UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2004
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 NO. 1-13683
DELCO REMY INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
| Delaware | 35-1909253 | |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) | |
| 2902 Enterprise Drive Anderson, Indiana |
46013 | |
| (Address of principal executive offices) | (Zip Code) | |
(765) 778-6499
(Registrant’s telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. Yes x No ¨
INDICATE BY CHECK MARK WHETHER THE REGISTRANT IS AN ACCELERATED FILER (AS DEFINED IN RULE 12B-2 OF THE EXCHANGE ACT). Yes ¨ 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 May 1, 2004 | ||
| Common Stock – Class A |
1,000.00 | |
| Common Stock – Class B |
2,485,337.48 | |
| Common Stock – Class C |
16,687.00 | |
Delco Remy International, Inc. and Subsidiaries
| Page | ||||||
| PART I |
||||||
| Item 1 | ||||||
| 3 | ||||||
| 4 | ||||||
| 5 | ||||||
| 6 | ||||||
| Item 2 | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
22 | ||||
| Item 3 | 29 | |||||
| Item 4 | 29 | |||||
| PART II |
||||||
| Item 1 | 30 | |||||
| Item 2 | Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities |
32 | ||||
| Item 3 | 32 | |||||
| Item 4 | 32 | |||||
| Item 5 | 32 | |||||
| Item 6 | 32 | |||||
| 33 | ||||||
| 34 | ||||||
2
Delco Remy International, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
| IN THOUSANDS, At | March 31, 2004 |
December 31, 2003 |
||||||
| (unaudited) | ||||||||
| Assets: | ||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 17,305 | $ | 21,328 | ||||
| Trade accounts receivable, net |
176,424 | 151,221 | ||||||
| Other receivables |
16,013 | 15,076 | ||||||
| Inventories |
231,156 | 214,764 | ||||||
| Other current assets |
17,947 | 13,845 | ||||||
| Total current assets |
458,845 | 416,234 | ||||||
| Property, plant and equipment |
317,836 | 311,455 | ||||||
| Less accumulated depreciation |
181,131 | 175,709 | ||||||
| Property, plant and equipment, net |
136,705 | 135,746 | ||||||
| Deferred financing costs, net |
12,940 | 13,968 | ||||||
| Goodwill, net |
132,571 | 132,571 | ||||||
| Investments in joint ventures |
5,398 | 5,721 | ||||||
| Other assets |
19,059 | 19,736 | ||||||
| Total assets |
$ | 765,518 | $ | 723,976 | ||||
| Liabilities and Stockholders’ Deficit: | ||||||||
| Current liabilities: |
||||||||
| Accounts payable |
$ | 181,041 | $ | 161,828 | ||||
| Accrued interest |
13,721 | 9,837 | ||||||
| Accrued restructuring |
5,703 | 10,826 | ||||||
| Liabilities of discontinued operations |
1,506 | 1,565 | ||||||
| Other liabilities and accrued expenses |
127,996 | 123,385 | ||||||
| Current maturities of long-term debt |
29,989 | 31,397 | ||||||
| Total current liabilities |
359,956 | 338,838 | ||||||
| Long-term debt, net of current portion |
606,183 | 593,103 | ||||||
| Deferred income taxes |
647 | 644 | ||||||
| Post-retirement benefits other than pensions |
16,688 | 16,431 | ||||||
| Accrued pension benefits |
13,141 | 13,073 | ||||||
| Accrued restructuring |
8,427 | 8,801 | ||||||
| Other non-current liabilities |
6,185 | 6,918 | ||||||
| Commitments and contingencies |
||||||||
| Minority interest in subsidiaries |
15,475 | 15,193 | ||||||
| Redeemable preferred stock |
315,521 | 306,969 | ||||||
| Stockholders’ deficit: |
||||||||
| Common stock: |
||||||||
| Class A shares |
— | — | ||||||
| Class B shares |
3 | 3 | ||||||
| Class C shares |
— | — | ||||||
| Retained deficit |
(563,489 | ) | (560,193 | ) | ||||
| Accumulated other comprehensive loss |
(13,219 | ) | (15,804 | ) | ||||
| Total stockholders’ deficit |
(576,705 | ) | (575,994 | ) | ||||
| Total liabilities and stockholders’ deficit |
$ | 765,518 | $ | 723,976 | ||||
See notes to the condensed consolidated financial statements.
3
Delco Remy International, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
| IN THOUSANDS, For the three months ended March 31, | 2004 | 2003 | ||||||
| Net sales | $ | 293,187 | $ | 256,570 | ||||
| Cost of goods sold |
240,467 | 213,139 | ||||||
| Gross profit |
52,720 | 43,431 | ||||||
| Selling, general and administrative expenses |
27,578 | 26,222 | ||||||
| Restructuring charges |
1,095 | 45,085 | ||||||
| Operating income (loss) | 24,047 | (27,876 | ) | |||||
| Interest expense, net |
16,202 | 14,116 | ||||||
| Income (loss) from continuing operations before income taxes, minority interest and loss from unconsolidated joint ventures |
7,845 | (41,992 | ) | |||||
| Income tax expense |
1,437 | 5,260 | ||||||
| Minority interest |
548 | (213 | ) | |||||
| Loss from unconsolidated joint ventures |
454 | 715 | ||||||
| Net income (loss) from continuing operations |
5,406 | (47,754 | ) | |||||
| Discontinued operations: |
||||||||
| Loss from discontinued operations, net of tax |
(258 | ) | (3,747 | ) | ||||
| Gain on disposal of discontinued operations, net of tax |
108 | 2,417 | ||||||
| Net loss from discontinued operations, net of tax |
(150 | ) | (1,330 | ) | ||||
| Net income (loss) | 5,256 | (49,084 | ) | |||||
| Accretion for redemption of preferred stock |
8,552 | 7,556 | ||||||
| Net loss attributable to common stockholders |
$ | (3,296 | ) | $ | (56,640 | ) | ||
See notes to the condensed consolidated financial statements.
4
Delco Remy International, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
| IN THOUSANDS, For the three months ended March 31, | 2004 | 2003 | ||||||
| Cash Flows from Operating Activities: | ||||||||
| Net loss attributable to common stockholders |
$ | (3,296 | ) | $ | (56,640 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: |
||||||||
| Loss from discontinued operations |
258 | 3,747 | ||||||
| Gain on disposal of discontinued operations |
(108 | ) | (2,417 | ) | ||||
| Depreciation |
5,178 | 7,122 | ||||||
| Amortization |
734 | 358 | ||||||
| Non-cash interest expense |
1,028 | 1,097 | ||||||
| Accretion for redemption of preferred stock |
8,552 | 7,556 | ||||||
| Minority interest |
548 | (213 | ) | |||||
| Loss from unconsolidated joint ventures |
454 | 715 | ||||||
| Deferred income taxes |
2 | 2,385 | ||||||
| Post-retirement benefits other than pensions |
257 | (6,276 | ) | |||||
| Accrued pension benefits |
68 | 1,997 | ||||||
| Restructuring charges |
1,095 | 45,085 | ||||||
| Cash payments for restructuring charges |
(6,607 | ) | (7,019 | ) | ||||
| Changes in operating assets and liabilities, net of acquisitions and restructuring charges: |
||||||||
| Accounts receivable |
(25,062 | ) | (22,719 | ) | ||||
| Inventories |
(16,399 | ) | (27,243 | ) | ||||
| Accounts payable |
19,863 | 17,320 | ||||||
| Other current assets and liabilities |
3,983 | 23,509 | ||||||
| Other non-current assets and liabilities, net |
609 | (5,217 | ) | |||||
| Net cash used in operating activities of continuing operations |
(8,843 | ) | (16,853 | ) | ||||
| Cash Flows from Investing Activities: | ||||||||
| Acquisitions, net of cash acquired |
— | (4,837 | ) | |||||
| Net proceeds on sale of businesses |
108 | 27,876 | ||||||
| Purchases of property, plant and equipment |
(6,030 | ) | (5,257 | ) | ||||
| Net cash (used in) provided by investing activities of continuing operations |
(5,922 | ) | 17,782 | |||||
| Cash Flows from Financing Activities: | ||||||||
| Net borrowings under revolving line of credit and other |
11,672 | 205 | ||||||
| Distributions to minority interests |
(1,010 | ) | — | |||||
| Net cash provided by financing activities of continuing operations |
10,662 | 205 | ||||||
| Effect of exchange rate changes on cash |
241 | (62 | ) | |||||
| Cash flows of discontinued operations |
(161 | ) | (552 | ) | ||||
| Net (decrease) increase in cash and cash equivalents |
(4,023 | ) | 520 | |||||
| Cash and cash equivalents at beginning of year |
21,328 | 12,426 | ||||||
| Cash and cash equivalents at end of period |
$ | 17,305 | $ | 12,946 | ||||
See notes to the condensed consolidated financial statements.
5
DELCO REMY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AMOUNTS IN THOUSANDS, EXCEPT AS INDICATED
Quarters Ended March 31, 2004 and 2003
(Unaudited)
1. Basis of Presentation
The accompanying unaudited, condensed consolidated financial statements in this Quarterly Report on Form 10-Q should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2003. The 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 notes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included.
Operating results for the three-month period ended March 31, 2004 are not necessarily indicative of the results that may be expected for the full year. The balance sheet at December 31, 2003 has been derived from the audited financial statements at that date but does not include all of the information and notes required by generally accepted accounting principles for complete financial statements. The Company has not materially changed its significant accounting policies from those disclosed in its Form 10-K for the year ended December 31, 2003. For further information, refer to the consolidated financial statements and notes thereto for the year ended December 31, 2003.
2. Additional Balance Sheet Information
Inventories
The components of inventory were as follows:
| March 31, 2004 |
December 31, 2003 | |||||
| Raw material |
$ | 135,655 | $ | 126,545 | ||
| Work-in-process |
7,940 | 4,978 | ||||
| Finished goods |
87,561 | 83,241 | ||||
| Total |
$ | 231,156 | $ | 214,764 | ||
6
Warranty
The Company provides an allowance for the estimated future cost of product warranties and other defective product returns based on management’s estimate of product failure rates and customer eligibility. If these factors differ from management’s estimates, revisions to the estimated warranty liability may be required. The specific terms and conditions of the warranties vary depending upon the customer and the product sold. Changes to the Company’s warranty liability, excluding discontinued operations, are summarized as follows:
| Quarter Ended March 31, 2004 |
Year Ended December 31, 2003 |
|||||||
| Balance at beginning of period |
$ | 20,683 | $ | 15,851 | ||||
| Provision for warranty |
11,533 | 49,634 | ||||||
| Payments and charges against the accrual |
(11,433 | ) | (49,429 | ) | ||||
| Other (including acquisitions) |
— | 4,627 | ||||||
| Balance at end of period |
$ | 20,783 | $ | 20,683 | ||||
3. Acquisitions
The Company made no acquisition payments during the three months ended March 31, 2004.
During the three months ended March 31, 2003 the Company made payments totaling $3,064 under contractual put agreements to purchase additional shares from the minority shareholders of World Wide Automotive, L.L.C. (“World Wide”), which was acquired in 1997. These payments increased the Company’s ownership percentage of World Wide from 94.0% to 97.2%. At December 31, 2003, the Company owned 100% of World Wide. The Company made payments totaling $1,314 under contractual put agreements to purchase additional shares from the minority shareholder of Power Investments, Inc., which was acquired in 1996. These payments increased the Company’s ownership percentage of Power from 93.4% to 95.1%. At December 31, 2003, the Company owned 100% of Power. The Company also made payments of $459 on notes issued in connection with the acquisition of certain parts of the Delphi Corporation (“Delphi”) alternator business in the fourth quarter of 2002. Also during the three months ended March 31, 2003, the Company com