<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 June 30, 1999
[ ] 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
(State or other jurisdiction of 22-2940378
incorporation or organization) (I.R.S. Employer I.D.)
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 July 31, 1999 was 1,000.
<PAGE> 2
STANADYNE AUTOMOTIVE CORP. AND SUBSIDIARIES
TABLE OF CONTENTS
Part I Financial Information
<TABLE>
<S> <C> <C>
Item 1 Financial Statements
Condensed Consolidated Balance Sheets as of June 30, 1999
(unaudited) and December 31, 1998.. ................................................... 3
Condensed Consolidated Statements of Operations for the three months
ended June 30, 1999 and 1998 (unaudited) .............................................. 4
Condensed Consolidated Statements of Operations for the six months
ended June 30, 1999 and 1998 (unaudited) .............................................. 5
Condensed Consolidated Statements of Cash Flows for the six
months ended June 30, 1999 and 1998 (unaudited)........................................ 6
Notes to Condensed Consolidated Financial Statements................................... 7-17
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations............................................................. 18-23
Item 3 Quantitative and Qualitative Disclosures About Market Risk............................. 24
Part II Other Information
Item 6 Exhibits and Reports on Form 8-K....................................................... 25
Signature ....................................................................................... 26
</TABLE>
-2-
<PAGE> 3
STANADYNE AUTOMOTIVE CORP. AND SUBSIDIARIES
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
(UNAUDITED)
JUNE 30, DECEMBER 31,
ASSETS 1999 1998
---- ----
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 6,514 $ 5,132
Accounts receivable, net of allowance for uncollectible
accounts of $498 at June 30, 1999 and $500 at December 31, 1998 43,044 41,564
Inventories 34,275 36,560
Prepaid expenses and other current assets 1,101 2,635
Deferred income taxes 7,579 6,128
--------- ---------
Total current assets 92,513 92,019
Property, plant and equipment, net 122,948 125,966
Intangible and other assets, net 95,307 99,870
Due from Stanadyne Automotive Holding Corp. 4,061 4,061
--------- ---------
Total assets $ 314,829 $ 321,916
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 20,705 $ 20,222
Accrued liabilities 30,720 31,113
Current maturities of long-term debt 6,534 8,808
Current installments of capital lease obligations 1,045 1,295
--------- ---------
Total current liabilities 59,004 61,438
Long-term debt, excluding current maturities 147,286 148,821
Deferred income taxes 3,021 2,998
Capital lease obligations, excluding current installments 932 1,562
Other noncurrent liabilities 48,449 47,906
--------- ---------
Total liabilities 258,692 262,725
--------- ---------
Commitments and contingencies -- --
Stockholders' equity:
Common stock -- --
Additional paid-in capital 59,858 59,858
Other accumulated comprehensive (loss) income (1,524) 1,032
Accumulated deficit (2,197) (1,699)
--------- ---------
Total stockholders' equity 56,137 59,191
--------- ---------
Total liabilities and stockholders' equity $ 314,829 $ 321,916
========= =========
</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>
3 Months 3 Months
Ended June 30, Ended June 30,
1999 1998
---- ----
<S> <C> <C>
Net sales $72,364 $82,268
Cost of goods sold 58,078 66,001
------- -------
Gross profit 14,286 16,267
Selling, general and administrative expenses 7,342 7,888
Amortization of intangibles 1,479 1,389
Management fees 275 275
------- -------
Operating income 5,190 6,715
Interest, net 3,522 3,808
------- -------
Income before income taxes 1,668 2,907
Income tax expense 1,193 1,272
------- -------
Net income applicable to common shareholders $ 475 $ 1,635
======= =======
</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>
6 Months 6 Months
Ended June 30, Ended June 30,
1999 1998
---- ----
<S> <C> <C>
Net sales $ 138,511 $ 157,294
Cost of goods sold 113,536 127,782
--------- ---------
Gross profit 24,975 29,512
Selling, general and administrative expenses 14,543 15,336
Amortization of intangibles 2,947 2,757
Management fees 550 550
--------- ---------
Operating income 6,935 10,869
Interest, net 7,115 7,636
--------- ---------
(Loss) income before income taxes (180) 3,233
Income tax expense 318 1,590
--------- ---------
Net (loss) income applicable to common shareholders $ (498) $ 1,643
========= =========
</TABLE>
See notes to condensed consolidated financial statements.
-5-
<PAGE> 6
STANADYNE AUTOMOTIVE CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
6 Months 6 Months
Ended June 30, Ended June 30,
1999 1998
---- ----
Cash flows from operating activities:
<S> <C> <C>
Net (loss) income $ (498) $ 1,643
Adjustments to reconcile net (loss) income to net cash
provided by (used in) operating activities:
Depreciation and amortization 10,299 9,670
Deferred income taxes (1,562) (184)
Loss on disposal of property, plant and equipment 31 --
Changes in operating assets and liabilities 3,216 (3,121)
-------- --------
Net cash provided by operating activities 11,486 8,008
-------- --------
Cash flows from investing activities:
Capital expenditures (6,076) (7,714)
Proceeds from disposal of property, plant and equipment 56 --
-------- --------
Net cash used in investing activities (6,020) (7,714)
-------- --------
Cash flows from financing activities:
Net borrowings on revolving credit facility 249 2,612
Principal payments on long-term debt (3,645) (1,000)
Payments of capital lease obligations (697) (1,102)
-------- --------
Net cash (used in) provided by financing activities (4,093) 510
-------- --------
Cash and cash equivalents:
Net increase in cash and cash equivalents 1,373 804
Effect of exchange rate changes on cash 9 2
Cash and cash equivalents at beginning of period 5,132 325
-------- --------
Cash and cash equivalents at end of period $ 6,514 $ 1,131
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
-6-
<PAGE> 7
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 balance sheet as of December 31, 1998 is condensed
financial information derived 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. 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. Certain amounts have been
reclassified in the 1998 financial statements to conform to the 1999
presentation.
(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 $78.1 million. Fair values were based on valuations and other
studies. 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.
(3) INVENTORIES
Components of inventory are as follows:
<TABLE>
<CAPTION>
As of As of
June 30, 1999 December 31, 1998
------------- -----------------
<S> <C> <C>
Raw materials $ 2,334 $ 2,583
Work-in-process 23,545 25,192
Finished goods 8,396 8,785
------- --------
$34,275 $ 36,560
======== ========
</TABLE>
-7-
<PAGE> 8
STANADYNE AUTOMOTIVE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT WHERE NOTED OTHERWISE)
(4) INCOME TAXES
The Company's effective income tax rate was (176.7)% through the first six
months of 1999, compared to 49.2% for the first six months of 1998. The Company
recorded $0.3 million in book tax expense on a pre-tax loss of $0.2 million
because of the effect of foreign income taxes on net losses in Italy. In
addition, in 1999 the Company changed the way it applied the annual tax rate to
the quarterly earnings to provide consistent quarterly tax rates based on the
estimated effective tax rate for the year. To the extent there are differences
between planned and actual net income or the components thereof, the effective
tax rate for the year could change and, in turn, could be reflected in future
quarterly tax rates.
(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 as a result of
various environmental claims and legal actions, which are pending or may be
asserted against the Company. 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
for certain environmental matters.
(6) COMPREHENSIVE INCOME
The Company's comprehensive results of operations for the three months ended
June 30, 1999 and 1998 and the six months ended June 30, 1999 and 1998 are as
follows:
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income (loss) applicable to common shareholders $ 475 $ 1,635 $ (498) $ 1,643
Other comprehensive (loss) income, net of tax:
Foreign currency translation adjustments (1,315) 426 (2,556) (186)
------- ------- ------- -------
Comprehensive (loss) income $ (840) $ 2,061 $(3,054) $ 1,457
======= ======= ======= =======
</TABLE>
-8-
<PAGE> 9
STANADYNE AUTOMOTIVE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT WHERE NOTED OTHERWISE)
(7) SEGMENTS
The Company has two reportable segments, the Diesel Systems Group (the "Diesel
Group") and the Precision Engine Products Corp. ("Precision Engine"). The Diesel
Group manufactures diesel fuel injection equipment including fuel pumps,
injectors and filtration systems. This segment accounted for approximately 80%
and 84% of the Company's revenues for the three months ended June 30, 1999 and
1998, respectively, and approximately 80% and 83% for the six months ended June
30, 1999 and 1998, respectively. Precision Engine manufactures roller-rocker
arms, hydraulic valve lifters and lash adjusters for gasoline engines. Revenues
for Precision Engine accounted for 20% and 16% of total revenues for the three
months ended June 30, 1999 and 1998, respectively, and 20% and 17% for the six
months ended June 30, 1999 and 1998, respectively. 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. In
addition, the products and services of each segment have an end use (diesel
versus gasoline engines) which entails different engineering and marketing
efforts. There were no inter-segment sales between the Diesel Group and
Precision Engine for any of the periods presented below.
The following summarizes key information used by the Company in evaluating the
performance of each segment for the three months ended June 30, 1999 and 1998
and as of and for the six months ended June 30, 1999 and 1998:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED JUNE 30, 1999
----------------------------------------
DIESEL PRECISION
GROUP ENGINE ELIMINATIONS TOTALS
----- ------ ------------ ------
<S> <C> <C> <C> <C>
Net sales $ 57,765 $ 14,599 $ - $ 72,364
Gross profit 11,128 3,158 - 14,286
Deprecation and amortization
expense 4,339 805 - 5,144
Operating income 3,200 1,990 - 5,190
Net (loss) income (242) 717 - 475
Total capital expenditures 3,188 359 - 3,547
</TABLE>
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED JUNE 30, 1998
----------------------------------------
DIESEL PRECISION
GROUP ENGINE ELIMINATIONS TOTALS
----- ------ ------------ ------
<S> <C> <C> <C> <C>
Net sales $ 68,952 $ 13,316 $ - $ 82,268
Gross profit 14,062 2,205 - 16,267
Depreciation and amortization
expense 4,163 790 - 4,953
Operating income 5,686 1,029 - 6,715
Net income (loss) 1,742 (107) - 1,635
Total capital expenditures 2,615 792 - 3,407
</TABLE>
-9-
<PAGE> 10
STANADYNE AUTOMOTIVE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT WHERE NOTED OTHERWISE)
SEGMENTS (CONTINUED)
<TABLE>
<CAPTION>
AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 1999
------------------------------------------------
DIESEL PRECISION
GROUP ENGINE ELIMINATIONS TOTALS
----- ------ ------------ ------
<S> <C> <C> <C> <C>
Net sales $ 110,720 $ 27,791 $ - $ 138,511
Gross profit 19,350 5,625 - 24,975
Deprecation and amortization
expense 8,689 1,610 - 10,299
Operating income 3,148 3,787 - 6,935
Net (loss) income (1,904) 1,406 - (498)
Total assets 278,198 52,851 (16,220) 314,829
Total capital expenditures 4,964 1,112 - 6,076
</TABLE>
<TABLE>
<CAPTION>
AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 1998
------------------------------------------------
DIESEL PRECISION
GROUP ENGINE ELIMINATIONS TOTALS
----- ------ ------------ ------
<S> <C> <C> <C> <C>
Net sales $ 130,596 $ 26,698 $ - $ 157,294
Gross profit 25,588 3,924 - 29,512
Deprecation and amortization
expense 8,119 1,551 - 9,670
Operating income 9,217 1,652 - 10,869
Net income 1,630 13 - 1,643
Total assets 300,513 54,757 (27,771) 327,499
Total capital expenditures 6,196 1,518 - 7,714
</TABLE>
(8) SUBSEQUENT EVENTS
The Company reached an agreement in July with one of its major customers,
requiring their payment totaling $6.2 million as compensation for volumes not
purchased under a supply agreement. Payments totaling $3.4 million will be
recorded in the third quarter. Management believes additional amounts totaling
$1.7 million in cash and $1.1 million in productive assets will be realized in
future periods.
(9) SUPPLEMENTAL COMBINING 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.
(dissolved October 6, 1998) (the "Subsidiary Guarantors") on a subordinated
basis and are not guaranteed by Stanadyne Automotive Foreign Sales Corp.,
Stanadyne Automotive, SpA ("SpA") and Precision Engine Products LTDA.
("PEPL")(the "Non-Guarantor Subsidiaries").
-10-
<PAGE> 11
STANADYNE AUTOMOTIVE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT WHERE NOTED OTHERWISE)
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 COMBINING CONDENSED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
June 30, 1999
-------------------------------------------------------------------------------
Stanadyne Stanadyne
Automotive Corp. Subsidiary Non-Guarantor Automotive Corp.
Parent Guarantors Subsidiaries Eliminations & Subsidiaries
------ ---------- ------------ ------------ --------------
ASSETS
Current assets:
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents $ 6,270 $ 9 $ 100 $ 135 $ 6,514
Accounts receivable, net 27,904 9,425 5,715 -- 43,044
Inventories 22,162 6,277 6,105 (269) 34,275
Other current assets 7,017 626 1,037 -- 8,680
-------------------------------------------------------------------------
Total current assets 63,353 16,337 12,957 (134) 92,513
Property, plant and equipment, net 85,546 22,127 15,275 -- 122,948
Intangible and other assets, net 65,438 14,137 15,732 -- 95,307
Investment in subsidiaries 28,027 (1) -- (28,026) (a) --
Due from Stanadyne Automotive Holding Corp. 4,061 -- -- -- 4,061
------------------------------------------------------------------------
Total assets $ 246,425 $ 52,600 $ 43,964 $ (28,160) $ 314,829
========================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and
accrued liabilities $ 33,146 $ 8,052 $ 10,227 $ -- $ 51,425
Current maturities of long-term
debt and capital lease obligations 3,452 -- 4,127 -- 7,579
------------------------------------------------------------------------
Total current liabilities 36,598 8,052 14,354 -- 59,004
Long-term debt and capital lease obligations 147,286 -- 932 -- 148,218
Other noncurrent liabilities 34,119 12,716 4,635 -- 51,470
Intercompany accounts (29,338) 15,612 13,763 (37) --
Stockholders' equity 57,760 16,220 10,280 (28,123) (a) 56,137
------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 246,425 $ 52,600 $ 43,964 $ (28,160) $ 314,829
========================================================================
</TABLE>
(a) Elimination of investments in subsidiaries of the Parent.
-12-
<PAGE> 13
STANADYNE AUTOMOTIVE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT WHERE NOTED OTHERWISE)
SUPPLEMENTAL COMBINING CONDENSED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
December 31, 1998
------------------------------------------------------------------------------
Stanadyne Stanadyne
Automotive Corp. Subsidiary Non-Guarantor Automotive Corp.
Parent Guarantors Subsidiaries Eliminations & Subsidiaries
------ ---------- ------------ ------------ --------------
ASSETS
Current assets:
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents $ 4,859 $ 5 $ 5 $ 263 $ 5,132
Accounts receivable, net 27,257 6,731 7,576 -- 41,564
Inventories 22,466 7,418 6,852 (176) 36,560
Other current assets 6,601 2,040 122 -- 8,763
----------------------------------------------------------------------------
Total current assets 61,183 16,194 14,555 87 92,019
Property, plant and equipment, net 86,501 22,284 17,181 -- 125,966
Intangible and other assets, net 67,635 14,528 18,781 (1,074) (a) 99,870
Investment in subsidiaries 23,285 -- -- (23,285) (b) --
Due from Stanadyne Automotive Holding Corp. 4,061 -- -- -- 4,061
----------------------------------------------------------------------------
Total assets $ 242,665 $ 53,006 $ 50,517 $ (24,272) $ 321,916
============================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and
accrued liabilities $ 29,640 $ 7,725 $ 13,970 $ -- $ 51,335
Current maturities of long-term
debt and capital lease obligations 5,723 -- 4,380 -- 10,103
----------------------------------------------------------------------------
Total current liabilities 35,363 7,725 18,350 -- 61,438
Long-term debt and capital lease obligations 148,995 -- 1,388 -- 150,383
Other noncurrent liabilities 33,999 12,904 5,075 (1,074) (a) 50,904
Intercompany accounts (33,956) 17,563 16,141 252 --
Stockholders' equity 58,264 14,814 9,563 (23,450) (b) 59,191
----------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 242,665 $ 53,006 $ 50,517 $ (24,272) $ 321,916
============================================================================
</TABLE>
(a) Reclassification of Non-Guarantor deferred tax asset to consolidate net
deferred tax liability.
(b) Elimination of investments in subsidiaries of the Parent.
-13-
<PAGE> 14
STANADYNE AUTOMOTIVE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT WHERE NOTED OTHERWISE)
SUPPLEMENTAL COMBINING CONDENSED FINANCIAL STATEMENTS (CONCLUDED)
<TABLE>
<CAPTION>
Three Months Ended June 30, 1999
-----------------------------------------------------------------------------------------
Stanadyne Stanadyne
Automotive Corp. Subsidiary Non-Guarantor Automotive Corp.
Parent Guarantors Subsidiaries Eliminations & Subsidiaries
------ ---------- ------------ ------------ --------------
<S> <C> <C> <C> <C> <C>
Net sales $ 51,719 $ 14,599 $ 6,150 $ (104)(a) $ 72,364
Cost of goods sold 40,907 11,441 5,815 (85)(a) 58,078
---------------------------------------------------------------------------
Gross profit 10,812 3,158 335 (19) 14,286
Selling, general, administrative and
other operating expenses (income) 8,032 1,141 (98) 21 9,096
---------------------------------------------------------------------------
Operating income 2,780 2,017 433 (40) 5,190
Interest, net 2,813 315 412 (18) 3,522
---------------------------------------------------------------------------
(Loss) income before income taxes (33) 1,702 21 (22) 1,668
Income tax (benefit) expense (189) 955 427 -- 1,193
---------------------------------------------------------------------------
Net income (loss) $ 156 $ 747 $ (406) $ (22) $ 475
===========================================================================
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended June 30, 1998
-------------------------------------------------------------------------------------
Stanadyne Stanadyne
Automotive Corp. Subsidiary Non-Guarantor Automotive Corp.
Parent Guarantors Subsidiaries Eliminations & Subsidiaries
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $ 62,235 $ 13,316 $ 6,870 $ (153) (a) $ 82,268
Cost of goods sold 47,949 11,111 7,128 (187) (a) 66,001
-----------------------------------------------------------------------------------
Gross profit (loss) 14,286 2,205 (258) 34 16,267
Selling, general, administrative and
other operating expenses (income) 8,648 1,176 (272) -- 9,552
-----------------------------------------------------------------------------------
Operating income 5,638 1,029 14 34 6,715
Interest, net 2,986 400 422 -- 3,808
-----------------------------------------------------------------------------------
Income (loss) before income taxes 2,652 629 (408) 34 2,907
Income tax expense (benefit) 681 736 (145) -- 1,272
-----------------------------------------------------------------------------------
Net income (loss) $ 1,971 $ (107) $ (263) $ 34 $ 1,635
===================================================================================
</TABLE>
(a) Elimination of 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 COMBINING CONDENSED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
Six Months Ended June 30, 1999
--------------------------------------------------------------------------------------
Stanadyne Stanadyne
Automotive Corp. Subsidiary Non-Guarantor Automotive Corp.
Parent Guarantors Subsidiaries Eliminations & Subsidiaries
------ ---------- ------------ ------------ --------------
<S> <C> <C> <C> <C> <C>
Net sales $ 98,455 $ 27,791 $ 12,607 $ (342)(a) $ 138,511
Cost of goods sold 79,275 22,166 12,391 (296)(a) 113,536
--------- --------- --------- --------- ---------
Gross profit 19,180 5,625 216 (46) 24,975
Selling, general, administrative and
other operating expenses (income) 16,535 1,811 (228) (78) 18,040
--------- --------- --------- --------- ---------
Operating income 2,645 3,814 444 32 6,935
Interest, net 5,557 679 897 (18) 7,115
--------- --------- --------- --------- ---------
(Loss) income before income taxes (2,912) 3,135 (453) 50 (180)
Income tax (benefit) expense (1,584) 1,699 203 -- 318
--------- --------- --------- --------- ---------
Net (loss) income $ (1,328) $ 1,436 $ (656) $ 50 $ (498)
========= ========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended June 30, 1998
------------------------------------------------------------------------------------
Stanadyne Stanadyne
Automotive Corp. Subsidiary Non-Guarantor Automotive Corp.
Parent Guarantors Subsidiaries Eliminations & Subsidiaries
------ ---------- ------------ ------------ --------------
<S> <C> <C> <C> <C> <C>
Net sales $118,908 $ 26,698 $ 12,123 $ (435)(a) $157,294
Cost of goods sold 92,139 22,774 13,352 (483)(a) 127,782
-------- -------- -------- -------- --------
Gross profit (loss) 26,769 3,924 (1,229) 48 29,512
Selling, general, administrative and
other operating expenses 16,180 2,272 191 -- 18,643
-------- -------- -------- -------- --------
Operating income (loss) 10,589 1,652 (1,420) 48 10,869
Interest, net 6,030 796 810 -- 7,636
-------- -------- -------- -------- --------
Income (loss) before income taxes 4,559 856 (2,230) 48 3,233
Income tax expense (benefit) 1,566 843 (819) -- 1,590
-------- -------- -------- -------- --------
Net income (loss) $ 2,993 $ 13 $ (1,411) $ 48 $ 1,643
======== ======== ======== ======== ========
</TABLE>
(a) Elimination of 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 COMBINING CONDENSED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
Six Months Ended June 30, 1999
-----------------------------------------------------------------------------------
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 (loss) income $ (1,328) $ 1,436 $ (656) $ 50 $ (498)
Adjustments to reconcile net (loss)
income to net cash provided by
(used in) operating activities:
Depreciation and amortization 7,827 1,610 862 -- 10,299
Other adjustments (1,237) (215) (79) -- (1,531)
Changes in operating assets and
liabilities 8,615 (1,735) (3,517) (147) 3,216
-------- ------- ------- ------- --------
Net cash provided by (used in)
operating activities 13,877 1,096 (3,390) (97) 11,486
-------- ------- ------- ------- --------
Cash flows from investing activities:
Capital expenditures (4,620) (1,063) (393) -- (6,076)
Proceeds from disposal of property,
plant and equipment 56 -- -- -- 56
Investment in subsidiary (3,963) (29) -- 3,992(a) --
-------- ------- ------- ------- --------
Net cash (used in) provided by
investing activities (8,527) (1,092) (393) 3,992 (6,020)
-------- ------- ------- ------- --------
Cash flows from financing activities:
Net change in debt (3,981) -- (112) -- (4,093)
Net change in equity -- -- 3,992 (3,992)(a) --
-------- ------- ------- ------- --------
Net cash (used in) provided by
financing activities (3,981) -- 3,880 (3,992) (4,093)
-------- ------- ------- ------- --------
Net increase (decrease) in cash and
cash equivalents 1,369 4 97 (97) 1,373
Effect of exchange rate changes on cash 42 -- (2) (31) 9
Cash and cash equivalents at
beginning of period 4,859 5 5 263 5,132
-------- ------- ------- ------- --------
Cash and cash equivalents at
end of period $ 6,270 $ 9 $ 100 $ 135 $ 6,514
======== ======= ======= ======= ========
</TABLE>
(a) Elimination of investment in SpA and PEPL.
-16-
<PAGE> 17
STANADYNE AUTOMOTIVE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT WHERE NOTED OTHERWISE)
SUPPLEMENTAL COMBINING CONDENSED FINANCIAL STATEMENTS (CONCLUDED)
<TABLE>
<CAPTION>
Six Months Ended June 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) $ 2,993 $ 13 $(1,411) $ 48 $ 1,643
Adjustments to reconcile net income
(loss) to net cash provided by (used in)
operating activities:
Depreciation and amortization 7,242 1,551 877 -- 9,670
Other adjustments 719 19 (922) -- (184)
Changes in operating assets and
liabilities (3,515) (65) 313 146 (3,121)
------- ------- ------- ---- -------
Net cash provided by (used in)
operating activities 7,439 1,518 (1,143) 194 8,008
------- ------- ------- ---- -------
Cash flows from investing activities:
Capital expenditures (5,068) (1,518) (1,128) -- (7,714)
------- ------- ------- ---- -------
Net cash used in investing
activities (5,068) (1,518) (1,128) -- (7,714)
------- ------- ------- ---- -------
Cash flows from financing activities:
Net change in debt (1,762) -- 2,272 -- 510
------- ------- ------- ---- -------
Net cash (used in) provided by
financing activities (1,762) -- 2,272 -- 510
------- ------- ------- ---- -------
Net increase in cash and
cash equivalents 609 -- 1 194 804
Effect of exchange rate changes on cash 1 -- -- 1 2
Cash and cash equivalents at
beginning of period 317 4 4 -- 325
------- ------- ------- ---- -------
Cash and cash equivalents at
end of period $ 927 $ 4 $ 5 $195 $ 1,131
======= ======= ======= ==== =======
</TABLE>
-17-
<PAGE> 18
STANADYNE AUTOMOTIVE CORP. AND SUBSIDIARIES
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(1) OVERVIEW
The Company is a leading designer and manufacturer of highly-engineered,
precision manufactured engine components. The Company's two reporting segments
are the Diesel Systems Group ("Diesel Group"), which manufactures diesel fuel
injection equipment including fuel pumps, injectors and filtration systems and
Precision Engine Products Corp. ("Precision Engine") which manufactures
roller-rocker arms, hydraulic valve lifters and lash adjusters for gasoline
engines. Detailed segment information can be found in Note 7 of Notes to
Condensed Consolidated Financial Statements.
Revenues for the second quarter of 1999 increased from the levels reported for
the first quarter of 1999. Cost reduction and labor efficiency improvement
programs, involving assistance from outside consultants, were launched in the
Windsor, Connecticut and Jacksonville, North Carolina facilities. Staffing
levels in the Diesel Group were adjusted further during the second quarter to
bring overhead in line with operations. The Bari, Italy plant was closed in
April as planned, with final termination costs scheduled for payment in the
third quarter. Management is currently negotiating final settlements and
believes that Bari Plant closure costs may be less than estimated, with any
favorable result recorded in the third quarter. Startup activities for the new
Brazilian subsidiary, PEPL, proceeded on schedule in preparation for supply to
Tritec Motors LTDA, a joint venture company formed by Chrysler Corporation
("Chrysler") and BMW.
(2) BASIS OF PRESENTATION
The following table displays 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 (loss) income of the Company are presented in thousands
of dollars and as a percentage of net sales.
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
1999 1998 1999 1998
$ % $ % $ % $ %
------ ----- ------ ----- ------- ----- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales 72,364 100.0 82,268 100.0 138,511 100.0 157,294 100.0
Cost of goods sold 58,078 80.3 66,001 80.2 113,536 82.0 127,782 81.2
Gross profit 14,286 19.7 16,267 19.8 24,975 18.0 29,512 18.8
SG&A 7,342 10.1 7,888 9.6 14,543 10.5 15,336 9.7
Amortization of intangibles 1,479 2.0 1,389 1.7 2,947 2.1 2,757 1.8
Management fees 275 0.4 275 0.3 550 0.4 550 0.3
Operating income 5,190 7.2 6,715 8.2 6,935 5.0 10,869 6.9
Net income (loss) 475 0.7 1,635 2.0 (498) (0.4) 1,643 1.0
</TABLE>
-18-
<PAGE> 19
STANADYNE AUTOMOTIVE CORP. AND SUBSIDIARIES
COMPARISON OF RESULTS OF OPERATIONS:
Three Months Ended June 30, 1999 Compared to Three Months Ended June 30, 1998
Net Sales. Net sales for the second quarter of 1999 of $72.4 million were down
12.0% from the $82.3 million reported for the comparable period in 1998. The
decrease came from lower sales volumes in the Diesel Group, which were down
$11.2 million or 16.2%, offset by an increase in Precision Engine sales of $1.3
million or 9.6%. Diesel Group sales of electronic DS pumps to General Motors
were lower by $9.1 million in the second quarter of 1999 versus the same period
in 1998, when General Motors began stocking a service inventory for their
extended warranty program. Also, an increase in second quarter 1999 demand for
Diesel Group mechanical-style pumps of $0.9 million and filtration products of
$0.4 million only partially offset a $3.0 million reduction in sales of fuel
injectors for the same period in 1998.
Gross Profit. Gross profit for the second quarter of 1999 decreased to $14.3
million from $16.3 million for the same period in 1998, and declined only
slightly as a percentage of net sales to 19.7% from 19.8%. All of the change
resulted from lower earnings on reduced sales volumes reported in the Diesel
Group offset by an improvement in Precision Engine's gross profit as a
percentage of net sales to 21.6% from 16.6%. The significant increase in
Precision Engine's second quarter gross profit in 1999 reflects the impact of
the vertical integration project on the 2.0 litre roller-rocker product.
SG&A. SG&A decreased to $7.3 million for the second quarter of 1999 from $7.9
million for the comparable period in 1998, representing a reduction of $0.6
million or 6.9%. A majority of this change was due to lower research and
development costs in the Diesel Group driven by staff reductions completed
during 1999. As a percentage of net sales, SG&A increased to 10.1% from 9.6%.
Amortization of Intangibles. Amortization of intangible assets increased to $1.5
million in the second quarter of 1999 from $1.4 million in the second quarter of
1998. The expense in both periods included goodwill amortization of $0.5
million.
Operating Income. Operating income for the second quarter of 1999 declined to
$5.2 million from $6.7 million for the comparable period in 1998, representing a
reduction of $1.5 million or 22.7%. As a percentage of net sales, operating
income decreased to 7.2% from 8.2%. While significantly better than the first
quarter operating income, this change was a direct result of the lower gross
profit discussed above.
Net Income. The Company had net income of $0.5 million in the second quarter of
1999 as compared to $1.6 million in the second quarter of 1998. The lower
operating income in the second quarter of 1999 is not fully reflected in the net
income due to $0.3 million less in interest
-19-
<PAGE> 20
STANADYNE AUTOMOTIVE CORP. AND SUBSIDIARIES
expense and the favorable impact of deferred income taxes recorded with respect
to 1999 operating losses.
Six Months Ended June 30, 1999 Compared to Six Months Ended June 30, 1998
Net Sales. Net sales for the first six months of 1999 of $138.5 million were
11.9% less than the $157.3 million reported for the comparable period in 1998.
The decrease came from lower sales in the Diesel Group, which were down $19.9
million or 15.2%, offset by an increase in Precision Engine sales of $1.1
million or 4.1%. Lower Diesel Group sales occurred for two primary reasons.
First, sales to General Motors for the DS electronic pump were $16.2 million
less in 1999 as compared to 1998 when General Motors was buying additional units
of service inventory for their extended warranty program. Second, lower overseas
demand in the first quarter of 1999 for mechanical-style pumps resulted in a
decrease of $2.9 million in year-to-date sales. These reductions were partially
offset by additional Precision Engine sales of $1.1 million traceable to higher
roller-rocker demand from Chrysler.
Gross Profit. Gross profit for the first six months of 1999 decreased to $25.0
million from $29.5 million for the first six months of 1998. Gross profit as a
percentage of net sales also decreased to 18.0% from 18.8%. The change was
primarily the result of lower earnings on reduced sales volumes reported in the
Diesel Group. The lower earnings were offset by an increase in Precision
Engine's gross profit as a percentage of net sales to 20.2% from 14.7%. The
significant increase in Precision Engine's gross profit in 1999 was the result
of a favorable $0.7 million reduction of a liability established in 1998 and
improved earnings due to vertical integration of the manufacturing process for
the roller-rocker product line.
SG&A. SG&A decreased to $14.5 million for the first six months of 1999 from
$15.3 million for the comparable period in 1998, representing a reduction of
$0.8 million or 5.2%. A majority of this change was due to lower research and
development costs in the Diesel Group as a result of staffing reductions
completed in the second quarter of 1999. As a percentage of net sales, SG&A
increased to 10.5% from 9.7%.
Amortization of Intangibles. Amortization of intangible assets increased to $2.9
million in the first six months of 1999 from $2.8 million in the first six
months of 1998. The expense in both periods included goodwill amortization of
$1.0 million.
Operating Income. Operating income of $6.9 million for the first six months of
1999 was $4.0 million, or 36.2%, less than the $10.9 million result for the
comparable period in 1998. As a percentage of net sales, operating income
decreased to 5.0% from 6.9%. The change was a direct result of the decrease in
gross profit discussed above.
Net Income. The Company had a net loss of $0.5 million in the first six months
of 1999 as compared to net income of $1.6 million in the first six months of
1998. The full effect of lower
-20-
<PAGE> 21
STANADYNE AUTOMOTIVE CORP. AND SUBSIDIARIES
operating income is not reflected in the net income comparison due to the $0.5
million less in interest expense recorded in the first six months of 1999 and
the favorable impact of deferred income taxes recorded with respect to 1999
operating losses.
(3) LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of liquidity are cash flows from operations
supplemented by borrowings under a revolving credit facility, and in the case of
its Italian subsidiary, Stanadyne Automotive, SpA, overdraft facilities with
local financial institutions. In addition, the Company occasionally utilizes
capital leasing.
Cash Flows From Operating Activities. Cash flows from operations for the six
months ended June 30, 1999 and June 30, 1998 were $11.5 million and $8.0
million, respectively. Lower earnings in 1999 were more than offset by $3.2
million positive cash flow from working capital accounts, including prepaid
tooling reimbursements from Chrysler of $1.7 million. Cash payments for Bari
Plant closing costs totaled approximately $1.7 million in 1999, with the balance
planned for disbursement in the third quarter. Cash flows provided by operations
for the first six months of 1998 included higher earnings offset by increases in
operating assets, primarily accounts receivable of $3.7 million and inventories
of $2.8 million, related to higher levels of sales in the Diesel Group.
Cash Flows From Investing Activities. The Company's capital expenditures for the
first six months of 1999 were $6.0 million compared to $7.7 million for the
first six months of 1998. Second quarter capital expenditures were comparable at
$3.5 million and $3.4 million in 1999 and 1998, respectively. Major capital
expenditures for 1999 included amounts for the completion of the vertical
integration of the Chrysler roller-rocker product line in Precision Engine, cost
reduction programs in the Diesel Group and general maintenance projects.
Expenditures for 1998 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 U.S. and Italy and to
maintain existing facilities.
Cash Flows From Financing Activities. Cash flows from financing activities for
the first six months ended June 30, 1999 resulted in a net reduction in cash of
$4.1 million. Principal payments of long-term debt totaled $3.6 million,
including a prepayment of $2.1 million based on the excess cash flow sweep.
Overdraft borrowings of Stanadyne Automotive, SpA increased $0.2 million.
Scheduled payments of capital lease obligations totaled $0.7 million in the
first six months of 1999.
-21-
<PAGE> 22
STANADYNE AUTOMOTIVE CORP. AND SUBSIDIARIES
(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 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") would be
Year 2000 compliant, a team of information technology professionals began in
1996 to organize the Company's remediation plan. The Company focused on hardware
and software tools, programming and outside factors that may affect the
Company's operations, including the Company's vendors, banks and utility
companies. While the Company believes that it has completed nearly all of its
compliance efforts, analysis of the Year 2000 threat is on-going and will be
continuously updated throughout 1999 as necessary.
Through June 30, 1999, the Company has spent $0.6 million on its Year 2000
compliance conversion. The Company estimates that additional expenditures of
$0.1 million will be required in the third quarter of 1999 to complete the
conversion projects. Since commencing Year 2000 compliance efforts, the
Company's average annual Year 2000 compliance costs represent about 6% of the
annual MIS budget. A few non-essential MIS projects have been delayed pending
completion of the Year 2000 project.
In addition, the Company has communicated with its major customers and critical
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 is evaluating Year 2000 business disruption scenarios. The most
reasonably likely worst case scenario for the Company is the failure of a
critical 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 of
time, which would result in a loss of sales and profits for a period of time.
Suppliers have been identified and categorized based on level of importance to
the Company's operations of their Year 2000 compliance. Mission critical
suppliers have been contacted and their plans and their sub-tier suppliers are
in the process of being assessed. Management has determined that it would take
approximately six weeks to resource materials from any one critical supplier.
Based on this assessment, further actions and formal contingency plans are being
formulated and will continue to be developed and updated through the balance of
the year.
-22-
<PAGE> 23
STANADYNE AUTOMOTIVE CORP. AND SUBSIDIARIES
(5) NEW ACCOUNTING STANDARD
In June of 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133 requires an entity to recognize
all derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. Gains or losses resulting
from changes in the values of those derivatives would be recognized immediately
or deferred depending on the use of the derivative and if the derivative is a
qualifying hedge. The Company plans to adopt SFAS No. 133 by January 1, 2001, as
required. The Company is currently assessing the impact of this statement on the
Company's consolidated financial statements.
(6) CAUTIONARY STATEMENT
This quarterly report contains certain forward looking statements with respect
to the financial condition, results of operations and business of the Company
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)
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.
-23-
<PAGE> 24
STANADYNE AUTOMOTIVE CORP. AND SUBSIDIARIES
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risks which include changes in interest rates
and changes in foreign currency exchange rates as measured against the U.S.
dollar.
Interest Rate Risk. The carrying value of the Company's revolving credit lines
and term loans approximate fair value. The term loans are primarily LIBOR-based
borrowings and are re-priced approximately every three months based on
prevailing market rates. Pursuant to the Company's credit agreement, the Company
has entered into an interest rate cap agreement with a notional amount of $20
million which is approximately one-third the outstanding balance of the term
loans. The agreement, which expires on December 30, 1999, effectively limits the
net interest cost at 10% for the notional amounts covered under the agreement. A
10% change in the interest rate on the term loans would have increased or
decreased the first six months of 1999 interest expense by $0.2 million. The
10-1/4% Notes bear interest at a fixed rate and, therefore, are not sensitive to
interest rate fluctuation.
Foreign Currency Risk. The Company has subsidiaries in Italy and Brazil and
branch offices in France and England, and therefore is exposed to changes in
foreign currency exchange rates. Changes in exchange rates may positively or
negatively affect the Company's sales, gross margins, and retained earnings.
However, historically, these locations have contributed less than 15% of the
Company's net sales and retained earnings, with most of these sales attributable
to the Italian subsidiary. The Company also sells its products from the United
States to foreign customers for payment in foreign currencies as well as
dollars. Historically, foreign currency exchange gains and losses have been
immaterial. The Company does not hedge against foreign currency risk.
-24-
<PAGE> 25
STANADYNE AUTOMOTIVE CORP. AND SUBSIDIARIES
PART II: OTHER INFORMATION
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits:
3.1 * Amended and Restated Certificate of Incorporation of
Stanadyne Automotive Corp.
3.2 * Amended and Restated By-laws of Stanadyne Automotive Corp.
4.1 * Indenture dated as of December 11, 1997 between Stanadyne
Automotive Corp., DSD International Corp., Precision Engine
Products Corp. and United States Trust Company of New York
4.2 * Purchase Agreement dated as of December 4, 1997 among SAC
Automotive, Inc. and Donaldson, Lufkin & Jenrette
4.3 * Registration Rights Agreement dated as of December 11,
1997 by and among Stanadyne Automotive Corp. and Donaldson,
Lufkin & Jenrette
27 Financial Data Schedule
* Incorporated by reference to Registration Statement on Form S-4, File No.
333-45823, filed on February 6, 1998 and amended on March 25, 1998, April
24, 1998 and May 11, 1998.
b. No report on Form 8-K was filed during the quarter ended June 30,
1999.
-25-
<PAGE> 26
STANADYNE AUTOMOTIVE CORP. AND SUBSIDIARIES
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: August 11, 1999 /s/ Michael H. Boyer
--------------------
Michael H. Boyer
Vice President and
Chief Financial Officer
-26-
<PAGE> 27
EXHIBIT INDEX:
3.1 * Amended and Restated Certificate of Incorporation of
Stanadyne Automotive Corp.
3.2 * Amended and Restated By-laws of Stanadyne Automotive Corp.
4.1 * Indenture dated as of December 11, 1997 between Stanadyne
Automotive Corp., DSD International Corp., Precision Engine
Products Corp. and United States Trust Company of New York
4.2 * Purchase Agreement dated as of December 4, 1997 among SAC
Automotive, Inc. and Donaldson, Lufkin & Jenrette
4.3 * Registration Rights Agreement dated as of December 11,
1997 by and among Stanadyne Automotive Corp. and Donaldson,
Lufkin & Jenrette
27 Financial Data Schedule
* Incorporated by reference to Registration Statement on Form S-4, File No.
333-45823, filed on February 6, 1998 and amended on March 25, 1998, April
24, 1998 and May 11, 1998.
<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 JUNE 30,
1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 6,514
<SECURITIES> 0
<RECEIVABLES> 43,542
<ALLOWANCES> 498
<INVENTORY> 34,275
<CURRENT-ASSETS> 92,513
<PP&E> 144,662
<DEPRECIATION> 21,714
<TOTAL-ASSETS> 314,829
<CURRENT-LIABILITIES> 59,004
<BONDS> 148,218
0
0
<COMMON> 0
<OTHER-SE> 56,137
<TOTAL-LIABILITY-AND-EQUITY> 314,829
<SALES> 138,511
<TOTAL-REVENUES> 138,511
<CGS> 113,536
<TOTAL-COSTS> 131,576
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,231
<INCOME-PRETAX> (180)
<INCOME-TAX> 318
<INCOME-CONTINUING> (498)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (498)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
