<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 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 22-2940378
-------- ----------
(State or other jurisdiction of (I.R.S. Employer I.D.)
incorporation or organization)
92 Deerfield Road, Windsor, Connecticut 06095-4209
- --------------------------------------- ----------
(Address of principal executive offices) (zip code)
(860) 525-0821
- ---------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
The number of Common Shares of the Company, $0.01 per share par value,
outstanding as of October 31, 1999 was 1,000.
<PAGE> 2
STANADYNE AUTOMOTIVE CORP. AND SUBSIDIARIES
TABLE OF CONTENTS
<TABLE>
<S> <C>
Part I Financial Information
Item 1 Financial Statements
Condensed Consolidated Balance Sheets as of September 30, 1999 (unaudited) and December 31,
1998......................................................................................... 3
Condensed Consolidated Statements of Operations for the three months ended September 30,
1999 and 1998 (unaudited).................................................................... 4
Condensed Consolidated Statements of Operations for the nine months ended September 30, 1999
and 1998 (unaudited)......................................................................... 5
Condensed Consolidated Statements of Cash Flows for the nine
months ended September 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)
SEPTEMBER 30, DECEMBER 31,
ASSETS 1999 1998
---- ----
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 11,530 $ 5,132
Accounts receivable, net of allowance for uncollectible
accounts of $522 at September 30, 1999 and $500 at December 31, 1998 39,853 41,564
Inventories 36,476 36,560
Prepaid expenses and other current assets 1,282 2,635
Deferred income taxes 7,522 6,128
-------- -------
Total current assets 96,663 92,019
Property, plant and equipment, net 121,061 125,966
Intangible and other assets, net 93,870 99,870
Due from Stanadyne Automotive Holding Corp. 4,061 4,061
-------- -------
Total assets $ 315,655 $ 321,916
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 20,068 $ 20,222
Accrued liabilities 31,239 31,113
Current maturities of long-term debt 6,730 8,808
Current installments of capital lease obligations 949 1,295
-------- -------
Total current liabilities 58,986 61,438
Long-term debt, excluding current maturities 146,518 148,821
Deferred income taxes 1,664 2,998
Capital lease obligations, excluding current installments 794 1,562
Other noncurrent liabilities 47,139 47,906
-------- -------
Total liabilities 255,101 262,725
-------- -------
Commitments and contingencies -- --
Stockholders' equity:
Common stock -- --
Additional paid-in capital 59,858 59,858
Other accumulated comprehensive (loss) income (1,213) 1,032
Retained earnings (accumulated deficit) 1,909 (1,699)
-------- -------
Total stockholders' equity 60,554 59,191
-------- -------
Total liabilities and stockholders' equity $ 315,655 $ 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 Ended
September 30, September 30,
1999 1998
---- ----
<S> <C> <C>
Net sales $ 66,381 $ 75,039
Cost of goods sold 51,373 61,732
-------- --------
Gross profit 15,008 13,307
Selling, general and administrative expenses 5,797 7,449
Amortization of intangibles 1,476 1,666
Management fees 275 275
-------- --------
Operating income 7,460 3,917
Interest, net 3,503 3,807
-------- --------
Income before income taxes 3,957 110
Income tax (benefit) expense (149) 201
-------- --------
Net income (loss) applicable to common shareholders $ 4,106 $ (91)
======== ========
</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>
9 Months 9 Months
Ended Ended
September 30, September 30,
1999 1998
---- ----
<S> <C> <C>
Net sales $204,892 $232,333
Cost of goods sold 164,909 189,514
-------- --------
Gross profit 39,983 42,819
Selling, general and administrative expenses 20,340 22,785
Amortization of intangibles 4,423 4,423
Management fees 825 825
-------- --------
Operating income 14,395 14,786
Interest, net 10,618 11,443
-------- --------
Income before income taxes 3,777 3,343
Income tax expense 169 1,791
-------- --------
Net income applicable to common shareholders $ 3,608 $ 1,552
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
-5-
<PAGE> 6
STANADYNE AUTOMOTIVE CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)
<TABLE>
<CAPTION>
9 Months 9 Months
Ended Ended
September 30, September 30,
1999 1998
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 3,608 $ 1,552
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 15,403 14,865
Deferred income taxes (2,851) (1,105)
Loss on disposal of property, plant and equipment 249 --
Changes in operating assets and liabilities 2,728 (910)
-------- --------
Net cash provided by operating activities 19,137 14,402
-------- --------
Cash flows from investing activities:
Capital expenditures (7,833) (10,508)
Proceeds from disposal of property, plant and equipment 71 --
-------- --------
Net cash used in investing activities (7,762) (10,508)
-------- --------
Cash flows from financing activities:
Net borrowings on revolving credit facility 405 3,286
Principal payments on long-term debt (4,412) (1,000)
Payments of capital lease obligations (981) (1,675)
-------- --------
Net cash (used in) provided by financing activities (4,988) 611
-------- --------
Cash and cash equivalents:
Net increase in cash and cash equivalents 6,387 4,505
Effect of exchange rate changes on cash 11 15
Cash and cash equivalents at beginning of period 5,132 325
-------- --------
Cash and cash equivalents at end of period $ 11,530 $ 4,845
======== ========
See notes to condensed consolidated financial statements.
</TABLE>
-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
September 30, 1999 December 31, 1998
------------------ -----------------
<S> <C> <C>
Raw materials $ 2,024 $ 2,583
Work-in-process 25,930 25,192
Finished goods 8,522 8,785
------- -------
$36,476 $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 4.5% through the first nine months
of 1999, compared to 53.6% for the first nine months of 1998. In 1999 the
Company recorded $0.2 million in book tax expense on a pre-tax income of $3.8
million because of the tax benefit provided from Stanadyne Automotive Foreign
Sales Corp. ("FSC"). Without the benefit provided from the FSC, the Company's
effective tax rates in 1999 and 1998 would have been 58.0% and 64.6%,
respectively. 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 components of planned and actual net income, the
effective tax rate for the year could change and, in turn, have an impact on
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.
-8-
<PAGE> 9
STANADYNE AUTOMOTIVE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except where noted otherwise)
(6) Comprehensive Income
The Company's comprehensive results of operations for the three months ended
September 30, 1999 and 1998 and the nine months ended September 30, 1999 and
1998 are as follows:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income (loss) applicable to common shareholders $ 4,106 $ (91) $ 3,608 $ 1,552
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments 311 323 (2,245) 137
------- ------- ------- -------
Comprehensive income $ 4,417 $ 232 $ 1,363 $ 1,689
======= ======= ======= =======
</TABLE>
(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 84%
and 83% of the Company's revenues for the three months ended September 30, 1999
and 1998, respectively, and approximately 81% and 83% for the nine months ended
September 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 16% and 17% of total
revenues for the three months ended September 30, 1999 and 1998, respectively,
and 19% and 17% for the nine months ended September 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.
The following summarizes key information used by the Company in evaluating the
performance of each segment for the three months ended September 30, 1999 and
1998 and as of and for the nine months ended September 30, 1999 and 1998:
-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>
For the Three Months Ended September 30, 1999
---------------------------------------------
Diesel Precision
Group Engine Eliminations Totals
----- ------ ------------ ------
<S> <C> <C> <C> <C>
Net sales $ 55,729 $ 10,652 $ - $ 66,381
Gross profit 13,754 1,254 - 15,008
Deprecation and amortization
expense 4,297 807 - 5,104
Operating income (loss) 7,971 (511) - 7,460
Net income (loss) 4,577 (471) - 4,106
Total capital expenditures 1,274 483 - 1,757
</TABLE>
<TABLE>
<CAPTION>
For the Three Months Ended September 30, 1998
---------------------------------------------
Diesel Precision
Group Engine Eliminations Totals
----- ------ ------------ ------
<S> <C> <C> <C> <C>
Net sales $ 62,599 $ 12,440 $ - $ 75,039
Gross profit 11,413 1,894 - 13,307
Depreciation and amortization
expense 4,415 780 - 5,195
Operating income 3,189 728 - 3,917
Net (loss) income (337) 246 - (91)
Total capital expenditures 2,317 477 - 2,794
</TABLE>
<TABLE>
<CAPTION>
As of and For the Nine Months Ended September 30, 1999
------------------------------------------------------
Diesel Precision
Group Engine Eliminations Totals
----- ------ ------------ ------
<S> <C> <C> <C> <C>
Net sales $ 166,449 $ 38,443 $ - $ 204,892
Gross profit 33,104 6,879 - 39,983
Deprecation and amortization
expense 12,986 2,417 - 15,403
Operating income 11,119 3,276 - 14,395
Net income 2,673 935 - 3,608
Total assets 278,317 53,087 (15,749) 315,655
Total capital expenditures 6,238 1,595 - 7,833
</TABLE>
-10-
<PAGE> 11
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 Nine Months Ended September 30, 1998
------------------------------------------------------
Diesel Precision
Group Engine Eliminations Totals
----- ------ ------------ ------
<S> <C> <C> <C> <C>
Net sales $ 193,195 $ 39,138 $ - $ 232,333
Gross profit 37,001 5,818 - 42,819
Deprecation and amortization
expense 12,534 2,331 - 14,865
Operating income 12,406 2,380 - 14,786
Net income 1,293 259 - 1,552
Total assets 300,839 54,010 (27,552) 327,297
Total capital expenditures 8,513 1,995 - 10,508
</TABLE>
(8) Subsequent Events
On October 5, 1999, the Company retired $10.0 million in Notes at a discount
price of $8.75 million. The resulting $1.25 million gain on this transaction
will be recorded as a net of tax extraordinary item in the fourth quarter of
1999.
(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 FSC, Stanadyne Automotive, SpA ("SpA") and
Precision Engine Products LTDA. ("PEPL")(the "Non-Guarantor Subsidiaries").
Supplemental combining condensed financial statements for Stanadyne Automotive
Corp. ("Parent"), the Subsidiary Guarantors and the Non-Guarantor Subsidiaries
are presented below. Separate complete financial statements of the Subsidiary
Guarantors are not presented because management has determined that they are not
material to investors.
-11-
<PAGE> 12
STANADYNE AUTOMOTIVE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except where noted otherwise)
Supplemental Combining Condensed Financial Statements (continued)
<TABLE>
<CAPTION>
September 30, 1999
-------------------------------------------------------------------------------
Stanadyne Stanadyne
Automotive Corp. Subsidiary Non-Guarantor Automotive Corp.
Parent Guarantors Subsidiaries Eliminations & Subsidiaries
------ ---------- ------------ ------------ ---------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 11,442 $ 17 $ 100 $ (29) $ 11,530
Accounts receivable, net 26,484 8,126 5,243 -- 39,853
Inventories 23,873 7,416 5,561 (374) 36,476
Other current assets 6,558 940 1,306 -- 8,804
--------- --------- --------- --------- ---------
Total current assets 68,357 16,499 12,210 (403) 96,663
Property, plant and equipment, net 83,742 21,908 15,411 -- 121,061
Intangible and other assets, net 64,247 13,942 15,757 (76) 93,870
Investment in subsidiaries 32,886 (135) -- (32,751) (a) --
Due from Stanadyne Automotive Holding Corp. 4,061 -- -- -- 4,061
--------- --------- --------- --------- ---------
Total assets $ 253,293 $ 52,214 $ 43,378 $ (33,230) $ 315,655
========= ========= ========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and
accrued liabilities $ 37,466 $ 7,510 $ 6,336 $ (5) $ 51,307
Current maturities of long-term
debt and capital lease obligations 3,345 -- 4,334 -- 7,679
--------- --------- --------- --------- ---------
Total current liabilities 40,811 7,510 10,670 (5) 58,986
Long-term debt and capital lease obligations 146,518 -- 794 -- 147,312
Other noncurrent liabilities 31,490 12,576 4,812 (75) 48,803
Intercompany accounts (27,371) 16,345 11,319 (293) --
Stockholders' equity 61,845 15,783 15,783 (32,857) (a) 60,554
--------- --------- --------- --------- ---------
Total liabilities and stockholders' equity $ 253,293 $ 52,214 $ 43,378 $ (33,230) $ 315,655
========= ========= ========= ========= =========
</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
<S> <C> <C> <C> <C> <C>
Current 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) 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 (continued)
<TABLE>
<CAPTION>
Three Months Ended September 30, 1999
------------------------------------------------------------------------------
Stanadyne Stanadyne
Automotive Corp. Subsidiary Non-Guarantor Automotive Corp.
Parent Guarantors Subsidiaries Eliminations & Subsidiaries
------ ---------- ------------ ------------ --------------
<S> <C> <C> <C> <C> <C>
Net sales $ 50,357 $ 10,700 $5,402 $ (78) (a) $66,381
Cost of goods sold 37,015 9,411 4,978 (31) (a) 51,373
-------- -------- -------- -------- --------
Gross profit 13,342 1,289 424 (47) 15,008
Selling, general, administrative and
other operating expenses (income) 11,728 1,568 (5,747) (1) 7,548
-------- -------- -------- -------- ------
Operating income (loss) 1,614 (279) 6,171 (46) 7,460
Interest, net 2,812 270 413 8 3,503
-------- -------- -------- -------- --------
(Loss) income before income taxes (1,198) (549) 5,758 (54) 3,957
Income tax (benefit) expense (466) (245) 562 -- (149)
-------- -------- -------- -------- --------
Net (loss) income $ (732) $ (304) $ 5,196 $ (54) $ 4,106
======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended September 30, 1998
--------------------------------------------------------------------------------------
Stanadyne Stanadyne
Automotive Corp. Subsidiary Non-Guarantor Automotive Corp.
Parent Guarantors Subsidiaries Eliminations & Subsidiaries
------ ---------- ------------ ------------ ----------------
<S> <C> <C> <C> <C> <C>
Net sales $ 56,534 $ 12,440 $6,164 $ (99)(a) $75,039
Cost of goods sold 45,196 10,546 6,071 (81)(a) 61,732
--------- --------- --------- --------- ---------
Gross profit (loss) 11,338 1,894 93 (18) 13,307
Selling, general, administrative and
other operating expenses (income) 8,227 1,166 (3) -- 9,390
--------- --------- --------- --------- ---------
Operating income 3,111 728 96 (18) 3,917
Interest, net 2,991 377 439 -- 3,807
--------- --------- --------- --------- ---------
Income (loss) before income taxes 120 351 (343) (18) 110
Income tax (benefit) expense (274) 105 370 - 201
--------- --------- --------- --------- ---------
Net income (loss) $ 394 $ 246 $ (713) $ (18) $ (91)
========= ========= ========= ========= =========
</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>
Nine Months Ended September 30, 1999
-------------------------------------------------------------------------------------
Stanadyne Stanadyne
Automotive Corp. Subsidiary Non-Guarantor Automotive Corp.
Parent Guarantors Subsidiaries Eliminations & Subsidiaries
--------- ------------- ------------- ------------ ----------------
<S> <C> <C> <C> <C> <C>
Net sales $ 148,812 $ 38,491 $ 18,009 $ (420) (a) $204,892
Cost of goods sold 116,290 31,577 17,369 (327) (a) 164,909
--------- --------- --------- --------- ---------
Gross profit 32,522 6,914 640 (93) 39,983
Selling, general, administrative and
other operating expenses (income) 28,263 3,379 (5,975) (79) 25,588
--------- --------- --------- --------- ---------
Operating income 4,259 3,535 6,615 (14) 14,395
Interest, net 8,369 949 1,310 (10) 10,618
--------- --------- --------- --------- ---------
(Loss) income before income taxes (4,110) 2,586 5,305 (4) 3,777
Income tax (benefit) expense (2,050) 1,454 765 -- 169
--------- --------- --------- --------- ---------
Net (loss) income $ (2,060) $ 1,132 $ 4,540 $ (4) $ 3,608
========= ========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended September 30, 1998
-------------------------------------------------------------------------------------
Stanadyne Stanadyne
Automotive Corp. Subsidiary Non-Guarantor Automotive Corp.
Parent Guarantors Subsidiaries Eliminations & Subsidiaries
------ ---------- ------------ ------------ --------------
<S> <C> <C> <C> <C> <C>
Net sales $175,442 $ 39,138 $ 18,287 $ (534) (a) $ 232,333
Cost of goods sold 137,335 33,320 19,423 (564) (a) 189,514
-------- -------- -------- -------- --------
Gross profit (loss) 38,107 5,818 (1,136) 30 42,819
Selling, general, administrative and
other operating expenses 24,407 3,438 188 -- 28,033
-------- -------- -------- -------- --------
Operating income (loss) 13,700 2,380 (1,324) 30 14,786
Interest, net 9,021 1,173 1,249 -- 11,443
-------- -------- -------- -------- --------
Income (loss) before income taxes 4,679 1,207 (2,573) 30 3,343
Income tax expense (benefit) 1,292 948 (449) -- 1,791
-------- -------- -------- -------- --------
Net income (loss) $ 3,387 $ 259 $ (2,124) $ 30 $ 1,552
======== ======== ======== ======== ========
</TABLE>
(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>
Nine Months Ended September 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 $ (2,060) $ 1,132 $ 4,540 $ (4) $ 3,608
Adjustments to reconcile net (loss)
income to net cash provided by
(used in) operating activities:
Depreciation and amortization 11,747 2,416 1,240 -- 15,403
Other adjustments (2,438) (77) (87) -- (2,602)
Changes in operating assets and
liabilities 13,864 (1,977) (8,828) (331) 2,728
-------- -------- -------- -------- --------
Net cash provided by (used in)
operating activities 21,113 1,494 (3,135) (335) 19,137
-------- -------- -------- -------- --------
Cash flows from investing activities:
Capital expenditures (5,782) (1,453) (598) -- (7,833)
Proceeds from disposal of property,
plant and equipment 71 -- -- -- 71
Investment in subsidiary (3,963) (29) -- 3,992(a) --
-------- -------- -------- -------- --------
Net cash (used in) provided by
investing activities (9,674) (1,482) (598) 3,992 (7,762)
-------- -------- -------- -------- --------
Cash flows from financing activities:
Net change in debt (4,856) -- (132) -- (4,988)
Net change in equity -- -- 3,992 (3,992)(a) --
-------- -------- -------- -------- --------
Net cash (used in) provided by
financing activities (4,856) -- 3,860 (3,992) (4,988)
-------- -------- -------- -------- --------
Net increase (decrease) in cash and
cash equivalents 6,583 12 127 (335) 6,387
Effect of exchange rate changes on cash -- -- (32) 43 11
Cash and cash equivalents at
beginning of period 4,859 5 5 263 5,132
-------- -------- -------- -------- --------
Cash and cash equivalents at
end of period $ 11,442 $ 17 $ 100 $ (29) $ 11,530
======== ======== ======== ======== ========
</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>
Nine Months Ended September 30, 1998
-----------------------------------------------------------------------------
Stanadyne Stanadyne
Automotive Corp. Subsidiary Non-Guarantor Automotive Corp.
Parent Guarantors Subsidiaries Eliminations & Subsidiaries
------ ---------- ------------ ------------ ----------------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 3,387 $ 259 $ (2,124) $ 30 $ 1,552
Adjustments to reconcile net income
(loss) to net cash provided by (used in)
operating activities:
Depreciation and amortization 11,203 2,331 1,331 -- 14,865
Other adjustments (72) 41 (1,074) -- (1,105)
Changes in operating assets and
liabilities (679) (636) 309 96 (910)
-------- -------- -------- -------- --------
Net cash provided by (used in)
operating activities 13,839 1,995 (1,558) 126 14,402
-------- -------- -------- -------- --------
Cash flows from investing activities:
Capital expenditures (7,335) (1,995) (1,178) -- (10,508)
-------- -------- -------- -------- --------
Net cash used in investing
activities (7,335) (1,995) (1,178) -- (10,508)
-------- -------- -------- -------- --------
Cash flows from financing activities:
Net change in debt (2,124) -- 2,735 -- 611
-------- -------- -------- -------- --------
Net cash (used in) provided by
financing activities (2,124) -- 2,735 -- 611
-------- -------- -------- -------- --------
Net increase in cash and
cash equivalents 4,380 -- (1) 126 4,505
Effect of exchange rate changes on cash 3 -- 1 11 15
Cash and cash equivalents at
beginning of period 317 4 4 -- 325
-------- -------- -------- -------- --------
Cash and cash equivalents at
end of period $ 4,700 $ 4 $ 4 $ 137 $ 4,845
======== ======== ======== ======== ========
</TABLE>
-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 Company's third quarter are typically less than those reported
in other quarters due to the scheduled one to two week plant closings within the
Diesel Group. In addition, production and related revenue during the third
quarter of 1999 were also hampered by severe weather at the Diesel Group's North
Carolina locations during September. During July, an agreement was reached with
one of the Company's major customers that resulted in additional third quarter
revenues totaling $3.7 million for volumes not purchased under a supply
agreement. Management believes that additional amounts under this agreement
totaling $1.7 million in cash and $1.1 million in productive assets may be
realized in future periods. The Company also favorably concluded the major
elements of the closure of its Bari, Italy location during the quarter and as a
result recorded a $1.9 million savings to the reserve established in 1998.
Startup activities for the new Brazilian subsidiary, PEPL, proceeded on schedule
with all primary production equipment delivered and installed during the third
quarter.
(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 income (loss) of the Company are presented in thousands
of dollars and as a percentage of net sales.
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
------------------------------------ -------------------------------------
1999 1998 1999 1998
$ % $ % $ % $ %
------ ----- ------ ----- ------- ----- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales 66,381 100.0 75,039 100.0 204,892 100.0 232,333 100.0
Cost of goods sold 51,373 77.4 61,732 82.3 164,909 80.5 189,514 81.6
Gross profit 15,008 22.6 13,307 17.7 39,983 19.5 42,819 18.4
SG&A 5,797 8.7 7,449 9.9 20,340 9.9 22,785 9.8
Amortization of intangibles 1,476 2.2 1,666 2.2 4,423 2.2 4,423 1.9
Management fees 275 0.4 275 0.4 825 0.4 825 0.4
Operating income 7,460 11.2 3,917 5.2 14,395 7.0 14,786 6.4
Net income (loss) 4,106 6.2 (91) (0.1) 3,608 1.8 1,552 0.7
</TABLE>
-18-
<PAGE> 19
STANADYNE AUTOMOTIVE CORP. AND SUBSIDIARIES
Comparison of Results of Operations:
Three Months Ended September 30, 1999 Compared to Three Months Ended September
30, 1998
Net Sales. Net sales for the third quarter of 1999 of $66.4 million were down
11.5% from the $75.0 million reported for the comparable period in 1998. The
decrease came from lower sales in both segments, with the Diesel Group down $6.8
million or 11.0% and Precision Engine down $1.8 million or 14.4%. Diesel Group
sales of electronic DS pumps to General Motors were lower by $7.3 million in the
third quarter of 1999 versus the same period in 1998, when General Motors was
stocking a service inventory for their extended warranty program. This reduction
in the Diesel Group was partially offset by $3.7 million in revenue from a major
customer, as compensation for volumes not purchased under a supply agreement.
Lower sales in Precision Engine were due equally to lesser demand from Chrysler
and Ford.
Gross Profit. Gross profit for the third quarter of 1999 increased to $15.0
million from $13.3 million for the same period in 1998, and increased as a
percentage of net sales to 22.6% from 17.7%. All of the increase resulted from
the $3.7 million gain in Diesel Group mentioned above. Lower earnings on reduced
sales volumes in Precision Engine resulted in gross profits as a percentage of
net sales of 11.8% for the third quarter of 1999, down from 15.2% in the third
quarter of 1998.
SG&A. SG&A for the third quarter of 1999 decreased to $5.8 million from $7.4
million for the comparable period in 1998, representing a reduction of $1.6
million or 22.2%. The lower 1999 SG&A expense is attributable to the Diesel
Group's successful conclusion of the closure of its Bari, Italy location which
was accomplished for $1.9 million less than the estimates recorded in 1998.
Amortization of Intangibles. Amortization of intangible assets decreased to $1.5
million in the third quarter of 1999 from $1.7 million in the third quarter of
1998. The goodwill amortization in the third quarter of 1999 was $0.5 million
and $0.4 million in 1998. Amounts are different in each year due to 1998
purchase accounting adjustments.
Operating Income. Operating income for the third quarter of 1999 increased to
$7.5 million from $3.9 million for the comparable period in 1998, representing
an increase of $3.6 million or 90.5%. As a percentage of net sales, operating
income increased to 11.2% from 5.2%. This significant improvement resulted
primarily from the $3.7 million increase in Diesel Group's revenues previously
discussed, $1.9 million reduction in estimated plant closure costs related to
Bari, Italy, offset by lower earnings on reduced sales of electronic DS pumps to
General Motors.
Net Income. The Company had net income of $4.1 million in the third quarter of
1999 as compared to a net loss of $0.1 million in the third quarter of 1998.
Better results in 1999 were the direct result of the higher operating income and
the tax benefit derived from the FSC.
-19-
<PAGE> 20
STANADYNE AUTOMOTIVE CORP. AND SUBSIDIARIES
Nine Months Ended September 30, 1999 Compared to Nine Months Ended September 30,
1998
Net Sales. Net sales for the first nine months of 1999 of $204.9 million were
11.8% less than the $232.3 million reported for the comparable period in 1998.
The decrease came from lower sales in the first nine months of 1999 in both the
Diesel Group, which were $26.7 million or 13.8% less, and in Precision Engine,
which were $0.7 million or 1.8% less. Lower Diesel Group sales occurred for two
primary reasons. First, sales to General Motors for the DS electronic pump were
$20.2 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 demand for Diesel Group injector products resulted in a decrease
of $5.9 million in year-to-date sales. These reductions were partially offset by
an additional $3.7 million in revenues from a major customer as compensation for
volumes not purchased under a supply agreement.
Gross Profit. Gross profit for the first nine months of 1999 decreased to $40.0
million from $42.8 million for the first nine months of 1998. Gross profit as a
percentage of net sales increased to 19.5% from 18.4%. These changes were
primarily the result of lower earnings on reduced sales volumes reported in the
Diesel Group offset by the $3.7 million gain referred to above. Precision
Engine's gross profit as a percentage of net sales increased to 17.9% from
14.9%. The 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 $20.3 million for the first nine months of 1999 from
$22.8 million for the comparable period in 1998, representing a reduction of
$2.5 million or 10.7%. The lower 1999 SG&A expense is attributable to the
successful conclusion of the closure of its Bari, Italy location which was
accomplished for $1.9 million less than the estimates recorded in 1998. Lower
research and development costs in the Diesel Group, as a result of staffing
reductions completed in the second quarter of 1999, further contributed to the
reduction in SG&A. As a percentage of net sales, SG&A increased to 9.9% from
9.8%.
Amortization of Intangibles. Amortization of intangible assets in the first nine
months of 1999 and 1998 was $4.4 million. The expense in both periods included
goodwill amortization of $1.4 million.
Operating Income. Operating income of $14.4 million in the first nine months of
1999 was $0.4 million, or 2.6%, less than the $14.8 million result for the
comparable period in 1998. The change was a direct result of the decrease in
gross profit and SG&A discussed above. As a percentage of net sales, operating
income increased to 7.0% from 6.4%.
Net Income. The Company recorded net income of $3.6 million in the first nine
months of 1999 as compared to $1.6 million in the first nine months of 1998. The
lower operating income
-20-
<PAGE> 21
STANADYNE AUTOMOTIVE CORP. AND SUBSIDIARIES
discussed above was offset by $0.8 million less interest expense and $1.6
million less tax expense due to the benefit provided by the FSC.
(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 nine
months ended September 30, 1999 and September 30, 1998 were $19.1 million and
$14.4 million, respectively. Results in 1999 were primarily the result of
positive cash flow from changes in operating assets and liabilities of $3.7
million. Changes to operating assets in 1999 included prepaid tooling
reimbursements from Chrysler of $1.7 million and lower accounts receivable
balances in proportion to the lower sales in the Diesel Group. Cash payments for
Bari Plant closure were concluded in the third quarter of 1999, bringing the
total paid this fiscal year to approximately $3.7 million. Cash flows provided
by operations for the first nine months of 1998 included higher operating income
offset by increases in operating assets, primarily accounts receivable of $2.9
million and inventories of $0.8 million, related to higher levels of sales in
the Diesel Group.
Cash Flows From Investing Activities. The Company's capital expenditures for the
first nine months of 1999 were $7.8 million compared to $10.5 million for the
first nine months of 1998. 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 nine months ended September 30, 1999 resulted in a net reduction in
cash of $5.0 million. Principal payments of long-term debt totaled $4.4 million,
including a prepayment of $2.1 million based on the excess cash flow sweep.
Overdraft borrowings of Stanadyne Automotive, SpA increased $0.4 million.
Scheduled payments of capital lease obligations totaled $1.0 million in the
first nine 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 September 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 fourth 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.
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. In the case of critical
suppliers, all were visited by Company personnel, and all have given assurances
that they are Year 2000 compliant. In some instances, the Company's contingency
plans include additional inventory from critical suppliers at year end. There
can be no guarantee that the systems of other companies on which the Company's
systems rely will be timely, or successfully, converted and would not have an
adverse effect on the Company's systems.
The Company continues to evaluate 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 that period of time.
These critical 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 visited, and their plans and their sub-tier
suppliers' plans have been assessed. Since management has determined that it
could take up to six weeks to resource materials from any one critical supplier,
some critical supplier component inventory may be increased at year end.
-22-
<PAGE> 23
STANADYNE AUTOMOTIVE CORP. AND SUBSIDIARIES
The Company has also asked all internal departments to review possible
disruption that could be caused by Year 2000 and formulate plans for either
avoiding or reacting to these scenarios. Given that the mission critical areas
had been dealt with by the Year 2000 compliance team, this particular effort is
focused on disruptions that could render inconveniences rather than material
work stoppages. Efforts in this regard will be ongoing.
The Company's assessment of Year 2000 compliance is based on numerous
assumptions about future events, including third party Year 2000 compliance
plans and other factors. The Company cannot guarantee that its assessments are
correct, and actual results could differ materially from those anticipated.
(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 month 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 nine months of 1999 interest expense by $0.3 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
10.1.3 Consent Regarding Repurchase of Senior Subordinated Notes to the
Credit Agreement dated September 24, 1999 to grant a consent to
the Credit Agreement dated as of December 11, 1997, as amended as
of July 31, 1998 and February 8, 1999, among SAC Automotive,
Inc., Stanadyne Automotive Corp., the Lenders listed therein, as
Lenders, DLJ Capital Funding, Inc., as Syndication Agent, and The
First National Bank of Chicago, as Administrative Agent
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 September 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: November 12, 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
10.1.3 Consent Regarding Repurchase of Senior Subordinated Notes to the
Credit Agreement dated September 24, 1999 to grant a consent to
the Credit Agreement dated as of December 11, 1997, as amended as
of July 31, 1998 and February 8, 1999, among SAC Automotive,
Inc., Stanadyne Automotive Corp., the Lenders listed therein, as
Lenders, DLJ Capital Funding, Inc., as Syndication Agent, and The
First National Bank of Chicago, as Administrative Agent
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.
-27-
<PAGE> 1
CONSENT REGARDING REPURCHASE OF SENIOR SUBORDINATED NOTES
September 24, 1999
Stanadyne Automotive Corp.
92 Deerfield Road
Windsor, Connecticut 06095
Attention: Michael Boyer
Chief Financial Officer
Ladies and Gentlemen:
Reference is made to that certain Credit Agreement dated as of
December 11, 1997, as amended as of July 31, 1998 and February 8, 1999 (as so
amended, the "Credit Agreement", the terms defined therein being used herein as
therein defined), among SAC Automotive, Inc., a Delaware corporation, Stanadyne
Automotive Corp., a Delaware corporation, the financial institutions listed
therein, Bank One (successor to The First National Bank of Chicago), as
Administrative Agent for Lenders, and DLJ Capital Funding, Inc., as Syndication
Agent for Lenders.
Company has informed Agents and Lenders that it desires to
repurchase on or prior to March 31, 2000 up to $10.0 million face amount of its
Senior Subordinated Notes (the "Repurchase"). At the request of Company the
undersigned Lenders, constituting Requisite Lenders under the Credit Agreement,
hereby consent to the Repurchase; provided that (1) no more than $10.0 million
face amount of the Senior Subordinated Notes shall be repurchased by Company and
its Subsidiaries; (2) the purchase price for any Senior Subordinated Note shall
not exceed 95% of the face amount thereof (plus accrued interest); (3) the
Repurchase must be completed by March 31, 2000; (4) immediately after completion
of the Repurchase, no Revolving Loans shall be outstanding; and (5) immediately
after completion of the Repurchase and after giving effect thereto, no Event of
Default or Potential Event of Default shall have occurred and be continuing.
Without limiting the generality of the provisions of
subsection 10.6 of the Credit Agreement, the consent set forth herein shall be
limited precisely as written and is provided solely for the purpose of
permitting Company to effect the Repurchase on the terms and conditions
hereinabove set forth without violating the provisions of subsection 7.5 of the
Credit Agreement, and this Consent does not constitute, nor should it be
construed as, a waiver of compliance by Company with respect to (i) subsection
7.5 of the Credit Agreement in any other instance or (ii) any other term,
provision or condition of the Credit Agreement or any other instrument or
agreement referred to therein (whether in connection with the Repurchase or
otherwise).
In order to induce Lenders to enter into this Consent,
Company, by its execution of a counterpart of this Consent, represents and
warrants that after giving effect to this Consent and the Repurchase (a) no
Event of Default or Potential Event of Default exists under the Credit
<PAGE> 2
Agreement, (b) all representations and warranties contained in the Credit
Agreement and the other Loan Documents are true, correct and complete in all
material respects on and as of the date hereof except to the extent such
representations and warranties specifically relate to an earlier date, in which
case they were true, correct and complete in all material respects on and as of
such earlier date, and (c) Company has performed all agreements to be performed
on its part as set forth in the Credit Agreement.
This Consent may be executed in any number of counterparts and
by different parties hereto in separate counterparts, each of which when so
executed and delivered shall be deemed an original, but all such counterparts
together shall constitute but one and the same instrument. The consent set forth
herein shall become effective as of the date hereof upon the execution of
counterparts hereof by Company, Holdings and Subsidiary Guarantors and by
Lenders constituting Requisite Lenders, receipt by Company and Agents of written
or telephonic notification of such execution and authorization of delivery
thereof and receipt by Administrative Agent, on behalf of each Lender who
executes and delivers to Administrative Agent a counterpart of this Consent on
or prior to October 4, 1999, a fee equal to one-eighth of one percent (.125%) of
the sum of such Lender's Revolving Loan Exposure, Tranche A Term Loan Exposure
and Tranche B Term Loan Exposure.
2
<PAGE> 3
THIS CONSENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING WITHOUT
LIMITATION SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW
YORK), WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES.
AGENTS
DLJ CAPITAL FUNDING, INC.,
Individually as Syndication Agent
By: /s/ David F. Klein
------------------
David F. Klein
Vice President
BANK ONE (successor to The First National
Bank of Chicago),Individually and as
Administrative Agent
By: /s/ William H. Canney
---------------------
William H. Canney
Vice President
LENDERS
ABN AMRO BANK N.V.
By: /s/ John J. Mack
---------------
John J. Mack
Vice President
By: /s/ Douglas R. Elliott
----------------------
Douglas R. Elliott
Group Vice President
<PAGE> 4
BANKBOSTON, N.A.
By: /s/ Garth J. Collins
-------------------
Garth J. Collins
Director
BANK OF SCOTLAND
By: /s/ Annie Glynn
---------------
Annie Glynn
Senior Vice President
DRESDNER BANK AG
NEW YORK AND GRAND
CAYMAN BRANCHES
By: /s/ Beverly G. Cason
--------------------
Beverly G. Cason
Vice President
By: /s/ John R. Morrison
--------------------
John R. Morrison
Vice President
MERRILL LYNCH DEBT
STRATEGIES PORTFOLIO
By:
NATIONAL CITY BANK
By: /s/ Lisa B. Lisi
----------------
Lisa B. Lisi
Vice President
PEOPLE'S BANK
By: /s/ Dante Fazzina
-----------------
Dante Fazzina
Vice President
<PAGE> 5
SENIOR DEBT PORTFOLIO
BY: BOSTON MANAGEMENT AND RESEARCH,
as Investment Advisor
By: /s/ Payson F. Swaffield
-----------------------
Payson F. Swaffield
Vice President
SUMMIT BANK
By: /s/ Christopher P. Kleczkowski
-----------------------------
Christopher P. Kleczkowski
THE BANK OF NEW YORK
BY: /s/ Melinda White
-----------------
Melinda White
VAN KAMPEN CLO I, LIMITED
BY: VAN KEMPEN MANAGEMENT INC. as
Collateral Manager
By: /s/ Darvin D. Pierce
--------------------
Darvin D. Pierce
Vice President
<PAGE> 6
By its execution of a counterpart of this Consent, the
undersigned, as guarantor under that certain Holdings Guaranty dated as of
December 11, 1997 or that certain Subsidiary Guaranty dated as of December 11,
1997 (the "Guaranties") in favor of Administrative Agent for the benefit of
Lenders, each hereby acknowledges that it has read this Consent and consents to
the terms thereof and further hereby confirms and agrees that, notwithstanding
the effectiveness of this Consent, the obligations of the undersigned under the
Guaranties shall not be impaired or affected and the Guaranties are, and shall
continue to be, in full force and effect and are hereby confirmed and ratified
in all respects.
PRECISION ENGINE PRODUCTS CORP.
By: /s/ Michael H. Boyer
--------------------
Title: Vice President and
Chief Financial Officer
DSD INTERNATIONAL CORP.
By: DISOLVED
Title:
STANADYNE AUTOMOTIVE HOLDING CORP.
By: /s/ Michael H. Boyer
--------------------
Title: Vice President and
Chief Financial Officer
Acknowledge and agreed as
of the date first written above:
STANADYNE AUTOMOTIVE CORP.
By: /s/ Michael H. Boyer
--------------------
Title: Vice President and
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM STANADYNE
AUTOMOTIVE CORP'S QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER
30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 11,530
<SECURITIES> 0
<RECEIVABLES> 40,375
<ALLOWANCES> 522
<INVENTORY> 36,476
<CURRENT-ASSETS> 96,663
<PP&E> 146,403
<DEPRECIATION> 25,342
<TOTAL-ASSETS> 315,655
<CURRENT-LIABILITIES> 58,986
<BONDS> 147,312
0
0
<COMMON> 0
<OTHER-SE> 60,554
<TOTAL-LIABILITY-AND-EQUITY> 315,655
<SALES> 204,892
<TOTAL-REVENUES> 204,892
<CGS> 164,909
<TOTAL-COSTS> 190,497
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,818
<INCOME-PRETAX> 3,777
<INCOME-TAX> 169
<INCOME-CONTINUING> 3,608
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,608
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
