<PAGE> 1
FORM 10 - Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C., 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 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)
<TABLE>
<S> <C>
Delaware 22-2940378
(State or other jurisdiction of 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)
</TABLE>
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 April 30, 1999 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 March 31,
1999 (unaudited) and December 31, 1998.........................3
Condensed Consolidated Statements of Operations for the
three months ended March 31, 1999 and 1998 (unaudited).........4
Condensed Consolidated Statements of Cash Flows for the
three months ended March 31, 1999 and 1998 (unaudited).........5
Notes to Condensed Consolidated Financial Statements........6-14
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations........................15-19
Item 3 Quantitative and Qualitative Disclosures About Market
Risk..........................................................20
Part II Other Information
Item 6 Exhibits and Reports on Form 8-K..............................21
Signature .........................................................22
- 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)
MARCH 31, DECEMBER 31,
1999 1998
---- ----
ASSETS
<S> <C> <C>
Cash and cash equivalents $ 3,585 $ 5,132
Accounts receivable, net of allowance for uncollectible
accounts of $511 at March 31, 1999 and $500 at December 31, 1998 43,288 41,564
Inventories 35,882 36,560
Prepaid expenses and other current assets 923 2,635
Deferred income taxes 6,553 6,128
--------- ---------
Total current assets 90,231 92,019
Property, plant and equipment, net 123,935 125,966
Intangible and other assets, net 97,693 99,870
Due from Stanadyne Automotive Holding Corp. 4,061 4,061
--------- ---------
Total assets $ 315,920 $ 321,916
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 20,225 $ 20,222
Accrued liabilities 31,185 31,113
Current maturities of long-term debt 7,691 8,808
Current installments of capital lease obligations 1,178 1,295
--------- ---------
Total current liabilities 60,279 61,438
Long-term debt, excluding current maturities 148,053 148,821
Deferred income taxes 1,738 2,998
Capital lease obligations, excluding current installments 1,226 1,562
Other noncurrent liabilities 47,647 47,906
--------- ---------
Total liabilities 258,943 262,725
--------- ---------
Commitments and contingencies -- --
Stockholders' equity:
Common stock -- --
Additional paid-in capital 59,858 59,858
Other accumulated comprehensive (loss) income (209) 1,032
Accumulated deficit (2,672) (1,699)
--------- ---------
Total stockholders' equity 56,977 59,191
--------- ---------
Total liabilities and stockholders' equity $ 315,920 $ 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 March 31, Ended March 31,
1999 1998
---- ----
<S> <C> <C>
Net sales $ 66,147 $ 75,026
Cost of goods sold 55,458 61,781
-------- --------
Gross profit 10,689 13,245
Selling, general and administrative expenses 7,201 7,448
Amortization of intangibles 1,468 1,368
Management fees 275 275
-------- --------
Operating income 1,745 4,154
Interest, net 3,593 3,828
-------- --------
(Loss) income before income taxes (1,848) 326
Income tax (benefit) expense (875) 318
-------- --------
Net (loss) income applicable to common shareholders $ (973) $ 8
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
- 4 -
<PAGE> 5
STANADYNE AUTOMOTIVE CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
3 Months 3 Months
Ended March 31, Ended March 31,
1999 1998
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income $ (973) $ 8
Adjustments to reconcile net (loss) income to net cash
provided by (used in) operating activities:
Depreciation and amortization 5,155 4,717
Deferred income taxes (1,751) (333)
Loss on disposal of property, plant and equipment 30 --
Changes in operating assets and liabilities 544 (4,031)
------- -------
Net cash provided by operating activities 3,005 361
------- -------
Investing activities:
Capital expenditures (2,529) (4,307)
Proceeds from disposal of property, plant and equipment 56 --
------- -------
Net cash used in investing activities (2,473) (4,307)
------- -------
Financing activities:
Net borrowings on revolving credit facility 1,196 5,078
Principal payments on long-term debt (2,877) --
Payments of capital lease obligations (364) (540)
------- -------
Net cash (used in) provided by financing activities (2,045) 4,538
------- -------
Cash and cash equivalents:
Net (decrease) increase in cash and cash equivalents (1,513) 592
Effect of exchange rate changes on cash (34) (6)
Cash and cash equivalents at beginning of period 5,132 325
------- -------
Cash and cash equivalents at end of period $ 3,585 $ 911
======= =======
</TABLE>
See notes to condensed consolidated financial statements.
- 5 -
<PAGE> 6
STANADYNE AUTOMOTIVE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT WHERE NOTED OTHERWISE)
(1) SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation. The 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
March 31, 1999 December 31, 1998
-------------- -----------------
<S> <C> <C>
Raw materials $ 2,376 $ 2,583
Work-in-process 25,502 25,192
Finished goods 8,004 8,785
------- -------
$35,882 $36,560
======= =======
</TABLE>
- 6 -
<PAGE> 7
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 47.3% through the first three months
of 1999, compared to 97.5% for the first three months of 1998. This lower tax
rate is due to a change in the way the Company applies 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
March 31, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
3 Months 3 Months
Ended March 31, Ended March 31,
1999 1998
---- ----
<S> <C> <C>
Net (loss) income applicable to common shareholders $ (973) $ 8
Other comprehensive loss, net of tax:
Foreign currency translation adjustments (1,241) (612)
------- -------
Comprehensive loss $(2,214) $ (604)
======= =======
</TABLE>
- 7 -
<PAGE> 8
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 82% of the Company's revenues for the first quarter of 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 18% of total revenues for the first quarter ended March
31, 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 (gasoline versus diesel 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 as of and for first quarter ended March 31, 1999 and
1998:
<TABLE>
<CAPTION>
AS OF AND FOR THE THREE MONTHS ENDED MARCH 31, 1999
-----------------------------------------------------------
DIESEL PRECISION
GROUP ENGINE ELIMINATIONS TOTALS
----- ------ ------------ ------
<S> <C> <C> <C> <C>
Net sales $ 52,955 $ 13,192 $ - $ 66,147
Gross profit 8,222 2,467 - 10,689
Deprecation and amortization
expense 4,350 805 - 5,155
Operating (loss) income (52) 1,797 - 1,745
Net (loss) income (1,662) 689 - (973)
Total assets 291,879 53,244 (29,203) 315,920
Total capital expenditures 1,776 753 - 2,529
</TABLE>
<TABLE>
<CAPTION>
AS OF AND FOR THE THREE MONTHS ENDED MARCH 31, 1998
-----------------------------------------------------------
DIESEL PRECISION
GROUP ENGINE ELIMINATIONS TOTALS
----- ------ ------------ ------
<S> <C> <C> <C> <C>
Net sales $ 61,644 $ 13,382 $ - $ 75,026
Gross profit 11,526 1,719 - 13,245
Depreciation and amortization
expense 3,956 761 - 4,717
Operating income 3,531 623 - 4,154
Net (loss) income (112) 120 - 8
Total assets 302,237 53,894 (28,155) 327,976
Total capital expenditures 3,581 726 - 4,307
</TABLE>
- 8 -
<PAGE> 9
STANADYNE AUTOMOTIVE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT WHERE NOTED OTHERWISE)
(8) 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. (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.
- 9 -
<PAGE> 10
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>
March 31, 1999
------------------------------------------------------------------------------
Stanadyne
Automotive Stanadyne
Corp. Subsidiary Non-Guarantor Automotive Corp.
Parent Guarantors Subsidiaries Eliminations & Subsidiaries
---------- ---------- ------------- ------------ ----------------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 3,314 $ 5 $ 5 $ 261 $ 3,585
Accounts receivable, net 26,456 9,486 7,346 -- 43,288
Inventories 23,250 6,383 6,623 (374) 35,882
Other current assets 6,862 610 4 -- 7,476
--------- --------- --------- --------- ---------
Total current assets 59,882 16,484 13,978 (113) 90,231
Property, plant and equipment, net 85,143 22,427 16,365 -- 123,935
Intangible and other assets, net 66,630 14,333 18,135 (1,405)(a) 97,693
Investment in subsidiaries 27,685 -- -- (27,685)(b) --
Due from Stanadyne Automotive Holding Corp. 4,061 -- -- -- 4,061
--------- --------- --------- --------- ---------
Total assets $ 243,401 $ 53,244 $ 48,478 $ (29,203) $ 315,920
========= ========= ========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and
accrued liabilities $ 32,358 $ 7,439 $ 11,616 $ (3) $ 51,410
Current maturities of long-term
debt and capital lease obligations 3,539 -- 5,330 -- 8,869
--------- --------- --------- --------- ---------
Total current liabilities 35,897 7,439 16,946 (3) 60,279
Long-term debt and capital lease obligations 148,123 -- 1,156 -- 149,279
Other noncurrent liabilities 33,180 12,811 4,799 (1,405)(a) 49,385
Intercompany accounts (31,018) 17,491 17,287 (3,760)(c) --
Stockholders' equity 57,219 15,503 8,290 (24,035)(b)(c) 56,977
--------- --------- --------- --------- ---------
Total liabilities and stockholders' equity $ 243,401 $ 53,244 $ 48,478 $ (29,203) $ 315,920
========= ========= ========= ========= =========
</TABLE>
(a) Reclassification of Non-Guarantor deferred tax asset to consolidate net
deferred tax liability.
(b) Amount represents the elimination of investments in subsidiaries of the
Parent as recorded under the equity method of accounting.
(c) Reclassification of timing difference in additional paid-in capital with
SpA which reports one month in arrears.
- 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 (CONTINUED)
<TABLE>
<CAPTION>
December 31, 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 $ 4,859 $ 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) Amount represents the elimination of investments in subsidiaries of the
Parent as recorded under the equity method of accounting.
- 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>
Three Months Ended March 31, 1999
-------------------------------------------------------------------------------------
Stanadyne Stanadyne
Automotive Corp. Subsidiary Non-Guarantor Automotive Corp.
Parent Guarantors Subsidiaries Eliminations & Subsidiaries
------ ---------- ------------ ------------ --------------
<S> <C> <C> <C> <C> <C>
Net sales $ 46,736 $ 13,192 $ 6,457 $ (238)(a) $ 66,147
Cost of goods sold 38,368 10,725 6,576 (211)(a) 55,458
-------- -------- -------- -------- --------
Gross profit (loss) 8,368 2,467 (119) (27) 10,689
Selling, general, administrative and
other operating expenses (income) 8,503 670 (130) (99) 8,944
-------- -------- -------- -------- --------
Operating (loss) income (135) 1,797 11 72 1,745
Interest, net 2,744 364 485 -- 3,593
-------- -------- -------- -------- --------
(Loss) income before income taxes (2,879) 1,433 (474) 72 (1,848)
Income tax (benefit) expense (1,395) 744 (224) -- (875)
-------- -------- -------- -------- --------
Net (loss) income $ (1,484) $ 689 $ (250) $ 72 $ (973)
======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended March 31, 1998
----------------------------------------------------------------------------------
Stanadyne Stanadyne
Automotive Corp. Subsidiary Non-Guarantor Automotive Corp.
Parent Guarantors Subsidiaries Eliminations & Subsidiaries
------ ---------- ------------ ------------ --------------
<S> <C> <C> <C> <C> <C>
Net sales $56,673 $13,382 $ 5,253 $ (282)(a) $75,026
Cost of goods sold 44,190 11,663 6,224 (296)(a) 61,781
------- ------- ------- ------- -------
Gross profit (loss) 12,483 1,719 (971) 14 13,245
Selling, general, administrative and
other operating expenses 7,532 1,096 463 -- 9,091
------- ------- ------- ------- -------
Operating income (loss) 4,951 623 (1,434) 14 4,154
Interest, net 3,044 396 388 -- 3,828
------- ------- ------- ------- -------
Income (loss) before income taxes 1,907 227 (1,822) 14 326
Income tax expense (benefit) 885 107 (674) -- 318
------- ------- ------- ------- -------
Net income (loss) $ 1,022 $ 120 $(1,148) $ 14 $ 8
======= ======= ======= ======= =======
</TABLE>
(a) To eliminate intercompany sales and cost of sales from Stanadyne
Automotive, SpA to 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>
Three Months Ended March 31, 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 $(1,484) $ 689 $ (250) $ 72 $ (973)
------- ------- ------- ------- -------
Adjustments to reconcile net (loss)
income to net cash provided by
(used in) operating activities:
Depreciation and amortization 3,905 805 445 -- 5,155
Other adjustments (1,258) (67) (396) -- (1,721)
Changes in operating assets and
liabilities 5,732 (674) (508) (4,006)(a) 544
------- ------- ------- ------- -------
Net cash provided by (used in)
operating activities 6,895 753 (709) (3,934) 3,005
------- ------- ------- ------- -------
Cash flows from investing activities:
Capital expenditures (1,474) (753) (302) -- (2,529)
Proceeds from disposal of property,
plant and equipment 56 -- -- -- 56
Investment in subsidiary (3,963) -- -- 3,963(a) --
------- ------- ------- ------- -------
Net cash (used in) provided by
investing activities (5,381) (753) (302) 3,963 (2,473)
------- ------- ------- ------- -------
Cash flows from financing activities:
Net change in debt (3,056) -- 1,011 -- (2,045)
------- ------- ------- ------- -------
Net cash (used in) provided by
financing activities (3,056) -- 1,011 -- (2,045)
------- ------- ------- ------- -------
Net (decrease) increase in cash and
cash equivalents (1,542) -- -- 29 (1,513)
Effect of exchange rate changes on cash (3) -- -- (31) (34)
Cash and cash equivalents at
beginning of period 4,859 5 5 263 5,132
------- ------- ------- ------- -------
Cash and cash equivalents at
end of period $ 3,314 $ 5 $ 5 $ 261 $ 3,585
======= ======= ======= ======= =======
</TABLE>
(a) Reclassification of timing difference in additional paid in capital with
SpA which reports one month in arrears.
- 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 March 31, 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) $ 1,022 $ 120 $(1,148) $ 14 $ 8
Adjustments to reconcile net income
(loss) to net cash provided by (used in)
operating activities:
Depreciation and amortization 3,528 761 428 -- 4,717
Other adjustments 345 (4) (674) -- (333)
Changes in operating assets and
liabilities (3,657) (151) (398) 175 (4,031)
------- ------- ------- ------- -------
Net cash provided by (used in)
operating activities 1,238 726 (1,792) 189 361
------- ------- ------- ------- -------
Cash flows from investing activities:
Capital expenditures (3,058) (726) (523) -- (4,307)
------- ------- ------- ------- -------
Net cash used in investing
activities (3,058) (726) (523) -- (4,307)
------- ------- ------- ------- -------
Cash flows from financing activities:
Net change in debt 2,223 -- 2,315 -- 4,538
------- ------- ------- ------- -------
Net cash provided by financing
activities 2,223 -- 2,315 -- 4,538
------- ------- ------- ------- -------
Net increase in cash and
cash equivalents 403 -- -- 189 592
Effect of exchange rate changes on cash (2) -- -- (4) (6)
Cash and cash equivalents at
beginning of period 317 4 4 -- 325
------- ------- ------- ------- -------
Cash and cash equivalents at
end of period $ 718 $ 4 $ 4 $ 185 $ 911
======= ======= ======= ======= =======
</TABLE>
- 14 -
<PAGE> 15
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 first quarter of 1999 were affected adversely by low sales in
January, a result of reduced demand for pump products within the Diesel Group.
More typical sales levels in February and March for the Diesel Group only
partially offset the January results. Staffing levels in the Diesel Group were
adjusted during the first quarter to bring operations in line with lower demand
in some markets. Progress continued with the Bari, Italy plant closure, which is
expected to be finalized in the second quarter of 1999. Startup activities for
the new Brazilian subsidiary, Precision Engine Products LTDA, 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 March 31,
-------------------------------------------------------------
1999 1998
------------------------ -----------------------
$ % $ %
------ ----- ------ -----
<S> <C> <C> <C> <C>
Net sales ................. 66,147 100.0 75,026 100.0
Cost of goods sold ........ 55,458 83.8 61,781 82.3
Gross profit .............. 10,689 16.2 13,245 17.7
SG&A ...................... 7,201 10.9 7,448 9.9
Amortization of intangibles 1,468 2.2 1,368 1.8
Management fees ........... 275 0.4 275 0.4
Operating income .......... 1,745 2.6 4,154 5.5
Net (loss) income ......... (973) (1.5) 8 --
</TABLE>
- 15 -
<PAGE> 16
STANADYNE AUTOMOTIVE CORP. AND SUBSIDIARIES
COMPARISON OF RESULTS OF OPERATIONS:
Three Months Ended March 31, 1999 Compared to Three Months Ended March 31, 1998
Net Sales. Net sales for the first quarter of 1999 of $66.1 million were down
11.8% from the $75.0 million reported for the comparable period in 1998. A
majority of the decrease came from lower sales volumes in the Diesel Group,
which were down $8.7 million or 14.1%, with Precision Engine down only $0.2
million or 1.4%. Lower sales in the Diesel Group occurred for two primary
reasons. First, a decrease of $7.1 million in sales to General Motors for the DS
electronic pump in 1999 versus 1998, when General Motors completed stocking a
service inventory for their extended warranty program. Second, lower overseas
demand within the agricultural and industrial markets for mechanical-style pumps
resulted in a decrease of $3.8 million in sales. These reductions were partially
offset by increased aftermarket demand of $1.5 million for the Diesel Group
filtration product.
Gross Profit. Gross profit for the first quarter of 1999 decreased to $10.7
million from $13.2 million for the first quarter of 1998. Gross profit as a
percentage of net sales also decreased to 16.2% from 17.7%. The change was
primarily the result of lower earnings on reduced sales volumes reported in the
Diesel Group. The low earnings were offset by an increase in Precision Engine's
gross profit as a percentage of net sales to 18.7% from 12.8%. 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.
SG&A. SG&A decreased to $7.2 million for the first quarter of 1999 from $7.4
million for the comparable period in 1998, representing a decrease of $0.2
million or 3.3%. A majority of this decline was due to lower freight costs
related to the lower sales activity in the Diesel Group. As a percentage of net
sales, SG&A also increased to 10.9% from 9.9%.
Amortization of Intangibles. Amortization of intangible assets increased to $1.5
million in the first quarter of 1999 from $1.4 million in the first quarter of
1998. The expense in both periods included goodwill amortization of $0.3
million.
Operating Income. Operating income declined to $1.7 million for the first
quarter of 1999 from $4.2 million for the comparable period in 1998,
representing a reduction of $2.5 million or 58.0%. As a percentage of net sales,
operating income decreased to 2.6% from 5.5%. The change was a direct result of
the decrease in gross profit discussed above.
Net Income. There was a net loss of $(1.0) million in the first quarter of 1999
as compared to net income of less than $0.1 million in the first quarter of
1998. The full effect of lower operating income is not reflected in the net
income comparison due to the $0.2 million less in interest expense recorded in
the first quarter of 1999 and the favorable impact of deferred income taxes
recorded with respect to 1999 operating losses.
- 16 -
<PAGE> 17
STANADYNE AUTOMOTIVE CORP. AND SUBSIDIARIES
(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. In addition, the
Company occasionally utilizes capital leasing and for its Italian subsidiary,
Stanadyne Automotive, SpA, maintains overdraft facilities with local financial
institutions.
Cash Flows From Operating Activities. Cash flows from operations for the three
months ended March 31, 1999 and March 31, 1998 were $3.0 million and $0.4
million, respectively. Lower earnings in 1999 were somewhat offset by improved
cash flows from working capital accounts which provided a net result of $0.5
million. Cash flows provided by operations in the first quarter of 1998 included
higher earnings offset by increases in operating assets, primarily accounts
receivable of $6.0 million and inventories of $1.5 million, related to higher
levels of sales in the Diesel Group.
Cash Flows From Investing Activities. The Company's capital expenditures for the
first quarter of 1999 were $2.5 million compared to $4.3 million for the first
quarter of 1998. First quarter 1999 capital expenditures 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. First quarter 1998 expenditures were primarily for
the purchase of machinery and equipment to increase capacity in the Diesel Group
for pump products, to complete the capitalization of the RSN injector operations
in the U.S. and Italy and to maintain existing facilities.
Cash Flows From Financing Activities. Cash flows from financing activities for
the three months ended March 31, 1999 resulted in a net reduction in cash of
$2.0 million. Principal payments of long-term debt totaled $2.9 million,
including a prepayment of $2.1 million based on the excess cash flow sweep.
Overdraft borrowings of Stanadyne Automotive, SpA increased $1.2 million
primarily due to cash required for the Bari plant closure costs. Reductions in
capital lease obligations totaled $0.3 million in the first three months of
1999.
(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") will be Year
2000 compliant, a team of information technology professionals began in 1996 to
organize the Company's remediation plan. The Company is also focusing on
hardware and software tools,
- 17 -
<PAGE> 18
STANADYNE AUTOMOTIVE CORP. AND SUBSIDIARIES
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 will be in compliance by the end of the second quarter of 1999,
analysis of the Year 2000 threat is on-going and will be continuously updated
throughout 1999 as necessary.
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 estimates that it will spend a total of $0.5 million for its Year
2000 compliance conversion. Through March 31, 1999, the Company spent $0.4
million in support of this project, all of which has been expensed. 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.
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.
Critical suppliers have been identified 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 be developed during the second
quarter of 1999.
(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, 2000, as
required. The Company is currently assessing the impact of this statement on the
Company's consolidated financial statements.
- 18 -
<PAGE> 19
STANADYNE AUTOMOTIVE CORP. AND SUBSIDIARIES
(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.
- 19 -
<PAGE> 20
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 quarter 1999 interest expense by $0.1 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 a subsidiary in Italy 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.
- 20 -
<PAGE> 21
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 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 March 31, 1999
- 21 -
<PAGE> 22
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: May 11, 1999 /s/ Michael H. Boyer
------------ --------------------
Michael H. Boyer
Vice President and
Chief Financial Officer
- 22 -
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM STANADYNE
AUTOMOTIVE CORP'S QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED MARCH 31,
1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 3,585
<SECURITIES> 0
<RECEIVABLES> 43,799
<ALLOWANCES> 511
<INVENTORY> 35,882
<CURRENT-ASSETS> 90,231
<PP&E> 142,078
<DEPRECIATION> 18,143
<TOTAL-ASSETS> 315,920
<CURRENT-LIABILITIES> 60,279
<BONDS> 149,279
0
0
<COMMON> 0
<OTHER-SE> 56,977
<TOTAL-LIABILITY-AND-EQUITY> 315,920
<SALES> 66,147
<TOTAL-REVENUES> 66,147
<CGS> 55,458
<TOTAL-COSTS> 64,402
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,635
<INCOME-PRETAX> (1,848)
<INCOME-TAX> (875)
<INCOME-CONTINUING> (973)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (973)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
