<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 September 30, 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 [X] No [ ]
The number of Common Shares of the Company, $0.01 per share par value,
outstanding as of October 31, 1998 was 1,000.
<PAGE> 2
STANADYNE AUTOMOTIVE CORP. AND SUBSIDIARIES
TABLE OF CONTENTS
Part I Financial Information
Item 1 Financial Statements
Condensed Consolidated Balance Sheets as of
September 30, 1998 (unaudited) and December 31, 1997.......... 3
Condensed Consolidated Statements of Operations
for the three months ended September 30, 1998 and 1997
(unaudited)................................................... 4
Condensed Consolidated Statements of Operations
for the nine months ended September 30, 1998 and 1997
(unaudited)................................................... 5
Condensed Consolidated Statements of Cash Flows for the
three months ended September 30, 1998 and 1997 (unaudited).... 6
Condensed Consolidated Statements of Cash Flows for the
nine months ended September 30, 1998 and 1997 (unaudited)..... 7
Notes to Condensed Consolidated Financial Statements........ 8-19
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations........................ 20-25
Item 3 Quantitative and Qualitative Disclosures About Market Risk ... 25
Part II Other Information
Item 6 Exhibits and Reports on Form 8-K.............................. 26
Signature .......................................................... 26
-2-
<PAGE> 3
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
STANADYNE AUTOMOTIVE CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
(UNAUDITED)
September 30, December 31,
ASSETS 1998 1997
---- ----
<S> <C> <C>
Cash and cash equivalents $ 4,845 $ 325
Accounts receivable, net of allowance for uncollectible accounts
of $1,535 at September 30, 1998 and $1,508 at December 31, 1997 46,197 43,217
Inventories 39,589 38,756
Prepaid expenses and other current assets 831 623
Deferred income taxes 7,942 7,399
-------- ---------
Total current assets 99,404 90,320
Property, plant and equipment, net 125,002 124,443
Intangible and other assets, net 98,830 102,416
Due from Stanadyne Automotive Holding Corp. 4,061 4,131
-------- ---------
Total assets $327,297 $ 321,310
======== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 22,176 $ 24,146
Accrued liabilities 29,099 22,863
Current maturities of long-term debt 7,319 1,581
Current installments of capital lease obligations 1,501 2,126
-------- ---------
Total current liabilities 60,095 50,716
Long-term debt, excluding current maturities 151,604 155,000
Deferred income taxes 6,148 6,727
Capital lease obligations, excluding current installments 1,790 2,445
Other noncurrent liabilities 46,126 46,577
-------- ---------
Total liabilities 265,763 261,465
-------- ---------
Commitments and contingencies -- --
Stockholders' equity:
Common stock -- --
Additional paid-in capital 59,858 59,858
Retained earnings (accumulated deficit) 1,540 (12)
Foreign currency translation adjustment 136 (1)
-------- ---------
Total stockholders' equity 61,534 59,845
-------- ---------
Total liabilities and stockholders' equity $327,297 $ 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 Ended
September 30, September 30,
1998 1997
---- ----
<S> <C> <C>
Net sales $ 75,039 $ 60,365
Cost of goods sold 61,732 52,473
-------- --------
Gross profit 13,307 7,892
Selling, general and administrative expenses 7,449 5,544
Amortization of intangibles 1,666 171
Management fees 275 125
-------- --------
Operating income 3,917 2,052
Interest, net 3,807 1,787
-------- --------
Income before income taxes 110 265
Provision for income taxes 201 194
-------- --------
Net (loss) income (91) 71
Dividend to Stanadyne Automotive Holding Corp. -- 150
-------- --------
Net loss applicable to common shareholders $ (91) $ (79)
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
-4-
<PAGE> 5
STANADYNE AUTOMOTIVE CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Company Predecessor
------- -----------
9 Months 9 Months
Ended Ended
September 30, September 30,
1998 1997
---- ----
<S> <C> <C>
Net sales $232,333 $200,289
Cost of goods sold 189,514 168,905
-------- --------
Gross profit 42,819 31,384
Selling, general and administrative expenses 22,785 18,525
Amortization of intangibles 4,423 512
Management fees 825 375
-------- --------
Operating income 14,786 11,972
Interest, net 11,443 5,338
-------- --------
Income before income taxes 3,343 6,634
Provision for income taxes 1,791 2,617
-------- --------
Net income 1,552 4,017
Dividend to Stanadyne Automotive Holding Corp. -- 450
-------- --------
Net income applicable to common shareholders $ 1,552 $ 3,567
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
-5-
<PAGE> 6
STANADYNE AUTOMOTIVE CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Company Predecessor
------- -----------
3 Months 3 Months
Ended Ended
September 30, September 30,
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net(loss) income $ (91) $ 71
Adjustments to reconcile net(loss) income to net
cash provided by (used in) operating activities:
Depreciation and amortization 5,195 4,097
Deferred income taxes (921) 106
Changes in operating assets and liabilities 2,211 (2,151)
------- -------
Net cash provided by operating activities 6,394 2,123
------- -------
Cash flows from investing activities:
Capital expenditures (2,794) (2,918)
------- -------
Net cash used in investing activities (2,794) (2,918)
------- -------
Cash flows from financing activities:
Net proceeds on revolving credit facility 674 3,520
Principal payments on long term debt -- (2,499)
Payments of capital lease obligations (573) (419)
Dividends paid -- (150)
------- -------
Net cash provided by financing activities 101 452
------- -------
Cash and cash equivalents:
Net increase(decrease) in cash and cash equivalents 3,701 (343)
Effect of exchange rate changes on cash 13 (4)
Cash and cash equivalents at beginning of period 1,131 507
------- -------
Cash and cash equivalents at end of period $ 4,845 $ 160
======= =======
</TABLE>
See notes to condensed consolidated financial statements.
-6-
<PAGE> 7
STANADYNE AUTOMOTIVE CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Company Predecessor
------- -----------
9 Months 9 Months
Ended Ended
September 30, September 30,
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,552 $ 4,017
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 14,865 12,338
Deferred income taxes (1,105) 2,075
Changes in operating assets and liabilities (910) (7,790)
-------- --------
Net cash provided by operating activities 14,402 10,640
-------- --------
Cash flows from investing activities:
Capital expenditures (10,508) (10,487)
-------- --------
Net cash used in investing activities (10,508) (10,487)
-------- --------
Cash flows from financing activities:
Net proceeds on revolving credit facility 3,286 8,340
Principal payments on long term debt (1,000) (9,940)
Payments of capital lease obligations (1,675) (1,242)
Dividends paid -- (450)
-------- --------
Net cash provided by financing activities 611 (3,292)
-------- --------
Cash and cash equivalents:
Net increase(decrease) in cash and cash equivalents 4,505 (3,139)
Effect of exchange rate changes on cash 15 (72)
Cash and cash equivalents at beginning of period 325 3,371
-------- --------
Cash and cash equivalents at end of period $ 4,845 $ 160
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
-7-
<PAGE> 8
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 $75.7 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 cost 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.
-8-
<PAGE> 9
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
September 30, 1998 December 31, 1997
------------------ -----------------
<S> <C> <C>
Raw materials $ 2,447 $ 2,029
Work-in-process 27,671 27,541
Finished goods 9,471 9,186
------- -------
$39,589 $38,756
======= =======
</TABLE>
(4) INCOME TAXES
The Company's effective income tax rate was 53.6% through the first nine months
of 1998, compared to 39.4% for the first nine months of 1997. This difference
was primarily the result of an increase for the first nine months of 1998 in the
amount of nondeductible goodwill amortization related to the Acquisition. The
Company's effective tax rate in 1998 would have been 64.6% without the benefit
provided from the Stanadyne Automotive Foreign Sales Corp. ("FSC").
(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.
-9-
<PAGE> 10
STANADYNE AUTOMOTIVE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT WHERE NOTED OTHERWISE)
(6) SUBSEQUENT EVENTS
On September 9, 1998, the Company announced the closure of the manufacturing
facility in Bari, Italy, which is to be accomplished by the end of 1998. The
Bari Plant is a part of a wholly owned subsidiary, Stanadyne Automotive, SpA
("SpA"), which is headquartered in Brescia, Italy. This action is being taken
because of continuing financial losses at Bari resulting primarily from
worldwide excess manufacturing capacity for the types of diesel fuel injectors
produced there. Although the Italian employees are unionized, the Company has
not had and does not anticipate any work interruption in the Brescia facility as
a result of the announcement of the closure of the Bari facility. However, there
can be no assurance that there will be no work interruption in Brescia and that
such interruption would not have a material adverse effect on SpA sales. The
Company has arranged for the continuity of product shipments to customers with
whom there are on going supply relationships. The cost of closing the operation
is expected to be $4 million to $7 million before taxes, which will be a charge
to earnings in the fourth quarter of 1998 because SpA's reporting period is one
month in arrears from the Company's reporting period.
On October 6, 1998, DSD International Corp. was dissolved. DSD International
Corp. was a redundant corporation originally established in 1990 for foreign
activities which never materialized. DSD International Corp. had no assets at
the time of the dissolution.
(7) 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.
-10-
<PAGE> 11
STANADYNE AUTOMOTIVE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT WHERE NOTED OTHERWISE)
The Company's comprehensive results of operations for the three months ended
September 30, 1998 and 1997 and the nine months ended September 30, 1998 and
1997 in accordance with SFAS 130 are as follows:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net (loss) income applicable to common shareholders $ (91) $ (79) $ 1,552 $ 3,567
Other comprehensive income (loss):
Foreign currency translation adjustments 323 (327) 137 (1,262)
Income tax (expense) benefit related to items of
other comprehensive income (loss) (128) 174 (51) 505
----- ----- ------- -------
Other comprehensive income (loss) 195 (153) 86 (757)
----- ----- ------- -------
Comprehensive income (loss) $ 104 $(232) $ 1,638 $ 2,810
===== ===== ======= =======
</TABLE>
(8) SUPPLEMENTAL COMBINED CONDENSED FINANCIAL STATEMENTS
The Notes issued by the Company are guaranteed jointly, fully, severally and
unconditionally by Precision Engine Products Corp. and DSD International Corp.
(see Note 6) (the "Subsidiary Guarantors") on a subordinated basis and are not
guaranteed by Stanadyne Automotive, SpA and FSC (the "Non-Guarantor
Subsidiaries").
Supplemental combining condensed financial statements for Stanadyne Automotive
Corp. ("Parent"), the Subsidiary Guarantors and the Non-Guarantor Subsidiaries
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.
-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)
September 30, 1998
----------------------------------------------------------------------------------
Stanadyne Stanadyne
Automotive Corp. Subsidiary Non-Guarantor Automotive Corp.
Parent Guarantors Subsidiaries Eliminations & Subsidiaries
------ ---------- ------------ ------------ --------------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 4,700 $ 4 $ 4 $ 137 $ 4,845
Accounts receivable, net 30,988 8,497 6,712 -- 46,197
Inventories 24,828 8,027 7,076 (342) 39,589
Other current assets 7,329 1,347 97 -- 8,773
--------- --------- --------- --------- ---------
Total current assets 67,845 17,875 13,889 (205) 99,404
Property, plant and equipment, net 86,566 21,699 16,737 -- 125,002
Intangible and other assets, net 67,391 14,436 17,003 -- 98,830
Investment in subsidiaries 27,347 -- -- (27,347)(a) --
Due from Stanadyne Automotive Holding Corp. 4,061 -- -- -- 4,061
--------- --------- --------- --------- ---------
Total assets $ 253,210 $ 54,010 $ 47,629 $ (27,552) $ 327,297
========= ========= ========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and
accrued liabilities $ 37,163 $ 7,450 $ 6,666 $ (4) $ 51,275
Current maturities of long-term
debt and capital lease obligations 3,145 -- 5,675 -- 8,820
--------- --------- --------- --------- ---------
Total current liabilities 40,308 7,450 12,341 (4) 60,095
Long-term debt and capital lease obligations 151,879 -- 1,515 -- 153,394
Other noncurrent liabilities 31,708 12,799 7,767 -- 52,274
Intercompany accounts (32,171) 18,200 14,114 (143) --
Stockholders' equity 61,486 15,561 11,892 (27,405)(a) 61,534
--------- --------- --------- --------- ---------
Total liabilities and stockholders' equity $ 253,210 $ 54,010 $ 47,629 $ (27,552) $ 327,297
========= ========= ========= ========= =========
</TABLE>
(a) Amount represents the elimination of investments in subsidiaries of
the Parent as recorded under the equity method of accounting.
-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>
(Company)
December 31, 1997
---------------------------------------------------------------------------------
Stanadyne Stanadyne
Automotive Corp. Subsidiary Non-Guarantor Automotive Corp.
Parent Guarantors Subsidiaries 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 liabilities $ 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 noncurrent 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.
-13-
<PAGE> 14
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 September 30, 1998
-------------------------------------------------------------------------------
Stanadyne Stanadyne
Automotive Corp. Subsidiary Non-Guarantor Automotive Corp.
Parent Guarantors Subsidiaries Eliminations & Subsidiaries
------ ---------- ------------ ------------ --------------
<S> <C> <C> <C> <C> <C>
Net sales $ 56,534 $ 12,440 $ 6,164 $ (99)(a) $ 75,039
Cost of goods sold 45,196 10,546 6,071 (81)(a) 61,732
-------- -------- -------- -------- --------
Gross profit 11,338 1,894 93 (18) 13,307
Selling, general, administrative and
other operating expenses 8,227 1,166 (3) -- 9,390
-------- -------- -------- -------- --------
Operating income 3,111 728 96 (18) 3,917
Interest, net 2,991 377 439 -- 3,807
-------- -------- -------- -------- --------
Income (loss) before income taxes 120 351 (343) (18) 110
Income tax expense (benefit) (274) 105 370 -- 201
-------- -------- -------- -------- --------
Net income (loss) $ 394 $ 246 $ (713) $ (18) $ (91)
======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
(Predecessor)
Three Months Ended September 30, 1997
--------------------------------------------------------------------------------
Stanadyne Stanadyne
Automotive Corp. Subsidiary Non-Guarantor Automotive Corp.
Parent Guarantors Subsidiaries Eliminations & Subsidiaries
------ ---------- ------------ ------------ --------------
<S> <C> <C> <C> <C> <C>
Net sales $ 43,215 $ 11,218 $ 6,033 $ (101)(a) $ 60,365
Cost of goods sold 36,309 10,308 5,961 (105)(a) 52,473
-------- -------- -------- -------- --------
Gross profit 6,906 910 72 4 7,892
Selling, general, administrative and
other operating expenses 4,789 695 356 -- 5,840
-------- -------- -------- -------- --------
Operating income (loss) 2,117 215 (284) 4 2,052
Interest, net 1,713 (22) 96 -- 1,787
-------- -------- -------- -------- --------
Income (loss) before income taxes 404 237 (380) 4 265
Income tax expense (benefit) 265 87 (158) -- 194
-------- -------- -------- -------- --------
Net income (loss) $ 139 $ 150 $ (222) $ 4 $ 71
======== ======== ======== ======== ========
</TABLE>
(a) To eliminate intercompany sales and cost of sales from Stanadyne
Automotive, SpA to Parent.
-14-
<PAGE> 15
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)
Nine Months Ended September 30, 1998
-------------------------------------------------------------------------------------
Stanadyne Stanadyne
Automotive Corp. Subsidiary Non-Guarantor Automotive Corp.
Parent Guarantors Subsidiaries Eliminations & Subsidiaries
------ ---------- ------------ ------------ --------------
<S> <C> <C> <C> <C> <C>
Net sales $175,442 $ 39,138 $ 18,287 $ (534)(a) $232,333
Cost of goods sold 137,335 33,320 19,423 (564)(a) 189,514
-------- -------- -------- -------- --------
Gross profit (loss) 38,107 5,818 (1,136) 30 42,819
Selling, general, administrative and
other operating expenses 24,407 3,438 188 -- 28,033
-------- -------- -------- -------- --------
Operating income (loss) 13,700 2,380 (1,324) 30 14,786
Interest, net 9,021 1,173 1,249 -- 11,443
-------- -------- -------- -------- --------
Income (loss) before income taxes 4,679 1,207 (2,573) 30 3,343
Income tax expense (benefit) 1,292 948 (449) -- 1,791
-------- -------- -------- -------- --------
Net income (loss) $ 3,387 $ 259 $ (2,124) $ 30 $ 1,552
======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
(Predecessor)
Nine Months Ended September 30, 1997
-------------------------------------------------------------------------------------
Stanadyne Stanadyne
Automotive Corp. Subsidiary Non-Guarantor Automotive Corp.
Parent Guarantors Subsidiaries Eliminations & Subsidiaries
------ ---------- ------------ ------------ --------------
<S> <C> <C> <C> <C> <C>
Net sales $135,942 $ 44,236 $ 20,838 $ (727)(a) $200,289
Cost of goods sold 111,255 38,156 20,212 (718)(a) 168,905
-------- -------- -------- -------- --------
Gross profit 24,687 6,080 626 (9) 31,384
Selling, general, administrative and
other operating expenses 16,108 2,426 878 -- 19,412
-------- -------- -------- -------- --------
Operating income (loss) 8,579 3,654 (252) (9) 11,972
Interest, net 5,023 57 258 -- 5,338
-------- -------- -------- -------- --------
Income (loss) before income taxes 3,556 3,597 (510) (9) 6,634
Income tax expense (benefit) 1,513 1,315 (211) -- 2,617
-------- -------- -------- -------- --------
Net income (loss) $ 2,043 $ 2,282 $ (299) $ (9) $ 4,017
======== ======== ======== ======== ========
</TABLE>
(a) To eliminate intercompany sales and cost of sales from Stanadyne
Automotive, SpA to Parent.
-15-
<PAGE> 16
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 September 30, 1998
---------------------------------------------------------------------------------
Stanadyne Stanadyne
Automotive Corp. Subsidiary Non-Guarantor Automotive Corp.
Parent Guarantors Subsidiaries Eliminations & Subsidiaries
------ ---------- ------------ ------------ --------------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 394 $ 246 $ (713) $ (18) $ (91)
Adjustments to reconcile net income
(loss) to net cash provided by (used in)
operating activities:
Depreciation and amortization 3,961 780 454 -- 5,195
Deferred income taxes (791) 22 (152) -- (921)
Changes in operating assets and
liabilities 2,836 (571) (4) (50) 2,211
------- ------- ------- ------- -------
Net cash provided by (used in)
operating activities 6,400 477 (415) (68) 6,394
------- ------- ------- ------- -------
Cash flows from investing activities:
Capital expenditures (2,267) (477) (50) -- (2,794)
------- ------- ------- ------- -------
Net cash used in investing
activities (2,267) (477) (50) -- (2,794)
------- ------- ------- ------- -------
Cash flows from financing activities:
Net change in debt (362) -- 463 -- 101
------- ------- ------- ------- -------
Net cash (used in) provided by
financing activities (362) -- 463 -- 101
------- ------- ------- ------- -------
Net increase (decrease) in cash and
cash equivalents 3,771 -- (2) (68) 3,701
Effect of exchange rate changes on cash 2 -- 1 10 13
Cash and cash equivalents at
beginning of period 927 4 5 195 1,131
------- ------- ------- ------- -------
Cash and cash equivalents at
end of period $ 4,700 $ 4 $ 4 $ 137 $ 4,845
======= ======= ======= ======= =======
</TABLE>
-16-
<PAGE> 17
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 September 30, 1997
--------------------------------------------------------------------------------
Stanadyne Stanadyne
Automotive Corp. Subsidiary Non-Guarantor Automotive Corp.
Parent Guarantors Subsidiaries Eliminations & Subsidiaries
------ ---------- ------------ ------------ --------------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 139 $ 150 $ (222) $ 4 $ 71
Adjustments to reconcile net income
(loss) to net cash provided by (used in)
operating activities:
Depreciation and amortization 3,072 695 330 -- 4,097
Deferred income taxes 369 (103) (160) -- 106
Changes in operating assets and
liabilities (2,082) (484) 623 (208) (2,151)
------- ------- ------- ------- -------
Net cash provided by (used in)
operating activities 1,498 258 571 (204) 2,123
------- ------- ------- ------- -------
Cash flows from investing activities:
Capital expenditures (2,126) (258) (534) -- (2,918)
------- ------- ------- ------- -------
Net cash used in investing
activities (2,126) (258) (534) -- (2,918)
------- ------- ------- ------- -------
Cash flows from financing activities:
Net change in debt 639 -- (37) -- 602
Dividends paid (150) -- -- -- (150)
------- ------- ------- ------- -------
Net cash provided by (used in)
financing activities 489 -- (37) -- 452
------- ------- ------- ------- -------
Net decrease in cash and cash
equivalents (139) -- -- (204) (343)
Effect of exchange rate changes on cash (2) -- -- (2) (4)
Cash and cash equivalents at
beginning of period 428 4 6 69 507
------- ------- ------- ------- -------
Cash and cash equivalents at
end of period $ 287 $ 4 $ 6 $ (137) $ 160
======= ======= ======= ======= =======
</TABLE>
-17-
<PAGE> 18
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)
Nine Months Ended September 30, 1998
--------------------------------------------------------------------------------
Stanadyne Stanadyne
Automotive Corp. Subsidiary Non-Guarantor Automotive Corp.
Parent Guarantors Subsidiaries Eliminations & Subsidiaries
------ ---------- ------------ ------------ --------------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 3,387 $ 259 $ (2,124) $ 30 $ 1,552
Adjustments to reconcile net income
(loss) to net cash provided by (used in)
operating activities:
Depreciation and amortization 11,203 2,331 1,331 -- 14,865
Deferred income taxes (72) 41 (1,074) -- (1,105)
Changes in operating assets and
liabilities (679) (636) 309 96 (910)
-------- -------- -------- -------- --------
Net cash provided by (used in)
operating activities 13,839 1,995 (1,558) 126 14,402
-------- -------- -------- -------- --------
Cash flows from investing activities:
Capital expenditures (7,335) (1,995) (1,178) -- (10,508)
-------- -------- -------- -------- --------
Net cash used in investing
activities (7,335) (1,995) (1,178) -- (10,508)
-------- -------- -------- -------- --------
Cash flows from financing activities:
Net change in debt (2,124) -- 2,735 -- 611
-------- -------- -------- -------- --------
Net cash (used in) provided by
financing activities (2,124) -- 2,735 -- 611
-------- -------- -------- -------- --------
Net increase (decrease) in cash and
cash equivalents 4,380 -- (1) 126 4,505
Effect of exchange rate changes on cash 3 -- 1 11 15
Cash and cash equivalents at
beginning of period 317 4 4 -- 325
-------- -------- -------- -------- --------
Cash and cash equivalents at
end of period $ 4,700 $ 4 $ 4 $ 137 $ 4,845
======== ======== ======== ======== ========
</TABLE>
-18-
<PAGE> 19
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)
Nine Months Ended September 30, 1997
------------------------------------------------------------------------------------
Stanadyne Stanadyne
Automotive Corp. Subsidiary Non-Guarantor Automotive Corp.
Parent Guarantors Subsidiaries Eliminations & Subsidiaries
------ ---------- ------------ ------------ --------------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 2,043 $ 2,282 $ (299) $ (9) $ 4,017
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization 9,217 2,086 1,035 -- 12,338
Deferred income taxes 3,260 (972) (213) -- 2,075
Changes in operating assets and
liabilities (6,567) (2,495) 1,361 (89) (7,790)
-------- -------- -------- -------- --------
Net cash provided by (used in)
operating activities 7,953 901 1,884 (98) 10,640
-------- -------- -------- -------- --------
Cash flows from investing activities:
Capital expenditures (8,357) (901) (1,229) -- (10,487)
-------- -------- -------- -------- --------
Net cash used in investing
activities (8,357) (901) (1,229) -- (10,487)
-------- -------- -------- -------- --------
Cash flows from financing activities:
Net change in debt (2,188) -- (654) -- (2,842)
Dividends paid (450) -- -- -- (450)
-------- -------- -------- -------- --------
Net cash used in financing
activities (2,638) -- (654) -- (3,292)
-------- -------- -------- -------- --------
Net (decrease) increase in cash and
cash equivalents (3,042) -- 1 (98) (3,139)
Effect of exchange rate changes on cash (32) -- (1) (39) (72)
Cash and cash equivalents at
beginning of period 3,361 4 6 -- 3,371
-------- -------- -------- -------- --------
Cash and cash equivalents at
end of period $ 287 $ 4 $ 6 $ (137) $ 160
======== ======== ======== ======== ========
</TABLE>
-19-
<PAGE> 20
STANADYNE AUTOMOTIVE CORP. AND SUBSIDIARIES
ITEM 2: 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 for the
periods shown. Net sales, cost of goods sold, gross profit, selling, general and
administrative expense ("SG&A"), amortization of intangibles, management fees,
operating income and net income of the Company are presented in thousands of
dollars and as a percentage of sales.
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
1998 1997 1998 1997
$ % $ % $ % $ %
--- --- --- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales ................. 75,039 100.0 60,365 100.0 232,333 100.0 200,289 100.0
Cost of goods sold ........ 61,732 82.3 52,473 86.9 189,514 81.6 168,905 84.3
Gross profit .............. 13,307 17.7 7,892 13.1 42,819 18.4 31,384 15.7
SG&A ...................... 7,449 9.9 5,544 9.2 22,785 9.8 18,525 9.2
Amortization of intangibles 1,666 2.2 171 0.3 4,423 1.9 512 0.3
Management fees ........... 275 0.4 125 0.2 825 0.4 375 0.2
Operating income .......... 3,917 5.2 2,052 3.4 14,786 6.4 11,972 6.0
Net (loss) income ......... (91) (0.1) 71 0.1 1,552 0.7 4,017 2.0
</TABLE>
-20-
<PAGE> 21
STANADYNE AUTOMOTIVE CORP. AND SUBSIDIARIES
COMPARISON OF RESULTS OF OPERATIONS:
Three Months Ended September 30, 1998 Compared to Three Months Ended September
30, 1997
Net Sales. Net sales for the third quarter of 1998 increased 24.3% to $75.0
million from $60.4 million for the comparable period in 1997. The increase came
from higher sales volumes in the Diesel Group, up $13.4 million or 27.4% and
sales reported in Precision Engine, up $1.2 million or 10.9%. Higher revenues in
the Diesel Group were recorded primarily due to increased demand for the DS
electronic pump, mechanical-style pumps and the RSN injector worth $7.5 million,
$2.4 million and $1.9 million, respectively. Results in the Diesel Systems Group
were not adversely effected by the strikes at General Motors. Revenues in
Precision Engine were impacted by higher customer demand from Chrysler
Corporation for the roller rocker arm product.
Gross Profit. Gross profit for the third quarter of 1998 increased to $13.3
million from $7.9 million for the third quarter of 1997. Gross profit as a
percent of net sales also improved to 17.7% from 13.1%. These changes were
primarily the result of the higher sales volumes reported in the Diesel Group.
SG&A. SG&A of $7.4 million in the third quarter of 1998 was higher than the $5.5
million reported in the comparable quarter of 1997. As a percentage of sales,
SG&A also increased to 9.9% from 9.2%. Post retirement benefit expenses in the
third quarter of 1998 versus 1997 were $0.9 higher than the same period of 1997
when unrecognized gains were included. Salaries and benefits were higher in the
third quarter of 1998 versus 1997 by $0.4 million and net research and
development costs in the Diesel Group were higher in the third quarter of 1998
versus 1997 by $0.5 million.
Amortization of Intangibles. Amortization of intangible assets increased to $1.7
million in the third quarter of 1998 from $.2 million in the third quarter of
1997. The increased amortization expense in the third quarter of 1998 versus the
third quarter of 1997 includes goodwill of $.4 million and other intangible
assets of $1.3 million. This increase in amortization is a direct result of the
Acquisition (see Note 2 to the financial statements).
Operating Income. Operating income for the third quarter of 1998 increased 90.9%
to $3.9 million from $2.1 million in the comparable period of 1997. As a
percentage of net sales, operating income increased to 5.2% from 3.4%.
Additional gross profit due to higher sales volumes was only partially offset by
increased SG&A and amortization expense in the third quarter of 1998.
Net (Loss) Income. There was a net loss of $(.1) million in the third quarter of
1998 as compared to net income of $.1 million in the third quarter of 1997.
Interest expense for the third quarter of 1998 increased by $2.0 million from
the third quarter of 1997 due to the increased borrowings associated with the
Acquisition. The effective tax rate for the third quarter of 1998 was 182.7%
compared to 73.2% for the third quarter of 1997. The 1998 tax rate is
significantly
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<PAGE> 22
STANADYNE AUTOMOTIVE CORP. AND SUBSIDIARIES
different from the statutory rate due to an increase in the amount of
non-deductible goodwill amortization related to the Acquisition.
Nine Months Ended September 30, 1998 Compared to Nine Months Ended September 30,
1997
Net Sales. Net sales for the first nine months of 1998 increased 16.0% to $232.3
million from $200.3 million for the comparable period in 1997. All of the
increase came from higher sales volumes in the Diesel Group, up $37.1 million or
23.8%, with lower sales reported for Precision Engine, down $5.1 million or
11.5%. Higher revenues in the Diesel Group were reported primarily due to
increased demand for the DS electronic pump, mechanical-style pumps and the RSN
injector worth $16.6 million, $10.7 million and $8.1 million, respectively.
Revenues in Precision Engine were impacted by a reduction associated with lower
customer demand from Chrysler Corporation of $2.8 million for the roller rocker
arm product and lower demand from Ford of $1.0 million.
Gross Profit. Gross profit for the first nine months of 1998 increased to $42.8
million from $31.4 million for the first nine months of 1997. Gross profit as a
percentage of net sales also improved to 18.4% from 15.7%. These changes were
primarily the result of the higher sales volumes reported in the Diesel Group.
SG&A. SG&A for the first nine months of 1998 increased to $22.8 million from
$18.5 million for the same period of 1997. As a percentage of sales, SG&A also
increased to 9.8% from 9.2%. Net research and development costs in the Diesel
Group were higher in the first nine months of 1998 versus 1997 by $1.4 million.
Post retirement benefit expenses in the first nine months of 1998 were $1.3
million higher than the same period of 1997 when unrecognized gains were
included. Salaries and benefits were higher in the first nine months of 1998
versus 1997 by $1.4 million.
Amortization of Intangibles. Amortization of intangible assets increased to $4.4
million in the first nine months of 1998 from $.5 million in the first nine
months of 1997. The increase in amortization expense in the first nine months of
1998 versus the first nine months of 1997 includes goodwill of $1.4 million and
other intangible assets of $2.5 million. This increase in amortization is a
direct result of the Acquisition (see Note 2 to the financial statements).
Operating Income. Operating income for the first nine months of 1998 increased
to $14.8 million from $12.0 million in the comparable period for 1997. As a
percentage of net sales, operating income increased to 6.4% from 6.0%.
Additional gross profit due to higher sales volumes in the Diesel Group was only
partially offset by increased SG&A and amortization expense in the first nine
months of 1998.
Net Income. Net income decreased to $1.6 million in the first nine months of
1998 from $4.0 million in the first nine months of 1997. Interest expense for
the first nine months increased by $6.1 million from the first nine months in
1997 due to the increased borrowings associated with the Acquisition. The
effective tax rate for the first nine months of 1998 was 53.6% compared to 39.4%
for the first nine months of 1997. The 1998 tax rate is significantly different
from the
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<PAGE> 23
STANADYNE AUTOMOTIVE CORP. AND SUBSIDIARIES
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. Net cash provided by operations for the
first nine months of 1998 totaled $14.4 million, with $6.4 million attributable
to the third quarter. Comparable amounts for the first nine months and third
quarter of 1997 were $10.6 million and $2.1 million, respectively. Improved cash
flows for the first nine months of 1998 attributable to increased business
levels in the Diesel Group have been partially offset by higher interest expense
of $6.1 million. Cash flows from operations in the third quarter of 1998 were
$4.3 million higher than the same period in 1997 due to changes in operating
assets and liabilities: lower accounts receivable of $2.0 million due to a
collection of a large account receivable outstanding at the end of the second
quarter of 1998, higher accrued liabilities of $3.8 million primarily related to
biannual interest payments on debt incurred in conjunction with the Acquisition
and lower accounts payable of $4.2 million primarily as a result of timing
of payments and a reduction in inventory of $2.0 million.
Cash Flows From Investing Activities. The Company's capital expenditures for the
first nine months of 1998 were $10.5 million and were comparable to the $10.5
million expended for the same period in 1997. Third quarter capital expenditures
were $2.8 million and $2.9 million in 1998 and 1997, respectively. Major capital
expenditure programs include increasing capacity in the Diesel Group for pump
products, completing the capitalization of the new RSN injector products
produced in the US and Italy and the vertical integration of the Chrysler
roller-rocker product line in Precision Engine.
Cash Flows From Financing Activities. Cash flows from financing activities for
the first nine months of 1998 totaled a net addition to cash of $.6 million. As
of September 30, 1998, borrowings under the revolving credit facility were zero.
Strong cash flows in 1998 allowed the prepayment of $1.0 million in long term
debt. Reductions of capital lease obligations totaled $1.7 million during the
first nine months of 1998. Overdraft borrowings for the first nine months in
Stanadyne Automotive, SpA were $3.3 million. Funds from borrowings in Stanadyne
Automotive, SpA were used to finance operations, working capital requirements
and capital investment associated with the new RSN injector product.
(4) YEAR 2000 ISSUES
The Year 2000 issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Any of the Company's
computer programs that have time
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<PAGE> 24
STANADYNE AUTOMOTIVE CORP. AND SUBSIDIARIES
sensitive software may recognize a date using "00" as Year 1900 rather than Year
2000. This could result in failure or miscalculations causing disruptions of
operations.
To ensure that the Company's Management Information Systems ("MIS") are Year
2000 compliant, a team of information technology professionals began preparing
for potential Year 2000 problems in 1996. The Company has utilized both internal
and external resources to reprogram or replace and test the software for Year
2000 modifications. The Company has identified other technologies outside the
Company's MIS and is in the process of upgrading those systems which are not
Year 2000 compliant. The Company expects to be in Year 2000 compliance by the
end of the first quarter of 1999 for both MIS and technologies outside of MIS.
In addition, the Company has communicated with its major customers and suppliers
to determine their Year 2000 compliance readiness and the extent to which the
Company is vulnerable to any noncompliance issues. There can be no guarantee
that the systems of other companies on which the Company's systems rely will be
timely converted and would not have an adverse effect on the Company's systems.
The Company estimates that it will spend a total of $.5 million for its Year
2000 compliance conversion. Through September 30, 1998 the Company has spent $.3
million in support of this project, all which has been expensed. The Company's
Year 2000 compliance costs represents about 6% of the annual MIS budget. A few
nonessential MIS projects have been delayed pending completion of the Year 2000
project.
The most reasonably likely worst case Year 2000 scenario for the Company is the
failure of a supplier to be Year 2000 compliant. This scenario could result in a
supplier being unable to supply goods or services to the Company for a period,
which would result in a loss of sales and profits for a period of time.
The Company is evaluating Year 2000 business disruption scenarios. Critical
suppliers have been identified and in depth review of their plans and their
sub-tier suppliers are in the process of being assessed. Based on this
assessment, further actions and formal contingency plans are being formulated
and will be developed by April 1999.
(5) CAUTIONARY STATEMENT
This quarterly report contains certain forward looking statements with respect
to the financial condition, results of operations and business of the company,
including financial statements, notes to condensed financial statements and
management's discussion and analysis of financial condition and results of
operations. All of these forward looking statements are based on estimates and
assumptions made by the management of the company which, although believed to be
reasonable, are inherently uncertain. Therefore, undue reliance should not be
placed upon such estimates and statements. No assurance can be given that any
such estimates will be realized and it is likely that actual results will differ
materially from those contemplated by such forward looking statements. Factors
that may cause such differences include: (1) increased competition; (2)
increased costs; (3) loss or retirement of key members of management; (4)
-24-
<PAGE> 25
STANADYNE AUTOMOTIVE CORP. AND SUBSIDIARIES
increases in the company's cost of borrowing or inability or unavailability of
additional debt or equity capital; (5) adverse state or federal legislation or
regulation or adverse determinations in pending litigation; and (6) changes in
general economic conditions and/or in the markets in which the Company competes.
Many of such factors are beyond the control of the Company and its management.
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
Not Applicable
-25-
<PAGE> 26
STANADYNE AUTOMOTIVE CORP. AND SUBSIDIARIES
PART II: OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits:
10.1.1 First Amendment To Credit Agreement dated July 31,
1998 to amend the Credit Agreement dated as of
December 11, 1997 by and among Stanadyne Automotive
Corp., the Lenders listed therein, DLJ Capital
Funding, Inc., as Syndication Agent, and The First
National Bank of Chicago, as Administrative Agent.
27.1 Financial Data Schedule
27.2 Financial Data Schedule
b. No report on Form 8-K was filed during the quarter ended
September 30, 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: November 12, 1998 /s/ Michael H. Boyer
----------------- --------------------
Michael H. Boyer
Vice President and
Chief Financial Officer
-26-
<PAGE> 1
EXHIBIT 10.1.1
EXECUTION COPY
STANADYNE AUTOMOTIVE CORP.
FIRST AMENDMENT
TO CREDIT AGREEMENT
This FIRST AMENDMENT TO CREDIT AGREEMENT (this "AMENDMENT") is
dated as of July 31 1998 and entered into by and among STANADYNE AUTOMOTIVE
CORP., a Delaware corporation ("COMPANY"), the financial institutions listed on
the signature pages hereof ("LENDERS"), THE FIRST NATIONAL BANK OF CHICAGO, as
Administrative Agent for Lenders, DLJ CAPITAL FUNDING, INC., Syndication Agent
for Lenders and, for purposes of Section 4 hereof, the Credit Support Parties
(as defined in Section 4 hereof) listed on the signature pages hereof, and is
made with reference to that certain Credit Agreement dated as of December 11,
1997 (the "CREDIT AGREEMENT"), by and among SAC Automotive, Inc., Company,
Lenders, Administrative Agent and Syndication Agent. Capitalized terms used
herein without definition shall have the same meanings herein as set forth in
the Credit Agreement.
RECITALS
WHEREAS, SAC Automotive, Inc., Company, Lenders, Administrative
Agent and Syndication Agent entered into the Credit Agreement on December 11,
1997;
WHEREAS, on December 11, 1997 SAC Automotive, Inc. merged with and
into Company;
WHEREAS, Company and Lenders desire to amend the Credit Agreement
to (i) permit a secured loan by Company to Stanadyne Italy and (ii) make certain
other amendments as set forth below:
NOW, THEREFORE, in consideration of the premises and the
agreements, provisions and covenants herein contained, the parties hereto agree
as follows:
1
<PAGE> 2
SECTION 1. AMENDMENTS TO THE CREDIT AGREEMENT
1.1 AMENDMENTS TO SECTION 6: COMPANY'S AFFIRMATIVE COVENANTS
A. Subsection 6.7 of the Credit Agreement is hereby amended by
deleting clause B(ii)(a) thereof and substituting the following therefor:
"(a) any Release required to be reported to any federal, state or
local governmental or regulatory agency under any applicable
Environmental Laws unless such Release could not reasonably be
expected to have a Material Adverse Effect".
B. Subsection 6.7 of the Credit Agreement is hereby further
amended by deleting clause B(iii)(b) thereof and substituting the following
therefor:
"(b) any Release required to be reported to any federal, state or
local governmental or regulatory agency under any applicable
Environmental Laws unless such Release could not be reasonably be
expected to have a Material Adverse Effect".
1.2 AMENDMENTS TO SECTION 7: COMPANY'S NEGATIVE COVENANTS
A. Subsection 7.1 (vii) of the Credit Agreement is hereby amended
by deleting it in its entirety and substituting the following therefor:
"(vii) Stanadyne Italy may become and remain liable with respect
to Indebtedness (including Indebtedness described in clauses (v)
and (xi)) in an aggregate principal amount not to exceed
$10,000,000 at any time outstanding; provided that such
Indebtedness shall not be guaranteed by Holdings or any Domestic
Subsidiary of Holdings or Company;"
B. Subsection 7.1 of the Credit Agreement is hereby amended by
adding the following as clause (xi):
"(xi) Stanadyne Italy may become and remain liable with respect to
Indebtedness to Company; provided that (a) such Indebtedness shall
be evidenced by a promissory note or promissory notes, which shall
be pledged to Administrative Agent on behalf of Lenders pursuant
to the Company Pledge Agreement and the applicable provisions of
Italian statutory law, and (b) an opinion of Italian counsel is
provided to Administrative Agent and Lenders indicating that the
pledge of such note or notes is perfected under Italian law and
that such note or notes are legal, valid and binding obligations
of Stanadyne Italy, enforceable in accordance with their terms."
2
<PAGE> 3
SECTION 2. CONDITIONS TO EFFECTIVENESS
Section 1 of this Amendment shall become effective only upon the
satisfaction of all of the following conditions precedent (the date of
satisfaction of such conditions being referred to herein as the "FIRST AMENDMENT
EFFECTIVE DATE"):
A. On or before the First Amendment Effective Date, Company shall
deliver to Lenders (or to Administrative Agent for Lenders with sufficient
originally executed copies, where appropriate, for each Lender and its counsel)
the following, each, unless otherwise noted, dated the First Amendment Effective
Date:
1. A Certificate, dated as of the First Amendment Effective
Date, of its corporate secretary or an assistant secretary, stating that there
has been no amendment to its Certificate of Incorporation or Bylaws since the
Closing Date or, if the Certificate of Incorporation or Bylaws have been
amended, attaching copies of such amendment and certifying them as being true
and correct copies;
2. Resolutions of its Board of Directors approving and
authorizing the execution, delivery, and performance of this Amendment,
certified as of the First Amendment Effective Date by its corporate secretary or
an assistant secretary as being in full force and effect without modification or
amendment;
3. Signature and incumbency certificates of its officers
executing this Amendment; and
4. Executed copies of this Amendment and the First Amendment to
Company Pledge Agreement, dated the date hereof, between Company and
Administrative Agent (the "FIRST AMENDMENT TO PLEDGE AGREEMENT").
B. On or before the First Amendment Effective Date, all corporate
and other proceedings taken or to be taken in connection with the transactions
contemplated hereby and all documents incidental thereto not previously found
acceptable by Agents, acting on behalf of Lenders, and their counsel shall be
satisfactory in form and substance to Agents and such counsel, and Agents and
such counsel shall have received all such counterpart originals or certified
copies of such documents as Agents may reasonably request.
SECTION 3. COMPANY'S REPRESENTATIONS AND WARRANTIES
In order to induce Lenders to enter into this Amendment and to
amend the Credit Agreement in the manner provided herein, Company represents and
warrants to each Lender that the following statements are true, correct and
complete:
A. CORPORATE POWER AND AUTHORITY. Company has all requisite
corporate power and authority to enter into this Amendment
and the First Amendment to Pledge Agreement and to carry out
the transactions contemplated by, and perform its obligations
under, the Credit Agreement as amended by this Amendment (the
"AMENDED AGREEMENT") and the First Amendment to Pledge
Agreement.
3
<PAGE> 4
B. AUTHORIZATION OF AGREEMENTS. The execution and delivery of this
Amendment and the First Amendment to Pledge Agreement and the performance of the
Amended Agreement and the Company Pledge Agreement as so amended have been duly
authorized by all necessary corporate action on the part of Company.
C. NO CONFLICT. The execution and delivery by Company of this
Amendment and the First Amendment to Pledge Agreement and the performance by
Company of the Amended Agreement and the Company Pledge Agreement as so amended
do not and will not (i) violate any provision of any law or any governmental
rule or regulation applicable to Company or any of its Subsidiaries, the
Certificate or Articles of Incorporation or Bylaws of Company or any of its
Subsidiaries or any order, judgment or decree of any court or other agency of
government binding on Company or any of its Subsidiaries, (ii) conflict with,
result in a breach of or constitute (with due notice or lapse of time or both) a
default under any Contractual Obligation of Company or any of its Subsidiaries,
(iii) result in or require the creation or imposition of any Lien upon any of
the properties or assets of Company or any of its Subsidiaries (other than
Permitted Encumbrances), or (iv) require any approval of stockholders of Company
or any approval or consent of any Person under any Contractual Obligation of
Company or any of its Subsidiaries.
D. GOVERNMENTAL CONSENTS. The execution and delivery by Company of
this Amendment and the First Amendment to Pledge Agreement and the performance
by Company of the Amended Agreement and the Company Pledge Agreement as so
amended do not and will not require any registration with, consent or approval
of, or notice to, or other action to, with or by, any federal, state or other
governmental authority or regulatory body.
E. BINDING OBLIGATION. This Amendment, the Amended Agreement, the
First Amendment to Pledge Agreement and the Company Pledge Agreement as so
amended have been duly executed and delivered by Company and are the legally
valid and binding obligations of Company, enforceable against Company in
accordance with their respective terms, except as may be limited by bankruptcy,
insolvency, reorganization, moratorium or similar laws relating to or limiting
creditors' rights generally or by equitable principles relating to
enforceability.
F. INCORPORATION OF REPRESENTATIONS AND WARRANTIES FROM CREDIT
AGREEMENT. The representations and warranties contained in Section 5 of the
Credit Agreement are and will be true, correct and complete in all material
respects on and as of the First Amendment Effective Date to the same extent as
though made on and as of that date, except to the extent such representations
and warranties specifically relate to an earlier date, in which case they were
true, correct and complete in all material respects on and as of such earlier
date.
G. ABSENCE OF DEFAULT. No event has occurred and is continuing or
will result from the consummation of the transactions contemplated by this
Amendment that would constitute an Event of Default or a Potential Event of
Default.
SECTION 4. ACKNOWLEDGEMENT AND CONSENT
Holdings and the Subsidiary Guarantors are parties to certain
Guaranties and certain Collateral Documents specified in the Credit Agreement,
in each case as amended
4
<PAGE> 5
through the First Amendment Effective Date, pursuant to which Holdings and each
Subsidiary Guarantor have (i) guaranteed the Obligations and (ii) created liens
in favor of Administrative Agent on certain Collateral to secure the obligations
of each such party under the applicable Guaranty of such party. Holdings and
Subsidiary Guarantors are collectively referred to herein as the "CREDIT SUPPORT
PARTIES", and the Guaranties and Collateral Documents referred to above are
collectively referred to herein as the "CREDIT SUPPORT DOCUMENTS".
Each Credit Support Party hereby acknowledges that it has reviewed
the terms and provisions of the Credit Agreement and this Amendment and consents
to the amendments of the Credit Agreement effected pursuant to this Amendment.
Each Credit Support Party hereby confirms that each Credit Support Document to
which it is a party or otherwise bound and all Collateral encumbered thereby
will continue to guaranty or secure, as the case may be, to the fullest extent
possible the payment and performance of all "Obligations," "Guarantied
Obligations" and "Secured Obligations," as the case may be (in each case as such
terms are defined in the applicable Credit Support Document), including without
limitation the payment and performance of all such "Obligations," "Guarantied
Obligations" or "Secured Obligations," as the case may be, in respect of the
Amended Agreement.
Each Credit Support Party acknowledges and agrees that the Credit
Support Documents to which it is a party or otherwise bound shall continue in
full force and effect and that its obligations thereunder shall be valid and
enforceable and shall not be impaired or limited by the execution or
effectiveness of this Amendment. Each Credit Support Party represents and
warrants that all representations and warranties contained in the Amended
Agreement and the Credit Support Documents to which it is a party or otherwise
bound are true, correct and complete in all material respects on and as of the
First Amendment Effective Date to the same extent as though made on and as of
that date, except to the extent such representations and warranties specifically
relate to an earlier date, in which case they were true, correct and complete in
all material respects on and as of such earlier date.
Each Credit Support Party acknowledges and agrees that (i)
notwithstanding the conditions to effectiveness set forth in this Amendment,
such Credit Support Party is not required by the terms of the Credit Agreement
or any other Loan Document to consent to the amendments to the Credit Agreement
effected pursuant to this Amendment and (ii) nothing in the Credit Agreement,
this Amendment or any other Loan Document shall be deemed to require the consent
of such Credit Support Party to any future amendments to the Credit Agreement.
SECTION 5. MISCELLANEOUS
A. REFERENCE TO AND EFFECT ON THE CREDIT AGREEMENT AND THE OTHER
LOAN DOCUMENTS.
(i) On and after the First Amendment Effective Date, each
reference in the Credit Agreement to "this Agreement",
"hereunder", "hereof", "herein" or words of like import referring
to the Credit Agreement, and each reference in the other Loan
Documents to the "Credit Agreement", "thereunder", "thereof" or
words of like import referring to the Credit Agreement shall mean
and be a reference to the Amended Agreement.
5
<PAGE> 6
(ii) Except as specifically amended by this Amendment, the Credit
Agreement and the other Loan Documents shall remain in full force
and effect and are hereby ratified and confirmed.
(iii) The execution, delivery and performance of this Amendment
shall not, except as expressly provided herein, constitute a
waiver of any provision of, or operate as a waiver of any right,
power or remedy of either Agent or any Lender under, the Credit
Agreement or any of the other Loan Documents.
B. HEADINGS. Section and subsection headings in this Amendment are
included herein for convenience of reference only and shall not constitute a
part of this Amendment for any other purpose or be given any substantive effect.
C. APPLICABLE LAW. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS
OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND
ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK
(INCLUDING WITHOUT LIMITATION SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW OF
THE STATE OF NEW YORK), WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES.
D. COUNTERPARTS; EFFECTIVENESS. This Amendment may be executed in
any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed and delivered shall be deemed an
original, but all such counterparts together shall constitute but one and the
same instrument; signature pages may be detached from multiple separate
counterparts and attached to a single counterpart so that all signature pages
are physically attached to the same document. This Amendment (other than the
provisions of Section 1 hereof, the effectiveness of which is governed by
Section 2 hereof) shall become effective upon the execution of a counterpart
hereof by Company, Requisite Lenders and each of the Credit Support Parties and
receipt by Company and Administrative Agent of written or telephonic
notification of such execution and authorization of delivery thereof.
[Remainder of page intentionally left blank]
6
<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly
executed and delivered by their respective officers thereunto duly authorized as
of the date first written above.
COMPANY
-------
STANADYNE AUTOMOTIVE CORP.
By: /s/ Michael H. Boyer
--------------------
AGENTS
------
DLJ CAPITAL FUNDING, INC.,
Individually and as Syndication Agent
By: /s/ Eric Swanson
----------------
THE FIRST NATIONAL BANK OF
CHICAGO,
Individually and as Administrative Agent
By:
LENDERS
-------
ABN AMRO BANK N.V.
By: /s/ James S. Adelsheim
----------------------
By: /s/ John D. Rogers
------------------
7
<PAGE> 8
BANKBOSTON, NA
By: /s/ Garth J. Collins
--------------------
BANK OF SCOTLAND
By: /s/ Annie Chin Tat
------------------
DRESDNER BANK AG
NEW YORK AND GRAND CAYMAN
BRANCHES
By: /s/ John W. Sweeney
-------------------
By: /s/ Beverly G. Cason
--------------------
MERRILL LYNCH DEBT
STRATEGIES PORTFOLIO
By:
NATIONAL CITY BANK
By: /s/ Lisa Lisi
-------------
PEOPLE'S BANK
By:
8
<PAGE> 9
SENIOR DEBT PORTFOLIO
BY: BOSTON MANAGEMENT AND
RESEARCH, as Investment Advisor
By: /s/ Payson F. Swaffield
-----------------------
SUMMIT BANK
By:
THE BANK OF NEW YORK
By: /s/ Edward J. Moriarty
----------------------
VAN KEMPEN AMERICAN CAPITAL
PRIME INCOME TRUST
By: /s/ Jeffrey W. Maillet
----------------------
9
<PAGE> 10
CREDIT SUPPORT PARTIES
(FOR PURPOSES OF SECTION 4
ONLY)
PRECISION ENGINE PRODUCTS
CORP.
By: /s/ Michael H. Boyer
--------------------
DSD INTERNATIONAL CORP.
By: /s/ Michael H. Boyer
--------------------
STANADYNE AUTOMOTIVE
HOLDING CORP.
By: /s/ Michael H. Boyer
--------------------
10
<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 SEPTEMBER
30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 4,845
<SECURITIES> 0
<RECEIVABLES> 47,732
<ALLOWANCES> 1,535
<INVENTORY> 39,589
<CURRENT-ASSETS> 99,404
<PP&E> 136,122
<DEPRECIATION> 11,120
<TOTAL-ASSETS> 327,297
<CURRENT-LIABILITIES> 60,095
<BONDS> 100,000
0
0
<COMMON> 0
<OTHER-SE> 61,534
<TOTAL-LIABILITY-AND-EQUITY> 327,297
<SALES> 232,333
<TOTAL-REVENUES> 232,333
<CGS> 189,514
<TOTAL-COSTS> 217,547
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,443
<INCOME-PRETAX> 3,343
<INCOME-TAX> 1,791
<INCOME-CONTINUING> 1,552
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,552
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<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 SEPTEMBER
30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 160
<SECURITIES> 0
<RECEIVABLES> 40,790
<ALLOWANCES> 495
<INVENTORY> 31,068
<CURRENT-ASSETS> 78,686
<PP&E> 224,858
<DEPRECIATION> 131,479
<TOTAL-ASSETS> 190,116
<CURRENT-LIABILITIES> 55,459
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 12,771
<TOTAL-LIABILITY-AND-EQUITY> 190,116
<SALES> 200,289
<TOTAL-REVENUES> 200,289
<CGS> 168,905
<TOTAL-COSTS> 188,317
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,338
<INCOME-PRETAX> 6,634
<INCOME-TAX> 2,617
<INCOME-CONTINUING> 4,017
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,017
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
