<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 April 30, 1999
--------------
OR
[_] 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:
Number of common shares outstanding
Class as of May 7, 1999
----- -----------------
Common Stock - Class A 18,118,058
Common Stock - Class B 6,278,055
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 Nine-Month Period
Ended April 30 Ended April 30
------------------------- -----------------------------
1999 1998 1999 1998
========================= =============================
(in thousands of dollars, except per share amounts)
<S> <C> <C> <C> <C>
Net sales $ 248,826 $ 217,083 $ 703,935 $ 619,362
Cost of goods sold 196,305 172,349 562,932 497,287
----------- ---------- -------------- -----------
Gross profit 52,521 44,734 141,003 122,075
Selling, engineering, and administrative expenses 28,157 25,292 77,269 67,871
----------- ---------- -------------- -----------
Operating income 24,364 19,442 63,734 54,204
Interest expense 12,695 9,748 34,363 30,398
----------- ---------- -------------- -----------
Income before income taxes,
minority interest in income of subsidiaries, income
from unconsolidated joint ventures, deemed
dividend on preferred stock conversion, and preferred
dividend requirement of subsidiary 11,669 9,694 29,371 23,806
Income taxes 4,550 4,074 11,456 9,769
Minority interest in income of subsidiaries (746) (524) (2,328) (1,545)
Income from unconsolidated joint ventures 1,801 831 3,828 1,244
Deemed dividend on preferred stock conversion - - - (1,639)
Preferred dividend requirement of subsidiary - - - (645)
----------- ---------- -------------- -----------
Income before extraordinary item 8,174 5,927 19,415 11,452
Extraordinary item:
Write-off of debt issuance costs
(less applicable tax benefit) - - - (1,803)
----------- ---------- -------------- -----------
Net income $ 8,174 $ 5,927 $ 19,415 $ 9,649
=========== ========== ============== ===========
Basic Earnings Per Common Share:
Income before extraordinary item $ 0.34 $ 0.25 $ 0.81 $ 0.70
Extraordinary item (write-off of debt issuance) - - - (0.11)
=========== ========== ============== ===========
Net income $ 0.34 $ 0.25 $ 0.81 0.59
=========== ========== ============== ===========
Diluted Earnings Per Common Share:
Income before extraordinary item $ 0.32 $ 0.23 $ 0.75 $ 0.61
Extraordinary item (write-off of debt issuance) - - - (0.10)
=========== ========== ============== ===========
Net income $ 0.32 $ 0.23 $ 0.75 $ 0.51
=========== ========== ============== ===========
</TABLE>
See notes to condensed consolidated financial statements
2
<PAGE>
Condensed Consolidated Balance Sheets
Delco Remy International, Inc. and Subsidiaries
<TABLE>
<CAPTION>
April 30, July 31,
1999 1998
---------------- ----------------
(in thousands of dollars)
ASSETS (Unaudited)
-----
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 7,710 $ 8,113
Trade accounts receivable, net 155,465 126,896
Other receivables 17,212 9,846
Inventories 224,822 198,437
Deferred income taxes 16,106 21,653
Other current assets 5,678 4,685
---------------- ----------------
Total current assets 426,993 369,630
Property and equipment 237,411 208,537
Less accumulated depreciation 63,303 50,568
---------------- ----------------
Property and equipment, net 174,108 157,969
Deferred financing costs 11,632 10,786
Goodwill (less accumulated amortization) 135,003 115,446
Net assets held for disposal 14,477 14,894
Investment in joint ventures 16,586 12,474
Other assets 4,511 3,798
---------------- ----------------
Total assets $ 783,310 $ 684,997
================ ================
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Accounts payable $ 111,485 $ 85,804
Accrued interest expense 10,660 9,581
Accrued restructuring charges 24,195 35,519
Other liabilities and accrued expenses 39,503 37,318
Current portion of long-term debt 2,901 1,948
---------------- ----------------
Total current liabilities 188,744 170,170
Deferred income taxes 1,769 1,241
Long-term debt, less current portion 450,096 393,806
Post-retirement benefits other than pensions 19,366 16,495
Accrued pension benefits 2,949 4,628
Other noncurrent liabilities 3,363 3,967
Minority interest in subsidiaries 12,775 10,450
Stockholders' equity:
Common Stock:
Class A shares 182 182
Class B shares 63 63
Paid-in capital 106,052 106,392
Retained earnings (deficit) 3,221 (16,194)
Cumulative translation adjustment (3,583) (4,074)
Stock purchase plan (1,687) (2,129)
---------------- ----------------
Total stockholders' equity 104,248 84,240
---------------- ----------------
Total liabilities and stockholders' equity $ 783,310 $ 684,997
================ ================
</TABLE>
See notes to condensed consolidated financial statements
3
<PAGE>
Condensed Consolidated Statements of Cash Flows
Delco Remy International, Inc. and Subsidiaries
(Unaudited)
<TABLE>
<CAPTION>
Nine Month Period
Ended April 30
---------------------------------
1999 1998
=================================
(in thousands of dollars)
<S> <C> <C>
Operating activities:
Net income $ 19,415 $ 9,649
Extraordinary item - 1,803
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation 13,614 9,143
Amortization 4,558 3,212
Minority interest in income of subsidiaries 2,328 1,545
Income from unconsolidated joint ventures (3,828) (1,244)
Deferred income taxes 5,547 1,379
Post-retirement benefits other than pensions 2,871 3,195
Accrued pension benefits (1,679) (44)
Non-cash interest expense 1,207 2,024
Preferred dividend requirement of subsidiary - 645
Deemed dividend on preferred stock conversion - 1,639
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable (19,167) (28,962)
Inventories (14,955) (17,078)
Accounts payable 19,042 2,518
Other current assets and liabilities (6,816) 10,900
Accrued restructuring charges (11,322) (10,879)
Other non-current assets and liabilities, net (2,497) (3,041)
------------- -------------
Net cash provided by (used in) operating activities 8,318 (13,596)
Investing activities:
Acquisitions, net of cash acquired (42,110) (35,722)
Purchase of property and equipment (18,023) (15,039)
Investment in joint ventures - (4,326)
------------- -------------
Net cash used in investing activities (60,133) (55,087)
Financing activities:
Proceeds from initial public offering - 51,336
Proceeds from issuances of long-term debt - 141,375
Payments on long-term debt - (145,955)
Net borrowings under revolving line of credit and other 51,802 22,201
------------- -------------
Net cash provided by financing activities 51,802 68,957
Effect of exchange rate changes on cash (390) (1,197)
------------- -------------
Net decrease in cash and cash equivalents (403) (923)
Cash and cash equivalents at beginning of period 8,113 10,050
------------- -------------
Cash and cash equivalents at end of period $ 7,710 $ 9,127
============= =============
</TABLE>
See notes to condensed consolidated financial statements
4
<PAGE>
DELCO REMY INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands of dollars)
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring adjustments) considered necessary for a fair presentation
have been included. Operating results for the three-month and nine-month periods
ended April 30, 1999 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>
---------------------------------------------------------------------------
April 30, July 31,
1999 1998
---------------------------------------------------------------------------
<S> <C> <C>
Raw material $ 124,726 $ 102,281
Work-in-process 37,495 36,742
Finished goods 62,601 59,414
---------- ---------
Total $ 224,822 $ 198,437
---------------------------------------------------------------------------
</TABLE>
3. Comprehensive Income
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 $8,760 and $6,176 for the three-month period ending April 30, 1999 and 1998,
respectively, and $19,906 and $8,452 for the nine-month period ending April
30,1999 and 1998, 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 Nine-Month Period
Ended April 30, Ended April 30,
- -------------------------------------------------------------------------------------------------------------------------
1999 1998 1999 1998
-----------------------------------------------------
<S> <C> <C> <C> <C>
Numerator:
Income from continuing operations $ 8,174 $ 5,927 $ 19,415 $ 11,452
Extraordinary item - - - (1,803)
-----------------------------------------------------
Numerator for basic and diluted earnings per share $ 8,174 $ 5,927 $ 19,415 $ 9,649
=====================================================
Denominator (in thousands of shares):
Denominator for basic earnings per share (weighted average shares) 23,860 23,463 23,826 16,339
Effect of dilutive securities:
Warrants 1,680 1,680 1,680 1,680
Employee stock options - 62 - 24
Stock purchase plan 305 840 367 831
------------------------------------------------------
Denominator for diluted earnings per share
(weighted average shares and assumed conversions) 25,845 26,045 25,873 18,874
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
5. Acquisitions
On November 13, 1998, Reman Holdings, Inc., a wholly owned subsidiary of the
Company, purchased 100% of the Common Stock of Williams Technologies, Inc.
("Williams") from The W.W. Williams Company for approximately $38,800 in cash,
less Williams' intercompany and third-party debt and including working capital
and other adjustments. The purchase was funded through proceeds from the
Company's Senior Credit Facility. The acquisition was treated as a purchase for
accounting purposes and resulted in goodwill of approximately $17,600 which is
being amortized over 35 years. Results of operations for Williams are included
in the Company's consolidated results from the date of acquisition. Williams is
a remanufacturer of automatic transmissions and torque converters for automotive
and medium and heavy duty truck applications. Its primary market is the dealer
network of major North American and foreign original equipment vehicle
manufacturers. The Company does not currently anticipate any significant changes
in the operation of the business of Williams.
The unaudited pro forma consolidated results of operations for the nine months
ended April 30, 1999 and 1998, assuming the acquisition of Williams had been
consummated on the first day of each period and that the acquisition of
Ballantrae on December 22, 1997 had been consummated on August 1, 1997, are as
follows:
6
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Nine Months Ended Nine Months Ended
April 30, 1999 April 30, 1998
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net sales $ 714,052 $ 654,415
------------------------- -----------------------
Income before extraordinary item 19,688 13,151
------------------------- -----------------------
Net income $ 19,688 $ 11,348
========================= =======================
Basic earnings per common share before extraordinary item $ 0.83 $ 0.80
========================= =======================
Basic earnings per common share $ 0.83 $ 0.69
========================= =======================
Diluted earnings per common share before extraordinary item $ 0.76 $ 0.70
========================= =======================
Diluted earnings per common share $ 0.76 $ 0.60
========================= =======================
</TABLE>
The pro forma consolidated financial information does not purport to present
what the Company's consolidated results of operations would actually have been
if the acquisitions had occurred on the dates indicated and is not intended to
project future results of operations.
On April 30, 1999, Delco Remy Hungary Rt., a wholly owned subsidiary of the
Company, acquired certain assets of EFEL, an automotive parts manufacturer in
Torino, Italy. Proforma consolidated results are not presented for this
acquisition because the effect on the Company is not material.
6. Senior Credit Facility
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.
7. Financial Information for Subsidiary Guarantors and Non-Guarantor
Subsidiaries
The Company conducts a significant portion of its business through subsidiaries.
The Senior Notes and the Senior Subordinated Notes are fully and unconditionally
guaranteed, jointly and severally, by certain direct and indirect subsidiaries
(the Subsidiary Guarantors). Certain of the Company's subsidiaries do not
guarantee the Senior Notes or the Senior Subordinated Notes (the Non-Guarantor
Subsidiaries). The claims of creditors of Non-Guarantor Subsidiaries have
priority over the rights of the Company to receive dividends or distributions
from such subsidiaries.
Presented below is condensed consolidating financial information for the
Company, the Subsidiary Guarantors and the Non-Guarantor Subsidiaries at April
30, 1999 and July 31, 1998 and for the three month and nine month periods ended
April 30, 1999 and 1998.
7
<PAGE>
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. Delco Remy Hungary RT (formerly 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
Williams Technologies, Inc. Electro-Rebuild Tunisie S.A.R.L. (Tunisia)
</TABLE>
8
<PAGE>
DELCO REMY INTERNATIONAL, INC.
Condensed Consolidating Statement of Operations
For the Quarter Ended April 30, 1999
<TABLE>
<CAPTION>
Delco Remy
International
Inc. Non-
(Parent Subsidiary Guarantor
Company Guarantors Subsidiaries Eliminations Consolidated
Only)
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Net sales $ - $ 250,886 $ 70,940 $(73,000) (a) $ 248,826
Cost of goods sold - 211,008 58,297 (73,000) (a) 196,305
------------- ------------- ------------- --------- -------------
Gross profit - 39,878 12,643 - 52,521
Selling, engineering, and administrative expenses 3,412 19,095 5,650 - 28,157
------------- ------------- ------------- --------- -------------
Operating (loss) income (3,412) 20,783 6,993 - 24,364
Interest expense 6,698 4,587 1,410 - 12,695
------------- ------------- ------------- --------- -------------
(Loss) income before income tax (benefit),
minority interest in income of subsidiaries, income
from unconsolidated
joint ventures and equity in earnings of subsidiaries (10,110) 16,196 5,583 - 11,669
Income taxes (benefit) (1,592) 4,575 1,567 - 4,550
Minority interest in income of subsidiaries - (416) (330) - (746)
Income from unconsolidated joint ventures - - 1,801 - 1,801
Equity in earnings of subsidiaries 16,692 - - (16,692) (b) -
------------- ------------- ------------- --------- -------------
Net income (loss) $ 8,174 $ 11,205 $ 5,487 $(16,692) $ 8,174
============= ============= ============= ========= =============
</TABLE>
(a) Elimination of intercompany sales and cost of sales.
(b) Elimination of equity in net income (loss) from consolidated subsidiaries.
9
<PAGE>
DELCO REMY INTERNATIONAL, INC.
Condensed Consolidating Statement of Operations
For the Nine Month Period Ended April 30, 1999
<TABLE>
<CAPTION>
Delco Remy
International
Inc. Non-
(Parent Subsidiary Guarantor
Company Guarantors Subsidiaries Eliminations Consolidated
Only)
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Net sales $ - $ 709,114 $ 191,536 $(196,715) (a) $ 703,935
Cost of goods sold - 601,953 157,694 (196,715) (a) 562,932
------------- ------------- ------------- ---------- -------------
Gross profit - 107,161 33,842 - 141,003
Selling engineering, and administrative expenses 8,520 53,185 15,564 - 77,269
------------- ------------- ------------- ---------- -------------
Operating (loss) income (8,520) 53,976 18,278 - 63,734
Interest expense 20,529 11,902 1,932 - 34,363
------------- ------------- ------------- ---------- -------------
(Loss) income before income tax (benefit),
minority interest in income of subsidiaries, income
from unconsolidated
joint ventures and equity earnings of subsidiaries (29,049) 42,074 16,346 - 29,371
Income taxes (benefit) (3,926) 10,612 4,770 - 11,456
Minority interest in income of subsidiaries - (1,654) (674) - (2,328)
Income from unconsolidated joint ventures - - 3,828 3,828
Equity in earnings of subsidiaries 44,538 - - (44,538) (b) -
------------- ------------- ------------- ---------- -------------
Net income (loss) $ 19,415 $ 29,808 $ 14,730 $ (44,538) $ 19,415
============= ============= ============= ========== =============
</TABLE>
(a) Elimination of intercompany sales and cost of sales.
(b) Elimination of equity in net income (loss) from consolidated subsidiaries.
10
<PAGE>
Delco Remy International, Inc.
Condensed Consolidated Statement of Operations
For the Three Months Ended April 30, 1998
<TABLE>
<CAPTION>
Delco Remy
International,
Inc. Non-
(Parent Subsidiary Guarantor
Company Guarantors Subsidiaries Eliminations Consolidated
Only)
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $ - $ 220,557 $ 40,372 $ (43,846) (a) $ 217,083
Cost of goods sold - 182,453 33,742 (43,846) (a) 172,349
-------------------------------------------------------------------------
Gross profit - 38,104 6,630 - 44,734
Selling, engineering, and administrative expenses (706) 22,008 3,990 - 25,292
-------------------------------------------------------------------------
Operating income (loss) 706 16,096 2,640 - 19,442
Interest expense (income) 7,154 2,625 (31) - 9,748
-------------------------------------------------------------------------
Income (loss) before income tax (benefit), minority
interest in income of subsidiaries, income from
unconsolidated
joint ventures, and equity in earnings of
subsidiaries (6,448) 13,471 2,671 - 9,694
Income taxes (benefit) (3,090) 6,071 1,093 - 4,074
Minority interest in income of subsidiaries - (446) (78) - (524)
Income from unconsolidated joint venture - - 831 - 831
Equity in earnings of subsidiaries 9,285 - - (9,285) (b) -
------------ ------------ ------------ --------- ------------
Net income (loss) $ 5,927 $ 6,954 $ 2,331 $ (9,285) $ 5,927
=========================================================================
</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 Consolidated Statement of Operations
For the Nine Months Ended April 30, 1998
<TABLE>
<CAPTION>
Delco Remy
International,
Inc. Non-
(Parent Subsidiary Guarantor
Company Only) Guarantors Subsidiaries Eliminations Consolidated
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $ - $ 633,797 $ 94,312 $(108,747) (a) $ 619,362
Cost of goods sold - 526,630 79,404 (108,747) (a) 497,287
-------------------------------------------------------------------------
Gross profit - 107,167 14,908 - 122,075
Selling, engineering, and administrative expenses 807 57,943 9,121 - 67,871
-------------------------------------------------------------------------
Operating income (loss) (807) 49,224 5,787 - 54,204
Interest expense 17,722 12,617 59 - 30,398
-------------------------------------------------------------------------
Income (loss) before income tax (benefit), minority
interest in income of subsidiaries, equity in earnings
of subsidiaries, deemed dividend on preferred stock
conversion, and preferred dividend requirement of
subsidiary (18,529) 36,607 5,728 - 23,806
Income taxes (benefit) (7,828) 15,143 2,454 - 9,769
Minority interest in income of subsidiaries - (1,390) (155) - (1,545)
Income from unconsolidated joint venture - - 1,244 - 1,244
Equity in earnings of subsidiaries 20,350 - - (20,350) (b) -
Deemed dividend on preferred stock conversion - - - (1,639) (c) (1,639)
Preferred dividend requirement of subsidiary - - - (645) (c) (645)
-------------------------------------------------------------------------
Income before extraordinary item 9,649 20,074 4,363 (22,634) 11,452
Extraordinary item:
Write-off of debt issuance costs
(net of applicable income tax benefit) - (1,803) - - (1,803)
-------------------------------------------------------------------------
Net income $ 9,649 $ 18,271 $ 4,363 $ (22,634) $ 9,649
=========================================================================
</TABLE>
________________________________________
(a) Elimination of intercompany sales and cost of sales.
(b) Elimination of equity in net income from consolidated subsidiaries.
(c) Recording of preferred dividend requirement of subsidiary and deemed
dividend on preferred stock conversion.
12
<PAGE>
DELCO REMY INTERNATIONAL, INC.
Condensed Consolidating Balance Sheet
April 30, 1999
<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 $ - $ 18 $ 7,692 $ - $ 7,710
Trade accounts receivable - 135,419 20,046 - 155,465
Other receivables 2,804 8,646 5,762 - 17,212
Inventories - 182,929 41,893 - 224,822
Deferred income taxes 5,637 10,411 58 - 16,106
Other current assets - 5,060 618 - 5,678
--------------- ---------- ------------ ------------ -----------
Total current assets 8,441 342,483 76,069 - 426,993
Property and equipment 40 203,079 34,292 - 237,411
Less accumulated depreciation 40 55,461 7,802 - 63,303
--------------- ---------- ------------ ------------ -----------
0 147,618 26,490 - 174,108
Deferred financing costs 8,625 3,007 - - 11,632
Goodwill, net - 111,762 23,241 - 135,003
Net assets held for disposal - 14,477 - - 14,477
Investment in affiliates 350,654 - 18 (334,086) (a) 16,586
Other assets 1,351 1,224 1,936 - 4,511
--------------- ---------- ------------ ------------ -----------
Total assets $ 369,071 $ 620,571 $ 127,754 $ (334,086) $ 783,310
=============== ========== ============ ============ ===========
Liabilities and stockholders' equity:
Current liabilities:
Accounts payable $ 626 $ 92,921 $ 17,938 $ - $ 111,485
Intercompany accounts (36,996) 48,258 (11,262) - -
Accrued interest payable 8,409 2,251 - - 10,660
Accrued restructuring charges - 24,195 - - 24,195
Other liabilities and accrued 65 30,347 9,091 - 39,503
expenses
Current portion of long term debt - 714 2,187 - 2,901
--------------- ---------- ------------ ------------ -----------
Total current liabilities (27,896) 198,686 17,954 - 188,744
Deferred income taxes 1,761 8 - - 1,769
Long-term debt, less current portion 285,000 156,481 8,615 - 450,096
Post-retirement benefits other than pensions - 19,366 - - 19,366
Accrued pension benefit - 2,936 13 - 2,949
Other non-current liabilities 2,375 981 7 - 3,363
Minority interest in subsidiary - 7,684 5,091 - 12,775
Stockholders' equity:
Common stock:
Class A Shares 63 - - - 63
Class B Shares 182 - - - 182
Paid-in capital 106,052 - - - 106,052
Subsidiary investment - 200,481 68,365 (268,846) (a) -
Retained earnings (deficit) 3,221 33,779 31,461 (65,240) (b) 3,221
Cumulative translation adjustment - 169 (3,752) - (3,583)
Stock purchase plan (1,687) - - - (1,687)
--------------- ---------- ------------ ------------ -----------
Total stockholders' equity (deficit) 107,831 234,429 96,074 (334,086) 104,245
--------------- ---------- ------------ ------------ -----------
Total liabilities and stockholders' equity
(deficit) $ 369,071 $ 620,571 $ 127,754 $ (334,086) $ 783,310
=============== ========== ============ ============ ===========
</TABLE>
(a) Elimination of investments in subsidiaries.
(b) Elimination of investments in subsidiaries' earnings.
13
<PAGE>
<TABLE>
<CAPTION>
Delco Remy International, Inc.
Condensed Consolidating Balance Sheet
July 31, 1998
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 $ -- $ 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)(a)(b) 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)(a) --
Retained earnings (deficit) (16,194) 4,393 16,309 (20,702)(b) (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>
(a) Elimination of investments in subsidiaries.
(b) Elimination of investments in subsidiaries' earnings.
14
<PAGE>
DELCO REMY INTERNATIONAL, INC.
Condensed Consolidating Statement of Cash Flows
For the Nine Month Period Ended April 30, 1999
<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) $ 19,415 $ 29,808 $ 14,730 $ (44,538)(a) $ 19,415
Adjustments to reconcile net income (loss)
to net cash provided by
(used in) operating activities:
Depreciation 20 10,750 2,844 - 13,614
Amortization 865 3,136 557 - 4,558
Minority Interest in income of subsidiaries - 1,654 674 - 2,328
Income from unconsolidated joint ventures - - (3,828) - (3,828)
Equity in earnings of subsidiary (44,538) - - 44,538 (a) -
Deferred income taxes 791 4,814 (58) - 5,547
Post-retirement benefits other than pensions - 2,871 - - 2,871
Accrued pension benefits - (1,679) - - (1,679)
Non-cash interest expense 819 388 - - 1,207
Changes in operating assets and
liabilities, net of acquisitions:
Accounts receivable - (19,474) 307 - (19,167)
Inventories - (6,349) (8,606) - (14,955)
Accounts payable 496 15,102 3,444 - 19,042
Intercompany accounts 62,169 (50,212) (11,957) - -
Other current assets and liabilities (6,082) (1,741) 1,007 - (6,816)
Accrued restructuring - (11,322) - - (11,322)
Other non-current assets -
and liabilities, net 4,876 (14,504) 7,131 - (2,497)
------------- ------------- ------------- ------------- -------------
Net cash provided by (used in) operating activities 38,831 (36,758) 6,245 - 8,318
Investing activities:
Acquisitions, net of cash acquired. (38,831) - (3,279) - (42,110)
Purchase of property and equipment - (12,924) (5,099) - (18,023)
------------- ------------- ------------- ------------- -------------
Net cash used in investing activities (38,831) (12,924) (8,378) - (60,133)
Financing activities:
Other financing activities - 49,575 2,227 - 51,802
------------- ------------- ------------- ------------- -------------
Net cash used in financing activities - 49,575 2,227 - 51,802
Effect of exchange rate changes on cash - 0 (390) - (390)
------------- ------------- ------------- ------------- -------------
Net increase (decrease) in cash and cash equivalents - (107) (296) - (403)
Cash and cash equivalents at beginning of year - 125 7,988 - 8,113
------------- ------------- ------------- ------------- -------------
Cash and cash equivalents at end of year $ - $ 18 $ 7,692 $ - $ 7,710
============= ============= ============= ============= =============
</TABLE>
(a) Elimination of equity in earnings of subsidiary.
15
<PAGE>
Delco Remy International, Inc.
Condensed Consolidating Statement of Cash Flows
For the Nine Months Ended April 30, 1998
<TABLE>
<CAPTION>
Delco Remy
International,
Inc. Non-
(Parent Subsidiary Guarantor
Company Only) Guarantors Subsidiaries Eliminations Consolidated
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating Activities:
Net income $ 9,649 $ 18,271 $ 4,363 $ (22,634)(a) $ 9,649
Extraordinary item - 1,803 - - 1,803
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation - 8,324 819 - 9,143
Amortization - 2,924 288 3,212
Minority interest in subsidiaries - 1,390 155 - 1,545
Income from unconsolidated joint ventures - - (1,244) - (1,244)
Equity in earnings of subsidiaries (20,350) - - 20,350 (a) -
Deferred income taxes (4,990) 7,457 (1,088) - 1,379
Post-retirement benefits other than pensions - 3,195 - - 3,195
Accrued pension benefits - (44) - - (44)
Non-cash interest expense 1,705 319 - - 2,024
Preferred dividend requirement of subsidiary - - - 645 (b) 645
Deemed dividend on preferred
stock conversion - - - 1,639 (b) 1,639
Changes in operating assets and
liabilities, net of acquisitions:
Accounts receivable - (24,711) (4,251) - (28,962)
Inventories - (12,230) (4,848) - (17,078)
Accounts payable (65) (2,721) 5,304 - 2,518
Intercompany accounts (130,208) 123,666 6,542 - -
Other current assets and
liabilities 3,082 5,053 2,765 - 10,900
Accrued restructuring - (10,879) - - (10,879)
Other non-current assets and
liabilities, net (4,550) 937 572 - (3,041)
-------------------------------------------------------------------------
Net cash (used in) provided by operating activities (145,727) 122,754 9,377 - (13,596)
Investing activities:
Acquisitions, net of cash acquired (34,358) - (1,364) - (35,722)
Purchase of property and equipment - (8,641) (6,398) - (15,039)
Investments in affiliates (4,326) - -- - (4,326)
-------------------------------------------------------------------------
Net cash used in investing activities (38,684) (8,641) (7,762) - (55,087)
Financing activities:
Proceeds from issuance of long term debt 141,375 - - - 141,375
Payments on long-term debt (8,300) (137,641) (14) - (145,955)
Proceeds from initial public offering 51,336 - - - 51,336
Other financing activities - 22,201 - - 22,201
-------------------------------------------------------------------------
Net cash provided by (used in) financing activities 184,411 (115,440) (14) - 68,957
Effect of exchange rate changes on cash - - (1,197) - (1,197)
-------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents - (1,327) 404 - (923)
Cash and cash equivalents at beginning of period - 1,504 8,546 - 10,050
-
-------------------------------------------------------------------------
Cash and cash equivalents at end of period $ - $ 177 $ 8,950 $ - $ 9,127
=========================================================================
</TABLE>
_________________
(a) Elimination of equity in earnings of subsidiary.
(b) Recording of preferred dividend requirement of subsidiary and deemed
dividend on preferred stock conversion.
16
<PAGE>
ITEM 2.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Results of Operations
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
Ended April 30 Ended April 30
------------------------------------ -----------------------------------
1999 1998 1999 1998
---------------- ----------------- ---------------- ----------------
(Thousands of Dollars) Amount % Amount % Amount % Amount %
---------------- ----------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $248,826 100.0% $217,083 100.0% $703,935 100.0% $619,362 100.0%
Cost of sales 196,305 78.9% 172,349 79.4% 562,932 80.0% 497,287 80.3%
---------------- ---------------- --------------- ----------------
Gross profit 52,521 21.1% 44,734 20.6% 141,003 20.0% 122,075 19.7%
Selling, engineering, and administrative 28,157 11.3% 25,292 11.7% 77,269 11.0% 67,871 11.0%
---------------- ---------------- --------------- ----------------
Operating income 24,364 9.8% 19,442 9.0% 63,734 9.1% 54,204 8.8%
Interest expense 12,695 5.1% 9,748 4.5% 34,363 4.9% 30,398 4.9%
Provision for income taxes 4,550 1.8% 4,074 1.9% 11,456 1.6% 9,769 1.6%
Minority interests (746) -0.3% (524) -0.2% (2,328) -0.3% (1,545) -0.2%
Income from unconsolidated joint ventures 1,801 0.7% 832 0.4% 3,828 0.5% 1,244 0.2%
Preferred dividend requirement of subsidiary - 0.0% - 0.0% - 0.0% (645) -0.1%
Non-recurring deemed dividend on preferred stock
conversion - 0.0% - 0.0% - 0.0% (1,639) -0.3%
Write-off of debt issuance costs net of tax - 0.0% - 0.0% - 0.0% (1,803) -0.3%
---------------- ----------------- ---------------- ----------------
Net income $ 8,174 3.3% $ 5,928 2.7% $ 19,415 2.8% $ 9,649 1.6%
================ ================= ================ ================
</TABLE>
Three Months Ended April 30, 1999 Compared to Three Months Ended April 30, 1998
Net Sales Net sales were $248.8 million for the three months ended April
30, 1999, an increase of $31.7 million, or 14.6%, from $217.1 million for the
comparable period of 1998. This increase was due to growth in the Company's
aftermarket business, including the effect of the acquisitions of Williams
(November 1998), Electro Diesel Rebuild (July 1998) and Lucas Varity's
electrical remanufacturing operations (April 1998). Growth in aftermarket sales
also reflected stronger market demand and the addition of new customers and
distribution. OEM sales improved due to stronger automotive and heavy duty
demand.
Gross Profit Gross profit was $52.5 million in the third quarter of fiscal
1999 compared to $44.7 million in the third quarter of fiscal 1998, an increase
of $7.8 million, or 17.4%. This growth reflects the acquisitions and volume
increases discussed above. As a percentage of net sales, gross profit improved
to 21.1% from 20.6% due to sales growth, a higher mix of aftermarket sales
(which generate higher margins) and improved productivity and quality.
17
<PAGE>
Selling, Engineering and Administrative Expenses Selling, engineering, and
administrative (SE&A) expenses of $28.2 million were up $2.9 million, or 11.3%,
from $25.3 million in the comparable period of fiscal 1998 and, as a percentage
of sales, were 11.3% versus 11.7%. The effect of the above mentioned
acquisitions was more than offset by continued emphasis on overall cost control.
Operating Income Operating income was $24.4 million for the three months
ended April 30, 1999, an increase of $4.9 million, or 25.3%, from the third
quarter of fiscal 1998. Operating income margin expanded from 9.0% in 1998 to
9.8% in 1999, reflecting the sales, gross profit and SE&A expense issues
discussed above.
Interest Expense Interest expense of $12.7 million in the third quarter
was up $2.9 million compared to $9.7 million in the third quarter last year due
to increased utilization of the Senior Credit Facility to fund acquisitions and
business growth.
Income Taxes Income taxes for the three months ended April 30, 1999 were
$4.6 million compared to $4.1 million in the third quarter of fiscal 1998. The
Company's consolidated effective income tax rate varies between 39% and 42%
based on income levels and other factors involving the states and countries in
which the Company does business.
Income from Unconsolidated Joint Ventures Income from unconsolidated joint
ventures of $1.8 million in the third quarter of 1999 increased $1.0 million
from the third quarter of 1998. Earnings in both years were generated primarily
by the Company's investment in a Korean automotive parts manufacturer, which
began operations in fiscal 1998.
Nine Months Ended April 30, 1999 Compared to Nine Months Ended April 30, 1998
Net Sales Net sales of $703.9 million in the first three quarters of
fiscal 1999 were up $84.6 million, or 13.7%, compared with the first three
quarters of fiscal 1998. This increase was driven by the acquisitions discussed
above, the acquisition of Ballantrae in December 1997, strong market demand, new
customers and distribution in the aftermarket and increased demand in the
automotive and heavy duty OEM markets.
Gross Profit Gross profit of $141.0 million increased $18.9 million, or
15.5%, from the first nine months of fiscal 1998 due to acquisitions and sales
volume growth. As a percentage of net sales, gross profit improved from 19.7% to
20.0% in 1999 due to the higher mix of aftermarket sales and improved
productivity.
Selling, Engineering and Administrative Expenses SE&A expenses of $77.3
million were up $9.4 million, or 13.8%, from $67.9 million in the first nine
months of fiscal 1998 and, as a percentage of sales, were 11.0% in both years.
The effect of acquisitions was offset by continued emphasis on overall cost
control.
Operating Income Operating income was $63.7 million in the first
three quarters of fiscal 1999, an increase of $9.5 million, or 17.6%, from the
comparable period of fiscal 1998. As a percentage of net sales, operating income
was 9.1% in 1999 versus 8.8% in 1998, as the growth in sales and gross profit
was partially offset by the increase in SE&A expense.
Interest Expense Interest expense of $34.4 million was up $4.0 million,
or 13.0%, compared to $30.4 million in the first three quarters 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 more than offset by increased utilization of
the Senior Credit Facility since the refinancing to fund acquisitions and
business growth.
18
<PAGE>
Income Taxes Income taxes for the nine months ended April 30, 1999 were
$11.5 million compared to $9.8 million in 1998.
Income from Unconsolidated Joint Ventures Income from unconsolidated joint
ventures of $3.8 million in the first three quarters of 1999 increased $2.6
million from the comparable period of 1998 and, in both years, were generated
primarily by the Company's investment in a Korean automotive parts manufacturer,
which began operations in fiscal 1998.
Non-recurring Deemed Dividend on Preferred Stock Conversion In December
1997, redeemable exchangeable preferred stock was exchanged for the 8%
Subordinated Debenture over the carrying value of the redeemable exchangeable
preferred stock of subsidiary resulting in a non-recurring deemed dividend of
$1.6 million.
Write Off of Debt Issuance Cost In December 1997, certain debt was
retired out of the proceeds from the senior notes and initial public offering.
Unamortized issuance costs, net of income taxes, of $1.8 million relating to the
retired debt was written off in the nine month period ended April 30, 1998.
Liquidity and Capital Resources
The Company's liquidity needs include required debt service, working
capital needs and the funding of capital expenditures and acquisitions. 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 provided by operating activities in the first nine months of fiscal
1999 of $8.3 million compares with cash used of $13.6 million in the first nine
months of fiscal 1998. Increased earnings, excluding non-cash charges, smaller
increases in accounts receivable and inventories and a larger increase in
accounts payable were partially offset by higher cash restructuring payments and
increases in other current assets. During the third quarter, the company
generated sufficient cash from operations and cash balances to pay down $11.9
million of the balance on the Senior Credit Facility.
Cash used in investing activities of $60.1 million in the first three
quarters of 1999 was $5.0 million higher than cash used in the comparable period
of fiscal 1998 due to cash payments for acquisitions. The Company's capital
expenditures were $18.0 million for the nine months ended April 30, 1999. The
Company is forecasting capital expenditures of approximately $7.0 million for
the remainder of fiscal year 1999. Capital expenditures consist of production
equipment for the Company's new focus factories and investments in cost
reduction programs, including upgrades in machinery technology, new quality
standards and environmental compliance.
Cash provided by financing activities of $51.8 million in the first nine
months of 1999, consisting primarily of borrowing under the Senior Credit
Facility, was down from $69.0 million provided in the first nine months of
1998.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 April 30, 1999 the
debt to total capitalization of the Company was 79% as compared to 78% on April
30, 1998.
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 6 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 April 30, 1999, approximately
$169.6 million remained available.
Cash interest expense for the nine months ended April 30, 1999 was $33.2
million. Non-cash interest accrued during the nine months ended April 30, 1999
was $1.2 million, or 3.5% of total interest expense.
19
<PAGE>
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
Many existing computer programs use only two digits to identify years.
These programs were designed without consideration for the affect of the
upcoming change in century, and if not corrected, could fail or create erroneous
results by, at or beyond the year 2000. Essentially all the Company's
information technology based systems, as well as many non-information technology
based systems are affected by the "Year 2000" issue. Technology based systems
reside on mainframes, servers and personal computers in the U.S. and in the
foreign countries where the Company has operations. Specific systems include
accounting, payroll, financial reporting, product development, inventory
tracking and control, business planning, tax, accounts receivable, accounts
payable, purchasing, distribution and numerous word processing applications.
Non-information technology based systems include equipment and services
containing imbedded microprocessors, such as clocks, security systems and
building management systems. All of the Company's businesses have relationships
with numerous third parties, including material suppliers, utility companies,
transportation companies, banks and brokerage firms, that may be affected by the
Year 2000 issue.
Remediation plans have been established for all mission critical systems
potentially affected by the Year 2000 issue. The primary phases and current
status of the plans for internal systems are summarized as follows:
Enterprise awareness and planning. This phase involved the establishment
of project teams and plans for each subsidiary and joint venture. This
phase has been completed for all subsidiaries and the Company is in the
process of determining the status of the joint ventures.
Inventory of all hardware and software. This phase has been completed.
Impact analysis/assessment. This phase has been completed.
Planning and scheduling. Plans have been implemented for all of mission
critical applications.
Conversion. The organizations are at varying points in their conversion
process. 85% of the mission critical applications have been converted.
The remaining 15% are expected to be converted by September 1999.
Testing. Each system is tested based on the specific requirements. These
are included as part of the overall project plans.
Implementation. Each system within the organization is at a different
point. 85% of the mission critical applications have been implemented.
The remaining 15% are expected to be implemented by September 1999.
Assessment of the Company's third-party risk involves the identification of
critical vendors, Year 2000 confirmation correspondence, evaluations and
selected vendor reviews. Remediation plans are being developed for identified
areas of third party risk.
20
<PAGE>
The Company is in the process of determining the risks it would face in the
event certain aspects of its Year 2000 remediation plan fail. It is also
developing contingency plans for all mission-critical processes. Under a "worst
case" scenario, the Company's manufacturing operations would be unable to build
and deliver product due to internal system failures and/or the inability of
vendors to deliver raw materials and components. While virtually all internal
systems can be replaced with manual systems on a temporary basis, the failure of
any mission-critical system will have at least a short-term negative affect on
operations. The failure of national and worldwide banking systems could result
in the inability of many businesses, including the Company, to conduct business.
Risk assessment and contingency plans are expected to be completed by July 1999.
The total cost to the Company of achieving Year 2000 compliance is not
expected to exceed $2.0 million, including the cost of both internal and
external resources. Spending to date totals approximately $1.2 million.
While the Company believes that the estimated cost of becoming Year 2000
compliant will not be significant to its results of operations, failure to
complete all work in a timely manner could have a material adverse effect on the
Company's results of operations. While the Company expects all planned work to
be completed, it cannot guarantee that all systems will be in compliance by the
year 2000, that the systems of suppliers and other third parties on which the
Company relies will be converted in a timely manner or that the Year 2000
contengency planning will be able to fully address all potential interruptions.
Therefore, date-related issues could cause delays in the Company's ability to
produce or ship products, process transactions or otherwise conduct business in
any of the Company's markets.
Foreign Sales
Approximately 24% 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.
21
<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 April 30, 1999.
22
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DELCO REMY INTERNATIONAL, INC.
------------------------------
(Registrant)
Date: June 1, 1999 By: /s/ David L. Harbert
--------------------------------
David L. Harbert
Executive Vice President and
Chief Financial Officer
Date: June 1, 1999 By: /s/ David E. Stoll
--------------------------------
David E. Stoll
Vice President and Controller
Chief Accounting Officer
23
<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> FEB-01-1999
<PERIOD-END> APR-30-1999
<CASH> 7,710
<SECURITIES> 0
<RECEIVABLES> 157,763
<ALLOWANCES> 2,298
<INVENTORY> 224,822
<CURRENT-ASSETS> 426,993
<PP&E> 237,411
<DEPRECIATION> 63,303
<TOTAL-ASSETS> 783,310
<CURRENT-LIABILITIES> 188,744
<BONDS> 0
0
0
<COMMON> 245
<OTHER-SE> 104,003
<TOTAL-LIABILITY-AND-EQUITY> 783,310
<SALES> 248,826
<TOTAL-REVENUES> 248,826
<CGS> 196,305
<TOTAL-COSTS> 196,305
<OTHER-EXPENSES> 28,157
<LOSS-PROVISION> 450
<INTEREST-EXPENSE> 12,695
<INCOME-PRETAX> 11,669
<INCOME-TAX> 4,550
<INCOME-CONTINUING> 8,174
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,174
<EPS-BASIC> .34
<EPS-DILUTED> .32
</TABLE>
