<PAGE>
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED October 31, 1999 COMMISSION FILE NO. 1-13683
DELCO REMY INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Delaware 35-1909253
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2902 Enterprise Drive
Anderson, Indiana 46013
(Address of principal executive offices) (Zip Code)
(765) 778-6499
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last
report)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS.
Yes X No
--- ---
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE REGISTRANT'S CLASSES
OF COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE.
Number of common shares outstanding
Class as of November 9, 1999
------------------------ -------------------------------------
Common Stock - Class A 18,118,058
Common Stock - Class B 6,278,055
================================================================================
<PAGE>
INDEX
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION Page
<S> <C>
Item 1 Financial Statements (Unaudited)
Condensed Consolidated Statements of Operations................ 3
Condensed Consolidated Balance Sheets.......................... 4
Condensed Consolidated Statements of Cash Flows................ 5
Notes to Condensed Consolidated Financial Statements........... 6
Item 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations.......................................... 15
PART II OTHER INFORMATION
Item 5 Other Information.............................................. 18
Item 6 Exhibits and Reports on Form 8-K............................... 18
SIGNATURES ............................................................... 19
</TABLE>
2
<PAGE>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements of Operations
Delco Remy International, Inc. and Subsidiaries
(Unaudited)
<TABLE>
<CAPTION>
Three-Month Period
Ended October 31
------------------------------------------------------
1999 1998
------------------- -------------------
(in thousands of dollars, except for share amounts)
<S> <C> <C>
Net sales $ 277,189 $ 232,785
Cost of goods sold 216,764 191,013
------------------- -------------------
Gross profit 60,425 41,772
Selling, engineering and administrative expenses 30,870 22,164
Amortization of goodwill and intangibles 1,640 1,060
------------------- -------------------
Operating income 27,915 18,548
Interest expense (12,124) (10,403)
------------------- -------------------
Income before income taxes, minority interest in
income of subsidiaries and income (loss) from
unconsolidated joint ventures 15,791 8,145
Income taxes 6,000 3,177
Minority interest in income of subsidiaries (1,811) (761)
Income (loss) from unconsolidated joint ventures (6) 1,181
------------------- -------------------
Net income $ 7,974 $ 5,388
=================== ===================
Basic earnings per common share $ 0.33 $ 0.23
=================== ===================
Diluted earnings per common share $ 0.31 $ 0.21
=================== ===================
</TABLE>
See Notes to Condensed Consolidated Financial Statements
3
<PAGE>
Condensed Consolidated Balance Sheets
Delco Remy International, Inc. and Subsidiaries
(Unaudited)
<TABLE>
<CAPTION>
October 31, July 31,
1999 1999
----------- ---------
(in thousands of dollars)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 11,738 $ 15,309
Trade accounts receivable, net 185,675 147,988
Other receivables 15,372 15,496
Inventories 239,236 232,165
Deferred income taxes 14,997 14,997
Other current assets 3,147 2,903
---------- -----------
Total current assets 470,165 428,858
Property and equipment 270,352 258,727
Less accumulated depreciation 67,036 63,532
---------- -----------
Property and equipment, net 203,316 195,195
Deferred financing costs 10,752 11,192
Goodwill (net of accumulated amortization) 135,448 137,429
Investments in joint ventures 4,759 4,756
Other assets 5,586 5,233
---------- -----------
Total assets $ 830,026 $ 782,663
========== ===========
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 133,800 $ 119,339
Accrued interest payable 9,799 11,603
Accrued restructuring charges 5,403 5,866
Other liabilities and accrued expenses 46,733 37,105
Current debt 11,089 12,596
---------- -----------
Total current liabilities 206,824 186,509
Deferred income taxes 4,568 4,568
Long-term debt, less current portion 451,235 434,931
Post-retirement benefits other than pensions 21,894 21,050
Accrued pension benefits 2,957 2,719
Other noncurrent liabilities 3,902 3,545
Commitments and contingencies
Minority interest in subsidiaries 21,585 19,821
Stockholders' equity:
Common stock:
Class A shares 182 182
Class B shares 63 63
Paid-in capital 104,176 104,176
Retained earnings 20,126 12,152
Accumulated other comprehensive loss (7,004) (6,516)
Stock purchase plan (482) (537)
---------- -----------
Total stockholders' equity 117,061 109,520
---------- -----------
Total liabilities and stockholders' equity $ 830,026 $ 782,663
========== ===========
</TABLE>
See Notes to Condensed Consolidated Financial Statements
4
<PAGE>
Condensed Consolidated Statements of Cash Flows
Delco Remy International, Inc. and Subsidiaries
(Unaudited)
<TABLE>
<CAPTION>
Three-Month Period
Ended October 31,
----------------------------------
1999 1998
------------ ------------
(in thousands of dollars)
<S> <C> <C>
Operating activities:
Net income $ 7,974 $ 5,388
Adjustments to reconcile net income to net cash flows
provided by (used in) operating activities:
Depreciation 6,330 4,039
Amortization 1,640 1,060
Minority interest in income of subsidiaries 1,811 761
Income (loss) from unconsolidated joint ventures 6 (1,181)
Deferred income taxes - (545)
Post-retirement benefits other than pensions 844 957
Accrued pension benefits 238 477
Non-cash interest expense 439 339
Changes in operating assets and liabilities, net of
acquisitions:
Accounts receivable (37,687) (23,505)
Inventories (3,484) (435)
Accounts payable 14,461 6,913
Other current assets and liabilities 7,302 (13,174)
Accrued restructuring charges (463) (5,571)
Other non-current assets and liabilities, net 1,096 (21)
------------ ------------
Net cash provided by (used in) operating activities 507 (24,498)
Investing activities:
Acquisitions, net of cash acquired (5,733) -
Purchases of property and equipment (13,142) (5,946)
------------ ------------
Net cash used in investing activities (18,875) (5,946)
Financing activities:
Net borrowings under revolving line of credit 14,797 30,698
------------ ------------
Net cash provided by financing activities 14,797 30,698
Effect of exchange rate changes on cash - 126
------------ ------------
Net increase (decrease) in cash and cash equivalents (3,571) 380
Cash and cash equivalents at beginning of period 15,309 8,113
------------ ------------
Cash and cash equivalents at end of period $ 11,738 $ 8,493
============ ============
</TABLE>
See Notes to Condensed Consolidated Financial Statements
5
<PAGE>
DELCO REMY INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands of dollars)
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring adjustments) considered necessary for a fair presentation
have been included. Operating results for the three-month period ended October
31, 1999 are not necessarily indicative of the results that may be expected for
the full fiscal year. The balance sheet at July 31, 1999 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, 1999 in Form 10-K.
2. Additional Balance Sheet Information
October 31, July 31,
Inventory: 1999 1999
---------------- ---------------
Raw material $128,776 $121,725
Work-in-process 49,344 50,725
Finished goods 61,116 59,715
---------------- ---------------
Total $239,236 $232,165
================ ===============
3. Comprehensive 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 $7,486 and $4,658 for the three month periods ending
October 31, 1999 and 1998, respectively.
6
<PAGE>
4. Earnings per Share
Basic earnings per share is computed by dividing net income available to common
stockholders by the weighted average number of common stock shares outstanding
during the year. Diluted earnings per share is computed by dividing net income
available to common stockholders by the weighted average number of common stock
shares outstanding during the year plus potential dilutive instruments,
including stock options, warrants and the stock purchase plan.
The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
Three-Month Period
Ended October 31,
--------------------------------------------
1999 1998
------------------ ------------------
<S> <C> <C>
Numerator:
Net income $ 7,974 $ 5,388
================== ==================
Denominator:
Denominator for basic earnings per share (weighted
average shares) 24,207,113 23,775,061
Effect of dilutive securities:
Warrants 1,679,786 1,679,821
Stock purchase plan 88,703 445,594
------------------ ------------------
Denominator for diluted earnings per share
(weighted average shares and assumed conversions) 25,975,602 25,900,476
================== ==================
</TABLE>
5. Financial Information for Subsidiary Guarantors and Non-Guarantor
Subsidiaries
The Company conducts a significant portion of its business through subsidiaries.
The Senior Notes and the Senior Subordinated Notes are fully and unconditionally
guaranteed, jointly and severally, by certain direct and indirect subsidiaries
(the Subsidiary Guarantors). Certain of the Company's subsidiaries do not
guarantee the Senior Notes or the Senior Subordinated Notes (the Non-Guarantor
Subsidiaries). The claims of creditors of Non-Guarantor Subsidiaries have
priority over the rights of the Company to receive dividends or distributions
from such subsidiaries.
Presented below is condensed consolidating financial information for the
Company, the Subsidiary Guarantors and the Non-Guarantor Subsidiaries at October
31, 1999 and July 31, 1999 and for the three month periods ended October 31,
1999 and 1998.
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.
7
<PAGE>
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.)
Nabco, Inc. Power Investments Canada Ltd.
The A&B Group, Inc. Delco Remy UK Limited
A&B Enterprises, Inc. Delco Remy International (Europe) GmbH
Dalex, Inc. Remy India Holdings, Inc.
A&B Cores, Inc. Remy Korea Holdings, Inc.
R&L Tool Company, Inc. Alberta Ltd.
MCA, Inc. of Mississippi World Wide Automotive Distributors, Inc.
Power Investments, Inc. Kraftube, Inc.
Franklin Power Products, Inc. Tractech (Ireland) Ltd.
International Fuel Systems, Inc. Central Precision Limited
Marine Drive Systems, Inc. Electro Diesel Rebuild BVBA
Marine Corporation of America Electro Rebuild Tunisia S.A.R.L. (Tunisia)
Powrbilt Products, Inc. Delco Remy Mexico, S. de R.L. de C.V.
World Wide Automotive, Inc. Publitech, Inc.
Ballantrae Corporation Delco Remy Brazil, Ltda.
Tractech Inc. Western Reman Ltd. (Canada)
Williams Technologies, Inc. Engine Rebuilders Ltd.
Western Reman, Inc. Reman Transport Ltd.
Engine Master, L.P. Delco Remy Remanufacturing
Delco Remy Germany GmbH
Remy Componentes S. de R. L. de C. V.
Delco Remy Belgium BVBA
Magnum Power Products, LLC
- --------------------------------------------------------------------------------
</TABLE>
8
<PAGE>
Delco Remy International, Inc.
Condensed Consolidating Statement of Operations
For the Three Months Ended October 31, 1999
(Unaudited)
(in thousands of dollars)
<TABLE>
<CAPTION>
Delco Remy
International Inc. Non-
(Parent Subsidiary Guarantor
Company Only) Guarantors Subsidiaries Eliminations Consolidated
------------------ ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales $ - $ 277,581 $ 91,561 $ (91,953)(a) $ 277,189
Cost of goods sold - 235,213 73,504 (91,953)(a) 216,764
------------------ ----------- ------------ ------------ ------------
Gross profit - 42,368 18,057 - 60,425
Selling, engineering and administrative expenses 3,394 19,790 7,686 - 30,870
Amortization of goodwill and intangibles 64 1,246 330 - 1,640
------------------ ----------- ------------ ------------ ------------
Operating (loss) income (3,458) 21,332 10,041 - 27,915
Interest expense (6,971) (4,569) (584) - (12,124)
------------------ ----------- ------------ ------------ ------------
Income (loss) before income taxes, minority
interest in income (loss) of subsidiaries and
income (loss) from unconsolidated joint ventures (10,429) 16,763 9,457 - 15,791
Income taxes (benefit) (2,453) 6,370 2,083 - 6,000
Minority interest in income of subsidiaries - (688) (1,123) - (1,811)
Income (loss) from unconsolidated joint ventures - - (6) - (6)
Equity in earnings of subsidiaries 15,950 - - (15,950)(b) -
------------------ ----------- ------------ ------------ ------------
Net income (loss) $ 7,974 $ 9,705 $ 6,245 $ (15,950) $ 7,974
================== =========== ============ ============ ============
</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 Three Months Ended October 31, 1998
(Unaudited)
(in thousands of dollars)
<TABLE>
<CAPTION>
Delco Remy
International Inc. Non-
(Parent Subsidiary Guarantor
Company Only) Guarantors Subsidiaries Eliminations Consolidated
------------------ ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales $ - $ 234,940 $ 55,001 $(57,156)(a) $ 232,785
Cost of goods sold - 202,974 45,195 (57,156)(a) 191,013
------------------ ---------- ------------ -------- -----------
Gross profit - 31,966 9,806 - 41,772
Selling, engineering and administrative expenses 1,894 15,861 4,409 - 22,164
Amortization of goodwill and intangibles 288 701 71 - 1,060
------------------ ---------- ------------ -------- ------------
Operating (loss) income (2,182) 15,404 5,326 - 18,548
Interest expense (7,167) (3,219) (17) - (10,403)
------------------ ---------- ------------ -------- ------------
Income (loss) before income taxes, minority interest
in income of subsidiaries and income from
unconsolidated joint ventures (9,349) 12,185 5,309 - 8,145
Income taxes (benefit) (1,706) 3,440 1,443 - 3,177
Minority interest in income of subsidiaries - (588) (173) - (761)
Income from unconsolidated joint ventures - - 1,181 - 1,181
Equity in earnings of subsidiaries 13,031 - - (13,031)(b) -
------------------ ---------- ------------ -------- ------------
Net income (loss) $ 5,388 $ 8,157 $ 4,874 $(13,031) $ 5,388
================== ========== ============ ======== ============
</TABLE>
__________________________________________________________
(a) Elimination of intercompany sales and cost of sales.
(b) Elimination of equity in net income (loss) from consolidated subsidiaries.
10
<PAGE>
Delco Remy International, Inc.
Condensed Consolidating Balance Sheet
October 31, 1999
(Unaudited)
(in thousands of dollars)
<TABLE>
<CAPTION>
Delco Remy
International Inc. Non-
(Parent Subsidiary Guarantor
Company Only) Guarantors Subsidiaries Eliminations Consolidated
------------------ ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ - $ (42) $ 11,780 $ - $ 11,738
Trade accounts receivable, net - 150,197 35,478 - 185,675
Other receivables - 7,482 7,890 - 15,372
Inventories - 193,394 47,488 (1,646)(c) 239,236
Deferred income taxes - 14,997 - - 14,997
Other current assets - 2,485 662 - 3,147
------------------ ---------- ------------ ------------ ------------
Total current assets - 368,513 103,298 (1,646) 470,165
Property and equipment 40 203,599 66,713 - 270,352
Less accumulated depreciation 40 58,804 8,192 - 67,036
------------------ ---------- ------------ ------------ ------------
Property and equipment, net - 144,795 58,521 - 203,316
Deferred financing costs 8,079 2,673 - - 10,752
Goodwill, net - 113,434 22,014 - 135,448
Investments in affiliates 402,853 - - (398,094)(a) 4,759
Other assets 2,440 721 2,425 - 5,586
------------------ ---------- ------------ ------------ ------------
Total assets $ 413,372 $ 630,136 $ 186,258 $ (399,740) $ 830,026
================== ========== ============ ============ ============
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 566 $ 100,306 $ 32,928 $ - $ 133,800
Intercompany accounts (10,704) 36,685 (25,380) (601)(c) -
Accrued interest payable 8,409 1,378 12 - 9,799
Accrued restructuring charges - 5,403 - - 5,403
Other liabilities and accrued expenses 3,778 24,813 18,142 - 46,733
Current debt - 976 10,113 - 11,089
------------------ ---------- ------------ ------------ ------------
Total current liabilities 2,049 169,561 35,815 (601) 206,824
Deferred income taxes - 4,560 8 - 4,568
Long-term debt, less current portion 285,000 153,766 12,469 - 451,235
Post-retirement benefits other than pensions - 21,894 - - 21,894
Accrued pension benefit - 2,957 - - 2,957
Other non-current liabilities 2,258 1,640 4 - 3,902
Minority interests in subsidiaries - 9,558 12,027 - 21,585
Stockholders' equity:
Common stock:
Class A shares 182 - - - 182
Class B shares 63 - - - 63
Paid-in capital 104,176 - - - 104,176
Subsidiary investment - 207,913 90,772 (298,685)(a) -
Retained earnings (deficit) 20,126 58,287 42,167 (100,454)(b) 20,126
Accumulated other comprehensive loss - - (7,004) - (7,004)
Stock purchase plan (482) - - - (482)
------------------ ---------- ------------ ------------ ------------
Total stockholders' equity 124,065 266,200 125,935 (399,139) 117,061
------------------ ---------- ------------ ------------ ------------
Total liabilities and stockholders' equity $ 413,372 $ 630,136 $ 186,258 $ (399,740) $ 830,026
================== ========== ============ ============ ============
</TABLE>
________________________________________________________________
(a) Elimination of investments in subsidiaries.
(b) Elimination of investments in subsidiaries' earnings.
(c) Elimination of intercompany profit in inventory.
11
<PAGE>
Delco Remy International, Inc.
Condensed Consolidating Balance Sheet
July 31, 1999
(in thousands of dollars)
<TABLE>
<CAPTION>
Delco Remy
International Inc. Non-
(Parent Subsidiary Guarantor
Company Only) Guarantors Subsidiaries Eliminations Consolidated
------------------ ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ - $ (291) $ 15,600 $ - $ 15,309
Trade accounts receivable, net - 118,371 29,617 - 147,988
Other receivables - 6,626 8,870 - 15,496
Inventories - 189,893 43,916 (1,644)(c) 232,165
Deferred income taxes - 14,997 - - 14,997
Other current assets - 2,125 778 - 2,903
------------------ ---------- ------------ ------------ ------------
Total current assets - 331,721 98,781 (1,644) 428,858
Property and equipment 40 195,403 63,284 - 258,727
Less accumulated depreciation 40 54,754 8,738 - 63,532
------------------ ---------- ------------ ------------ ------------
Property and equipment, net - 140,649 54,546 - 195,195
Deferred financing costs 8,352 2,840 - - 11,192
Goodwill, net - 114,799 22,630 - 137,429
Investments in affiliates 381,246 - 19 (376,509)(a) 4,756
Other assets 2,411 295 2,527 - 5,233
------------------ ---------- ------------ ------------ ------------
Total assets $ 392,009 $ 590,304 $ 178,503 $ (378,153) $ 782,663
================== ========== ============ ============ ============
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 636 $ 85,590 $ 33,113 $ - $ 119,339
Intercompany accounts (19,630) 43,825 (23,596) (599)(c) -
Accrued interest payable 9,001 2,592 10 - 11,603
Accrued restructuring charges - 5,866 - - 5,866
Other liabilities and accrued expenses (1,250) 24,684 13,671 - 37,105
Current debt - 1,227 11,369 - 12,596
------------------ ---------- ------------ ------------ ------------
Total current liabilities (11,243) 163,784 34,567 (599) 186,509
Deferred income taxes - 4,560 8 - 4,568
Long-term debt, less current portion 285,000 138,117 11,814 - 434,931
Post-retirement benefits other than pensions - 21,050 - - 21,050
Accrued pension benefit - 2,719 - - 2,719
Other non-current liabilities 2,216 1,328 1 - 3,545
Minority interests in subsidiaries - 10,112 9,709 - 19,821
Stockholders' equity:
Common stock:
Class A shares 182 - - - 182
Class B shares 63 - - - 63
Paid-in capital 104,176 - - - 104,176
Subsidiary investment - 200,052 92,998 (293,050)(a) -
Retained earnings (deficit) 12,152 48,582 35,922 (84,504)(b) 12,152
Accumulated other comprehensive loss - - (6,516) - (6,516)
Stock purchase plan (537) - - - (537)
------------------ ---------- ------------ ------------ ------------
Total stockholders' equity 116,036 248,634 122,404 (377,554) 109,520
------------------ ---------- ------------ ------------ ------------
Total liabilities and stockholders' equity $ 392,009 $ 590,304 $ 178,503 $ (378,153) $ 782,663
================== ========== ============ ============ ============
</TABLE>
___________________________________________________________
(a) Elimination of investments in subsidiaries.
(b) Elimination of investments in subsidiaries' earnings.
(c) Elimination of intercompany profit in inventory.
12
<PAGE>
Delco Remy International, Inc.
Condensed Consolidating Statement of Cash Flows
For the Three Months Ended October 31, 1999
(Unaudited)
(in thousands of dollars)
<TABLE>
<CAPTION>
Delco Remy
International Inc. Non-
(Parent Subsidiary Guarantor
Company Only) Guarantors Subsidiaries Eliminations
------------------ ------------ -------------- --------------
<S> <C> <C> <C> <C>
Operating activities:
Net income $ 7,974 $ 9,705 $ 6,245 $ (15,950)(a)
Adjustments to reconcile net income to net cash flows
provided by (used in) operating activities:
Depreciation - 5,282 1,048 -
Amortization 64 849 727 -
Minority interest in income of subsidiaries - 688 1,123 -
Income from unconsolidated joint ventures - - 6 -
Equity in earnings of subsidiary (15,950) - - 15,950(a)
Post-retirement benefits other than pensions - 844 - -
Accrued pension benefits - 238 - -
Non-cash interest expense 273 166 - -
Changes in operating assets and liabilities, net of
acquisitions:
Accounts receivable - (31,826) (5,861) -
Inventories - 88 (3,572) -
Accounts payable (70) 14,716 (185) -
Other current assets and liabilities 4,436 (2,703) 5,569 -
Intercompany accounts 8,720 (3,195) (5,525) -
Accrued restructuring charges - (463) - -
Other non-current assets and liabilities, net 286 (3,540) 4,350 -
------------------ ------------ -------------- --------------
Net cash provided by (used in) operating activities 5,733 (9,151) 3,925 -
Investing activities:
Acquisitions, net of cash acquired (5,733) - - -
Purchases of property and equipment - (5,998) (7,144) -
------------------ ------------ -------------- --------------
Net cash used in investing activities (5,733) (5,998) (7,144) -
Financing activities:
Net borrowings (repayments) under revolving line of
credit and other - 15,398 (601) -
------------------ ------------ -------------- --------------
Net cash provided by (used in) financing activities - 15,398 (601) -
Effect of exchange rate changes on cash - - - -
------------------ ------------ -------------- --------------
Net increase (decrease) in cash and cash equivalents - 249 (3,820) -
Cash and cash equivalents at beginning of period - (291) 15,600 -
------------------ ------------ -------------- --------------
Cash and cash equivalents at end of period $ - $ (42) $ 11,780 $ -
================== ============= ============== ==============
<CAPTION>
Consolidated
--------------
<S> <C>
Operating activities:
Net income $ 7,974
Adjustments to reconcile net income to net cash flows
provided by (used in) operating activities:
Depreciation 6,330
Amortization 1,640
Minority interest in income of subsidiaries 1,811
Income from unconsolidated joint ventures 6
Equity in earnings of subsidiary -
Post-retirement benefits other than pensions 844
Accrued pension benefits 238
Non-cash interest expense 439
Changes in operating assets and liabilities, net of
acquisitions:
Accounts receivable (37,687)
Inventories (3,484)
Accounts payable 14,461
Other current assets and liabilities 7,302
Intercompany accounts -
Accrued restructuring charges (463)
Other non-current assets and liabilities, net 1,096
--------------
Net cash provided by (used in) operating activities 507
Investing activities:
Acquisitions, net of cash acquired (5,733)
Purchases of property and equipment (13,142)
--------------
Net cash used in investing activities (18,875)
Financing activities:
Net borrowings (repayments) under revolving line of
credit and other 14,797
--------------
Net cash provided by (used in) financing activities 14,797
Effect of exchange rate changes on cash -
--------------
Net increase (decrease) in cash and cash equivalents (3,571)
Cash and cash equivalents at beginning of period 15,309
--------------
Cash and cash equivalents at end of period $ 11,738
==============
</TABLE>
_________________________________________________________________
(a) Elimination of equity in earnings of subsidiaries.
13
<PAGE>
Delco Remy International, Inc.
Condensed Consolidating Statement of Cash Flows
For the Three Months Ended October 31, 1998
(Unaudited)
(in thousands of dollars)
<TABLE>
<CAPTION>
Delco Remy
International Inc. Non-
(Parent Subsidiary Guarantor
Company Only) Guarantors Subsidiaries Eliminations
------------------ ------------ -------------- --------------
<S> <C> <C> <C> <C>
Operating activities:
Net income $ 5,388 $ 8,157 $ 4,874 $ (13,031)(a)
Adjustments to reconcile net income to net cash flows
from operating activities:
Depreciation - 3,478 561 -
Amortization 288 701 71 -
Minority interest in income of subsidiaries - 586 175 -
Income from unconsolidated joint ventures - - (1,181) -
Equity in earnings of subsidiaries (13,031) - - 13,031(a)
Deferred income taxes (1,420) 955 (80) -
Post-retirement benefits other than pensions - 957 - -
Accrued pension benefits - 477 - -
Non-cash interest expense 273 66 - -
Changes in operating assets and liabilities, net of
acquisitions:
Accounts receivable - (26,199) 2,694 -
Inventories - 2,435 (2,870) -
Accounts payable 816 6,807 (710) -
Intercompany accounts 12,268 (1,381) (10,887) -
Other current assets and liabilities (3,205) (7,088) (2,881) -
Accrued restructuring charges - (5,571) - -
Other non-current assets and liabilities, net (1,377) (7,434) 8,790 -
------------------ ------------ -------------- --------------
Net cash used in operating activities - (23,054) (1,444) -
Investing activities:
Purchases of property and equipment - (5,001) (945) -
------------------ ------------ -------------- --------------
Net cash used in investing activities - (5,001) (945) -
Financing activities:
Net borrowings under revolving line of credit and
other - 28,916 1,782 -
------------------ ------------ -------------- --------------
Net cash provided by financing activities - 28,916 1,782 -
Effect of exchange rate changes on cash - - 126 -
------------------ ------------ -------------- --------------
Net increase (decrease) in cash and cash equivalents - 861 (481) -
Cash and cash equivalents at beginning of period - 125 7,988 -
------------------ ------------ -------------- --------------
Cash and cash equivalents at end of period $ - $ 986 $ 7,507 $ -
================== ============ ============== ==============
<CAPTION>
Consolidated
--------------
<S> <C>
Operating activities:
Net income $ 5,388
Adjustments to reconcile net income to net cash flows
from operating activities:
Depreciation 4,039
Amortization 1,060
Minority interest in income of subsidiaries 761
Income from unconsolidated joint ventures (1,181)
Equity in earnings of subsidiaries -
Deferred income taxes (545)
Post-retirement benefits other than pensions 957
Accrued pension benefits 477
Non-cash interest expense 339
Changes in operating assets and liabilities, net of
acquisitions:
Accounts receivable (23,505)
Inventories (435)
Accounts payable 6,913
Intercompany accounts -
Other current assets and liabilities (13,174)
Accrued restructuring charges (5,571)
Other non-current assets and liabilities, net (21)
--------------
Net cash used in operating activities (24,498)
Investing activities:
Purchases of property and equipment (5,946)
--------------
Net cash used in investing activities (5,946)
Financing activities:
Net borrowings under revolving line of credit and
other 30,698
--------------
Net cash provided by financing activities 30,698
Effect of exchange rate changes on cash 126
--------------
Net increase (decrease) in cash and cash equivalents 380
Cash and cash equivalents at beginning of period 8,113
--------------
Cash and cash equivalents at end of period $ 8,493
==============
</TABLE>
____________________________________________________________
(a) Elimination of equity in earnings of subsidiaries.
14
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
<TABLE>
<CAPTION>
For the Three Months
Ended October 31,
---------------------------------------------------------
1999 1998
------------------------ -------------------------
(Thousands of Dollars) Amount % Amount %
------------------------ -------------------------
<S> <C> <C> <C> <C>
Net Sales $277,189 100.0% $232,785 100.0%
Cost of Sales 216,764 78.2% 191,013 82.1%
-------- -------- -------- -------
Gross Profit 60,425 21.8% 41,772 17.9%
Selling, Engineering and Administrative Expense 30,870 11.1% 22,164 9.5%
Amortization of Goodwill and Intangibles 1,640 0.6% 1,060 0.5%
-------- -------- -------- -------
Operating Income 27,915 10.1% 18,548 8.0%
Interest Expense (12,124) (4.4%) (10,403) (4.5%)
Provision for Income Taxes 6,000 2.2% 3,177 1.4%
Minority Interest (1,811) (0.7%) (761) (0.3%)
Income from Unconsolidated Joint Ventures (6) 0.0% 1,181 0.5%
-------- -------- -------- -------
Net Income $ 7,974 2.9% $ 5,388 2.3%
======== ======== ======== =======
</TABLE>
Three Months Ended October 31, 1999 Compared to Three Months Ended October 31,
1998
Net Sales Net sales of $277.2 million in the first quarter of fiscal year 2000
increased $44.4 million, or 19.1%, from the first quarter of fiscal year 1999.
This increase was due to higher demand for automotive electrical products in the
OEM market, the effect of the acquisitions of Williams Technologies in the
second quarter of fiscal year 1999 and Engine Master in the first quarter of
fiscal year 2000 and increased demand for both electrical and
powertrain/drivetrain remanufactured products in the aftermarket.
Gross Profit Gross profit of $60.4 million increased $18.7 million, or 44.7%,
and as a percentage of sales improved from 17.9% in the first quarter of 1999 to
21.8% in the first quarter of 2000. The growth in gross profit dollars reflects
the sales growth discussed above. The improvement in margin was due to the
realization of cost efficiencies generated by the OEM restructuring, the
benefits of lean manufacturing initiatives, leveraging of fixed manufacturing
costs and the effect of certain aftermarket and foreign acquisitions which
generate higher gross profit margins.
Selling, Engineering and Administrative Expenses Selling, engineering and
administrative (SE&A) expenses increased $8.7 million, or 39.3%, and as a
percentage of sales increased from 9.5% to 11.1% due primarily to the effect of
acquisition related activities and aftermarket marketing initiatives.
Operating Income Operating income of $27.9 million increased $9.4 million, or
50.5%, and as a percentage of sales improved from 8.0% in the first quarter of
fiscal year 1999 to 10.1% in the first quarter of fiscal year 2000. This
improvement reflects the sales and gross margin issues discussed above,
partially offset by higher SE&A expense.
15
<PAGE>
Interest Expense Interest expense of $12.1 million increased $1.7 million, or
16.5%, from the first quarter of fiscal 1999 due primarily to a higher average
level of debt incurred to finance acquisitions and capital expenditures.
Income Taxes Income tax expense in the first quarter of fiscal year 2000 was
$6.0 million compared to $3.2 million in the comparable period last year. The
Company's consolidated effective income tax rate of 38.0% was down from 39.0%
due to the implementation of various tax planning initiatives and the effect of
the acquisition of certain foreign subsidiaries.
Income (Loss) From Unconsolidated Joint Ventures The Company's share of the
earnings of its unconsolidated joint ventures of $1.2 million in the first
quarter of fiscal year 1999 were primarily attributable to Remy Korea Ltd.,
which was consolidated effective June 25, 1999.
Liquidity and Capital Resources
The Company's short-term liquidity needs include required debt service,
including capital lease payments, day to day operating expenses, working capital
requirements and the funding of capital expenditures. Long-term liquidity
requirements include principal payments of long-term debt and the funding of
acquisitions. The Company's principal sources of cash to fund its short-term
liquidity needs consist of cash generated by operations and borrowing under the
Senior Credit Facility. As of December 1, 1999, borrowings under the Senior
Credit Facility were $114.7 million, leaving $185.3 million available under the
$300 million facility, net of letters of credit.
In the first quarter of fiscal year 2000, cash provided by operating activities
was $.5 million compared to cash used of $24.5 million in the first quarter of
fiscal year 1999. This improvement reflects increased earnings, depreciation,
amortization and a smaller increase in net working capital from year-end.
Accounts receivable increased $37.7 from July 31 due to strong shipments during
the quarter to both OEM and aftermarket customers. Accounts payable increased
$14.5 million due to first quarter production levels and the timing of payments.
The Company's net trade cycle, including accounts receivable, inventory and
accounts payable days, declined compared with both year-end and first quarter
1999.
Capital expenditures of $13.1 million in the first quarter were in line with
planned spending and included investments in machinery and equipment in certain
foreign operations. In the first quarter, the Company completed the acquisition
of Engine Master, a remanufacturer of engines.
Net borrowings under the Company's revolving line of credit and other debt
increased $14.8 million in the first quarter compared to a $30.7 million
increase in the first quarter of fiscal year 1999. This improvement reflects
the increase in cash generated by operating activities discussed above partially
offset by higher capital spending and the acquisition.
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.
16
<PAGE>
Seasonality
The Company's business is moderately seasonal, as its major OEM customers
historically have one- to two-week summer shutdowns of operations during the
fourth fiscal quarter. In addition, the Company typically has shut down its own
operations for one week each July, depending on backlog, scheduled maintenance
and inventory buffers, as well as an additional week during the December
holidays. Consequently, the Company's second and fourth quarter results reflect
the effects of these shutdowns.
Year 2000 Readiness Disclosure
The Company has established remediation plans for all major information
technology based systems potentially affected by the Year 2000 issue. 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 mission-
critical applications.
Conversion. Each material mission-critical system has been converted
to a tested Year 2000 environment.
Testing. Testing will continue until December 31, 1999 on all
mission-critical systems to mitigate any exposure.
Implementation. All material mission-critical systems have been
implemented.
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.
Foreign Sales
A portion of the Company's sales are derived from sales made to customers in
foreign countries. Because of these foreign sales, the Company's business is
subject to the risks of doing business abroad, including currency exchange rate
fluctuations, limits on repatriation of funds, compliance with foreign laws and
other economic and political uncertainties.
17
<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 including, but not limited to risks associated with the
uncertainty of future financial results, acquisitions, additional financing
requirements, development of new products and services, the effect of
competitive products or pricing, the effect of economic conditions and other
uncertainties. Due to these uncertainties, the Company cannot assure readers
that any forward-looking statements will prove to have been correct.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 Financial Data Schedule (Filed via EDGAR only)
(b) Reports on Form 8-K
On September 8, 1999, the Company filed an amendment to its
report on Form 8-K relative to the acquisition of an
additional 31% of the capital shares of Remy Korea Ltd.,
providing financial statements of Remy Korea Ltd. and pro
forma financial information of the Company.
18
<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: November 30, 1999 By: /s/ David L. Harbert
---------------------------------
David L. Harbert
Executive Vice President and
Chief Financial Officer
Date: November 30, 1999 By: /s/ David E. Stoll
---------------------------------
David E. Stoll
Vice President and Controller
Chief Accounting Officer
19
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AND 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-31-2000
<PERIOD-START> AUG-01-1999
<PERIOD-END> OCT-31-1999
<CASH> 11,738
<SECURITIES> 0
<RECEIVABLES> 187,901
<ALLOWANCES> 2,226
<INVENTORY> 239,236
<CURRENT-ASSETS> 470,165
<PP&E> 270,352
<DEPRECIATION> 67,036
<TOTAL-ASSETS> 830,026
<CURRENT-LIABILITIES> 206,824
<BONDS> 451,235
0
0
<COMMON> 245
<OTHER-SE> 116,816
<TOTAL-LIABILITY-AND-EQUITY> 830,026
<SALES> 277,189
<TOTAL-REVENUES> 277,189
<CGS> 216,764
<TOTAL-COSTS> 216,764
<OTHER-EXPENSES> 32,510
<LOSS-PROVISION> 450
<INTEREST-EXPENSE> 12,124
<INCOME-PRETAX> 15,791
<INCOME-TAX> 6,000
<INCOME-CONTINUING> 7,974
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,974
<EPS-BASIC> .33
<EPS-DILUTED> .31
</TABLE>
