<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 April 30, 2000 COMMISSION FILE NO. 1-13683
DELCO REMY INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
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)
</TABLE>
(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 June 6, 2000
---------------------- ------------------------------------
Common Stock - Class A 18,118,058
Common Stock - Class B 6,278,055
<PAGE>
DELCO REMY INTERNATIONAL, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION Page
<S> <C> <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.......................................... 19
PART II OTHER INFORMATION
Item 5 Other Information.............................................. 23
Item 6 Exhibits and Reports on Form 8-K............................... 23
SIGNATURES ............................................................... 24
</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 NINE-MONTH PERIOD
ENDED APRIL 30 ENDED APRIL 30
----------------------------------------------------------
<S> <C> <C> <C> <C>
2000 1999 2000 1999
----------------------------------------------------------
(IN THOUSANDS OF DOLLARS, EXCEPT FOR SHARE AMOUNTS)
Net sales $274,861 $248,826 $812,087 $703,935
Cost of goods sold 210,330 196,305 629,384 562,932
----------------------------------------------------------
Gross profit 64,531 52,521 182,703 141,003
Selling, general and administrative
expenses 31,084 27,142 92,840 73,918
Amortization of goodwill and intangibles 1,603 1,015 4,511 3,351
----------------------------------------------------------
Operating income 31,844 24,364 85,352 63,734
Interest expense and other non-operating
expenses (12,760) (12,695) (36,682) (34,363)
----------------------------------------------------------
Income before income taxes, minority
interest in income of subsidiaries and
income (loss) from unconsolidated joint
ventures 19,084 11,669 48,670 29,371
Income taxes 7,249 4,550 18,491 11,456
Minority interest in income of
subsidiaries (1,626) (746) (5,053) (2,328)
Income (loss) from unconsolidated joint
ventures (10) 1,801 (46) 3,828
----------------------------------------------------------
Net income $ 10,199 $ 8,174 $ 25,080 $ 19,415
==========================================================
Basic earnings per common share $0.42 $0.34 $1.04 $0.81
==========================================================
Diluted earnings per common share $0.39 $0.32 $0.97 $0.75
==========================================================
See Notes to Condensed Consolidated Financial Statements
</TABLE>
3
<PAGE>
Condensed Consolidated Balance Sheets
DELCO REMY INTERNATIONAL, INC. AND SUBSIDIARIES
(UNAUDITED)
<TABLE>
<CAPTION>
April 30, JULY 31,
2000 1999
--------------------------- ---------------------------
(in thousands of dollars)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 15,343 $ 15,309
Trade accounts receivable, net 168,785 147,988
Other receivables 16,529 15,496
Inventories 276,126 232,165
Deferred income taxes 15,336 14,997
Other current assets 5,952 2,903
--------------------------- ---------------------------
Total current assets 498,071 428,858
Property and equipment 288,387 258,727
Less accumulated depreciation 81,241 63,532
--------------------------- ---------------------------
Property and equipment, net 207,146 195,195
Deferred financing costs 9,864 11,192
Goodwill (net of accumulated amortization) 167,838 137,429
Investments in joint ventures 5,903 4,756
Other assets 6,340 5,233
--------------------------- ---------------------------
Total assets $895,162 $782,663
=========================== ===========================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $137,144 $119,339
Accrued interest payable 11,752 11,603
Accrued restructuring charges 5,493 5,866
Other liabilities and accrued expenses 48,424 37,105
Current debt 5,010 12,596
--------------------------- ---------------------------
Total current liabilities 207,823 186,509
Deferred income taxes 4,569 4,568
Long-term debt, less current portion 500,641 434,931
Post-retirement benefits other than pensions 23,685 21,050
Accrued pension benefits - 2,719
Other noncurrent liabilities 3,603 3,545
Commitments and contingencies
Minority interest in subsidiaries 24,292 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 37,232 12,152
Accumulated other comprehensive loss (10,718) (6,516)
Stock purchase plan (386) (537)
--------------------------- ---------------------------
Total stockholders' equity 130,549 109,520
--------------------------- ---------------------------
Total liabilities and stockholders' equity $895,162 $782,663
=========================== ===========================
See Notes to Condensed Consolidated Financial Statements
</TABLE>
4
<PAGE>
Condensed Consolidated Statements of Cash Flows
DELCO REMY INTERNATIONAL, INC. AND SUBSIDIARIES
(UNAUDITED)
<TABLE>
<CAPTION>
NINE-MONTH PERIOD
ENDED APRIL 30,
---------------------------------------
<S> <C> <C>
2000 1999
---------------- ----------------
(IN THOUSANDS OF DOLLARS)
Operating activities:
Net income $ 25,080 $ 19,415
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 20,777 13,614
Amortization 4,511 3,351
Minority interest in income of subsidiaries 5,053 2,328
(Income) loss from unconsolidated joint ventures 46 (3,828)
Deferred income taxes - 5,547
Post-retirement benefits other than pensions 2,635 2,871
Accrued pension benefits (2,739) (1,679)
Non-cash interest expense 1,321 1,207
Changes in operating assets and liabilities, net of
acquisitions:
Accounts receivable 2,695 (19,167)
Inventories (25,448) (14,955)
Accounts payable 10,400 19,042
Other current assets and liabilities 2,307 (6,816)
Accrued restructuring charges (373) (11,322)
Other non-current assets and liabilities, net (2,989) (1,652)
---------------- ----------------
Net cash provided by operating activities 43,276 7,956
INVESTING ACTIVITIES:
Acquisitions, net of cash acquired (67,646) (41,748)
Purchases of property and equipment (28,779) (18,023)
---------------- ----------------
Net cash used in investing activities (96,425) (59,771)
FINANCING ACTIVITIES:
Net borrowings under revolving line of credit and other 54,933 51,802
Distributions to minority interests (1,200) -
---------------- ----------------
Net cash provided by financing activities 53,733 51,802
Effect of exchange rate changes on cash (550) (390)
---------------- ----------------
Net increase (decrease) in cash and cash equivalents 34 (403)
Cash and cash equivalents at beginning of period 15,309 8,113
---------------- ----------------
Cash and cash equivalents at end of period $ 15,343 $ 7,710
================ ================
See Notes to Condensed Consolidated Financial Statements
</TABLE>
5
<PAGE>
DELCO REMY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(IN THOUSANDS OF DOLLARS)
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring adjustments) considered necessary for a fair presentation
have been included. Operating results for the three-month and nine-month
periods ended April 30, 2000 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
<TABLE>
<S> <C> <C>
APRIL 30, JULY 31,
Inventory: 2000 1999
-------------------- --------------------
Raw material $138,569 $121,725
Work-in-process 50,286 50,725
Finished goods 87,271 59,715
-------------------- --------------------
Total $276,126 $232,165
==================== ====================
</TABLE>
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 $5,302 and $8,760 for the three- month periods ending
April 30, 2000 and 1999, respectively, and $20,878 and $19,906 for the nine-
month periods ending April 30, 2000 and 1999, respectively. The unrealized
other comprehensive net loss of $4,202 in the first three quarters of fiscal
2000 primarily reflects the weakening of the Irish Punt, Hungarian Forint and
Belgian Franc against the U.S. Dollar, partially offset by the strengthening of
the South Korean Won against the U.S. Dollar between July 31, 1999 and April 30,
2000.
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 period. 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 period plus potential dilutive instruments,
including stock options, warrants and the stock purchase plan.
The following table sets forth the numerator and denominator for the computation
of basic and diluted earnings per share:
<TABLE>
<CAPTION>
THREE-MONTH PERIOD NINE-MONTH PERIOD
ENDED APRIL 30, ENDED APRIL 30,
-------------------------------------- ---------------------------------------
<S> <C> <C> <C> <C>
2000 1999 2000 1999
------------------ ------------------- ------------------- -------------------
Numerator:
Net income $ 10,199 $ 8,174 $ 25,080 $ 19,415
================== =================== =================== ===================
DENOMINATOR:
Denominator for basic earnings per share
(weighted average shares) 24,240,713 23,859,570 24,223,913 23,825,522
Effect of dilutive securities:
Warrants 1,679,726 1,679,787 1,679,759 1,679,805
Stock purchase plan and stock options 79,445 305,450 84,541 367,391
------------------ ------------------- ------------------- -------------------
Denominator for diluted earnings per share
(weighted average shares and assumed
conversions) 25,999,884 25,844,807 25,988,213 25,872,718
================== =================== =================== ===================
</TABLE>
5. RESTRUCTURING CHARGES
In May 1998, the Company offered an incentive separation payment to DRA hourly
employees through a voluntary employee termination program (VTEP). By the
program's completion date on July 10, 1998, 337 employees had accepted the
Company's offer. A charge of $26,515 was recorded for these separation costs,
$9,975 of which were paid in fiscal year 1998, $11,565 of which were paid in
fiscal year 1999 and $1,109 of which were paid in the first three quarters of
fiscal year 2000. Approximately $2,541 are to be paid in the fourth quarter of
fiscal year 2000 and $1,325 are to be paid in fiscal year 2001.
7
<PAGE>
The following table summarizes the status of the reserves for restructuring
charges:
<TABLE>
<CAPTION>
Termination Exit/Impairment
Benefits Costs Total
------------------ ---------------------- ------------------
<S> <C> <C> <C>
Reserve at July 31, 1999 $4,975 $ 891 $5,866
Payments and charges in the three month
period ended October 31, 1999 (455) (8) (463)
------------------ ---------------------- ------------------
Reserve at October 31, 1999 4,520 883 5,403
Payments and charges in the three month
period ended January 31, 2000 (605) (21) (626)
------------------ ---------------------- ------------------
Reserve at January 31, 2000 3,915 862 4,777
Payments and charges in the three month
period ended April 30, 2000 (49) (285) (334)
Reserve established in acquisition of
business 1,050 - 1,050
------------------ ---------------------- ------------------
Reserve at April 30, 2000 $4,916 $ 577 $5,493
================== ====================== ==================
</TABLE>
6. ACQUISITIONS
On March 10, 2000, Reman Holdings, Inc., a wholly owned subsidiary of the
Company, purchased 100% of the capital shares of M&M Knopf Auto Parts, Inc.
("Knopf") from certain shareholders. The purchase price of approximately
$61,000, net of cash acquired and including the payoff of certain debt of Knopf,
was funded through proceeds from the Company's Senior Credit Facility and is
subject to certain adjustments. The acquisition will be accounted for under the
purchase method. Accordingly, the assets and liabilities were recorded based
upon their fair values at the date of acquisition and resulting goodwill of
approximately $34,000 will be amortized over 30 years. The purchase price is
subject to an additional contingent payment of cash and/or common stock of the
Company in fiscal year 2005, subject to the achievement by Knopf of certain
earnings goals. The amount of this payment can not currently be determined.
This additional contingent purchase price, if any, will increase the goodwill
recorded for the acquisition and will be amortized over its remaining useful
life. Results of operations for Knopf are included in the Company's financial
statements effective March 1, 2000. Knopf is engaged in automotive component
recovery and exchange.
In April 2000, the Company acquired Elmot-DR, Sp.z.o.o., a Polish manufacturer
of starters and alternators for the OEM and aftermarket in Europe, for
approximately $675. In August 1999, the Company acquired Engine Master, a
remanufacturer of engines located in Dallas, Texas, for approximately $5,700.
8
<PAGE>
The unaudited pro forma consolidated results of operations, assuming the
acquisitions of Williams Technologies, Inc. (Williams) (acquired on November 13,
1998), Remy Korea Limited (Remy Korea) (additional 31% interest acquired on June
25, 1999) and Knopf had been consummated as of the beginning of the preceding
year, are as follows:
<TABLE>
<CAPTION>
Nine Months Ended Nine Months Ended
April 30, 2000 April 30, 1999
----------------- -----------------
<S> <C> <C>
Net sales $853,655 $782,108
Net income 29,578 27,557
Basic earnings per share 1.22 1.16
Diluted earnings per share 1.14 1.07
</TABLE>
The pro forma consolidated financial information has been prepared for
comparative purposes only and does not purport to present what the Company's
consolidated results of operations would actually have been if the operations
were combined during the periods presented and is not intended to project future
results or trends of operations.
7. FINANCIAL INFORMATION FOR SUBSIDIARY GUARANTORS AND NON-GUARANTOR
SUBSIDIARIES
The Company conducts a significant portion of its business through subsidiaries.
The Senior Notes and the Senior Subordinated Notes are fully and unconditionally
guaranteed, jointly and severally, by certain direct and indirect subsidiaries
(the Subsidiary Guarantors). Certain of the Company's subsidiaries do not
guarantee the Senior Notes or the Senior Subordinated Notes (the Non-Guarantor
Subsidiaries). The claims of creditors of Non-Guarantor Subsidiaries have
priority over the rights of the Company to receive dividends or distributions
from such subsidiaries.
Presented below is condensed consolidating financial information for the
Company, the Subsidiary Guarantors and the Non-Guarantor Subsidiaries at April
30, 2000 and July 31, 1999 and for the three month and nine month periods ended
April 30, 2000 and 1999.
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.
9
<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
M & M Knopf Auto Parts, Inc. Delco Remy Germany GmbH
Remy Componentes S. de R. L. de C. V.
Delco Remy Belgium BVBA
Magnum Power Products, LLC
Elmot-DR, Sp.z.o.o.
---------------------------------------------------------------------------------------------------------
</TABLE>
10
<PAGE>
DELCO REMY INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE THREE MONTH PERIOD ENDED APRIL 30, 2000
(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 $ - $280,044 $97,377 $ (102,560)(a) $274,861
Cost of goods sold - 232,580 80,310 (102,560)(a) 210,330
-----------------------------------------------------------------------------------------------
Gross profit - 47,464 17,067 - 64,531
Selling, general and administrative
expenses 3,231 20,611 7,242 - 31,084
Amortization of goodwill and
intangibles 16 1,414 173 - 1,603
-----------------------------------------------------------------------------------------------
Operating (loss) income (3,247) 25,439 9,652 - 31,844
Interest expense and other
non-operating expenses (7,585) (4,287) (888) - (12,760)
-----------------------------------------------------------------------------------------------
Income (loss) before income taxes,
minority interest in income of
subsidiaries, loss from
unconsolidated joint ventures and
equity in earnings of subsidiaries (10,832) 21,152 8,764 - 19,084
Income taxes (benefit) (2,196) 8,079 1,366 - 7,249
Minority interest in income of
subsidiaries - (655) (971) - (1,626)
Loss from unconsolidated joint
ventures - - (10) - (10)
Equity in earnings of subsidiaries 18,835 - - (18,835)(b) -
-----------------------------------------------------------------------------------------------
Net income (loss) $ 10,199 $ 12,418 $ 6,417 $(18,835) $ 10,199
===============================================================================================
</TABLE>
-------------------------------------------------------------------------------
(a) Elimination of intercompany sales and cost of sales.
(b) Elimination of equity in net income of consolidated subsidiaries.
11
<PAGE>
DELCO REMY INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE NINE MONTH PERIOD ENDED APRIL 30, 2000
(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 $ - $821,502 $279,612 $ (289,027)(a) $812,087
Cost of goods sold - 691,697 226,714 (289,027)(a) 629,384
-----------------------------------------------------------------------------------------------
Gross profit - 129,805 52,898 - 182,703
Selling, general and administrative
expenses 9,900 60,420 22,520 - 92,840
Amortization of goodwill and
intangibles 94 3,728 689 - 4,511
-----------------------------------------------------------------------------------------------
Operating (loss) income (9,994) 65,657 29,689 - 85,352
Interest expense and other
non-operating expenses (21,538) (12,979) (2,165) - (36,682)
-----------------------------------------------------------------------------------------------
Income (loss) before income taxes,
minority interest in income of
subsidiaries, loss from
unconsolidated joint ventures and
equity in earnings of subsidiaries (31,532) 52,678 27,524 - 48,670
Income taxes (benefit) (8,992) 20,995 6,488 - 18,491
Minority interest in income of
subsidiaries - (1,999) (3,054) - (5,053)
Loss from unconsolidated joint
ventures - - (46) - (46)
Equity in earnings of subsidiaries 47,620 - - (47,620)(b) -
-----------------------------------------------------------------------------------------------
Net income (loss) $ 25,080 $ 29,684 $ 17,936 $(47,620) $ 25,080
===============================================================================================
</TABLE>
------------------------------------------------------------------------------
(a) Elimination of intercompany sales and cost of sales.
(b) Elimination of equity in net income of consolidated subsidiaries.
12
<PAGE>
DELCO REMY INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE THREE MONTH PERIOD ENDED APRIL 30, 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 $ - $ 250,886 $ 70,940 $(73,000)(a) $248,826
Cost of goods sold - 211,008 58,297 (73,000)(a) 196,305
------------------------------------------------------------------------------------------------
Gross profit - 39,878 12,643 - 52,521
Selling, general and administrative
expenses 3,397 18,202 5,543 - 27,142
Amortization of goodwill and
intangibles 15 893 107 - 1,015
------------------------------------------------------------------------------------------------
Operating (loss) income (3,412) 20,783 6,993 - 24,364
Interest expense and other
non-operating expenses (6,698) (4,587) (1,410) - (12,695)
------------------------------------------------------------------------------------------------
Income (loss) before income taxes,
minority interest in income of
subsidiaries, income from
unconsolidated joint ventures and
equity in earnings of subsidiaries (10,110) 16,196 5,583 - 11,669
Income taxes (benefit) (1,592) 4,575 1,567 - 4,550
Minority interest in income of
subsidiaries - (416) (330) - (746)
Income from unconsolidated joint
ventures - - 1,801 - 1,801
Equity in earnings of subsidiaries 16,692 - - (16,692)(b)
------------------------------------------------------------------------------------------------
Net income (loss) $ 8,174 $ 11,205 $ 5,487 $(16,692) $ 8,174
================================================================================================
</TABLE>
----------------------------------------------------------------------
(a) Elimination of intercompany sales and cost of sales.
(b) Elimination of equity in net income of consolidated subsidiaries.
13
<PAGE>
DELCO REMY INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE NINE MONTH PERIOD ENDED APRIL 30, 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 $ - $709,114 $191,536 $(196,715)(a) $703,935
Cost of goods sold - 601,953 157,694 (196,715)(a) 562,932
------------------------------------------------------------------------------------------------
Gross profit - 107,161 33,842 - 141,003
Selling, general and administrative
expenses 8,475 50,231 15,212 - 73,918
Amortization of goodwill and
intangibles 45 2,954 352 - 3,351
------------------------------------------------------------------------------------------------
Operating (loss) income (8,520) 53,976 18,278 - 63,734
Interest expense and other
non-operating expenses (20,529) (11,902) (1,932) - (34,363)
------------------------------------------------------------------------------------------------
Income (loss) before income taxes,
minority interest in income of
subsidiaries, income from
unconsolidated joint ventures and
equity in earnings of subsidiaries (29,049) 42,074 16,346 - 29,371
Income taxes (benefit) (3,926) 10,612 4,770 - 11,456
Minority interest in income of
subsidiaries - (1,654) (674) - (2,328)
Income from unconsolidated joint
ventures - - 3,828 - 3,828
Equity in earnings of subsidiaries 44,538 - - (44,538)(b) -
------------------------------------------------------------------------------------------------
Net income (loss) $ 19,415 $ 29,808 $ 14,730 $ (44,538) $ 19,415
================================================================================================
</TABLE>
-------------------------------------------------------------------------
(a) Elimination of intercompany sales and cost of sales.
(b) Elimination of equity in net income of consolidated subsidiaries.
14
<PAGE>
DELCO REMY INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET
APRIL 30, 2000
(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 $ - $ (3,362) $ 18,705 $ - $ 15,343
Trade accounts receivable, net - 141,271 27,514 - 168,785
Other receivables - 7,332 9,197 - 16,529
Inventories - 223,843 54,576 (2,293)(c) 276,126
Deferred income taxes - 14,997 339 - 15,336
Other current assets - 2,700 3,252 - 5,952
-------------------------------------------------------------------------------------
Total current assets - 386,781 113,583 (2,293) 498,071
Property and equipment 40 208,122 80,225 - 288,387
Less accumulated depreciation 40 70,017 11,184 - 81,241
-------------------------------------------------------------------------------------
Property and equipment, net - 138,105 69,041 - 207,146
Deferred financing costs 7,533 2,331 - - 9,864
Goodwill, net - 145,346 22,492 - 167,838
Investments in affiliates 429,640 69,136 - (492,873)(a) 5,903
Other assets 1,759 656 3,925 - 6,340
-------------------------------------------------------------------------------------
Total assets $438,932 $742,355 $209,041 $(495,166) $895,162
=====================================================================================
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 589 $102,860 $ 33,695 $ - $137,144
Intercompany accounts (19,026) 34,299 (14,672) (601)(c) -
Accrued interest payable 8,401 1,366 1,985 - 11,752
Accrued restructuring charges - 4,500 993 - 5,493
Other liabilities and accrued expenses 15,940 19,478 13,006 - 48,424
Current debt - 1,093 3,917 - 5,010
-------------------------------------------------------------------------------------
Total current liabilities 5,904 163,596 38,924 (601) 207,823
Deferred income taxes 4,560 - 9 - 4,569
Long-term debt, less current portion 285,000 198,434 17,207 - 500,641
Post-retirement benefits other
than pensions - 23,685 - - 23,685
Accrued pension benefits - - - - -
Other non-current liabilities 2,201 1,402 - - 3,603
Minority interest in subsidiaries - 10,868 13,424 - 24,292
Stockholders' equity:
Common stock:
Class A shares 182 78 (78) - 182
Class B shares 63 - - - 63
Paid-in capital 104,176 (61) 61 - 104,176
Subsidiary investment - 266,087 96,354 (362,441)(a) -
Retained earnings (deficit) 37,232 78,266 53,858 (132,124)(b) 37,232
Accumulated other comprehensive loss - - (10,718) - (10,718)
Stock purchase plan (386) - - - (386)
-------------------------------------------------------------------------------------
Total stockholders' equity 141,267 344,370 139,477 (494,565) 130,549
-------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $438,932 $742,355 $209,041 $(495,166) $895,162
=====================================================================================
</TABLE>
-------------------------------------------------------------
(a) Elimination of investments in subsidiaries.
(b) Elimination of investments in subsidiaries' earnings.
(c) Elimination of intercompany profit in inventory.
15
<PAGE>
DELCO REMY INTERNATIONAL, INC. AND SUBSIDIARIES
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 $ - $ (242) $ 15,551 $ - $ 15,309
Trade accounts receivable, net - 122,957 25,031 - 147,988
Other receivables - 6,657 8,839 - 15,496
Inventories - 193,264 40,543 (1,642)(c) 232,165
Deferred income taxes - 14,997 - - 14,997
Other current assets - 2,125 778 - 2,903
---------------------------------------------------------------------------------------
Total current assets - 339,758 90,742 (1,642) 428,858
Property and equipment 40 202,462 56,225 - 258,727
Less accumulated depreciation 40 55,664 7,828 - 63,532
---------------------------------------------------------------------------------------
Property and equipment, net - 146,798 48,397 - 195,195
Deferred financing costs 8,352 2,840 - - 11,192
Goodwill, net - 116,710 20,719 - 137,429
Investments in affiliates 381,250 14 5 (376,513)(a) 4,756
Other assets 2,411 858 1,964 - 5,233
---------------------------------------------------------------------------------------
Total assets $ 392,013 $606,978 $161,827 $(378,155) $782,663
=======================================================================================
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 636 $ 90,185 $ 28,518 $ - $119,339
Intercompany accounts (19,626) 44,513 (24,286) (601)(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) 27,622 10,733 - 37,105
Current debt - 1,227 11,369 - 12,596
---------------------------------------------------------------------------------------
Total current liabilities (11,239) 172,005 26,344 (601) 186,509
Deferred income taxes - 4,560 8 - 4,568
Long-term debt, less current portion 285,000 136,867 13,064 - 434,931
Post-retirement benefits other
than pensions - 21,050 - - 21,050
Accrued pension benefits - 2,719 - - 2,719
Other non-current liabilities 2,216 1,329 - - 3,545
Minority interest in subsidiaries - 10,663 9,158 - 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 - 209,203 83,847 (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 116,036 257,785 113,253 (377,554) 109,520
---------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 392,013 $606,978 $161,827 $(378,155) $782,663
=======================================================================================
</TABLE>
------------------------------------------------------------
(a) Elimination of investments in subsidiaries.
(b) Elimination of investments in subsidiaries' earnings.
(c) Elimination of intercompany profit in inventory.
16
<PAGE>
DELCO REMY INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE NINE MONTH PERIOD ENDED APRIL 30, 2000
(UNAUDITED)
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
DELCO REMY
INTERNATIONAL INC. NON-
(PARENT SUBSIDIARY GUARANTOR
COMPANY ONLY) GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $ 25,080 $ 29,684 $ 17,936 $(47,620)(a) $ 25,080
Adjustments to reconcile net income
to net cash flows provided by
(used in) operating activities:
Depreciation - 15,560 5,217 - 20,777
Amortization 94 3,728 689 - 4,511
Minority interest in income of
subsidiaries - 1,999 3,054 - 5,053
Loss from unconsolidated joint
ventures - - 46 - 46
Equity in earnings of subsidiary (47,620) - - 47,620(a) -
Post-retirement benefits other
than pensions - 2,635 - - 2,635
Accrued pension benefits - (2,739) - - (2,739)
Non-cash interest expense 819 502 - - 1,321
Changes in operating assets and
liabilities, net of acquisitions:
Accounts receivable - 449 2,246 - 2,695
Inventories - (17,162) (8,286) - (25,448)
Accounts payable (47) 7,710 2,737 - 10,400
Other current assets and
liabilities 14,555 (7,352) (4,896) - 2,307
Intercompany accounts 73,880 (80,280) 6,400 - -
Accrued restructuring charges - (1,366) 993 - (373)
Other non-current assets and
liabilities, net 419 (5,382) 1,974 - (2,989)
-----------------------------------------------------------------------------------------------
Net cash provided by (used in)
operating activities 67,180 (52,014) 28,110 - 43,276
INVESTING ACTIVITIES:
Acquisitions, net of cash acquired (67,180) - (466) - (67,646)
Purchases of property and equipment - (12,539) (16,240) - (28,779)
-----------------------------------------------------------------------------------------------
Net cash used in investing
activities (67,180) (12,539) (16,706) - (96,425)
FINANCING ACTIVITIES:
Net borrowings (repayments) under
revolving line of credit and other - 61,433 (6,500) - 54,933
Distributions to minority interests - - (1,200) - (1,200)
-----------------------------------------------------------------------------------------------
Net cash provided by (used in)
financing activities - 61,433 (7,700) - 53,733
Effect of exchange rate changes on
cash - - (550) - (550)
-----------------------------------------------------------------------------------------------
Net increase (decrease) in cash and
cash equivalents - (3,120) 3,154 - 34
Cash and cash equivalents at
beginning of period - (242) 15,551 - 15,309
-----------------------------------------------------------------------------------------------
Cash and cash equivalents at end of
period $ - $ (3,362) $ 18,705 $ - $ 15,343
===============================================================================================
</TABLE>
-----------------------------------------------------------
(a) Elimination of equity in earnings of subsidiaries.
17
<PAGE>
DELCO REMY INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE NINE MONTH PERIOD ENDED APRIL 30, 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>
OPERATING ACTIVITIES:
Net income $ 19,415 $ 29,808 $ 14,730 $(44,538) $ 19,415
Adjustments to reconcile net
income to net cash provided by
(used in) operating activities:
Depreciation 20 10,750 2,844 - 13,614
Amortization 45 2,954 352 - 3,351
Minority interest in income of
subsidiaries - 1,654 674 - 2,328
Income from unconsolidated joint
ventures - - (3,828) - (3,828)
Equity in earnings of
subsidiaries (44,538) - - 44,538(a) -
Deferred income taxes 791 4,814 (58) - 5,547
Post-retirement benefits other
than pensions - 2,871 - - 2,871
Accrued pension benefits - (1,679) - - (1,679)
Non-cash interest expense 819 388 - - 1,207
Changes in operating assets and
liabilities, net of
acquisitions:
Accounts receivable - (19,474) 307 - (19,167)
Inventories - (6,349) (8,606) - (14,955)
Accounts payable 496 15,102 3,444 - 19,042
Intercompany accounts 62,169 (50,212) (11,957) - -
Other current assets and
liabilities (6,082) (1,741) 1,007 - (6,816)
Accrued restructuring charges - (11,322) - - (11,322)
Other non-current assets and
liabilities, net 5,334 (14,322) 7,336 - (1,652)
--------------------------------------------------------------------------------------------
Net cash provided by (used in)
operating activities 38,469 (36,758) 6,245 - 7,956
INVESTING ACTIVITIES:
Acquisitions, net of cash acquired (38,469) - (3,279) - (41,748)
Purchases of property and
equipment - (12,924) (5,099) - (18,023)
--------------------------------------------------------------------------------------------
Net cash used in investing
activities (38,469) (12,924) (8,378) - (59,771)
FINANCING ACTIVITIES:
Net borrowings under revolving
line of credit and other - 49,575 2,227 - 51,802
--------------------------------------------------------------------------------------------
Net cash provided by financing
activities - 49,575 2,227 - 51,802
Effect of exchange rate changes
on cash - - (390) - (390)
--------------------------------------------------------------------------------------------
Net decrease in cash and cash
equivalents - (107) (296) - (403)
Cash and cash equivalents at
beginning of period - 125 7,988 - 8,113
--------------------------------------------------------------------------------------------
Cash and cash equivalents at end
of period $ - $ 18 $ 7,692 $ - $ 7,710
============================================================================================
</TABLE>
--------------------------------------------------------------
(a) Elimination of equity in earnings of subsidiaries.
18
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED APRIL 30, ENDED APRIL 30,
------------------------------------------------ --------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
2000 1999 2000 1999
----------------------- ----------------------- ---------------------- --------------------
(Thousands of Dollars) AMOUNT % AMOUNT % AMOUNT % AMOUNT %
------------ --------- ----------- ---------- ----------- --------- ----------- -------
Net sales $274,861 100.0% $248,826 100.0% $812,087 100.0% $703,935 100.0%
Cost of goods sold 210,330 76.5% 196,305 78.9% 629,384 77.5% 562,932 80.0%
------------ --------- ----------- ---------- ----------- --------- ----------- -------
Gross profit 64,531 23.5% 52,521 21.1% 182,703 22.5% 141,003 20.0%
Selling, engineering and
administrative expenses 31,084 11.3% 27,142 10.9% 92,840 11.4% 73,918 10.5%
Amortization of goodwill and
intangibles 1,603 0.6% 1,015 0.4% 4,511 0.6% 3,351 0.4%
------------ --------- ----------- ---------- ----------- --------- ----------- -------
Operating income 31,844 11.6% 24,364 9.8% 85,352 10.5% 63,734 9.1%
Interest expense and other
non-operating expenses (12,760) (4.6)% (12,695) (5.1)% (36,682) (4.5)% (34,363) (4.9)%
Income taxes 7,249 2.7% 4,550 1.8% 18,491 2.3% 11,456 1.6%
Minority interest (1,626) (0.6)% (746) (0.3)% (5,053) (0.6)% (2,328) (0.3)%
Income (loss) from unconsolidated
joint ventures (10) 0.0% 1,801 0.7% (46) 0.0% 3,828 0.5%
------------ --------- ----------- ---------- ----------- --------- ----------- -------
Net income $ 10,199 3.7% $ 8,174 3.3% $ 25,080 3.1% $ 19,415 2.8%
============ ========= =========== ========== =========== ========= =========== =======
</TABLE>
THREE MONTHS ENDED APRIL 30, 2000 COMPARED TO THREE MONTHS ENDED APRIL 30, 1999
Net Sales Net sales of $274.9 million in the third quarter of fiscal year 2000
increased $26.0 million, or 10.5%, from the third quarter of fiscal year 1999.
This improvement was due to sales generated by businesses acquired in fiscal
2000 (Knopf and Engine Master) and the fourth quarter of fiscal 1999 (the
additional 31% interest in Remy Korea) and higher demand from automotive and
heavy duty OEM customers and for powertrain/drive train products in the
aftermarket. These increases were partially offset by lower shipments of
electrical products in the aftermarket.
Gross Profit Gross profit of $64.5 million increased $12.0 million, or 22.9%,
and as a percentage of sales improved from 21.1% in the third quarter of 1999 to
23.5% in the third quarter of 2000. The growth in gross profit dollars reflects
the sales growth discussed above. The improvement in margins was due to the
benefits of lean manufacturing initiatives, realization of cost efficiencies
generated by the OEM restructuring, leveraging of fixed manufacturing costs and
growth in the higher margin aftermarket.
Selling, General and Administrative Expenses Selling, general and
administrative (SG&A) expenses increased $3.9 million, or 14.5%, and as a
percentage of sales increased from 10.9% to 11.3% due to the effect of
acquisitions, aftermarket marketing initiatives and enterprise-wide system
implementations.
Operating Income Operating income of $31.8 million increased $7.5 million, or
30.7%, and as a percentage of sales improved from 9.8% in the third quarter of
fiscal year 1999 to 11.6% in fiscal year 2000. This
19
<PAGE>
improvement reflects the sales and gross margin issues discussed above,
partially offset by higher SG&A expenses.
Interest Expense and Other Non-operating Expenses Interest expense of $12.2
million compares with $12.7 million in the third quarter of fiscal 1999. The
average debt balance was up year over year due to acquisitions and higher
capital spending, partially offset by improved cash flow from operating
activities. Recent interest rate increases by the Fed will not begin to effect
the Company's overall cost of funds until the fourth quarter due to LIBOR locks
currently in place.
Income Taxes Income tax expense in the third quarter of fiscal year 2000 was
$7.2 million compared to $4.6 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.
Minority Interest in Income of Subsidiaries and Income (Loss) From
Unconsolidated Joint Ventures The year over year change in these items
primarily reflects the Company's acquisition of a majority ownership of Remy
Korea in the fourth quarter of fiscal 1999. This subsidiary was accounted for
under the equity method prior to that.
NINE MONTHS ENDED APRIL 30, 2000 COMPARED TO NINE MONTHS ENDED APRIL 30, 1999
Net Sales Net sales of $812.1 million in the first nine months of fiscal year
2000 increased $108.2 million, or 15.4%, from the comparable period of fiscal
year 1999. This increase was due to the effect of the acquisitions discussed
above, the acquisition of Williams in the second quarter of fiscal 1999 and
higher demand across all major product lines and markets.
Gross Profit Gross profit of $182.7 million increased $41.7 million, or 29.6%,
and as a percentage of sales improved from 20.0% to 22.5%. The growth in gross
profit dollars reflects the sales growth discussed above. The improvement in
margins was due to the benefits of lean manufacturing initiatives, realization
of cost efficiencies generated by the OEM restructuring, leveraging of fixed
manufacturing costs and growth in the higher margin aftermarket.
Selling, General and Administrative Expenses SG&A expenses increased $18.9
million, or 25.6%, and as a percentage of sales increased from 10.5% to 11.4%
due to the effect of acquisitions, aftermarket marketing initiatives and
enterprise-wide system implementations.
Operating Income Operating income of $85.4 million increased $21.6 million, or
33.9%, and as a percentage of sales improved from 9.1% in the first three
quarters of fiscal year 1999 to 10.5% in fiscal year 2000. This improvement
reflects the sales and gross margin issues discussed above, partially offset by
higher SG&A expenses.
Interest Expense and Other Non-operating Expenses Interest expense of $35.8
million compares with $34.4 million in the first three quarters of fiscal 1999.
The average debt balance was up year over year due to acquisitions and higher
capital spending, partially offset by improved cash flow from operating
activities.
20
<PAGE>
Recent rate increases by the Fed will not begin to effect the Company's overall
cost of funds until the fourth quarter due to LIBOR locks currently in place.
Income Taxes Income tax expense in the first three quarters of fiscal year 2000
was $18.5 million compared to $11.5 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.
Minority Interest in Income of Subsidiaries and Income (Loss) From
Unconsolidated Joint Ventures The year over year change in these items
primarily reflects the Company's acquisition of a majority ownership of Remy
Korea in the fourth quarter of fiscal 1999. This subsidiary was accounted for
under the equity method prior to that.
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 April 30, 2000, borrowings under the Senior
Credit Facility were $159.9 million and utilization of letters of credit totaled
$12.2 million, leaving $127.9 million available under the $300 million facility.
In the first nine months of fiscal 2000, cash provided by operating activities
was $43.3 million compared to $8.0 million in the comparable period of fiscal
1999. This improvement reflects increased earnings and depreciation, a smaller
increase in net working capital from year-end and lower restructuring payments
and charges. Accounts receivable declined $2.7 million versus a $19.2 million
increase in 1999. The $25.4 million increase in inventories reflects a seasonal
build-up in the aftermarket, which should begin to decline in the fourth
quarter. Accounts payable increased $10.4 million due to 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 third quarter 1999.
Acquisitions in fiscal 2000 consisted of Knopf ($61.0 million), Engine Master
and Elmot, and in fiscal 1999 consisted primarily of Williams. Capital
expenditures of $28.8 million in the first three quarters compares with $18.0
million in the comparable period of fiscal 1999. The increase was due to
enterprise-wide system implementations and equipment supporting new products and
customers. Total capital spending in fiscal 2000 is expected to be
approximately to $35.0 million.
The increase in net borrowings under the Company's revolving line of credit and
other debt of $54.9 million through three quarters reflects the extent to which
cash used for acquisitions and capital expenditures exceeded cash generated by
operating activities.
In late May 2000, the Company, as part of ongoing competitiveness initiatives,
offered an incentive separation payment to DRA hourly employees. The offer
expires in July 2000. The cost of this program, which is dependent on the
number and seniority level of employees accepting the separation payment, will
be recorded in the fourth quarter of fiscal 2000.
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
21
<PAGE>
subject to future economic conditions and to financial, business and other
factors that are beyond the Company's control.
SEASONALITY
The Company's business is moderately seasonal, as its major OEM customers
historically have one- to two-week summer shutdowns of operations during the
fourth fiscal quarter. In addition, the Company typically has shut down its own
operations for one week each July, depending on backlog, scheduled maintenance
and inventory buffers, as well as an additional week during the December
holidays. Consequently, the Company's second and fourth quarter results reflect
the effects of these shutdowns.
IMPACT OF YEAR 2000
In prior years, the Company discussed the nature and progress of its plans to
become Year 2000 ready. In December 1999, the Company completed its remediation
and testing of all major information technology based systems. As a result of
those planning and implementation efforts, the Company experienced no
significant disruptions in mission critical information technology and non-
information technology systems and believes those systems successfully responded
to the Year 2000 date change. The Company expensed approximately $2.0 million
in connection with remediating its systems. The Company is not aware of any
material problems resulting from Year 2000 issues, either with its products, its
internal systems, or the products and services of third parties. The Company
will continue to monitor its mission critical computer applications and those of
its suppliers and vendors throughout calendar year 2000 to ensure that any
latent Year 2000 matters that may arise are addressed promptly.
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.
22
<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
There were no reports on Form 8-K filed during the quarter ended
April 30, 2000.
23
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DELCO REMY INTERNATIONAL, INC.
------------------------------
(Registrant)
Date: June 12, 2000 By: /s/ J. Timothy Gargaro
----------------------
J. Timothy Gargaro
Senior Vice President and
Chief Financial Officer
Date: June 12, 2000 By: /s/ David E. Stoll
------------------
David E. Stoll
Vice President and Controller
Chief Accounting Officer
24
