<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 January 31,1999
----------------
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Transition Period From
____________________ to _________________
Commission File Number 1-13683 .
--------------------------------------------------
Delco Remy International, Inc. .
- -------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 35-1909253 .
- -------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
2902 Enterprise Drive, Anderson, Indiana 46013 .
- -------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(765) 778-6499 .
- -------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Not Applicable .
- -------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report )
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No ___
---
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date:
Number of common shares outstanding
Class as of March 12, 1999
----- --------------------
Common Stock - Class A 18,151,656
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 Six-Month Period
Ended January 31 Ended January 31
------------------------------ ----------------------------------
1999 1998 1999 1998
------------------------------ ----------------------------------
(in thousands dollars, except per share amounts)
<S> <C> <C> <C> <C>
Net sales $ 222,324 $ 193,259 $ 455,109 $ 402,279
Cost of goods sold 175,014 154,061 366,027 324,938
------------- ------------ ------------- --------------
Gross profit 47,310 39,198 89,082 77,341
Selling, engineering, and administrative expenses 26,487 21,230 49,711 42,166
------------- ------------ ------------- --------------
Operating income 20,823 17,968 39,371 35,175
Interest expense 11,266 10,129 21,669 20,650
------------- ------------ ---------------- --------------
Income from continuing operations before income taxes,
minority interest in income of subsuduarues, income
from unconsolidated joint ventures, deemed
dividend on preferred stock converison, and preferred
dividend requirement of subsidiary 9,557 7,839 17,702 14,525
Income taxes 3,727 3,020 6,904 5,695
Minority interest in income of subsidiaries (821) (482) (1,582) (1,021)
Income from unconsolidated joint ventures 847 - 2,028 -
Deemed dividend on preferred stock conversion - (1,639) - (1,639)
Preferred dividend requirement of subsidiary - (234) - (645)
------------- ------------ ------------- --------------
Income from continuing operations 5,856 2,464 11,244 5,525
Extraordinary item:
Write-off of debt issuance costs
(less applicable tax benefit) - (1,803) - (1,803)
------------- ------------ ------------- --------------
Net income $ 5,856 $ 661 $ 11,244 $ 3,722
============= ============ ============= ==============
Basic earnings per common share:
Income before extraordinary item $ 0.25 $ 0.13 $ 0.47 $ 0.33
Extraordinary (write-off debt issuance costs) - (0.10) - (0.11)
------------- ------------ ------------- --------------
Net income $ 0.25 $ 0.04 $ 0.47 $ 0.22
============= ============ ============= ==============
Diluted earnings per common share:
Income before extraordinary item $ 0.23 $ 0.12 $ 0.43 $ 0.29
extraordinary item (write-off of debt issuance costs) - (0.09) - (0.09)
------------- ------------- ------------- --------------
Net income $ 0.23 $ 0.03 $ 0.43 $ 0.19
============= ============= ============= ==============
</TABLE>
See Notes to Condensed Consolidated Financial Statements
2
<PAGE>
Condensed Consolidated Balance Sheets
Delco Remy International, Inc. and Subsidiaries
<TABLE>
<CAPTION>
January 31, July 31,
1999 1998
---------------- -----------------
(in thousands of dollars
ASSETS (Unaudited)
------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 10,141 $ 8,113
Trade accounts receivable, net 139,914 126,896
Other receivables 17,574 9,846
Inventories 220,784 198,437
Deferred income taxes 18,606 21,653
Other current assets 9,712 4,685
---------------- -----------------
Total current assets 416,731 369,630
Property and equipment 231,695 208,537
Less accumulated depreciation 58,678 50,568
---------------- -----------------
Property and equipment, Net 173,017 157,969
Deferred financing costs 12,073 10,786
Goodwill (less accumulated amortization) 133,428 115,446
Net assets held for disposal 14,477 14,894
Investment in joint ventures 14,501 12,474
Other assets 5,148 3,798
---------------- -----------------
Total assets $ 769,375 $ 684,997
================ =================
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable $ 94,047 $ 85,804
Accrued interest payable 10,886 9,581
Accrued restructuring charges 24,900 35,519
Other liabilities and accrued expenses 35,613 37,318
Current portion of long-term debt 3,360 1,948
---------------- -----------------
Total current liabilities 168,806 170,170
Deferred income taxes 1,769 1,241
Long-term debt, less current portion 461,690 393,806
Post-retirement benefits other than pensions 18,407 16,495
Accrued pension benefits 5,031 4,628
Commitments and contingencies
Other noncurrent liabilities 5,953 3,967
Minority interest in subsidiaries 12,030 10,450
Stockholders' equity:
Common Stock:
Class A shares 182 182
Class B shares 63 63
Paid-in capital 106,392 106,392
Retained deficit (4,951) (16,194)
Cumulative translation adjustment (4,172) (4,074)
Stock purchase plan (1,825) (2,129)
---------------- -----------------
Total stockholders' equity 95,689 84,240
---------------- -----------------
Total liabilities and stockholders'
equity $ 769,375 $ 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>
Six Month Period
Ended January 31
-------------------------------------------------
1999 1998
-------------------------------------------------
(in thousands of dollars)
<S> <C> <C>
Operation activities:
Net income $ 11,244 $ 3,722
Extraordinary items - 1,803
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation 8,512 8,402
Amortization 3,103 2,325
Minority interest in income of subsidiaries 1,582 1,021
Income from unconsolidated joint ventures (2,028) -
Deferred income taxes 3,047 2,021
Post-retirement benefits other than pensions 1,912 -
Accrued pension benefits 403 -
Non-cash interest expense 767 1,658
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 (3,616) (10,345)
Inventories (10,917) (20,777)
Accounts payable 1,604 5,932
Other current assets and liabilities (14,884) (40)
Accrued restructuring charges (10,619) (2,621)
Other non-current assets and liabilities, net (581) (5,169)
--------- ----------
Net cash used in operating activities (10,471) (9,784)
Investing activities:
Acquisitions, net of cash acquired (40,148) (29,898)
Purchases of property and equipment (11,161) (11,809)
Investment in joint ventures - (2,601)
--------- ----------
Net cash used in investing activities (51,309) (44,308)
Financing activities:
Proceeds from initial public offering - 51,336
Proceeds from issuances of long-term debt - 145,000
Payments on long-term debt - (147,257)
Net borrowings under revolving line of credit and other 63,855 809
--------- ----------
Net cash provided by financing activities 63,855 49,888
Effect of exchange rate changes on cash (47) (1,446)
--------- ----------
Net increase (decrease) in cash and cash equivalents 2,028 (5,650)
Cash and cash equivalents at beginning of period 8,113 10,050
--------- ----------
Cash and cash equivalents at end of period $ 10,141 $ 4,400
========= ==========
</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 six-month periods
ended January 31, 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>
January 31, July 31,
1999 1998
-------------------------------------------------------------------------------
<S> <C> <C>
Raw material $ 126,061 $ 102,281
Work-in-process 37,345 36,742
Finished goods 57,378 59,414
-------- -------
Total $ 220,784 $ 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
(loss) was $6,488 and $(364) for the three-month period ending January 31, 1999
and 1998, respectively and $11,146 and $2,276 for the six-month period ending
January 31,1999 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 Ended Six-Month Period Ended
January 31, January 31,
- ---------------------------------------------------------------------------------------------------------------
1999 1998 1999 1998
-----------------------------------------------------------
<S> <C> <C> <C> <C>
Numerator:
Income from continuing operations $ 5,856 $ 2,464 $ 11,244 $ 5,525
Extraordinary item - (1,803) - (1,803)
-----------------------------------------------------------
Numerator for basic and diluted earnings per share $ 5,856 $ 661 $ 11,244 $ 3,722
===========================================================
Denominator (in thousands of shares):
Denominator for basic earnings per share (weighted 23,842 18,878 23,808 17,000
average shares)
Effect of dilutive securities:
Warrants 1,680 1,677 1,680 1,677
Employee stock options - 7 - 4
Stock purchase plan 351 523 398 523
-----------------------------------------------------------
Denominator for diluted earnings per share
(weighted average shares and assumed conversions) 25,873 21,085 25,886 19,204
- ---------------------------------------------------------------------------------------------------------------
</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 $40,000 in cash,
less Williams' intercompany and third-party debt and subject to 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 $19,261 which is
being amortized over 35 years. Results of operations for Williams are included
in the Company's consolidated results from the acquisition date.
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 six months
ended January 31, 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>
- ---------------------------------------------------------------------------------------------------------------------------------
Six Months Ended Six Months Ended
January 31, 1999 January 31, 1998
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net sales $ 465,226 $ 430,653
--------- ---------
Income before extraordinary item 11,517 6,267
--------- ---------
Net income $ 11,517 $ 4,464
========= =========
Basic earnings per common share before extraordinary item $ 0.48 $ 0.37
======= ======
Basic earnings per common share $ 0.48 $ 0.26
======= ======
Fully diluted earnings per common share before extraordinary item $ 0.44 $ 0.33
======= ======
Fully diluted earnings per common share $ 0.44 $ 0.23
======= ======
</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 at the beginning of each period and is not
intended to project future results of operations.
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 January
31, 1999 and July 31, 1998 and for the three month and six month periods ended
January 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. 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>
<TABLE>
<CAPTION>
DELCO REMY INTERNATIONAL, INC.
Condensed Consolidating Statement of Operations
For the Three Months Ended January 31, 1999
Delco Remy
International
Inc. Non-
(Parent Subsidiary Guarantor
Company Only) Guarantors Subsidiaries Eliminations Consolidated
-------------- ----------- ------------ ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Net sales.............................. $ - $ 223,288 $ 65,595 $ (66,559)(a) $ 222,324
Cost of goods sold..................... - 187,371 54,202 (66,559)(a) 175,014
--------- ---------- --------- --------- ----------
Gross profit........................... - 35,917 11,393 - 47,310
Selling, engineering, and
administrative expenses............... 2,926 18,127 5,434 - 26,487
--------- ---------- --------- --------- ----------
Operating (loss) income................ (2,926) 17,790 5,959 - 20,823
Interest expense....................... (6,664) (4,097) (505) - (11,266)
--------- ---------- --------- --------- ----------
(Loss) income from continuing
operations before income
tax (benefit), minority interest
in income of subsidiaries, equity
earnings of subsidiaries, income
from unconsolidated joint
ventures........................ (9,590) 13,693 5,454 - 9,557
Income taxes (benefit)................. (628) 2,595 1,760 - 3,727
Minority interest in income of
subsidiaries.......................... - (650) (171) - (821)
Equity in earnings of subsidiaries..... 14,818 - - (14,818)(b) -
Income from unconsolidated joint
ventures.............................. - - 847 847
--------- ---------- --------- --------- ----------
Net income (loss) $ 5,856 $ 10,448 $ 4,370 $ (14,818) $ 5,856
========= ========== ========= ========== ==========
(a) Elimination of intercompany sales and cost of sales.
(b) Elimination of equity in net income (loss) from consolidated subsidiaries.
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
DELCO REMY INTERNATIONAL, INC.
Condensed Consolidating Statement of Operations
For the Six Month Period Ended January 31, 1999
Delco Remy
International
Inc. Non-
(Parent Subsidiary Guarantor
Company Only) Guarantors Subsidiaries Eliminations Consolidated
-------------- ----------- ------------ -------------- ---------------
<S> <C> <C> <C> <C> <C>
Net sales.............................. $ - $ 458,228 $ 120,596 $ (123,715)(a) $ 455,109
Cost of goods sold..................... - 390,345 99,397 (123,715)(a) 366,027
-------------- ----------- ----------- ----------- -------------
Gross profit........................... - 67,883 21,199 89,082
Selling, engineering, and
administrative expenses............... 5,108 34,689 9,914 49,711
-------------- ----------- ----------- ----------- -------------
Operating (loss) income................ (5,108) 33,194 11,285 39,371
Interest expense....................... 13,831 7,316 522 21,669
-------------- ----------- ----------- ----------- -------------
(Loss) income from continuing
operations before income
tax (benefit), minority
interest in income of
subsidiaries, equity in earnings
of subsidiaries and income from
unconsolidated joint ventures...... (18,939) 25,878 10,763 17,702
Income taxes (benefit)................. (2,334) 6,035 3,203 - 6,904
Minority interest in income
of subsidiaries....................... - (1,238) (344) (1,582)
Equity in earnings of subsidiaries..... 27,849 - - (27,849)(b) -
Income from unconsolidated joint - 2,028 2,028
ventures..............................
-------------- ----------- ----------- ----------- ------------
Net income (loss)...................... $ 11,244 $ 18,605 $ 9,244 $ (27,849) $ 11,244
============== =========== =========== =========== ============
(a) Elimination of intercompany sales and cost of sales.
(b) Elimination of equity in net income (loss) from consolidated subsidiaries.
</TABLE>
10
<PAGE>
Delco Remy International, Inc.
Condensed Consolidated Statement of Operations
For the Three Months Ended January 31, 1998
(in thousands of dollars)
<TABLE>
<CAPTION>
Delco Remy
International
Inc. Non-
(Parent Subsidiary Guarantor
Company Only) Guarantors Subsidiaries Eliminations Consolidated
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $ - $199,596 $28,128 $(34,465) (a) $193,259
Cost of goods sold - 164,692 23,834 (34,465) (a) 154,061
----------------------------------------------------------------------------
Gross profit - 34,904 4,294 - 39,198
Selling, engineering, & administrative expenses 654 18,352 2,224 - 21,230
----------------------------------------------------------------------------
Operating income (loss) (654) 16,552 2,070 - 17,968
Interest expense 5,760 4,285 84 - 10,129
----------------------------------------------------------------------------
Income (loss) from continuing operations before income
taxes (benefit), minority interest in income of
subsidiaries, equity in earnings of subsidiaries
deemed dividend on preferred stock conversion, and
preferred dividend requirements of subsidiary (6,414) 12,267 1,986 - 7,839
Income taxes (benefit) (2,471) 4,726 765 - 3,020
Minority interest in income of subsidiary - (436) (46) - (482)
Equity in earnings of subsidiary 4,604 - - (4,604) (b) -
Deemed dividend on preferred stock conversion - - - (1,639) (c) (1,639)
Preferred dividend requirement of subsidiary - - - (234) (c) (234)
---------------------------------------------------------------------------
Income (loss) from continuing operations 661 7,105 1,175 (6,477) 2,464
Extraordinary item:
Write-off of debt issuance costs
(less applicable income tax benefit) - (1,803) - - (1,803)
---------------------------------------------------------------------------
Net income (loss) $ 661 $ 5,302 $ 1,175 $ (6,477) $ 661
===========================================================================
</TABLE>
(a) Elimination of intercompany sales and cost of sales.
(b) Elimination of equity in net income (loss) from consolidated subsidiaries.
(c) Recording of preferred dividend requirement of subsidiary and deemed
dividend on preferred stock conversion
11
<PAGE>
Delco Remy International, Inc.
Condensed Consolidated Statement of Operations
For the Six Months Ended January 31, 1998
(in thousands of dollars)
<TABLE>
<CAPTION>
Delco Remy
International
Inc. Non-
(Parent Subsidiary Guarantor
Company Only) Guarantors Subsidiaries Eliminations Consolidated
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $ - $413,240 $53,940 $(64,901) (a) $402,279
Cost of goods sold - 344,177 45,662 (64,901) (a) 324,938
-------------------------------------------------------------------------
Gross profit - 69,063 8,278 - 77,341
Selling, engineering, & administrative expenses 1,514 35,935 4,717 - 42,166
-------------------------------------------------------------------------
Operating income (loss) (1,514) 33,128 3,561 - 35,175
Interest expense 10,568 9,992 90 - 20,650
-------------------------------------------------------------------------
Income (loss) from continuing operations
before income taxes (benefit), minority
interest in income of subsidiaries,
equity earnings of subsidiaries
deemed dividend on preferred stock
conversion, and preferred dividend
requirement of subsidiary (12,082) 23,136 3,471 - 14,525
Income taxes (benefit) (4,738) 9,072 1,361 - 5,695
Minority interest in income of subsidiary - (944) (77) - (1,021)
Equity in earnings of subsidiary 11,066 - - (11,066) (b) -
Deemed dividend on preferred stock conversion - - - (1,639) (c) (1,639)
Preferred dividend requirement of subsidiary - - - (645) (c) (645)
-------------------------------------------------------------------------
Income (loss) from continuing operations 3,722 13,120 2,033 (13,350) 5,525
Extraordinary item:
Write-off of debt issuance costs
(less applicable income tax benefit) - (1,803) - - (1,803)
-------------------------------------------------------------------------
Net income (loss) $ 3,722 $ 11,317 $ 2,033 $(13,350) $ 3,722
=========================================================================
</TABLE>
- ----------------------------------
(a) Elimination of intercompany sales and cost of sales.
(b) Elimination of equity in net income (loss) from consolidated subsidiaries.
(c) Recording of preferred dividend requirement of subsidiary and deemed
dividend on preferred stock conversion
12
<PAGE>
<TABLE>
<CAPTION>
DELCO REMY INTERNATIONAL, INC.
Condensed Consolidating Balance Sheet
January 31, 1999
Delco Remy
International
Inc. Non-
(Parent Subsidiary Guarantor
Company Only) Guarantors Subsidiaries Eliminations Consolidated
----------------------------------------------------------------------------------------------
<S>
Assets:
Current assets: <C> <C> <C> <C> <C>
Cash and cash equivalents....... $ - $ 1,796 $ 8,345 $ - $ 10,141
Trade accounts receivable....... - 122,361 17,553 - 139,914
Other receivables............... 1,776 10,526 5,272 - 17,574
Inventories..................... - 181,493 39,291 - 220,784
Deferred income taxes........... 6,578 11,961 67 - 18,606
Other current assets............ 2,804 6,579 329 - 9,712
---------- ---------- ---------- ------------ -------------
Total current assets............... 11,158 334,716 70,857 - 416,731
Property and equipment............. 20 199,440 32,235 - 231,695
Less accumulated depreciation...... 20 51,959 6,699 - 58,678
--------- ---------- ---------- ------------ -------------
- 147,481 25,536 - 173,017
Deferred financing costs........... 8,898 3,138 37 - 12,073
Goodwill, net...................... - 110,790 22,638 - 133,428
Net assets held for disposal....... - 14,477 - - 14,477
Investment in affiliates........... 333,085 - - (318,584)(a) 14,501
Other assets....................... 3,631 683 834 - 5,148
--------- ---------- ---------- ------------ -------------
Total assets....................... $ 356,772 $ 611,285 $ 119,902 $ (318,584) $ 769,375
========= ========== ========== ============ =============
Liabilities and stockholders' equity:
Current liabilities:
Accounts payable................ $ 243 $ 79,815 $ 13,989 $ - $ 94,047
Intercompany accounts........... (42,440) 37,489 4,951 - -
Accrued interest payable........ 9,001 1,885 - - 10,886
Accrued restructuring
charges........................ - 24,900 - - 24,900
Other liabilities and
accrued expenses.............. 1,012 31,144 3,457 - 35,613
Current portion of long
term debt..................... - 1,018 2,342 - 3,360
--------- ---------- ---------- ------------ -------------
Total current liabilities.......... (32,184) 176,251 24,739 - 168,806
Deferred income taxes.............. 1,761 40 (32) - 1,769
Long-term debt, less current
portion........................... 285,000 163,962 12,728 - 461,690
Post-retirement benefits other
than pensions..................... - 18,407 - - 18,407
Accrued pension benefit............ - 5,031 - - 5,031
Other non-current liabilities...... 2,334 2,253 1,366 - 5,953
Minority interest in
subsidiaries...................... - 9,886 2,144 - 12,030
Stockholders' equity:
Common stock:
Class A shares....... 182 - - - 182
Class B shares....... 63 - - - 63
Paid-in capital.......... 106,392 - - - 106,392
Subsidiary investment.... - 211,587 58,446 (270,033)(a) -
Retained earnings
(deficit)............... (4,951) 22,998 25,553 (48,551)(b) (4,951)
Cumulative translation
adjustment.............. - 870 (5,042) - (4,172)
Stock purchase plan...... (1,825) - - - (1,825)
---------- ---------- ---------- ------------ -------------
Total stockholders'
equity (deficit)........ 99,861 235,455 78,957 (318,584) 95,689
---------- ---------- ---------- ------------ -------------
Total liabilities and stockholders'
equity (deficit).................. $ 356,772 $ 611,285 $ 119,902 $ (318,584) $769,375
========== ========== ========== ============ =============
(a) Elimination of investments in subsidiaries.
(b) Elimination of investments in subsidiaries' earnings.
</TABLE>
13
<PAGE>
Delco Remy International, Inc.
Condensed Consolidating Balance Sheet
July 31, 1998
(in thousands of dollars)
<TABLE>
<CAPTION>
Delco Remy
International Inc. Non-
(Parent Subsidiary Guarantor
Company Only) Guarantors Subsidiaries Eliminations Consolidated
------------- ---------- ------------ ------------ ---------
<S> <C> <C> <C> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents.................. $-- $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 Six Month Period Ended January 31, 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)...................................... $ 11,244 $ 18,605 $ 9,244 $(27,849) $ 11,244
Adjustments to reconcile net
income (loss) to net cash
provided by (used in)
operating activities:
Depreciation - 7,306 1,206 - 8,512
Amortization 576 2,282 245 - 3,103
Minority Interest in income of subsidiaries - 1,236 346 - 1,582
Income from unconsolidated joint ventures - - (2,028) - (2,028)
Equity in earnings of subsidiary.................... (27,849) - - 27,849 (a) -
Deferred income taxes............................... (150) 3,264 (67) - 3,047
Post-retirement benefits other than pensions........ - 1,912 - - 1,912
Accrued pension benefits............................ - 403 - - 403
Non-cash interest expense........................... 546 221 - - 767
Changes in operating assets and
liabilities, net of acquisitions:
Accounts receivable............................ - (6,616) 3,000 - (3,616)
Inventories.................................... - (4,913) (6,004) - (10,917)
Accounts payable............................... 113 1,996 (505) - 1,604
Intercompany accounts.......................... 51,484 (50,956) (528) - -
Other current assets and liabilities........... 1,215 (12,644) (3,455) - (14,884)
Accrued restructuring.......................... - (10,619) - - (10,619)
Other non-current assets and
liabilities, net............................... 2,969 481 (4,031) - (581)
-------- -------- ------- -------- --------
Net cash provided by (used in) operating
activities........................................... 40,148 (48,042) (2,577) - (10,471)
Investing activities:
Acquisition, net of cash acquired..................... (40,148) - - - (40,148)
Purchase of property and equipment.................... - (8,081) (3,080) - (11,161)
-------- -------- ------- -------- --------
Net cash used in investing activities................. (40,148) (8,081) (3,080) - (51,309)
Financing activities:
Other financing activities............................ - 57,794 6,061 - 63,855
-------- -------- ------- -------- --------
Net provided by financing activities.................. - 57,794 6,061 - 63,855
-------- -------- ------- -------- --------
Effect of exchange rate changes on cash............... - - (47) - (47)
-------- -------- ------- -------- --------
Net increase in cash and cash equivalents............. - 1,671 357 - 2,028
Cash and cash equivalents at beginning of period...... - 125 7,988 - 8,113
-------- -------- ------- -------- --------
Cash and cash equivalents at end of period............ $ - $ 1,796 $ 8,345 $ - $ 10,141
======== ======== ======= ======== ========
</TABLE>
(a) Elimination of equity in earnings of subsidiary.
15
<PAGE>
Delco Remy International, Inc.
Condensed Consolidating Statement of Cash Flows
For the Six Months Ended January 31, 1998
( in thousands of dollars )
<TABLE>
<CAPTION>
Delco Remy
International
Inc.
(Parent Non-
Company Subsidiary Guarantor
Only) Guarantors Subsidiaries Eliminations Consolidated
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating Activities:
Net income (loss) $ 3,722 $ 11,317 $ 2,033 $(13,350) $ 3,722
Extraordinary item - 1,803 - - 1,803
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation - 7,820 582 - 8,402
Amortization 72 2,114 139 - 2,325
Equity in earnings of subsidiary (11,066) - - 11,066(a) -
Deferred income taxes (4,467) 6,869 (381) - 2,021
Non-cash interest expense 1,396 262 - - 1,658
Minority interest in subsidiary - 944 77 - 1,021
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 - (10,458) 113 - (10,345)
Inventories - (17,894) (2,883) - (20,777)
Accounts payable - 6,861 (929) - 5,932
Intercompany accounts (143,978) 148,095 (4,117) - -
Other current assets and liabilities 5,511 (2,363) (3,188) - (40)
Accrued restructuring - (2,621) - - (2,621)
Other non-current assets and
Liabilities, net (6,727) (6,337) 7,895 - (5,169)
---------------------------------------------------------------------------
Net cash (used by) provided by operating activities (155,537) 146,412 (659) - (9,784)
---------------------------------------------------------------------------
Investing activities:
Acquisition, net of cash acquired (29,898) - - - (29,898)
Purchase of property and equipment - (8,215) (3,594) - (11,809)
Investment in affiliates (2,601) - - - (2,601)
---------------------------------------------------------------------------
Net cash used in investing activities (32,499) (8,215) (3,594) - (44,308)
---------------------------------------------------------------------------
Financing activities:
Proceeds from issuance of long term debt 145,000 - - - 145,000
Payments on long-term debt (8,300) (138,957) - - (147,257)
Other financing activities - 257 552 809
Proceeds from initial public offering 51,336 - - - 51,336
---------------------------------------------------------------------------
Net cash provided by (used in) financing activities 188,036 (138,700) 552 - 49,888
---------------------------------------------------------------------------
Effect of exchange rate changes on cash - - (1,446) - (1,446)
Net decrease in cash and cash equivalents - (503) (5,147) - (5,650)
Cash and cash equivalents at beginning of year - 1,504 8,546 - 10,050
---------------------------------------------------------------------------
Cash and cash equivalents at end of year $ - $ 1,001 $ 3,399 $ - $ 4,400
===========================================================================
- -------------------------
</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 Six Months Ended
Ending January 31, Ending January 31,
1999 1998 1999 1998
(Thousands of Dollars) Amount % Amount % Amount % Amount %
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales $222,324 100.0% $193,259 100.0% $455,109 100.0% $402,279 100.0%
Cost of Sales 175,014 78.7% 154,061 79.7% 366,027 80.4% 324,938 80.8%
-------------------- ------------------- ------------------- -------------------
Gross Profit 47,310 21.3% 39,198 20.3% 89,082 19.6% 77,341 19.2%
Selling, Engineering, and
Administrative Expense 26,487 11.9% 21,230 11.0% 49,711 10.9% 42,166 10.5%
-------------------- ------------------- ------------------- -------------------
Operating Income 20,823 9.4% 17,968 9.3% 39,371 8.7% 35,175 8.7%
Interest Expense 11,266 5.1% 10,129 5.2% 21,669 4.8% 20,650 5.1%
Provision for Income Taxes 3,727 1.7% 3,020 1.6% 6,904 1.5% 5,695 1.4%
Minority Interest (821) -0.4% (482) -0.2% (1,582) -0.3% (1,021) -0.3%
Income from unconsolidated joint ventures 847 0.4% - 0.0% 2,028 0.4% - 0.0%
Preferred Dividend Requirement of Subsidiary - 0.0% (234) -0.1% - 0.0% (645) -0.2%
Non-recurring deemed dividend on preferred stock - 0.0% (1,639) -0.8% - 0.0% (1,639) -0.4%
conversion
Write-Off of Debt Issuance Costs Net of Tax - 0.0% (1,803) -0.9% - 0.0% (1,803) -0.4%
-------------------- ------------------- ------------------- -------------------
Net Income $ 5,856 2.6% $ 661 0.3% $ 11,244 2.5% $ 3,722 0.9%
==================== =================== =================== ===================
</TABLE>
Three Months Ended January 31, 1999 Compared to Three Months Ended January 31,
1998
Net Sales Net sales were $222.3 million for the three months ended
January 31, 1999, an increase of $29.1 million, or 15.0%, from $193.3 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
(April 1998). Growth in aftermarket sales also reflected stronger market demand
and the addition of new customers and distribution. OEM sales were up due
primarily to the acquisition of Ballantrae in December 1997 and increased
automotive and heavy duty demand.
Gross Profit Gross profit was $47.3 million in the second quarter
compared to $39.2 million in the second quarter of fiscal 1998, an increase of
$8.1 million, or 20.7%. This growth reflects the acquisitions and volume
increases discussed above. As a percentage of net sales, gross profit improved
to 21.3% from 20.3% due to sales growth, a higher mix of aftermarket sales and
improved productivity and quality.
Selling, Engineering and Administrative Expenses Selling,
engineering, and administrative (SE&A) expenses of $26.5 million were up $5.3
million, or 24.8%, from $21.2 million in the comparable period of fiscal 1998
and, as a percentage of sales, were 11.9% versus 11.0%. The effect of the
Ballantrae and Williams
17
<PAGE>
acquisitions were largely offset by continued emphasis on overall cost control.
Operating Income Operating income was $20.8 million for the three
months ended January 31, 1999, an increase of $2.9 million, or 15.9%, from the
second quarter of fiscal 1998. As a percentage of net sales, operating income
was essentially unchanged at 9.4% versus 9.3% in 1998. The growth in sales and
gross profit was partially offset by the increase in SE&A expense, as discussed
above.
Interest Expense Interest expense of $11.3 million in the second
quarter was up $1.1 million, or 11.2%, compared to $10.1 million in the second
quarter last year. The Company's weighted average interest rate declined year
over year as funds generated from the initial public offering in December 1997
were used to repay higher interest rate debt. This was more than offset by
increased utilization of the Senior Credit Facility since the refinancing to
fund acquisitions and business growth.
Income Taxes Income taxes for the three months ended January 31, 1999
were $3.7 million compared to $3.0 million in the second quarter of fiscal 1998.
The Company's consolidated effective income tax rate varies between 39% and 40%
based on income levels and other factors involving the states and countries in
which the Company does business.
Non-recurring Deemed Dividend of Preferred Stock Conversion. In
December 1997, a deemed dividend of subsidiary arose from the exchange of the
redeemable exchangeable preferred stock of subsidiary for the excess of the fair
value of the 8% Subordinated Debenture over the carrying value of the redeemable
exchangeable preferred stock of subsidiary resulting in a non-recurring charge
of $1.6 million for the three month period ending January 31, 1998.
Write Off of Debt Issuance Cost. In December 1997, certain debt was
retired with 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 three month period ended
January 31, 1998.
Six Months Ended January 31, 1999 Compared to Six Months Ended January 31, 1998
Net Sales Net sales of $455.1 million in the first half of fiscal
1999 were up $52.8 million, or 13.1%, compared with the first half of fiscal
1998. This increase was driven by the acquisitions discussed above, strong
market demand, new customers and distribution in the aftermarket and increased
demand in the automotive and heavy duty OEM markets. Sales in the first two
months of the first quarter were negatively affected by the GM strike in the
summer of 1998; the strike ended at the beginning of the Company's first quarter
and demand from GM returned to prior levels gradually throughout the quarter.
Gross Profit Gross profit of $89.1 million increased $11.7 million,
or 15.2%, from the first half of fiscal 1998 due to acquisitions and sales
volume growth. As a percentage of net sales, gross profit improved from 19.2%
to 19.6% in 1999 due to the higher mix of aftermarket sales and improved
productivity. The slow ramp up of demand from GM following the strike
negatively affected profitability in the first quarter through less than normal
utilization of plant capacity during that period.
Selling, Engineering and Administrative Expenses SE&A expenses of
$49.7 million were up $7.5 million, or 17.9%, from $42.2 million in the first
six months of fiscal 1998 and , as a percentage of sales, were 10.9% versus
10.5%. The effect of the Ballantrae and Williams acquisitions were mostly
offset by continued emphasis on overall cost control.
Operating Income Operating income was $39.4 million in the first half
of fiscal 1999, an increase of $4.2 million, or 11.9%, from the first half of
fiscal 1998. As a percentage of net sales, operating income was 8.7% in both
years, as the growth in sales and gross profit was mostly offset by the increase
in SE&A expense.
Interest Expense Interest expense of $21.7 million was up $1.0
million, or 4.9%, compared to $20.7 million in the first half last year. The
lower weighted average interest rate was mostly offset by increased utilization
of the Senior Credit Facility.
Income Taxes Income taxes for the six months ended January 31, 1999
were $6.9 million compared to $5.7 million in 1998. The effective income tax
rate approximated 39% in both periods.
18
<PAGE>
Non-recurring Deemed Dividend of Preferred Stock Conversion. In December
1997, a deemed dividend of subsidiary arose from the exchange of the redeemable
exchangeable preferred stock of subsidiary for the excess of the fair value of
the 8% Subordinated Debenture over the carrying value of the redeemable
exchangeable preferred stock of subsidiary resulting in a non-recurring charge
of $1.6 million for the six month period ending January 31, 1998.
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 six month period ended January 31, 1998.
Liquidity and Capital Resources
The Company's liquidity needs include required debt service, working
capital needs and the funding of capital expenditures. The Company does not
currently have any significant maturities of long-term debt prior to 2006 other
than the senior credit facility and the 8% Subordinated Debenture.
Cash interest expense for the six months ended January 31, 1999 was
$20.9 million. Non-cash interest accrued during the six months ended January 31,
1999 was $.8 million, or 3.5% of total interest expense.
Cash used in operating activities in the first half of fiscal 1999 of
$10.5 million compares with cash used of $9.8 million in the first half of
fiscal 1998. Increased earnings, excluding non-cash charges, and smaller
increases in accounts receivable and inventories were offset by higher cash
restructuring payments and increases in other current assets.
Cash used in investing activities of $51.3 million in the first two
quarters of 1999 was $7.0 million higher than cash used in the comparable period
of fiscal 1998 due to cash payments for acquisitions. The Company's capital
expenditures were $11.2 million for the six months ended January 31, 1999. The
Company has budgeted capital expenditures of approximately $14.8 million for the
remainder of fiscal year 1999. Planned capital expenditures consist primarily of
production equipment for the Company's new focus plants. Cost reduction programs
account for a significant portion of planned capital expenditures and include
upgrades in machinery technology, new quality standards and environmental
compliance.
Cash provided by financing activities of $63.9 million in the first
half of 1999, consisting primarily of borrowing under the Senior Credit
Facility, was up from $49.9 million provided in the first half 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 January 31, 1999 the debt to total
capitalization of the Company was 83% as compared to 79% on January 31, 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 February 28, 1999,
approximately $128.6 million remained available.
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.
19
<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 mission-critical
systems and processes potentially affected by the Year 2000 end. Implementation
of these plans should be substantially complete by the end of calendar year
1999. A description of the specific phases of these plans and their expected
completion dates is provided in the Company's latest report on Form 10-K.
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.
20
<PAGE>
PART II. OTHER INFORMATION
----------------------------
Item 4. Submission of Matters to a Vote of Security Holders
- ------- ---------------------------------------------------
The Company held its Annual Meeting of Shareholders on December 17, 1998.
Matters voted upon by proxy were: The election of directors for terms expiring
at the Company's next annual meeting of shareholders and the ratification of the
Board of Directors' appointment of Ernst & Young LLP, Certified Public
Accountants, as independent accountants to examine the financial statements of
the Company for the fiscal year 1999.
<TABLE>
<CAPTION>
Voted For Voted Against Abstained
---------- ------------- ---------
<S> <C> <C> <C>
Election of Directors:
Harold K. Sperlich 16,062,974 0 53,189
Thomas J. Snyder 16,062,544 0 53,619
E. H. Billig 16,063,024 0 53,139
Richard M. Cashin, Jr. 15,485,844 0 630,319
Michael A. Delaney 16,062,974 0 53,189
James R. Gerrity 16,063,074 0 53,089
Robert J. Schultz 16,077,874 0 38,289
Proposal to ratify Ernst & Young,
LLP as the Company's independent
accountants 16,104,413 7,509 4,241
</TABLE>
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
On November 24, 1998 the Company filed a current report on
Form 8-K to report its purchase of 100% of the common stock
of Williams Technology, Inc., a wholly owned subsidiary of
W.W. Williams Company, on November 13, 1998.
On January 27, 1999 the Company amended its report on Form
8-K relative to the acquisition of Williams Technology,
Inc., providing financial statements of Williams and pro
forma financial information.
21
<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)
/s/ David L. Harbert
Date: March 17, 1999 By: ________________________________
David L. Harbert
Executive Vice President and
Chief Financial Officer
/s/ David E. Stoll
Date: March 17, 1999 By: ________________________________
David E. Stoll
Vice President and Controller
Chief Accounting Officer
22
<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> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUL-31-1999
<PERIOD-START> AUG-01-1998
<PERIOD-END> JAN-31-1999
<CASH> 10,141
<SECURITIES> 0
<RECEIVABLES> 142,814
<ALLOWANCES> 2,900
<INVENTORY> 220,784
<CURRENT-ASSETS> 416,731
<PP&E> 231,695
<DEPRECIATION> 58,678
<TOTAL-ASSETS> 769,375
<CURRENT-LIABILITIES> 168,806
<BONDS> 461,690
0
0
<COMMON> 245
<OTHER-SE> 95,444
<TOTAL-LIABILITY-AND-EQUITY> 769,375
<SALES> 455,109
<TOTAL-REVENUES> 455,109
<CGS> 366,027
<TOTAL-COSTS> 366,027
<OTHER-EXPENSES> 48,811
<LOSS-PROVISION> 900
<INTEREST-EXPENSE> 21,669
<INCOME-PRETAX> 17,702
<INCOME-TAX> 6,904
<INCOME-CONTINUING> 11,244
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,244
<EPS-PRIMARY> .47
<EPS-DILUTED> .43
</TABLE>
