<PAGE>
As filed with the Securities and Exchange Commission on September 8, 1999.
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): June 25, 1999
DELCO REMY INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Delaware 1-13683 35-1909253
(State or other jurisdiction of (Commission file number) (IRS employer
incorporation) identification
number)
2902 Enterprise Drive
Anderson, Indiana 46013
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (765) 778-6499
Not Applicable
(Former name or former address, if changed since last report)
1
<PAGE>
This report on Form 8-K/A amends the report on Form 8-K dated June 25, 1999 and
filed July 8, 1999. Included in this amendment are Item 2, financial statements
of business acquired (Item 7(a)) and pro forma financial information (Item
7(b)).
Item 2. Acquisition Or Disposition Of Assets
On June 25, 1999, Delco Remy Hungary RT, a majority owned subsidiary of Delco
Remy International, Inc. (the "Company"), purchased 31% of the capital shares of
Remy Korea Ltd. ("Remy Korea") from certain shareholders for approximately
$10,770,000 in cash. The purchase was funded through proceeds from the Company's
Senior Credit Facility. This investment increases the Company's ownership
position in Remy Korea to 81%. During fiscal year 1997, the Company acquired a
50% interest in Remy Korea for approximately $4,800,000. Effective June 25,
1999, the Company accounted for Remy Korea as a consolidated subsidiary. It was
accounted for under the equity method prior to that date.
Remy Korea is a manufacturer of automotive starter motors and parts for the U.S.
original equipment market, as well as customers in Asian markets. The Company
does not currently anticipate any significant changes in the operation of the
business of Remy Korea.
Item 7. Financial Statements, Pro Forma Financial Information And Exhibits
(a) Financial Statements of Business Acquired
The following financial statements and accompanying notes of Remy Korea are
filed with this report:
Independent Auditors' Report Page F-1
Balance Sheets as of December 31, 1998 and 1997 Page F-2
Statements of Income for the Years Ended
December 31, 1998 and 1997 Page F-4
Statements of Appropriations of Unappropriated
Retained Earnings for the Years Ended December 31, 1998 and 1997 Page F-5
Statements of Cash Flows for the Years Ended
December 31, 1998 and 1997 Page F-6
Notes to Financial Statements Page F-8
Independent Auditors' Report Page F-17
Balance Sheet as of December 31, 1996 Page F-18
Statement of Income for the Period September 9, 1996 (inception)
to December 31, 1996 Page F-19
Statement of Appropriations of Unappropriated
Retained Earnings for the Period September 9, 1996 (inception)
to December 31, 1996 Page F-20
2
<PAGE>
Statement of Cash Flows for the Period September 9, 1996 (inception)
to December 31, 1996 Page F-21
Notes to Financial Statements Page F-22
Unaudited Condensed Balance Sheets as of April 30, 1999 and 1998 Page F-25
Unaudited Condensed Statements of Income for the Nine Months
Ended April 30, 1999 and 1998 Page F-26
Unaudited Condensed Statements of Cash Flows for the Nine
Months Ended April 30, 1999 and 1998 Page F-27
Unaudited Notes to Condensed Financial Statements Page F-28
(b) Pro Forma Financial Information
The following unaudited pro forma condensed consolidated financial information
of the Company is filed with this report:
Pro Forma Condensed Consolidated Balance Sheet as of April 30, 1999 Page F-30
Pro Forma Condensed Consolidated Statements of Operations for the
Nine Months Ended April 30, 1999 and the Twelve Months Ended
July 31, 1998 Page F-32
Notes to Pro Forma Condensed Consolidated Financial Information Page F-34
The unaudited pro forma consolidated financial information of the Company,
included in Item 7(b) of this Form 8-K/A, is based on and should be read in
conjunction with the audited financial statements and notes thereto appearing in
the Company's annual report on Form 10-K for the year ended July 31, 1998 and
the unaudited financial statements and notes thereto appearing in the Company's
Form 10-Q for the nine month period ended April 30, 1999. The pro forma
condensed consolidated balance sheet of the Company as of April 30, 1999
reflects the financial position of the Company after giving effect to the
acquisition of Remy Korea and assumes the acquisition took place on April 30,
1999. The pro forma condensed consolidated statements of operations for the
fiscal year ended July 31, 1998 and the nine months ended April 30, 1999 assume
that the acquisition occurred on August 1, 1997.
The unaudited pro forma condensed consolidated financial statements have been
prepared by the Company based upon available information and certain assumptions
that management believes are reasonable in the circumstances. The unaudited pro
forma information presented herein is shown for illustrative purposes only and
is not necessarily indicative of the future financial position or future results
of operations of the Company, or the financial position or results of operations
of the Company that would have actually occurred had the acquisition been in
effect as of the date or for the periods presented. The Company's financial
statements will reflect the acquisition only from June 25, 1999.
3
<PAGE>
(c) Exhibits
23.1 Consent of Young Wha
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 hereunto duly authorized.
DELCO REMY INTERNATIONAL, INC.
------------------------------
(Registrant)
Date: September 8, 1999 By: /s/ David L. Harbert
---------------------
David L. Harbert
Executive Vice President and
Chief Financial Officer
Date: September 8, 1999 By: /s/ David E. Stoll
-------------------
David E. Stoll
Vice President and Controller
Chief Accounting Officer
4
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Stockholders and Board of Directors
Remy Korea, Ltd.
We have audited the accompanying balance sheets of Remy Korea, Ltd. ("the
Company") as of December 31, 1998 and 1997, and the related statements of
income, appropriations of unappropriated retained earnings and cash flows for
the years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion, as
independent auditors, on these financial statements based on our audits. For
this purpose, we conducted our audits in accordance with auditing standards
generally accepted in the Republic of Korea.
As fully described in Note 10, the Company has had transactions with affiliated
companies.
In our opinion, the financial statements referred to above present fairly the
financial position of Remy Korea, Ltd. as of December 31, 1998 and 1997, and the
results of its operations, appropriations of unappropriated retained earnings
and its cash flows for the years then ended in conformity with accounting
principles generally accepted in the Republic of Korea.
The operations of the Company, and those of other companies in the Republic of
Korea have been significantly affected, and will continue to be affected for the
foreseeable future, by the country's unstable economy caused in part by the
currency volatility in the Asia-Pacific region. While the Korean economy has
recently shown signs of improvement, there are still uncertainties that may
affect future operations. The financial statements do not include any
adjustments that might result from those uncertainties.
The accompanying financial statements are not intended to present the financial
position, results of operations and cash flows in accordance with accounting
principles and practices generally accepted in countries and jurisdictions other
than the Republic of Korea. Accordingly, the accompanying financial statements
are not designed for those who are not informed about Korean accounting
principles, procedures and practices. The standards, procedures and practices
utilized in the Republic of Korea to audit such financial statements may differ
from those generally accepted in other countries and jurisdictions.
/s/ Young Wha
February 13, 1999
F-1
<PAGE>
REMY KOREA, LTD.
BALANCE SHEETS
December 31, 1998 and 1997
<TABLE>
<CAPTION>
Assets 1998 1997
- ----------------------------------------------------------------------- -------------------------- -------------------------
<S> <C> <C>
Current assets:
Cash on hand and in banks (Notes 3 and 9) W 6,466,632,571 W 4,582,019,613
Marketable securities - 159,190,000
Accounts receivable - trade, less allowance for doubtful
accounts of W116,500,530 in 1998 and
W38,092,094 in 1997 (Notes 9 and 10) 11,533,552,574 3,771,117,376
Accounts receivable - other (Notes 9 and 10) 1,044,886,402 619,891,139
Accrued interest receivable 133,877,316 52,808,560
Advance payments 322,062,600 13,687,411
Inventories (Notes 4 and 5) 4,871,099,662 622,022,571
Prepaid expenses 47,572,138 1,827,075
-------------------------- -------------------------
Total current assets 24,419,683,263 9,822,563,745
Investments and other assets:
Long-term deposits (Note 3) 600,000,000 500,000,000
Long-term loans 156,800,000 20,000,000
Investment securities 188,317,652 -
Restricted bank deposits (Note 3) 5,500,000 2,500,000
Leasehold key money and other refundable deposits 417,220,200 98,504,000
Deposits for employees' severance indemnities 49,500,000 -
-------------------------- -------------------------
Total investments and other assets 1,417,337,852 621,004,000
Property, plant and equipment (Notes 4, 5 and 10):
Land 2,247,015,100 2,018,149,850
Buildings 4,308,937,152 -
Structures 1,172,165,996 -
Machinery and equipment 14,900,812,648 1,010,611,006
Vehicles and transportation equipment 169,963,713 84,622,730
Tools 522,920,370 -
Furniture and fixtures 866,091,756 36,942,271
Construction in progress 2,310,412,949 5,896,479,938
-------------------------- -------------------------
26,498,319,684 9,046,805,795
Less accumulated depreciation 2,847,462,162 125,125,161
-------------------------- -------------------------
Property, plant and equipment - net 23,650,857,522 8,921,680,634
Intangible assets 35,021,385 38,725,282
-------------------------- -------------------------
Total assets W 49,522,900,022 W 19,403,973,661
========================== =========================
</TABLE>
See accompanying notes.
F-2
<PAGE>
REMY KOREA, LTD.
BALANCE SHEETS (CONT'D)
December 31, 1998 and 1997
<TABLE>
<CAPTION>
Liabilities and Stockholders' Equity 1998 1997
- ------------------------------------------------------------------------ ------------------------- ------------------------
<S> <C> <C>
Current liabilities:
Accounts payable - trade W 8,402,949,573 W 3,512,158,381
Accounts payable - other (Notes 9 and 10) 6,812,355,327 3,739,718,137
Short term borrowings 2,000,000,000 --
Current portion of long-term debt and long-term accounts
payable, net of discount (Notes 6 and 7) 285,776,929 87,850,218
Income taxes payable (Note 11) 2,311,538,497 113,476,010
Advance receipts (Notes 9 and 10) 94,649,028 --
Accrued expenses 249,265,370 47,447,963
Other current liabilities 54,561,227 9,343,760
------------------------- ------------------------
Total current liabilities 20,211,095,951 7,509,994,469
Long-term liabilities:
Long-term debt (Notes 6 and 9) 6,612,500,000 3,072,465,280
Long-term accounts payable, net of
current portion and discount (Notes 7 and 9) 819,830,786 161,472,918
Accrued severance and retirement benefits 94,526,740 --
Prepayment of severance indemnities (6,024,900) --
------------------------- ------------------------
Total long-term liabilities 7,520,832,626 3,233,938,198
------------------------- ------------------------
Total liabilities 27,731,928,577 10,743,932,667
Stockholders' equity:
Common stock, W5,000 par value :
Authorized - 1,600,000 shares
Issued and outstanding -1,600,000 shares 8,000,000,000 8,000,000,000
Retained earnings (Note 8):
Reserve for business rationalization 2,200,000,000 100,000,000
Reserve for enterprise development 9,500,000,000 --
Reserve for business expansion 1,900,000,000 400,000,000
Unappropriated retained earnings 190,971,445 160,040,994
------------------------- ------------------------
Total retained earnings 13,790,971,445 660,040,994
------------------------- ------------------------
Total stockholders' equity 21,790,971,445 8,660,040,994
------------------------- ------------------------
Total liabilities and stockholders' equity W 49,522,900,022 W 19,403,973,661
========================= ========================
</TABLE>
See accompanying notes.
F-3
<PAGE>
REMY KOREA, LTD.
STATEMENTS OF INCOME
Years ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
------------------------- -------------------------
<S> <C> <C>
Sales (Note 10) W 86,896,956,993 W 3,912,480,614
Cost of sales 68,476,615,628 2,890,067,197
------------------------- -------------------------
Gross profit 18,420,341,365 1,022,413,417
Selling and administrative expenses 1,579,165,241 77,724,207
------------------------- -------------------------
Operating income 16,841,176,124 944,689,210
Non-operating income:
Interest income 924,808,145 398,199,510
Realized foreign exchange gains 2,270,711,469 673
Unrealized foreign currency translation gains 115,195,042 219,334,301
Commission 2,796,333 --
Miscellaneous 144,805,385 2,929,940
------------------------- -------------------------
Total non-operating income 3,458,316,374 620,464,424
Non-operating expenses:
Interest expenses 954,166,221 11,872,530
Amortization of deferred charges 1,053,348,843 429,699,654
Unrealized foreign currency translation losses 21,718,696 336,685,017
Realized foreign exchange losses 2,495,036,477 --
Donations 2,388,100 --
Loss on sales of property, plant and equipment 113,254,523 --
Miscellaneous 2,565,603 23,902
------------------------- -------------------------
Total non-operating expenses 4,642,478,463 778,281,103
------------------------- -------------------------
Income before income taxes 15,657,014,035 786,872,531
Provision for income taxes (Note 11) 2,526,083,584 194,941,057
------------------------- -------------------------
Net income W 13,130,930,451 W 591,931,474
========================= =========================
Ordinary income per share and earnings per share (Note 12) W 8,207 W 574
========================= =========================
</TABLE>
See accompanying notes.
F-4
<PAGE>
REMY KOREA, LTD.
STATEMENTS OF APPROPRIATIONS
OF UNAPPROPRIATED RETAINED EARNINGS
Years ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
-------------------------- ------------------------
<S> <C> <C>
Retained earnings before appropriations:
Beginning of year W 160,040,994 W 68,109,520
Net income 13,130,930,451 591,931,474
-------------------------- ------------------------
13,290,971,445 660,040,994
Appropriations :
Reserve for business rationalization (Note 8) 2,100,000,000 100,000,000
Reserve for enterprise development (Note 8) 9,500,000,000 --
Reserve for business expansion 1,500,000,000 400,000,000
-------------------------- ------------------------
Total appropriations 13,100,000,000 500,000,000
-------------------------- ------------------------
Balance of unappropriated retained earnings at the end of year W 190,971,445 W 160,040,994
========================== ========================
</TABLE>
See accompanying notes.
F-5
<PAGE>
REMY KOREA, LTD.
STATEMENTS OF CASH FLOWS
Years ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
-------------------------- -------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income W 13,130,930,451 W 591,931,474
Additions of expenses not involving cash outflows:
Depreciation 2,699,115,399 127,163,333
Amortization of deferred charges 1,053,348,843 429,699,654
Interest expenses (amortization of discount on long-term
accounts payable) 119,049,727 11,872,530
Unrealized foreign currency translation losses 21,718,696 336,032,697
Loss on sales of property, plant and equipment 113,254,523 --
Provision for severance and retirement benefits 85,007,040 --
-------------------------- -------------------------
Sub-total 4,091,494,228 904,768,214
Deductions of revenues not involving cash inflows
Unrealized foreign currency translation gains (114,440,786) (219,334,301)
Interest income (1,060,652) --
-------------------------- -------------------------
Sub-total (115,501,438) (219,334,301)
Changes in assets and liabilities resulting from operations:
Accounts receivable - trade (7,685,120,246) (3,874,387,847)
Accounts receivable - other (426,307,208) (619,891,139)
Accrued interest receivable (81,068,756) 15,091,735
Advance payments (308,375,189) (13,687,411)
Inventories (4,249,077,091) (622,022,571)
Prepaid expenses (45,745,063) (1,827,075)
Prepayment of severance indemnities (6,024,900) --
Accounts payable - trade 4,902,449,356 3,512,158,381
Accounts payable - other 3,072,637,190 3,838,973,692
Income taxes payable 2,198,062,487 113,433,115
Advance receipts 99,709,947 --
Accrued expenses and other current liabilities 244,034,874 56,791,723
-------------------------- -------------------------
Sub-total (2,284,824,599) 2,404,632,603
-------------------------- -------------------------
Net cash provided by operating activities 14,822,098,642 3,681,997,990
Investing activities:
Cash inflows from investing activities
Decrease in long-term deposits 500,000,000 --
Decrease in machinery and equipment 690,000 --
-------------------------- -------------------------
500,690,000 --
</TABLE>
(continued)
F-6
<PAGE>
REMY KOREA, LTD.
STATEMENTS OF CASH FLOWS (CONT'D)
Year ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
-------------------------- -------------------------
<S> <C> <C>
Cash outflows from investing activities:
Increase in marketable securities W 15,425,000 W 157,190,000
Increase in long-term deposits 600,000,000 500,000,000
Increase in long-term loans 136,800,000 20,000,000
Increase in investment securities 12,642,000 --
Increase in restricted deposits 3,000,000 2,500,000
Increase in leasehold key money and other refundable deposits 318,716,200 98,504,000
Increase in deposits for employees' severance indemnities 49,500,000 --
Acquisition of property, plant and equipment 5,549,334,415 1,132,176,007
Expenditures for construction in progress 12,095,433,216 7,914,629,788
Increase in intangible assets 1,265,560 40,763,454
Increase in deferred charges 936,328,865 388,776,944
-------------------------- -------------------------
19,718,445,256 10,254,540,193
-------------------------- -------------------------
Net cash used in investing activities (19,217,755,256) (10,254,540,193)
Financing activities:
Cash inflows from financing activities:
Issue of stocks -- 6,000,000,000
Increase in short-term borrowings 3,000,000,000 --
Increase in other current liabilities 3,000,000 --
Increase in long-term debt 3,972,000,000 2,959,781,800
Increase in long-term accounts payable 812,585,070 237,450,606
-------------------------- -------------------------
7,787,585,070 9,197,232,406
Cash outflows from financing activities:
Increase in deferred charges -- 32,136,710
Decrease in current portion of long-term debt 87,850,218 --
Decrease in short-term borrowings 1,000,000,000 --
Decrease in long-term debt 419,465,280 --
-------------------------- -------------------------
1,507,315,498 32,136,710
-------------------------- -------------------------
Net cash provided by financing activities 6,280,269,572 9,165,095,696
-------------------------- -------------------------
Increase in cash on hand and in banks 1,884,612,958 2,592,553,493
Cash on hand and in banks at beginning of the year 4,582,019,613 1,989,466,120
-------------------------- -------------------------
Cash on hand and in banks at end of the year W 6,466,632,571 W 4,582,019,613
========================== =========================
</TABLE>
See Accompanying Notes.
F-7
<PAGE>
REMY KOREA, LTD.
NOTES TO FINANCIAL STATEMENTS
December 31, 1998 and 1997
1. Organization and business
-------------------------
Remy Korea, Ltd. ("the Company") was incorporated on September 9, 1996 under
the laws of the Republic of Korea to engage in manufacturing, assembling and
selling electric parts for cars. It was organized under a joint venture
agreement between Remy Korea Holdings Inc., a company incorporated in the
United States of America and several domestic investors on a 50/50 basis.
On November 4, 1997, the Company was registered with the Ministry of Finance
and Economy under the Foreign Capital Inducement Law. Under this
registration, profits attributable to the foreign partner are fully
remittable. Further, repatriation of the foreign stockholder's capital
contribution is guaranteed after satisfying certain conditions.
2. Basis of financial statements and summary of significant accounting policies
----------------------------------------------------------------------------
Basis of financial statements - The Company maintains its books of accounts
-----------------------------
and prepares its financial statements in conformity with accounting
principles generally accepted in the Republic of Korea ("Korean GAAP"),
which may differ from accounting principles generally accepted in countries
and jurisdictions other than the Republic of Korea. Accordingly, the
accompanying financial statements are not primarily intended to present the
Company's financial position, results of operations and cash flows for those
who are not informed about Korean GAAP, procedures and practices.
For the convenience of the reader, in preparing the accompanying financial
statements, certain reclassifications, and changes in statement format and
extent of disclosures have been made to the financial statements issued in
the Korean language for domestic statutory purposes. Certain supplementary
information included in the statutory Korean language financial statements,
but not required for a fair presentation of the Company's financial
position, results of operations and cash flows, is not presented in the
accompanying financial statements.
Investment securities - Investment securities, consisting of mandatory
---------------------
government bonds, are stated at acquisition cost.
F-8
<PAGE>
Allowance for doubtful accounts - The Company provides allowance for
-------------------------------
doubtful accounts to cover estimated losses that may arise from
non-collection of its receivables.
Inventories - Inventories are stated at the lower of cost (total average
-----------
cost for finished goods and work in-process, and moving average cost for raw
materials and supplies) or market; materials in transit are stated at cost
by specific identification.
Property, plant and equipment and depreciation - Property, plant and
----------------------------------------------
equipment are stated at cost. Improvements that significantly extend the
life of an asset or add to its productive capacity are capitalized, while
expenditures for maintenance and repairs are charged to current operations
as incurred. Interest expenses and financing charges on borrowings relating
to the construction of property, plant and equipment are capitalized during
the asset construction period. The capitalized interest expenses were
W180,554,645 and W34,268,793 in 1998 and 1997, respectively.
Depreciation is computed by the straight-line method over the following
useful lives of assets as stipulated in the Korean Corporate Income Tax Law.
Useful lives of assets
----------------------
Buildings 40 years
Structures 40
Machinery and equipment 7
Vehicles and transportation equipment 7
Tools 7
Furniture and fixtures 7
Deferred charges and amortization - Expenditures for organization costs,
---------------------------------
pre-operating costs and stock issuance costs are first charged to deferred
charges during the year, and are all written off as amortization of deferred
charges at the end of the year.
Discount of long-term accounts payable to present value - Long-term accounts
-------------------------------------------------------
payable are stated at discounted net present value. The discount is being
amortized as interest expense over the repayment period of the long-term
accounts payable, using the effective interest rate method (see Note 7).
Accrued severance and retirement benefits - In accordance with the Korean
-----------------------------------------
Labor Standards Law and the Company's regulations, employees with at least
one year of service are entitled to severance and retirement benefits upon
termination of their employment, based on the rates of pay in effect at the
time of termination, years of service and certain other factors. Severance
and retirement benefits are calculated based on services performed to and at
rates of pay in effect at year-end. Funding of this liability is not
required by Korean Law. In accordance with the Korean National
F-9
<PAGE>
Pension Law, the Company prepays a portion of its severance and retirement
benefits obligation to the Korean National Pension Corporation (KNPC) at a
certain rate of payroll expense. Such accumulated prepayments amounting to
W6,024,900 as of December 31, 1998 (nil as of December 31, 1997), are
deducted from accrued severance and retirement benefits. In accordance with
the revised Korean National Pension Law, however, such prepayments will no
longer be required effective April 1, 1999.
To obtain tax benefits, the Company has deposited a portion of its severance
and retirement benefits obligation with a life insurance company. Such
deposits are refundable upon demand. However, since refunding the deposits
for purposes other than the payment of benefits would result in a reversal
of the tax benefits, the Company has no intention of seeking a refund except
for the purpose of paying benefits. Accordingly, the deposits are shown in
the balance sheet as non-current under investments and other assets.
Foreign currency transactions - The Company's books and records are
-----------------------------
maintained in Korean won. Transactions conducted in foreign currencies are
recorded in Korean won based on the prevailing rates of exchange at the
dates of the transactions. Accounts with balances denominated in foreign
currencies are restated into Korean won at the year-end mid rates of
W1,207.80 per US$1 as of December 31, 1998 and W1,415.20 per US$1 as of
December 31, 1997. The resulting unrealized foreign currency translation
gains or losses are credited or charged to current operations.
Intangibles - Intangibles are stated at cost, less amortization computed
-----------
under the straight-line method, over the service lives provided by the
Korean Corporation Tax Law:
Years of
service lives
-----------------
Right to use electrical installation 10
Trademarks 5
Income taxes - The Company provides for taxes on income that are currently
------------
payable. In conformity with accounting practices prevailing in the Republic
of Korea, the Company does not provide for deferred income taxes arising
from temporary differences between income before income taxes for accounting
purposes and taxable income for income tax purposes.
Per share amounts - Earnings per share of common stock is calculated by
-----------------
dividing net income by the weighted average number of shares of common stock
outstanding during the year. Ordinary income per share is also required to
be disclosed and is computed by reversing the effect of extraordinary items
(net of effect of income tax), if any.
F-10
<PAGE>
Korean GAAP revisions from 1999 - On December 11, 1998, the Financial
-------------------------------
Supervisory Commission announced certain changes in accounting principles
generally accepted in the Republic of Korea with the intention to revise
Korean GAAP and disclosure rules to meet international practices. The
revised accounting standards will apply to companies (subject to external
audit) for the first fiscal year starting after December 12, 1998. Early
adoption of the revised accounting standards is allowed; partial adoption is
not allowed. The cumulative effect on prior years of the changes in
accounting policies will be charged or credited to opening retained earnings
with disclosure made on the effect of the change. The revisions include
changes in the areas of accounting for foreign currency translation,
intangibles and deferred charges, investments using the equity method,
derivatives, asset impairment, interest capitalization, income taxes, and
disclosure concerning segment information and discontinued operations.
The Company plans to adopt the revised accounting standards from January 1,
1999. The Company is currently evaluating the impact that adoption of the
revised accounting standards will have on its financial position and results
of operations.
3. Cash on hand and in banks and other bank deposits
-------------------------------------------------
At December 31, 1998 and 1997, cash on hand and in banks and other bank
deposits consisted of the following:
<TABLE>
<CAPTION>
1998 1997
-------------------------------- ------------------------------
Interest rate Interest rate
per annum per annum
(%) Amount (%) Amount
-------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Cash on hand and in banks:
Cash on hand - W 860,420 - W 1,039,260
Current account - 1,939,099 - 100,000
Passbook account 1 - 2 79,075,127 1.8 - 6.0 7,566,539
Time deposits 9.3 - 13.3 6,384,757,925 12.7 - 21.0 4,573,313,814
-------------- --------------
W6,466,632,571 W4,582,019,613
============== ==============
Long-term deposits:
Time deposits 12.7 W 600,000,000 19.05 W 500,000,000
============== ==============
Restricted bank deposits required
to maintain checking accounts - W 5,500,000 - W 2,500,000
============== ==============
</TABLE>
F-11
<PAGE>
4. Inventories
-----------
Inventories at December 31, 1998 and 1997 consisted of the following:
1998 1997
------------------- ------------------
Finished goods W 1,416,644,699 W 223,350,030
Raw materials 673,803,451 347,414,249
Work in-process 2,284,194,742 51,258,292
Supplies 483,288,263 --
Material in-transit 13,168,507 --
------------------- ----------------
W 4,871,099,662 W 622,022,571
=================== ================
5. Property, plant and equipment
-----------------------------
At December 31, 1998, a substantial portion of the Company's land, buildings
and machinery and equipment are mortgaged to secure long-term debts (see
Note 6)
At December 31, 1998, buildings, machinery and equipment, and inventories
were insured against fire and other casualty losses up to W27,580,478,648.
At December 31, 1998, the total value of the Company's land as determined by
the Korean government for tax purpose is W1,576,361,900.
6. Short-term borrowings and long-term debt
----------------------------------------
The short-term borrowing at December 31, 1998 is from Korea Exchange Bank,
which bears interest at 12.25% a year.
The long-term debt at December 31, 1998 and 1997 consisted of the following:
<TABLE>
<CAPTION>
Amount
Interest rate ---------------------------------------------
in 1998(%) Maturity 1998 1997
----------- ----------- ---------------------- ---------------------
Korea Exchange Bank
<S> <C> <C> <C> <C>
Long-term facility loan
(US. Dollars denominated) - - W - W 419,465,280
Long-term facility loan 12.5% Dec. 1, 2004 6,225,000,000 2,653,000,000
Shinhan Bank
Long-term facility loan 10% Sept. 30, 2006 300,000,000 -
Long-term general loan 9.25% Sept. 30, 2001 100,000,000 -
---------------------- --------------------
Total 6,625,000,000 3,072,465,280
Current portion (12,500,000) -
---------------------- --------------------
Long-term portion W 6,612,500,000 W 3,072,465,280
====================== ====================
</TABLE>
F-12
<PAGE>
At December 31, 1998, the Company's land, buildings, and machinery and
equipment, to the extent of W11,500,000,000, were mortgaged to Korea
Exchange Bank to secure the short-term borrowings and the long term facility
loan, and Korea Technology Credit Guarantee Fund provided payment guarantee
of W400,000,000 to Shinhan Bank to secure the long term debt.
As of December 31, 1998, the long-term debts are scheduled to be repaid as
follows:
Year Amount
-------------- ----------------
1999 W 12,500,000
2000 1,282,200,000
2001 1,300,700,000
2002 1,308,200,000
2003 and after 2,721,400,000
----------------
W 6,625,000,000
================
7. Long term accounts payable
--------------------------
Under certain agreements for machinery and equipment purchase, inventory
purchase and license purchase, entered into between the Company and Daewoo
Automotive Components, Ltd. on December 5, 1996, the Company has entered
into a detailed agreement for the purchase of manufacturing facilities to
produce certain car parts, for the total amount of W11,865,756,033,
including interest. Under this agreement, W10,444,716,006 was paid as of
December 31, 1998 and the balance, scheduled to be repaid as follows, is
recorded in long-term accounts payable:
Year Amount
------------- -----------------
1999 W 404,449,854
2000 371,656,623
2001 338,863,391
2002 306,070,159
-----------------
1,421,040,027
Discount to present value (327,932,312)
Current portion (273,276,929)
-----------------
W 819,830,786
=================
8. Retained earnings
-----------------
The amount of tax credits claimed in accordance with the Korean Tax
Exemption and Reduction Control Law is required to be appropriated as a
reserve for business rationalization. In accordance with the Korean
Corporate Tax Law, the Company has
F-13
<PAGE>
provided for a reserve for enterprise development to reduce its exposure to
accumulated earnings tax. These reserves may not be utilized for cash
dividends but may only be used to offset a deficit, if any, or be
transferred to capital.
9. Foreign currency denominated assets and liabilities
---------------------------------------------------
Foreign currency denominated assets and liabilities at December 31, 1998 and
1997 consisted of the following:
<TABLE>
<CAPTION>
1998 1997
---------------------------------------- ----------------------------------------
Denominated in Equivalent Denominated in Equivalent
Assets U.S. dollars Korean won U.S. dollars Korean won
- ------------------------- ------------------ -------------------- ------------------ --------------------
<S> <C> <C> <C> <C>
Cash on hand in banks USD 48,793 W 58,931,640 USD 2,160 W 3,056,832
Accounts receivable-trade 5,750,208 6,945,101,223 2,691,640 3,809,209,470
Accounts receivable-other 22,546 27,230,514 - -
------------------ -------------------- ------------------ --------------------
USD 5,821,547 W 7,031,263,377 USD 2,693,800 W 3,812,266,302
================== ==================== ================== ====================
1998 1997
---------------------------------------- ----------------------------------------
Denominated in Equivalent Denominated in Equivalent
Liabilities U.S. dollars Korean won U.S. dollars Korean won
- ------------------------- ------------------ -------------------- ------------------ --------------------
Accounts payable-other USD 140,713 W 169,953,329 USD 463,100 W 655,379,120
Advance receipt 78,365 94,649,028 - -
Long-term debt - - 296,400 419,465,280
------------------ -------------------- ------------------ --------------------
USD 219,078 W 264,602,357 USD 759,500 W 1,074,844,400
================== ==================== ================== ====================
</TABLE>
10. Related party transactions
--------------------------
At December 31, 1998 and 1997 and for the years then ended, the Company's
transactions and related outstanding balances with Delco Remy America Inc.
were as follows:
<TABLE>
<CAPTION>
Amount
------------------------------------------------
1998 1997
---------------------- --------------------
<S> <C> <C>
Accounts receivable-trade W 6,945,101,223* W -
Accounts receivable-other 27,230,514 -
Accounts payable-other 109,568,571 650,284,000
Advance receipt 94,649,028 -
Sales 66,410,596,680* 3,912,480,604
Purchase of machinery and
equipment - 748,769,040
</TABLE>
* Exports to Delco Remy America Inc. are made mainly through Daewoo
Corporation ("Daewoo"). Accordingly, accounts receivable from Daewoo at
December 31, 1998 amounting to W6,844,194,418 and sales to Daewoo in 1998
amounting to W66,153,395,833 (W3,912,480,604 in 1997) comprise the bulk of
these amounts.
F-14
<PAGE>
11. Income taxes
------------
The Company is subject to corporate income tax, including resident surtax,
at the aggregate rates of 17.6% on taxable income up to W 100 million and
30.8% on taxable income exceeding W100 million.
Reconciliation between income before income taxes as per the accompanying
financial statements and taxable income for 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
(Preliminary) (Final)
----------------------- --------------------
<S> <C> <C>
Income before income taxes
per the financial statements W 15,657,014,035 W 786,872,531
Temporary differences:
Unrealized foreign currency translation
loss-net (110,478,325) 110,478,325
Accrued interest receivable-net (81,068,756) 15,091,735
Other 541,168 -
----------------------- --------------------
Sub-total (191,005,913) 125,570,060
Permanent differences 140,000 3,883
----------------------- --------------------
Taxable income W 15,466,148,122 W 912,446,474
----------------------- --------------------
Income tax 4,318,521,474 243,485,012
Tax credit (2,022,081,850) (66,265,852)
Resident tax 229,643,960 17,721,907
----------------------- --------------------
Total provision for income tax W 2,526,083,584 W 194,941,057
======================= ====================
Effective tax rate 16.1% 24.8%
======================= ====================
</TABLE>
12. Per share amounts
-----------------
Earnings per share for the years ended December 31, 1998 and 1997 are
computed as follows:
<TABLE>
<CAPTION>
1998 1997
----------------------- --------------------
<S> <C> <C>
Net income and
ordinary income (*) W 13,130,903,451 W 591,931,474
Weighted average number of shares
outstanding during the year 1,600,000 1,031,781
----------------------- --------------------
Ordinary income per share W 8,207 W 574
======================= ====================
Earnings per share W 8,207 W 574
======================= ====================
</TABLE>
F-15
<PAGE>
(*) Ordinary income is computed by reversing the effect of extraordinary
items (net of effect of income taxes), if any. There were no
extraordinary items in 1998 and 1997.
13. Statements of cash flows
------------------------
Significant transactions which did not involve cash flows are as follows:
<TABLE>
<CAPTION>
1998 1997
----------------------- ----------------------
<S> <C> <C>
Transfer of investment securities
from marketable securities W 174,615,000 W -
Transfer of construction in progress to
appropriate property, plant and
equipment accounts 17,135,604,581 -
Transfer of current portion of
long-term debt 12,500,000 87,850,218
Transfer of current portion of
long-term accounts payable 404,449,854 -
</TABLE>
14. Subsequent event
----------------
Pursuant to a business transfer agreement with Dongjin Electric Co., Ltd.
("Dongjin") dated January 4, 1999, the Company acquired from Dongjin certain
fixed assets and inventories related to manufacturing and supply of car
starters and alternators for the total price of W3,772 million.
15. Korean economy
--------------
Starting in late 1997, the affects of adverse economic conditions in the
Republic of Korea included national liquidity crisis, significant
depreciation of the value of the Korean Won, higher domestic interest rate,
reduced opportunities for refinancing of maturing debts, and a general
reduction in spending across the country. In order to partially address this
situation, the Government of the Republic of Korea decided to seek
assistance from the International Monetary Fund and announced a
comprehensive policy package intended to address the structural weaknesses
in the Korean economy and financial sector. While the reform policies were
intended to alleviate the economic crisis in Korea and improve the economy
over time, the effects included, among others, slower economic growth, a
reduction in availability of credit, volatility in interest rates, an
increased rate of inflation due to the devaluation of the Korean Won, an
increase in the number of bankruptcies of Korean companies and individuals,
and labor unrests resulting from the increase in unemployment. The effect on
the Company's financial position of future developments with respect to the
Korean economy can not presently be determined.
16. Differences Between Korean and United States
Generally Accepted Accounting Principles
----------------------------------------
The Company's accounts are prepared in accordance with accounting principles
generally accepted in the Republic of Korea ("Korean GAAP") which differ
from United States generally accepted accounting principles ("US GAAP"). The
significant differences applicable to the Company are summarized below.
Depreciation of Freehold Property
--------------------------------
Useful lives of property, plant and equipment under Korean GAAP are
different from those of US GAAP as follows:
<TABLE>
<CAPTION>
Useful lives
--------------------------------------------------------------
Description Per Korean GAAP Per US GAAP
---------------------- ------------------------------ --------------------------
<S> <C> <C>
Building 40 40
Structures 40 40
Machinery 7 15
Vehicles 7 3
Tools 7 3
Furniture and fixtures 7 3-5
</TABLE>
Deferred Taxation
-----------------
The Company provides for taxes on income that are currently payable. Under
Korean GAAP, the Company does not provide for deferred income taxes arising
from temporary differences between income before income taxes for
accounting purposes and taxable income for income tax purposes.
Under US GAAP, recognition of deferred tax assets and liabilities created
by temporary differences between the financial statements and tax bases of
assets and liabilities is required. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
year in which those temporary differences are expected to be recovered or
settled. A valuation allowance is provided on deferred tax assets to the
extent that it is more likely than not that such deferred tax assets will
be realized.
The following is a summary of the significant adjustments to income and
shareholders' equity which would be required if US GAAP were to be applied
instead of Korean GAAP.
<TABLE>
<CAPTION>
1997
- ----
Stockholders' Increase 1997 Stockholders'
Equity-beginning (Decrease) Net income Equity-ending
---------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C>
Balance per Company's books W2,068,109,520 W6,000,000,000 W 591,931,474 W 8,660,040,994
Adjustments:
Depreciation - - 73,640,469 73,640,469
Deferred income taxes (10,456,645) - (3,343,475) (13,800,120)
-------------- -------------- --------------- ---------------
Balance per US GAAP W2,057,652,875 W6,000,000,000 W 662,228,468 W 8,719,881,343
============== ============== =============== ===============
1998
- ----
Stockholders' Increase 1998 Stockholders'
Equity-beginning (Decrease) Net income Equity-ending
---------------- -------------- --------------- ---------------
Balance per Company's books W8,660,040,994 W - W13,130,930,451 W21,790,971,445
Adjustments:
Depreciation 73,640,469 - 1,441,676,901 1,515,317,370
Deferred income taxes (13,800,120) - (473,451,397) (487,251,517)
-------------- -------------- --------------- ---------------
Balance per US GAAP W8,719,881,343 W - W14,099,155,955 W22,819,037,298
============== ============== =============== ===============
</TABLE>
F-16
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Stockholders and Board of Directors
Remy Korea, Ltd.
We have audited the accompanying balance sheet of Remy Korea, Ltd. ("the
Company") as of December 31, 1996, and the related statements of income,
appropriations of unappropriated retained earnings and cash flows for the period
from September 9, 1996 to December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion, as independent auditors, on these financial statements based on our
audit. For this purpose, we conducted our audit in accordance with auditing
standards generally accepted in the Republic of Korea.
In our opinion, the financial statements referred to above present fairly the
financial position of Remy Korea, Ltd. as of December 31, 1996, and the results
of its operations, appropriations of unappropriated retained earnings and its
cash flows for the period from September 9, 1996 to December 31, 1996 in
conformity with accounting principles generally accepted in the Republic of
Korea.
Without qualifying our opinion, we draw attention to Note 7 to the financial
statements. Starting in late 1997, the operations of the Company, and those of
similar companies in the Republic of Korea have been significantly affected, and
will continue to be affected for the foreseeable future, by the country's
unstable economy caused in part by the currency volatility in the Asia-Pacific
region. While the Korean economy has recently shown signs of improvement, there
are still significant uncertainties that may affect future operations, the
recoverability of the Company's assets and the ability of the Company to pay its
debts as they mature. The financial statements do not include any adjustments
that might result from those uncertainties.
The accompanying financial statements are not intended to present the financial
position, results of operations and cash flows in accordance with accounting
principles and practices generally accepted in countries and jurisdictions other
than the Republic of Korea. Accordingly, the accompanying financial statements
are not designed for those who are not informed about Korean accounting
principles, procedures and practices. The standards, procedures and practices
utilized in the Republic of Korea to audit such financial statements may differ
from those generally accepted in other countries and jurisdictions.
/s/ Young Wha
August 27, 1999
F-17
<PAGE>
REMY KOREA, LTD.
BALANCE SHEET
December 31, 1996
<TABLE>
<CAPTION>
Assets 1996
-------------------
<S> <C>
Current assets:
Cash on hand and in banks (Note 3) W 1,989,466,120
Marketable securities 2,000,000
Accrued interest receivable (Note 4) 67,900,295
-------------------
Total current assets 2,059,366,415
Organization costs 8,786,000
-------------------
Total assets W 2,068,152,415
===================
Liabilities and Stockholders' Equity
Current liability:
Income taxes payable (Note 4) W 42,895
-------------------
Total liabilities 42,895
-------------------
Stockholders' equity (Note 5):
Common stock, W5,000 par value
Authorized - 1,600,000 shares
Issued and outstanding - 400,000 shares 2,000,000,000
Retained earnings:
Unappropriated retained earnings 68,109,520
-------------------
Total stockholders' equity 2,068,109,520
-------------------
Total liabilities and stockholders' equity W 2,068,152,415
===================
</TABLE>
See accompanying notes.
F-18
<PAGE>
REMY KOREA, LTD.
STATEMENT OF INCOME
For the period from September 9, 1996 (inception) to December 31, 1996
1996
----------------
Sales W
-
Cost of sales
-
----------------
Gross profit
-
Selling and administrative expenses
-
----------------
Operating income
-
Non-operating income:
Interest income 72,056,298
Realized foreign exchange gains 490,907
----------------
Total non-operating income 72,547,205
----------------
Non-operating expenses:
Amortization of organization costs 4,393,000
----------------
Income before income taxes 68,154,205
Provision for income taxes (Note 4) 44,685
----------------
Net income W 68,109,520
==========
Earnings per share (Note 6) W 170
===
See accompanying notes.
F-19
<PAGE>
REMY KOREA, LTD.
STATEMENT OF APPROPRIATIONS OF UNAPPROPRIATED RETAINED EARNINGS
For the period from September 9, 1996 (inception) to December 31, 1996
1996
---------------
Unappropriated retained earnings at inception W -
Net income 68,109,520
---------------
Unappropriated retained earnings at end of period
before appropriations 68,109,520
Appropriations:
-
---------------
Unappropriated retained earnings at end of period to be
carried forward W 68,109,520
==========
See Accompanying Notes.
F-20
<PAGE>
REMY KOREA, LTD.
STATEMENT OF CASH FLOWS
For the period from September 9, 1996 (inception) to December 31, 1996
<TABLE>
<CAPTION>
1996
-----------------
<S> <C>
Cash flows from operating activities:
Net income W 68,109,520
Additions of expenses not involving cash outflows:
Amortization of organization costs 4,393,000
Deductions of revenues not involving cash inflows:
Realized foreign exchange gains (490,907)
Changes in assets and liabilities resulting from operations:
Accrued interest receivable (67,900,295)
Income taxes payable 42,895
-----------------
Sub-total (67,857,400)
-----------------
Net cash provided by operating activities 4,154,213
Investing activities:
Cash inflows from investing activities --
Cash outflows from investing activities:
Increase in marketable securities 2,000,000
Increase in organization costs 13,179,000
-----------------
Net cash used in investing activities (15,179,000)
-----------------
Financing activities:
Cash inflows from financing activities:
Issuance of shares 2,000,490,907
Cash outflows from financing activities --
-----------------
Net cash provided by financing activities 2,000,490,907
-----------------
Increase in cash on hand and in banks 1,989,466,120
Cash on hand and in banks at inception --
-----------------
Cash on hand and in banks at end of the period W 1,989,466,120
=================
</TABLE>
See accompanying notes.
F-21
<PAGE>
REMY KOREA, LTD.
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
1. General
-------
Remy Korea, Ltd. ("the Company") was incorporated on September 9, 1996 under
the laws of the Republic of Korea to engage in manufacturing, assembling and
selling electric parts for cars. The Company was organized under a joint
venture agreement between Remy Korea Holdings Inc., a company incorporated
in the United States of America, and several domestic investors on a
50% / 50% ownership basis.
2. Summary of significant accounting policies
------------------------------------------
Basis of financial statements - The Company maintains its books of accounts
-----------------------------
and prepares its financial statements in conformity with accounting
principles generally accepted in the Republic of Korea ("Korean GAAP"),
which may differ from accounting principles generally accepted in countries
and jurisdictions other than the Republic of Korea. Accordingly, the
accompanying financial statements are not primarily intended to present the
Company's financial position, results of operations and cash flows for those
who are not informed about Korean GAAP, procedures and practices.
Marketable securities - Marketable securities are stated at acquisition
---------------------
cost.
Organization costs and amortization - Organization costs are amortized
-----------------------------------
equally over 3 years starting from the year of establishment.
Foreign currency transactions - The Company's books and records are
-----------------------------
maintained in Korean won. Transactions conducted in foreign currencies are
recorded in Korean won based on the prevailing rates of exchange at the
dates of the transactions. Accounts with balances denominated in foreign
currencies are restated into Korean won at the year-end middle exchange rate
of W844.20 per US$1 as of December 31, 1996. The resulting unrealized
foreign currency translation gains (losses) are credited (charged) to
current operations.
Income taxes - The Company provides for taxes on income that are currently
------------
payable. In conformity with accounting practices prevailing in the Republic
of Korea, the Company does not provide for deferred income taxes arising
from temporary differences between income before income taxes for accounting
purposes and taxable income for income tax purposes.
F-22
<PAGE>
Earnings per share - Earnings per share are calculated by dividing net
------------------
income by the weighted average number of shares outstanding during the year.
3. Cash on hand and in banks
-------------------------
At December 31, 1996, cash on hand and in banks consisted of the following:
Interest rate
Cash on hand and in banks per annum (%) 1996
------------------------- -------------- ----------------
Passbook account 3 W 208,533
Cash Management Account 12 1,989,257,587
----------------
W 1,989,466,120
================
4. Income taxes
------------
The Company is subject to corporate income tax, including resident surtax,
at the rates of 17.6% of taxable income up to W100 million. The Company's
effective tax rate for 1996 was 0.07% mainly because the accrued interest
income of W67,900,295 as of December 31, 1996 was not included as taxable
income for tax purposes.
5. Common stock
------------
The paid-in capital at the time of establishment of the Company was
W2,000,000,000 representing 400,000 common shares.
6. Earnings per share
------------------
Earnings per share for the period from inception to December 31, 1996 are
computed as follows:
1996
----------------
Net income W 68,109,520
Weighted average number of shares
outstanding during this fiscal year 400,000
----------------
Earnings per share W 170
================
F-23
<PAGE>
7. Korean economy
--------------
Starting in late 1997, the affects of adverse economic conditions in the
Republic of Korea included national liquidity crisis, significant
depreciation of the value of the Korean won, higher domestic interest
rates, reduced opportunities for refinancing of maturing debts, and a
general reduction in spending across the country. In order to partially
address this situation, the Government of the Republic of Korea decided to
seek assistance from the International Monetary Fund and announced a
comprehensive policy package intended to address the structural weaknesses
in the Korean economy and financial sector. While the reform policies were
intended to alleviate the economic crisis in Korea and improve the economy
over time, the effects included, among others, slower economic growth, a
reduction in availability of credit, volatility in interest rates, an
increased rate of inflation due to the devaluation of the Korean won, an
increase in the number of bankruptcies of Korean companies and individuals,
and labor unrest resulting from the increase in unemployment. The effect on
the Company's financial position of future developments with respect to the
Korean economy can not presently be determined.
8. Differences Between Korean and United States Generally Accepted Accounting
---------------------------------------------------------------------------
Principles
----------
The company's accounts are prepared in accordance with accounting
principles generally accepted in the Republic of Korea ("Korean GAAP")
which differ from United States generally accepted accounting principles
("US GAAP"). The significant differences applicable to the company are
summarized below.
Depreciation of Freehold Property
---------------------------------
Useful lives of property, plant and equipment under Korean GAAP are
different from those of US GAAP as follows:
<TABLE>
<CAPTION>
Useful lives
---------------------------------
Description Per Korean GAAP Per US GAAP
------------------------------------ ----------------- ------------
<S> <C> <C>
Building 40 40
Structures 40 40
Machinery 7 15
Vehicles 7 3
Tools 7 3
Furniture and fixtures 7 3 - 5
</TABLE>
Deferred Taxation
-----------------
The Company provides for taxes on income that are currently payable. Under
Korean GAAP, the Company does not provide for deferred income taxes
arising from temporary differences between income before income taxes for
accounting purposes and taxable income for income tax purposes.
Under US GAAP, recognition of deferred tax assets and liabilities created
by temporary differences between the financial statements and tax bases of
assets and liabilities is required. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income
in the year in which those temporary differences are expected to be
recovered or settled. A valuation allowance is provided on deferred tax
assets to the extent that it is more likely than not that such deferred
tax assets will not be realized.
The following is a summary of the significant adjustments to income and
shareholders' equity which would be required if US GAAP were to be applied
instead of Korean GAAP.
<TABLE>
<CAPTION>
1996
- ----
Stockholders' Increase 1996 Stockholders'
Equity-beginning (Decrease) Net income Equity-ending
---------------- ---------- ------------ ----------------
<S> <C> <C> <C> <C>
Balance per Company's books W -- W -- W 68,109,520 W 2,068,109,520
Adjustments:
Depreciation -- -- --
Deferred income taxes -- (10,456,645) (10,456,645)
---------------- ---------- ------------ ----------------
W -- W W 57,652,875 W 2,057,652,875
================ ========== ============ ================
</TABLE>
F-24
<PAGE>
REMY KOREA, LTD.
Unaudited Condensed Balance Sheets
April 30, 1999 and 1998
<TABLE>
<CAPTION>
April 30, 1999 April 30, 1998
-------------- --------------
<S> <C> <C>
Assets:
Current Assets:
Cash and cash equivalents W 4,568,000,000 W 2,537,000,000
Trade accounts receivable - trade, net (Note 4) 16,564,000,000 9,847,000,000
Inventories 5,732,000,000 4,866,000,000
Other current assets 1,348,000,000 2,617,000,000
--------------------- ---------------------
Total current assets 28,212,000,000 19,867,000,000
--------------------- ---------------------
Property and equipment 28,974,000,000 20,044,000,000
Less accumulated depreciation 4,108,000,000 417,000,000
--------------------- ---------------------
Property and equipment, net 24,866,000,000 19,627,000,000
--------------------- ---------------------
Other assets 1,229,000,000 783,000,000
--------------------- ---------------------
Total assets W 54,307,000,000 W 40,277,000,000
===================== =====================
Liabilities and Stockholders' Equity:
Current Liabilities:
Accounts payable - trade (Note 4) W 11,504,000,000 W 14,141,000,000
Other liabilities and accrued expenses 4,440,000,000 6,084,000,000
Current debt 9,500,000,000 -
--------------------- ---------------------
Total current liabilities 25,444,000,000 20,225,000,000
Long-term debt, less current portion 1,613,000,000 5,360,000,000
Stockholders' equity:
Common stock 8,000,000,000 8,000,000,000
Retained earnings 19,250,000,000 6,692,000,000
--------------------- ---------------------
Total stockholders' equity 27,250,000,000 14,692,000,000
--------------------- ---------------------
Total liabilities and stockholders' equity W 54,307,000,000 W 40,277,000,000
===================== =====================
</TABLE>
See Notes to Unaudited Condensed Financial Statements.
F-25
<PAGE>
REMY KOREA, LTD.
Unaudited Condensed Statements of Income
For the Nine Month Periods Ending April 30, 1999 and 1998
<TABLE>
<CAPTION>
April 30, 1999 April 30, 1998
-------------- --------------
<S> <C> <C>
Net sales (Note 4) W 79,990,000,000 W 31,580,000,000
Cost of goods sold 62,219,000,000 23,439,000,000
--------------------- ---------------------
Gross profit 17,771,000,000 8,141,000,000
Selling and administrative expenses 4,354,000,000 705,000,000
--------------------- ---------------------
Operating income 13,417,000,000 7,436,000,000
Non-operating income (expense) 968,000,000 (257,000,000)
Interest expense 1,192,000,000 161,000,000
--------------------- ---------------------
Income before income taxes 13,193,000,000 7,018,000,000
Provision for income taxes 1,790,000,000 1,369,000,000
--------------------- ----------------------
Net income W 11,403,000,000 W 5,649,000,000
===================== =====================
Earnings per share W W
7,127 3,531
===================== =====================
</TABLE>
See Notes to Unaudited Condensed Financial Statements.
F-26
<PAGE>
REMY KOREA, LTD.
Unaudited Condensed Statements of Cash Flows
For the Nine Month Periods Ending April 30, 1999 and 1998
<TABLE>
<CAPTION>
April 30, 1999 April 30, 1998
-------------- --------------
<S> <C> <C>
Cash Flows From Operating Activities:
Net income W 11,403,000,000 W 5,649,000,000
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 2,940,000,000 329,000,000
(Increase) decrease in net working capital (6,964,000,000) 236,000,000
Other, net (617,000,000) 242,000,000
--------------------- ---------------------
Net cash provided by operating activities 6,762,000,000 6,456,000,000
--------------------- ---------------------
Cash Flows From Investing Activities:
Capital expenditures (7,870,000,000) (10,948,000,000)
--------------------- ---------------------
Net cash used for investing activities (7,870,000,000) (10,948,000,000)
--------------------- ---------------------
Cash Flows From Financing Activities:
Increase in debt, net 1,888,000,000 2,288,000,000
--------------------- ---------------------
Net cash provided by financing activities 1,888,000,000 2,288,000,000
--------------------- ---------------------
Net Increase (Decrease) in Cash 780,000,000 (2,204,000,000)
Cash at Beginning of Period 3,788,000,000 4,741,000,000
--------------------- ---------------------
Cash at End of Period W 4,568,000,000 W 2,537,000,000
===================== =====================
</TABLE>
See Notes to Unaudited Condensed Financial Statements.
F-27
<PAGE>
REMY KOREA, LTD.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
For the Nine Months Ended April 30, 1999 and 1998
1. Interim Financial Statements
----------------------------
The interim financial statements are unaudited but, in the opinion of
management, reflect all adjustments necessary for a fair presentation of the
results of operations and financial position for such periods. All such
adjustments reflected in the interim financial statements are considered to
be of a normal recurring nature. The results of operations for any interim
period are not necessarily indicative of results for the full year.
Accordingly, these financial statements should be read in conjunction with
the Company's financial statements and notes thereto for the years ended
December 31, 1997 and 1998.
2. Organization and Business
-------------------------
Remy Korea, Ltd. ("the Company") was incorporated on September 9, 1996 under
the laws of the Republic of Korea to engage in manufacturing, assembling and
selling electric parts for cars. It was organized under a joint venture
agreement between Remy Korea Holdings Inc., a company incorporated in the
United States of America and several domestic investors on a 50/50 basis.
On November 4, 1997, the Company was registered with the Ministry of Finance
and Economy under the Foreign Capital Inducement Law. Under this
registration, profits attributable to the foreign partner are fully
remittable. Further, repatriation of the foreign stockholder's capital
contribution is guaranteed after satisfying certain conditions.
3. Basis of Financial Statements
-----------------------------
The Company maintains its books of accounts and prepares its financial
statements in conformity with accounting principles generally accepted in
the Republic of Korea ("Korean GAAP"), which may differ from accounting
principles generally accepted in countries and jurisdictions other than the
Republic of Korea. Accordingly, the accompanying financial statements are
not primarily intended to present the Company's financial position, results
of operations and cash flows for those who are not informed about Korean
GAAP, procedures and practices.
F-28
<PAGE>
For the convenience of the reader, in preparing the accompanying financial
statements, certain reclassifications, and changes in statement format and
extent of disclosures have been made to the financial statements issued in
the Korean language for domestic statutory purposes. Certain supplementary
information included in the statutory Korean language financial statements,
but not required for a fair presentation of the Company's financial
position, results of operations and cash flows, is not presented in the
accompanying financial statements.
4. Related Party Transactions
--------------------------
At April 30, 1999 and 1998 and for the nine months then ended, the Company's
transactions and related outstanding balances with Delco Remy America, Inc.
were as follows:
<TABLE>
<CAPTION>
Amount
------------------------------------------------
1999 1998
------------------ -----------------
<S> <C> <C>
Accounts receivable-trade W 13,024,000,000 W 7,680,000,000
Accounts payable-other 82,000,000 120,000,000
Sales 56,866,000,000 28,116,000,000
</TABLE>
5. Subsequent Event
----------------
On June 25, 1999, certain shareholders of the Company sold an additional 31%
of the total capital shares to Delco Remy Hungary RT, a majority owned
subsidiary of Delco Remy International, Inc. This transaction brings the
total ownership position of Delco Remy International, Inc. to 81%.
F-29
<PAGE>
DELCO REMY INTERNATIONAL, INC. AND SUBSIDIARES
Unaudited Pro Forma Condensed Consolidated Balance Sheet
As of April 30, 1999
<TABLE>
<CAPTION>
Remy (h)
Korea Ltd.
As Of Pro Forma
Historical April 30, 1999 Adjustments Pro Forma
---------- -------------- ----------- ---------
(thousands)
<S> <C> <C> <C> <C>
Assets:
Current Assets:
Cash and cash equivalents $ 7,710 $ 3,871 $ -- $ 11,581
Trade accounts receivable, net 155,465 14,037 (11,037)(m) 158,465
Inventories 224,822 4,858 -- 229,680
Other current assets 38,996 1,142 -- 40,138
--------- -------- --------- ---------
Total current assets 426,993 23,908 (11,037) 439,864
--------- -------- --------- ---------
Property and equipment 237,411 24,554 (99)(i) 261,866
Less accumulated depreciation 63,303 3,481 (3,481)(i) 63,303
--------- -------- --------- ---------
Property and equipment, net 174,108 21,073 3,382 198,563
--------- -------- --------- ---------
Goodwill, less accumulated amortization 135,003 -- -- 135,003
Other assets 47,206 1,042 (11,317)(j) 36,931
--------- -------- --------- ---------
Total assets $ 783,310 $ 46,023 $ (18,972) $ 810,361
========= ======== ========= =========
</TABLE>
F-30
<PAGE>
<TABLE>
<CAPTION>
Remy (h)
Korea Ltd.
As Of Pro Forma
Historical April 30, 1999 Adjustments Pro Forma
---------- -------------- ----------- ---------
(thousands)
<S> <C> <C> <C> <C>
Liabilities and Stockholders' Equity:
Current Liabilities:
Accounts payable $ 111,485 $ 9,749 $ (11,037) (m) $ 110,197
Other liabilities and accrued expenses 74,358 3,763 -- 78,121
Current debt 2,901 8,051 -- 10,952
--------- --------- --------- ---------
Total current liabilities 188,744 21,563 (11,037) 199,270
Long-term debt, less current portion 450,096 1,367 10,770 (k) 462,233
Other noncurrent liabilities 27,447 -- -- 27,447
Minority interests in subsidiaries 12,775 -- 4,388 (l) 17,163
Stockholders' equity:
Common stock:
Class A shares 182 -- -- 182
Class B shares 63 -- -- 63
Paid-in capital 106,052 10,000 (10,000) (m) 106,052
Retained earnings 3,221 14,636 (14,636) (m) 3,221
Cumulative translation adjustment (3,583) (1,543) 1,543 (m) (3,583)
Stock purchase plan (1,687) -- -- (1,687)
--------- --------- --------- ---------
Total stockholders' equity 104,248 23,093 (23,093) 104,248
--------- --------- --------- ---------
Total liabilities and stockholders' equity $ 783,310 $ 46,023 $ (18,972) $ 810,361
========= ========= ========= =========
</TABLE>
See Notes to Unaudited Pro Forma Condensed Consolidated Financial Information.
F-31
<PAGE>
DELCO REMY INTERNATIONAL, INC. AND SUBSIDIARES
Unaudited Pro Forma Condensed Consolidated Statement of Operations
For the Nine Months Ended April 30, 1999
<TABLE>
<CAPTION>
Remy (a)
Korea Ltd.
Nine Months Pro Forma
Ended Pro Forma Combined
Historical April 30, 1999 Adjustments Company
----------- -------------- ------------ ---------
(thousands)
<S> <C> <C> <C> <C>
Net sales $ 703,935 $ 63,533 $ (45,029) (c)$ 722,439
Cost of goods sold 562,932 48,472 (45,029) (c) 566,375
----------- ------------ ------------ ---------
Gross profit 141,003 15,061 -- 156,064
Selling, engineering, and administrative expenses 77,269 3,097 -- 80,366
----------- ------------ ------------ ---------
Operating income 63,734 11,964 -- 75,698
Non-operating income -- 439 -- 439
Interest expense 34,363 952 642 (d) 35,957
----------- ------------ ------------ ---------
Income (loss) before income taxes, minority interest
in income of subsidiaries and income from
unconsolidated joint ventures 29,371 11,451 (642) 40,180
Income taxes 11,456 1,401 (250) (e) 12,607
Minority interest in income of subsidiaries (2,328) -- (1,909) (f) (4,237)
Income from unconsolidated joint ventures 3,828 -- (3,828) (g) --
----------- ------------- ------------ --------
Net income (loss) $ 19,415 $ 10,050 $ (6,129) $ 23,336
=========== ============= ============ ========
</TABLE>
See Notes to Unaudited Pro Forma Condensed Consolidated Financial Information.
F-32
<PAGE>
DELCO REMY INTERNATIONAL, INC. AND SUBSIDIARES
Unaudited Pro Forma Condensed Consolidated Statement of Operations
For the Year Ended July 31, 1998
<TABLE>
<CAPTION>
Remy (b)
Korea Ltd.
Twelve Months Pro Forma
Ended Pro Forma Combined
Historical July 31, 1998 Adjustments Company
----------- ------------- ----------- ---------
(thousands)
<S> <C> <C> <C> <C>
Net sales $ 815,313 $ 31,893 $ (25,179)(c) $ 822,027
Cost of goods sold 657,862 23,798 (25,179)(c) 656,481
--------- --------- --------- ----------
Gross profit 157,451 8,095 -- 165,546
Selling, engineering, and administrative expenses 90,351 1,636 -- 91,987
Restructuring charges 26,515 -- -- 26,515
--------- --------- --------- ----------
Operating income 40,585 6,459 -- 47,044
Non-operating income (expense) (428) 601 173
Interest expense 40,291 238 642(d) 41,171
--------- --------- --------- ----------
Income (loss) before income taxes, minority
interest in income of subsidiaries, income
from unconsolidated joint ventures, preferred
dividend requirement & deemed dividend (134) 6,822 (642) 6,046
Income taxes (benefit) (52) 1,347 (250)(e) 1,045
Minority interest in income of subsidiaries (2,389) -- (1,040)(f) (3,429)
Income from unconsolidated joint ventures 2,568 -- (2,660)(g) (92)
Preferred dividend requirement of subsidiary (645) -- -- (645)
Deemed dividend on preferred stock conversion (1,639) -- -- (1,639)
--------- --------- --------- ---------
Income (loss) before extraordinary item $ (2,187) $ 5,475 $ (4,092) $ (804)
========= ========= ========= =========
</TABLE>
See Notes to Unaudited Pro Forma Condensed Consolidated Financial Information.
F-33
<PAGE>
DELCO REMY INTERNATIONAL, INC. AND SUBSIDIARIES
Notes to Unaudited Pro Forma Condensed Consolidated Financial Information
The following adjustments give effect to the acquisition of Remy Korea as of the
dates indicated under Item 7(b). The acquisition is accounted for by the
purchase method. Accordingly, the total purchase price is allocated to tangible
and intangible assets and liabilities based upon the Company's estimate of their
respective fair values at the date of acquisition.
(a) To reflect the historical results of Remy Korea for the nine month period
ended April 30, 1999.
(b) To reflect the historical results of Remy Korea for the twelve month period
ended July 31, 1998.
(c) To eliminate intercompany sales and cost of sales between Remy Korea and the
Company.
(d) To reflect interest expense associated with debt incurred to finance the
acquisition.
(e) To reflect the income tax effect of the pro forma adjustments at the
Company's consolidated effective rate.
(f) To record the minority shareholders' interest in the earnings of Remy Korea.
(g) To eliminate the unconsolidated earnings of Remy Korea reflected in the
historical financial statements of the Company.
(h) To reflect the balance sheet of Remy Korea at April 30, 1999.
(i) To restate the historical assets of Remy Korea to their estimated fair
value.
(j) To eliminate the Company's unconsolidated investment in the Remy Korea joint
venture.
(k) To reflect the debt incurred by the Company to finance the acquisition.
(l) To record the minority shareholders' investment in Remy Korea.
(m) To eliminate the equity and intercompany receivables, payables and debt of
Remy Korea.
F-34
<PAGE>
Exhibit 23.1
Consent of Independent Auditors
We consent to the use of our reports dated February 13, 1999 and August 27, 1999
with respect to the financial statements of Remy Korea, Ltd. as of and for the
years ended December 31, 1998 and 1997, and as of December 31, 1996 and for the
period from September 9, 1996 to December 31, 1996 prepared in conformity with
accounting principles generally accepted in the Republic of Korea in the Delco
Remy International, Inc. Form 8-K/A to be filed with the Securities and Exchange
Commission on September 8, 1999.
/s/ Young Wha
Seoul, Korea
September 7, 1999
