93,281 - 312,067
Less accumulated depreciation 22 99,410 18,649 - 118,081
--------- ------------ -------------- ----------- ------------
Property and equipment, net 18 119,336 74,632 - 193,986
Deferred financing costs 12,277 1,549 - - 13,826
Goodwill, net - 160,529 23,584 - 184,113
Investments in affiliates 568,653 - - (559,348)(a) 9,305
Other assets 198 2,857 3,982 - 7,037
--------- ------------ -------------- ----------- ------------
Total assets $598,775 $707,016 $239,446 $(561,399) $983,838
========= ============ ============== =========== ============
Liabilities and stockholders'
equity
Current liabilities:
Accounts payable $ 3,560 $111,066 $ 43,683 $ - $158,309
Intercompany accounts (27,490) 26,037 2,054 (601)(c) -
Accrued interest payable 9,989 462 85 - 10,536
Accrued non-recurring charges - 5,641 1,271 - 6,912
Other liabilities and accrued
expenses 7,979 17,805 14,657 - 40,441
Current debt - 860 6,894 - 7,754
--------- ------------ -------------- ----------- ------------
Total current liabilities (5,962) 161,871 68,644 (601) 223,952
Deferred income taxes 9,981 - 9 - 9,990
Long-term debt, less current portion 447,901 101,655 13,018 - 562,574
Post-retirement benefits other than
pensions - 24,671 - - 24,671
Accrued pension benefits - 3,492 886 - 4,378
Other non-current liabilities 13,491 395 770 - 14,656
Minority interest in subsidiaries - 13,262 14,972 - 28,234
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 - 293,398 92,400 (385,798)(a) -
Retained earnings (deficit) (96,505) 108,272 66,728 (175,000)(b) (96,505)
Accumulated other comprehensive loss (1,907) - (17,981) - (19,888)
--------- ------------ -------------- ------------ ------------
Total stockholders' equity 133,364 401,670 141,147 (560,798) 115,383
--------- ------------ -------------- ------------ ------------
Total liabilities and stockholders'
equity $598,775 $707,016 $239,446 $(561,399) $983,838
========= ============ ============== ============ ============
- -------------------------------------
(a) Elimination of investments in subsidiaries.
(b) Elimination of investments in subsidiaries' earnings.
(c) Elimination of intercompany profit in inventory.
11
Delco Remy International, Inc. 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.
12
Delco Remy International, Inc. and Subsidiaries
Condensed Consolidating Statement of Operations
For the Three Month Period Ended June 30, 2001
(Unaudited)
Delco Remy
International Inc. Non-
(Parent Subsidiary Guarantor
Company Only) Guarantors Subsidiaries Eliminations Consolidated
------------- ---------- ------------ ------------ ------------
Net sales $ - $271,390 $111,819 $ (111,893)(a) $271,316
Cost of goods sold - 234,253 93,995 (111,893)(a) 216,355
--------- --------- --------- ---------- --------
Gross profit - 37,137 17,824 - 54,961
Selling, general and administrative expenses 3,391 15,043 6,350 - 24,784
Amortization of goodwill and intangibles - 1,407 147 - 1,554
--------- --------- -------- --------- --------
Operating income (loss) (3,391) 20,687 11,327 - 28,623
Interest expense (11,153) (3,920) (280) - (15,353)
Other non-operating expenses - 2,913 (4,785) - (1,872)
--------- --------- ------- --------- --------
Income (loss) before income taxes, minority
interest in income of subsidiaries,
loss from unconsolidated joint ventures and
equity in earnings of subsidiaries (14,544) 19,680 6,262 - 11,398
Income taxes (benefit) (4,752) 6,526 1,873 - 3,647
Minority interest in income of subsidiaries - (1,226) (1,274) - (2,500)
Income (loss) from unconsolidated joint ventures - 87 (218) - (131)
Equity in earnings of subsidiaries 19,286 - - (19,286)(b) -
--------- --------- ------- --------- --------
Income (loss) before extraordinary item 9,494 12,015 2,897 (19,286) 5,120
Extraordinary item:
Gain on early extinguishment of debt,
net of income tax - 698 - - 698
--------- --------- ------- --------- --------
Net income (loss) 9,494 12,713 2,897 (19,286) 5,818
Preferred stock dividends 7,361 - - - 7,361
--------- --------- ------- --------- --------
Income (loss) attributable to common stockholders $ 2,133 $ 12,713 $ 2,897 $ (19,286) $ (1,543)
========= ========= ======= ========== ========
- -------------------------------
(a) Elimination of intercompany sales and cost of sales.
(b) Elimination of equity in net income of consolidated subsidiaries.
13
Delco Remy International, Inc. and Subsidiaries
Condensed Consolidating Statement of Operations
For the Three Month Period Ended June 30, 2000
(Unaudited)
Delco Remy
International Inc. Non-
(Parent Subsidiary Guarantor
Company Only) Guarantors Subsidiaries Eliminations Consolidated
------------- ---------- ------------ ------------ ------------
Net sales $ - $284,880 $102,304 $ (103,650)(a) $283,534
Cost of goods sold (1,213) 241,779 87,311 (103,650)(a) 224,227
----------- ---------- ----------- ----------- -----------
Gross profit 1,213 43,101 14,993 - 59,307
Selling, general and administrative expenses 4,806 20,611 3,287 - 28,704
Amortization of goodwill and intangibles (16) 1,367 182 - 1,533
Non-recurring charge - 30,133 5,089 - 35,222
----------- ---------- ----------- ----------- -----------
Operating income (loss) (3,577) (9,010) 6,435 - (6,152)
Interest expense (8,516) (4,282) (380) - (13,178)
Other non-operating expense - - (234) - (234)
----------- ---------- ----------- ----------- -----------
Income (loss) before income taxes, minority
interest in income of subsidiaries, loss from
unconsolidated joint ventures and equity in
earnings of subsidiaries (12,093) (13,292) 5,821 - (19,564)
Income taxes (benefit) (3,520) (3,537) (274) - (7,331)
Minority interest in income of subsidiaries - (797) (798) - (1,595)
Loss from unconsolidated joint ventures - - (428) - (428)
Equity in earnings of subsidiaries (5,683) - - 5,683(b) -
----------- ---------- ----------- ----------- -----------
Net income (loss) $(14,256) $(10,552) $ 4,869 $5,683 $(14,256)
=========== ========== ============ =========== ===========
- ----------------------------------
(a) Elimination of intercompany sales and cost of sales.
(b) Elimination of equity in net income of consolidated subsidiaries.
14
Delco Remy International, Inc. and Subsidiaries
Condensed Consolidating Statement of Operations
For the Six Month Period Ended June 30, 2001
(Unaudited)
Delco Remy
International Inc. Non-
(Parent Subsidiary Guarantor
Company Only) Guarantors Subsidiaries Eliminations Consolidated
----------------- ---------- ------------ ------------ ------------
Net sales $ - $537,008 $217,865 $ (221,894)(a) $532,979
Cost of goods sold - 467,073 184,552 (221,894)(a) 429,731
----------- -------------- ----------- ----------- ------------
Gross profit - 69,935 33,313 - 103,248
Selling, general and administrative expenses 7,873 30,807 13,973 - 52,653
Amortization of goodwill and intangibles - 2,816 298 - 3,114
----------- -------------- ----------- ----------- -----------
Operating income (loss) (7,873) 36,312 19,042 - 47,481
Interest expense (19,862) (8,298) (487) - (28,647)
Non-recurring merger/tender offer expenses (3,676) - - - (3,676)
Other non-operating expenses - 254 (3,537) - (3,283)
----------- -------------- ----------- ----------- -----------
Income (loss) before income taxes, minority
interest in income of subsidiaries, loss from
unconsolidated joint ventures and equity in
earnings of subsidiaries (31,411) 28,268 15,018 - 11,875
Income taxes (benefit) (10,132) 11,054 2,877 - 3,799
Minority interest in income of subsidiaries - (2,079) (2,243) - (4,322)
Loss from unconsolidated joint ventures - (222) (300) - (522)
Equity in earnings of subsidiaries 25,209 - - (25,209)(b)
----------- -------------- ----------- ----------- -----------
Net income (loss) before extraordinary item 3,930 14,913 9,598 (25,209) 3,232
Extraordinary item:
Gain on early extinguishment of debt,
net of income tax - 698 - - 698
----------- -------------- ----------- ----------- -----------
Net income (loss) 3,930 15,611 9,598 (25,209) 3,930
Preferred stock dividends 7,361 - - - 7,361
----------- -------------- ----------- ----------- -----------
Income (loss) attributable to common stockholders $ (3,431) $ 15,611 $ 9,598 $(25,209) $ (3,431)
=========== ============== =========== =========== ===========
- -----------------------------------
(a) Elimination of intercompany sales and cost of sales.
(b) Elimination of equity in net income of consolidated subsidiaries.
15
Delco Remy International, Inc. and Subsidiaries
Condensed Consolidating Statement of Operations
For the Six Month Period Ended June 30, 2000
(Unaudited)
Delco Remy
International Inc. Non-
(Parent Subsidiary Guarantor
Company Only) Guarantors Subsidiaries Eliminations Consolidated
------------------ ---------- ------------ ------------ ------------
Net sales $ - $565,086 $199,931 $ (205,368)(a) $559,649
Cost of goods sold (1,213) 477,529 169,228 (205,368)(a) 440,176
--------------- -------------- ----------- ------------ -----------
Gross profit 1,213 87,557 30,703 - 119,473
Selling, general and administrative expenses 7,873 37,036 10,012 - 54,921
Amortization of goodwill and intangibles - 2,645 333 - 2,978
Non-recurring charge - 30,133 5,089 - 35,222
--------------- -------------- ----------- ------------ -----------
Operating income (loss) (6,660) 17,743 15,269 - 26,352
Interest expense (15,753) (7,916) (612) - (24,281)
Other non-operating expense - - (621) - (621)
--------------- -------------- ----------- ------------ -----------
Income (loss) before income taxes, minority
interest in income of subsidiaries, loss from
unconsolidated joint ventures and equity in
earnings of subsidiaries (22,413) 9,827 14,036 - 1,450
Income taxes (benefit) (6,095) 5,414 1,218 - 537
Minority interest in income of subsidiaries - (1,486) (1,826) - (3,312)
Loss from unconsolidated joint ventures - - (456) - (456)
Equity in earnings of subsidiaries 13,463 - - (13,463)(b) -
--------------- -------------- ----------- ------------ -----------
Net income (loss) $ (2,855) $ 2,927 $ 10,536 $(13,463) $ (2,855)
=============== ============== =========== ============ ===========
- ------------------------------
(a) Elimination of intercompany sales and cost of sales.
(b) Elimination of equity in net income of consolidated subsidiaries.
16
Delco Remy International, Inc. and Subsidiaries
Condensed Consolidating Statement of Cash Flows
For the Six Month Period Ended June 30, 2001
(Unaudited)
Delco Remy
International Inc. Non-
(Parent Subsidiary Guarantor
Company Only) Guarantors Subsidiaries Eliminations Consolidated
------------- ---------- ------------ ------------ ------------
Operating activities:
Net income (loss) $ 3,930 $ 15,611 $ 9,598 $ (25,209)(a) $ 3,930
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation 2 9,666 4,126 - 13,794
Amortization - 2,816 298 - 3,114
Equity in earnings of subsidiary (25,209) - - 25,209(a) -
Changes in operating assets and liabilities, net of
acquisitions:
Accounts receivable - (17,614) (8,695) - (26,309)
Inventories - (2,628) (2,176) 240 (4,564)
Accounts payable 2,595 1,339 (1,735) - 2,199
Other current assets and liabilities 8,541 (4,632) (1,231) - 2,678
Intercompany accounts (121,057) 116,660 4,397 - -
Cash payments for non-recurring charges - (979) (640) - (1,619)
Other non-current assets and liabilities, net (4,926) 6,050 2,389 (240) 3,273
--------- ---------- --------- --------- ----------
Net cash provided by (used in) operating activities (136,124) 126,289 6,331 - (3,504)
Investing activities:
Acquisitions, net of cash acquired (16,616) (3,217) (2,916) - (22,749)
Purchases of property and equipment - (4,374) (4,115) - (8,489)
--------- ---------- --------- --------- ----------
Net cash used in investing activities (16,616) (7,591) (7,031) - (31,238)
Financing activities:
Net increase (decrease) in debt 162,901 (118,277) (1,687) - 42,937
Deferred financing costs (5,561) - - - (5,561)
Merger and tender offer costs (4,600) - - - (4,600)
Distributions to minority interests - - (762) - (762)
--------- ---------- --------- --------- ----------
Net cash provided by (used in) financing activities 152,740 (118,277) (2,449) - 32,014
Effect of exchange rate changes on cash - - (781) - (781)
--------- ---------- --------- --------- ----------
Net increase (decrease) in cash and cash equivalents - 421 (3,930) - (3,509)
Cash and cash equivalents at beginning of period - (256) 24,636 - 24,380
--------- ---------- --------- --------- --------
Cash and cash equivalents at end of period $ - $ 165 $20,706 $ - $ 20,871
========= ========== ========= ========= ========
- --------------------------------
(a) Elimination of equity in earnings of subsidiaries.
17
Delco Remy International, Inc. and Subsidiaries
Condensed Consolidating Statement of Cash Flows
For the Six Month Period Ended June 30, 2000
(Unaudited)
Delco Remy
International Inc. Non-
(Parent Subsidiary Guarantor
Company Only) Guarantors Subsidiaries
--------------------- ------------------ --------------
Operating activities:
Net income (loss) $ (2,855) $ 2,927 $ 10,536
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation - 10,282 3,916
Amortization - 2,645 333
Equity in earnings of subsidiaries (13,463) - -
Changes in operating assets and liabilities, net of
acquisitions:
Accounts receivable - 9,447 5,545
Inventories (1,213) (11,513) 110
Accounts payable 551 (8,618) 5,220
Intercompany accounts 62,665 (68,612) 5,947
Other current assets and liabilities 12,851 (15,658) (18,988)
Non-recurring charge - 30,133 5,089
Cash payments for non-recurring charges - (4,526) -
Other non-current assets and liabilities, net 2,871 1,507 (3,855)
---------------- -------------- -----------
Net cash provided by (used in) operating activities 61,407 (51,986) 13,853
Investing activities:
Acquisitions, net of cash acquired (61,407) - (506)
Purchases of property and equipment - (7,949) (7,453)
---------------- -------------- -----------
Net cash used in investing activities (61,407) (7,949) (7,959)
Financing activities:
Net increase (decrease) in debt - 61,704 (1,705)
Distributions to minority interests - (438) (762)
---------------- -------------- -----------
Net cash provided by (used in) financing activities - 61,266 (2,467)
Effect of exchange rate changes on cash - - -
---------------- -------------- -----------
Net increase in cash and cash equivalents - 1,331 3,427
Cash and cash equivalents at beginning of period - (111) 11,473
---------------- -------------- -----------
Cash and cash equivalents at end of period $ - $ 1,220 $ 14,900
================ ============== ===========
- ----------------------------
(a) Elimination of equity in earnings of subsidiaries.
Eliminations Consolidated
--------------- ---------------
Operating activities:
Net income (loss) $(13,463) $ (2,855)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation - 14,198
Amortization - 2,978
Equity in earnings of subsidiaries 13,463(a) -
Changes in operating assets and liabilities, net of
acquisitions:
Accounts receivable - 14,992
Inventories 407 (12,209)
Accounts payable - (2,847)
Intercompany accounts - -
Other current assets and liabilities - (21,795)
Non-recurring charge - 35,222
Cash payments for non-recurring charges - (4,526)
Other non-current assets and liabilities, net (407) 116
----------- ------------
Net cash provided by (used in) operating activities - 23,274
Investing activities:
Acquisitions, net of cash acquired - (61,913)
Purchases of property and equipment - (15,402)
----------- ------------
Net cash used in investing activities - (77,315)
Financing activities:
Net increase (decrease) in debt - 59,999
Distributions to minority interests - (1,200)
----------- ------------
Net cash provided by (used in) financing activities - 58,799
Effect of exchange rate changes on cash - -
----------- ------------
Net increase in cash and cash equivalents - 4,758
Cash and cash equivalents at beginning of period - 11,362
----------- ------------
Cash and cash equivalents at end of period $ - $ 16,120
=========== ============
- ----------------------------
(a) Elimination of equity in earnings of subsidiaries.
18
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
Three Months Ended June 30, 2001 Compared to Three Months Ended June 30, 2000
Net Sales Net sales of $271.3 million declined $12.2 million, or 4.3%, from the
second quarter of 2000. This decline was due to lower demand in the heavy duty
and automotive OEM markets ($35.1 million) and reduced sales of cores to third
parties ($4.5 million), partially offset by increased demand for aftermarket
electrical and powertrain/drivetrain products ($11.3 million), sales relative to
previously consigned inventory ($11.2 million) and the effect of the acquisition
of XL in February 2001 ($4.3 million). The sale of previously consigned
inventory did not impact gross profit or operating profit.
Gross Profit Gross profit of $55.0 million was down $4.3 million, or 7.3%, and
as a percentage of net sales was 20.3% compared with 20.9% in the second quarter
of 2000. The decline in gross profit was due to lower volume and product mix in
the automotive and heavy duty OEM markets ($10.2 million) and lower third party
core sales ($0.8 million), partially offset by improved sales and margins in the
electrical and powertrain/drivetrain aftermarket ($5.8 million) and the effect
of acquisitions ($1.0 million).
Selling, General and Administrative Expenses Selling, general and
administrative (SG&A) expenses declined $3.9 million, or 13.7%, and as a
percentage of net sales were 9.1% compared with 10.1% in the second quarter of
2000. This improvement reflects continued emphasis on cost control throughout
the Company.
Operating Income Operating income of $28.6 million compares with an operating
loss of $6.2 million in the second quarter of 2000. Excluding the effect of the
non-recurring manufacturing realignment charge in 2000, operating income
declined $0.4 million, or 1.5%, and as a percentage of sales was 10.5% compared
with 10.3% in 2000. The sales volume and mix issues discussed above were almost
entirely offset by the improvements in SG&A expense.
Interest Expense Interest expense of $15.4 million in the second quarter of
2001 compares with $13.2 million in the second quarter of 2000. This increase
was due to higher levels of debt to fund operations ($1.1 million), the higher
rate associated with the 11.0% senior subordinated debt issued on April 26 ($0.9
million), and interest rate swaps ($0.2 million).
Other Non-Operating Expense Non-operating expense in the second quarter of 2001
consisted primarily of realized losses on non-deliverable currency forward
contracts entered into as a hedge against fluctuations between the South Korean
Won and U.S. dollar ($2.4 million).
Income Taxes The Company's consolidated effective income tax rate was
approximately 32% in the second quarter of 2001 compared with approximately 37%
in the second quarter of 2000. This reduction reflects the implementation of
various tax planning initiatives and increased utilization of certain foreign
subsidiaries.
19
Six Months Ended June 30, 2001 Compared to Six Months Ended June 30, 2000
Net Sales Net sales of $533.0 million declined $26.7 million, or 4.8%, from the
comparable period of 2000. This decline was due to lower demand in the heavy
duty and automotive OEM markets ($74.2 million) and reduced sales of cores to
third parties ($4.5 million), partially offset by sales relative to previously
consigned inventory ($18.1 million), increased demand for aftermarket electrical
and powertrain/drivetrain products ($14.0 million) and the effect of the
acquisitions of XL in February 2001 and M&M Knopf Auto Parts Inc. and Elmot in
2000 ($19.0 million). The sale of previously consigned inventory did not impact
gross profit or operating profit.
Gross Profit Gross profit of $103.2 million was down $16.2 million, or 13.6%,
and as a percentage of net sales was 19.4% compared with 21.3% in the first six
months of 2000. The decline in gross profit was due to lower volume and product
mix in the automotive and heavy duty OEM markets ($22.6 million) and lower third
party core sales ($0.9 million), partially offset by improved sales and margins
in the electrical and powertrain/drivetrain aftermarket ($5.4 million) and the
effect of acquisitions ($2.9 million).
Selling, General and Administrative Expenses SG&A expenses declined $2.3
million, or 4.1%, and as a percentage of net sales were 9.9% compared with 9.8%
in the first six months of 2000. Continued emphasis on cost control throughout
the Company offset increases associated with acquisitions.
Operating Income Operating income of $47.5 million compares with $26.4 million
in the first six months of 2000. Excluding the effect of the non-recurring
manufacturing realignment charge in 2000, operating income declined $14.1
million, or 22.9%, and as a percentage of sales was 8.9% compared with 11.0% in
2000. This decline was primarily generated in the first quarter and reflects the
sales volume and mix issues discussed above. Improvements in SG&A expenses
largely offset the gross profit reduction in the second quarter.
Interest Expense Interest expense of $28.6 million in the first six months of
2001 compares with $24.3 million in the same period of 2000. This increase was
due to higher levels of debt to fund acquisitions ($0.9 million) and operations
($1.9 million), the higher rate associated with the 11.0% senior subordinated
debt issued on April 26 ($0.9 million), rate increases by the Federal Reserve
($0.2 million) and interest rate swaps ($0.4 million).
Other Non-Operating Expense Other non-operating expense in the first six months
of 2001 consists primarily of realized losses on non-deliverable currency
forward contracts entered into as a hedge against fluctuations between the South
Korean Won and U.S. dollar ($4.1 million).
Income Taxes The Company's consolidated effective income tax rate was
approximately 32% in the first six months of 2001 compared with approximately
37% in the same period 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
20
operations and borrowings under the Senior Credit Facility. At June 30, 2001,
borrowings under the Senior Credit Facility were $82.6 million and utilization
of letters of credit totaled $11.6 million, leaving $205.8 million available
under the $300.0 million facility.
In the six months ended June 30, 2001, cash used in operating activities was
$3.5 million compared with cash provided of $23.3 million in the six months of
2000. Accounts receivable increased $26.3 million in 2001 due primarily to sales
by XL, sales of previously consigned inventory to certain aftermarket customers
and higher sales due to seasonality in the aftermarket. The $15.0 million
decrease in 2000 primarily reflected one-time accelerated payments from certain
customers. The $12.2 million increase in inventory in 2000 was due primarily to
an increase in core returns from customers.
Acquisitions included XL, Mazda, AMT and an increase in the ownership percentage
of World Wide in 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.
The $42.9 million net increase in debt during the first six months of 2001
consisted of (i) proceeds of $157.3 million, net of discount, fees and expenses,
on the issuance of the 11% senior subordinated debt on April 26, (ii) payment of
$18.9 million on the early retirement of the GM Subordinated Debenture, and
(iii) a $95.5 million net reduction in the Senior Credit Facility and other
debt. The net proceeds on debt were used to fund the Company's acquisitions,
capital expenditures and other financing activities. Other financing activities
included fees and expenses associated with the issuance of the 11% senior
subordinated debt, costs incurred in connection with the Company's going private
transactions and a dividend payment to the minority shareholders of Delco Remy
Korea.
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 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 22.0% of the Company's net sales in the first six months ending
June 30, 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.
21
PART II OTHER INFORMATION
Item 5. Other Information
Disclosure Regarding Forward Looking Statements
From time to time, the Company makes oral and written statements that may
constitute "forward-looking statements" as defined in the Private Securities
Litigation Reform Act of 1995 (the "Act") or by the SEC in its rules,
regulations and releases. The Company desires to take advantage of the "safe
harbor" provisions in the Act for forward-looking statements made from time to
time, including, but not limited to, the forward-looking statements relating to
the future performance of the Company contained in Management's Discussion and
Analysis, and Notes to Condensed Consolidated Financial Statements and other
statements made in this Form 10-Q and in other filings with the SEC.
The Company cautions readers that any such forward-looking statements are based
on assumptions that the Company believes are reasonable, but are subject to a
wide range of risks 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
There were no reports on Form 8-K filed during the quarter ended June 30, 2001.
22
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DELCO REMY INTERNATIONAL, INC.
------------------------------
(Registrant)
Date: August 14, 2001 By: /s/: J. Timothy Gargaro
-------------------------------
J. Timothy Gargaro
Senior Vice President and
Chief Financial Officer
Date: August 14, 2001 By: /s/: Richard L. Reinhart
-------------------------------
Richard L. Reinhart
Vice President and Controller
Chief Accounting Officer
23