DELCO REMY INTERNATIONAL INC - 10-Q Quarterly Report

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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 JUNE 30, 2003

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM TO .

COMMISSION FILE NO. 1-13683

DELCO REMY INTERNATIONAL, INC.

(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of
incorporation or organization)

35-1909253
(I.R.S. Employer
Identification No.)

2902 Enterprise Drive
Anderson, Indiana
(Address of principal executive offices)

46013
(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 o

INDICATE BY CHECK MARK WHETHER THE REGISTRANT IS AN ACCELERATED FILER (AS DEFINED IN EXCHANGE ACT RULE 12B-2).

Yes o No x

INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE REGISTRANT’S CLASSES OF COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE.

		Outstanding as of August 6, 2003


Common Stock – Class A Common Stock – Class B Common Stock – Class C		1,000.00 2,485,337.49 16,687.00

Delco Remy International, Inc. and Subsidiaries

INDEX

			Page

PART I	FINANCIAL INFORMATION

	Item 1	Financial Statements

		Condensed Consolidated Balance Sheets	3

		Condensed Consolidated Statements of Operations	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	23

	Item 3	Quantitative and Qualitative Disclosures About Market Risk	31

	Item 4	Controls and Procedures	31

PART II	OTHER INFORMATION

	Item 1	Legal Proceedings	32

	Item 2	Changes in Securities and Use of Proceeds	34

	Item 3	Defaults Upon Senior Securities	34

	Item 4	Submission of Matters to a Vote of Security Holders	34

	Item 5	Other Information	34

	Item 6	Exhibits and Reports on Form 8-K	34

SIGNATURES	35

EXHIBIT INDEX	36

PART I FINANCIAL INFORMATION

Item 1.

Financial Statements

Delco Remy International, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(in thousands)

	June 30, 2003			December 31, 2002

	(unaudited)

Assets
Current assets:
Cash and cash equivalents	$	10,138		$	12,426
Trade accounts receivable, net		168,965			142,972
Other receivables		13,100			11,594
Inventories		307,758			281,024
Deferred income taxes		14,266			14,423
Assets of discontinued operations		643			40,493
Other current assets		13,906			15,317

Total current assets		528,776			518,249
Property and equipment		294,277			290,035
Less accumulated depreciation		(165,793	)		(132,995	)

Property and equipment, net		128,484			157,040
Deferred financing costs, net		15,247			17,268
Goodwill, net		120,857			118,962
Investments in joint ventures		6,091			11,891
Deferred income taxes		10,230			13,013
Other assets		19,233			16,396

Total assets	$	828,918		$	852,819


Liabilities and stockholders’ deficit
Current liabilities:
Accounts payable	$	141,688		$	138,515
Accrued interest		9,730			9,743
Accrued restructuring charges		13,485			5,161
Liabilities of discontinued operations		2,240			17,244
Other liabilities and accrued expenses		80,450			65,482
Current portion of debt		35,733			30,190

Total current liabilities		283,326			266,335
Long-term debt, less current portion		604,928			596,382
Post-retirement benefits other than pensions		17,459			23,553
Accrued pension benefits		16,473			14,427
Accrued restructuring charges		7,312			4,651
Other non-current liabilities		11,638			12,285
Commitments and contingencies
Minority interest in subsidiaries		20,399			17,850
Redeemable preferred stock		290,015			274,074
Stockholders’ equity:
Common stock:
Class A shares		—			—
Class B shares		3			3
Class C shares		—			—
Retained deficit		(407,704	)		(340,673	)
Accumulated other comprehensive loss		(14,931	)		(16,068	)

Total stockholders’ deficit		(422,632	)		(356,738	)

Total liabilities and stockholders’ deficit	$	828,918		$	852,819

See Notes to Condensed Consolidated Financial Statements

Delco Remy International, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
(in thousands)

	Three Month Period Ended June 30						Six Month Period Ended June 30

	2003			2002			2003			2002

Net sales	$	272,132		$	269,960		$	528,702		$	518,698
Cost of goods sold		221,116			223,906			434,255			429,514

Gross profit		51,016			46,054			94,447			89,184
Selling, general and administrative expenses		24,897			24,545			51,343			47,533
Restructuring charges (credits)		(485	)		—			44,600			(4,375	)

Operating income (loss)		26,604			21,509			(1,496	)		46,026
Interest expense, net		(16,772	)		(15,480	)		(30,888	)		(29,356	)
Other non-operating (expense) income		(310	)		122			(86	)		141

Income (loss) from continuing operations before income taxes, minority interest, loss from unconsolidated joint ventures and cumulative effect of change in accounting principle		9,522			6,151			(32,470	)		16,811
Income tax expense		4,904			2,415			10,164			5,845
Minority interest		(972	)		(1,732	)		(759	)		(3,535	)
Loss from unconsolidated joint ventures		(5,012	)		(270	)		(5,727	)		(1,470	)

Net (loss) income from continuing operations before cumulative effect of change in accounting principle		(1,366	)		1,734			(49,120	)		5,961
Discontinued operations:
Loss from discontinued operations (including estimated gain on disposal of $2.4 million in the first quarter of 2003 and loss of $26.5 million in2002)		(640	)		(34,565	)		(1,970	)		(40,013	)
Income tax benefit		—			(5,245	)		—			(7,372	)

Loss from discontinued operations		(640	)		(29,320	)		(1,970	)		(32,641	)
Cumulative effect of change in accounting principle, net		—			—			—			(74,176	)

Net loss		(2,006	)		(27,586	)		(51,090	)		(100,856	)
Preferred dividends		8,385			7,623			15,941			14,382

Net loss attributable to common stockholders	$	(10,391	)	$	(35,209	)	$	(67,031	)	$	(115,238	)

See Notes to Condensed Consolidated Financial Statements

Delco Remy International, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(in thousands)

	Six Month Period Ended June 30

	2003			2002

Operating activities:
Net loss	$	(51,090	)	$	(100,856	)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Cumulative effect of change in accounting principle		—			74,176
Loss from discontinued operations		4,387			9,708
(Gain) loss on disposal of discontinued operations		(2,417	)		22,933
Depreciation		12,058			13,025
Amortization		742			72
Minority interest in subsidiaries		759			3,535
Loss from unconsolidated joint ventures		5,727			1,470
Deferred income taxes		2,941			(1,682	)
Post-retirement benefits other than pensions		(6,094	)		(3,143	)
Accrued pension benefits		2,046			83
Non-cash interest expense		2,370			1,566
Changes in operating assets and liabilities, net of acquisitions:

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