<PAGE>
UNITED STATES 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 October 31,1998
----------------
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 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 issuer's classes
of common stock, as of the latest practicable date:
<TABLE>
<CAPTION>
Number of common shares outstanding
Class as of December 4, 1998
- ----------------------------------------------- ------------------------------------------------
<S> <C>
Common Stock - Class A 18,151,656
Common Stock - Class B 6,278,055
</TABLE>
1
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
--------------------
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
DELCO REMY INTERNATIONAL, INC. AND SUBSIDIARIES
(UNAUDITED)
<TABLE>
<CAPTION>
Three-Month Period
Ended October 31
------------------------------------------
1998 1997
----------------- --------------------
(in thousands of dollars,
except per share amounts)
<S> <C> <C>
Net sales $ 232,785 $ 209,020
Cost of goods sold 191,013 170,877
----------------- --------------------
Gross profit 41,772 38,143
Selling, engineering, and administrative expenses 23,224 20,936
----------------- --------------------
Operating income 18,548 17,207
Interest expense 10,403 10,521
----------------- --------------------
Income before income taxes, minority interest
in income of subsidiaries, income from
unconsolidated joint ventures and preferred
dividend requirement of subsidiary 8,145 6,686
Income taxes 3,177 2,674
Minority interests in income of subsidiaries 761 538
Income from unconsolidated joint ventures (1,181) --
Preferred dividend requirement of subsidiary -- 412
----------------- --------------------
Net income $ 5,388 $ 3,062
================= ====================
Basic earnings per common share $ 0.23 $ 0.21
================= ====================
Diluted earnings per common share $ 0.21 $ 0.18
================= ====================
</TABLE>
See notes to condensed consolidated financial statements
2
<PAGE>
CONDENSED CONSOLIDATED BALANCE SHEETS
DELCO REMY INTERNATIONAL, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
OCTOBER 31, JULY 31,
1998 1998
------------------ ------------------
<S> <C> <C>
(In thousands of dollars)
(Unaudited)
ASSETS
----------------
Current Assets:
Cash and cash equivalents $ 8,493 $ 8,113
Trade accounts receivable, net 150,401 126,896
Other receivables 16,792 9,846
Inventories 198,871 198,437
Deferred income taxes 22,198 21,653
Other current assets 6,464 4,685
------------------ ------------------
Total current assets 403,219 369,630
Property and equipment 214,181 208,537
Less accumulated depreciation 54,370 50,568
------------------ ------------------
Property and equipment, net 159,811 157,969
Deferred financing costs 10,513 10,786
Goodwill (less accumulated amortization) 115,283 115,446
Net assets held for disposal 14,578 14,894
Investments in joint ventures 13,655 12,474
Other assets 5,087 3,798
------------------ ------------------
Total assets $ 722,146 $ 684,997
================== ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Accounts payable $ 92,717 $ 85,804
Accrued interest payable 9,589 9,581
Accrued restructuring charges 29,948 35,519
Other liabilities and accrued expenses 32,861 37,318
Current portion of long-term debt 3,386 1,948
------------------ ------------------
Total current liabilities 168,501 170,170
Deferred income taxes 1,769 1,241
Long-term debt, less current portion 423,066 393,806
Post-retirement benefits other than pensions 17,452 16,495
Accrued pension benefits 5,105 4,628
Other noncurrent liabilities 5,992 3,967
Commitments and contingencies
Minority interests in subsidiaries 11,209 10,450
Stockholders' equity:
Common stock:
Class A shares 182 182
Class B shares 63 63
Paid-in capital 106,392 106,392
Retained deficit (10,806) (16,194)
Cumulative translation adjustment (4,804) (4,074)
Stock purchase plan (1,975) (2,129)
------------------ ------------------
Total stockholders' equity 89,052 84,240
------------------ ------------------
Total liabilities and stockholders' equity $ 722,146 $ 684,997
================== ==================
See notes to condensed consolidated financial statements
</TABLE>
3
<PAGE>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
DELCO REMY INTERNATIONAL, INC. AND SUBSIDIARIES
(UNAUDITED)
<TABLE>
<CAPTION>
THREE-MONTH PERIOD
ENDED OCTOBER 31
------------------------------
1998 1997
------------------------------
(in thousands of dollar)
<C> <C>
<S>
OPERATING ACTIVITIES:
Net income $ 5,388 $ 3,062
Adjustments to reconcile net income to net cash flows from operating activities:
Depreciation 4,039 3,564
Amortization 1,399 1,134
Minority interests in income of subsidiaries 761 538
Income from unconsolidated joint ventures (1,181) -
Deferred income taxes (545) 717
Post-retirement benefits other than pensions 957 1,065
Accrued pension benefits 477 730
Non-cash interest expense 339 1,693
Preferred dividend requirement of subsidiary - 412
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable (23,505) (15,398)
Inventories (435) (3,039)
Accounts payable 6,913 8,240
Other current assets and liabilities (13,174) 8,949
Accrued restructuring charges (5,571) 545
Other non-current assets and liabilities, net (360) (797)
------------- --------------
Net cash provided by (used in) operating activities (24,498) 11,415
INVESTING ACTIVITIES:
Purchases of property and equipment (5,946) (5,747)
Investments in joint ventures - (1,608)
------------- --------------
Net cash used in investing activities (5,946) (7,355)
FINANCING ACTIVITIES:
Net borrowings (repayments) under revolving line of credit 30,698 (5,063)
------------- --------------
Net cash provided by (used in) financing activities 30,698 (5,063
Effect of exchange rate changes on cash 126 (421)
------------- --------------
Net increase (decrease) in cash and cash equivalents 380 (1,424)
Cash and cash equivalents at beginning of period 8,113 10,050
------------- --------------
Cash and cash equivalents at end of period
$ 8,493 $ 8,626
============= ==============
</TABLE>
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 adjustments) considered necessary for a fair presentation
have been included. Operating results for the three-month period ended October
31, 1998 are not necessarily indicative of the results that may be expected for
the full fiscal year. The balance sheet at July 31, 1998 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, 1998 in Form 10-K.
2. INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
October 31, JULY 31,
1998 1998
--------------------------------------------------------------
<S> <C> <C>
Raw material $ 92,387 $102,281
Work-in-process 32,730 36,742
Finished goods 73,754 59,414
-------- --------
Total $198,871 $198,437
--------------------------------------------------------------
</TABLE>
3. NEW ACCOUNTING STANDARD
In the first quarter of fiscal 1999, the Company adopted Statement of Financial
Accounting Standards No. 130, Reporting Comprehensive Income. This standard
requires the reporting of comprehensive income in addition to net income from
operations. Comprehensive income includes certain items that historically have
been excluded from the calculation of net income. The Company's other
comprehensive income consists of unrealized gains and losses on the translation
of the assets and liabilities of its foreign operations. Comprehensive income
was $4,658 and $2,641 for the three month periods ending October 31, 1998 and
1997, respectively.
5
<PAGE>
4. SHARE AND PER SHARE INFORMATION
The basic and diluted earnings per common share are determined using the
numerator and denominator calculated as follows:
<TABLE>
<CAPTION>
THREE-MONTH PERIOD
ENDED OCTOBER 31,
1998 1997
-----------------------------
<S> <C> <C>
NUMERATOR:
Net income $ 5,388 $ 3,062
=============================
DENOMINATOR:
Denominator for basic earnings per share (weighted 23,775,061 14,432,213
average shares)
Effect of dilutive securities:
Warrants 1,679,821 1,679,832
Stock purchase plan 445,594 829,135
-----------------------------
Denominator for diluted earnings per share
(weighted average shares and assumed conversions) 25,900,476 16,941,180
=============================
</TABLE>
5. SUBSEQUENT EVENTS
On November 13, 1998, the Company acquired 100% of the stock of Williams
Technologies, Inc. (Williams), a leading remanufacturer of automatic
transmissions and torque converters for automotive and medium and heavy duty
truck applications. Williams' products are sold primarily to OE customers for
warranty replacement. Major customers include Ford, GM, Allison, Nissan,
Hyundai, and Mazda.
On November 13, 1998, the Company amended its Senior Credit Facility. Pursuant
to the Senior Credit Facility, as amended, revolving loans are available in the
aggregate principal amount of $300 million for general purposes (including
acquisitions). The Company has the option of paying an interest rate of one
bank's prime rate or a LIBOR-based rate. The Senior Credit Facility contains
various covenants which include, among other things: (i) limitations on
additional borrowings and encumbrances; (ii) the maintenance of certain
financial ratios and compliance with certain financial tests and limitations;
(iii) limitations on cash dividends paid; (iv) limitations on investments and
capital expenditures; and (v) limitations on leases and sales of assets. The
Senior Credit Facility is collateralized by a lien on substantially all assets
of the Company and its domestic subsidiaries and by all the capital stock of
such subsidiaries held by the Company or any such other subsidiary. The Senior
Credit Facility terminates on October 31, 2003.
6
<PAGE>
6. FINANCIAL INFORMATION FOR SUBSIDIARY GUARANTORS AND NON-GUARANTOR
SUBSIDIARIES
The Company conducts a significant portion of its business through subsidiaries.
The Senior Notes and the Senior Subordinated Notes are fully and unconditionally
guaranteed, jointly and severally, by certain direct and indirect subsidiaries
(the Subsidiary Guarantors). Certain of the Company's subsidiaries do not
guarantee the Senior Notes or the Senior Subordinated Notes (the Non-Guarantor
Subsidiaries). The claims of creditors of Non-Guarantor Subsidiaries have
priority over the rights of the Company to receive dividends or distributions
from such subsidiaries.
Presented below is condensed consolidating financial information for the
Company, the Subsidiary Guarantors and the Non-Guarantor Subsidiaries at October
31, 1998 and July 31, 1998 and for the three month periods ended October 31,
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 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:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
GUARANTOR SUBSIDIARIES NON-GUARANTOR SUBSIDIARIES
- ------------------------------------------------------------------------------------------
<S> <C>
Delco Remy America, Inc. Autovill RT Ltd.
Ballantrae Corporation Remy UK Limited
Tractech Inc. Delco Remy Mexico, S. de R.L. de C.V.
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. Delco Remy Brazil, Ltda.
A & B Cores, Inc. Publitech, Inc.
R & L Tool Company, Inc. World Wide Automotive Distributors, Inc.
MCA, Inc. of Mississippi Tractech (Ireland) Ltd.
Power Investments, Inc. Kraftube, Inc.
Franklin Power Products, Inc. Power Investments Canada Ltd.
International Fuel Systems, Inc. Alberta Ltd.
Marine Drive Systems, Inc. Central Precision Limited
Marine Corporation of America Western Reman Ltd. (Canada)
Powrbilt Products, Inc. Engine Rebuilders Ltd.
Western Reman, Inc. Reman Transport Ltd.
World Wide Automotive, Inc. Electro Diesel Rebuild
Electro-Rebuild Tunisie S.A.R.L. (Tunisia)
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
</TABLE>
7
<PAGE>
DELCO REMY INTERNATIONAL, INC.
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE QUARTER ENDED OCTOBER 31, 1998
(UNAUDITED)
(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............................................ $ -- $234,940 $55,001 $(57,156)(a) $ 232,785
Cost of goods sold................................... -- 202,974 45,195 (57,156)(a) $ 191,013
--------------- ---------- ------------- ---------- ------------
Gross profit......................................... -- 31,966 9,806 -- 41,772
Selling, engineering, and administrative expenses.... 2,182 16,562 4,480 -- 23,224
--------------- ---------- ------------- ---------- ------------
Operating (loss) income.............................. (2,182) 15,404 5,326 -- 18,548
Interest expense..................................... 7,167 3,219 17 -- 10,403
--------------- ---------- ------------- ---------- ------------
Income (Loss) before income taxes,
minority interest in income of
subsidiaries, income from
unconsolidated joint ventures and
preferred dividend requirement of
subsidiary............................ (9,349) 12,185 5,309 -- 8,145
Income taxes (benefit)............................... (1,706) 3,440 1,443 -- 3,177
Minority interests in income of subsidiaries......... -- 588 173 -- 761
Income from unconsolidated joint ventures............ -- -- (1,181) -- (1,181)
Equity in earnings of subsidiaries................... (13,031) -- -- 13,031 (b) --
--------------- ---------- ------------- ---------- ------------
Net income (loss).................................... $ 5,388 $ 8,157 $ 4,874 $(13,031) $ 5,388
=============== ========== ============= ========== ============
</TABLE>
(a) Elimination of intercompany sales and cost of sales.
(b) Elimination of equity in net income (loss) from consolidated subsidiaries.
8
<PAGE>
DELCO REMY INTERNATIONAL, INC.
CONDENSED CONSOLIDATING BALANCE SHEET
OCTOBER 31, 1998
(UNAUDITED)
(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............................. $ -- $ 986 $ 7,507 $ -- $ 8,493
Trade accounts receivable............................. -- 132,734 17,667 -- 150,401
Other receivables..................................... -- 11,973 4,819 -- 16,792
Inventories........................................... -- 162,715 36,156 -- 198,871
Deferred income taxes................................. 7,848 14,270 80 -- 22,198
Other current assets.................................. -- 5,894 570 -- 6,464
------------- ------------ ----------- ----------- ----------
Total current assets.................................. 7,848 328,572 66,799 -- 403,219
Property and equipment................................ 20 182,974 31,187 -- 214,181
Less accumulated depreciation......................... 20 48,205 6,145 -- 54,370
------------- ------------ ----------- ----------- ----------
Property and equipment, net .......................... -- 134,769 25,042 -- 159,811
Deferred financing costs.............................. 9,171 1,342 -- -- 10,513
Goodwill, net......................................... -- 92,492 22,791 -- 115,283
Net assets held for disposal.......................... -- 14,578 -- -- 14,578
Investment in affiliates.............................. 277,230 -- -- (263,575)(a) 13,655
Other assets.......................................... 3,498 1,121 468 -- 5,087
------------- ------------ ----------- ----------- ----------
Total assets.......................................... $ 297,747 $ 572,874 $ 115,100 $ (263,575) $ 722,146
============= ============ =========== =========== ==========
Liabilities and stockholders' equity (deficit):
Current liabilities:
Accounts payable...................................... $ 946 $ 77,986 $ 13,785 $ -- $ 92,717
Intercompany accounts................................. (91,554) 76,975 14,579 -- --
Accrued interest payable.............................. 8,409 1,180 -- -- 9,589
Accrued restructuring charges......................... -- 29,948 -- -- 29,948
Other liabilities and accrued expenses................ 1,261 26,908 4,692 -- 32,861
Current portion of long term debt..................... -- 1,086 2,300 -- 3,386
------------- ------------ ----------- ----------- ----------
Total current liabilities............................. (80,938) 214,083 35,356 -- 168,501
Deferred income taxes................................. (1,403) 3,749 (577) -- 1,769
Long-term debt, less current portion.................. 285,000 130,011 8,055 -- 423,066
Post-retirement benefits other than pensions.......... -- 17,452 -- -- 17,452
Accrued pension benefit............................... -- 5,105 --- -- 5,105
Other non-current liabilities......................... 1,232 1,320 3,440 -- 5,992
Minority interests in subsidiaries.................... -- 9,236 1,973 -- 11,209
Stockholders' equity:
Common stock:
Class A shares.......................... 182 -- -- -- 182
Class B shares.......................... 63 -- -- -- 63
Paid-in capital....................................... 106,392 -- -- -- 106,392
Subsidiary investment................................. -- 178,851 50,991 (229,842)(a) --
Retained earnings (deficit)........................... (10,806) 12,550 21,183 (33,733)(b) (10,806)
Cumulative translation adjustment..................... -- 517 (5,321) -- (4,804)
Stock purchase plan................................... (1,975) -- -- -- (1,975)
------------- ------------ ----------- ----------- ----------
Total stockholders' equity (deficit).................. 93,856 191,918 66,853 (263,575) 89,052
------------- ------------ ----------- ----------- ----------
Total liabilities and stockholders' equity (deficit) $ 297,747 $ 572,874 $ 115,100 $ (263,575) $ 722,146
============= ============ =========== =========== ==========
</TABLE>
(a) Elimination of investments in subsidiaries.
(b) Elimination of investments in subsidiaries' earnings.
9
<PAGE>
DELCO REMY INTERNATIONAL, INC.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE QUARTER ENDED OCTOBER 31, 1998
(UNAUDITED)
(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 (loss)........................................ $ 5,388 $ 8,157 $ 4,874 $(13,031)(a) $ 5,388
Adjustments to reconcile net
income (loss) to net cash
used in operating activities:
Depreciation -- 3,478 561 -- 4,039
Amortization 288 1,040 71 -- 1,399
Minority interest in income of -- 586 175 -- 761
subsidiaries
Income from unconsolidated joint ventures -- -- (1,181) -- (1,181)
Equity in earnings of subsidiaries............. (13,031) -- -- 13,031 (a) --
Deferred income taxes (1,420) 955 (80) -- (545)
Post-retirement benefits other than pensions... -- 957 -- -- 957
Accrued pension benefits -- 477 -- -- 477
Non-cash interest expense 273 66 -- -- 339
Changes in operating assets and
liabilities, net of acquisitions:
Accounts receivable.................. -- (26,199) 2,694 -- (23,505)
Inventories.......................... -- 2,435 (2,870) -- (435)
Accounts payable..................... 816 6,807 (710) -- 6,913
Intercompany accounts................ 12,268 (1,381) (10,887) -- --
Other current assets and liabilities. (3,205) (7,088) (2,881) -- (13,174)
Accrued restructuring charges........ -- (5,571) -- -- (5,571)
Other non-current assets
and liabilities, net................. (1,377) (7,773) 8,790 -- (360)
----------- ---------- ---------- -------- ---------
Net cash used in operating activities.................... -- (23,054) (1,444) -- (24,498)
INVESTING ACTIVITIES:
Purchase of property and equipment....................... -- (5,001) (945) -- (5,946)
----------- ---------- ---------- -------- ---------
Net cash used in investing activities.................... -- (5,001) (945) -- (5,946)
FINANCING ACTIVITIES:
Net borrowings (repayments) under revolving line of
credit.................................................. -- 28,916 1,782 -- 30,698
----------- ---------- ---------- -------- ---------
Net cash provided by financing activities................ -- 28,916 1,782 -- 30,698
Effect of exchange rate changes on cash.................. -- -- 126 -- 126
----------- ---------- ---------- -------- ---------
Net increase (decrease) in cash and cash equivalents..... -- 861 (481) -- 380
Cash and cash equivalents at beginning of period......... -- 125 7,988 -- 8,113
----------- ---------- ---------- -------- ---------
Cash and cash equivalents at end of period............... $ -- $ 986 $ 7,507 $ -- $ 8,493
=========== ========== ========== ======== =========
</TABLE>
(a) Elimination of equity in earnings of subsidiaries.
10
<PAGE>
DELCO REMY INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED OCTOBER 31, 1997
(UNAUDITED)
(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 $ - $206,031 $25,812 $(22,823)(a) $209,020
Cost of goods sold - 171,872 21,828 (22,823)(a) 170,877
---------------------------------------------------------------------
Gross profit - 34,159 3,984 - 38,143
Selling, engineering, and administrative expenses 860 17,583 2,493 - 20,936
---------------------------------------------------------------------
Operating income (860) 16,576 1,491 - 17,207
Interest expense 4,808 5,701 12 - 10,521
---------------------------------------------------------------------
Income (loss) from continuing operations before income taxes,
preferred dividend requirements of subsidiary, minority
interest and deemed dividend on preferred stock conversion (5,668) 10,875 1,479 - 6,686
Income tax expense (benefit) (2,470) 4,644 500 - 2,674
Minority interests in income of subsidiaries - 507 31 - 538
Equity in earnings of subsidiaries (6,260) - - 6,260 (b) -
Preferred dividend requirement of subsidiary - - - 412 (c) 412
---------------------------------------------------------------------
Net income (loss) $ 3,062 $ 5,724 $ 948 $ (6,672) $3,062
=====================================================================
</TABLE>
- --------------------------------------
(a) Elimination of intercompany sales and cost of sales.
(b) Elimination of equity in net income from consolidated
subsidiaries.
11
<PAGE>
DELCO REMY INTERNATIONAL, INC.
CONDENSED CONSOLIDATING BALANCE SHEET
JULY 31, 1998
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
Delco Remy
International Non-
Inc. (Parent Subsidiary Guarantor
Company Only) Guarantors Subsidiaries Eliminations Consolidated
--------------- -------------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents.................. $ -- $ 125 $7,988 $ -- $8,113
Trade accounts receivable.................. -- 106,543 20,353 -- 126,896
Other receivables.......................... -- 8,161 1,685 -- 9,846
Recoverable income taxes................... -- 1,802 -- -- 1,802
Inventories................................ -- 165,150 33,287 -- 198,437
Deferred income taxes...................... 6,428 15,225 -- -- 21,653
Other current assets....................... -- 2,405 478 -- 2,883
--------------- -------------- ------------- ------------- --------------
Total current assets....................... 6,428 299,411 63,791 -- 369,630
Property and equipment..................... 20 178,146 30,371 -- 208,537
Less accumulated depreciation.............. 20 44,769 5,779 -- 50,568
--------------- -------------- ------------- ------------- --------------
Property and equipment, net -- 133,377 24,592 -- 157,969
Deferred financing costs................... 9,437 1,312 37 -- 10,786
Goodwill, net.............................. -- 93,673 21,773 -- 115,446
Net assets held for disposal............... -- 14,894 -- -- 14,894
Investments in affiliates and joint
ventures.................................. 261,541 -- -- (249,067)(c) 12,474
Other assets............................... 2,523 876 399 -- 3,798
--------------- -------------- ------------- ------------- --------------
Total assets............................... $279,929 $543,543 $110,592 $(249,067) $684,997
=============== ============== ============= ============= ==============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT):
Current liabilities:
Accounts payable........................... $130 $71,180 $14,494 $ -- $85,804
Intercompany accounts...................... (79,839) 82,869 (3,030) -- --
Accrued interest payable................... 9,001 580 -- -- 9,581
Accrued restructuring charges.............. -- 35,519 -- -- 35,519
Other liabilities and accrued expenses..... 2,751 30,505 4,062 -- 37,318
Current portion of long-term debt.......... -- 961 987 -- 1,948
--------------- -------------- ------------- ------------- --------------
Total current liabilities.................. (67,957) 221,614 16,513 -- 170,170
Deferred income taxes...................... (25,431) 23,755 2,917 -- 1,241
Long-term debt, less current portion....... 285,000 101,218 7,588 -- 393,806
Post-retirement benefits other than
pensions.................................. -- 16,495 -- -- 16,495
Accrued pension benefits................... -- 4,628 -- -- 4,628
Other non-current liabilities.............. 3 3,802 162 -- 3,967
Minority interests in subsidiaries........ -- 8,650 1,800 -- 10,450
Stockholders' equity (deficit):
Common stock:
Class A shares............................ 182 -- -- -- 182
Class B shares............................ 63 -- -- -- 63
Paid-in capital............................ 106,392 -- -- -- 106,392
Subsidiary investments..................... -- 158,988 69,377 (228,365)(c) --
Retained earnings (deficit)................ (16,194) 4,393 16,309 (20,702)(d) (16,194)
Cumulative translation adjustment.......... -- -- (4,074) -- (4,074)
Stock purchase plan........................ (2,129) -- -- -- (2,129)
--------------- -------------- ------------- ------------- --------------
Total stockholders' equity (deficit)....... 88,314 163,381 81,612 (249,067) 84,240
--------------- -------------- ------------- ------------- --------------
Total liabilities and stockholders' equity
(deficit)................................. $279,929 $543,543 $110,592 $(249,067) $684,997
=============== ============== ============= ============= ==============
</TABLE>
(c) Elimination of investments in subsidiaries.
(d) Elimination of investments in subsidiaries' earnings.
12
<PAGE>
DELCO REMY INTERNATIONAL, INC.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED OCTOBER 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>
OPERATING ACTIVITIES:
Net income (loss) $ 3,062 $ 5,724 $ 948 $ (6,672) $ 3,062
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation -- 3,207 357 -- 3,564
Amorization 36 1,098 -- -- 1,134
Equity in earnings of (6,260) -- -- 6,260(a) --
subsidiaries
Deferred income taxes 4,376 (3,291) (368) -- 717
Post-retirement benefits other than
pensions -- 1,065 -- -- 1,065
Accrued pension benefits -- 730 -- -- 730
Non-cash interest expense 853 840 -- -- 1,693
Minority interests in subsidiaries -- 507 31 -- 538
Preferred dividend requirement of
subsidiary -- -- -- 412(b) 412
Changes in operating assets and
liabilities, net of acquisitions:
Accounts receivable -- (15,237) (161) -- (15,398)
Inventories -- (424) (2,615) -- (3,039)
Accounts payable -- 7,274 966 -- 8,240
Intercompany accounts 4,056 (5,405) 1,349 -- --
Other current assets and liabilities 1,591 8,879 (1,521) -- 8,949
Accrued restructuring -- 545 -- -- 545
Other non-current assets and
liabilities, net (6,106) 4,855 454 -- (797)
-----------------------------------------------------------------------------
Net cash provided by (used in) by operating activities 1,608 10,367 (560) -- 11,415
INVESTING ACTIVITIES:
Purchase of property and equipment -- (4,347) (1,400) -- (5,747)
Investments in joint ventures (1,608) -- -- -- (1,608)
-----------------------------------------------------------------------------
Net cash used in investing activities (1,608) (4,347) (1,400) -- (7,355)
FINANCING ACTIVITIES:
Other financing activities -- (5,063) -- -- (5,063)
-----------------------------------------------------------------------------
Net cash used in financing activities -- (5,063) -- -- (5,063)
Effect of exhange rate changes on cash -- -- (421) -- (421)
-----------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents -- 957 (2,381) -- (1,424)
Cash and cash equivalents at beginning of period -- 1,504 8,546 -- 10,050
-----------------------------------------------------------------------------
Cash and cash equivalents at end of period $ -- $ 2,461 $ 6,165 $ -- $ 8,626
=============================================================================
- -------
</TABLE>
(a) Elimination of equity in earnings of subsidiaries.
(b) Recording of preferred dividend requirement of subsidiary and deemed
dividend on preferred stock conversion.
13
<PAGE>
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
<TABLE>
<CAPTION>
THREE MONTH PERIOD
ENDED OCTOBER 31,
-----------------------------------------------------------
1998 1997
---------------------------- ---------------------------
(Thousands of Dollars) AMOUNT % AMOUNT %
---------------------------- ---------------------------
<S> <C> <C> <C> <C>
Net Sales $232,785 100.0% $209,020 100.0%
Cost of Sales 191,013 82.1% 170,877 81.8%
------------- ----------- -------------- ----------
Gross Profit 41,772 17.9% 38,143 18.2%
Selling, Engineering, and Administrative 23,224 10.0% 20,936 10.0%
------------- ----------- -------------- ----------
Operating Income 18,548 8.0% 17,207 8.2%
Interest Expense 10,403 4.5% 10,521 5.0%
Provision for Income Taxes 3,177 1.4% 2,674 1.3%
Minority Interest 761 0.3% 538 0.3%
Income from Unconsolidated Joint Ventures (1,181) -0.5% -- 0.0%
Preferred Dividend Requirement of Subsidiary -- 0.0% 412 0.2%
------------- ----------- -------------- ----------
Net Income $ 5,388 2.3% $ 3,062 1.5%
============= =========== ============== ==========
</TABLE>
THREE MONTHS ENDED OCTOBER 31, 1998 COMPARED TO THREE MONTHS ENDED OCTOBER 31,
1997
Net Sales Net sales were $232.8 million for the three months ended
October 31, 1998, an increase of $23.8 million, or 11.4%, from $209.0 million
for the comparable period of 1997. This increase was due to the inclusion of
Ballantrae, which was acquired in the second quarter of fiscal 1998, strong
demand for automotive starters from General Motors in the last two months of the
quarter following a slow ramp up after the strike, higher aftermarket electrical
systems volume and moderate growth in the heavy duty OEM market.
Gross Profit Gross profit was $41.8 million in the first quarter compared
to $38.1 million in the first quarter of fiscal 1998, an increase of $3.6
million, or 9.5%. This growth reflects the addition of Ballantrae and the
volume increases discussed above. As a percentage of net sales, gross profit
was down slightly from 18.2% in fiscal 1998 to 17.9% in fiscal 1999.
The decrease was due to inefficiencies related to the slow ramp up of General
Motors production in August which were mostly offset by the addition of
Ballantrae and other productivity improvements.
14
<PAGE>
Selling, Engineering and Administrative Expenses Selling, engineering, and
administrative (SE&A) expenses of $23.2 million in the first quarter were up
$2.3 million, or 10.9%, from $20.9 million in the comparable period of fiscal
1998. As a percentage of net sales, SE&A expenses were essentially unchanged at
10.0% year over year. The effects of cost control initiatives and higher sales
were largely offset by the addition of Ballantrae.
Operating Income Operating income was $18.5 million for the three months
ended October 31, 1998, an increase of $1.3 million, or 7.8%, from the first
quarter of fiscal 1998. As a percentage of net sales, operating income decreased
slightly to 8.0% from 8.2%. These changes reflect the growth in net sales and
gross profit, partially offset by the growth in SE&A expenses discussed above.
Interest Expense Interest expense of $10.4 million in the first quarter was
down $.1 million, or 1%, compared to $10.5 million in the first quarter last
year. The Company's weighted average interest rate declined year over year as
funds generated from the initial public offering in December 1997 were used to
repay higher interest rate debt. This was largely offset by increased
utilization of the Senior Credit Facility since the refinancing to fund
acquisitions and business growth.
Income Taxes Income taxes for the three months ended October 31, 1998
were $3.2 million compared to $2.7 million in fiscal 1998. The Company's
consolidated effective income tax rate varies between 39% and 40% based on
income levels and other factors involving the states and countries in which the
Company does business.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity needs include required debt service, working
capital needs and the funding of capital expenditures. The Company does not
currently have any significant maturities of long-term debt prior to 2006 other
than the senior credit facility and the 8% Subordinated Debenture.
Cash interest expense for the three months ended October 31, 1998 was
$10.1 million. Non-cash interest accrued during the three months ended October
31, 1998 was $.3 million, or 3% of total interest expense.
Accounts receivable increased $23.5 million due primarily to strong
shipments to GM in the last two months of the quarter.
The Company's capital expenditures were $5.9 million for the three
months ended October 31, 1998. The Company has budgeted capital expenditures of
approximately $16.5 million for the remainder of fiscal year 1999. Planned
capital expenditures consist primarily of production equipment for the Company's
new focus plants. Cost reduction programs account for a significant portion of
planned capital expenditures and include upgrades in machinery technology, new
quality standards and environmental compliance.
The Company's principal sources of cash to fund its liquidity needs
consist of net cash from operating activities and borrowings under the Senior
Credit Facility. As discussed in Note 5 to the Condensed Consolidated Financial
Statements, the Company amended its senior credit facility on November 13, 1998.
As a result of this amendment, revolving loans are now available in the
aggregate principal amount of $300 million. As of November 30, 1998,
approximately $160 million remained available.
15
<PAGE>
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
million. The Company also issued 8 5/8% Senior Subordinated Notes with net
proceeds of $141.4 million in December 1997. These proceeds were used to pay
off debt with higher interest rates and less favorable terms. On October 31,
1998 the debt to total capitalization of the Company was 81% as compared to 95%
on October 31, 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 READINESS DISCLOSURE
The Company has established remediation plans for all major
information technology based systems potentially affected by the Year 2000
issue. Implementation of these plans should be substantially complete by the
middle of calendar year 1999. A description of the specific phases of these
plans and their expected completion dates is provided in the Company's latest
report on Form 10-K.
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.
FOREIGN SALES
A portion of the Company's sales are 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.
16
<PAGE>
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.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
- ------- ---------------------------------
(a) Exhibits
27 Financial Data Schedule (Filed via EDGAR only)
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the quarter
ended October 31, 1998.
17
<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: December 11, 1998 By: /s/ David L. Harbert
________________________________
David L. Harbert
Executive Vice President and
Chief Financial Officer
Date: December 11, 1998 By: /s/ David E. Stoll
________________________________
David E. Stoll
Vice President and Controller
Chief Accounting Officer
18
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENT OF OPERATIONS
FOR DELCO REMY INTERNATIONAL INC. AND SUBSIDIARIES AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-31-1999
<PERIOD-START> AUG-01-1998
<PERIOD-END> OCT-31-1998
<CASH> 8,493
<SECURITIES> 0
<RECEIVABLES> 152,455
<ALLOWANCES> 2,054
<INVENTORY> 198,871
<CURRENT-ASSETS> 403,219
<PP&E> 214,181
<DEPRECIATION> 54,370
<TOTAL-ASSETS> 722,146
<CURRENT-LIABILITIES> 168,501
<BONDS> 423,066
0
0
<COMMON> 245
<OTHER-SE> 88,807
<TOTAL-LIABILITY-AND-EQUITY> 722,146
<SALES> 232,785
<TOTAL-REVENUES> 232,785
<CGS> 191,013
<TOTAL-COSTS> 191,013
<OTHER-EXPENSES> 23,224
<LOSS-PROVISION> 450
<INTEREST-EXPENSE> 10,403
<INCOME-PRETAX> 8,145
<INCOME-TAX> 3,177
<INCOME-CONTINUING> 5,388
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,388
<EPS-PRIMARY> .23
<EPS-DILUTED> .21
</TABLE>
