SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(Mark One)
/ X / Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Quarterly Period Ended April 30, 1998
OR
/ / Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Transition Period From ____________________
to _________________
Commission File Number 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 Number)
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 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 the filing requirements for
the past 90 days.
Yes _X_ No ___
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date:
Number of common shares outstanding
Class as of May 29, 1998
Common Stock - Class A 16,712,839
Common Stock - Class B 7,733,674
1
<PAGE>
PART I. FINANCIAL INFORMATION
FINANCIAL STATEMENTS
Condensed Consolidated Statements of Operations
Delco Remy International, Inc. and Subsidiaries
Unaudited
<TABLE>
<CAPTION>
-----------------------------------------------------
Three Month Period Nine Month Period
Ended April 30 Ended April 30
-----------------------------------------------------
1998 1997 1998 1997
=====================================================
(in thousands of dollars, except per share amounts )
<S> <C> <C> <C> <C>
Net sales $ 217,083 $ 177,727 $ 619,362 $ 509,717
Cost of goods sold 172,349 139,639 497,287 401,681
--------- --------- --------- ---------
Gross profit 44,734 38,088 122,075 108,036
Selling, engineering, and administrative expenses 24,461 22,713 66,627 65,782
--------- --------- --------- ---------
Operating income 20,273 15,375 55,448 42,254
Interest expense 9,748 10,124 30,398 28,839
--------- --------- --------- ---------
Income from continuing operations before minority interest,
income taxes, deemed dividend on preferred stock conversion,
and preferred dividend requirements of subsidiary 10,525 5,251 25,050 13,415
Minority interest in income of subsidiaries 524 383 1,545 628
Income taxes 4,074 1,917 9,769 5,264
Deemed dividend on preferred stock conversion -- -- 1,639 --
Preferred dividend requirement of subsidiary -- 410 645 1,236
--------- --------- --------- ---------
Income from continuing operations 5,927 2,541 11,452 6,287
Discontinued operations:
Loss from operations of discontinued businesses
(net of applicable tax benefit) -- 194 -- 520
--------- --------- --------- ---------
Income before extraordinary items 5,927 2,347 11,452 5,767
Extraordinary item:
Write-off of debt issuance costs (net of applicable tax benefit) -- -- 1,803 2,351
--------- --------- --------- ---------
Net income $ 5,927 $ 2,347 $ 9,649 $ 3,416
========= ========= ========= =========
Basic Earnings Per Common Share:
Income from continuing operations $ 0.25 $ 0.18 $ 0.70 $ 0.44
Discontinued operations -- (0.01) -- (0.04)
Extraordinary items -- -- (0.11) (0.16)
--------- --------- --------- ---------
Net income $ 0.25 $ 0.16 $ 0.59 $ 0.24
========= ========= ========= =========
Diluted Earnings Per Common Share:
Income from continuing operations $ 0.23 $ 0.15 $ 0.61 $ 0.37
Discontinued operations -- (0.01) -- (0.03)
Extraordinary items -- -- (0.10) (0.14)
--------- --------- --------- ---------
Net income $ 0.23 $ 0.14 $ 0.51 $ 0.20
========= ========= ========= =========
</TABLE>
See notes to condensed consolidated financial statements
2
<PAGE>
Condensed Consolidated Balance Sheets
Delco Remy International, Inc. and Subsidiaries
Unaudited
<TABLE>
<CAPTION>
-------------------------
April 30, July 31,
1998 1997
=========================
(in thousands of dollars)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 9,127 $ 10,050
Trade accounts receivable, net 144,933 110,184
Other receivables 8,227 13,376
Inventories 195,654 164,417
Deferred income taxes 21,246 21,474
Other current assets 7,053 4,643
--------- ---------
Total current assets 386,240 324,144
Property and equipment 198,020 147,222
Less accumulated depreciation 53,357 26,858
--------- ---------
144,663 120,364
Deferred financing costs 11,637 8,803
Goodwill (less accumulated amortization) 110,086 86,612
Net assets held for disposal 23,521 25,279
Investment in affiliates 11,160 3,119
Other assets 7,893 2,248
--------- ---------
Total assets $ 695,200 $ 570,569
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Account payable $ 93,924 $ 88,578
Accrued restructuring charges 26,498 37,377
Liabilities related to discontinued operations 1,909 3,324
Other liabilities and accrued expenses 52,794 40,317
Current portion of long-term debt 595 507
--------- ---------
Total current liabilities 175,720 170,103
Long-term debt 378,462 363,261
Other noncurrent liabilities 33,033 22,899
Minority interest in subsidiaries 9,299 8,032
Redeemable exchangeable preferred stock of subsidiary -- 16,071
Stockholders' equity:
Common Stock:
Class A shares 167 88
Class B shares 77 65
Paid-in capital 106,216 6,677
Retained earnings (deficit) (2,525) (12,174)
Cumulative translation adjustment (2,949) (1,752)
Stock purchase plan (2,300) (2,701)
--------- ---------
Total stockholders' equity 98,686 (9,797)
--------- ---------
Total liabilities and stockholders' equity $ 695,200 $ 570,569
========= =========
</TABLE>
See notes to condensed consolidated financial statements
3
<PAGE>
Condensed Consolidated Statements of Cash Flows
Delco Remy International, Inc. and Subsidiaries
Unaudited
<TABLE>
<CAPTION>
-------------------------
Nine Month Period
Ended April 30
-------------------------
1998 1997
=========================
(in thousands of dollars)
<S> <C> <C>
Operating activities:
Net income $ 9,649 $ 3,416
Extraordinary items 1,803 2,351
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization 12,355 15,810
Deferred income taxes 1,379 (410)
Non-cash interest expense 2,024 4,101
Minority interest in subsidiaries 1,545 628
Preferred dividend requirement of subsidiary 645 1,236
Deemed dividend on preferred stock conversion 1,639 --
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable (28,962) (30,594)
Inventories (17,078) (2,986)
Accounts payable 2,518 (10,747)
Other current assets and liabilities 9,791 (2,131)
Accrued restructuring charges (10,879) (907)
Other non-current assets and liabilities, net 6,396 18,713
--------- ---------
Net cash used in operating activities (7,175) (1,520)
Investing activities:
Acquisitions, net of cash acquired (59,581) --
Purchase of property and equipment (15,039) (29,065)
Investment in affiliates (4,326) --
--------- ---------
Net cash used in investing activities (78,946) (29,065)
Financing activities:
Proceeds from issuances of long-term debt 145,000 140,000
Payments on long-term debt (153,500) (112,669)
Initial public offering of common stock 71,944 --
Other financing activities 22,951 3,258
--------- ---------
Net cash provided by financing activities 86,395 30,589
Effect of exchange rate changes on cash (1,197) 86
--------- ---------
Net increase (decrease) in cash and cash equivalents (923) 90
Cash and cash equivalents at beginning of period 10,050 3,406
--------- ---------
Cash and cash equivalents at end of period $ 9,127 $ 3,496
========= =========
</TABLE>
See notes to condensed consolidated financial statements
4
<PAGE>
DELCO REMY INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands of dollars)
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three- and nine-month periods ended
April 30, 1998 are not necessarily indicative of the results that may be
expected for the full fiscal year. The balance sheet at July 31, 1997 has been
derived from the audited financial statements at that date but does not include
all of the information and footnotes required by generally accepted accounting
principles for complete financial statements. For further information, refer to
the consolidated financial statements and footnotes thereto for the year ended
July 31, 1997.
2. Inventories
Inventories consist of the following:
-----------------------------------------
April 30, July 31,
1998 1997
-----------------------------------------
Raw material $ 85,503 $ 84,583
Work-in-process 35,073 20,168
Finished goods 75,078 59,666
-------- --------
Total $195,654 $164,417
=========================================
3. Offerings
On December 22, 1997, the Company issued 4,000,000 shares of Class A Common
Stock in an initial public offering at $12.00 per share. Also, on January 16,
1998, the Company issued an additional 600,000 shares of Class A Common Stock at
$12.00 per share as a result of the underwriters' exercise of their
over-allotment option. In addition, on December 22, 1997, the Company issued
$145,000 of Senior Notes Due 2007 (the Senior Notes). Net proceeds to the
Company from such Offerings, after deduction of associated expenses, were
approximately $192,700.
On January 29, 1998, the Company consummated the exchange of its unregistered 10
5/8% Senior Subordinated Notes Due 2006 with registered debt having the same
terms. There was no cash impact from this exchange.
5
<PAGE>
4. Acquisitions
On December 22, 1997, the Company acquired all of the capital stock of
Ballantrae Corporation ("Ballantrae") for $53,900, including assumed debt, a
working capital adjustment and fees and expenses. Ballantrae operates through
two subsidiaries: Tractech, a leading producer of traction control systems for
heavy duty original equipment manufacturers and the aftermarket; and Kraftube,
Inc., a tubing assembly business which sells products to compressor
manufacturers for commercial air conditioners and refrigeration equipment. The
Company exchanged shares of its common stock with a value of approximately
$23,000 for the equity of Ballantrae and repaid approximately $30,000 of
Ballantrae's debt. The acquisition was treated as a purchase for accounting
purposes and resulted in goodwill of $24,495 which is being amortized over 35
years.
The unaudited pro forma consolidated results of operations for the nine months
ended April 30, 1998 and 1997, assuming the acquisition had been consummated on
the first day of each such period, are as follows:
- --------------------------------------------------------------------------------
Nine Months Ended Nine Months Ended
April 30, 1998 April 30, 1997
- --------------------------------------------------------------------------------
Revenues $634,216 $587,700
Income from continuing operations 14,810 12,894
Net income 13,007 10,023
- --------------------------------------------------------------------------------
The pro forma consolidated financial information does not purport to present
what the Company's consolidated results of operations would actually have been
if the acquisition had occurred on the first day of the periods presented and is
not intended to project future results of operations.
On March 5, 1998, the Company acquired Atlantic Reman Limited which is a
Canadian Ford Authorized Remanufacturer for the Maritime Provinces in Canada. It
remanufactures and distributes engines, starters, alternators and water pumps to
Ford dealers as well as General Motors and Chrysler dealers in Canada. Pro forma
consolidated results are not presented for this acquisition because the effect
on the Company is not material.
The Company also acquired the starter and alternator operations of Lucas Varity
in March, 1998. Located in England, the Lucas line of remanufactured starters
and alternators is the market leader in the U.K. independent aftermarket. Pro
forma consolidated results are not presented for this acquisition because the
effect on the Company is not material.
In addition, in March, 1998, the Company acquired 37% of Sahney Paris Rohne
Ltd., an Indian remanufacturer of starters and alternators who sells principally
to the Indian market. Pro forma consolidated results are not presented for this
acquisition because the effect on the Company is not material.
5. Recapitalization
In connection with the above-mentioned offerings and the acquisition of
Ballantrae, the Company completed several related transactions to restructure
its outstanding debt and preferred stock (the Recapitalization). Significant
components of the Recapitalization, together with the applicable accounting
effects were as follows:
6
<PAGE>
o The payment of the World Note: The early extinguishment of the World
Note resulted in a write-off of the unamortized debt issuance costs of
$1,803, net of income taxes, which was accounted for as an
extraordinary loss.
o The payment in full of the GM Acquisition Note.
o The exchange of the Junior Subordinated Notes for 2,358,490 shares of
Class A Common Stock.
o The conversion of the outstanding shares of 8% preferred stock of a
subsidiary into an 8% subordinated debenture of a subsidiary. This
transaction resulted in deemed dividend on preferred stock conversion
of $1,639 as shown on the face of the Condensed Consolidated Statement
of Operations.
o The payment in full of $11,800 principal amount of subordinated notes
payable to certain former stockholders of acquired subsidiaries.
o The amendment of the senior credit facility in connection with the
consummation of the Offerings.
o Payment of certain of the Ballantrae debt assumed in the Acquisition.
6. Share and Per Share Information
On December 17, 1997, the Company authorized a 16.8-to-one stock split which
occurred on December 19, 1997. All share and per share amounts have been
adjusted to reflect this split. The basic and diluted earnings per share are
determined using the numerator and denominator calculated as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
Three-Month Period Nine-Month Period
Ended April 30, Ended April 30,
- -----------------------------------------------------------------------------------------------------------------
1998 1997 1998 1997
-------------------------------------------
<S> <C> <C> <C> <C>
Numerator:
Income from continuing operations $ 5,927 $ 2,541 $11,452 $ 6,287
Loss from operations of discontinued businesses -- 194 -- 520
Extraordinary items -- -- 1,803 2,351
-------------------------------------------
Numerator for basic and diluted earnings per share $ 5,927 $ 2,347 $ 9,649 $ 3,416
Denominator:
Denominator for basic earnings per share (weighted 23,463 14,279 16,339 14,273
average shares)
Effect of dilutive securities:
Warrants 1,680 1,680 1,680 1,680
Employee stock options 62 -- 24 --
Stock purchase plan 840 1,004 831 944
-------------------------------------------
Denominator for diluted earnings per share
(weighted average shares and assumed conversions) 26,045 16,963 18,874 16,897
=================================================================================================================
</TABLE>
7
<PAGE>
7. Financial Information for Subsidiary Guarantors and Non-Guarantor
Subsidiaries
The Company conducts a significant portion of its business through subsidiaries.
The Senior Notes and the Senior Subordinated Notes are fully and unconditionally
guaranteed, jointly and severally, by certain direct and indirect subsidiaries
(the Subsidiary Guarantors). The Company owns directly or indirectly 100% of the
voting securities of each of 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 April
30, 1998 and July 31, 1997 and for the three- and nine-month periods ended April
30, 1998 and 1997.
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 each of the 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. Autovill RT Ltd.
Remy International, Inc. Power Investments Canada Ltd.
Reman Holdings, Inc. Remy UK Limited
Nabco, Inc. Delco Remy International (Europe) GmbH
The A & B Group, Inc. Remy India Holdings, Inc.
A & B Enterprises, Inc. Remy Korea Holdings, Inc.
Dalex, Inc. 681287 Alberta Ltd.
A & B Cores, Inc. World Wide Automotive Distributors, Inc.
R & L Tool Company, Inc. Autovill Holdings, Inc.
MCA, Inc. of Mississippi Tractech (Ireland) Ltd.
Power Investments, Inc. Kraftube, Inc.
Franklin Power Products, Inc. Delco Remy U.K. Ltd.
International Fuel Systems, Inc. Central Precision - Atlantic Reman Limited
Marine Drive Systems, Inc.
Marine Corporation of America
Powrbilt Products, Inc.
World Wide Automotive, Inc.
Ballantrae Corporation
Tractech Inc.
- --------------------------------------------------------------------------------
8
<PAGE>
Delco Remy International, Inc.
Condensed Consolidated Statement of Operations
For the Three Months Ended April 30, 1998
(in thousands of dollars)
<TABLE>
<CAPTION>
Delco Remy
International,
Inc. Non-
(Parent Subsidiary Guarantor
Company Only) Guarantors Subsidiaries Eliminations Consolidated
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $ -- $220,557 $ 40,372 $(43,846)(a) $217,083
Cost of goods sold -- 182,453 33,742 (43,846)(a) 172,349
-----------------------------------------------------------------------------
Gross profit -- 38,104 6,630 -- 44,734
Selling, engineering, and administrative expenses (706) 22,008 3,159 -- 24,461
-----------------------------------------------------------------------------
Operating income 706 16,096 3,471 -- 20,273
Interest expense (income) 7,154 2,625 (31) -- 9,748
-----------------------------------------------------------------------------
Income (loss) from continuing operations
before income taxes, preferred dividend
requirements of subsidiary, minority
interest and deemed dividend on preferred
stock conversion (6,448) 13,471 3,502 -- 10,525
Minority interest in income of subsidiaries -- 446 78 -- 524
Equity in earnings of subsidiaries 9,285 -- -- (9,285)(b) --
Income tax expense (benefit) (3,090) 6,071 1,093 -- 4,074
-----------------------------------------------------------------------------
Income from continuing operations 5,927 6,954 2,331 (9,285) 5,927
-----------------------------------------------------------------------------
Net income $ 5,927 $ 6,954 $ 2,331 $ (9,285) $ 5,927
=============================================================================
<FN>
- ------------------------------
(a) Elimination of intercompany sales and cost of sales.
(b) Elimination of equity in net income from consolidated subsidiaries.
</FN>
</TABLE>
9
<PAGE>
Delco Remy International, Inc.
Condensed Consolidated Statement of Operations
For the Nine Months Ended April 30, 1998
(in thousands of dollars)
<TABLE>
<CAPTION>
Delco Remy
International,
Inc. Non-
(Parent Subsidiary Guarantor
Company Only) Guarantors Subsidiaries Eliminations Consolidated
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $ -- $ 633,797 $ 94,312 $(108,747)(a) $ 619,362
Cost of goods sold -- 526,630 79,404 (108,747)(a) 497,287
--------------------------------------------------------------------------------
Gross profit -- 107,167 14,908 -- 122,075
Selling, engineering, and administrative expenses 807 57,943 7,877 -- 66,627
--------------------------------------------------------------------------------
Operating income (loss) (807) 49,224 7,031 -- 55,448
Interest expense (income) 17,722 12,617 59 -- 30,398
--------------------------------------------------------------------------------
Income (loss) from continuing operations before
income taxes, preferred dividend
requirements of subsidiary, minority
interest and deemed dividend on preferred
stock conversion (18,529) 36,607 6,972 -- 25,050
Minority interest in income of subsidiaries -- 1,390 155 -- 1,545
Equity in earnings of subsidiaries 20,350 -- -- (20,350)(b) --
Income tax expense (benefit) (7,828) 15,143 2,454 -- 9,769
Deemed dividend on preferred stock conversion -- -- -- 1,639 (c) 1,639
Preferred dividend requirement of subsidiary -- -- -- 645 (c) 645
--------------------------------------------------------------------------------
Income from continuing operations 9,649 20,074 4,363 (22,634) 11,452
Extraordinary item:
Write-off of debt issuance costs
(net of applicable income tax benefit) -- 1,803 -- -- 1,803
================================================================================
Net income $ 9,649 $ 18,271 $ 4,363 $ (22,634) $ 9,649
================================================================================
<FN>
- ----------------------
(a) Elimination of intercompany sales and cost of sales.
(b) Elimination of equity in net income from consolidated subsidiaries.
(c) Recording of preferred dividend requirement of subsidiary and deemed
dividend on preferred stock conversion.
</FN>
</TABLE>
10
<PAGE>
Delco Remy International, Inc.
Condensed Consolidated Statement of Operations
For the Three Months Ended April 30, 1997
(in thousands of dollars)
<TABLE>
<CAPTION>
Delco Remy
International,
Inc. Non-
(Parent Subsidiary Guarantor
Company Only) Guarantors Subsidiaries Eliminations Consolidated
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $ -- $182,398 $ 15,989 $(20,660)(a) $177,727
Cost of goods sold -- 146,594 13,705 (20,660)(a) 139,639
------------------------------------------------------------------------------
Gross profit -- 35,804 2,284 -- 38,088
Selling, engineering, and administrative expenses 1,081 18,867 2,765 -- 22,713
------------------------------------------------------------------------------
Operating income (loss) (1,081) 16,937 (481) -- 15,375
Interest expense 4,705 5,309 110 -- 10,124
------------------------------------------------------------------------------
Income (loss) from continuing operations
before income taxes, preferred dividend
requirements of subsidiary, minority interest (5,786) 11,628 (591) -- 5,251
Minority interest in income (loss) of subsidiaries -- 410 (27) -- 383
Equity in earnings of subsidiaries 5,554 -- -- (5,554)(b) --
Income tax expense (benefit) (2,587) 4,428 76 -- 1,917
Preferred dividend requirement of subsidiary -- -- -- 410 (c) 410
------------------------------------------------------------------------------
Income (loss) from continuing operations 2,355 6,790 (640) (5,964) 2,541
Discontinued operations:
Loss from operations of discontinued businesses
(net of applicable income tax benefit) 8 186 -- -- 194
------------------------------------------------------------------------------
Net income (loss) $ 2,347 $ 6,604 $ (640) $ (5,964) $ 2,347
==============================================================================
<FN>
- --------------------------------
(a) Elimination of intercompany sales and cost of sales.
(b) Elimination of equity in net income (loss) from consolidated subsidiaries.
(c) Recording of preferred dividend requirement of subsidiary.
</FN>
</TABLE>
11
<PAGE>
Delco Remy International, Inc.
Condensed Consolidated Statement of Operations
For the Nine Months Ended April 30, 1997
(in thousands of dollars)
<TABLE>
<CAPTION>
Delco Remy
International,
Inc. Non-
(Parent Subsidiary Guarantor
Company Only) Guarantors Subsidiaries Eliminations Consolidated
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $ -- $522,751 $ 45,089 $(58,123)(a) $509,717
Cost of goods sold -- 423,615 36,189 (58,123)(a) 401,681
----------------------------------------------------------------------
Gross profit -- 99,136 8,900 -- 108,036
Selling, engineering, and administrative expenses 2,556 55,796 7,430 -- 65,782
----------------------------------------------------------------------
Operating income (loss) (2,556) 43,340 1,470 -- 42,254
Interest expense 14,093 14,563 183 -- 28,839
----------------------------------------------------------------------
Income (loss) from continuing operations before
income taxes, preferred dividend
requirements of subsidiary, minority
interest and deemed dividend on preferred
stock conversion (16,649) 28,777 1,287 -- 13,415
Minority interest in income (loss) of subsidiaries -- 655 (27) -- 628
Equity in earnings of subsidiaries 13,753 -- -- (13,753)(b) --
Income tax expense (benefit) (6,564) 11,158 670 -- 5,264
Preferred dividend requirement of subsidiary -- -- -- 1,236 (c) 1,236
----------------------------------------------------------------------
Income from continuing operations 3,668 16,964 644 (14,989) 6,287
Discontinued operations:
Loss from operations of discontinued businesses
(net of applicable income tax benefit) -- 520 -- -- 520
Extraordinary item:
Write-off of debt issuance costs
(net of applicable income tax benefit) 252 2,099 -- -- 2,351
----------------------------------------------------------------------
Net income $ 3,416 $ 14,345 $ 644 $(14,989) $ 3,416
----------------------------------------------------------------------
<FN>
- --------------------
(a) Elimination of intercompany sales and cost of sales.
(b) Elimination of equity in net income from consolidated subsidiaries.
(c) Recording of preferred dividend requirement of subsidiary.
</FN>
</TABLE>
12
<PAGE>
Delco Remy International, Inc.
Condensed Consolidating Balance Sheet
April 30, 1998
(in thousands of dollars)
<TABLE>
<CAPTION>
Delco Remy
International,
Inc. Non-
(Parent Subsidiary Guarantor
Company Only) Guarantors Subsidiaries Eliminations Consolidated
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Assets:
Current assets:
Cash and cash equivalents $ -- $ 177 $ 8,950 $ -- $ 9,127
Trade accounts receivable, net -- 127,770 17,163 -- 144,933
Affiliate accounts receivable 114,524 46,996 7,349 (168,869)(a) --
Other receivables -- 3,921 4,306 -- 8,227
Inventories -- 164,000 31,654 -- 195,654
Deferred income taxes 4,838 16,260 148 -- 21,246
Other current assets -- 6,526 527 -- 7,053
------------------------------------------------------------------------------
Total current assets 119,362 365,650 70,097 (168,869) 386,240
Property and equipment 20 167,505 30,495 -- 198,020
Less accumulated depreciation (13) (50,645) (2,699) -- (53,357)
------------------------------------------------------------------------------
7 116,860 27,796 -- 144,663
Deferred financing costs, net 9,592 1,523 522 -- 11,637
Goodwill, net -- 93,121 16,965 -- 110,086
Net assets held for disposal -- 23,521 -- -- 23,521
Investment in affiliates 256,190 -- -- (245,030)(b)(c) 11,160
Other assets 9,912 (3,164) 1,145 7,893
------------------------------------------------------------------------------
Total assets $ 395,063 $ 597,511 $ 116,525 $(413,899) $ 695,200
==============================================================================
Liabilities and shareholders' equity:
Current liabilities:
Accounts payable $ 130 $ 81,435 $ 12,359 $ -- $ 93,924
Affiliate accounts payable -- 149,734 19,135 (168,869)(a) --
Accrued restructuring charges -- 26,498 -- -- 26,498
Liabilities related to discontinued operations -- 1,909 -- -- 1,909
Other liabilities and accrued expenses (6,708) 49,817 9,685 -- 52,794
Current portion of long-term debt -- 595 -- -- 595
------------------------------------------------------------------------------
Total current liabilities (6,578) 309,988 41,179 (168,869) 175,720
Long-term debt, less current portion 285,000 92,814 648 -- 378,462
Other non-current liabilities 15,007 18,026 -- -- 33,033
Minority interest in subsidiaries -- 7,858 1,441 -- 9,299
Shareholders' equity:
Common stock:
Class A shares 167 -- -- -- 167
Class B shares 77 -- -- -- 77
Paid-in capital 106,216 -- -- -- 106,216
Subsidiary investments -- 154,625 66,504 (221,129)(b) --
Retained earnings (deficit) (2,526) 14,200 9,702 (23,901)(c) (2,525)
Cumulative translation adjustment -- -- (2,949) -- (2,949)
Stock purchase plan (2,300) -- -- -- (2,300)
------------------------------------------------------------------------------
Total shareholders' equity 101,634 168,825 73,257 (245,030) 98,686
------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 395,063 $ 597,511 $ 116,525 $(413,899) $ 695,200
==============================================================================
<FN>
- -----------------------------------------------
(a) Eliminations of intercompany receivables and payables.
(b) Elimination of investments in subsidiaries.
(c) Elimination of investments in subsidiaries' earnings.
</FN>
</TABLE>
13
<PAGE>
Delco Remy International, Inc.
Condensed Consolidating Balance Sheet
July 31, 1997
(in thousands of dollars)
<TABLE>
<CAPTION>
Delco Remy
International,
Inc. Non-
(Parent Subsidiary Guarantor
Company Only) Guarantors Subsidiaries Eliminations Consolidated
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Assets:
Current assets:
Cash and cash equivalents $ -- $ 1,504 $ 8,546 $ -- $ 10,050
Trade accounts receivable -- 99,745 10,439 -- 110,184
Affiliate accounts receivable, net -- 33,409 2 (33,411)(a) --
Other receivables -- 12,494 882 -- 13,376
Inventories -- 145,035 19,382 -- 164,417
Deferred income taxes 4,315 17,159 -- -- 21,474
Other current assets -- 4,163 480 -- 4,643
-------------------------------------------------------------------------------
Total current assets 4,315 313,509 39,731 (33,411) 324,144
Property and equipment 20 133,769 13,433 -- 147,222
Less accumulated depreciation (13) (22,353) (4,492) -- (26,858)
-------------------------------------------------------------------------------
7 111,416 8,941 -- 120,364
Deferred financing costs 5,148 3,655 -- -- 8,803
Goodwill, net -- 76,437 10,175 -- 86,612
Net assets held for disposal -- 25,279 -- -- 25,279
Investment in affiliates 171,614 -- -- (168,495)(b)(c) 3,119
Other assets 1,953 (1,463) 1,758 -- 2,248
-------------------------------------------------------------------------------
Total assets $ 183,037 $ 528,833 $ 60,605 $(201,906) $ 570,569
===============================================================================
Liabilities and shareholders' equity:
Current Liabilities:
Accounts payable $ 195 $ 82,585 $ 5,798 $ -- $ 88,578
Affiliate accounts payable 15,684 6,152 11,575 (33,411)(a) --
Accrued restructuring charges -- 37,377 -- -- 37,377
Liabilities related to discontinued operations -- 3,324 -- -- 3,324
Other liabilities and accrued expenses (9,815) 44,141 5,991 -- 40,317
Current portion of long-term debt -- 506 1 -- 507
-------------------------------------------------------------------------------
Total current liabilities 6,064 174,085 23,365 (33,411) 170,103
Long-term debt, less current portion 173,511 189,669 81 -- 363,261
Other non-current liabilities 11,507 11,336 56 -- 22,899
Redeemable convertible preferred stock -- 16,071 -- -- 16,071
Minority interest in subsidiaries -- 6,504 1,528 -- 8,032
Shareholders' equity (deficit):
Common stock:
Class A shares 88 -- -- -- 88
Class B shares 65 -- -- -- 65
Paid-in capital 6,677 -- -- -- 6,677
Subsidiary investments -- 127,665 31,970 (159,635)(b) --
Retained earnings (deficit) (12,174) 3,503 5,357 (8,860)(c) (12,174)
Cumulative translation adjustment -- -- (1,752) -- (1,752)
Stock purchase plan (2,701) -- -- -- (2,701)
-------------------------------------------------------------------------------
Total shareholders' equity (deficit) (8,045) 131,168 35,575 (168,495) (9,797)
-------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 183,037 $ 528,833 $ 60,605 $(201,906) $ 570,569
===============================================================================
<FN>
- ----------------------------
(a) Eliminations of intercompany receivables and payables.
(b) Elimination of investments in subsidiaries.
(c) Elimination of investments in subsidiaries' earnings.
</FN>
</TABLE>
14
<PAGE>
Delco Remy International, Inc.
Condensed Consolidating Statement of Cash Flows
For the Nine Months Ended April 30, 1998
(in thousands of dollars)
<TABLE>
<CAPTION>
Delco Remy
International,
Inc. Non-
(Parent Subsidiary Guarantor
Company Only) Guarantors Subsidiaries Eliminations Consolidated
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating Activities:
Net income $ 9,649 $ 18,271 $ 4,363 $ (22,634) $ 9,649
Extraordinary item -- 1,803 -- -- 1,803
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization -- 11,248 1,107 -- 12,355
Equity in earnings of subsidiaries (20,350) -- -- 20,350 (a) --
Deferred income taxes (4,990) 7,457 (1,088) -- 1,379
Non-cash interest expense 1,705 319 -- -- 2,024
Minority interest in subsidiaries -- 1,390 155 -- 1,545
Preferred dividend requirement of
subsidiary -- -- -- 645 (b) 645
Deemed dividend on preferred
stock conversion -- -- -- 1,639 (b) 1,639
Changes in operating assets and
liabilities, net of acquisitions:
Accounts receivable -- (24,711) (4,251) -- (28,962)
Inventories -- (12,230) (4,848) -- (17,078)
Accounts payable (65) (2,721) 5,304 -- 2,518
Intercompany accounts (130,208) 123,666 6,542 -- --
Other current assets and liabilities 3,082 3,944 2,765 -- 9,791
Accrued restructuring -- (10,879) -- -- (10,879)
Other non-current assets and
liabilities, net (4,924) 11,992 (672) -- 6,396
--------------------------------------------------------------------------
Net cash (used in) provided by operating activities (146,101) 129,549 9,377 -- (7,175)
Investing activities:
Acquisitions, net of cash acquired (58,217) -- (1,364) -- (59,581)
Purchase of property and equipment -- (8,641) (6,398) -- (15,039)
Investments in affiliates (4,326) -- -- -- (4,326)
--------------------------------------------------------------------------
Net cash used in investing activities (62,543) (8,641) (7,762) -- (78,946)
Financing activities:
Proceeds from issurance of long term debt 145,000 -- -- -- 145,000
Payments on long-term debt (8,300) (145,186) (14) -- (153,500)
Proceeds from initial public offering 71,944 -- -- -- 71,944
Other financing activities -- 22,951 -- -- 22,951
--------------------------------------------------------------------------
Net cash provided by (used in) financing activities 208,644 (122,235) (14) -- 86,395
Effect of exhange rate changes on cash -- -- (1,197) -- (1,197)
--------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents -- (1,327) 404 -- (923)
Cash and cash equivalents at beginning of period -- 1,504 8,546 -- 10,050
--------------------------------------------------------------------------
Cash and cash equivalents at end of period $ -- $ 177 $ 8,950 $ -- $ 9,127
==========================================================================
<FN>
- ----------------------------------
(a) Elimination of equity in earnings of subsidiary.
(b) Recording of preferred dividend requirement of subsidiary and deemed
dividend on preferred stock conversion.
</FN>
</TABLE>
15
<PAGE>
Delco Remy International, Inc.
Condensed Consolidating Statement of Cash Flows
For the Nine Months Ended April 30, 1998
(in thousands of dollars)
<TABLE>
<CAPTION>
Delco Remy
International,
Inc. Non-
(Parent Subsidiary Guarantor
Company Only) Guarantors Subsidiaries Eliminations Consolidated
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating Activities:
Net income $ 3,416 $ 14,345 $ 644 $ (14,989) $ 3,416
Extraordinary item 252 2,099 -- -- 2,351
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization -- 15,855 (45) -- 15,810
Equity in earnings of subsidiaries (13,753) -- -- 13,753 (a) --
Deferred income taxes 7,614 (7,065) (959) -- (410)
Non-cash interest expense 1,721 2,380 -- -- 4,101
Minority interest in subsidiaries -- 655 (27) -- 628
Preferred dividend requirement of
subsidiary -- -- -- 1,236 (b) 1,236
Changes in operating assets and
liabilities, net of acquisitions:
Accounts receivable -- (28,582) (2,012) -- (30,594)
Inventories -- (1,194) (1,792) -- (2,986)
Accounts payable (67) (12,567) 1,887 -- (10,747)
Intercompany accounts (103,690) 103,563 127 -- --
Other current assets and liabilities (5,056) 2,884 41 -- (2,131)
Accrued restructuring -- (907) -- -- (907)
Other non-current assets and
liabilities, net (14,505) 30,763 2,455 -- 18,713
----------------------------------------------------------------------------
Net cash provided by (used in) operating activities (124,068) 122,229 319 -- (1,520)
Investing activities:
Purchasing of property and equipment -- (24,566) (4,499) -- (29,065)
----------------------------------------------------------------------------
Net cash used in investing activities -- (24,566) (4,499) -- (29,065)
Financing activities:
Proceeds from issurance of long term debt 140,000 -- -- -- 140,000
Payments on long term debt (16,000) (96,669) -- -- (112,669)
Other financing activities -- 3,170 88 -- 3,258
----------------------------------------------------------------------------
Net cash provided by (used in) financing activities 124,000 (93,499) 88 -- 30,589
Effect of exhange rate changes on cash -- -- 86 -- 86
----------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (68) 4,164 (4,006) -- 90
Cash and cash equivalents at beginning of period 68 1,434 1,904 -- 3,406
----------------------------------------------------------------------------
Cash and cash equivalents at end of period $ -- $ 5,598 $ (2,102) $ -- $ 3,496
============================================================================
<FN>
- ------------------
(a) Elimination of equity in earnings of subsidiary.
(b) Recording of preferred dividend requirement of subsidiary.
</FN>
</TABLE>
16
<PAGE>
ITEM 2
Management's Discussion and Analysis of
Financial Condition and Results of Operations
<TABLE>
<CAPTION>
Results of Operations:
Three Month Period Nine Month Period
Ended April 30 Ended April 30
-------------------------------------- ----------------------------------------
1998 1997 1998 1997
------------------ ------------------- -------------------- -------------------
Amount % Amount % Amount % Amount %
================== =================== ==================== ===================
(in thousands of dollars, except per share amounts )
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $217,083 100.0% $177,727 100.0% $619,362 100.0% $509,717 100.0%
Cost of goods sold 172,349 79.4% 139,639 78.6% 497,287 80.3% 401,681 78.8%
------------------ ------------------- -------------------- -------------------
Gross profit 44,734 20.6% 38,088 21.4% 122,075 19.7% 108,036 21.2%
Selling, engineering, and administrative 24,461 11.3% 22,713 12.8% 66,627 10.8% 65,782 12.9%
------------------ ------------------- -------------------- -------------------
Operating income 20,273 9.3% 15,375 8.7% 55,448 9.0% 42,254 8.3%
Interest expense 9,748 4.5% 10,124 5.7% 30,398 4.9% 28,839 5.7%
Minority interest in income of subsidiaries 524 0.2% 383 0.2% 1,545 0.2% 628 0.1%
Income taxes 4,074 1.9% 1,917 1.1% 9,769 1.6% 5,264 1.0%
Deemed dividend on preferred stock conversion -- -- 1,639 --
Preferred dividend requirement of subsidiary -- 410 0.2% 645 0.1% 1,236 0.2%
------------------ ------------------- -------------------- -------------------
Income from continuing operations 5,927 2.7% 2,541 1.4% 11,452 1.8% 6,287 1.2%
Discontinued operations:
Loss from discontinued businesses
(net of applicable tax benefit) -- 194 0.1% -- 0.0% 520 0.1%
Extraordinary item:
Write-off of debt issuance costs net of tax -- -- 1,803 2,351
------------------ ------------------- -------------------- -------------------
Net income $ 5,927 2.7% $ 2,347 1.3% $ 9,649 1.6% $ 3,416 0.7%
================== =================== ==================== ===================
Adjusted net income
Net income $ 5,927 $ 2,347 $ 9,649 $ 3,416
Non-recurring deemed dividend on preferred
stock conversion (A) -- -- 1,639 --
Loss from discontinued operations -- 194 -- 520
Extraordinary items -- -- 1,803 2,351
------- ------- -------- -------
Adjusted net income $ 5,927 $ 2,541 $ 13,091 $ 6,287
======= ======= ======== =======
Adjusted earnings per share
Adjusted net income $ 0.23 $ 0.10 $ 0.50 $ 0.24
Adjusted weighted shares outstanding (B) 26,087 26,087 26,087 26,087
<FN>
Notes:
(A) Non-recurring, non-cash charge resulting from the offerings.
(B) Adjusted weighted shares outstanding assumes the exercise of all warrants
and all shares outstanding at April 30, 1998 were outstanding for all
periods.
</FN>
</TABLE>
17
<PAGE>
Three Months Ended April 30, 1998 Compared to Three Months Ended April 30, 1997
Net Sales Net sales were $217.1 for the three months ended April 30, 1998,
an increase of $39.4, or 22.2%, from $177.7 for the comparable period of 1997.
Part of the increase resulted from the inclusion of World Wide and Ballantrae in
the amount of $28.3. Additionally a strong market for heavy duty OEM electrical
products as well as automotive OEM demand from General Motors contributed to the
net sales increase.
Gross Profit Gross profit was $44.7 for the three months ended April 30,
1998, an increase of $6.6, or 17.3%, from $38.1 for the same period last year.
The increase was attributable to the inclusion of World Wide Automotive, which
was purchased in May, 1997 and Ballantrae, purchased in December, 1997. If World
Wide and Ballantrae had not been included, the Gross Profit percent would have
been 20.3%, or about a 1.1 percentage point decrease from 21.4% for the
comparable period in 1997. The primary factors contributing to this change were
start-up costs for new focus factories and the reclassification of certain costs
included in SE&A in the prior year but charged to cost of sales in fiscal 1998.
These charges were partially offset by continued strong OEM volume as well as
cost reductions in the focus factories.
Selling, Engineering and Administrative Expenses Selling, engineering and
administrative (SE&A) expenses were $24.5 for the three months ended April 30,
1998, an increase of $1.8, or 7.9%, from $22.7 for the prior year. As a percent
of net sales, SE&A expenses were reduced to 11.3% for the three months ended
April 30, 1998 from 12.8% for the comparable period of 1997. The increase in
SE&A expense was attributable to the addition of World Wide and Ballantrae
offset by the reclassification of certain SE&A expenses to cost of sales as
noted above.
Operating Income Operating income was $20.3 for the three months ended
April 30, 1998, an increase of $4.9 from $15.4 for the comparable period of
1997. As a percentage of net sales, operating income increased to 9.3% for the
three months ended April 30, 1998 from 8.7% for the same period of last year.
The increase in operating income was primarily the result of the inclusion of
World Wide Automotive and Ballantrae in the current period. Operating income as
a percent of net sales, excluding World Wide and Ballantrae was 9.1% for the
three months ended April 30, 1998 compared to 8.7% for the prior year. The
increase was due to the additional volume and cost improvements as discussed
above.
Interest Expense Interest expense for the three months ended April 30, 1998
was $9.7, a decrease of $0.4, or 4.0%, compared to $10.1 for the comparable
period of 1997. The reduction in interest expense is primarily attributable to
the recapitalization of the Company in December 1997. At that time, the Company
raised $51.3 million with an initial public offering of its common stock and
used the funds to repay debt. Concurrently with the initial public offering, the
Company issued $145 million 8 5/8% senior notes to refinance higher interest
rate debt.
Income Taxes Income taxes for the three months ended April 30, 1998 were
$4.1 and $1.9 for the same period of 1997. The Company's effective tax rate
varies between 39% to 40%, based on income levels and other factors involving
the states and countries in which the company does business.
18
<PAGE>
Loss from Discontinued Operations While there was no loss from discontinued
operations in 1998, the Company did incur such a loss of $0.2 for the three
months ended April 30, 1997 relating to the Company's Powder Metal Forge
Business (PMF).
Net Income Net income was $5.9 for the three months ended April 30, 1998,
an increase of $3.6, from the $2.3 reported for the comparable period of 1997.
The increase in net income was principally the result of the inclusion of World
Wide and Ballantrae partially offset by start-up costs at the two new focus
factories.
Nine Months Ended April 30, 1998 Compared to Nine Months Ended April 30, 1997
Net Sales Net sales were $619.4 for the nine months ended April 30, 1998,
an increase of $109.7, or 21.5%, from $509.7 for the same period of 1997. The
increase resulted from the inclusion of World Wide and Ballantrae's net sales of
$63.5. The sales improvement was attributable to the acquisitions of World Wide
and Ballantrae and gains in the Powertrain / Drivetrain operations of the
Company's aftermarket business. Additionally, the Company experienced strong
demand from the heavy duty OEM market and increased GM volume compared to 1997.
Gross Profit Gross profit was $122.1 for the nine months ended April 30,
1998, an increase of $14.1, or 13.1%, from $108.0 for the nine months ended
April 30, 1997. As a percentage of net sales, gross profit was lower by 1.5
percentage points for the nine months ended April 30, 1998 from 21.2% for the
comparable period of 1997. This change was primarily attributable to a shift in
aftermarket sales volume from higher margin heavy duty to lower margin light
duty product lines, in addition to reclassification of certain expenses from
SE&A to overhead and the startup costs associated with the four new focus
factories.
Selling, Engineering and Administrative Expenses SE&A expenses were $66.6
for the nine months ended April 30, 1998, an increase of $0.8, or 1.2%, from
$65.8 for the prior year. As a percentage of net sales, SE&A expenses fell to
10.8% for the nine months ended April 30, 1998 from 12.9% for the comparable
period of 1997. The reduction in expenses occurred principally from the
reclassification of certain expenses to cost of sales, partially offset by the
inclusion of World Wide and Ballantrae in the current period.
Operating Income Operating income was $55.4 for the nine months ended April
30, 1998, an increase of $13.1, or 31.0%, from $42.3 for the same period last
year. The improvement in operating income reflects the acquisition of World Wide
and Ballantrae in the current period, as well as the higher volume and the
impact of the relocation to focus factories discussed above. Operating income as
a percentage of net sales excluding World Wide and Ballantrae was 8.9% for the
nine months ended April 30, 1998, compared to 8.3% in the comparable period of
1997.
Interest Expense Interest expense for the nine months ended April 30, 1998
was $30.4, an increase of $1.6, or 5.6%, compared to $28.8 for the comparable
period of 1997. The increase was primarily due to the additional debt incurred
to finance the acquisitions of World Wide and Ballantrae. The additional debt
was partially offset by the recapitalization initiatives in December, 1997.
Income Taxes Income taxes for the nine months ended April 30, 1998 of $9.8,
and $5.3 for the comparable period of 1997, represent effective tax rates of
39.2% and 39.6%, respectively.
19
<PAGE>
Non-recurring Deemed Dividend on Preferred Stock Conversion. In December
1997, a deemed dividend of a subsidiary arose from the exchange of the
redeemable exchangeable preferred stock of subsidiary for the excess of the fair
value of the 8% Subordinated Debenture over the carrying value of the redeemable
exchangeable preferred stock of subsidiary resulting in a non-recurring charge
of $1.6 for the nine month period ending April 30, 1998.
Loss from Discontinued Operations While there was no loss from discontinued
operations in 1998, the Company did incur such a loss of $0.5 for the same
period of 1997. The loss relates to the Company's PMF business.
Write Off of Debt Issuance Costs In December 1997, certain debt was retired
out of the proceeds from the issuance of the senior notes and the initial public
offering of stock. Unamortized issuance costs, net of income taxes, of $1.8
relating to the retired debt was written off in the nine month period ended
April 30, 1998. In August 1996, certain debt was retired out of the proceeds
from the 10 5/8% senior subordinated notes due 2006. Unamortized issuance costs,
net of income taxes, of $2.4 relating to the retired debt was written off in the
nine month period ended April 30, 1997.
Net Income Net income was $9.6 for the nine months ended April 30, 1998, an
increase of $6.2, from $3.4 for the comparable period of 1997. Adjusted net
income before non-recurring charges was $13.1 for the nine months ended April
30, 1998 compared to $6.3 for the same period last year.
Liquidity and Capital Resources
The Company's liquidity needs include required debt service, working
capital needs and the funding of capital expenditures. The Company anticipates
lower working capital requirements from a reduction in the inventory that was
increased to provide for the relocation to the focus factories as well as the
shut down of the Meridian, Mississippi and Anderson, Indiana OEM facilities.
Interest payments under the Company's indebtedness will result in
significant liquidity requirements for the Company.
Cash interest expense for the nine months ended April 30, 1998 and the nine
months ended April 30, 1997 was $27.1 and $22.3, respectively. Non-cash interest
accrued during the nine months ended April 30, 1998 and the nine months ended
April 30,1997 was $3.3 and $6.5, respectively, or 10.8% and 22.5%, respectively,
of total interest expense. The Company has no significant requirements for
principal payments until the year 2006.
The Company's capital expenditures were $15.0 for the nine months ended
April 30, 1998, a reduction of $14.1 from the $29.1 reported for the same period
last year. The Company has budgeted capital expenditures of approximately $9.0
for the remainder of fiscal year 1998. Planned capital expenditures consist
primarily of production equipment for the Company's new focus factories, cost
reduction and quality initiatives, as well as upgrades in machinery, technology
and environmental compliance.
20
<PAGE>
The Company's principal sources of cash to fund its liquidity needs will be
net cash from operating activities and borrowings under the Senior Credit
Facility. The Senior Credit Facility provides $180.0 of revolving loans. As of
April 30, 1998 there were $48.3 in borrowings outstanding, net of cash, under
the Senior Credit Facility.
The Company's initial public offering of 4.6 million shares of Class A
Common Stock in December 1997 and January 1998 generated net proceeds of $51.3.
The Company also issued 8 5/8% Senior Subordinated Notes with net proceeds of
$141.4 in December 1997. These proceeds were used to pay off debt with higher
interest rates and less favorable terms. On April 30, 1998 the debt to total
capitalization of the Company was 77.8% as compared to 92.5% on April 30, 1997.
The Company believes that cash generated from operations, together with the
amounts available under the Senior Credit Facility, will be adequate to meet its
debt service requirements, capital expenditures and working capital needs for
the foreseeable future, although no assurance can be given in this regard. The
Company's future operating performance and ability to service, extend, or
refinance its indebtedness will be subject to future economic conditions and to
financial, business and other factors that are beyond the Company's control.
Seasonality
The Company's business is moderately seasonal, as its major OEM customers
historically have one- to two-week summer shutdowns of operations during the
fourth fiscal quarter. In addition, the Company typically has shut down its own
operations for one week each July, depending on backlog, scheduled maintenance
and inventory buffers, as well as an additional week during the December
holidays. Consequently, the Company's second and fourth quarter results reflect
the effects of these shutdowns.
Year 2000
The Company has developed a plan to modify the existing information
technology to recognize the year 2000 and has begun converting its critical data
processing systems. The Company currently expect the project to be substantially
complete by early calendar year 1999. The estimated cost of this plan includes
internal costs, but excludes the cost to upgrade and replace systems in the
normal course of business. The Company does not expect this project to have a
material effect on operations.
Effects of Inflation
The Company believes that the relatively moderate inflation over the last
few years has not had a significant impact on the Company's revenues or
profitability and that it has been able to offset the effects of inflation by
increasing prices or by realizing improvements in operating efficiency. The
Company has provisions in many of its contracts which provide for the pass
through of fluctuations in the price of certain raw materials, such as copper
and aluminum.
21
<PAGE>
Foreign Sales
Approximately 20.0% of the Company's net sales is 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.
Forward-Looking Statements
Statements in this Form 10 Q, which are not historical facts, are
forward-looking statements that involve certain risks and uncertainties,
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 detailed in the Company's
other filings with the Securities and Exchange Commission.
22
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
None
Item 2. Changes in Securities.
None
Item 3. Defaults Upon Senior Securities.
None
Item 4. Submission of Matters to a Vote of Security Holders.
None
Item 5. Other Information.
None
Item 6. Exhibits and Reports on Form 8-K.
(a) Reports on Form 8-K. The Company has not filed any reports on Form
8-K during the quarterly period ended April 30, 1998.
23
<PAGE>
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: June 12, 1998 By: /s/ David L. Harbert
David L. Harbert
Executive Vice President and
Chief Financial Officer
Date: June 12, 1998 By: /s/ David E. Stoll
David E. Stoll
Vice President and Controller
Principal Accounting Officer
24
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
condensed consolidated balance sheets and consolidated income statements for
Delco Remy International, Inc. and subsidiaries and is qualified in its entirety
by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> Jul-31-1998
<PERIOD-END> Apr-30-1998
<CASH> 9,127
<SECURITIES> 0
<RECEIVABLES> 148,323
<ALLOWANCES> 3,390
<INVENTORY> 195,654
<CURRENT-ASSETS> 386,240
<PP&E> 198,020
<DEPRECIATION> 53,327
<TOTAL-ASSETS> 695,200
<CURRENT-LIABILITIES> 175,720
<BONDS> 378,462
<COMMON> 244
0
0
<OTHER-SE> 98,442
<TOTAL-LIABILITY-AND-EQUITY> 695,200
<SALES> 619,362
<TOTAL-REVENUES> 619,362
<CGS> 497,287
<TOTAL-COSTS> 497,287
<OTHER-EXPENSES> 66,627
<LOSS-PROVISION> 829
<INTEREST-EXPENSE> 30,398
<INCOME-PRETAX> 25,050
<INCOME-TAX> 9,769
<INCOME-CONTINUING> 11,452
<DISCONTINUED> 0
<EXTRAORDINARY> 1,545
<CHANGES> 0
<NET-INCOME> 9,649
<EPS-PRIMARY> 0.59
<EPS-DILUTED> 0.51
</TABLE>
