<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, 2000
[ ] 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 (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)
</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 October 31, 2000 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, 2000
(unaudited) and December 31, 1999 ....................................... 3
Condensed Consolidated Statements of Operations for the three months
ended September 30, 2000 and 1999 (unaudited)............................ 4
Condensed Consolidated Statements of Operations for the nine months
ended September 30, 2000 and 1999 (unaudited)............................ 5
Condensed Consolidated Statements of Cash Flows for the nine
months ended September 30, 2000 and 1999 (unaudited)..................... 6
Notes to Condensed Consolidated Financial Statements (unaudited)......... 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 2000 1999
---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 9,316 $ 4,057
Accounts receivable, net of allowance for uncollectible
accounts of $554 at September 30, 2000 and $610 at December 31, 1999 40,230 40,296
Inventories 34,489 36,582
Prepaid expenses and other current assets 1,038 1,451
Deferred income taxes 7,565 8,360
--------- ---------
Total current assets 92,638 90,746
Property, plant and equipment, net 111,373 119,611
Intangible and other assets, net 84,593 91,687
Due from Stanadyne Automotive Holding Corp. 4,061 4,061
--------- ---------
Total assets $ 292,665 $ 306,105
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 19,539 $ 22,354
Accrued liabilities 29,319 27,788
Current maturities of long-term debt 4,840 5,198
Current installments of capital lease obligations 574 819
--------- ---------
Total current liabilities 54,272 56,159
Long-term debt, excluding current maturities 118,644 135,671
Deferred income taxes 5,795 5,747
Capital lease obligations, excluding current installments 93 592
Other noncurrent liabilities 46,108 46,255
--------- ---------
Total liabilities 224,912 244,424
--------- ---------
Commitments and contingencies -- --
Stockholders' equity:
Common stock -- --
Additional paid-in capital 59,858 59,858
Other accumulated comprehensive loss (5,207) (2,384)
Retained earnings 13,102 4,207
--------- ---------
Total stockholders' equity 67,753 61,681
--------- ---------
Total liabilities and stockholders' equity $ 292,665 $ 306,105
========= =========
</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>
Three Months Three Months
Ended Ended
September 30, September 30,
2000 1999
---- ----
<S> <C> <C>
Net sales $ 68,179 $ 66,381
Cost of goods sold 54,680 51,373
-------- --------
Gross profit 13,499 15,008
Selling, general and administrative expenses 7,760 5,797
Amortization of intangibles 1,434 1,476
Management fees 275 275
-------- --------
Operating income 4,030 7,460
Interest, net 2,873 3,503
-------- --------
Income before income taxes 1,157 3,957
Income tax expense (benefit) 450 (149)
-------- --------
Net income $ 707 $ 4,106
======== ========
</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>
Nine Months Nine Months
Ended Ended
September 30, September 30,
2000 1999
---- ----
<S> <C> <C>
Net sales $231,825 $204,892
Cost of goods sold 179,083 164,909
-------- --------
Gross profit 52,742 39,983
Selling, general and administrative expenses 25,038 20,340
Amortization of intangibles 4,320 4,423
Management fees 825 825
-------- --------
Operating income 22,559 14,395
Interest, net 8,928 10,618
-------- --------
Income before income taxes and
extraordinary item 13,631 3,777
Income tax expense 5,687 169
-------- --------
Income before extraordinary item 7,944 3,608
Extraordinary gain related to early retirement of
debt, net of tax expense of $634 951 --
-------- --------
Net income $ 8,895 $ 3,608
======== ========
</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>
Nine Months Nine Months
Ended Ended
September 30, September 30,
2000 1999
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 8,895 $ 3,608
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 15,975 15,403
Extraordinary gain, net of applicable income taxes (951) --
Deferred income taxes 902 (2,851)
Loss on disposal of property, plant and equipment 381 249
Changes in operating assets and liabilities 730 2,728
-------- --------
Net cash provided by operating activities 25,932 19,137
-------- --------
Cash flows from investing activities:
Capital expenditures (5,528) (7,833)
Proceeds from disposal of property, plant and equipment 28 71
-------- --------
Net cash used in investing activities (5,500) (7,762)
-------- --------
Cash flows from financing activities:
Net (payments) borrowings on revolving credit facility (1,743) 405
Principal payments on long-term debt (12,920) (4,412)
Payments of capital lease obligations (629) (981)
-------- --------
Net cash used in financing activities (15,292) (4,988)
-------- --------
Cash and cash equivalents:
Net increase in cash and cash equivalents 5,140 6,387
Effect of exchange rate changes on cash 119 11
Cash and cash equivalents at beginning of period 4,057 5,132
-------- --------
Cash and cash equivalents at end of period $ 9,316 $ 11,530
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
-6-
<PAGE> 7
STANADYNE AUTOMOTIVE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT WHERE NOTED OTHERWISE)
(1) SIGNIFICANT ACCOUNTING POLICIES
Description of Business. Stanadyne Automotive Corp. (the "Company") is a
wholly-owned subsidiary of Stanadyne Automotive Holding Corp. ("Holdings"). A
majority of the outstanding equity of Holdings is owned by American Industrial
Partners Capital Fund II, L.P. ("AIP").
Principles of Consolidation. The consolidated financial statements include the
accounts of the Company and all of the Company's wholly-owned subsidiaries:
Precision Engine Products Corp. ("PEPC"), Stanadyne Automotive SpA ("SpA"),
Precision Engine Products LTDA ("PEPL") and Stanadyne Automotive Foreign Sales
Corp. ("FSC"). Intercompany balances have been eliminated in consolidation.
Basis of Presentation. The balance sheet as of December 31, 1999 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
accounting principles generally accepted in the United States 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 1999 financial statements to conform to
the 2000 presentation.
(2) INVENTORIES
Components of inventory are as follows:
<TABLE>
<CAPTION>
As of As of
September 30, 2000 December 31, 1999
------------------ -----------------
<S> <C> <C>
Raw materials $ 2,220 $ 1,968
Work-in-process 23,780 24,891
Finished goods 8,489 9,723
----- -----
$ 34,489 $ 36,582
======== ========
</TABLE>
(3) INCOME TAXES
The Company's effective income tax rate before the extraordinary gain was 41.7%
for the first nine months of 2000, compared to 4.5% for the first nine months in
1999. In 2000 the Company recorded $5.7 million of tax expense on a pre-tax
income of $13.6 million. In 1999 the Company recorded $0.2 million of tax
expense on a pre-tax income of $3.8 million because of the effect of foreign
income taxes on net losses in Italy. The Company received benefits from FSC in
both periods. 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
-7-
<PAGE> 8
STANADYNE AUTOMOTIVE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT WHERE NOTED OTHERWISE)
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.
(4) LONG-TERM DEBT
The Company had $76.0 million and $90.0 million of Senior Subordinated Notes
("Notes") at an interest rate of 10.25% outstanding at September 30, 2000 and
December 31, 1999, respectively. The Notes are due on December 15, 2007. In the
first quarter of 2000, the Company retired $14.1 million in Notes at a
discounted price of $11.5 million. As a result of the early retirement of the
Notes, the Company realized a $1.0 million gain, net of income taxes and related
unamortized debt issuance costs. The transactions were recorded as an
extraordinary gain related to the early retirement of debt.
(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 liabilities as a result of
various 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 effect on the results of operations, financial position or cash
flows of the Company. Also, in conjunction with the acquisition of the Company
from Metromedia on December 11, 1997, Metromedia agreed to partially indemnify
the Company and AIP for certain environmental matters. The effect of this
indemnification is to limit financial exposure for known environmental issues.
-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 (loss) income for the three months ended September
30, 2000 and 1999 and the nine months ended September 30, 2000 and 1999 are as
follows:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income $ 707 $ 4,106 $ 8,895 $ 3,608
Other comprehensive (loss) income, net of tax:
Foreign currency translation adjustments (1,173) 311 (2,823) (2,245)
------- ------- ------- -------
Comprehensive (loss) income $ (466) $ 4,417 $ 6,072 $ 1,363
======= ======= ======= =======
</TABLE>
(7) SEGMENTS
The Company has two reportable segments, the Diesel Systems Group (the "Diesel
Group") and Precision Engine Products ("Precision Engine"). The Diesel Group
manufactures diesel fuel injection equipment including fuel pumps, injectors and
filtration systems. This segment accounted for approximately 86% and 84% of the
Company's revenues for the three months ended September 30, 2000 and 1999,
respectively, and approximately 84% and 81% for the nine months ended September
30, 2000 and 1999, respectively. Precision Engine manufactures roller-rocker
arms, hydraulic valve lifters and lash adjusters for gasoline engines. Revenues
for Precision Engine accounted for approximately 14% and 16% of total revenues
for the three months ended September 30, 2000 and 1999, respectively, and
approximately 16% and 19% for the nine months ended September 30, 2000 and 1999,
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, 2000 and
1999 and as of and for the nine months ended September 30, 2000 and 1999:
-9-
<PAGE> 10
STANADYNE AUTOMOTIVE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except where noted otherwise)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000
DIESEL PRECISION
GROUP ENGINE ELIMINATIONS TOTALS
----- ------ ------------ ------
<S> <C> <C> <C> <C>
Net sales $58,529 $ 9,650 $ -- $68,179
Gross profit 12,836 663 -- 13,499
Deprecation and amortization
expense 4,366 889 -- 5,255
Operating income (loss) 4,723 (693) -- 4,030
Net income (loss) 1,245 (538) -- 707
Total capital expenditures 1,982 68 -- 2,050
</TABLE>
<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
Depreciation 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>
AS OF AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
DIESEL PRECISION
GROUP ENGINE ELIMINATIONS TOTALS
------ --------- ------------ ------
<S> <C> <C> <C> <C>
Net sales $195,700 $ 36,125 $ -- $231,825
Gross profit 47,534 5,208 -- 52,742
Deprecation and amortization
expense 13,264 2,711 -- 15,975
Operating income 19,291 3,268 -- 22,559
Net income 7,221 1,674 -- 8,895
Total assets 263,765 48,603 (19,703) 292,665
Total capital expenditures 5,146 382 -- 5,528
</TABLE>
-10-
<PAGE> 11
STANADYNE AUTOMOTIVE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except where noted otherwise)
<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>
(8) SUPPLEMENTAL COMBINING CONDENSED FINANCIAL STATEMENTS
The Notes issued December 11, 1997 by the Company are guaranteed jointly, fully,
severally and unconditionally by Precision Engine Products Corp. (the
"Subsidiary Guarantor") on a subordinated basis and are not guaranteed by FSC,
SpA and PEPL (the "Non-Guarantor Subsidiaries").
Supplemental combining condensed financial statements for Stanadyne Automotive
Corp. ("Parent"), the Subsidiary Guarantor and the Non-Guarantor Subsidiaries
are presented below. Separate complete financial statements of the Subsidiary
Guarantor 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, 2000
------------------
Stanadyne Stanadyne
Automotive Corp. Subsidiary Non-Guarantor Automotive Corp.
Parent Guarantor Subsidiaries Eliminations & Subsidiaries
------ --------- ------------ ------------ --------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 8,840 $ 13 $ 150 $ 313 $ 9,316
Accounts receivable, net 30,669 6,468 3,101 (8) 40,230
Inventories 23,764 7,131 3,815 (221) 34,489
Other current assets 6,486 1,218 899 -- 8,603
--------- --------- --------- --------- ---------
Total current assets 69,759 14,830 7,965 84 92,638
Property, plant and equipment, net 78,981 19,597 12,795 -- 111,373
Intangible and other assets, net 58,617 13,159 13,238 (421)(a) 84,593
Investment in subsidiaries 41,945 (859) -- (41,086)(b) --
Due from Stanadyne Automotive Holding Corp. 4,061 -- -- -- 4,061
--------- --------- --------- --------- ---------
Total assets $ 253,363 $ 46,727 $ 33,998 $ (41,423) $ 292,665
========= ========= ========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and
accrued liabilities $ 38,408 $ 6,222 $ 4,228 $ -- $ 48,858
Current maturities of long-term
debt and capital lease obligations 4,393 -- 1,021 -- 5,414
--------- --------- --------- --------- ---------
Total current liabilities 42,801 6,222 5,249 -- 54,272
Long-term debt and capital lease obligations 118,644 -- 93 -- 118,737
Other noncurrent liabilities 35,304 11,799 5,221 (421)(a) 51,903
Intercompany accounts (16,547) 9,002 7,212 333 --
Stockholders' equity 73,161 19,704 16,223 (41,335)(b) 67,753
--------- --------- --------- --------- ---------
Total liabilities and stockholders' equity $ 253,363 $ 46,727 $ 33,998 $ (41,423) $ 292,665
========= ========= ========= ========= =========
</TABLE>
(a) Reclassification of Non-Guarantor deferred tax asset to consolidate net
deferred tax liability.
(b) 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, 1999
-----------------
Stanadyne Stanadyne
Automotive Corp. Subsidiary Non-Guarantor Automotive Corp.
Parent Guarantor Subsidiaries Eliminations & Subsidiaries
------ --------- ------------ ------------ --------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,760 $ 2 $ 184 $ 111 $ 4,057
Accounts receivable, net 28,068 8,213 4,112 (97) 40,296
Inventories 23,677 8,039 5,184 (318) 36,582
Other current assets 6,636 1,196 1,979 -- 9,811
--------- --------- --------- --------- ---------
Total current assets 62,141 17,450 11,459 (304) 90,746
Property, plant and equipment, net 83,467 21,476 14,668 -- 119,611
Intangible and other assets, net 63,068 13,746 15,020 (147)(a) 91,687
Investment in subsidiaries 36,516 (311) -- (36,205)(b) --
Due from Stanadyne Automotive Holding Corp. 4,061 -- -- -- 4,061
--------- --------- --------- --------- ---------
Total assets $ 249,253 $ 52,361 $ 41,147 $ (36,656) $ 306,105
========= ========= ========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and
accrued liabilities $ 37,857 $ 6,511 $ 5,842 $ (68) $ 50,142
Current maturities of long-term
debt and capital lease obligations 3,007 -- 3,010 -- 6,017
--------- --------- --------- --------- ---------
Total current liabilities 40,864 6,511 8,852 (68) 56,159
Long-term debt and capital lease obligations 135,671 -- 592 -- 136,263
Other noncurrent liabilities 34,096 12,224 5,829 (147)(a) 52,002
Intercompany accounts (25,498) 15,567 10,023 (92) --
Stockholders' equity 64,120 18,059 15,851 (36,349)(b) 61,681
--------- --------- --------- --------- ---------
Total liabilities and stockholders' equity $ 249,253 $ 52,361 $ 41,147 $ (36,656) $ 306,105
========= ========= ========= ========= =========
</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, 2000
-------------------------------------
Stanadyne Stanadyne
Automotive Corp. Subsidiary Non-Guarantor Automotive Corp.
Parent Guarantor Subsidiaries Eliminations & Subsidiaries
------ --------- ------------ ------------ --------------
<S> <C> <C> <C> <C> <C>
Net sales $54,202 $ 9,706 $ 4,399 $ (128)(a) $68,179
Cost of goods sold 41,953 9,065 3,842 (180)(a) 54,680
------- ------- ------- ------- -------
Gross profit 12,249 641 557 52 13,499
Selling, general, administrative and
other operating expenses 7,790 1,098 622 (41)(b) 9,469
Intercompany FSC commissions and reduction
of intercompany pushdown debt(c) 934 33 (1,045) 78 --
------- ------- ------- ------- -------
Operating income (loss) 3,525 (490) 980 15 4,030
Interest, net 2,422 41 369 41(b) 2,873
------- ------- ------- ------- -------
Income (loss) before income taxes 1,103 (531) 611 (26) 1,157
Income tax expense (benefit) 604 (183) 29 -- 450
------- ------- ------- ------- -------
Net income (loss) $ 499 $ (348) $ 582 $ (26) $ 707
======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended September 30, 1999
-------------------------------------
Stanadyne Stanadyne
Automotive Corp. Subsidiary Non-Guarantor Automotive Corp.
Parent Guarantor 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) 7,652 1,134 (1,238) -- 7,548
Intercompany FSC commissions and reduction
of intercompany pushdown debt(c) 4,076 434 (4,509) (1) --
-------- -------- -------- -------- --------
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>
(a) Elimination of intercompany sales and cost of sales from Stanadyne
Automotive, SpA to Parent.
(b) Elimination of intercompany lease activity between PEPC and PEPL.
(c) Reduction of intercompany pushdown debt previously established in
purchase accounting.
-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, 2000
------------------------------------
Stanadyne Stanadyne
Automotive Corp. Subsidiary Non-Guarantor Automotive Corp.
Parent Guarantor Subsidiaries Eliminations & Subsidiaries
------ --------- ------------ ------------ --------------
<S> <C> <C> <C> <C> <C>
Net sales $180,401 $ 36,217 $ 15,546 $ (339)(a) $231,825
Cost of goods sold 135,082 31,031 13,321 (351)(a) 179,083
-------- -------- -------- -------- --------
Gross profit 45,319 5,186 2,225 12 52,742
Selling, general, administrative and
other operating expenses 25,004 3,588 1,717 (126)(b) 30,183
Intercompany FSC commissions and reduction
of intercompany pushdown debt(c) 7,135 (2,205) (5,050) 120 --
-------- -------- -------- -------- --------
Operating income 13,180 3,803 5,558 18 22,559
Interest, net 7,398 274 1,131 125(b) 8,928
-------- -------- -------- -------- --------
Income before income
taxes and extraordinary item 5,782 3,529 4,427 (107) 13,631
Income tax expense 3,129 1,337 1,221 -- 5,687
-------- -------- -------- -------- --------
Income before
extraordinary item 2,653 2,192 3,206 (107) 7,944
Extraordinary gain 951 -- -- -- 951
-------- -------- -------- -------- --------
Net income $ 3,604 $ 2,192 $ 3,206 $ (107) $ 8,895
======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended September 30, 1999
------------------------------------
Stanadyne Stanadyne
Automotive Corp. Subsidiary Non-Guarantor Automotive Corp.
Parent Guarantor 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) 22,472 3,435 (319) -- 25,588
Intercompany FSC commissions and reduction
of intercompany pushdown debt(c) 5,791 (56) (5,656) (79) --
--------- --------- --------- --------- ---------
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>
(a) Elimination of intercompany sales and cost of sales from Stanadyne
Automotive, SpA to Parent.
(b) Elimination of intercompany lease activity between PEPC and PEPL.
(c) Reduction of intercompany pushdown debt previously established in
purchase accounting.
-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, 2000
------------------------------------
Stanadyne Stanadyne
Automotive Corp. Subsidiary Non-Guarantor Automotive Corp.
Parent Guarantor Subsidiaries Eliminations & Subsidiaries
------ --------- ------------ ------------ --------------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income $ 3,604 $ 2,192 $ 3,206 $ (107) $ 8,895
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation and amortization 12,258 2,687 1,030 -- 15,975
Extraordinary gain (951) -- -- -- (951)
Other adjustments 1,140 (272) 415 -- 1,283
Changes in operating assets and
liabilities 6,801 (4,363) (1,907) 199 730
-------- -------- -------- -------- --------
Net cash provided by
operating activities 22,852 244 2,744 92 25,932
-------- -------- -------- -------- --------
Cash flows from investing activities:
Capital expenditures (4,702) (233) (593) -- (5,528)
Proceeds from disposal of property,
plant and equipment 26 -- 2 -- 28
-------- -------- -------- -------- --------
Net cash used in
investing activities (4,676) (233) (591) -- (5,500)
-------- -------- -------- -------- --------
Cash flows from financing activities:
Net change in debt (13,094) -- (2,198) -- (15,292)
-------- -------- -------- -------- --------
Net cash used in
financing activities (13,094) -- (2,198) -- (15,292)
-------- -------- -------- -------- --------
Net increase (decrease) in cash and
cash equivalents 5,082 11 (45) 92 5,140
Effect of exchange rate changes on cash (2) -- 11 110 119
Cash and cash equivalents at
beginning of period 3,760 2 184 111 4,057
-------- -------- -------- -------- --------
Cash and cash equivalents at
end of period $ 8,840 $ 13 $ 150 $ 313 $ 9,316
======== ======== ======== ======== ========
</TABLE>
-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, 1999
------------------------------------
Stanadyne Stanadyne
Automotive Corp. Subsidiary Non-Guarantor Automotive Corp.
Parent Guarantor 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.
-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 Group, which manufactures diesel fuel injection equipment
including fuel pumps, injectors and filtration systems, and 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.
Net sales in the third quarter of 2000 were 2.7% higher than the same period a
year ago and 13.1% higher through the first nine months. All of the increase
occurred in the Diesel Group segment, with sales in Precision Engine down 9.4%
for the quarter and down 6.0% for the first nine months. Diesel Group sales of
fuel pumps and filter products accounted for virtually all of the year-to-year
increase. Two OEM programs in the Diesel Group were concluded during the third
quarter of 2000, with final shipments made to General Motors for the 6.5l engine
equipped with the DS fuel pump and to Ford in Daggenham, England for the 2.5l
Transit engine equipped with RSN injectors. Strong aftermarket demand continues
for both product lines. Gross profits, already benefiting from the higher sales
volumes, were further enhanced through productivity improvement programs
completed during the second quarter of 2000 in the Washington, North Carolina
and Tallahassee, Florida facilities. Activity for the Brazilian subsidiary,
PEPL, was limited to pre-production status, with the first production shipments
to TRITEC Motors Ltda scheduled for the fourth quarter of 2000.
(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 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,
2000 1999 2000 1999
$ % $ % $ % $ %
- - - - - - - -
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales 68,179 100.0 66,381 100.0 231,825 100.0 204,892 100.0
Cost of goods sold 54,680 80.2 51,373 77.4 179,083 77.2 164,909 80.5
Gross profit 13,499 19.8 15,008 22.6 52,742 22.8 39,983 19.5
SG&A 7,760 11.4 5,797 8.7 25,038 10.8 20,340 9.9
Amortization of intangibles 1,434 2.1 1,476 2.2 4,320 1.9 4,423 2.2
Management fees 275 0.4 275 0.4 825 0.4 825 0.4
Operating income 4,030 5.9 7,460 11.2 22,559 9.7 14,395 7.0
Net income 707 1.0 4,106 6.2 8,895 3.8 3,608 1.8
</TABLE>
-18-
<PAGE> 19
STANADYNE AUTOMOTIVE CORP. AND SUBSIDIARIES
COMPARISON OF RESULTS OF OPERATIONS:
Three Months Ended September 30, 2000 Compared to Three Months Ended September
30, 1999
Net Sales. Net sales for the third quarter of 2000 totaled $68.2 million and
were 2.7% greater than the $66.4 million reported for the comparable period of
1999. This increase came from higher sales in the Diesel Group, up $2.8 million
or 5.0%, while Precision Engine sales decreased by $1.0 million or 9.4%.
Removing $3.7 million in sales recorded in the Diesel Group during the third
quarter of 1999 associated with compensation from a major customer for volumes
not purchased under a supply agreement, the demand-related quarterly sales
increase was $6.5 million or 12.4%. These higher sales in Diesel Group were
primarily traceable to increased demand for mechanical pumps and filter
products, accounting for $6.8 million of additional third quarter revenues.
Total sales of General Motors DS pumps and parts for the three months ended
September 30, 2000 were $10.0 million, with increased service demand from
General Motors for DS pumps and parts more than offsetting the reduction of OEM
shipments due to the recent conclusion of the 6.5l engine program. The third
quarter of 2000 also included $2.4 million of injector sales to Ford,
representing a reduction of $1.2 million from the prior period due to the
conclusion of the Ford 2.5l Transit Engine program in Daggenham, UK. The
quarterly decline in Precision Engine was primarily due to $1.2 million lower
sales to Chrysler associated with reduced vehicle sales.
Gross Profit. Gross profit for the third quarter of 2000 decreased to $13.5
million from $15.0 million for the same period in 1999 and decreased as a
percentage of net sales to 19.8% from 22.6%. A decrease occurred in both the
Diesel Group and Precision Engine segments. Diesel Group's gross profits as a
percentage of net sales decreased to 21.9% from 24.7%. If adjusted to remove
$3.7 million in 1999 revenue for volumes not purchased under a supply agreement,
Diesel Group's gross profits as a percentage of net sales improved in the third
quarter of 2000 to 21.9% from 19.4% in 1999. In addition to the higher earnings
on increased sales volumes in Diesel Group, gross profits in the third quarter
of 2000 continue to benefit from the profitability improvement programs
completed in late 1999 and earlier this year. Gross profits for Precision Engine
in the third quarter of 2000 were 6.9% of net sales, down from 11.8% in the
third quarter of 1999. All of this decline was due to lower earnings on reduced
sales volumes as described above.
SG&A. SG&A for the third quarter of 2000 increased to $7.8 million from $5.8
million for the comparable period in 1999, representing an increase of $2.0
million or 33.9%. The lower 1999 SG&A expense is attributable to $1.9 million in
savings in the estimates recorded in 1998 associated with the Diesel Group's
successful conclusion of the closure of its Bari, Italy location.
Amortization of Intangibles. Amortization of intangible assets decreased to $1.4
million in the third quarter of 2000 from $1.5 million in the third quarter of
1999. Goodwill amortization in both third quarters was $0.5 million.
-19-
<PAGE> 20
STANADYNE AUTOMOTIVE CORP. AND SUBSIDIARIES
Operating Income. Operating income for the third quarter of 2000 totaled $4.0
million versus $7.5 million in the third quarter of 1999, representing a
decrease of $3.5 million or 46.0%. As a percentage of net sales, operating
income decreased to 5.9% from 11.2%. If operating income for the third quarter
of 1999 was adjusted to remove both the $3.7 million in revenue and income for
product not purchased under a supply agreement and the $1.9 million Bari, Italy
plant closure savings, the result would be operating income of $1.9 million or
3.0% of net sales versus the $4.0 million or 5.9% in 2000.
Net Income. Net income in the third quarter of 2000 totaled $0.7 million versus
$4.1 million for the same period in 1999. Higher net income in 1999 was
primarily due to the $3.7 million and $1.9 million matters described above under
operating income. Net income for the third quarter of 2000 benefited from lower
interest expense due to the partial retirement of the Notes in late 1999 and
early 2000 and lower income tax expense.
Nine Months Ended September 30, 2000 Compared to Nine Months Ended September 30,
1999
Net Sales. Net sales for the first nine months of 2000 totaled $231.8 million
and were 13.1% greater than the $204.9 million reported for the same period in
1999. Higher sales in Diesel Group, up $29.3 million or 17.6%, trace to
increased demand for fuel pumps and filter products. Sales of fuel pump products
increased $23.4 million, with $10.3 million of the increase derived from General
Motors DS pump and spare part shipments. Although General Motors DS pump OEM
shipments for the 6.5l engine program ended in August and totaled $19.7 million
for the first nine months of 2000, demand for GMDS pumps for the service market
have exceeded nine months 1999 levels. Future sales of General Motors DS pumps
are expected to be less because of the conclusion of the OEM program. Sales of
filter products during the first nine months of 2000 were $8.1 million higher
than the same period in 1999 due to new OEM applications at Ford and New Holland
as well as increased aftermarket demand for filter elements. Precision Engine
sales for the first nine months of 2000 decreased by $2.3 million or 6.0% versus
the same period a year ago, due primarily to lower demand from Chrysler based on
reduced vehicle sales.
Gross Profit. Gross profit for the first nine months of 2000 increased to $52.7
million from $40.0 million for the comparable period in 1999 and increased as a
percentage of net sales to 22.8% from 19.5%. Reflective of the strong customer
demand for fuel pumps and filter products, all of this increase came from the
Diesel Group, where gross profit as a percentage of net sales was 24.3% for the
first nine months of 2000, up from 19.9% in the first nine months of 1999. In
addition to the higher earnings on increased sales volumes in Diesel Group,
gross profit in the first nine months of 2000 reflects the full benefits of the
profitability improvement programs completed during 1999 and partial benefit
from programs completed during 2000. Lower sales volumes contributed to reduced
gross profits in Precision Engine in 2000, at 14.4% of net sales for the first
nine months, down from 17.9% in the first nine months of 1999, which included a
$0.7 million savings in a liability established in 1998.
-20-
<PAGE> 21
STANADYNE AUTOMOTIVE CORP. AND SUBSIDIARIES
SG&A. SG&A for the first nine months of 2000 increased to $25.0 million from
$20.3 million for the comparable period in 1999, representing an increase of
$4.7 million or 23.1%. Approximately $1.9 million of this increase was due to
the savings recorded in 1999 associated with the Diesel Group's successful
conclusion of the closure of its Bari, Italy location. Other significant
contributors to the overall increase included $0.4 million higher accrued bonus
expenses based on higher earnings in Diesel Group, a $0.4 million increase in
PEPL startup costs in Precision Engine and $0.7 million associated with an
unsuccessful union organizing effort by the UAW at the Windsor, Connecticut
facility.
Amortization of Intangibles. Amortization of intangible assets decreased to $4.3
million in the third quarter of 2000 from $4.4 million in the third quarter of
1999. Goodwill amortization in both periods was $1.4 million.
Operating Income. Operating income for the first nine months of 2000 totaled
$22.6 million as compared to $14.4 million in the first nine months of 1999,
representing an increase of $8.2 million or 56.7%. As a percentage of net sales,
operating income increased to 9.7% from 7.0%. This significant improvement was
due to the higher gross profit reported in the Diesel Group noted above,
slightly offset by lower gross profit in Precision Engine and higher SG&A
expenses in both segments.
Net Income. Net income in the first nine months of 2000 totaled $8.9 million
versus $3.6 million in the first nine months of 1999. Net income in 2000 versus
1999 was driven by higher operating income and lower interest expense due to
partial retirement of the Notes, somewhat offset by higher income tax expense.
In addition, net income in the first nine months of 2000 includes a $1.0 million
extraordinary gain, net of taxes and unamortized debt issuance costs, on the
early retirement of $14.1 million of Notes.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of liquidity are cash flows from operations
supplemented by a revolving credit facility under which $26.6 million was
available for borrowings as of September 30, 2000. 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. Fueled by higher earnings in the Diesel
Group, cash flows from operations for the nine months ended September 30, 2000
totaled $25.9 million as compared to $19.1 million for the same period of 1999.
Cash flows from operations, other than changes in operating assets and
liabilities, in 2000 totaled $25.2 million and were $8.8 million greater than
the $16.4 million reported in 1999. Despite the higher level of business in
2000,
-21-
<PAGE> 22
STANADYNE AUTOMOTIVE CORP. AND SUBSIDIARIES
changes in operating assets and liabilities this year provided $0.7 million in
positive cash flow versus $2.7 million for the first nine months of 1999.
Cash Flows From Investing Activities. The Company's capital expenditures for the
first nine months of 2000 were $5.5 million compared to $7.8 million for the
same period of 1999. Capital expenditures for 2000 included amounts primarily
for cost reduction programs in the Diesel Group and general maintenance
projects. Expenditures in 1999 included $0.3 million in Precision Engine for the
completion of the vertical integration of the Chrysler roller-rocker product
line and $1.1 million for equipment in PEPL, cost reduction programs in the
Diesel Group and general maintenance projects to existing facilities.
Cash Flows From Financing Activities. Cash flows from financing activities for
the nine months ended September 30, 2000 resulted in a net reduction in cash of
$15.3 million. Principal payments of long-term debt totaled $12.9 million,
including an $11.5 million retirement of Notes with a face value of $14.1
million. As of September 30, 2000 there were no borrowings under the revolving
credit facility. Overdraft borrowings of Stanadyne Automotive, SpA decreased
$1.8 million. Scheduled payments of capital lease obligations totaled $0.6
million in the first nine months of 2000.
(3) 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 as amended by SFAS No.
138, by January 1, 2001, as required. The Company is currently assessing the
impact of this statement on the Company's consolidated financial statements.
(4) CAUTIONARY STATEMENT
This quarterly report contains "forward-looking statements" within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended, including, without limitation,
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
-22-
<PAGE> 23
STANADYNE AUTOMOTIVE CORP. AND SUBSIDIARIES
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. A 10% change in the interest rate on the term loans would have
increased or decreased the first nine months of 2000 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. The fair value of the Company's $76.0
million in Notes based on quoted market prices on September 30, 2000 was
approximately $66.5 million.
Foreign Currency Risk. The Company has subsidiaries in Italy and Brazil and
branch offices in France and England, and therefore is exposed to changes in
foreign currency exchange rates. Changes in exchange rates may positively or
negatively affect the Company's sales, gross margins, and retained earnings.
However, historically, these locations have contributed less than 15% of the
Company's net sales and retained earnings, with most of these sales attributable
to the Italian subsidiary. The Company also sells its products from the United
States to foreign customers for payment in foreign currencies as well as
dollars. Historically, foreign currency exchange gains and losses have been
immaterial. The Company does not hedge against foreign currency risk.
-24-
<PAGE> 25
STANADYNE AUTOMOTIVE CORP. AND SUBSIDIARIES
PART II: OTHER INFORMATION
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits:
3.1 * Amended and Restated Certificate of Incorporation of
Stanadyne Automotive Corp.
3.2 * Amended and Restated By-laws of Stanadyne Automotive Corp.
4.1 * Indenture dated as of December 11, 1997 between Stanadyne
Automotive Corp., DSD International Corp., Precision Engine
Products Corp. and United States Trust Company of New York
4.2 * Purchase Agreement dated as of December 4, 1997 among SAC
Automotive, Inc. and Donaldson, Lufkin & Jenrette
4.3 * Registration Rights Agreement dated as of December 11, 1997
by and among Stanadyne Automotive Corp. and Donaldson, Lufkin
& Jenrette
27 Financial Data Schedule
* Incorporated by reference to Registration Statement on Form S-4, File No.
333-45823, filed on February 6, 1998 and amended on March 25, 1998, April
24, 1998 and May 11, 1998.
b. No report on Form 8-K was filed during the quarter ended September 30,
2000.
-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 14, 2000 /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
4.4 * Registration Rights Agreement dated as of December 11, 1997
by and among Stanadyne Automotive Corp. and Donaldson, Lufkin
& Jenrette
27 Financial Data Schedule
* Incorporated by reference to Registration Statement on Form S-4, File
No. 333-45823, filed on February 6, 1998 and amended on March 25, 1998,
April 24, 1998 and May 11, 1998.
