<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 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)
Delaware
(State or other jurisdiction of incorporation or organization)
22-2940378
(I.R.S. Employer I.D.)
92 Deerfield Road, Windsor, Connecticut 06095-4209
(Address of principal executive offices) (zip code)
(860) 525-0821
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
The number of Common Shares of the Company, $0.01 per share par value,
outstanding as of April 30, 2000 was 1,000.
<PAGE> 2
STANADYNE AUTOMOTIVE CORP. AND SUBSIDIARIES
TABLE OF CONTENTS
Part I Financial Information
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Item 1 Financial Statements
Condensed Consolidated Balance Sheets as of March 31, 2000 (unaudited) and December 31, 1999... 3
Condensed Consolidated Statements of Operations for the three months ended March 31, 2000
and 1999 (unaudited)........................................................................... 4
Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2000 and
1999 (unaudited)............................................................................... 5
Notes to Condensed Consolidated Financial Statements........................................... 6-14
Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations.......... 15-18
Item 3 Quantitative and Qualitative Disclosures About Market Risk..................................... 19
</TABLE>
Part II Other Information
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Item 6 Exhibits and Reports on Form 8-K............................................................... 20
Signature ............................................................................................... 21
</TABLE>
- 2 -
<PAGE> 3
STANADYNE AUTOMOTIVE CORP. AND SUBSIDIARIES
PART I: FINANCIAL INFORMATION
ITEM I: FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
(UNAUDITED)
MARCH 31, DECEMBER 31,
2000 1999
---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,986 $ 4,057
Accounts receivable, net of allowance for uncollectible
accounts of $614 at March 31, 2000 and $610 at December 31, 1999 43,141 40,296
Inventories 35,944 36,582
Prepaid expenses and other current assets 1,474 1,451
Deferred income taxes 7,757 8,360
-------- --------
Total current assets 91,302 90,746
Property, plant and equipment, net 117,111 119,611
Intangible and other assets, net 88,631 91,687
Due from Stanadyne Automotive Holding Corp. 4,061 4,061
-------- --------
Total assets $301,105 $306,105
======== ========
</TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<S> <C> <C>
Current liabilities:
Accounts payable $ 24,319 $ 22,354
Accrued liabilities 29,655 27,788
Current maturities of long-term debt 5,547 5,198
Current installments of capital lease obligations 699 819
--------- ---------
Total current liabilities 60,220 56,159
Long-term debt, excluding current maturities 124,165 135,671
Deferred income taxes 5,426 5,747
Capital lease obligations, excluding current installments 405 592
Other noncurrent liabilities 45,820 46,255
--------- ---------
Total liabilities 236,036 244,424
--------- ---------
Commitments and contingencies -- --
Stockholders' equity:
Common stock -- --
Additional paid-in capital 59,858 59,858
Other accumulated comprehensive loss (3,402) (2,384)
Retained earnings 8,613 4,207
--------- ---------
Total stockholders' equity 65,069 61,681
--------- ---------
Total liabilities and stockholders' equity $ 301,105 $ 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>
3 Months 3 Months
Ended Ended
March 31, March 31,
2000 1999
---- ----
<S> <C> <C>
Net sales $ 80,728 $ 66,147
Cost of goods sold 62,126 55,458
-------- --------
Gross profit 18,602 10,689
Selling, general and administrative expenses 7,987 7,201
Amortization of intangibles 1,451 1,468
Management fees 275 275
-------- --------
Operating income 8,889 1,745
Interest, net 3,146 3,593
-------- --------
Income (loss) before income taxes and
extraordinary item 5,743 (1,848)
Income tax expense (benefit) 2,288 (875)
-------- --------
Income (loss) before extraordinary item 3,455 (973)
Extraordinary gain related to early retirement of
debt, net of tax expense of $634 951 --
-------- --------
Net income (loss) applicable to common shareholders $ 4,406 $ (973)
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
-4-
<PAGE> 5
STANADYNE AUTOMOTIVE CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
3 Months 3 Months
Ended Ended
March 31, March 31,
2000 1999
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 4,406 $ (973)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 5,367 5,155
Extraordinary gain, net of applicable income taxes (951) --
Deferred income taxes 310 (1,751)
Loss on disposal of property, plant and equipment 19 30
Changes in operating assets and liabilities 622 544
-------- --------
Net cash provided by operating activities 9,773 3,005
-------- --------
Cash flows from investing activities:
Capital expenditures (2,054) (2,529)
Proceeds from disposal of property, plant and equipment 14 56
-------- --------
Net cash used in investing activities (2,040) (2,473)
-------- --------
Cash flows from financing activities:
Net borrowings on revolving credit facility 3,701 1,196
Principal payments on long-term debt (12,212) (2,877)
Payments of capital lease obligations (260) (364)
-------- --------
Net cash used in financing activities (8,771) (2,045)
-------- --------
Cash and cash equivalents:
Net decrease in cash and cash equivalents (1,038) (1,513)
Effect of exchange rate changes on cash (33) (34)
Cash and cash equivalents at beginning of period 4,057 5,132
-------- --------
Cash and cash equivalents at end of period $ 2,986 $ 3,585
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
-5-
<PAGE> 6
STANADYNE AUTOMOTIVE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT WHERE NOTED OTHERWISE)
(1) SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation. The balance sheet as of December 31, 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
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 1999 financial statements to conform to the 2000
presentation.
(2) INVENTORIES
Components of inventory are as follows:
<TABLE>
<CAPTION>
As of As of
March 31, 2000 December 31, 1999
-------------- -----------------
<S> <C> <C> <C>
Raw materials $ 2,142 $ 1,968
Work-in-process 25,069 24,891
Finished goods 8,733 9,723
------- -------
$35,944 $36,582
======= =======
</TABLE>
(3) INCOME TAXES
The Company's effective income tax rate was 39.8% for the first three months of
2000, compared to a 47.3% benefit for the first three months of 1999. In 2000
the Company recorded $2.3 million of book tax expense on a pre-tax income of
$5.7 million and in 1999 the Company recorded $0.9 million of book tax benefit
on a pre-tax loss of $1.8 million. For both periods, the Company received
benefits from Stanadyne Automotive Foreign Sales Corp. ("FSC"). The Company
applies the annual tax rate to the quarterly earnings to provide consistent
quarterly tax rates based on the estimated effective tax rate for the year. To
the extent there are differences between 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
Between January 25, 2000 and February 2, 2000, the Company retired $14.1 million
in Senior Subordinated Notes ("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, net of tax expense.
-6-
<PAGE> 7
STANADYNE AUTOMOTIVE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT WHERE NOTED OTHERWISE)
(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.
(6) COMPREHENSIVE INCOME
The Company's comprehensive income (loss) for the three months ended March 31,
2000 and 1999 are as follows:
<TABLE>
<CAPTION>
Three Months
Ended March 31,
2000 1999
---- ----
<S> <C> <C>
Net income (loss) applicable to common shareholders $ 4,406 $ (973)
Other comprehensive loss, net of tax:
Foreign currency translation adjustments (1,018) (1,241)
------- -------
Comprehensive income (loss) $ 3,388 $(2,214)
======= =======
</TABLE>
-7-
<PAGE> 8
STANADYNE AUTOMOTIVE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT WHERE NOTED OTHERWISE)
(7) SEGMENTS
The Company has two reportable segments, the Diesel Systems Group (the "Diesel
Group") and the Precision Engine Products Corp. ("Precision Engine"). The Diesel
Group manufactures diesel fuel injection equipment including fuel pumps,
injectors and filtration systems. This segment accounted for approximately 83%
and 80% of the Company's revenues for the three months ended March 31, 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 17% and 20% of total revenues for the three months ended
March 31, 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 (gasoline versus diesel engines)
which entails different engineering and marketing efforts. There were no
inter-segment sales between the Diesel Group and Precision Engine for any of the
periods presented.
The following summarizes key information used by the Company in evaluating the
performance of each segment for the three months ended March 31, 2000 and 1999:
<TABLE>
<CAPTION>
AS OF AND FOR THE THREE MONTHS ENDED MARCH 31, 2000
DIESEL PRECISION
GROUP ENGINE ELIMINATIONS TOTALS
----- ------ ------------ ------
<S> <C> <C> <C> <C>
Net sales $ 67,390 $ 13,338 $ -- $ 80,728
Gross profit 16,436 2,166 -- 18,602
Deprecation and amortization
expense 4,457 910 -- 5,367
Operating income 5,773 3,116 -- 8,889
Net income 2,597 1,809 -- 4,406
Total assets 267,458 53,486 (19,839) 301,105
Total capital expenditures 1,961 93 -- 2,054
</TABLE>
<TABLE>
<CAPTION>
AS OF AND FOR THE THREE MONTHS ENDED MARCH 31, 1999
DIESEL PRECISION
GROUP ENGINE ELIMINATIONS TOTALS
----- ------ ------------ ------
<S> <C> <C> <C> <C>
Net sales $ 52,955 $ 13,192 $ -- $ 66,147
Gross profit 8,222 2,467 -- 10,689
Depreciation and amortization
expense 4,350 805 -- 5,155
Operating (loss) income (52) 1,797 -- 1,745
Net (loss) income (1,662) 689 -- (973)
Total assets 278,178 53,244 (15,502) 315,920
Total capital expenditures 1,776 753 -- 2,529
</TABLE>
-8-
<PAGE> 9
STANADYNE AUTOMOTIVE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT WHERE NOTED OTHERWISE)
(8) SUPPLEMENTAL COMBINING CONDENSED FINANCIAL STATEMENTS
The Notes issued 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,
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 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.
-9-
<PAGE> 10
STANADYNE AUTOMOTIVE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT WHERE NOTED OTHERWISE)
SUPPLEMENTAL COMBINING CONDENSED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
March 31, 2000
--------------
Stanadyne
Automotive Stanadyne
Corp. Subsidiary Non-Guarantor Automotive Corp.
Parent Guarantor Subsidiaries Eliminations & Subsidiaries
------ --------- ------------ ------------ --------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,337 $ 4 $ 173 $ 472 $ 2,986
Accounts receivable, net 30,258 9,069 3,814 -- 43,141
Inventories 23,982 7,627 4,716 (381) 35,944
Other current assets 6,601 1,214 1,416 -- 9,231
-------- --------- -------- -------- --------
Total current assets 63,178 17,914 10,119 91 91,302
Property, plant and equipment, net 82,370 20,825 13,916 -- 117,111
Intangible and other assets, net 60,933 13,550 14,376 (228) 88,631
Investment in subsidiaries 40,088 (448) -- (39,640)(a) --
Due from Stanadyne Automotive Holding Corp. 4,061 -- -- -- 4,061
-------- --------- -------- -------- --------
Total assets $250,630 $ 51,841 $ 38,411 $(39,777) $301,105
======== ========= ======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and
accrued liabilities $ 41,403 $ 7,226 $ 5,346 $ (1) $ 53,974
Current maturities of long-term
debt and capital lease obligations 3,626 -- 2,620 -- 6,246
--------- --------- --------- --------- ---------
Total current liabilities 45,029 7,226 7,966 (1) 60,220
Long-term debt and capital lease obligations 124,165 -- 405 -- 124,570
Other noncurrent liabilities 34,033 11,833 5,608 (228) 51,246
Intercompany accounts (21,237) 12,934 7,995 308 --
Stockholders' equity 68,640 19,848 16,437 (39,856)(a) 65,069
--------- --------- --------- --------- ---------
Total liabilities and stockholders' equity $ 250,630 $ 51,841 $ 38,411 $ (39,777) $ 301,105
========= ========= ========= ========= =========
</TABLE>
(a) Elimination of investments in subsidiaries of the Parent.
-10-
<PAGE> 11
STANADYNE AUTOMOTIVE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT WHERE NOTED OTHERWISE)
SUPPLEMENTAL COMBINING CONDENSED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
December 31, 1999
-----------------
Stanadyne Stanadyne
Automotive Non- Automotive
Corp. Subsidiary Guarantor 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.
-11-
<PAGE> 12
STANADYNE AUTOMOTIVE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT WHERE NOTED OTHERWISE)
SUPPLEMENTAL COMBINING CONDENSED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
Three Months Ended March 31, 2000
---------------------------------
Stanadyne Stanadyne
Automotive Automotive
Corp. Subsidiary Non-Guarantor Corp.
Parent Guarantor Subsidiaries Eliminations & Subsidiaries
------ --------- ------------ ------------ --------------
<S> <C> <C> <C> <C> <C>
Net sales $ 61,947 $ 13,374 $ 5,555 $ (148)(a) $ 80,728
Cost of goods sold 46,278 11,224 4,733 (109)(a) 62,126
-------- -------- -------- -------- --------
Gross profit 15,669 2,150 822 (39) 18,602
Selling, general, administrative and
other operating expenses (income) 12,966 (1,071) (2,187) 5 9,713
-------- -------- -------- -------- --------
Operating income 2,703 3,221 3,009 (44) 8,889
Interest, net 2,574 136 392 44 3,146
-------- -------- -------- -------- --------
Income (loss) before income
taxes and extraordinary item 129 3,085 2,617 (88) 5,743
Income tax expense 135 1,161 992 -- 2,288
-------- -------- -------- -------- --------
(Loss) income before
extraordinary item (6) 1,924 1,625 (88) 3,455
Extraordinary gain 951 -- -- -- 951
-------- -------- -------- -------- --------
Net income (loss) $ 945 $ 1,924 $ 1,625 $ (88) $ 4,406
======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended March 31, 1999
---------------------------------
Stanadyne Stanadyne
Automotive Automotive
Corp. Subsidiary Non-Guarantor Corp.
Parent Guarantor Subsidiaries Eliminations & Subsidiaries
------ --------- ------------ ------------ --------------
<S> <C> <C> <C> <C> <C>
Net sales $ 46,736 $ 13,192 $ 6,457 $ (238)(a) $ 66,147
Cost of goods sold 38,368 10,725 6,576 (211)(a) 55,458
-------- -------- -------- -------- --------
Gross profit (loss) 8,368 2,467 (119) (27) 10,689
Selling, general, administrative and
other operating expenses (income) 8,503 670 (130) (99) 8,944
-------- -------- -------- -------- --------
Operating (loss) income (135) 1,797 11 72 1,745
Interest, net 2,744 364 485 -- 3,593
-------- -------- -------- -------- --------
(Loss) income before income taxes (2,879) 1,433 (474) 72 (1,848)
Income tax (benefit) expense (1,395) 744 (224) -- (875)
-------- -------- -------- -------- --------
Net (loss) income $ (1,484) $ 689 $ (250) $ 72 $ (973)
======== ======== ======== ======== ========
</TABLE>
(a) Elimination of intercompany sales and cost of sales from Stanadyne
Automotive, SpA to Parent.
-12-
<PAGE> 13
STANADYNE AUTOMOTIVE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT WHERE NOTED OTHERWISE)
SUPPLEMENTAL COMBINING CONDENSED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
Three Months Ended March 31, 2000
---------------------------------
Stanadyne Stanadyne
Automotive Automotive
Corp. Subsidiary Non-Guarantor Corp.
Parent Guarantor Subsidiaries Eliminations & Subsidiaries
------ --------- ------------ ------------ --------------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 945 $ 1,924 $ 1,625 $ (88) $ 4,406
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization 4,106 904 357 -- 5,367
Extraordinary gain (951) -- -- -- (951)
Other adjustments 82 (242) 489 -- 329
Changes in operating assets and
liabilities 4,592 (2,514) (1,953) 497 622
------- ------- ------- ------- -------
Net cash provided by operating
activities 8,774 72 518 409 9,773
------- ------- ------- ------- -------
Cash flows from investing activities:
Capital expenditures (1,869) (70) (115) -- (2,054)
Proceeds from disposal of property,
plant and equipment 14 -- -- -- 14
------- ------- ------- ------- -------
Net cash used in investing
activities (1,855) (70) (115) -- (2,040)
------- ------- ------- ------- -------
Cash flows from financing activities:
Net change in debt (8,341) -- (430) -- (8,771)
------- ------- ------- ------- -------
Net cash used in financing
activities (8,341) -- (430) -- (8,771)
------- ------- ------- ------- -------
Net (decrease) increase in cash and
cash equivalents (1,422) 2 (27) 409 (1,038)
Effect of exchange rate changes on cash (1) -- 16 (48) (33)
Cash and cash equivalents at
beginning of period 3,760 2 184 111 4,057
------- ------- ------- ------- -------
Cash and cash equivalents at
end of period $ 2,337 $ 4 $ 173 $ 472 $ 2,986
======= ======= ======= ======= =======
</TABLE>
-13-
<PAGE> 14
STANADYNE AUTOMOTIVE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT WHERE NOTED OTHERWISE)
SUPPLEMENTAL COMBINING CONDENSED FINANCIAL STATEMENTS (CONCLUDED)
<TABLE>
<CAPTION>
Three Months Ended March 31, 1999
---------------------------------
Stanadyne Stanadyne
Automotive Automotive
Corp. Subsidiary Non-Guarantor Corp.
Parent Guarantor Subsidiaries Eliminations & Subsidiaries
------ --------- ------------ ------------ --------------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net (loss) income $(1,484) $ 689 $ (250) $ 72 $ (973)
Adjustments to reconcile net (loss)
income to net cash provided by
(used in) operating activities:
Depreciation and amortization 3,905 805 445 -- 5,155
Other adjustments (1,258) (67) (396) -- (1,721)
Changes in operating assets and
liabilities 5,732 (674) (508) (4,006)(a) 544
------- ------- ------- ------- -------
Net cash provided by (used in)
operating activities 6,895 753 (709) (3,934) 3,005
------- ------- ------- ------- -------
Cash flows from investing activities:
Capital expenditures (1,474) (753) (302) -- (2,529)
Proceeds from disposal of property,
plant and equipment 56 -- -- -- 56
Investment in subsidiary (3,963) -- -- 3,963(a) --
------- ------- ------- ------- -------
Net cash (used in) provided by
investing activities (5,381) (753) (302) 3,963 (2,473)
------- ------- ------- ------- -------
Cash flows from financing activities:
Net change in debt (3,056) -- 1,011 -- (2,045)
------- ------- ------- ------- -------
Net cash (used in) provided by
financing activities (3,056) -- 1,011 -- (2,045)
------- ------- ------- ------- -------
Net (decrease) increase in cash and
cash equivalents (1,542) -- -- 29 (1,513)
Effect of exchange rate changes on cash (3) -- -- (31) (34)
Cash and cash equivalents at
beginning of period 4,859 5 5 263 5,132
------- ------- ------- ------- -------
Cash and cash equivalents at
end of period $ 3,314 $ 5 $ 5 $ 261 $ 3,585
======= ======= ======= ======= =======
</TABLE>
(a) Elimination of investment in SpA.
-14-
<PAGE> 15
STANADYNE AUTOMOTIVE CORP. AND SUBSIDIARIES
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(1) OVERVIEW
The Company is a leading designer and manufacturer of highly-engineered,
precision manufactured engine components. The Company's two reporting segments
are the Diesel Systems Group ("Diesel Group"), which manufactures diesel fuel
injection equipment including fuel pumps, injectors and filtration systems and
Precision Engine Products Corp. ("Precision Engine") which manufactures
roller-rocker arms, hydraulic valve lifters and lash adjusters for gasoline
engines. Detailed segment information can be found in Note 7 of Notes to
Condensed Consolidated Financial Statements.
Revenues for the first quarter of 2000 were 22% higher than the same period of
1999. Increased customer demand for pump and filter products produced by the
Diesel Group accounted for substantially all of the difference, with first
quarter sales for Precision Engine relatively unchanged. Gross profits improved
with the higher sales volumes and reflect the mature savings from the
profitability improvement programs completed in 1999. New productivity
improvement programs were launched during the first quarter of 2000 in the
Washington, North Carolina and Tallahassee, Florida facilities. Pre-production
activity for the Brazilian subsidiary, PEPL, continued on schedule but a delay
by Tritec Motors, LTDA has postponed the first production shipments from the
original July, 2000 time frame to the fourth quarter. Strong first quarter
results allowed the early retirement of $14.1 million of Notes, which resulted
in an extraordinary gain of $1.0 million net of taxes.
(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 March 31,
----------------------------
2000 1999
---- ----
$ % $ %
------ ----- ------ -----
<S> <C> <C> <C> <C>
Net sales..................................................... 80,728 100.0 66,147 100.0
Cost of goods sold........................................ 62,126 77.0 55,458 83.8
Gross profit.................................................. 18,602 23.0 10,689 16.2
SG&A......................................................... 7,987 9.9 7,201 10.9
Amortization of intangibles.............................. 1,451 1.8 1,468 2.2
Management fees.......................................... 275 0.3 275 0.4
Operating income.......................................... 8,889 11.0 1,745 2.6
Net income (loss).......................................... 4,406 5.5 (973) (1.5)
</TABLE>
-15-
<PAGE> 16
STANADYNE AUTOMOTIVE CORP. AND SUBSIDIARIES
COMPARISON OF RESULTS OF OPERATIONS:
Three Months Ended March 31, 2000 Compared to Three Months Ended March 31, 1999
Net Sales. Net sales for the first quarter of 2000 totaled $80.7 million and
were 22.0% greater than the $66.1 million reported for the comparable period in
1999. This increase came primarily from higher sales in the Diesel Group, up
$14.4 million or 27.3%, while Precision Engine sales increased by only $0.2
million or 1.1%. Higher sales in Diesel Group trace to increased demand for fuel
pumps and filter products. Sales to fuel pump customers increased $13.6 million
in comparison to the unusually low demand experienced in the first quarter of
1999. Although additional demand from General Motors for DS pumps and parts
accounted for $9.4 million of the increase, the customer is proceeding with
preparations for the discontinuance of the 6.5l engine program which will result
in lower DS product sales later this year.
Gross Profit. Gross profit for the first quarter of 2000 increased to $18.6
million from $10.7 million for the same period in 1999 and increased as a
percentage of net sales to 23.0% from 16.2%. All of the increase came from the
Diesel Group, where gross profits as a percentage of net sales were 24.4% for
the first quarter of 2000, up from 15.5% in the first quarter of 1999. In
addition to the higher earnings on increased sales volumes in Diesel Group,
gross profit in the first quarter of 2000 reflects the full benefits of the
profitability improvement programs completed during 1999. Gross profits for
Precision Engine were slightly less in 2000, at 16.2% of net sales for the first
quarter, down from 18.7% in the first quarter of 1999 which included a $0.7
million savings in a liability established in 1998.
SG&A. SG&A for the first quarter of 2000 increased to $8.0 million from $7.2
million for the comparable period in 1999, representing an increase of $0.8
million or 10.9%. The higher 2000 SG&A expense is traceable to accrued bonus
expenses based on higher earnings in Diesel Group and $0.2 million of PEPL
startup costs in Precision Engine.
Amortization of Intangibles. Amortization of intangible assets was $1.5 million
in the first quarter of both 2000 and 1999. Goodwill amortization in both first
quarters was $0.5 million.
Operating Income. Operating income for the first quarter of 2000 increased to
$8.9 million from $1.7 million in the first quarter of 1999, representing an
increase of $7.2 million or 409.4%. As a percentage of net sales, operating
income increased to 11.0% from 2.6%. This significant improvement was due to the
higher gross profit reported in the Diesel Group noted above, slightly offset by
higher SG&A expenses in both segments.
Net Income. Net income of $4.4 million in the first quarter of 2000 compared
very favorably to the net loss of $1.0 million in the first quarter of 1999. In
addition to the improved operating income, net income in the first quarter of
2000 reflects a $1.0 million extraordinary gain, net of taxes, on the early
retirement of $14.1 million of Notes.
-16-
<PAGE> 17
STANADYNE AUTOMOTIVE CORP. AND SUBSIDIARIES
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of liquidity are cash flows from operations
supplemented by borrowings under a revolving credit facility. The Company
occasionally utilizes capital leasing and, for its Italian subsidiary Stanadyne
Automotive, SpA, maintains overdraft facilities with local financial
institutions.
Cash Flows From Operating Activities. Cash flows from operations for the three
months ended March 31, 2000 and March 31, 1999 were $9.8 million and $3.0
million, respectively. Improved cash flows in 2000 were primarily the result of
higher earnings and $0.6 million positive cash flow from changes in operating
assets and liabilities. Cash flows provided by operations for the first three
months of 1999 included lower earnings and a reduction in operating assets and
liabilities totaling $0.5 million.
Cash Flows From Investing Activities. The Company's capital expenditures for the
first three months of 2000 were $2.1 million compared to $2.5 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 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 to existing facilities.
Cash Flows From Financing Activities. Cash flows from financing activities for
the first three months ended March 31, 2000 resulted in a net reduction in cash
of $8.8 million. Principal payments of long-term debt totaled $12.5 million,
including an $11.5 million retirement of Notes with a face value of $14.1
million. As of March 31, 2000 borrowings under the revolving credit facility
were $4.0 million. Overdraft borrowings of Stanadyne Automotive, SpA decreased
$0.3 million. Scheduled payments of capital lease obligations totaled $0.2
million in the first three months of 2000.
-17-
<PAGE> 18
STANADYNE AUTOMOTIVE CORP. AND SUBSIDIARIES
(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 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 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.
-18-
<PAGE> 19
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 three months of 2000 interest expense by $0.1
million. The 10-1/4% Notes bear interest at a fixed rate and, therefore, are not
sensitive to interest rate fluctuation. The fair value of the Company's $76.0
million in Notes based on quoted market prices on March 31, 2000 was
approximately $61.9 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.
-19-
<PAGE> 20
STANADYNE AUTOMOTIVE CORP. AND SUBSIDIARIES
PART II: OTHER INFORMATION
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits:
10.1.4 Consent Regarding Repurchase of Senior Subordinated
Notes dated January 24, 2000
27 Financial Data Schedule
b. No report on Form 8-K was filed during the quarter ended March
31, 2000.
-20-
<PAGE> 21
STANADYNE AUTOMOTIVE CORP. AND SUBSIDIARIES
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Stanadyne Automotive Corp.
--------------------------
(Registrant)
Date: May 9, 2000 /s/ Michael H. Boyer
--------------------------
Michael H. Boyer
Vice President and
Chief Financial Officer
-21-
<PAGE> 22
EXHIBIT INDEX:
10.1.4 Consent Regarding Repurchase of Senior Subordinated
Notes dated January 24, 2000
27 Financial Data Schedule
<PAGE> 23
EXHIBIT 10.1.4
CONSENT REGARDING REPURCHASE OF SENIOR SUBORDINATED NOTES
January 24, 2000
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, NA (successor to The First National Bank of Chicago), as
Administrative Agent for Lenders, and DLJ Capital Funding, Inc., as Syndication
Agent for Lenders.
On or prior to October 8, 1999, Company repurchased $10,0
million face amount of its Senior Subordinated Notes pursuant to a consent dated
September 24, 1999 signed by Requisite Lenders. Company has informed Agents and
Lenders that it desires to repurchase from time to time up an additional $20.0
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 $20.0 million face amount of the Senior Subordinated Notes shall be
repurchased by Company and its Subsidiaries (such amount shall not include the
$10.0 million face amount of its Senior Subordinated Notes previously
repurchased by the Company); (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 June 30, 2001; (4) immediately after
repurchase of any of the Senior Subordinated Notes and after giving effect
thereto the lesser of (i) the aggregate amount of the Revolving Loan Commitments
and (ii) the then applicable Borrowing Base exceeds the Total Utilization of
Revolving Loan Commitments by at least $20.0 million; and (5) immediately after
the repurchase of any of the Senior Subordinated Notes 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
<PAGE> 24
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
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 January 24, 2000, 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> 25
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/ Dana F. Klein
Dana F. Klein
Vice President
BANK ONE, NA (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/ David C. Sagers
David C. Sagers
Vice President
<PAGE> 26
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/ Thomas R. Brady
Thomas R. Brady
Vice President
By: /s/ John W. Sweeney
John W. Sweeney
Vice President
NATIONAL CITY BANK
By:
PEOPLE'S BANK
By: /s/ Michael T. Schweighoffer
Michael T. Schweighoffer
Vice President
SENIOR DEBT PORTFOLIO
BY: BOSTON MANAGEMENT AND RESEARCH, as
Investment Advisor
By: /s/ Payson F. Swaffield
Payson F. Swaffield
Vice President
<PAGE> 27
SUMMIT BANK
By: /s/ Christopher P. Kleczkowski
Christopher P. Kleczkowski
Vice President
THE BANK OF NEW YORK
By: /s/ Melinda White
Melinda White
Vice President
VAN KAMPEN CLO I, LIMITED
BY: VAN KAMPEN MANAGEMENT INC. as
Collateral Manager
By: /s/ Darvin D. Pierce
Darvin D. Pierce
Vice President
<PAGE> 28
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
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 MARCH 31, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM
10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 2,986
<SECURITIES> 0
<RECEIVABLES> 43,755
<ALLOWANCES> 614
<INVENTORY> 35,944
<CURRENT-ASSETS> 91,302
<PP&E> 149,998
<DEPRECIATION> 32,887
<TOTAL-ASSETS> 301,105
<CURRENT-LIABILITIES> 60,220
<BONDS> 124,570
0
0
<COMMON> 0
<OTHER-SE> 65,069
<TOTAL-LIABILITY-AND-EQUITY> 301,105
<SALES> 80,728
<TOTAL-REVENUES> 80,728
<CGS> 62,126
<TOTAL-COSTS> 71,839
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,168
<INCOME-PRETAX> 5,743
<INCOME-TAX> 2,288
<INCOME-CONTINUING> 3,455
<DISCONTINUED> 0
<EXTRAORDINARY> 951
<CHANGES> 0
<NET-INCOME> 4,406
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
