<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C., 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
[ ] 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 333-45823
STANADYNE AUTOMOTIVE CORP.
(Exact name of registrant as specified in its charter)
Delaware 22-2940378
(State or other jurisdiction of (I.R.S. Employer I.D.)
incorporation or organization)
92 Deerfield Road, Windsor, Connecticut 06095-4209
(Address of principal executive offices) (zip code)
(860) 525-0821
Registrant's telephone number including area code)
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 [ ] No [X]
The number of Common Shares of the Company, $0.01 per share par value,
outstanding as of April 30, 1998 was 1,000.
<PAGE> 2
STANADYNE AUTOMOTIVE CORP. AND SUBSIDIARIES
TABLE OF CONTENTS
<TABLE>
<S> <C>
Part I Financial Information
Item 1 Financial Statements
Condensed Consolidated Balance Sheets as of March 31, 1998
(unaudited) and December 31, 1997........................................................... 3
Condensed Consolidated Statements of Operations for the three months
ended March 31, 1998 and 1997 (unaudited)....................................................4
Condensed Consolidated Statements of Cash Flows for the three
months ended March 31, 1998 and 1997 (unaudited).............................................5
Notes to Condensed Consolidated Financial Statements......................................6-13
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations................................................................14-16
Part II Other Information
Item 6 Exhibits and Reports on Form 8-K............................................................17
Signature............................................................................................17
</TABLE>
-2-
<PAGE> 3
STANADYNE AUTOMOTIVE CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
(UNAUDITED)
MARCH 31, DECEMBER 31,
ASSETS 1998 1997
--------- ----------
<S> <C> <C>
Cash and cash equivalents $ 911 $ 325
Accounts receivable, net of allowance for uncollectible
accounts of $1,523 at March 31, 1998 and $1,508 at December 31, 1997 49,228 43,217
Inventories 40,215 38,756
Prepaid expenses and other current assets 149 623
Deferred income taxes 7,359 7,399
--------- ---------
Total current assets 97,862 90,320
Property, plant and equipment, net 125,041 124,443
Intangible and other assets, net 100,942 102,416
Due from Stanadyne Automotive Holding Corp. 4,131 4,131
--------- ---------
Total assets $ 327,976 $ 321,310
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 24,637 $ 24,146
Accrued liabilities 25,987 22,863
Current maturities of long-term debt 4,800 1,581
Current installments of capital lease obligations 1,917 2,126
--------- ---------
Total current liabilities 57,341 50,716
Long-term debt, excluding current maturities 156,787 155,000
Deferred income taxes 6,337 6,727
Capital lease obligations, excluding current installments 2,062 2,445
Other noncurrent liabilities 46,208 46,577
--------- ---------
Total liabilities 268,735 261,465
--------- ---------
Commitments and contingencies -- --
Stockholders' equity:
Common stock -- --
Additional paid-in capital 59,858 59,858
Accumulated deficit (4) (12)
Accumulated other comprehensive loss - foreign currency translation (613) (1)
--------- ---------
Total stockholders' equity 59,241 59,845
--------- ---------
Total liabilities and stockholders' equity $ 327,976 $ 321,310
========= =========
</TABLE>
See notes to condensed consolidated financial statements.
-3-
<PAGE> 4
STANADYNE AUTOMOTIVE CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Company Predecessor
-------------- -----------
3 Months 3 Months
Ended March 31, Ended March 31,
1998 1997
------- -------
<S> <C> <C>
Net sales $75,026 $69,045
Cost of goods sold 61,781 58,109
------- -------
Gross profit 13,245 10,936
Selling, general and administrative expenses 7,448 6,486
Amortization of intangibles 1,368 171
Management fees 275 125
------- -------
Operating income 4,154 4,154
Interest, net 3,828 1,739
------- -------
Income before income taxes 326 2,415
Provision for income taxes 318 844
------- -------
Net income 8 1,571
Dividend to Stanadyne Automotive Holding Corp. -- 150
------- -------
Net income applicable to common shareholders $ 8 $ 1,421
======= =======
</TABLE>
See notes to condensed consolidated financial statements.
-4-
<PAGE> 5
STANADYNE AUTOMOTIVE CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Company Predecessor
-------------- -------------
3 Months 3 Months
Ended March 31, Ended March 31,
1998 1997
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 8 $ 1,571
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 4,717 4,132
Deferred income taxes (333) 632
Changes in operating assets and liabilities (4,031) (2,353)
------- -------
Net cash provided by operating activities 361 3,982
------- -------
Investing activities:
Capital expenditures (4,307) (4,981)
------- -------
Net cash used in investing activities (4,307) (4,981)
------- -------
Financing activities:
Net borrowings on revolving credit facility 5,078 4,227
Principal payments on long term debt -- (4,815)
Payments of capital lease obligations (540) (411)
Dividends paid -- (150)
------- -------
Net cash provided by (used in) financing activities 4,538 (1,149)
------- -------
Cash and cash equivalents:
Net increase (decrease) in cash and cash equivalents 592 (2,148)
Effect of exchange rate changes on cash (6) (55)
Cash and cash equivalents at beginning of period 325 3,371
------- -------
Cash and cash equivalents at end of period $ 911 $ 1,168
======= =======
</TABLE>
See notes to condensed consolidated financial statements.
-5-
<PAGE> 6
STANADYNE AUTOMOTIVE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT WHERE NOTED OTHERWISE)
(1) SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation. The financial statements of Stanadyne Automotive
Corp. and Subsidiaries are presented as "Predecessor" for operations prior to
the December 11, 1997 Acquisition (See Note 2) and "Company" for operations
after the Acquisition. These statements have been prepared in accordance with
generally accepted accounting principles and, in the opinion of management,
reflect all adjustments (consisting of normal recurring accruals) necessary for
a fair presentation for the periods presented. The balance sheet at December 31,
1997 is condensed financial information taken from the audited balance sheet.
The interim financial statements are unaudited. The results of the operations
and cash flows for the interim periods presented are not necessarily indicative
of the results for the full year.
(2) ACQUISITION
On December 11, 1997, American Industrial Partners Capital Fund II,
L.P. ("AIP") through SAC, Inc. ("New Holdings") acquired substantially all the
outstanding stock of Stanadyne Automotive Holding Corp. ("Old Holdings") (the
"Acquisition"), and SAC Automotive, Inc. ("Automotive") borrowed $100 million on
10-1/4% Senior Subordinated Notes ("Notes"), $55 million of term loans and $11.5
million under a $30 million revolving credit line to partially fund the
Acquisition. Simultaneous with the Acquisition, Old Holdings and Automotive
merged with and into the Company and New Holdings changed its name to Stanadyne
Automotive Holding Corp.
The Acquisition has been accounted for using the purchase method of
accounting, whereby the purchase cost has been allocated to the fair value of
the tangible and identifiable intangible assets acquired and liabilities assumed
with the excess identified as goodwill. The consolidated goodwill resulting from
the transaction was approximately $78.7 million. Fair values are based on
valuations and other studies that are substantially complete. The Company does
not expect that the effect of any final adjustments to such valuations and
studies will result in material adjustment to the purchase allocation.
Subsequent to the Acquisition, the Company filed a Form S-4 Registration
Statement for the purpose of registering $100 million of 10-1/4% Senior
Subordinated Notes to be issued in exchange for the similar amount of Notes
issued on December 11, 1997. This Form S-4 Registration Statement became
effective on May 5, 1998.
-6-
<PAGE> 7
STANADYNE AUTOMOTIVE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT WHERE NOTED OTHERWISE)
(3) INVENTORIES
Components of inventory are as follows:
<TABLE>
<CAPTION>
As of As of
March 31, 1998 December 31, 1997
-------------- -----------------
<S> <C> <C>
Raw materials $ 2,099 $ 2,029
Work-in-process 29,532 27,541
Finished goods 8,584 9,186
------ -------
$40,215 $38,756
======= =======
</TABLE>
(4) INCOME TAXES
The Company's effective income tax rate was 97.5% through the first
three months of 1998, compared to 34.9% for the first three months of 1997. This
change was primarily the result of an increase for the first three months of
1998 in the amount of nondeductible goodwill amortization related to the
Acquisition.
(5) CONTINGENCIES
The Company is involved in various legal and regulatory proceedings
generally incidental to its business. While the results of any litigation or
regulatory issue contain an element of uncertainty, management believes that the
outcome of any known, pending or threatened legal proceeding, or all of them
combined, will not have a material adverse effect on the Company's financial
position or results of operations.
The Company is subject to potential environmental liability and various
claims and legal actions, which are pending or may be asserted against the
Company concerning environmental matters. Reserves for such liabilities have
been established and no insurance recoveries have been anticipated in the
determination of the reserves. In management's opinion, the aforementioned
claims will be resolved without material adverse effects on the results of
operations, financial position or cash flows of the Company. In conjunction with
the Acquisition of the Company from Metromedia Company ("Metromedia") on
December 11, 1997, Metromedia agreed to partially indemnify the Company and AIP
relating to certain environmental matters.
-7-
<PAGE> 8
STANADYNE AUTOMOTIVE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except where noted otherwise)
(6) COMPREHENSIVE INCOME - SFAS 130
In June 1997, SFAS No. 130, "Reporting Comprehensive Income", was
issued, which requires that changes in comprehensive income be shown in the
financial statements. Comprehensive income is defined as "the change in equity
of a business enterprise during a period from transactions and other events and
circumstances from non-owner sources." It includes all changes in equity during
a period, except those resulting from investments by owners and distributions to
owners. This statement is effective for fiscal years beginning after December
15, 1997.
The Company's comprehensive results of operations for the three months
ended March 31, 1998 and March 31, 1997 in accordance with the rules set forth
under SFAS 130 are as follows:
<TABLE>
<CAPTION>
Company Predecessor
--------------- --------------
3 Months 3 Months
Ended March 31, Ended March 31,
1998 1997
------- -------
<S> <C> <C>
Net income applicable to common shareholders $ 8 $ 1,421
Other comprehensive loss, net of tax:
Foreign currency translation adjustments, net of
income tax benefit of $227 for March 31, 1998
and $330 for March 31, 1997 (385) (603)
------- -------
Comprehensive (loss) income $ (377) $ 818
======= =======
</TABLE>
(7) SUPPLEMENTAL COMBINED CONDENSED FINANCIAL STATEMENTS
Under the terms of the Notes issued by the Company, the Notes are
guaranteed jointly, fully, severally and unconditionally by Precision Engine
Products Corp. and DSD International Corp. (the "Subsidiary Guarantors") on a
subordinated basis and are not guaranteed by Stanadyne Automotive, SpA (the
"Non-Guarantor").
Supplemental combining condensed financial statements for Stanadyne
Automotive Corp. ("Parent"), the Subsidiary Guarantors and the Non-Guarantor are
presented below. Separate complete financial statements of the Subsidiary
Guarantors are not presented because management has determined that they are not
material to investors.
-8-
<PAGE> 9
STANADYNE AUTOMOTIVE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT WHERE NOTED OTHERWISE)
SUPPLEMENTAL COMBINED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION> (Company)
March 31, 1998
-----------------------------------------------------------------------------
Stanadyne Stanadyne
Automotive Corp. Subsidiary Automotive Corp.
Parent Guarantors Non-Guarantor Eliminations & Subsidiaries
------ ---------- ------------- ------------ --------------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 718 $ 4 $ 4 $ 185 $ 911
Accounts receivable, net 33,075 8,659 7,494 -- 49,228
Inventories 26,091 7,824 6,457 (157) 40,215
Other current assets 6,442 972 94 -- 7,508
-----------------------------------------------------------------------
Total current assets 66,326 17,459 14,049 28 97,862
Property, plant and equipment, net 87,490 21,612 15,939 -- 125,041
Intangible and other assets, net 69,519 14,823 16,600 -- 100,942
Investment in subsidiaries 28,183 -- -- (28,183) (a) --
Due from Stanadyne Automotive Holding Corp. 4,131 -- -- -- 4,131
-----------------------------------------------------------------------
Total assets $ 255,649 $53,894 $46,588 $(28,155) $327,976
=======================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and
accrued expenses $ 37,330 $ 7,378 $ 5,954 $ (38) $ 50,624
Current maturities of long-term
debt and capital lease obligations 2,044 -- 4,673 -- 6,717
-----------------------------------------------------------------------
Total current liabilities 39,374 7,378 10,627 (38) 57,341
Long-term debt and capital lease obligations 157,328 -- 1,521 -- 158,849
Other non-current liabilities 31,323 13,243 7,979 -- 52,545
Intercompany accounts (32,329) 17,852 14,309 168 --
Stockholders' equity 59,953 15,421 12,152 (28,285) (a) 59,241
-----------------------------------------------------------------------
Total liabilities and stockholders' equity $ 255,649 $53,894 $46,588 $(28,155) $327,976
=======================================================================
</TABLE>
(a) Amount represents the elimination of investments in subsidiaries
of the Parent as recorded under the equity method of accounting.
-9-
<PAGE> 10
STANADYNE AUTOMOTIVE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except where noted otherwise)
SUPPLEMENTAL COMBINED CONDENSED FINANCIAL STATEMENTS - (CONTINUED)
<TABLE>
<CAPTION>
(Company)
December 31, 1997
---------------------------------------------------------------------------
Stanadyne Stanadyne
Automotive Corp. Subsidiary Automotive Corp.
Parent Guarantors Non-Guarantor Eliminations & Subsidiaries
------ ---------- ------------- ------------ --------------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 317 $ 4 $ 4 $ -- $ 325
Accounts receivable, net 27,529 8,412 7,276 -- 43,217
Inventories 23,937 8,104 6,839 (124) 38,756
Other current assets 6,994 914 114 -- 8,022
---------------------------------------------------------------------
Total current assets 58,777 17,434 14,233 (124) 90,320
Property, plant and equipment, net 86,880 21,453 16,110 -- 124,443
Intangible and other assets, net 70,340 15,017 17,059 -- 102,416
Investment in subsidiaries 29,211 -- -- (29,211) (a) --
Due from Stanadyne Automotive Holding Corp. 4,131 -- -- 4,131
---------------------------------------------------------------------
Total assets $ 249,339 $53,904 $47,402 $(29,335) $321,310
=====================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and
accrued expenses $ 33,046 $ 7,078 $ 6,886 $ (1) $ 47,009
Current maturities of long-term
debt and capital lease obligations 1,430 -- 2,277 -- 3,707
---------------------------------------------------------------------
Total current liabilities 34,476 7,078 9,163 (1) 50,716
Long-term debt and capital lease obligations 155,719 -- 1,726 -- 157,445
Other non-current liabilities 31,136 13,324 8,844 -- 53,304
Intercompany accounts (31,956) 18,201 13,760 (5) --
Stockholders' equity 59,964 15,301 13,909 (29,329) (a) 59,845
---------------------------------------------------------------------
Total liabilities and stockholders' equity $ 249,339 $53,904 $47,402 $(29,335) $321,310
=====================================================================
</TABLE>
(a) Amount represents the elimination of investments in subsidiaries
of the Parent as recorded under the equity method of accounting.
- 10 -
<PAGE> 11
STANADYNE AUTOMOTIVE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except where noted otherwise)
SUPPLEMENTAL COMBINED CONDENSED FINANCIAL STATEMENTS - (CONTINUED)
<TABLE>
<CAPTION>
(Company)
Three Months Ended March 31, 1998
---------------------------------------------------------------------------
Stanadyne Stanadyne
Automotive Corp. Subsidiary Automotive Corp.
Parent Guarantors Non-Guarantor Eliminations & Subsidiaries
------ ---------- ------------- ------------ --------------
<S> <C> <C> <C> <C> <C>
Net sales $56,673 $ 13,382 $ 5,253 $(282) (a) $75,026
Cost of goods sold 44,190 11,663 6,224 (296) (a) 61,781
-----------------------------------------------------------------------------
Gross profit (loss) 12,483 1,719 (971) 14 13,245
Selling, general, administrative and
other operating expenses 7,532 1,096 463 -- 9,091
-----------------------------------------------------------------------------
Operating income (loss) 4,951 623 (1,434) 14 4,154
Interest, net 3,044 396 388 -- 3,828
-----------------------------------------------------------------------------
Income (loss) before income taxes 1,907 227 (1,822) 14 326
Income tax expense (benefit) 885 107 (674) -- 318
-----------------------------------------------------------------------------
Net income (loss) $ 1,022 $ 120 $(1,148) $14 $ 8
=============================================================================
</TABLE>
<TABLE>
<CAPTION>
(Predecessor)
Three Months Ended March 31, 1997
---------------------------------------------------------------------------
Stanadyne Stanadyne
Automotive Corp. Subsidiary Automotive Corp.
Parent Guarantors Non-Guarantor Eliminations & Subsidiaries
------ ---------- ------------- ------------ --------------
<S> <C> <C> <C> <C> <C>
Net sales $45,686 $16,674 $ 6,950 $(265) (a) $69,045
Cost of goods sold 37,084 14,191 7,086 (252) (a) 58,109
-----------------------------------------------------------------------------
Gross profit (loss) 8,602 2,483 (136) (13) 10,936
Selling, general, administrative and
other operating expenses 5,549 807 426 -- 6,782
-----------------------------------------------------------------------------
Operating income (loss) 3,053 1,676 (562) (13) 4,154
Interest, net 1,613 48 78 -- 1,739
-----------------------------------------------------------------------------
Income (loss) before income taxes 1,440 1,628 (640) (13) 2,415
Income tax expense (benefit) 517 595 (268) -- 844
-----------------------------------------------------------------------------
Net income (loss) $ 923 $ 1,033 $ (372) $(13) $ 1,571
=============================================================================
</TABLE>
(a) To eliminate intercompany sales and cost of sales from Stanadyne
Automotive, SpA to Parent.
- 11 -
<PAGE> 12
STANADYNE AUTOMOTIVE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except where noted otherwise)
SUPPLEMENTAL COMBINED CONDENSED FINANCIAL STATEMENTS - (CONTINUED)
<TABLE>
<CAPTION>
(Company)
Three Months Ended March 31, 1998
---------------------------------------------------------------------------
Stanadyne Stanadyne
Automotive Corp. Subsidiary Automotive Corp.
Parent Guarantors Non-Guarantor Eliminations & Subsidiaries
------ ---------- ------------- ------------ --------------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 1,022 $ 120 $(1,148) $ 14 $ 8
Adjustments to reconcile net income
(loss) to net cash provided by (used in)
operating activities:
Depreciation and amortization 3,528 761 428 -- 4,717
Deferred income taxes 345 (4) (674) -- (333)
Changes in operating assets and
liabilities (3,657) (151) (398) 175 (4,031)
-----------------------------------------------------------------------
Net cash provided by (used in)
operating activities 1,238 726 (1,792) 189 361
-----------------------------------------------------------------------
Cash flows from investing activities:
Capital expenditures (3,058) (726) (523) -- (4,307)
-----------------------------------------------------------------------
Net cash used in investing
activities (3,058) (726) (523) -- (4,307)
-----------------------------------------------------------------------
Cash flow from financing activities:
Net change in debt 2,223 -- 2,315 -- 4,538
-----------------------------------------------------------------------
Net cash provided by financing
activities 2,223 -- 2,315 -- 4,538
-----------------------------------------------------------------------
Net increase in cash and
cash equivalents 403 -- -- 189 592
Effect of exchange rate changes on cash (2) -- -- (4) (6)
Cash and cash equivalents at
beginning of period 317 4 4 -- 325
-----------------------------------------------------------------------
Cash and cash equivalents at
end of period $ 718 $ 4 $ 4 $ 185 $ 911
=======================================================================
</TABLE>
- 12 -
<PAGE> 13
STANADYNE AUTOMOTIVE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except where noted otherwise)
SUPPLEMENTAL COMBINED CONDENSED FINANCIAL STATEMENTS - (CONTINUED)
<TABLE>
<CAPTION>
(Predecessor)
Three Months Ended March 31, 1997
---------------------------------------------------------------------------
Stanadyne Stanadyne
Automotive Corp. Subsidiary Automotive Corp.
Parent Guarantors Non-Guarantor Eliminations & Subsidiaries
------ ---------- ------------- ------------ --------------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 923 $ 1,033 $(372) $ (13) $ 1,571
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization 3,073 695 364 -- 4,132
Deferred income taxes 1,321 (421) (268) -- 632
Changes in operating assets and
liabilities (2,272) (743) 368 294 (2,353)
-----------------------------------------------------------------------------
Net cash provided by operating
activities 3,045 564 92 281 3,982
-----------------------------------------------------------------------------
Cash flows from investing activities:
Capital expenditures (4,226) (564) (191) -- (4,981)
-----------------------------------------------------------------------------
Net cash used in investing
activities (4,226) (564) (191) -- (4,981)
-----------------------------------------------------------------------------
Cash flow from financing activities:
Net change in debt (1,098) -- 99 -- (999)
Net change in equity (150) -- -- -- (150)
-----------------------------------------------------------------------------
Net cash (used in) provided by
financing activities (1,248) -- 99 -- (1,149)
-----------------------------------------------------------------------------
Net (decrease) increase in cash and
cash equivalents (2,429) -- -- 281 (2,148)
Effect of exchange rate changes on cash (26) -- (1) (28) (55)
Cash and cash equivalents at
beginning of period 3,361 4 6 -- 3,371
-----------------------------------------------------------------------------
Cash and cash equivalents at
end of period $ 906 $ 4 $ 5 $ 253 $ 1,168
=============================================================================
</TABLE>
- 13 -
<PAGE> 14
STANADYNE AUTOMOTIVE CORP. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(1) OVERVIEW
The Company has two reportable segments, the Diesel Systems Group
("Diesel Group") and Precision Engine Products Corp. ("Precision Engine"). The
Diesel Group manufactures diesel fuel injection equipment including fuel pumps,
injectors and filtration systems. Precision Engine manufactures roller-rocker
arms, hydraulic valve lifters and lash adjusters for gasoline engines. The
Company considers the Diesel Group and Precision Engine to be two distinct
segments because the operating results of each are compiled, reviewed and
managed separately.
On December 11, 1997, American Industrial Partners Capital Fund II,
L.P. ("AIP") through SAC, Inc. ("New Holdings") acquired substantially all the
outstanding stock of Stanadyne Automotive Holding Corp. ("Old Holdings") (the
"Acquisition"). Simultaneous with the Acquisition, Old Holdings merged with and
into the Company and New Holdings changed its name to Stanadyne Automotive
Holding Corp. The Acquisition has been accounted for using the purchase method
of accounting, whereby the purchase cost has been allocated to the fair value of
the tangible and identifiable intangible assets acquired and liabilities assumed
with the excess identified as goodwill.
(2) BASIS OF PRESENTATION
The following table sets forth certain unaudited performance details of
the Company in thousands of dollars and as a percentage of sales for the periods
shown.
<TABLE>
<CAPTION>
Three Months Three Months
Ended March 31, 1998 Ended March 31, 1997
------------------------ --------------------------
($000) % ($000) %
----------- --------- ----------- ----------
<S> <C> <C> <C> <C>
Net Sales $75,026 100.0% $69,045 100.0%
Cost of Goods Sold 61,781 82.3 58,109 84.2
Gross Profit 13,245 17.7 10,936 15.8
Selling, General and Administrative Expense 7,448 9.9 6,486 9.4
Amortization of Intangibles 1,368 1.8 171 0.2
Management Fees 275 .4 125 0.2
Operating Income 4,154 5.5 4,154 6.0
Net Income 8 -- 1,571 2.3
</TABLE>
-14-
<PAGE> 15
STANADYNE AUTOMOTIVE CORP. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
COMPARISON OF RESULTS OF OPERATIONS:
Three Months Ended March 31, 1998 Compared to Three Months Ended March 31, 1997
Net sales for the first quarter of 1998 increased 8.7% to $75.0 million
from $69.0 million for the comparable period in 1997. All of the increase came
from higher sales volumes in the Diesel Group, up $9.3 million or 17.7%, with
lower sales reported for Precision Engine, down $3.3 million or 19.7%. Higher
revenues in the Diesel Group were reported due to original equipment demand for
the DS electronic pump, mechanical-style pumps and the RSN injector introduced
in mid-1997 accounting for $2.0 million, $4.8 million and $3.2 million,
respectively, of the change. Revenues in Precision Engine were impacted by
reduced demand from Chrysler Corporation for rocker arms.
Gross profit for the first quarter of 1998 increased to $13.2 million
from $10.9 million for the first quarter of 1997. Gross profit as a percent of
net sales also improved to 17.7% from 15.8%. The change was primarily the result
of earnings on the higher sales volumes reported in Diesel Group.
Selling, general and administrative expenses ("SG&A") increased to $7.4
million for the three months ended March 31, 1998 from $6.5 million for the
comparable period in 1997, representing an increase of $0.9 million or 13.8%. As
a percentage of net sales, SG&A also increased to 9.9% from 9.4%. This change
was primarily due to increases in retiree benefit costs of $0.2 million, freight
on sales of $0.2 million in support of higher business levels and slightly
higher research and development expense of $0.2 million.
Amortization of intangible assets increased to $1.4 million in the
first quarter of 1998 from $0.2 million in the first quarter of 1997. This
change is the direct result of the Acquisition (see Note 2 to the financial
statements) and the subsequent purchase accounting allocation of fair market
value to assets and liabilities. The increase in amortization expense in first
quarter 1998 versus first quarter 1997 included goodwill of $0.5 million and
other intangible assets of $0.7 million.
Operating income for both the first quarters of 1998 and 1997 was $4.2
million. As a percentage of net sales, operating income decreased to 5.5% from
6.0%. Additional gross profit due to higher sales volumes in the Diesel Group
was offset by increased SG&A and amortization expense in the first quarter of
1998.
Net income decreased to less than $0.1 million in the first quarter of
1998 from $1.6 million in the first quarter of 1997. Interest expense for first
quarter of 1998 increased by $2.1 million from the first quarter of 1997 due to
the increased borrowings associated with the Acquisition. The effective tax rate
for the first three months of 1998 was 97.5% compared to 34.9% for the
-15-
<PAGE> 16
STANADYNE AUTOMOTIVE CORP. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
first three months of 1997. The 1998 tax rate is significantly different
from the statutory rate due to an increase in the amount of nondeductible
goodwill amortization related to the Acquisition.
(3) LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of liquidity have been cash flows from
operations supplemented by borrowings under a revolving credit facility. In
addition, the Company sometimes utilizes capital leasing and for its Italian
subsidiary, Stanadyne Automotive, SpA, maintains overdraft facilities with local
financial institutions.
Cash Flows From Operating Activities. Cash flows from operations for the first
three months ended March 31, 1998 and March 31, 1997 were $0.4 million and $4.0
million, respectively. Cash flows provided by operations in 1998 were impacted
by lower net income as a result of additional interest expense and increases in
operating assets, primarily accounts receivable of $6.0 million and inventories
of $1.5 million related to the higher levels of operations in the Diesel Group.
Cash flows provided by operations in the first three months ended March 31,1997
included higher net income of $1.6 million due to lower interest expense and
changes in operating assets and liabilities of ($2.4) million traceable
primarily to increased accounts receivable of $2.5 million.
Cash Flows From Investing Activities. The Company's capital expenditures were
slightly less for the first quarter of 1998 at $4.3 million compared to the
first quarter of 1997 at $5.0 million. These expenditures were primarily for the
purchase of machinery and equipment to increase capacity in the Diesel Group for
pump products, to complete the capitalization of the RSN injector operations in
the US and Italy and for the maintenance of existing facilities.
Cash Flows From Financing Activities. Cash flows from financing activities for
the three months ended March 31, 1998 totaled $4.5 million. Borrowings against
the revolving credit facility totaled $2.6 million, overdraft borrowings in
Stanadyne Automotive, SpA totaled $2.4 million and the reduction in capital
lease obligations totaled $.5 million. Funds were used to finance increased
working capital requirements in the Diesel Group.
-16-
<PAGE> 17
STANADYNE AUTOMOTIVE CORP. AND SUBSIDIARIES
PART II: OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits:
10.12.1 Amendment dated March 13, 1998 to Customer Agreement
dated as of January 22, 1996 between Stanadyne
Automotive Corp. and General Motors Powertrain Group.
Confidential treatment requested pursuant to Rule
24b-2 of the Securities Exchange Act of 1934 for a
portion of this exhibit.
27 Financial Data Schedule
b. No report on Form 8-K was filed during the quarter ended March
31, 1998
SIGNATURE
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.
Stanadyne Automotive Corp.
(Registrant)
Date: May 14, 1998 /s/ Michael H.Boyer
------------ ---------------------------
Michael H. Boyer
Vice President and
Chief Financial Officer
-17-
<PAGE> 1
EXHIBIT 10.12.1
PORTIONS OF THIS AGREEMENT MARKED BY *** HAVE BEEN OMITTED AND ARE
SUBJECT TO A REQUEST FOR CONFIDENTIAL TREATMENT MADE PURSUANT TO RULE 24b-2
UNDER THE SECURITIES EXCHANGE ACT OF 1934.
AMENDMENT TO THE DS PUMP SUPPLY AGREEMENT (SIGNED 1/22/96)
BETWEEN STANADYNE AUTOMOTIVE CORP. AND GENERAL MOTORS POWERTRAIN GROUP.
The following amendments are to be made to the "DS Pump Supply Agreement (dated
1/22/96)" between Stanadyne and GMPT:
1. GMPTG Reserved Capacity to be ***.
2. ***.
3. Cumulative "Net Cost Reductions" per the "DS Pump Supply Agreement" article
(3a) are ***.
4. GMPTG assures purchase of pump volumes as provided in the March 10, 1998
letter from Tom Endres to William Kelly.
5. Following February 28, 2001 OE & OES pump pricing ***.
6. Neither GMPTG or Stanadyne can act unilaterally to affect or modify terms,
conditions, obligations or commercial business practices in anyway other
than as specified by the "DS Pump Supply Agreement" as modified.
7. All other terms and conditions of the January "DS Pump Supply Agreement"
shall continue in effect. The Cost Recovery provisions *** shall not
apply to the supply of DS product.
8. GMPTG agrees to provide timely processing and payment of Stanadyne Invoices
provided them for OE, OES (SPO) purchases, and warranty administration
services. Billing disputes should be immediately called to the attention of
Stanadyne and promptly resolved between the parties or through third party
mediation.
9. GMPTG will conduct a management level review to ***.
GMPTG and Stanadyne agree to the above provisions of this agreement, and so
indicate by the signature below of their duly authorized representatives:
for: General Motors Powertrain Group for: Stanadyne Automotive Corp.
/s/ Thomas E. Endres /s/ William W. Kelly
---------------------------------- --------------------------------
Signature Signature
Thomas E. Endres William W. Kelly
---------------------------------- --------------------------------
printed name printed name
Director Purchasing, GM Powertrain V.P. & General Manager, Fuel Pumps
---------------------------------- ----------------------------------
title title
3/31/98 March 13, 1998
---------------------------------- --------------------------------
date date
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM STANADYNE
AUTOMOTIVE CORP.'S QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED MARCH 31,
1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 911
<SECURITIES> 0
<RECEIVABLES> 50,751
<ALLOWANCES> 1,523
<INVENTORY> 40,215
<CURRENT-ASSETS> 97,862
<PP&E> 129,051
<DEPRECIATION> 4,010
<TOTAL-ASSETS> 327,976
<CURRENT-LIABILITIES> 57,341
<BONDS> 100,000
0
0
<COMMON> 0
<OTHER-SE> 59,241
<TOTAL-LIABILITY-AND-EQUITY> 327,976
<SALES> 75,026
<TOTAL-REVENUES> 75,026
<CGS> 61,781
<TOTAL-COSTS> 70,872
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,828
<INCOME-PRETAX> 326
<INCOME-TAX> 318
<INCOME-CONTINUING> 8
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
