<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C., 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
Commission File Number 333-45823
STANADYNE AUTOMOTIVE CORP.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Delaware 22-2940378
(State or Other Jurisdiction of Incorporation or Organization) (I.R.S. Employer Identification No.)
92 Deerfield Road, Windsor, Connecticut 06095-4209
(Address of Principal Executive Offices) (Zip Code)
</TABLE>
Registrant's telephone number including area code (860) 525-0821
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
None
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
As of December 31, 1999, there was no established public trading market for the
shares of the Registrant's common stock and no shares of common stock were held
by non-affiliates of the Registrant.
The number of Common Shares of the Company, $0.01 per share par value,
outstanding as of March 1, 2000 was 1,000.
DOCUMENTS INCORPORATED BY REFERENCE - None
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STANADYNE AUTOMOTIVE CORP.
FORM 10-K
TABLE OF CONTENTS
<TABLE>
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PAGE
<S> <C> <C>
PART I:
ITEM 1. Business............................................................. 3
ITEM 2. Properties........................................................... 9
ITEM 3. Legal Proceedings.................................................... 9
ITEM 4. Submission of Matters to a Vote of Security Holders.................. 9
PART II:
ITEM 5. Market for the Registrant's Common Equity and Related Stockholder
Matters.............................................................. 10
ITEM 6. Selected Financial Data.............................................. 10
ITEM 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................ 11
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk........... 15
ITEM 8. Financial Statements and Supplementary Data.......................... 17
ITEM 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure............................................. 18
PART III:
ITEM 10. Directors and Executive Officers of the Registrant................... 19
ITEM 11. Executive Compensation............................................... 21
ITEM 12. Security Ownership of Certain Beneficial Owners and Management....... 25
ITEM 13. Certain Relationships and Related Transactions....................... 27
PART IV:
ITEM 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K..... 28
Signatures ..................................................................... 30
</TABLE>
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PART I
ITEM 1. BUSINESS
GENERAL
Stanadyne Automotive Corp. (the "Company") is a designer and manufacturer of
highly engineered, precision manufactured engine components, including fuel
injection equipment for diesel engines and hydraulic lash compensating devices
primarily for gasoline engines (the latter commonly known, and referred to
hereafter, as "hydraulic valve lifters"). The Company sells engine components to
original equipment manufacturers ("OEMs") in a variety of applications,
including automobiles, light duty trucks, agricultural and construction vehicles
and equipment, industrial products and marine equipment. The Company also sells
replacement units and parts through its aftermarket distribution network. The
Company conducts its business through two principal operating segments: the
Diesel Group, which accounted for 82% of the Company's 1999 net sales, and
Precision Engine Products Corp. ("Precision Engine"), a wholly-owned subsidiary,
which accounted for 18% of the Company's 1999 net sales. Additional segment
information can be found in Notes 20 and 21 of Notes to Consolidated Financial
Statements contained in Item 8 of this Report.
The Company is a wholly-owned subsidiary of Stanadyne Automotive Holding Corp.
("Holdings"). The Company and Holdings were formed by American Industrial
Partners Capital Fund II, L.P. ("AIP") upon the purchase of Stanadyne Automotive
Corp. and Subsidiaries (the "Predecessor") from Metromedia Company (the
"Sellers") on December 11, 1997 (the "Acquisition").
THE DIESEL GROUP
The Diesel Group is one of only four independent worldwide manufacturers selling
to the geographic areas in which the Company competes. Net sales for the Diesel
Group were $231.0 million, $256.6 million and $216.6 million for 1999, 1998 and
1997, respectively. Operating income for the Diesel Group was $15.4 million,
$12.7 million and $8.3 million for 1999, 1998 and 1997, respectively. Total
assets of the Diesel Group were $270.5 million, $283.7 million and $282.7
million at December 31, 1999, 1998 and 1997, respectively.
PRODUCTS
The Diesel Group produces fuel injection equipment for diesel engines of up to
250 horsepower, an engine range comprising approximately 90% of all diesel
engines produced worldwide. The Diesel Group sells its fuel injection products
to its customers on an individual component basis or by complete line with
primary focus on the off highway agricultural and industrial segment of the
market. Fuel pumps and injectors, the Diesel Group's primary products, are the
most highly engineered, precision manufactured components on a diesel engine and
comprise the core components of a diesel engine's fuel system. Because fuel
system components are so elemental to the proper functioning and optimal
performance of a diesel engine, they are essentially custom engineered for a
specific engine platform. As a result, the Company typically supplies these
components on a sole source basis for the life of engine platforms. The Diesel
Group also manufactures diesel fuel filters, fuel heaters and water separators
and distributes diesel fuel conditioners, stabilizers and diesel engine
diagnostic equipment.
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CUSTOMERS
The Diesel Group's primary customers are OEMs of diesel engines. The Diesel
Group's four largest customers, Deere & Company ("Deere"), General Motors
Corporation ("GM"), Ford Motor Company ("Ford") and Perkins Engines Company
Limited, accounted for approximately $144.3 million, or approximately 62.5% of
the Diesel Group's net sales. The Diesel Group had two customers that accounted
for more than 10% of 1999 net sales: Deere accounted for 24.8% and GM accounted
for 19.6% of the Diesel Group's 1999 net sales.
To support the servicing of the engine and the Diesel Group's products, the
Diesel Group sells aftermarket units and parts to the service organizations of
its OEM customers and through its own global network of authorized distributors
and dealers.
PLANT CLOSING
On September 9, 1998, the Company announced the closure of its manufacturing
facility in Bari, Italy. The Bari plant was part of a wholly-owned subsidiary,
Stanadyne Automotive, SpA ("SpA"), which is headquartered in Brescia, Italy.
This action was taken because of continuing financial losses at Bari resulting
from worldwide excess manufacturing capacity for the types of diesel fuel
injectors produced there. The cost of closing the operation resulted in a charge
to 1998 earnings of $4.2 million. The Company favorably concluded the major cost
elements of the plant closure in the third quarter of 1999 and as a result
recorded a $1.9 million savings, primarily as a result of lower severance costs,
to the reserve established in 1998.
PRECISION ENGINE
Precision Engine is a major independent (non-captive) manufacturer of hydraulic
valve lifters primarily for gasoline engines. Net sales for Precision Engine
were $50.5 million, $50.5 million and $56.7 million for 1999, 1998 and 1997,
respectively. Operating income for Precision Engine was $6.5 million, $2.3
million and $4.0 million for 1999, 1998 and 1997, respectively. Total assets of
Precision Engine were $53.6 million, $58.0 million and $56.5 million at December
31, 1999, 1998 and 1997, respectively.
PRODUCTS
Precision Engine designs and manufactures four types of hydraulic valve lifters:
roller rocker arm assemblies, lash adjusters, roller valve lifters and slipper
valve lifters. These products convert the rotary motion of a camshaft into a
reciprocating motion and allow for the adjustment of lash (clearance) as valves
are opened and closed in the cylinder head of an engine. Roller rocker arms
accounted for 68.9% of Precision Engine's 1999 net sales.
CUSTOMERS
Precision Engine's primary customers are OEMs. DaimlerChrysler Corp. ("DC") and
Ford accounted for 67.6% and 13.7%, respectively, of Precision Engine's 1999 net
sales. Precision Engine also sells to several companies for distribution into
the aftermarket.
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BRAZIL BUSINESS STATUS
Precision Engine was selected in 1997 as the sole supplier of roller rocker arm
assemblies for use on an engine to be manufactured in Brazil by Tritec Motors
LTDA. ("Tritec"), a Brazilian joint venture company formed by DC and BMW AG. To
support this new business opportunity, Precision Engine established a new
subsidiary in Brazil, Precision Engine Products LTDA. ("PEPL"), on October 16,
1998. PEPL is wholly-owned by Precision Engine (except for a fraction of 1%
which is owned by the Company). This new limited liability company will
manufacture, assemble and test roller rocker arm assemblies for supply to
Tritec. Investment in PEPL began in the first quarter of 1999. Initial pilot
production at PEPL began in the second half of 1999 and production is expected
to begin in the third quarter of 2000.
COMPETITION
Because of the technical expertise required to design and manufacture the
Company's products to the tolerances required, the existence of longstanding
supply relationships in the engine component business and the significant
capital expenditures and lead time required to enter the business, there are a
limited number of manufacturers selling to the global markets in which the
Company operates. The Company competes on the basis of technological innovation,
product quality, processing and manufacturing capabilities, service support and
price.
The main competitors of the Diesel Group are Robert Bosch GmbH, Delphi
Automotive Systems ("Delphi") and Denso (formerly Nippondenso of Japan). In
1999, several acquisitions occurred within the diesel fuel injection industry.
Robert Bosch GmbH, the largest fuel injection manufacturer, acquired the
controlling share of ownership in Zexel of Japan. Also, Delphi entered the
diesel market through the purchase of Lucas Diesel Systems from TRW Inc., which
had earlier in the year purchased Lucas from LucasVarity.
The main competitors of Precision Engine are INA Walzlager Schaeffler KG, Eaton
Corporation, Delphi and in the aftermarket, WA Thomas (formerly the Hylift
division of SPX Corporation).
RAW MATERIALS AND COMPONENT PARTS
The Company's products are made largely of specially designed metal parts, most
of which are designed, purchased, cast or stamped and machined by the Company to
its own technical specifications. Metallic raw materials such as steel,
aluminum, copper and brass are commodity items readily available from a number
of suppliers. Certain parts, such as electronic components, are made to the
Company's specifications. Other parts such as fasteners, are purchased by the
Company from outside suppliers as standardized parts or are made to the
Company's specifications. Although from time to time the Company has experienced
temporary supply shortages due to localized conditions, no such shortage has
materially adversely affected the Company.
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PATENTS AND TRADEMARKS
The Company relies upon patent, trademark and copyright protection as well as
upon unpatented technological know-how and other trade secrets for certain
products, components, processes and applications. However, the Company's
operations are not dependent upon any single or related group of patents,
copyrights or trademarks or their duration. The Company considers its
proprietary information important, especially in the maintenance of its
competitive position in the aftermarket business, and takes actions to protect
its intellectual property rights.
EMPLOYEES
At December 31, 1999, the Company employed 2,207 persons of whom approximately
27% were salaried and 73% were hourly employees. All of the Company's employees
are non-unionized with the exception of those in SpA. The Company believes its
relations with its employees are good.
TECHNOLOGY, RESEARCH AND DEVELOPMENT
Engine manufacturers are required to continually improve engine performance and
fuel economy. Accordingly, the Company's research and development investment is
significant. In general, the Company funds its own research and development
expenses, although during the pre-production program phase some of those
expenses may be customer-funded. Research and development costs incurred for
1999, 1998 and 1997 were $9.1 million, $10.3 million and $9.9 million,
respectively, of which $0.6 million, $0.7 million, and $1.6 million,
respectively, were reimbursed by customers. The Diesel Group accounts for over
95% of these amounts.
Once an OEM commits to purchasing a product from the Company, usually one to
three years into the development or application process, the Company may need to
allocate capital for the machinery, equipment and tooling necessary for engine
program launch, ramp-up and product volume increases. Furthermore, given the
significant existing capital investment in plant and equipment already made by
the Company, the Company has on-going programs to maintain, upgrade and replace
its investments. In 1999, 1998 and 1997, the Company spent $11.5 million, $14.4
million and $13.5 million, respectively, on capital investments.
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FINANCIAL INFORMATION ABOUT INTERNATIONAL AND DOMESTIC OPERATIONS AND EXPORT
SALES
The Company has manufacturing operations in the United States, Italy and Brazil.
The products manufactured at all locations are sold within their respective
domestic markets, as well as exported throughout the world. These products are
sold to both OEM and aftermarket customers.
The sales to OEM and aftermarket customers during 1999, 1998 and 1997 were as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
(dollars in millions)
<S> <C> <C> <C>
Original Equipment:
Diesel Group $ 153.7 $ 159.4 $ 135.5
Precision Engine 45.0 44.8 49.4
Aftermarket:
Diesel Group 77.4 97.2 81.1
Precision Engine 5.5 5.7 7.3
-------- -------- --------
Total Net Sales $ 281.6 $ 307.1 $ 273.3
======== ======== ========
</TABLE>
Detailed results of operations and assets by geographic area for the years ended
December 31, 1999, 1998 and 1997 appear below and appear in Note 21 of Notes to
Consolidated Financial Statements contained in Item 8 of this Report.
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
(dollars in millions)
<S> <C> <C> <C>
Net Sales:
United States $ 168.5 $ 195.6 $ 183.6
England 43.5 51.0 40.4
All Other Geographic Areas 69.6 60.5 49.3
-------- -------- --------
Total Net Sales $ 281.6 $ 307.1 $ 273.3
======== ======== ========
Operating Income (Loss):
United States $ 19.3 $ 21.7 $ 12.5
Italy 3.0 (6.7) (.2)
Brazil (.4) -- --
-------- -------- --------
Total Operating Income $ 21.9 $ 15.0 $ 12.3
======== ======== ========
Identifiable Assets:
United States $ 264.9 $ 271.4 $ 273.9
Italy 40.1 50.5 47.4
Brazil 1.1 -- --
-------- -------- --------
Total Identifiable Assets $ 306.1 $ 321.9 $ 321.3
======== ======== ========
</TABLE>
The Company's worldwide operations are subject to the risks normally associated
with foreign operations, including but not limited to, the disruption of
markets, changes in export or import laws, labor unrest, political instability,
restrictions on transfers of funds, unexpected changes in regulatory
environments, difficulty in obtaining distribution and support, and potentially
adverse tax consequences. In addition, even though the Company generally
matches, to the extent possible, related costs and revenues in a single
currency, and generally includes exchange rate protections in its sales
contracts, the U.S. dollar value of the Company's foreign sales varies with
foreign currency
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exchange rate fluctuations. There can be no assurance that any of the foregoing
factors will not have a material adverse effect on the Company.
ENVIRONMENTAL MATTERS
The Company's facilities are subject to federal, state and local environmental
requirements, including those governing discharges to the air and water, the
handling and disposal of industrial and hazardous wastes, and the remediation of
contamination associated with releases of hazardous substances. The Company's
manufacturing operations involve the use of hazardous substances and, as is the
case with manufacturers in general, if a release of hazardous substances occurs
or has occurred on or from the Company's facilities, the Company may be held
liable and may be required to pay the cost of remedying the condition. The
amount of any such liability could be material. Pursuant to the terms of the
Acquisition, the Sellers have agreed to conduct and complete remediation of soil
and groundwater contamination at the Company's Windsor, CT and Jacksonville, NC
facilities. Although the Sellers have agreed to complete these remediations and
have indemnified the Company with respect to these matters and certain other
environmental matters, there can be no assurance that the Sellers will have the
ability to completely fulfill their obligations to indemnify the Company for
such matters. If the Sellers are unable to fulfill their obligations, the
Company will be responsible for such matters and the cost could be material.
Estimates of the cost at the time of the Acquisition for the remediations to be
completed by the Sellers at the Windsor, CT and Jacksonville, NC facilities were
$1.7 million and $0.3 million, respectively. Additional information can be found
in Note 19 of Notes to Consolidated Financial Statements contained in Item 8 of
this Report.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This annual report contains certain forward-looking statements with respect to
the financial condition, results of operations and business of the Company,
including financial statements, notes to financial statements 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 actual results may 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.
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ITEM 2. PROPERTIES
The Company's executive offices are located in Windsor, Connecticut. The Company
believes that substantially all of its properties and equipment are in good
condition, and that it has sufficient capacity to meet its current and projected
manufacturing and distribution needs.
Below is a summary of the existing facilities:
<TABLE>
<CAPTION>
Square Type of
Location Footage Interest Description of Use
-------- ------- -------- ------------------
<S> <C> <C> <C>
DIESEL GROUP:
Windsor, CT 571,000 Owned Corporate Offices, Diesel Group Headquarters, Sales and
Marketing, Engineering Center, Manufacturing
Jacksonville, NC 110,000 Owned Manufacturing, Distribution
Washington, NC 177,000 Owned Manufacturing
Trappes, France 23,000 Leased Engineering, Sales
Huntingdon, England 3,000 Leased Engineering, Sales
Brescia, Italy 175,000 Owned SpA Headquarters, Engineering, Sales, Manufacturing
PRECISION ENGINE:
Windsor, CT 119,000 Owned Manufacturing
Tallahassee, FL 125,000 Owned Precision Engine Headquarters, Manufacturing, Engineering
Elmhurst, IL 1,100 Leased Sales
Curitiba, Brazil 10,000 Leased Manufacturing
</TABLE>
ITEM 3. LEGAL PROCEEDINGS
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 materially adverse effect on the Company's financial position or
results of operations.
The Company is subject to potential environmental liability and various claims
and legal actions, which are pending or may be asserted against the Company
concerning environmental matters. 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 materially adverse effects on the results of
operations, financial position or cash flows of the Company. In conjunction with
the Acquisition of the Company from the Sellers on December 10, 1997, the
Sellers agreed to partially indemnify the Company and AIP relating to certain
environmental matters. See "Environmental Matters" in Item 1 of this report.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of 1999.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
As of March 1, 2000, Holdings was the holder of record of all the shares of
common stock, par value, $.01 per share (the "Common Stock"), of the Company.
There is no established trading market for the Common Stock. The Company has
never paid or declared a cash dividend on the Common Stock. Furthermore, the
Company is restricted from paying dividends under the covenants of its revolving
credit and term loan agreements.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected consolidated historical financial and
operating data of the Company and its subsidiaries for the years ended 1999 and
1998, the 21 day period ended December 31, 1997, the 344 day period ended
December 10, 1997 and the years ended December 31, 1996 and 1995. All data prior
to December 11, 1997 was taken from the consolidated financial statements of the
Predecessor and represents the results of operations of the Predecessor through
the date of the Acquisition. The selected consolidated financial data for the
years ended December 31, 1999 and 1998 and the 21 day period ended December 31,
1997 were derived from the consolidated financial statements of the Company and
represent the results of operations of the Company subsequent to the
Acquisition. The data presented below should be read in conjunction with the
consolidated financial statements and the related footnotes and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
Company Predecessor
----------------------------------- ------------------------------------
21 Days 344 Days
Year Ended Year Ended Ended Ended Year Ended Year Ended
December December December December December December
31, 31, 31, 10, 31, 31,
1999 1998 1997 1997 1996 1995
---------- ---------- --------- --------- ---------- ----------
Statements of Operations Data: (dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Net sales $ 281,580 $ 307,053 $ 14,154 $ 259,144 $ 275,639 $ 272,145
Cost of goods sold (a) 224,204 251,730 11,418 219,642 234,756 235,645
--------- --------- --------- --------- --------- ---------
Gross profit 57,376 55,323 2,736 39,502 40,883 36,500
Selling, general and
administrative expenses (a) 35,516 40,291 1,845 28,098 30,976 31,740
--------- --------- --------- --------- --------- ---------
Operating income 21,860 15,032 891 11,404 9,907 4,760
Interest expense, net (13,576) (15,138) (880) (6,673) (8,259) (9,292)
--------- --------- --------- --------- --------- ---------
Income (loss) before income
taxes, extraordinary item and
cumulative effect of change
in accounting principle 8,284 (106) 11 4,731 1,648 (4,532)
Income tax expense (benefit) 3,128 1,581 23 1,789 376 (1,297)
--------- --------- --------- --------- --------- ---------
Income (loss) before
extraordinary item and
cumulative effect of change
in accounting principle 5,156 (1,687) (12) 2,942 1,272 (3,235)
Extraordinary item (b) 750 -- -- -- -- (1,711)
Effect of change in accounting
principle (c) -- -- -- -- 4,330 --
--------- --------- --------- --------- --------- ---------
Net income (loss) 5,906 (1,687) (12) 2,942 5,602 (4,946)
Preferred dividend requirement -- -- -- (450) (600) (600)
--------- --------- --------- --------- --------- ---------
Net income (loss) applicable to
common shareholders $ 5,906 $ (1,687) $ (12) $ 2,492 $ 5,002 $ (5,546)
========= ========= ========= ========= ========= =========
Balance Sheet Data (at year end):
Fixed assets, net of
accumulated depreciation $ 119,611 $ 125,966 $ 124,443 $ -- $ 96,116 $ 103,202
Total assets 306,105 321,916 321,310 -- 194,917 219,417
Long-term debt (including 142,280 160,486 161,152 -- 85,912 112,199
current portion)
Stockholders' equity 61,681 59,191 59,845 -- 8,879 3,116
</TABLE>
(a) Net income in 1999 included $1.9 million of savings in selling, general
and administrative expenses as a result of favorably concluding the
major elements of plant closure costs. Net
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loss for 1998 includes plant closure costs of $4.2 million, of which
approximately $0.8 million is included in cost of goods sold and the
remaining $3.4 million is included in selling, general and
administrative expenses.
(b) Net income for 1999 includes an extraordinary gain of $0.8 million and
1995 includes an extraordinary loss of $1.7 million, net of income
taxes, for the early extinguishment of debt.
(c) Net income for 1996 includes a gain of $4.3 million, net of income
taxes, for the cumulative effect of a change in accounting principle
for postretirement benefits to amortize unrecognized gains and losses
exceeding 10% of the accumulated postretirement benefit obligation over
twelve months. Previously, such gains and losses were amortized over
the average remaining service period of the plan participants.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
INTRODUCTION
The following discussion provides an assessment of the consolidated results of
operations and liquidity and capital resources of the Company. Information
provided for 1999 and 1998 represents a full calendar year of operations. In
December of 1997, the Company was acquired by AIP. The Acquisition was accounted
for using the purchase method of accounting and, accordingly, the 1997 figures
reflect the operating results of the Company for the 21 day period ended
December 31, 1997, and the operating results of the Predecessor for the 344 days
ended December 10, 1997. The operating results for the 21 day period of the
Company are not material in comparison to the 344 day period of the Predecessor.
Unless otherwise indicated, 1997 historical results represent the combined
operating results of the Predecessor for the 344 day period through the date of
the Acquisition and the Company for the 21 day period subsequent to the
Acquisition.
BASIS OF PRESENTATION
The following table sets forth certain 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 and Predecessor are
presented in thousands of dollars and as a percentage of net sales.
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998 1997
-------------------- ------------------- ------------------
(dollars in thousands)
$ % $ % $ %
------- ----- ------- ----- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Net sales.............................. 281,580 100.0 307,053 100.0 273,298 100.0
Cost of goods sold..................... 224,204 79.6 251,730 82.0 231,060 84.5
Gross profit........................... 57,376 20.4 55,323 18.0 42,238 15.5
SG&A................................... 28,515 10.1 33,223 10.8 28,470 10.4
Amortization of intangibles............ 5,901 2.1 5,968 1.9 944 0.3
Management fees........................ 1,100 0.4 1,100 0.4 529 0.2
Operating income....................... 21,860 7.8 15,032 4.9 12,295 4.5
Net income (loss)...................... 5,906 2.1 (1,687) (0.5) 2,930 1.1
</TABLE>
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COMPARISON OF RESULTS OF OPERATIONS
OVERVIEW
After a disappointing first quarter, operating results for 1999 showed improved
earnings from the prior year on lower sales. Several programs targeted to
improve profitability were concluded during 1999 including: indirect staff
reductions in the Diesel Group; Bari, Italy plant closure; cost reduction and
labor efficiency improvement programs in Windsor, Connecticut and Jacksonville,
North Carolina facilities involving assistance from outside consultants; and
Precision Engine's vertical integration of rocker arm machining. Start-up
activities reached the pre-production phase for the new Brazilian subsidiary,
PEPL, and are ready to proceed with the July, 2000 scheduled supply of Tritec
Motors, LTDA.
1999 COMPARED TO 1998
Net Sales. Net sales decreased to $281.6 million in 1999 from $307.1 million in
1998, a decrease of $25.5 million or 8.3%. The decrease was attributable to a
sales decline at Diesel Group of $25.5 million, or 10.0%, which resulted from
lower sales of GMDS pumps of $18.9 million during 1999, as compared to 1998 when
General Motors completed stocking a service inventory for their extended
warranty program, and lower sales of Ford injectors of $3.2 million. Precision
Engine's sales in 1999 were equal to 1998, with higher demand for DC products
offset by lower sales to European customers.
Gross Profit. Gross profit increased to $57.4 million in 1999 from $55.3 million
in 1998, an increase of $2.1 million or 3.7%. As a percentage of net sales,
gross profit increased to 20.4% from 18.0%. Most of the improvement occurred in
Precision Engine due to the vertical integration of its manufacturing process
for the roller-rocker product line, a $0.7 million reduction of a liability
established in 1998 and a combination of price increases and other cost
reduction efforts. Lower earnings on reduced sales volumes in the Diesel Group
were offset by $3.9 million in revenue from a major customer for volumes not
purchased under a supply agreement, indirect staff reductions and cost reduction
programs in the Windsor, Connecticut and Jacksonville, North Carolina facilities
involving assistance from outside consultants.
Selling, General and Administrative Expense. SG&A expense decreased to $28.5
million in 1999 from $33.2 million in 1998, a decrease of $4.7 million or 14.2%.
As a percentage of net sales, SG&A decreased to 10.1% from 10.8%. The lower 1999
SG&A expense was primarily attributable to lower severance costs associated with
the successful conclusion of closure activities at the Bari, Italy location
which resulted in $1.9 million of savings compared to the $3.4 million estimate
recorded to SG&A in 1998. Lower research and development costs in the Diesel
Group, as a result of staffing reductions completed in 1999, further contributed
to the year-to-year reduction in SG&A.
Amortization of Intangibles. Amortization of intangible assets totaled $5.9
million in 1999 and $6.0 million in 1998. Amortization of goodwill was $1.9
million in both 1999 and 1998.
Operating Income. Operating income increased to $21.9 million in 1999 from $15.0
million in 1998, an increase of $6.9 million or 45.4%. As a percentage of sales,
operating income increased to 7.8% from 4.9%. The increase was due to an
improved gross profit and lower SG&A expenses.
12
<PAGE> 13
Net Income (Loss). Net income increased to $5.9 million in 1999 from a net loss
of ($1.7) million in 1998, an increase of $7.6 million. The increase in net
income was due to a combination of a $6.9 million improvement in operating
income, a $1.6 million reduction in net interest expense, an increase of $1.5
million in income taxes and an extraordinary gain of $0.8 million, net of taxes,
associated with the early retirement of $10.0 million in Senior Subordinated
Notes.
1998 COMPARED TO 1997
Net Sales. Net sales increased to $307.1 million in 1998 from $273.3 million in
1997, an increase of $33.8 million or 12.4%. The increase was attributable to an
increase in net sales of $40.0 million or 18.5% in the Diesel Group, which was
partially offset by a decline at Precision Engine of $6.2 million, or 11.0%. The
increase in the Diesel Group's net sales resulted from increased OEM sales of
$23.9 million, as well as increased demand for replacement parts of $16.1
million. These higher revenues were primarily due to an increase in demand for
the DS electronic pump of $17.2 million, mechanical-style pumps of $12.3 million
and the RSN injector of $11.6 million. Precision Engine's net sales decline was
due primarily to a $2.2 million reduction in demand by DC for the roller rocker
arm product and a $1.5 million reduction in demand by Ford for roller valve
lifters due to decreased vehicle demand.
Gross Profit. Gross profit increased to $55.3 million in 1998 from $42.2 million
in 1997, an increase of $13.1 million or 31.0%. As a percentage of net sales,
gross profit increased to 18.0% from 15.5%. These changes were primarily the
result of higher sales volumes reported by the Diesel Group. Cost of goods sold
for 1998 included $0.8 million of inventory write-downs associated with the
plant closure costs in Bari.
Selling, General and Administrative Expense. SG&A expense increased to $33.2
million in 1998 from $28.5 million in 1997, an increase of $4.7 million or
16.7%. As a percentage of sales, SG&A increased to 10.8% from 10.4%. This
increase was due to a $3.4 million charge in the fourth quarter of 1998 for
employee-related costs associated with the plant closure in Bari, Italy. Net
product development costs increased $1.5 million and postretirement benefit
expenses increased $1.7 million in 1998 over 1997 when actuarial gains were
recorded. Bonuses decreased $1.8 million from 1997, when bonuses of $2.7 million
related to the sale of the Company were incurred. Excluding the effect of the
plant closure costs incurred in 1998, SG&A was up $1.3 million, or 4.6%, from
1997.
Amortization of Intangibles. Amortization of intangible assets increased to $6.0
million in 1998 from $0.9 million in 1997. The increase includes amortization of
goodwill of $1.9 million and other intangible assets amortization of $4.1
million. These increases are a direct result of the Acquisition.
Operating Income. Operating income increased to $15.0 million in 1998 from $12.3
million in 1997, an increase of $2.7 million or 22.3%. As a percentage of net
sales, operating income increased to 4.9% from 4.5%. The growth primarily
reflects the effect of higher sales volume and gross profit in the Diesel Group,
which was partially offset by the plant closure costs of $4.2 million and higher
amortization costs of $5.1 million.
13
<PAGE> 14
Net (Loss) Income. The net loss of ($1.7) million in 1998 was a $4.6 million
reduction from net income of $2.9 million in 1997. The decrease in net income
reflects a $2.7 million increase in operating income offset by $7.6 million in
higher interest expense, a result of the additional debt from the Acquisition.
LIQUIDITY AND CAPITAL RESOURCES
The Company is highly leveraged as a result of the Acquisition and will continue
to have a significant amount of indebtedness. As of December 31, 1999, the
Company had $142.3 million of indebtedness. The Company's principal sources of
liquidity are cash flow from operations supplemented by borrowings under a
revolving credit facility. The Company occasionally has utilized capital leases
and, for its Italian subsidiary, SpA, has overdraft facilities with local
financial institutions. In addition, subject to the restrictions in the
Company's lending agreements, additional senior or other indebtedness may be
incurred from time to time to finance acquisitions or capital expenditures or
for other general corporate purposes.
Net cash flow provided by operating activities was $27.2 million, $20.6 million
and $10.2 million in 1999, 1998 and 1997, respectively. The increase in cash
flows in 1999 was primarily due to a $6.9 million increase in operating income
and lower interest expense of $1.5 million, partially offset by a $3.4 million
year-to-year increase in funds required for working capital, noncurrent asset
and noncurrent liability accounts. Notable changes in asset and liability
accounts during 1999 included prepaid tooling reimbursements from DC totaling
$1.7 million, cash payments for Bari, Italy plant closure of approximately $3.7
million and working capital account investments in PEPL totaling $0.4 million.
Capital expenditures were $11.4 million, $14.4 million and $13.5 million in
1999, 1998 and 1997, respectively. These amounts primarily reflect cash outlays
for the purchase of machinery and equipment and the maintenance of existing
facilities. Management estimates that the Company has historically spent, and
will continue to spend, approximately $3.0 million annually on maintenance of
plant and equipment. The remaining non-maintenance capital expenditures
represent cash outlays for equipment, machinery or plant expansion in order to
support new engine platforms on which the Company intends to supply engine
components or to increase capacity to support increased production volumes on
existing engine platforms. The Company's capital expenditures of $11.4 million
in 1999 were primarily for cost reduction programs in the Diesel Group, general
maintenance projects and machinery and equipment in Brazil for PEPL. The
Company's capital expenditures of $14.4 million in 1998 were primarily for added
capacity in the Diesel Group of $7.7 million associated with pump and injector
programs which began in 1997 and for the completion of the Precision Engine
vertical integration project of $2.2 million to machine in-house roller rocker
arm castings.
At December 31, 1999, 1998 and 1997, the Company did not establish a valuation
allowance to offset any deferred tax assets. The Company has reported operating
income on the consolidated statements of operations as well as income for tax
purposes in 1999, 1998 and 1997. Based on projections for future taxable income
over the periods during which the deferred tax assets are deductible, and the
expectation that a significant portion of these deferred tax assets are to be
realized by offsetting them against temporary items, it is management's belief
that it is more likely than not that all deferred tax assets will be fully
realized.
14
<PAGE> 15
Management believes that cash flows from operations and availability under the
revolving credit facility will provide adequate funds for the Company's
foreseeable working capital needs, planned capital expenditures and debt service
obligations. At December 31, 1999, the Company had $30 million in revolving
credit lines of which $3.6 million was used for standby letters of credit,
leaving $26.4 million available for borrowings. The Company's ability to fund
its operations, make planned capital expenditures, make scheduled debt payments,
refinance indebtedness and remain in compliance with all of the financial
covenants under its debt agreements will depend on its future operating
performance and cash flow, which, in turn, are subject to prevailing economic
conditions and to financial, business and other factors, some of which are
beyond its control.
YEAR 2000 MATTERS
The Company has not experienced any problems related to the Year 2000 issue that
affected its operations. The Company continues to monitor its operations
including transactions between the Company and its customers and vendors to
detect any possible problems that could have a future impact on the Company.
The Company has spent $0.7 million to complete the projects on its Year 2000
compliance conversion and does not anticipate any additional Year 2000 costs. As
of the date of this filing, the Company believes there are no remaining
significant risks or exposures as a result of the Year 2000 issue.
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.
ITEM 7A. 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
borrowings and are repriced 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 1999 interest expense by $0.4 million. The 10-1/4% Senior
Subordinated Notes bear interest at a fixed rate and, therefore, are not
sensitive to interest rate fluctuation. The fair value of the Senior
Subordinated Notes based on quoted market prices at December 31, 1999 was
approximately $70.2 million.
15
<PAGE> 16
Foreign Currency Risk. The Company has subsidiaries in Italy and Brazil and
branch offices in France and England, thereby creating exposures 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.
16
<PAGE> 17
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
Page
----
<S> <C>
STANADYNE AUTOMOTIVE CORP. AND SUBSIDIARIES
INDEPENDENT AUDITORS' REPORT.............................................................................. F-1
Consolidated Balance Sheets as of December 31, 1999 and 1998....................................... F-2
Consolidated Statements of Operations for the Years Ended December 31, 1999 and 1998, the 21 Day
Period Ended December 31, 1997 and the 344 Day Period Ended December 10, 1997................... F-3
Consolidated Statements of Changes in Stockholders' Equity and Comprehensive Income (Loss) for
the Years Ended December 31, 1999 and 1998, the 21 Day Period Ended December 31, 1997 and the
344 Day Period Ended December 10, 1997.......................................................... F-4
Consolidated Statements of Cash Flows for the Years Ended December 31, 1999 and 1998, the 21 Day
Period Ended December 31, 1997 and the 344 Day Period Ended December 10, 1997................... F-5
Notes to the Consolidated Financial Statements...................................................... F-6
</TABLE>
17
<PAGE> 18
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Stanadyne Automotive Corp.:
We have audited the accompanying consolidated balance sheets of
Stanadyne Automotive Corp. and subsidiaries (the "Company") as of December 31,
1999 and 1998, and the related consolidated statements of operations, changes in
stockholders' equity and comprehensive income (loss) and cash flows for the
years ended December 31, 1999 and 1998 and the period from December 11, 1997 to
December 31, 1997. We have also audited the consolidated statements of
operations, changes in stockholders' equity and comprehensive income (loss) and
cash flows of Stanadyne Automotive Corp. and subsidiaries (the "Predecessor")
for the period from January 1, 1997 to December 10, 1997. These consolidated
financial statements are the responsibility of the Company's and the
Predecessor's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly,
in all material respects, the financial position of Stanadyne Automotive Corp.
and subsidiaries as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for the years ended December 31, 1999 and 1998,
the period from December 11, 1997 to December 31, 1997 and the period from
January 1, 1997 to December 10, 1997, in conformity with generally accepted
accounting principles.
February 4, 2000
Deloitte & Touche LLP
Hartford, Connecticut
F-1
<PAGE> 19
STANADYNE AUTOMOTIVE CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except share amounts)
<TABLE>
<CAPTION>
December 31,
1999 1998
--------- ---------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 4,057 $ 5,132
Accounts receivable, net of allowance for uncollectible accounts of
$610 in 1999 and $500 in 1998 (Notes 18 and 22) 40,296 41,564
Inventories, net (Notes 3 and 22) 36,582 36,560
Prepaid expenses and other assets 1,451 2,635
Deferred income taxes (Note 12) 8,360 6,128
--------- ---------
Total current assets 90,746 92,019
Property, plant and equipment, net (Note 4) 119,611 125,966
Intangible and other assets, net (Note 5) 91,687 99,870
Due from Stanadyne Automotive Holdings Corp. (Note 17) 4,061 4,061
--------- ---------
Total assets $ 306,105 $ 321,916
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 22,354 $ 20,222
Accrued liabilities (Note 7) 27,788 31,113
Current maturities of long-term debt (Notes 9 and 23) 5,198 8,808
Current installments of capital lease obligations (Note 6) 819 1,295
--------- ---------
Total current liabilities 56,159 61,438
Long-term debt, excluding current maturities (Notes 9 and 23) 135,671 148,821
Deferred income taxes (Note 12) 5,747 2,998
Capital lease obligations, excluding current installments (Note 6) 592 1,562
Other noncurrent liabilities (Note 8) 46,255 47,906
--------- ---------
Total liabilities 244,424 262,725
--------- ---------
Commitments and Contingencies (Notes 6 and 19)
Stockholders' Equity:
Common stock, par value $.01, authorized 10,000 shares, issued and
outstanding 1,000 shares (Note 14) -- --
Additional paid-in capital 59,858 59,858
Other accumulated comprehensive (loss) income (Note 13) (2,384) 1,032
Retained earnings (accumulated deficit) 4,207 (1,699)
--------- ---------
Total stockholders' equity 61,681 59,191
--------- ---------
Total liabilities and stockholders' equity $ 306,105 $ 321,916
========= =========
</TABLE>
See notes to consolidated financial statements.
F-2
<PAGE> 20
STANADYNE AUTOMOTIVE CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands)
<TABLE>
<CAPTION>
Company Predecessor
Company Company 21 Days 344 Days
Year Ended Year Ended Ended Ended
December 31, December 31, December 31, December 10,
1999 1998 1997 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales (Notes 18, 20, 21) $ 281,580 $ 307,053 $ 14,154 $ 259,144
Costs of goods sold 224,204 250,943 11,418 219,642
Plant closure costs (Note 15) -- 787 -- --
--------- --------- --------- ---------
Gross profit 57,376 55,323 2,736 39,502
Selling, general and administrative expenses
(includes related party payments to AIP of
$1,100 in 1999 and 1998 and $59 in the 21
day period ended December 31, 1997 and
payments to Metromedia of $470 in the 344
day period ended December 10, 1997) (Note 17) 37,446 36,863 1,845 28,098
Plant closure costs (Note 15) (1,930) 3,428 -- --
--------- --------- --------- ---------
Operating income 21,860 15,032 891 11,404
Other income (expense):
Interest income 522 121 2 21
Interest expense (14,098) (15,259) (882) (6,694)
--------- --------- --------- ---------
Income (loss) before income taxes and
extraordinary item 8,284 (106) 11 4,731
Income tax expense (Note 12) 3,128 1,581 23 1,789
--------- --------- --------- ---------
Income (loss) before extraordinary item 5,156 (1,687) (12) 2,942
Extraordinary gain related to early retirement of
debt, net of income tax expense of $500
(Note 9) 750 -- -- --
--------- --------- --------- ---------
Net income (loss) 5,906 (1,687) (12) 2,942
Dividend to Stanadyne Automotive Holding Corp. -- -- -- (450)
--------- --------- --------- ---------
Net income (loss) applicable to common shareholders $ 5,906 $ (1,687) $ (12) $ 2,492
========= ========= ========= =========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 21
STANADYNE AUTOMOTIVE CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
AND COMPREHENSIVE INCOME (LOSS)
(dollars in thousands except share amounts)
<TABLE>
<CAPTION>
Accumulated
Other
Compre- Retained Compre-
Additional hensive Earnings hensive
Common Stock Paid-in Income (Accumulated Income
Shares Amount Capital (Loss) Deficit) (Loss) Total
------ ------ ---------- ----------- ------------ ------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
January 1, 1997 1,000 $ - $ 35,000 $ (164) $ (24,370) $ 10,466
Comprehensive income:
Net income for the 344 day period ended
December 10, 1997 - - - - 2,942 $ 2,942 2,942
--------
Other comprehensive loss, net of tax:
Foreign currency translation adjustments - - - (1,149) - (1,149) (1,149)
Minimum pension liability - - - (123) - (123) (123)
--------
Other comprehensive loss (1,272)
--------
Comprehensive income $ 1,670
========
Dividends to Stanadyne Automotive Holding Corp. - - - - (450) (450)
----- ------- --------- -------- --------- --------
December 10, 1997 1,000 $ - $ 35,000 $ (1,436) $ (21,878) $ 11,686
===== ======= ========= ======== ========= ========
Initial capitalization -
December 11, 1997 1,000 $ - $ 59,858 $ - $ - $ 59,858
Comprehensive income:
Net loss for the 21 day period ended December
31, 1997 - - - - (12) $ (12) (12)
--------
Other comprehensive loss, net of tax - Foreign
currency translation adjustments - - - (1) - (1) (1)
--------
Other comprehensive loss (1)
--------
Comprehensive loss $ (13)
========
----- ------- --------- -------- --------- --------
December 31, 1997 1,000 - 59,858 (1) (12) 59,845
Comprehensive income:
Net loss - - - - (1,687) $ (1,687) (1,687)
--------
Other comprehensive income, net of tax -
Foreign currency translation adjustments - - - 1,033 - 1,033 1,033
--------
Other comprehensive income 1,033
--------
Comprehensive loss $ (654)
========
----- ------- --------- -------- --------- --------
December 31, 1998 1,000 - 59,858 1,032 (1,699) 59,191
Comprehensive income:
Net income - - - - 5,906 $ 5,906 5,906
--------
Other comprehensive loss, net of tax -
Foreign currency translation adjustments - - - (3,416) - (3,416) (3,416)
--------
Other comprehensive loss (3,416)
--------
Comprehensive income $ 2,490
========
----- ------- --------- -------- --------- --------
December 31, 1999 1,000 $ - $ 59,858 $ (2,384) $ 4,207 $ 61,681
===== ======= ========= ======== ========= ========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 22
STANADYNE AUTOMOTIVE CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
<TABLE>
<CAPTION>
Company Company Company Predecessor
------- ------- ------- -----------
21 Days 344 Days
Year Ended Year Ended Ended Ended
December 31, December 31, December 31, December 10,
1999 1998 1997 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 5,906 $ (1,687) $ (12) $ 2,942
Adjustments to reconcile net income (loss) to net cash provided
by (used in) operating activities:
Depreciation and amortization 20,804 19,816 995 15,700
Deferred income taxes 394 (1,065) (367) 445
Loss (gain) on disposal of property, plant and equipment 77 105 -- (130)
Changes in assets and liabilities (excluding effect of 1997
acquisition by AIP):
Accounts receivable 450 1,939 1,820 (8,045)
Inventories (874) 2,505 1,181 (2,756)
Prepaid expenses and other assets 1,268 (2,335) 125 (898)
Due to (from) Stanadyne Automotive Holding Corp. -- 70 (4,733) 2,045
Accounts payable 2,542 (4,068) (621) 3,798
Accrued liabilities (2,213) 8,648 (2,820) 3,053
Other noncurrent liabilities (1,190) (3,296) 309 (1,829)
--------- --------- --------- ---------
Net cash provided by (used in) operating activities 27,164 20,632 (4,123) 14,325
--------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (11,449) (14,379) (378) (13,162)
Proceeds from disposal of property, plant and equipment 689 30 -- 758
Acquisition, net of cash acquired -- -- (121,654) --
--------- --------- --------- ---------
Net cash used in investing activities (10,760) (14,349) (122,032) (12,404)
--------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Contributions to capital -- -- 57,402 --
Payments of financing fees -- -- (9,111) --
Proceeds from long-term debt -- -- 155,000 --
Net (payments) proceeds on revolving credit notes and overdraft
facilities (754) 1,755 (41,900) 12,895
Payments on long-term debt (15,496) (1,000) (40,875) (9,941)
Payments on capital lease obligations (1,252) (2,197) (124) (1,666)
Dividends paid -- -- -- (450)
--------- --------- --------- ---------
Net cash (used in) provided by financing activities (17,502) (1,442) 120,392 838
--------- --------- --------- ---------
Net (decrease) increase in cash and cash equivalents (1,098) 4,841 (5,763) 2,759
Effect of exchange rate changes on cash and cash equivalents 23 (34) 4 (46)
Cash and cash equivalents at beginning of period 5,132 325 6,084 3,371
--------- --------- --------- ---------
Cash and cash equivalents at end of period $ 4,057 $ 5,132 $ 325 $ 6,084
========= ========= ========= =========
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING TRANSACTIONS:
During 1999, 1998, the 21 days ended December 31, 1997 and the 344 days
ended December 10, 1997, the Company entered into capital leases for
new equipment resulting in capital lease obligations of $30, $383, $0
and $2,288, respectively.
See notes to consolidated financial statements.
F-5
<PAGE> 23
STANADYNE AUTOMOTIVE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business. Stanadyne Automotive Corp. (the "Company"), a
wholly-owned subsidiary of Stanadyne Automotive Holding Corp. ("Holdings"), is a
producer of diesel fuel injection equipment which is sold worldwide to
agricultural, industrial and automotive diesel engine manufacturers and to the
diesel aftermarket. The Company's wholly owned subsidiary, Precision Engine
Products Corp. ("Precision Engine"), is a supplier of roller-rocker arms,
hydraulic valve lifters and lash adjusters to automotive engine manufacturers
and the independent automotive aftermarket.
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, Stanadyne Automotive SpA ("SpA"), DSD
International Corp. (dissolved October 6, 1998), Precision Engine Products LTDA
("PEPL") (incorporated as a limited liability company on October 16, 1998) and
Stanadyne Automotive Foreign Sales Corp. ("FSC"). Intercompany balances have
been eliminated in consolidation. The financial statements of SpA and PEPL are
consolidated on a fiscal year basis ending November 30.
Cash and Cash Equivalents. The Company considers cash on hand and
short-term investments with an original maturity of three months or less to be
"cash and cash equivalents" for financial statement purposes.
Inventories. Inventories are stated at the lower of cost or market. The
principal components of costs included in inventories are materials, labor,
subcontract cost and overhead. The Company uses the last-in/first-out ("LIFO")
method of valuing its inventory, except for the inventories of SpA and PEPL,
which are valued using the first-in/first-out ("FIFO") method. At December 31,
1999 and 1998, inventories valued at LIFO represented 86% and 82% of total
inventories, respectively.
Property, Plant and Equipment. Property, plant and equipment, including
significant improvements thereto, are recorded at cost. Equipment under capital
leases is stated at the net present value of minimum lease payments.
Depreciation of plant and equipment is calculated using the straight-line method
over the estimated useful lives of the respective assets which are within the
following ranges:
<TABLE>
<S> <C>
Buildings and improvements 15 to 45 years
Machinery and equipment 3 to 15 years
</TABLE>
Intangibles and Other Assets. Intangible assets consist primarily of
goodwill, technological know-how, trademarks, patents and deferred debt issuance
costs. Intangible assets are amortized using the straight-line method over their
estimated useful lives of 3 to 40 years.
Accounting for the Impairment of Long-Lived Assets. The Company
assesses impairment of long-lived assets such as property, plant and equipment
and intangible assets whenever changes or events indicate that the carrying
value may not be recoverable. Such long-lived assets are written down to fair
value if the sum of the expected future undiscounted cash flows is less than the
carrying amount.
F-6
<PAGE> 24
STANADYNE AUTOMOTIVE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
Fair Value of Financial Instruments. Statement of Financial Accounting
Standards ("SFAS") No. 107, Disclosures about Fair Value of Financial
Instruments, requires the disclosure of fair value information for certain
assets and liabilities, whether or not recorded in the balance sheet, for which
it is practicable to estimate that value. The Company has the following
financial instruments: cash and cash equivalents, receivables, accounts payable,
accrued liabilities and long-term debt. The Company considers the carrying
amount of these items, excluding long-term debt, to approximate their fair
values because of the short period of time between the origination of such
instruments and their expected realization. Refer to Note 9 for fair value
disclosures of long-term debt.
Product Warranty. The Company provides an accrual for the estimated
future warranty costs of its products. These estimates are based upon
statistical analyses of historical experience of product returns and the related
cost.
Postretirement Benefits. Effective December 11, 1997, the Company
changed its accounting method of amortizing unrecognized gains and losses for
its postretirement benefits. Previously, unrecognized gains and losses exceeding
10% of the accumulated postretirement benefit obligation were amortized over
twelve months. The Company changed its policy whereby unrecognized gains or
losses exceeding 10% of the accumulated postretirement benefit obligation are
amortized over the average remaining service period of the plan participants.
This change was adopted because the new amortization method represents an
improvement in the financial reporting of the accrued postretirement benefit
obligation by distributing gains and losses over the benefit period of the
participants thereby minimizing any volatility caused by actuarial gains and
losses. The effect of the change was immaterial to the consolidated financial
statements.
For the defined benefit pension plans, the Company amortizes
unrecognized gains and losses exceeding 10% of the accumulated benefit
obligation over the average remaining service life of plan participants as this
period approximates the benefit period.
Income Taxes. Income taxes are accounted for in accordance with the
asset and liability method. Deferred tax assets and liabilities are recognized
for future tax consequences attributable to differences between the tax basis of
assets and liabilities and their financial reporting amounts.
Foreign Currency Translation. The Company's policy is to translate
balance sheet accounts using the exchange rate at the balance sheet date and
statement of operations accounts using the average monthly exchange rate for the
month in which the transactions are recognized. The resulting translation
adjustment is recorded as accumulated other comprehensive income (loss) in the
consolidated balance sheets. Worldwide foreign currency transaction losses of
$145, $40, $1 and $102 are included in the consolidated statements of operations
for 1999, 1998, the 21 day period ended December 31, 1997 and the 344 day period
ended December 10, 1997, respectively.
Revenue Recognition. Sales and related costs of sales are recorded when
products are shipped to customers. The Company enters into long-term contracts
with certain customers for the supply of parts during the contract period. Some
of these contracts have provisions which allow the Company to negotiate with its
customers if targeted volumes, as defined in each contract, are not achieved.
Those negotiations may result in payments which are recognized as revenue when
the amount of such payment is agreed upon by the Company and the customer and
when collection is deemed probable.
F-7
<PAGE> 25
STANADYNE AUTOMOTIVE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
Research and Development. Research and development ("R&D") costs
incurred for 1999, 1998, the 21 day period ended December 31, 1997 and the 344
day period ended December 10, 1997 were $9,075, $10,283, $413 and $9,492,
respectively, of which $596, $657, $18 and $1,622, respectively, were reimbursed
by customers. The net expenses of $8,479, $9,626, $395 and $7,870 in 1999, 1998,
the 21 day period ended December 31, 1997 and the 344 day period ended December
10, 1997, respectively, are included in the consolidated statements of
operations.
Use of Estimates. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Interest Rate Cap Agreement. The Company utilized an interest rate cap
agreement (the "Cap") to limit the impact of increases in interest rates on its
variable rate debt. The Cap required a premium payment of $7 to the counterparty
based on the agreement's notional amount and cap interest rate. The premium was
expensed in the Company's 1998 consolidated financial statements. The Cap
entitled the Company to receive from the counterparty the amounts by which the
selected market interest rates exceeded the Cap interest rate stated in the
agreement. The Cap expired December 30, 1999 (see Note 9).
Accounting for Derivative Instruments and Hedging Activities. In June
1998, SFAS No. 133 "Accounting for Derivative Instruments and Hedging
Activities" was issued. 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 and 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 and is currently assessing the impact of this statement on the
consolidated financial statements.
Reclassifications. Certain amounts have been reclassified in the 1998
and 1997 financial statements to conform to the 1999 presentation.
(2) ACQUISITION
On December 11, 1997, AIP through SAC, Inc. ("New Holdings") acquired
substantially all the outstanding stock of Stanadyne Automotive Holding Corp.
("Old Holdings") (the "Acquisition"), and SAC Automotive, Inc. ("Automotive")
borrowed $100,000 on 10-1/4% Senior Subordinated Notes, $55,000 of term loans
and $11,500 under a $30,000 revolving credit line to partially fund the
Acquisition. Simultaneous with the Acquisition, Old Holdings and Automotive
merged with and into the Company and New Holdings changed its name to Stanadyne
Automotive Holding Corp.
The Acquisition has been accounted for using the purchase method of
accounting, whereby the purchase cost has been allocated to the fair value of
the tangible and identifiable intangible assets acquired and liabilities assumed
with the excess identified as goodwill. The consolidated goodwill resulting from
the transaction was approximately $78,119 (see Note 5). Fair values were based
on valuations and other studies.
F-8
<PAGE> 26
STANADYNE AUTOMOTIVE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(2) ACQUISITION - (CONTINUED)
The unaudited consolidated results of operations on a pro forma basis
as though the Acquisition had taken place at January 1, 1997 are as follows:
<TABLE>
<CAPTION>
COMPANY (a) PREDECESSOR (b)
21 DAYS 344 DAYS
ENDED ENDED
DECEMBER 31, DECEMBER 10, PRO FORMA
1997 1997 ADJUSTMENTS PRO-FORMA
------------ --------------- ----------- ---------
<S> <C> <C> <C> <C>
Net sales $ 14,154 $ 259,144 $ - $ 273,298
Cost of goods sold 11,418 219,642 (1,520)(c) 229,540
----------- ----------- ---------- ---------
Gross profit 2,736 39,502 (1,520) 43,758
Selling, general and administrative expenses 1,845 28,098 5,300 (c) 35,243
----------- ----------- ---------- ---------
Operating income (loss) 891 11,404 (3,780) 8,515
Interest, net (880) (6,673) (7,874)(d) (15,427)
----------- ----------- ---------- ---------
Income (loss) before taxes 11 4,731 (11,654) (6,912)
Income tax expense (benefit) 23 1,789 (4,439)(e) (2,627)
----------- ----------- ---------- ---------
Net (loss) income $ (12) $ 2,942 $ (7,215) $ (4,285)
=========== =========== ========== =========
</TABLE>
(a) Represents the historical condensed consolidated statements of
operations of the Company for the period indicated.
(b) Represents the historical condensed consolidated statement of
operations of Stanadyne Automotive Corp., the predecessor to the
Company (the "Predecessor") for the period indicated.
(c) The following table summarizes the pro forma adjustments to operating
income:
<TABLE>
<S> <C>
Cost of goods sold: (i)
Reduction in depreciation due to changes in lives partially
offset by the step-up of property, plant and equipment $ (1,520)
========
Selling, general and administrative:
Difference in Directors fees $ 142
Difference in management fees (ii) 630
Change in amortization of intangible assets (iii) 4,528
--------
$ 5,300
========
</TABLE>
(i) Cost of goods sold does not include a one-time, non-cash
charge for the effect of the step-up in inventory carried on
the first-in, first-out method under purchase accounting of
$0.4 million.
(ii) Represents the difference between the new management fee and
the historical management fee.
(iii) The amortization of intangible assets is over a range of lives
from three to thirteen years. Goodwill is amortized over forty
years.
F-9
<PAGE> 27
STANADYNE AUTOMOTIVE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(2) ACQUISITION - (CONCLUDED)
(d) To reflect the pro forma adjustments to interest expense:
<TABLE>
<S> <C>
Historical interest expense $ 7,553
Less: amounts in historical statement of operation for refinanced debt (6,982)
Add: New Credit Agreement and Senior Subordinated Notes 14,856
-----------
Pro forma interest expense $ 15,427
===========
</TABLE>
A 1/8% increase in interest rates pertaining to variable interest debt
outstanding would increase interest expense by $68 in 1997.
(e) To adjust the income tax provision to result in a pro forma total of 38%
effective income tax rate for 1997.
The unaudited pro forma financial information is presented for
informational purposes only and does not purport to represent what the Company's
results of operations would have been if the Acquisition had taken place as of
the dates indicated, or what such results will be for any future period.
(3) INVENTORIES
Inventories at December 31, 1999 and 1998 consisted of:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Raw materials $ 1,968 $ 2,583
Work in process 24,891 25,192
Finished goods 9,723 8,785
------- -------
$36,582 $36,560
======= =======
</TABLE>
The LIFO reserve at December 31, 1999 and 1998 was $940 and $577,
respectively.
F-10
<PAGE> 28
STANADYNE AUTOMOTIVE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(4) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment including equipment under capital leases
at December 31, 1999 and 1998 consisted of:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Land $ 11,532 $ 11,836
Building and improvements 22,296 22,034
Machinery and equipment 106,165 95,451
Capitalized leases 3,530 5,291
Construction in progress 5,186 5,905
-------- --------
148,709 140,517
Less accumulated depreciation 29,098 14,551
-------- --------
$119,611 $125,966
======== ========
</TABLE>
Depreciation expense including amortization of assets acquired under
capital leases was $14,904, $13,847, $692 and $15,060 for 1999, 1998, the 21 day
period ended December 31, 1997 and the 344 day period ended December 10, 1997,
respectively. The net book value of assets acquired under remaining capital
leases was $2,397 and $4,426 at December 31, 1999 and 1998, respectively.
(5) INTANGIBLE AND OTHER ASSETS
Major components of intangible and other assets at December 31, 1999
and 1998 consisted of:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Goodwill $ 75,963 $ 78,119
Patents 9,809 9,809
Debt issuance costs 9,111 9,111
Software 3,822 3,822
Technological know-how 3,200 3,200
Customer contracts 2,690 2,690
Other 2,352 2,560
-------- --------
106,947 109,311
Less accumulated amortization 15,260 9,441
-------- --------
$ 91,687 $ 99,870
======== ========
</TABLE>
F-11
<PAGE> 29
STANADYNE AUTOMOTIVE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(6) LEASES
The Company is obligated under certain noncancelable operating leases.
Rent expense for 1999, 1998, the 21 day period ended December 31, 1997 and the
344 day period ended December 10, 1997 was $1,698, $1,608, $53 and $1,309,
respectively.
Future minimum lease payments under noncancelable operating leases with
initial or remaining lease terms in excess of one year and future minimum
capital lease payments as of December 31, 1999 were as follows:
<TABLE>
<CAPTION>
Capital Operating
leases leases
------- ---------
<S> <C> <C>
Year ending December 31:
2000 $ 903 $ 842
2001 571 603
2002 48 334
2003 - 196
2004 - 107
-------- ---------
Total minimum lease payments 1,522 $ 2,082
=========
Less amount representing interest at a weighted average rate of
7.3% 111
--------
Present value of net minimum capital lease obligations 1,411
Less current installments of capital lease obligations 819
--------
Capital lease obligations, excluding current
installments $ 592
========
</TABLE>
F-12
<PAGE> 30
STANADYNE AUTOMOTIVE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(7) ACCRUED LIABILITIES
Accrued liabilities at December 31, 1999 and 1998 consisted of:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Salaries, wages and bonus $ 7,625 $ 6,534
Vacation 4,578 5,017
Retiree health benefits 4,116 3,079
Accrued warranty 3,447 2,342
Accrued taxes 2,123 1,982
Workers' compensation 1,916 1,317
Pensions 937 1,473
Accrued interest payable 552 695
Health benefits 425 449
Professional fees 402 591
Plant closure costs (see Notes 10, 15) 326 6,457
Other 1,341 1,177
------- -------
$27,788 $31,113
======= =======
</TABLE>
(8) OTHER NONCURRENT LIABILITIES
Other noncurrent liabilities at December 31, 1999 and 1998 consisted
of:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Retiree health benefits $24,314 $25,626
Pensions 12,036 10,553
Italian leaving indemnity (see Note 10) 4,427 5,075
Workers' compensation 1,953 3,440
Accrued warranty 1,700 1,500
Environmental 1,183 1,298
Other noncurrent liabilities 642 414
------- -------
$46,255 $47,906
======= =======
</TABLE>
(9) LONG-TERM DEBT
Long-term debt at December 31, 1999 and 1998 consisted of:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Revolving credit lines $ -- $ --
Term A loans 25,358 29,500
Term B loans 23,146 24,500
Senior Subordinated Notes 90,000 100,000
Stanadyne Automotive SpA debt, payable to Italian banks through
2000, bearing interest at rates ranging from
3.75% to 7.5% 2,365 3,629
-------- --------
140,869 157,629
Less current maturities of long-term debt 5,198 8,808
-------- --------
Long-term debt, excluding current maturities $135,671 $148,821
======== ========
</TABLE>
F-13
<PAGE> 31
STANADYNE AUTOMOTIVE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(9) LONG-TERM DEBT - (CONTINUED)
At December 31, 1999 and 1998, the Company had $30,000 in revolving
credit lines (the "Revolving Credit Lines") of which $0 was outstanding. In
addition, at December 31, 1999 and 1998, $3,572 and $3,590, respectively, was
used for standby letters of credit leaving $26,428 and $26,410, respectively,
available for borrowings. Any amounts outstanding are payable on December 11,
2003. The interest rate, had there been any borrowings against the Revolving
Credit Lines, would have been a maximum of 9.5% and 8.75% at December 31, 1999
and 1998, respectively. The Company also pays a commitment fee based on the
percentage of the unused portion of the Revolving Credit Lines. The percentage
used to calculate the commitment fee is .35% to .45% based on certain financial
ratios.
At December 31, 1999 and 1998, the Company had $48,504 and $54,000,
respectively, in term loans (the "Term Loans") outstanding at various interest
rates ranging from 8.5% to 9.75%. The remaining $25,358 Term A loans outstanding
at December 31, 1999 are payable in quarterly installments of $650.25 from March
31, 2000 through December 31, 2000; $1,430.5 from March 31, 2001 through
December 31, 2001; $1,820.5 from March 31, 2002 through December 31, 2002;
$2,471 from March 31, 2003 through September 30, 2003; and $2,340 on December
11, 2003. The remaining $23,146 Term B loans outstanding at December 31, 1999
are payable in quarterly installments of $58 from March 31, 2000 through
September 30, 2004 with a final balloon payment of $22,044 on December 11, 2004.
The Term Loans are primarily LIBOR borrowings and are repriced approximately
every month based on prevailing market rates.
Payment of the Revolving Credit Lines and Term Loans (collectively, the
"Credit Agreement") is guaranteed by Stanadyne Automotive Corp. (the "Parent")
and Precision Engine and DSD International Corp. through October 6, 1998,
(collectively, the "Subsidiary Guarantors"). The Credit Agreement is secured by
substantially all of the assets of the Parent and Subsidiary Guarantors and by a
pledge of substantially all the issued and outstanding capital stock of the
Parent and the Subsidiary Guarantors and 65% of the capital stock of SpA (see
Note 24). In addition, the Credit Agreement is subject to financial and other
covenants, including limits on indebtedness, liens and capital expenditures, and
restricts dividends or other distributions to stockholders.
The Company had $90,000 and $100,000 of Senior Subordinated Notes (the
"Notes") at an interest rate of 10.25% outstanding at December 31, 1999 and
1998, respectively. On October 5, 1999 the Company retired $10,000 in Notes at a
discount price of $8,750. The resulting $1,250 gain on this transaction was
recorded as a net of tax extraordinary item in 1999. The Notes are due on
December 15, 2007. Payment of the Notes is guaranteed by the Subsidiary
Guarantors. In addition, the Notes are subject to covenants including
limitations on indebtedness, liens, and dividends or other distributions to
stockholders.
At December 31, 1999 and 1998, the weighted average interest rate on
the Company's short term borrowings was 4.2% and 5.6%, respectively.
The fair values of the Company's Term Loans and short-term borrowings
approximate their recorded values at December 31, 1999 based on similar
borrowing agreements offered by other major institutional banks. The fair value
of the Notes based on quoted market prices at December 31, 1999 was
approximately $70,200.
F-14
<PAGE> 32
STANADYNE AUTOMOTIVE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(9) LONG-TERM DEBT - (CONCLUDED)
The aggregate maturities of long-term debt outstanding at December 31,
1999 were:
<TABLE>
<S> <C>
2000 $ 5,198
2001 5,954
2002 7,514
2003 9,985
2004 22,218
Thereafter 90,000
---------
$ 140,869
=========
</TABLE>
For 1999, 1998, the 21 day period ended December 31, 1997 and the 344
day period ended December 10, 1997, interest paid was $14,098, $15,380, $319 and
$6,931, respectively.
(10) PENSIONS
The Company has a noncontributory defined benefit pension plan which
covers substantially all of the domestic hourly and salaried employees except
for Tallahassee hourly employees. Benefits under the pension plan are based on
years of service and compensation levels during employment for salaried
employees and years of service for hourly employees. It is the Company's policy
to fund the pension plan based on the minimum permissible contribution as
determined by the plan's actuaries. Plan assets are invested primarily in a
diversified portfolio of equity and fixed income securities. The Company also
sponsors an unfunded defined benefit supplemental executive retirement plan.
The following table sets forth the change in benefit obligation, change
in plan assets and funded status of the pension plans and amounts recognized in
the Company's consolidated balance sheet as of December 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
--------------------------------- --------------------------------
Plans in Which Plans in Which Plans in Which Plans in Which
Assets Exceed Accumulated Assets Exceed Accumulated
Accumulated Benefit Accumulated Benefit
Benefit Obligation Benefit Obligation
Obligation Exceeds Assets Obligation Exceeds Assets
<S> <C> <C> <C> <C>
CHANGE IN PROJECTED BENEFIT OBLIGATIONS:
Benefit obligation at beginning of year $ 46,016 $ 2,377 $ 41,945 $ 2,272
Service cost 2,455 61 2,487 55
Interest cost 3,214 162 2,881 155
Amendments 675 - - -
Curtailment gain (336) - - -
Actuarial (gain) loss (6,517) (226) 141 4
Benefits paid (1,135) (109) (1,438) (109)
----------- ----------- ----------- ---------
Benefit obligations at end of year $ 44,372 $ 2,265 $ 46,016 $ 2,377
=========== =========== =========== =========
</TABLE>
F-15
<PAGE> 33
STANADYNE AUTOMOTIVE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(10) PENSIONS - (CONTINUED)
<TABLE>
<CAPTION>
1999 1998
--------------------------------- --------------------------------
Plans in Which Plans in Which Plans in Which Plans in Which
Assets Exceed Accumulated Assets Exceed Accumulated
Accumulated Benefit Accumulated Benefit
Benefit Obligation Benefit Obligation
Obligation Exceeds Assets Obligation Exceeds Assets
<S> <C> <C> <C> <C>
CHANGE IN PLAN ASSETS:
Fair value of plan assets at
beginning of year $ 37,425 $ - $ 33,837 $ -
Actual return on plan asset 6,742 - 4,262 -
Employer contribution 866 109 764 109
Benefits paid (1,135) (109) (1,438) (109)
---------- --------- ----------- -------
Fair value of plan asset at end
of year $ 43,898 $ - $ 37,425 $ -
========== ========= =========== =======
</TABLE>
<TABLE>
<CAPTION>
1999 1998
--------------------------------- --------------------------------
Plans in Which Plans in Which Plans in Which Plans in Which
Assets Exceed Accumulated Assets Exceed Accumulated
Accumulated Benefit Accumulated Benefit
Benefit Obligation Benefit Obligation
Obligation Exceeds Assets Obligation Exceeds Assets
<S> <C> <C> <C> <C>
FUNDED STATUS:
Funded status $ (474) $ (2,265) $ (8,591) $ (2,377)
Unrecognized prior service cost 647 - - -
Unrecognized net actuarial gain (10,609) (229) (994) (2)
---------- ---------- ----------- ----------
Accrued pension cost $ (10,436) $ (2,494) $ (9,585) $ (2,379)
========== ========== =========== ==========
</TABLE>
The components of the net periodic pension costs for 1999, 1998, the 21
day period ended December 31, 1997 and the 344 day period ended December 10,
1997 were as follows:
<TABLE>
<CAPTION>
Company Company Company Predecessor
21 Days 344 Days
Year Ended Year Ended Ended Ended
December 31, December 31, December 10, December 10,
1999 1998 1997 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Service cost $ 2,516 $ 2,542 $ 136 $ 1,716
Interest cost 3,376 3,036 173 2,369
Expected return on plan assets (3,520) (2,997) (177) (2,199)
Amortization of prior service costs 28 -- -- 209
Curtailment gain (336) -- -- --
Recognized net actuarial (gain) loss (123) -- -- 27
------- ------- ------- -------
Net periodic pension cost $ 1,941 $ 2,581 $ 132 $ 2,122
======= ======= ======= =======
</TABLE>
F-16
<PAGE> 34
STANADYNE AUTOMOTIVE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(10) PENSIONS - (CONCLUDED)
Actuarial assumptions used in accounting for the pension plan during
1999, 1998, the 21 day period ended December 31, 1997 and the 344 day period
ended December 10, 1997 were:
<TABLE>
<CAPTION>
Company Company Company Predecessor
21 Days 344 Days
Year Ended Year Ended Ended Ended
December 31, December 31, December 10, December 10,
1999 1998 1997 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Assumed average salary compensation
increase 5.0% 5.0% 5.0% 5.0%
Discount rate 7.75% 7.0% 7.0% 7.0%
Expected long-term rate of return on
assets 9.0% 9.0% 9.0% 9.0%
</TABLE>
No compensation increase rate is applicable for the hourly plans, as
they are flat pay for each year of service (regardless of compensation earned).
Effective July 1, 1999 the unit benefit for hourly participants and the
minimum benefit for salaried participants were increased by one dollar per month
for each year of service.
Staff reductions in the first half of 1999 resulted in a curtailment
gain of $336.
In accordance with Italian Civil Code, the Company provides employees
of SpA a leaving indemnity payable upon termination of employment. The amount of
this leaving indemnity is determined by the employee's category, length of
service, and overall remuneration earned during service. Amounts included as
part of other noncurrent liabilities at December 31, 1999 and 1998 were $4,427
and $5,075, respectively. Leaving indemnity expense was $634, $950, $60 and $939
for 1999, 1998, the 21 day period ended December 31, 1997 and the 344 day period
ended December 10, 1997, respectively.
(11) POSTRETIREMENT HEALTH CARE AND LIFE INSURANCE
The Company and its domestic subsidiaries currently make available
certain health care and life insurance benefits for retired employees. Full-time
employees of the Company (except non-grandfathered employees at the Tallahassee
and Melrose Park locations) may become eligible for those benefits when they
reach retirement, provided they attain age 57 with a minimum of 10 consecutive
years of service immediately preceding retirement, if such programs are still in
effect.
Employees who retired prior to January 1, 1987 are eligible for a
Basic/Major Medical Plan and, in certain cases, prescription drug benefits for a
basic monthly contribution by the retiree. Benefit levels vary depending upon
the retiree's benefit plan eligibility. The Company's health benefit cost
commitment for employees who retire between January 1, 1987 and December 31,
1997 is limited to the 1997 cost level. Furthermore, the Company's cost
commitment for employees who were hired prior to 1997 and retire after 1997 will
be one hundred dollars per month per eligible participant prior to becoming
Medicare eligible and fifty dollars per month when Medicare eligible. Employees
hired after 1996 are required to pay the full cost of postretirement medical
coverage. Employees who retire before 1998 are eligible for Company provided
life insurance benefits. Employees who retire after 1997 are allowed to purchase
life insurance through the Company at full cost.
F-17
<PAGE> 35
STANADYNE AUTOMOTIVE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(11) POSTRETIREMENT HEALTH CARE AND LIFE INSURANCE - (CONTINUED)
As discussed in Note 1, effective December 11, 1997, the Company
changed its accounting method of amortizing unrecognized gains and losses.
Unrecognized gains and losses exceeding 10% of the accumulated postretirement
benefit obligation are amortized over the average remaining service period of
the plan participants. The effect of the change was immaterial to the
consolidated financial statements.
The following table presents the plan's change in benefit obligation,
change in plan assets and funded status reconciled with amounts recognized in
the Company's consolidated balance sheet at December 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Change in benefit obligations:
Benefit obligation at beginning of year $ 29,739 $ 30,483
Service cost 320 324
Interest cost 2,311 2,026
Actuarial loss 3,257 1,081
Plan participants' contributions 357 332
Benefits paid (3,855) (4,507)
-------- --------
Benefit obligation at end of year $ 32,129 $ 29,739
======== ========
Change in plan assets:
Fair value of plan assets at beginning of year $ -- $ --
Actual return on plan assets -- --
Employer contribution 3,498 4,175
Plan participants' contribution 357 332
Benefit paid (3,855) (4,507)
-------- --------
Fair value of plan assets at end of year $ -- $ --
======== ========
Funded status:
Funded status $(32,129) $(29,739)
Unrecognized net actuarial loss 3,961 1,055
-------- --------
Accrued postretirement cost $(28,168) $(28,684)
======== ========
</TABLE>
F-18
<PAGE> 36
STANADYNE AUTOMOTIVE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(11) POSTRETIREMENT HEALTH CARE AND LIFE INSURANCE - (CONTINUED)
Net periodic postretirement benefit costs for 1999, 1998, the 21 day
period ended December 31, 1997 and the 344 day period ended December 10, 1997
included the following components:
<TABLE>
<CAPTION>
Company Company Company Predecessor
21 Days 344 Days
Year Ended Year Ended Ended Ended
December 31, December 31, December 10, December 10,
1999 1998 1997 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Service cost $ 320 $ 324 $ 17 $ 425
Interest cost 2,311 2,026 119 1,860
Amortization of unrecognized benefit
obligation due to plan amendment - - - (1,143)
Amortization of unrecognized net gain - - - (893)
Recognition of net actuarial loss 352 - - -
---------- ---------- -------- ----------
Net periodic postretirement benefits
cost $ 2,983 $ 2,350 $ 136 $ 249
========== ========== ======== ==========
</TABLE>
For measurement purposes, the following medical and dental cost trend
rates were assumed in determining the accumulated benefit obligation for 1999,
1998, the 21 day period ended December 31, 1997 and the 344 day period ended
December 10, 1997:
Medical Cost Trend Rates
<TABLE>
<S> <C>
- Medical prior to age 65 7.5%, 6.0%, 4.5% in 1997, 1998 and 1999, respectively,
(Indemnity Plan) and 6.5% in 2000 decreasing 0.5% per year for 3 years,
ultimately 4.5% in 2004 and thereafter.
- Medical prior to age 65 (HMOs); 4.5% in 1997, 1998 and 1999, 6.5% in 2000 decreasing
medical age 65 and older 0.5% per year for 3 years, ultimately 4.5% in 2004 and
thereafter.
Dental Cost Trend Rate
- Dental costs 4.5% in 1997 and thereafter.
</TABLE>
F-19
<PAGE> 37
STANADYNE AUTOMOTIVE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except share amounts)
(11) POSTRETIREMENT HEALTH CARE AND LIFE INSURANCE - (CONCLUDED)
The effect of a 1% change in health care cost trend rates would have
the following impact on the accumulated postretirement benefit obligation and
the net annualized postretirement benefit costs:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
One percentage point increase:
- Service cost plus interest $ 34 $ 44 $ 42
- Postretirement benefit obligation 390 591 548
One percentage point decrease:
- Service cost plus interest cost (38) (50) (48)
- Postretirement benefit obligation (457) (698) (648)
Discount rate 7.75% 7.0% 7.0%
</TABLE>
(12) INCOME TAXES
Income tax expense (benefit) for 1999, 1998, the 21 day period ended
December 31, 1997 and the 344 day period ended December 10, 1997 consisted of:
<TABLE>
<CAPTION>
Current Deferred Total
------- -------- -----
<S> <C> <C> <C>
1999
Company:
Federal $ 1,897 $ 213 $ 2,110
State 916 (383) 533
Foreign 421 564 985
----------- ----------- -----------
$ 3,234 $ 394 $ 3,628
=========== =========== ===========
1998
Company:
Federal $ 769 $ 1,507 $ 2,276
State 403 406 809
Foreign 699 (2,203) (1,504)
----------- ----------- -----------
$ 1,871 $ (290) $ 1,581
=========== =========== ===========
1997
Company:
Federal $ 345 $ (289) $ 56
State 39 (78) (39)
Foreign 6 - 6
----------- ----------- -----------
$ 390 $ (367) $ 23
=========== =========== ===========
1997
Predecessor:
Federal $ 914 $ 531 $ 1,445
State 424 129 553
Foreign 6 (215) (209)
----------- ----------- -----------
$ 1,344 $ 445 $ 1,789
=========== =========== ===========
</TABLE>
F-20
<PAGE> 38
STANADYNE AUTOMOTIVE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except share amounts)
(12) INCOME TAXES - (CONTINUED)
The income tax expense for 1999 in the table above includes $500 which
offsets the extraordinary gain related to the early retirement of debt.
Total income tax expense differed from the amounts computed by applying
the U.S. Federal income tax rate of 34% for 1999, 1998, the 21 day period ended
December 31, 1997 and the 344 day period ended December 10, 1997 to income
before income taxes as follows:
<TABLE>
<CAPTION>
Company Company Company Predecessor
21 Days 344 Days
Year Ended Year Ended Ended Ended
December 31, December 31, December 10, December 10,
1999 1998 1997 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Computed "expected" expense (benefit) $ 3,242 $ (36) $ 3 $ 1,608
Increase (reduction) in income tax resulting from:
State taxes, net of federal tax effect 352 534 (25) 365
Foreign taxes 431 1,008 6 --
Goodwill permanent difference 662 676 32 --
Federal R & D credit permanent difference
-- (99) -- --
Tax benefit of Foreign Sales Corp. (1,390) (361) -- --
Rate difference on income of foreign
operations 145 (222) -- 38
Other, net 186 81 7 (222)
------- ------- ------- -------
$ 3,628 $ 1,581 $ 23 $ 1,789
======= ======= ======= =======
</TABLE>
U.S. Federal, state and foreign net income taxes paid amounted to
$2,623, $2,613, $346 and $1,865 for 1999, 1998, the 21 day period ended December
31, 1997 and the 344 day period ended December 10, 1997, respectively.
Income before taxes from domestic operations amounted to $2,191,
$6,635, $11 and $5,243 for 1999, 1998, the 21 day period ended December 31, 1997
and the 344 day period ended December 10, 1997, respectively. Income (loss)
before taxes from foreign operations amounted to $7,343, $(6,741), $0 and $(512)
for 1999, 1998, the 21 day period ended December 31, 1997 and the 344 day period
ended December 10, 1997, respectively.
As a result of losses in current and previous years, the Company has
unused net operating loss carryforwards for state income tax purposes of
approximately $3,223 at December 31, 1999, which, if not used to offset future
state taxable income, will begin to expire in 2000. The Company also has federal
general business credit carryforwards of $213 at December 31, 1999, which, if
not used to offset future federal taxable income, will begin to expire in 2004.
In addition, unused foreign net operating losses of $6,831 at December 31, 1999
will begin to expire in 2000.
The Company has been subject to the U.S. Alternative Minimum Tax
("AMT") and, therefore, has a cumulative AMT credit carryforward of $4,360 as of
December 31, 1999. This carryforward has an unlimited life and may be used to
offset federal income taxes in excess of AMT in future periods.
F-21
<PAGE> 39
STANADYNE AUTOMOTIVE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except share amounts)
(12) INCOME TAXES - (CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
1999 and 1998 are presented as follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Current:
Deferred tax assets:
Alternative minimum tax credit carryforwards $2,087 $1,005
Postretirement benefits 1,892 1,676
Compensated absences 1,603 1,528
Workers' compensation 766 514
Net operating losses 374 --
Federal general business credit 213 1,258
Health benefits 170 175
Other 2,401 1,380
------ ------
Deferred tax assets 9,506 7,536
Deferred tax liabilities:
Inventories 1,146 1,408
------ ------
Net current deferred tax asset $8,360 $6,128
====== ======
</TABLE>
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Noncurrent:
Deferred tax assets:
Postretirement benefits $14,797 $14,283
Alternative minimum tax credit carryforwards 2,273 4,077
Net operating loss carryforwards 2,230 1,832
Workers' compensation 781 1,342
Inventories -- 1,064
Plant closure costs -- 1,382
Other 1,299 1,314
------- -------
Deferred tax assets 21,380 25,294
Deferred tax liabilities:
Property, plant and equipment 27,127 28,292
------- -------
Net noncurrent deferred tax liability $ 5,747 $ 2,998
======= =======
</TABLE>
At December 31, 1999, the Company did not establish a valuation
allowance to offset any deferred tax assets. The Company has reported operating
income on the consolidated statements of operations as well as income for tax
purposes in 1999, 1998 and 1997. Based on projections for future taxable income
over the periods during which the deferred tax assets are deductible, and the
expectation that a significant portion of these deferred tax assets are to be
realized by offsetting them against temporary items, it is management's belief
that it is more likely than not that all deferred tax assets will be fully
realized. Projections indicate full utilization of the following deferred tax
assets: 1) Federal general business credit of approximately $213 by 2000, 2) AMT
credit carryforward of approximately $4,360 by 2003, 3) foreign net operating
losses of $6,831 by 2004, and 4) state net operating losses of approximately
$3,223 by 2003.
F-22
<PAGE> 40
STANADYNE AUTOMOTIVE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except share amounts)
(13) CHANGES IN COMPONENTS OF ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The changes in the components of accumulated other comprehensive income
(loss) for 1999, 1998, the 21 day period ended December 31, 1997 and the 344 day
period ended December 10, 1997 are as follows:
<TABLE>
<CAPTION>
Accumulated
Cumulative Additional Other
Translation Pension Comprehensive
Adjustment Liability Income (Loss)
----------- ---------- --------------
<S> <C> <C> <C>
January 1, 1997 $ (23) $ (141) $ (164)
Net change (1,149) (123) (1,272)
------- ------- -------
December 10, 1997 $(1,172) $ (264) $(1,436)
======= ======= =======
Initial capitalization -
December 11, 1997 $ -- $ -- $ --
Net change (1) -- (1)
------- ------- -------
December 31, 1997 (1) -- (1)
Net change 1,033 -- 1,033
------- ------- -------
December 31, 1998 1,032 -- 1,032
Net change (3,416) -- (3,416)
------- ------- -------
December 31, 1999 $(2,384) $ -- $(2,384)
======= ======= =======
</TABLE>
(14) CAPITAL STOCK
The Certificate of Incorporation of Stanadyne Automotive Corp. provides
the Company with the authority to issue 10,000 shares of common stock, par value
$.01 of which 1,000 are issued and outstanding.
Certain members of management of the Predecessor had individual
subscription agreements which became fully vested due to a change in control in
conjunction with the Acquisition. The Predecessor recorded expense for the 344
day period ended December 10, 1997 of $2,189 of which $1,705 resulted from the
Acquisition.
F-23
<PAGE> 41
STANADYNE AUTOMOTIVE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except share amounts)
(15) PLANT CLOSURE COSTS
On September 9, 1998, the Company announced the planned closure of the
manufacturing facility in Bari, Italy. The Bari Plant is a part of the wholly
owned subsidiary, Stanadyne Automotive, SpA. This closure was completed during
the second quarter of 1999. The estimated cost of closing the operation resulted
in a charge to fourth quarter 1998 earnings for $4,215. Inventory writedowns to
lower of cost or market totaled $787 and were recorded in cost of goods sold in
the 1998 consolidated statement of operations. Employee termination costs and
other plant closure expenses totaled $3,428 and were charged to operating income
in the 1998 consolidated statement of operations. Accrued liabilities at
December 31, 1998, included $6,457 to reflect the anticipated sum of plant
closure costs and leaving indemnity scheduled for payment in 1999.
The Company favorably concluded the major cost elements of the plant
closure in the third quarter of 1999 and as a result recorded a $1,930 savings,
primarily as a result of lower severance costs, to the reserve established in
1998 which is reflected in the 1999 consolidated statement of operations.
(16) 401(k) PLAN
Substantially all of the Company's domestic employees are eligible to
participate in 401(k) savings plans. The 401(k) savings plans provide such
employees with the opportunity to save for retirement on a tax deferred basis.
The Company contributes 50% of the employee's contribution per year up to a
limit, as defined in the plan documents. The Company made contributions of $396,
$404, $4 and $337 during 1999, 1998, the 21 day period ended December 31, 1997
and the 344 day period ended December 10, 1997, respectively.
(17) RELATED PARTY TRANSACTIONS
During 1999, 1998 and the 21 day period ended December 31, 1997, the
Company incurred management fees of $1,100, $1,100 and $59, respectively, from
AIP for management services provided. During the 344 day period ended December
10, 1997, the Company incurred management fees of $470 from Metromedia Company
("Metromedia") for management services provided. These charges are included in
selling, general and administrative expenses.
In conjunction with the Acquisition described in Note 2, the Company
has an amount due from Stanadyne Automotive Holding Corp. of $4,061 as of
December 31, 1999 and 1998.
F-24
<PAGE> 42
STANADYNE AUTOMOTIVE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except share amounts)
(18) SIGNIFICANT CUSTOMERS
During 1999, 1998, the 21 day period ended December 31, 1997 and the
344 day period ended December 10, 1997, sales to customers and their affiliates,
which represented approximately 10% or more of consolidated total sales, were as
follows:
<TABLE>
<CAPTION>
Company Company Company Predecessor
21 Days 344 Days
Year Ended Year Ended Ended Ended
December 31, December 31, December 31, December 10,
Segment 1999 % 1998 % 1997 % 1997 %
------- ------------ ---- ------------- ---- ------------ ---- ------------ ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Customer A Diesel Group $45,359 16.1 $ 56,416 18.4 $ 1,936 13.7 $ 37,231 14.4
Customer B Precision Engine 34,143 12.1 33,188 10.8 1,182 8.4 34,039 13.1
Customer C Diesel Group 57,203 20.3 58,445 19.0 2,761 19.5 42,824 16.5
</TABLE>
Accounts receivable balances with these customers and their affiliates
were $18,913 and $16,555 at December 31, 1999 and 1998, respectively.
(19) COMMITMENTS AND CONTINGENCIES
The Company is involved in various legal and regulatory proceedings
generally incidental to its business. While the results of any litigation or
regulatory issue contain an element of uncertainty, management believes that the
outcome of any known, pending or threatened legal proceeding, or all of them
combined, will not have a material adverse effect on the Company's financial
position or results of operations.
The Company is subject to potential environmental liability and various
claims and legal actions which are pending or may be asserted against the
Company concerning environmental matters. 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 environmental exposure
of known sites. However, there are limitations to this indemnification.
Estimates of the cost as of the date of the Acquisition for the remediations to
be completed by Metromedia at the Windsor, Connecticut and Jacksonville, North
Carolina facilities were $1,700 and $300, respectively. Estimates of future
costs of environmental matters are inevitably imprecise due to numerous
uncertainties, including the enactment of new laws and regulations, the
development and application of new technologies, the identification of new sites
for which the Company may have remediation responsibility and the apportionment
and collectibility of remediation costs among responsible parties. The Company
establishes reserves for these environmental matters when a loss is probable and
reasonably estimable and has accrued its best estimate, $1,344 and $1,460, with
respect to these matters at December 31, 1999 and 1998, respectively. It is
reasonably possible that the final resolution of some of these matters may
require the Company to make expenditures, in excess of established reserves,
over an extended period of time and in a range of amounts that cannot be
reasonably estimated. However, management does not believe that the costs
associated with resolution of these or any other environmental matters will have
a material adverse effect on the Company's financial position or results of
operations.
F-25
<PAGE> 43
STANADYNE AUTOMOTIVE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except share amounts)
(20) SEGMENTS
The Company has two reportable segments, the Diesel Systems Group (the
"Diesel Group") and Precision Engine. The Diesel Group manufactures diesel fuel
injection equipment including fuel pumps, injectors and filtration systems. This
segment accounted for approximately 82%, 84%, 80% and 79% of the Company's
revenues for 1999, 1998, the 21 day period ended December 31, 1997 and the 344
day period ended December 10, 1997, respectively. Precision Engine manufactures
roller-rocker arms, hydraulic valve lifters and lash adjusters for gasoline
engines. Revenues for Precision Engine accounted for 18%, 16%, 20% and 21% of
total revenues for 1999, 1998, the 21 day period ended December 31, 1997 and the
344 day period ended December 10, 1997, respectively. The Company's reportable
segments are strategic business units that offer similar products (engine parts)
to customers in related industries (agricultural, industrial and automotive
engine manufacturers). 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 intersegment
sales between the Diesel Group and Precision Engine for any of the periods
presented below.
The following summarizes key information used by the Company in
evaluating the performance of each segment as of and for 1999, 1998, the 21 day
period ended December 31, 1997 and the 344 day period ended December 10, 1997:
<TABLE>
<CAPTION>
Company
As of and For the Year Ended December 31, 1999
Diesel Precision
Group Engine Eliminations Totals
----- ------ ------------ ------
<S> <C> <C> <C> <C>
Net sales $ 231,048 $ 50,532 $ - $ 281,580
Gross profit 48,001 9,375 - 57,376
Depreciation and amortization expense 17,491 3,313 - 20,804
Operating income 15,340 6,520 - 21,860
Net income 2,690 3,216 - 5,906
Total assets 270,530 53,604 (18,029) 306,105
Total capital expenditures 9,439 2,010 - 11,449
</TABLE>
<TABLE>
<CAPTION>
Company
As of and For the Year Ended December 31, 1998
Diesel Precision
Group Engine Eliminations Totals
----- ------ ------------ ------
<S> <C> <C> <C> <C>
Net sales $ 256,594 $ 50,459 $ - $ 307,053
Gross profit 48,641 6,682 - 55,323
Depreciation and amortization expense 16,795 3,021 - 19,816
Operating income 12,764 2,268 - 15,032
Net loss (1,200) (487) - (1,687)
Total assets 283,724 57,986 (19,794) 321,916
Total capital expenditures 11,293 3,086 - 14,379
</TABLE>
F-26
<PAGE> 44
STANADYNE AUTOMOTIVE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except share amounts)
(20) SEGMENTS - (CONCLUDED)
<TABLE>
<CAPTION>
Company
As of and For the 21 Days Ended December 31, 1997
Diesel Precision
Group Engine Eliminations Totals
----- ------ ------------ ------
<S> <C> <C> <C> <C>
Net sales $ 11,276 $ 2,878 $ - $ 14,154
Gross profit 2,239 497 - 2,736
Depreciation and amortization expense 817 178 - 995
Operating income 708 183 - 891
Net (loss) income (186) 174 - (12)
Total assets 282,707 56,474 (17,871) 321,310
Total capital expenditures 352 26 - 378
</TABLE>
<TABLE>
<CAPTION>
Predecessor
As of and For the 344 Days Ended December 10, 1997
Diesel Precision
Group Engine Eliminations Totals
----- ------ ------------ ------
<S> <C> <C> <C> <C>
Net sales $205,335 $ 53,809 $ - $259,144
Gross profit 32,383 7,119 - 39,502
Depreciation and amortization expense 13,098 2,602 - 15,700
Operating income 7,619 3,785 - 11,404
Net income 660 2,282 - 2,942
Total assets 189,306 32,136 (17,094) 204,348
Total capital expenditures 11,804 1,358 - 13,162
</TABLE>
(21) FOREIGN AND GEOGRAPHIC INFORMATION
The Company has manufacturing operations in the United States, Italy
and Brazil. The following is a summary of information by area as of December 31,
1999, 1998 and 1997 and for 1999, 1998, the 21 day period ended December 31,
1997 and the 344 day period ended December 10, 1997:
<TABLE>
<CAPTION>
Company Company Company Predecessor
21 Days 344 Days
Year Ended Year Ended Ended Ended
December 31, December 31, December 10, December 10,
1999 1998 1997 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales:
Domestic - United States $168,463 $195,595 $ 8,783 $174,860
-------- -------- -------- --------
Foreign net sales:
England 43,547 51,009 2,277 38,092
All other 69,570 60,449 3,094 46,192
-------- -------- -------- --------
Total foreign sales 113,117 111,458 5,371 84,284
-------- -------- -------- --------
Net sales $281,580 $307,053 $ 14,154 $259,144
======== ======== ======== ========
</TABLE>
F-27
<PAGE> 45
STANADYNE AUTOMOTIVE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except share amounts)
(21) FOREIGN AND GEOGRAPHIC INFORMATION - (CONCLUDED)
<TABLE>
<CAPTION>
Company Company
December 31, December 31,
1999 1998
----------- -----------
<S> <C> <C>
Long-lived assets:
United States $ 181,610 $ 189,874
Italy 29,341 35,962
Brazil 347 -
----------- -----------
Long-lived assets $ 211,298 $ 225,836
=========== ===========
Deferred tax assets (liabilities):
United States $ 2,520 $ 2,056
Italy 240 1,074
Brazil (147) -
----------- -----------
Deferred tax assets $ 2,613 $ 3,130
=========== ===========
</TABLE>
(22) VALUATION AND QUALIFYING ACCOUNTS
The components of significant valuation and qualifying accounts for
1999, 1998, the 21 day period ended December 31, 1997 and the 344 day period
ended December 10, 1997 were as follows:
<TABLE>
<CAPTION>
Allowance for
Uncollectible
Accounts Inventory
Receivable Reserves
---------- --------
<S> <C> <C>
Balance December 31, 1996 $ 478 $ 1,994
Charged to costs and expenses 1,055 1,503
Recoveries (write-offs) 14 (596)
Exchange (42) (59)
----------- -----------
Balance December 11, 1997 1,505 2,842
Charged (credited) to costs and expenses 3 (11)
Write-offs - (172)
Exchange - -
----------- -----------
Balance December 31, 1997 1,508 2,659
Charged to costs and expenses 44 1,896
(Write-offs) recoveries (1,062) 7
Exchange 10 58
----------- -----------
Balance December 31, 1998 500 4,620
Charged to costs and expenses 208 378
Write-offs (54) (1,781)
Exchange (44) (125)
----------- -----------
Balance December 31, 1999 $ 610 $ 3,092
=========== ===========
</TABLE>
F-28
<PAGE> 46
STANADYNE AUTOMOTIVE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except share amounts)
(23) SUBSEQUENT EVENTS
Between January 25, 2000 and February 2, 2000, the Company retired
$14,050 in Notes at a discounted price of $11,503. As a result of the early
retirement of the Notes, the Company realized a $1,585 gain which was recorded
net of tax and the write off of unamortized debt issuance cost of $962. The
transactions will be recorded as an extraordinary item in the first quarter of
2000.
F-29
<PAGE> 47
STANADYNE AUTOMOTIVE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except share amounts)
(24) SUPPLEMENTAL COMBINED CONDENSED FINANCIAL STATEMENTS
Under the terms of the Notes issued by the Parent, the Notes are
guaranteed jointly, fully, severally and unconditionally by the Subsidiary
Guarantors on a subordinated basis and are not guaranteed by SpA, PEPL and FSC
(the "Non-Guarantors").
The following are the supplemental combining condensed balance sheets
as of December 31, 1999 and 1998 and the supplemental combined condensed
statements of operations and cash flows for 1999, 1998, the 21 day period ended
December 31, 1997 and the 344 day period ended December 10, 1997. Separate
complete financial statements of the Guarantor are not presented because
management has determined that they are not material to investors.
<TABLE>
<CAPTION>
(Company)
December 31, 1999
------------------------------------------------------------------------------
Stanadyne Stanadyne
Automotive Non- Automotive
Corp. Subsidiary Guarantor Corp. &
Parent Guarantors Subsidiaries Eliminations Subsidiaries
------ ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
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)(c) 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)(b) 91,687
Investment in subsidiaries 36,516 (311) - (36,205)(a) -
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
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)(b) 52,002
Intercompany accounts (25,498) 15,567 10,023 (92) -
Stockholders' equity 64,120 18,059 15,851 (36,349)(a) 61,681
----------- ----------- ------------ ------------ ------------
Total liabilities and
stockholders' equity $ 249,253 $ 52,361 $ 41,147 $ (36,656) $ 306,105
=========== =========== ============ ============ ============
</TABLE>
(a) Amount represents the elimination of investments in subsidiaries.
(b) Reclassify Non-Guarantor deferred tax asset to deferred tax liability.
(c) Amount represents the elimination of inventory for out of period transfers.
F-30
<PAGE> 48
STANADYNE AUTOMOTIVE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except share amounts)
(24) SUPPLEMENTAL COMBINED CONDENSED FINANCIAL STATEMENTS - (CONTINUED)
<TABLE>
<CAPTION>
(Company)
December 31, 1998
------------------------------------------------------------------------------
Stanadyne Stanadyne
Automotive Non- Automotive
Corp. Subsidiary Guarantor Corp. &
Parent Guarantors Subsidiaries Eliminations Subsidiaries
------ ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 4,859 $ 5 $ 5 $ 263 $ 5,132
Accounts receivable, net 27,257 6,731 7,576 - 41,564
Inventories 22,466 7,418 6,852 (176) 36,560
Other current assets 6,601 2,040 122 - 8,763
----------- ----------- ------------ ------------ ------------
Total current assets 61,183 16,194 14,555 87 92,019
Property, plant and equipment, net 86,501 22,284 17,181 - 125,966
Intangible and other assets, net 67,635 14,528 18,781 (1,074)(b) 99,870
Investment in subsidiaries 23,285 - - (23,285)(a) -
Due from Stanadyne Automotive Holding
Corp. 4,061 - - - 4,061
----------- ----------- ------------ ------------ ------------
Total assets $ 242,665 $ 53,006 $ 50,517 $ (24,272) $ 321,916
=========== =========== ============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued liabilities $ 29,640 $ 7,725 $ 13,970 $ - $ 51,335
Current maturities of long-term debt and
capital lease obligations 5,723 - 4,380 - 10,103
----------- ----------- ------------ ------------ ------------
Total current liabilities 35,363 7,725 18,350 - 61,438
Long-term debt and capital lease
obligations 148,995 - 1,388 - 150,383
Other noncurrent liabilities 33,999 12,904 5,075 (1,074)(b) 50,904
Intercompany accounts (33,956) 17,563 16,141 252 -
Stockholders' equity 58,264 14,814 9,563 (23,450)(a) 59,191
----------- ----------- ------------ ------------ ------------
Total liabilities and
stockholders' equity $ 242,665 $ 53,006 $ 50,517 $ (24,272) $ 321,916
=========== =========== ============ ============ ============
</TABLE>
(a) Amount represents the elimination of investments in subsidiaries.
(b) Reclassify Non-Guarantor deferred tax asset to deferred tax liability.
F-31
<PAGE> 49
STANADYNE AUTOMOTIVE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except share amounts)
(24) SUPPLEMENTAL COMBINED CONDENSED FINANCIAL STATEMENTS - (CONTINUED)
<TABLE>
<CAPTION>
(Company)
Year Ended December 31, 1999
-------------------------------------------------------------------------------
Stanadyne Stanadyne
Automotive Non- Automotive
Corp. Subsidiary Guarantor Corp. &
Parent Guarantors Subsidiaries Eliminations Subsidiaries
------ ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales $ 207,348 $ 50,647 $ 24,199 $ (614)(a) $ 281,580
Cost of goods sold 161,004 41,235 22,474 (509)(a) 224,204
----------- ----------- ------------ ------------ ------------
Gross profit 46,344 9,412 1,725 (105) 57,376
Selling, general, administrative and
other operating expenses 40,291 2,415 (7,103) (87) 35,516
----------- ----------- ------------ ------------ ------------
Operating income 6,053 6,997 8,828 (18) 21,860
Interest, net 11,036 1,127 1,423 (10) 13,576
----------- ----------- ------------ ------------ ------------
(Loss) income before income
taxes and extraordinary item (4,983) 5,870 7,405 (8) 8,284
Income tax (benefit) expense (815) 2,285 1,658 - 3,128
----------- ----------- ------------ ------------ ------------
(Loss) income before
extraordinary item (4,168) 3,585 5,747 (8) 5,156
Extraordinary gain 750 - - - 750
----------- ----------- ------------ ------------ ------------
Net (loss) income $ (3,418) $ 3,585 $ 5,747 $ (8) $ 5,906
=========== =========== ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
(Company)
Year Ended December 31, 1998
-------------------------------------------------------------------------------
Stanadyne Stanadyne
Automotive Non- Automotive
Corp. Subsidiary Guarantor Corp. &
Parent Guarantors Subsidiaries Eliminations Subsidiaries
------ ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales $ 231,215 $ 50,459 $ 26,138 $ (759)(a) $ 307,053
Cost of goods sold 181,367 43,777 27,376 (790)(a) 251,730
----------- ----------- ------------ ------------ ------------
Gross profit (loss) 49,848 6,682 (1,238) 31 55,323
Selling, general, administrative and
other operating expenses 32,090 4,414 3,787 - 40,291
----------- ----------- ------------ ------------ ------------
Operating income (loss) 17,758 2,268 (5,025) 31 15,032
Interest, net 11,851 1,539 1,730 18 15,138
----------- ----------- ------------ ------------ ------------
Income (loss) before income
taxes 5,907 729 (6,755) 13 (106)
Income tax expense (benefit) 1,681 1,216 (1,316) - 1,581
----------- ----------- ------------ ------------ ------------
Net income (loss) $ 4,226 $ (487) $ (5,439) $ 13 $ (1,687)
=========== =========== ============ ============ ============
</TABLE>
(a) To eliminate intercompany sales and cost of sales.
F-32
<PAGE> 50
STANADYNE AUTOMOTIVE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except share amounts)
(24) SUPPLEMENTAL COMBINED CONDENSED FINANCIAL STATEMENTS - (CONTINUED)
<TABLE>
<CAPTION>
(Company)
21 Day Period Ended December 31, 1997
---------------------------------------------------------------------------------
Stanadyne Stanadyne
Automotive Non- Automotive
Corp. Subsidiary Guarantor Corp. &
Parent Guarantors Subsidiaries Eliminations Subsidiaries
------ ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales $ 11,329 $ 2,878 $ - $ (53)(a) $ 14,154
Cost of goods sold 9,091 2,380 - (53)(a) 11,418
----------- ----------- ------------ ------------ ------------
Gross profit 2,238 498 - - 2,736
Selling, general, administrative and
other operating expenses 1,531 314 - - 1,845
----------- ----------- ------------ ------------ ------------
Operating income 707 184 - - 891
Interest, net 786 94 - - 880
----------- ----------- ------------ ------------ ------------
Income (loss) before income
taxes (79) 90 - - 11
Income tax expense (benefit) 108 (85) - - 23
----------- ----------- ------------ ------------ ------------
Net (loss) income $ (187) $ 175 $ - $ - $ (12)
=========== =========== ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
(Predecessor)
344 Day Period Ended December 10, 1997
-------------------------------------------------------------------------------
Stanadyne Stanadyne
Automotive Non- Automotive
Corp. Subsidiary Guarantor Corp. &
Parent Guarantors Subsidiaries Eliminations Subsidiaries
------ ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales $ 177,204 $ 53,809 $ 28,986 $ (855)(a) $ 259,144
Cost of goods sold 145,925 46,691 27,856 (830)(a) 219,642
----------- ----------- ------------ ------------ ------------
Gross profit 31,279 7,118 1,130 (25) 39,502
Selling, general, administrative and
other operating expenses 23,414 3,333 1,351 - 28,098
----------- ----------- ------------ ------------ ------------
Operating income (loss) 7,865 3,785 (221) (25) 11,404
Interest, net 6,379 3 291 - 6,673
----------- ----------- ------------ ------------ ------------
Income (loss) before income
taxes 1,486 3,782 (512) (25) 4,731
Income tax expense (benefit) 504 1,500 (215) - 1,789
----------- ----------- ------------ ------------ ------------
Net income (loss) $ 982 $ 2,282 $ (297) $ (25) $ 2,942
=========== =========== ============ ============ ============
</TABLE>
(a) To eliminate intercompany sales and cost of sales.
F-33
<PAGE> 51
STANADYNE AUTOMOTIVE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(24) SUPPLEMENTAL COMBINED CONDENSED FINANCIAL STATEMENTS - (CONTINUED)
<TABLE>
<CAPTION>
(Company)
Year Ended December 31, 1999
----------------------------------------------------------------------------
Stanadyne Stanadyne
Automotive Non- Automotive
Corp. Subsidiary Guarantor Corp. &
Parent Guarantors Subsidiaries Eliminations Subsidiaries
------ ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net (loss) income $ (3,418) $ 3,585 $ 5,747 $ (8) $ 5,906
Adjustments to reconcile net (loss)
income to net cash provided by (used
in) operating activities:
Depreciation and amortization 15,902 3,306 1,596 - 20,804
Other adjustments 559 (652) 564 - 471
Changes in operating assets and
liabilities 14,648 (5,039) (9,422) (204) (17)
----------- ----------- ------------ ----------- ------------
Net cash provided by (used in)
operating activities 27,691 1,200 (1,515) (212) 27,164
----------- ----------- ------------ ----------- ------------
Cash flows from investing activities:
Capital expenditures (8,854) (1,792) (803) - (11,449)
Proceeds from disposal of property,
plant and equipment 71 618 - - 689
Investment in subsidiaries (3,963) (29) - 3,992 -
----------- ----------- ------------ ----------- ------------
Net cash (used in) provided by
investing activities (12,746) (1,203) (803) 3,992 (10,760)
----------- ----------- ------------ ----------- ------------
Cash flows from financing activities:
Net change in debt (16,041) - (1,461) - (17,502)
Net change in equity - - 3,992 (3,992) -
----------- ----------- ------------ ----------- ------------
Net cash (used in) provided by
financing activities (16,041) - 2,531 (3,992) (17,502)
----------- ----------- ------------ ----------- ------------
Net (decrease) increase in cash and cash
equivalents (1,096) (3) 213 (212) (1,098)
Effect of exchange rate changes on cash (3) - (34) 60 23
Cash and cash equivalents at
beginning of year 4,859 5 5 263 5,132
----------- ----------- ------------ ----------- ------------
Cash and cash equivalents at
end of year $ 3,760 $ 2 $ 184 $ 111 $ 4,057
=========== =========== ============ =========== ============
</TABLE>
F-34
<PAGE> 52
STANADYNE AUTOMOTIVE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(24) SUPPLEMENTAL COMBINED CONDENSED FINANCIAL STATEMENTS - (CONTINUED)
<TABLE>
<CAPTION>
(Company)
Year Ended December 31, 1998
----------------------------------------------------------------------------
Stanadyne Stanadyne
Automotive Non- Automotive
Corp. Subsidiary Guarantor Corp. &
Parent Guarantors Subsidiaries Eliminations Subsidiaries
------ ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 4,226 $ (487) $ (5,439) $ 13 $ (1,687)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization 15,193 3,021 1,602 - 19,816
Other adjustments 863 331 (2,154) - (960)
Changes in operating assets and
liabilities (3,239) 221 6,193 288 3,463
------------ ----------- ------------ ----------- ------------
Net cash provided by operating
activities 17,043 3,086 202 301 20,632
----------- ----------- ------------ ----------- ------------
Cash flows from investing activities:
Capital expenditures (10,095) (3,086) (1,198) - (14,379)
Proceeds from disposal of property,
plant and equipment 21 1 8 - 30
----------- ----------- ------------ ----------- ------------
Net cash used in investing
activities (10,074) (3,085) (1,190) - (14,349)
----------- ----------- ------------ ----------- ------------
Cash flows from financing activities:
Net change in debt (2,430) - 988 - (1,442)
Net change in equity - - - - -
----------- ----------- ------------ ----------- ------------
Net cash (used in) provided by
financing activities (2,430) - 988 - (1,442)
----------- ----------- ------------ ----------- ------------
Net increase in cash and cash equivalents 4,539 1 - 301 4,841
Effect of exchange rate changes on cash 3 - 1 (38) (34)
Cash and cash equivalents at
beginning of year 317 4 4 - 325
----------- ----------- ------------ ----------- ------------
Cash and cash equivalents at
end of year $ 4,859 $ 5 $ 5 $ 263 $ 5,132
=========== =========== ============ =========== ============
</TABLE>
F-35
<PAGE> 53
STANADYNE AUTOMOTIVE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(24) SUPPLEMENTAL COMBINED CONDENSED FINANCIAL STATEMENTS - (CONTINUED)
<TABLE>
<CAPTION>
(Company)
21 Day Period Ended December 31, 1997
----------------------------------------------------------------------------
Stanadyne Stanadyne
Automotive Non- Automotive
Corp. Subsidiary Guarantor Corp. &
Parent Guarantors Subsidiaries Eliminations Subsidiaries
------ ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (187) $ 175 $ - $ - $ (12)
Adjustments to reconcile net income
(loss) to net cash (used in) provided
by operating activities:
Depreciation and amortization 817 178 - - 995
Other adjustments 81 (448) - - (367)
Changes in operating assets and
liabilities (38,960) 20,466 13,760 (5) (4,739)
----------- ----------- ------------ ----------- ------------
Net cash (used in) provided by
operating activities (38,249) 20,371 13,760 (5) (4,123)
----------- ----------- ------------ ----------- ------------
Cash flows from investing activities:
Capital expenditures (352) (26) - - (378)
Acquisition, net of cash acquired (87,549) (20,345) (13,760) - (121,654)
----------- ----------- ------------ ----------- ------------
Net cash used in investing
activities (87,901) (20,371) (13,760) - (122,032)
----------- ----------- ------------ ----------- ------------
Cash flows from financing activities:
Net change in debt 62,990 - - - 62,990
Net change in equity 57,402 - - - 57,402
----------- ----------- ------------ ----------- ------------
Net cash provided by financing
activities 120,392 - - - 120,392
----------- ----------- ------------ ----------- ------------
Net decrease in cash and cash equivalents (5,758) - - (5) (5,763)
Effect of exchange rate changes on cash 4 - - - 4
Cash and cash equivalents at
beginning of period 6,071 4 4 5 6,084
----------- ----------- ------------ ----------- ------------
Cash and cash equivalents at
end of period $ 317 $ 4 $ 4 $ - $ 325
=========== =========== ============ =========== ============
</TABLE>
F-36
<PAGE> 54
STANADYNE AUTOMOTIVE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(24) SUPPLEMENTAL COMBINED CONDENSED FINANCIAL STATEMENTS - (CONCLUDED)
<TABLE>
<CAPTION>
(Predecessor)
344 Day Period Ended December 10, 1997
------------------------------------------------------------------------------
Stanadyne Stanadyne
Automotive Non- Automotive
Corp. Subsidiary Guarantor Corp. &
Parent Guarantors Subsidiaries Eliminations Subsidiaries
------ ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 982 $ 2,282 $ (297) $ (25) $ 2,942
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization 11,738 2,602 1,360 - 15,700
Other adjustments 1,327 (647) (365) - 315
Changes in operating assets and
liabilities (3,068) (3,320) 1,713 43 (4,632)
----------- ----------- ------------ ------------ ------------
Net cash provided by operating
activities 10,979 917 2,411 18 14,325
----------- ----------- ------------ ------------ ------------
Cash flows from investing activities:
Capital expenditures (9,902) (1,358) (1,902) - (13,162)
Proceeds from disposal of property,
plant and equipment 148 441 169 - 758
----------- ----------- ------------ ------------ ------------
Net cash used in investing
activities (9,754) (917) (1,733) - (12,404)
----------- ----------- ------------ ------------ ------------
Cash flows from financing activities:
Net change in debt 1,967 - (679) - 1,288
Net change in equity (450) - - - (450)
----------- ----------- ------------ ------------ ------------
Net cash provided by (used in)
financing activities 1,517 - (679) - 838
----------- ----------- ------------ ------------ ------------
Net increase (decrease) in cash and cash
equivalents 2,742 - (1) 18 2,759
Effect of exchange rate changes on cash (32) - (1) (13) (46)
Cash and cash equivalents at
beginning of period 3,361 4 6 - 3,371
----------- ----------- ------------ ------------ ------------
Cash and cash equivalents at
end of period $ 6,071 $ 4 $ 4 $ 5 $ 6,084
=========== =========== ============ =========== ============
</TABLE>
******
<PAGE> 55
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
18
<PAGE> 56
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth the name, age as of December 31, 1999 and
position with the Company of each person who is a member of the Board of
Directors or an executive officer of the Company. All directors serve for the
term for which they are elected or until their successors are duly elected and
qualified or until death, retirement, resignation or removal. All directors of
the Company are also directors of Holdings.
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
William D. Gurley 51 President, Chief Executive Officer and Director, Stanadyne Automotive Corp.
Michael H. Boyer 50 Vice President, Chief Financial Officer, Secretary and Director, Stanadyne
Automotive Corp.
Robert A. Massa 62 Vice President, Human Resources, Stanadyne Automotive Corp.
Arthur S. Caruso 56 Vice President and General Manager, Precision Engine Products Corp.
William W. Kelly 48 Vice President and General Manager, Fuel Pumps, Stanadyne Automotive Corp.
Donald Buonomo 60 Vice President, Quality and Reliability, Stanadyne Automotive Corp.
Leon P. Janik 56 Vice President and General Manager, Power Products and Fuel Injectors, Stanadyne
Automotive Corp.
W. Richard Bingham 64 Director
Robert Cizik 68 Director and Chairman of the Board
Kenneth J. Diekroeger 37 Director
Theodore C. Rogers 65 Director
Kurtis J. Kaull 39 Director
</TABLE>
Mr. Gurley joined Stanadyne's Diesel Systems Division in 1984. In 1989, Mr.
Gurley became Executive Vice President, Marketing, Engineering and Operations
and was elected as a director of Stanadyne Automotive Corp. In 1995, he became
President and Chief Executive Officer of the Company.
Mr. Boyer joined Stanadyne in 1978. In 1989, Mr. Boyer became Vice President and
Chief Financial Officer and was elected Secretary and to the Board of Directors
for the Company in 1998.
Mr. Massa joined Stanadyne in October 1990 as Vice President, Human Resources.
Mr. Caruso joined Stanadyne's Precision Products Division (the predecessor
entity to Precision Engine) in 1965 and became Vice President and General
Manager, Precision Engine Products Corp. in 1988.
Mr. Kelly joined Stanadyne in 1982. Effective with the formation of Stanadyne
Automotive Corp. in 1988, Mr. Kelly was appointed to Vice President of
Engineering and Marketing for Diesel Systems Division and in 1998 became Vice
President and General Manager, Fuel Pumps.
Mr. Buonomo joined Stanadyne in 1997 as Vice President, Quality and Reliability.
Prior to joining Stanadyne, he served as Vice President, Corporate Quality with
C. Cowles & Company and Vice President, Quality & Reliability with Veeder-Root
Company.
19
<PAGE> 57
Mr. Janik joined Stanadyne in 1970. In 1992, Mr. Janik was appointed Vice
President, Power Products Division and in 1998 became Vice President and General
Manager, Power Products and Fuel Injectors.
Mr. Bingham co-founded AIP with Theodore C. Rogers in 1988 and, with Mr. Rogers,
is responsible for the overall management of the firm. Mr. Bingham was a
Managing Director of Shearson Lehman Brothers from 1984 to 1987. Prior to
joining Shearson Lehman Brothers, Mr. Bingham was a Director of the Corporate
Finance Department, a member of the board, and head of Mergers and Acquisitions
at Lehman Brothers Kuhn Loeb Inc. Prior thereto, he directed investment-banking
operations at Kuhn Loeb & Company where he was a partner and member of the board
and executive committee. Mr. Bingham also serves as a director of Bucyrus
International, Great Lakes Carbon, MBA Polymers, RBX Group and Dearfield
Associates.
Mr. Cizik is Chairman of the Board of the Company and has held that position and
served on the Board since December 12, 1997. He served as Chairman and Chief
Executive Officer of Cooper Industries, Inc., a diversified international
manufacturing company, from 1975 to 1996. He served as Chairman of the Board of
Easco, Inc. from January 1997 until May 1998. Mr. Cizik served as a director of
Harris Corporation from October 1998 until October 1999. He currently serves as
Chairman of the Board of Koppers Industries, Inc. and as a director of Air
Products and Chemicals, Inc., and Temple-Inland, Inc.
Mr. Diekroeger joined the San Francisco office of AIP in 1996 from The Shansby
Group, a private equity investment firm, where he had been employed since before
1992, and where he sourced, executed and served as a director for several
middle-market investments and buyouts. He was elected to the Board of Directors
of the Company in December 1997.
Mr. Rogers co-founded AIP with W. Richard Bingham in 1988 and, with Mr. Bingham,
is responsible for the overall management of the firm. Mr. Rogers is former
President, Chairman, Chief Executive Officer and Chief Operating Officer of NL
Industries, a petroleum service and chemical company. Mr. Rogers currently
serves as a non-executive Chairman of the Board and Director of Great Lakes
Carbon Corporation. Additionally, he serves as a Director of Bucyrus
International, Central Industrial Supply Company, RBX Group, Steel Heddle Group
and Derby International, Incorporated.
Mr. Kaull joined the San Francisco office of AIP in 1996 from Pexco Holdings, a
private equity investment firm, where he had been employed since 1990. He was
elected to the Board of Directors of the Company in February 1999. Additionally,
he serves as a Director of Central Industrial Supply Company.
Directors do not receive compensation for their services as directors, with the
exception of the Chairman of the Board, who receives $150,000 per year.
Directors of the Company are entitled to reimbursement of their reasonable
out-of-pocket expenses in connection with their travel to and attendance at
meetings of the Board of Directors or committees thereof.
20
<PAGE> 58
ITEM 11. EXECUTIVE COMPENSATION
The compensation of executive officers of the Company is determined by the Board
of Directors of the Company. The following table sets forth information
concerning compensation received by the five most highly compensated officers of
the Company for services rendered in fiscal 1999, 1998 and 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term
Compensation Awards
Securities
Other Annual Underlying All Other
Name and Position Year Salary Bonus Compensation (1) Options (#) Compensation (2)
- ----------------- ---- ------ ----- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C> <C>
William D. Gurley 1999 $345,000 $395,715 $40,742 468 ---
(President, Chief 1998 320,000 261,754 34,667 5,850 ---
Executive Officer and 1997 300,000 68,400 33,681 --- $916,626
Director)
Michael H. Boyer 1999 217,500 249,473 34,487 170 ---
(Vice President, Chief 1998 202,000 165,232 26,384 2,125 ---
Financial Officer, 1997 190,000 43,320 25,582 --- 565,028
Secretary and Director)
Arthur S. Caruso 1999 193,000 215,388 26,983 --- ---
(Vice President and 1998 185,000 91,760 24,362 --- ---
General Manager) 1997 160,000 45,440 29,645 --- 248,870
Leon P. Janik 1999 213,500 244,244 23,986 180 ---
(Vice President and 1998 185,000 156,977 23,357 2,250 ---
General Manager) 1997 140,000 27,300 25,720 --- 294,054
William W. Kelly 1999 225,500 257,972 27,895 240 ---
(Vice President and 1998 210,000 178,731 24,992 3,000 ---
General Manager) 1997 200,000 39,000 22,054 --- 567,602
</TABLE>
(1) Other Annual Compensation was received in the form of taxable and
nontaxable fringe benefits, which included, among other things, club
allowances, personal umbrella insurance, executive life and disability
insurance, medical reimbursement and automobile leases.
(2) All Other Compensation was paid in 1997 in connection with the
Acquisition. Prior to the Acquisition, the Company maintained two
incentive plans for top level executives: the Debt Reduction Agreement
("DRA") and the Equity Participation Promotion Agreement ("EPP"). The
DRA was an incentive plan whereby cash was awarded to plan members if
certain performance objectives were achieved. The EPP was a stock
incentive plan pursuant to which restricted stock granted to plan
members in 1989 would vest upon achieving certain pre-designated
performance benchmarks. Immediately prior to the Acquisition, the DRA
was paid in full and all stock issued pursuant to the EPP was
accelerated. The EPP and DRA were terminated and all stock owned by
management was sold in connection with the Acquisition.
21
<PAGE> 59
EMPLOYMENT AGREEMENTS
The Company has entered into identical employment agreements with Messrs.
Gurley, Boyer and Kelly. Mr. Caruso has entered into a comparable agreement with
Precision Engine. Pursuant to these agreements, Messrs. Gurley, Boyer, Caruso
and Kelly serve in their current capacities at their current base salaries of
$345,000, $217,500, $201,000 and $225,500, respectively. These salaries are
reviewed at least annually and shall be increased to be consistent with
increases in base salary awarded in the ordinary course of business to other key
executives.
Each employment agreement is renewed automatically for a term of one year on the
anniversary of the effective date, unless notice is given by the Company no
later than thirty days before the end of the current term. If the Company does
not renew the agreement within the three-year period following a change of
control, the change of control provisions will continue to apply and the
executive may be entitled to certain payments under the agreement in the event
of termination.
The Company may terminate the executive for cause, as defined in the agreement,
as well as for death and disability. Moreover, the executive may terminate the
agreement for "Good Reason," which includes, among other circumstances, when the
executive is assigned duties inconsistent with, or is subject to any other
action by the Company that results in a diminution of, his position, authority,
duties or responsibilities. Upon the termination of the employment agreement by
the executive upon Good Reason, the Company shall pay to the executive within
thirty days of the date of termination (i) his base salary through the date of
termination, as well as any outstanding bonus payments; (ii) the previous year's
bonus payment prorated for the fiscal year of the termination; (iii) an amount
equal to the executive's base salary; (iv) any deferred compensation; and (v)
any other amount due the executive under any other separation or severance pay
plan of the Company.
Upon any termination within three years of a change of control, as defined in
the agreements, the executive is entitled to certain payments, unless the
termination is because of the death or retirement of the executive, by the
Company for cause or disability, or by the executive for other than Good Reason.
Such payments shall include (i) the executive's base salary through the date of
termination, as well as any outstanding bonus payments; (ii) the previous year's
bonus payment prorated for the fiscal year of termination; (iii) an amount equal
to three times the executive's current base salary, plus three times the average
amount paid to the executive in bonus payments over the prior three years; (iv)
any deferred compensation; and (v) certain payments with respect to the
executive's automobile. The executive shall be entitled to continued
participation under the welfare benefit plans of the Company for one year
following the date of termination. Payments under (iii) of this paragraph shall
be payable in three equal installments: the first on the date of termination;
the second on the first anniversary of the date of termination; and the third on
the second anniversary of the date of termination.
Mr. Janik is an at-will employee. In 1999, Mr. Janik was paid an annual salary
of $213,500 and a bonus of $244,244.
22
<PAGE> 60
STOCK OPTION PLAN
The Board of Directors of Holdings adopted the Management Stock Option Plan (the
"Stock Plan") as of June 5, 1998. The Stock Plan provides for the grant of stock
options to certain management employees of Holdings and its subsidiary, the
Company, for the purchase of shares of Holdings, which options are non-qualified
for federal income tax purposes. Subject to the requirements and limitations of
the Stock Plan, the President and Chief Executive Officer of Holdings shall have
the authority to select the participants in the Stock Plan. The Board of
Directors of Holdings, or a committee designated by the Board of Holdings, shall
have the sole and complete responsibility and authority to, among other duties,
approve grants of options under the Stock Plan.
OPTION GRANTS
There were no stock options granted during the year ended December 31, 1999.
STOCK OPTION EXERCISES
There were no stock options exercised as of December 31, 1999.
EMPLOYEE BENEFIT PLANS
401(K) PLANS
The Company sponsors two savings plans which are intended to be qualified under
Sections 401(a) and 401(k) of the Internal Revenue Code. All regular U.S.
employees, except Tallahassee hourly employees, are eligible to participate in
the Stanadyne Automotive Corp. Savings Plus Plan (the "SAC Savings Plan").
Beginning on January 1, 1998, hourly employees at the Tallahassee Plant were
eligible to participate in the Precision Engine Products Corp. Retirement Fund
(the "PEPC 401(k) Plan"). The maximum matching contribution for any participant,
excluding the participants in the PEPC 401(k) Plan, for any year is 50% of such
participant's contributions up to a maximum amount of $300.00. The participants
in the PEPC 401(k) Plan receive a Company contribution of $300.00 per year plus
a maximum matching contribution of $100.00.
The Company formerly maintained for Tallahassee hourly employees a
noncontributory defined benefit pension plan entitled the "Precision Engine
Products Corp. Tallahassee Hourly Pension Plan." This plan was terminated as of
December 31, 1997. The Company now maintains only one noncontributory defined
benefit pension plan entitled the "Stanadyne Automotive Corp. Pension Plan" (the
"SAC Pension Plan").
THE SAC PENSION PLAN
The SAC Pension Plan provides benefits for all domestic non-collectively
bargained, salaried employees of the Company and hourly employees of the Company
employed at the Windsor, Washington and Jacksonville facilities. Salaried
employees who participate in the SAC Pension Plan are provided benefits
calculated under one of two different formulas. Salaried participants are
entitled to the greater of the two benefit amounts. Under Formula One, benefits
are based upon (i) a percentage of the monthly average compensation received by
a participant during the five consecutive calendar years of employment that
would produce the highest such average (the "Final
23
<PAGE> 61
Average Compensation"), (ii) the years of service of the participant with the
Company and certain related or predecessor employers ("Years of Credited
Service"), and (iii) a percentage of the primary age 65 Social Security benefit.
Specifically, the accrued benefit payable under Formula One of the SAC Pension
Plan is equal to (w) + (x) - (y) - (z), where
(w) = 1.7% of Final Average Compensation times Years of Credited Service (not
in excess of 30)
(x) = 1% of Final Average Compensation times Years of Credited Service in excess
of 30
(y) = 1.66% of primary Social Security times Years of Credited Service (not
in excess of 30)
(z) = Annuity for employees actively employed prior to July 2, 1988 (where
applicable)
Formula Two under the SAC Pension Plan provides salaried participants with an
accrued monthly benefit equal to $19.00 times Years of Credited Service less an
Annuity for employees actively employed prior to July 2, 1988 (where
applicable).
Benefits provided under the SAC Pension Plan for hourly employees are based upon
(i) a fixed amount per month and (ii) the years of service of the participant
with the Company and certain related or predecessor employers ("Years of
Credited Service"). Specifically, the accrued monthly benefit ordinarily payable
under the SAC Pension Plan for hourly employees employed at the Washington and
Jacksonville locations is equal to: $12.00 multiplied by the participant's Years
of Credited Service. Hourly employees employed at the Windsor facility receive a
monthly benefit of $19.00 multiplied by Years of Credited Service.
For purposes of the SAC Pension Plan, compensation used in the determination of
Final Average Compensation includes total earnings received for personal
services to the Company. The total compensation that can be considered for any
purpose under the SAC Pension Plan is limited to $160,000 for 1999, 1998 and
1997, pursuant to requirements imposed by the Internal Revenue Code of 1986, as
amended (the "Code"). The Code also places certain other limitations on the
annual benefits that may be paid under the Plan.
The Company has also adopted two nonqualified plans entitled the "Stanadyne
Automotive Corp. Benefit Equalization Plan" and the "Stanadyne Automotive Corp.
Supplemental Retirement Plan" (together, the "SERP"), which are designed to
supplement the benefits payable under the SAC Pension Plan for designated
employees. The annual benefit payable under the SERP is equal to the difference
between the benefit the designated employee would have received under the SAC
Pension Plan if certain Code limitations did not apply and the designated
employee's SAC Pension Plan benefit.
Benefits may be paid under the SAC Pension Plan and the SERP in the form of (i)
a straight-life annuity for the life of the participant; (ii) a 50% joint and
survivor annuity for the lives of the participant and spouse; (iii) a 75% or
100% joint and survivor annuity whereby the participant receives a reduced
monthly benefit for life and the spouse receives 75% or 100% of such reduced
monthly benefit for life; and (iv) for participants with an accrued benefit of
$5,000.00 or less, a lump sum.
24
<PAGE> 62
Pension Plan Table (1)(2)
<TABLE>
<CAPTION>
Years of Service
----------------
Final Average Compensation 15 20 25 30 35
-------------------------- -- -- -- -- --
<S> <C> <C> <C> <C> <C>
$125,000........................ $ 27,755 $ 37,007 $ 46,259 $ 55,510 $ 61,760
150,000....................... 34,130 45,507 56,884 68,260 75,760
175,000....................... 40,505 54,007 67,509 81,010 89,760
200,000....................... 46,880 62,507 78,134 93,760 103,760
225,000....................... 53,255 71,007 88,759 106,510 117,760
250,000....................... 59,630 79,507 99,384 119,260 131,760
300,000....................... 72,380 96,507 120,634 144,760 159,760
400,000....................... 97,880 130,507 163,134 195,760 215,760
450,000....................... 110,630 147,507 184,384 221,260 243,760
500,000....................... 123,380 164,507 205,634 246,760 271,760
</TABLE>
Note:
(1) Amounts shown represent the annual single-life benefit at age 65 from
the SAC Pension Plan (as defined herein) plus the benefit from the SERP
(as defined herein).
(2) For this illustration, the annual social security benefit was assumed
to be $16,476 for the calculation of the Social Security offset.
The Years of Credited Service under the SAC Pension Plan at December 31, 1999,
were 22.0, 34.4, 15.8, 29.8 and 18.0 for Messrs. Boyer, Caruso, Gurley, Janik
and Kelly, respectively. The estimated annual benefits payable under the Plan
and the SERP, assuming termination on December 31, 1999 and retirement at age
65, are illustrated as follows:
Estimated Accrued
Pension Benefit as of 12/31/99
<TABLE>
<CAPTION>
The Sac
Pension Plan The SERP Total
------------ -------- -----
<S> <C> <C> <C>
Boyer....................... $ 45,316 $ 26,718 $ 72,034
Caruso...................... 54,225 49,824 104,049
Gurley...................... 39,345 49,851 89,196
Janik....................... 40,560 20,005 60,565
Kelly....................... 37,017 23,065 60,082
</TABLE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The Company is authorized by its Certificate of Incorporation to issue 10,000
shares of common stock, par value $.01 per share ("Company Common Stock").
Holdings owns all of the issued and outstanding 1,000 shares of Company Common
Stock. Holdings is authorized by its Certificate of Incorporation to issue
1,200,000 shares of common stock, par value $.01 per share ("Holdings Common
Stock"). AIP and management of the Company own substantially all of Holdings
Common Stock. Holdings has adopted the Stock Plan, which provides for the grant
to certain key employees and/or directors of the Company of stock options that
are non-qualified options for federal income tax purposes.
25
<PAGE> 63
As of December 31, 1999, there were 20 holders of record of shares of Holdings
Common Stock. The following table sets forth certain information regarding
beneficial ownership of Holdings Common Stock as of December 31, 1999, assuming
the exercise of stock options exercisable within 60 days of such date, by (i)
each person who is known by Holdings to be the beneficial owner of more than 5%
of Holdings Common Stock, (ii) each of the Company's directors and the named
executive officers in the Summary Compensation Table and (iii) all directors and
executive officers as a group. To the knowledge of the Company, each stockholder
has sole voting and investment power as to the shares of Holdings Common Stock
shown unless otherwise noted. Except as indicated below, the address for each
such person is c/o Stanadyne Automotive Corp., 92 Deerfield Road, Windsor, CT
06095.
<TABLE>
<CAPTION>
Exercisable
Total Options (4)
Name Number (1) Included in Total Percentage (2)
---- ---------- ----------------- --------------
<S> <C> <C> <C>
American Industrial Partners Capital Fund II, L.P. (3).. 951,301 0 93.88%
W. Richard Bingham (3).................................. 0 0 0.00%
Robert Cizik (3)........................................ 0 0 0.00%
Kenneth J. Diekroeger (3)............................... 0 0 0.00%
Lawrence W. Ward, Jr. (3)............................... 0 0 0.00%
William D. Gurley....................................... 20,418 6,318 2.01%
William W. Kelly........................................ 11,534 3,240 1.14%
Leon P. Janik........................................... 7,755 2,430 0.77%
Michael H. Boyer........................................ 7,271 2,295 0.72%
Arthur S. Caruso........................................ 0 0 0.00%
Theodore C. Rogers (5).................................. 0 0 0.00%
All directors and executive officers as a group......... 49,554 15,201 4.89%
</TABLE>
(1) Beneficial ownership is determined in accordance with Rule 13d-3 of the
Securities and Exchange Commission. In computing the number of shares
of Holdings Common Stock beneficially owned by a person and the
percentage of beneficial ownership of that person, shares of Holdings
Common Stock subject to options held by that person that are currently
exercisable or exercisable within 60 days are deemed outstanding. Such
shares, however, are not deemed outstanding for the purposes of
computing the percentage ownership of each other person. The persons
named in this table have sole voting and investment power with respect
to all shares of Holdings Common Stock shown as beneficially owned by
them, subject to community property laws where applicable and except as
indicated in the other footnotes to this table.
(2) Based upon 994,111 shares of Holdings Common Stock outstanding as of
December 31, 1999.
(3) The address of such entity or person is One Maritime Plaza, Suite 2525,
San Francisco, California 94111.
(4) Represents an aggregate of 15,201 shares of Holdings Common Stock held
by directors and executive officers which are issuable upon exercise of
options exercisable within 60 days of the date hereof.
(5) The address of such person is 551 Fifth Avenue, Suite 3800, New York,
New York 10176.
26
<PAGE> 64
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ACQUISITION ARRANGEMENTS
In connection with the Acquisition, Holdings, AIP and other stockholders of
Holdings entered into a stockholders agreement (the "Stockholders Agreement")
pursuant to which such persons were granted certain registration rights and
participation rights. Pursuant to the Stockholders Agreement, AIP has the right
to elect the directors of Holdings. The directors of the Company are the same as
the directors of Holdings.
At the close of the Acquisition on December 10, 1997, AIP was paid a fee of $4.0
million and was reimbursed for out-of-pocket expenses in connection with the
negotiation of the Acquisition and for providing certain investment banking
services to the Company, including the arrangement and negotiation of the
Company's financing, and for other financial advisory and management consulting
services.
MANAGEMENT SERVICES AGREEMENT
In accordance with a management services agreement, the Company is required to
pay AIP an annual fee of $1.1 million for providing general management,
financial and other corporate advisory services to the Company, payable
quarterly in advance on each January 1, April 1, July 1 and October 1 during the
term of the management services agreement. AIP also will be reimbursed for
out-of-pocket expenses. The management fees are subordinated in right of payment
to the Notes.
27
<PAGE> 65
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. Financial Statements:
See "Item 8. Financial Statements and Supplementary Data" of
this Annual Report on Form 10-K.
2. Financial Statement Schedules:
The Company is not required by the applicable accounting
regulations of the Securities and Exchange Commission to provide all financial
statement schedules. The Financial Statements and the Notes thereto contain what
information is required and what is not required has been omitted.
3. Exhibits:
<TABLE>
<CAPTION>
TABLE
NUMBER DESCRIPTION
<S> <C>
3.1 * Amended and Restated Certificate of Incorporation of Stanadyne
Automotive Corp.
3.2 * Amended and Restated By-laws of Stanadyne Automotive Corp.
4.1 * Indenture dated as of December 11, 1997 between Stanadyne Automotive
Corp., DSD International Corp., Precision Engine Products Corp. and
United States Trust Company of New York
4.2 * Purchase Agreement dated as of December 4, 1997 among SAC Automotive,
Inc. and Donaldson, Lufkin & Jenrette
4.3 * Registration Rights Agreement dated as of December 11, 1997 by and
among Stanadyne Automotive Corp. and Donaldson, Lufkin & Jenrette
10.1 * Credit Agreement dated as of December 11, 1997 among SAC Automotive,
Inc., Stanadyne Automotive Corp., the Lenders listed therein, as
Lenders, DLJ Capital Funding, Inc., as Syndication Agent, and The First
National Bank of Chicago, as Administrative Agent
10.1.1 *** First Amendment To Credit Agreement dated July 31, 1998 to amend
the Credit Agreement dated as of December 11, 1997 among SAC
Automotive, Inc., Stanadyne Automotive Corp., the Lenders listed
therein, as Lenders, DLJ Capital Funding, Inc., as Syndication Agent,
and The First National Bank of Chicago, as Administrative Agent
10.1.2 **** Second Amendment To Credit Agreement dated February 8, 1999 to
amend the Credit Agreement dated as of December 11, 1997, as amended as
of July 31, 1998, among SAC Automotive, Inc., Stanadyne Automotive
Corp., the Lenders listed therein, as Lenders, DLJ Capital Funding,
Inc., as Syndication Agent, and The First National Bank of Chicago, as
Administrative Agent
10.1.3 ***** Consent Regarding Repurchase of Senior Subordinated Notes to the
Credit Agreement dated September 24, 1999 to grant a consent to the
Credit Agreement dated as of December 11, 1997, as amended as of July
31, 1998 and February 8, 1999, among SAC Automotive, Inc., Stanadyne
Automotive Corp., the Lenders listed therein, as Lenders, DLJ Capital
Funding, Inc., as Syndication Agent, and The First National Bank of
Chicago, as Administrative Agent
10.2 * Stock Purchase Agreement dated November 7, 1997 for the Purchase of
Stanadyne Automotive Holding Corp. among SAC, Inc., a wholly-owned
subsidiary of American Industrial Partners
</TABLE>
28
<PAGE> 66
<TABLE>
<S> <C>
Capital Fund II, L.P., Stanadyne Automotive Holding Corp., and
Stanadyne Automotive Holding Corp. Shareholders
10.3 * Form of Amended and Restated Employment Agreement by and between
Stanadyne Automotive Corp. and William Gurley, Michael Boyer and
William Kelly
10.4 * Form of Employment Agreement by and between Precision Engine Products
Corp. and Arthur Caruso
10.5 * Stanadyne Automotive Corp. Pension Plan effective December 31, 1994
10.6 * Stanadyne Automotive Corp. Savings Plus Plan restated as of January
1, 1993
10.7 * Precision Engine Products Corp. Retirement Fund effective as of
January 1, 1998
10.8 * Stanadyne Automotive Corp. Benefit Equalization Plan effective as of
January 1, 1992
10.9 * Stanadyne Automotive Corp. Supplemental Retirement Plan effective as
of January 1, 1992
10.10 * Supply Agreement dated as of December 8, 1995 between Precision
Engine Products Corp. and the Ina Bearing Company
10.11 * Customer Agreement dated as of November 1, 1996 between Stanadyne
Automotive Corp. and Deere & Company
10.12 * Customer Agreement dated as of January 22, 1996 between Stanadyne
Automotive Corp. and General Motors Powertrain Group
10.12.1 ** Amendment dated March 13, 1998 to Customer Agreement dated as of
January 22, 1996 between Stanadyne Automotive Corp. and General Motors
Powertrain Group
10.13 * Management Services Agreement dated as of December 11, 1997 between
Stanadyne Automotive Corp. and American Industrial Partners.
10.14 Stanadyne Automotive Holding Corp. Management Stock Option Plan
effective as of June 5, 1998
12.1 Statement of Computation of Ratios
21.1 Subsidiaries of Stanadyne Automotive Corp.
27.1 Financial Data Schedule
* Incorporated by reference to Registration Statement Form S-4, File No.
333-45823, filed on February 6, 1998 and amended on March 25, 1998,
April 24, 1998 and May 11, 1998.
** Incorporated by reference to corresponding exhibit filed as an exhibit
to Form 10-Q filed May 14, 1998.
*** Incorporated by reference to corresponding exhibit filed as an exhibit
to Form 10-Q filed November 12, 1998.
**** Incorporated by reference to corresponding exhibit filed as an exhibit
to Form 10-K filed March 19, 1999.
***** Incorporated by reference to corresponding exhibit filed as an exhibit
to Form 10-Q filed November 12, 1999.
(b) Reports on Form 8-K:
</TABLE>
No reports on Form 8-K were filed during the last quarter of the period
covered by this report.
29
<PAGE> 67
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, Stanadyne Automotive Corp. has duly caused this Report to be signed
on its behalf by the undersigned, thereunto duly authorized.
<TABLE>
<S> <C> <C>
Stanadyne Automotive Corp.
--------------------------
(Registrant)
Date: March 2, 2000 By: /s/ William D. Gurley
------------- ---------------------
William D. Gurley
President and Chief Executive Officer
</TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following person on behalf of Stanadyne Automotive
Corp. and in the capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
Date: March 2, 2000 By: /s/ William D. Gurley
------------- ---------------------
William D. Gurley
President, Chief Executive Officer
and Director
Date: March 2, 2000 By: /s/ Michael H. Boyer
------------- --------------------
Michael H. Boyer
Vice President, Chief Financial
Officer, Secretary and Director
Date: March 2, 2000 By: /s/ W. Richard Bingham
------------- ----------------------
W. Richard Bingham
Director
Date: March 2, 2000 By: /s/ Robert Cizik
------------- ----------------
Robert Cizik
Chairman of the Board and Director
Date: March 2, 2000 By: /s/ Kenneth J. Diekroeger
------------- -------------------------
Kenneth J. Diekroeger
Director
Date: March 2, 2000 By: /s/ Theodore C. Rogers
------------- ----------------------
Theodore C. Rogers
Director
Date: March 2, 2000 By: /s/ Kurtis J. Kaull
------------- -------------------
Kurtis J. Kaull
Director
</TABLE>
30
<PAGE> 68
EXHIBIT INDEX
<TABLE>
<CAPTION>
TABLE
NUMBER DESCRIPTION
<S> <C>
3.1 * Amended and Restated Certificate of Incorporation of Stanadyne
Automotive Corp.
3.2 * Amended and Restated By-laws of Stanadyne Automotive Corp.
4.1 * Indenture dated as of December 11, 1997 between Stanadyne Automotive
Corp., DSD International Corp., Precision Engine Products Corp. and
United States Trust Company of New York
4.2 * Purchase Agreement dated as of December 4, 1997 among SAC Automotive,
Inc. and Donaldson, Lufkin & Jenrette
4.3 * Registration Rights Agreement dated as of December 11, 1997 by and
among Stanadyne Automotive Corp. and Donaldson, Lufkin & Jenrette
10.1 * Credit Agreement dated as of December 11, 1997 among SAC Automotive,
Inc., Stanadyne Automotive Corp., the Lenders listed therein, as
Lenders, DLJ Capital Funding, Inc., as Syndication Agent, and The First
National Bank of Chicago, as Administrative Agent
10.1.1 *** First Amendment To Credit Agreement dated July 31, 1998 to amend
the Credit Agreement dated as of December 11, 1997 among SAC
Automotive, Inc., Stanadyne Automotive Corp., the Lenders listed
therein, as Lenders, DLJ Capital Funding, Inc., as Syndication Agent,
and The First National Bank of Chicago, as Administrative Agent
10.1.2 **** Second Amendment To Credit Agreement dated February 8, 1999 to
amend the Credit Agreement dated as of December 11, 1997, as amended as
of July 31, 1998, among SAC Automotive, Inc., Stanadyne Automotive
Corp., the Lenders listed therein, as Lenders, DLJ Capital Funding,
Inc., as Syndication Agent, and The First National Bank of Chicago, as
Administrative Agent
10.1.3 ***** Consent Regarding Repurchase of Senior Subordinated Notes to the
Credit Agreement dated September 24, 1999 to grant a consent to the
Credit Agreement dated as of December 11, 1997, as amended as of July
31, 1998 and February 8, 1999, among SAC Automotive, Inc., Stanadyne
Automotive Corp., the Lenders listed therein, as Lenders, DLJ Capital
Funding, Inc., as Syndication Agent, and The First National Bank of
Chicago, as Administrative Agent
10.2 * Stock Purchase Agreement dated November 7, 1997 for the Purchase of
Stanadyne Automotive Holding Corp. among SAC, Inc., a wholly-owned
subsidiary of American Industrial Partners Capital Fund II, L.P.,
Stanadyne Automotive Holding Corp., and Stanadyne Automotive Holding
Corp. Shareholders
10.3 * Form of Amended and Restated Employment Agreement by and between
Stanadyne Automotive Corp. and William Gurley, Michael Boyer and
William Kelly
10.4 * Form of Employment Agreement by and between Precision Engine Products
Corp. and Arthur Caruso
10.5 * Stanadyne Automotive Corp. Pension Plan effective December 31, 1994
10.6 * Stanadyne Automotive Corp. Savings Plus Plan restated as of January
1, 1993
10.7 * Precision Engine Products Corp. Retirement Fund effective as of
January 1, 1998
10.8 * Stanadyne Automotive Corp. Benefit Equalization Plan effective as of
January 1, 1992
10.9 * Stanadyne Automotive Corp. Supplemental Retirement Plan effective as
of January 1, 1992
10.10 * Supply Agreement dated as of December 8, 1995 between Precision
Engine Products Corp. and the Ina Bearing Company
10.11 * Customer Agreement dated as of November 1, 1996 between Stanadyne
Automotive Corp. and Deere & Company
10.12 * Customer Agreement dated as of January 22, 1996 between Stanadyne
Automotive Corp. and General Motors Powertrain Group
10.12.1 ** Amendment dated March 13, 1998 to Customer Agreement dated as of
January 22, 1996 between Stanadyne Automotive Corp. and General Motors
Powertrain Group
</TABLE>
<PAGE> 69
<TABLE>
<S> <C>
10.13 * Management Services Agreement dated as of December 11, 1997 between
Stanadyne Automotive Corp. and American Industrial Partners.
10.14 Stanadyne Automotive Holding Corp. Management Stock Option Plan
effective as of June 5, 1998
12.1 Statement of Computation of Ratios
21.1 Subsidiaries of Stanadyne Automotive Corp.
27.1 Financial Data Schedule
* Incorporated by reference to Registration Statement Form S-4, File No.
333-45823, filed on February 6, 1998 and amended on March 25, 1998,
April 24, 1998 and May 11, 1998.
** Incorporated by reference to corresponding exhibit filed as an exhibit
to Form 10-Q filed May 14, 1998.
*** Incorporated by reference to corresponding exhibit filed as an exhibit
to Form 10-Q filed November 12, 1998.
**** Incorporated by reference to corresponding exhibit filed as an exhibit
to Form 10-K filed March 19, 1999.
***** Incorporated by reference to corresponding exhibit filed as an exhibit
to Form 10-Q filed November 12, 1999.
</TABLE>
<PAGE> 1
EXHIBIT 10.14
STANADYNE AUTOMOTIVE HOLDING CORP.
MANAGEMENT STOCK OPTION PLAN
This Management Stock Option Plan (this "Plan"), adopted by
the Board of Directors of Stanadyne Automotive Holding Corp., a Delaware
corporation (the "Company"), as of June 5, 1998.
ARTICLE I
PURPOSE OF PLAN
The Plan is adopted by the Board for certain management
employees of the Company and its Subsidiaries as a part of the compensation and
incentive arrangements for such employees. The Plan is intended to advance the
best interests of the Company by allowing such employees to acquire an ownership
interest in the Company, thereby motivating them to contribute to the success of
the Company and to remain in the employ of the Company and its Subsidiaries. The
availability of stock options under the Plan will also enhance the Company's
ability to attract and retain individuals of exceptional talent to contribute to
the sustained progress, growth and profitability of the Company.
ARTICLE II
DEFINITIONS
For purposes of the Plan, except where the context clearly
indicates otherwise, the following terms shall have the meanings set forth
below:
"Accelerated Portion" shall have the meaning set forth in
Section 6.5 hereof.
"Affiliate" of a Person means any other Person controlling,
controlled by or under common control with such Person, whether by ownership of
voting securities, by contract or otherwise.
"Board" means the Board of Directors of the Company.
"Cause" means with respect to any Participant, termination of
employment of such Participant by the Company or any of Subsidiary thereof due
to: (i) such Participant's willful or negligent failure to comply with the
lawful directives of the Board (or such Subsidiary's board of directors) or such
Participant's supervisory personnel (provided such directives are consistent
with his or her position), (ii) any indictment for a felony, (iii) any
commission of any other criminal act (other than minor traffic offenses and
similar acts), any act of material dishonesty, disloyalty, fraud or embezzlement
or any act of moral turpitude or (iv) the failure to comply with the terms
hereof or the Stockholders Agreement.
<PAGE> 2
EXHIBIT 10.14
"CEO" means the President and Chief Executive Officer of the
Company.
"Closing Date" means December 11, 1997.
"Code" means the Internal Revenue Code of 1986, as amended,
and any successor statute.
"Commission" means the United States Securities and Exchange
Commission.
"Committee" means the Compensation Committee or such other
committee of the Board as the Board may designate to administer stock options
granted by the Company or, if for any reason the Board has not designated such a
committee, the Board. The Committee, if other than the Board, shall be composed
of two or more directors as appointed from time to time by the Board. At any
time when the Company is subject to the reporting requirements of Section 13 or
Section 15(d) of the Securities Exchange Act, this Plan will be administered by
a committee of one or more directors who are "disinterested persons," within the
meaning of Rule 16b-3 of the Securities Exchange Act.
"Common Stock" means the Company's common stock, par value
$0.01 per share, of which One Million Two Hundred Thousand shares are authorized
pursuant to the Company's Articles of Incorporation, as amended on May 8, 1998.
"Company" means Stanadyne Automotive Holding Corp., a Delaware
corporation.
"Company Sale" means a transaction with one or more
independent third parties pursuant to which such party or parties (i) acquire
(whether by merger, consolidation or transfer or issuance of capital stock)
capital stock of the Company (or any surviving or resulting corporation)
possessing the voting power to elect a majority of the board of directors of the
Company (or such surviving or resulting corporation) or (ii) acquire all or
substantially all of the Company's assets determined on a consolidated basis.
"Disability" means the inability of a Participant to perform
the essential functions of such Participant's job, with or without reasonable
accommodation, by reason of a physical or mental infirmity, for a continuous
period of six months. The period of six months shall be deemed continuous unless
such Participant returns to work for at least 30 consecutive business days
during such period and performs during such period at the level and competence
that existed prior to the beginning of the six-month period. The date of such
Disability shall be on the first day of such six-month period.
"EBITDA" means, for any period, the sum of the amounts for
such period of, without duplication, (a) net income, plus (b) income taxes paid
or accrued and deducted in determining net income, plus (c) interest expenses
paid or accrued and deducted in determining net income, plus (d) depreciation,
amortization and other non-cash charges deducted in determining net income,
minus (e) cash payments with respect to any non-recurring, non-cash charges
previously added back pursuant to clause (d), and (f) excluding the impact of
foreign currency translations, all determined in accordance with generally
accepted accounting principles.
<PAGE> 3
EXHIBIT 10.14
"EBITDA Target" means, with respect to each Plan Year, the
EBITDA Target set forth opposite such Plan Year in the following chart:
<TABLE>
<CAPTION>
PLAN YEAR EBITDA TARGET
<S> <C>
1/1/98 - 12/31/98 $39,100,000
1/1/99 - 12/31/99 47,000,000
1/1/00 - 12/31/00 52,200,000
1/1/01 - 12/31/01 57,400,000
</TABLE>
The Committee will make equitable adjustments to the EBITDA Targets from time to
time to reflect (i) acquisitions and dispositions made by the Company and its
subsidiaries during the Performance Plan Term and (ii) the establishment of
accounting reserves prior to January 1, 1998 and, in each case, the anticipated
effect on the EBITDA Targets resulting therefrom.
"Employee" means any full-time employee of the Company or any
of its Subsidiaries.
"Exercise Price" means the amount payable for an Option Share
upon exercise of an Option.
"Fair Market Value" as of any date means (a) with respect to
publicly traded Common Stock, the market trading price of such Common Stock, (b)
with respect to non-publicly traded Common Stock, the fair market value of such
Common Stock (expressed on a per-share basis) as of such date, as determined in
good faith by the Committee based on such factors as the Committee may deem
appropriate, and (c) with respect to any Option (or portion thereof), the
difference of (i) the product of the amount described in clause (a) or (b) above
(as appropriate) multiplied by the number of Option Shares issuable upon
exercise of the Option (or portion thereof), minus (ii) the aggregate Exercise
Price of the Option (or portion thereof).
"Family Group" means, with respect to any individual, such
individual's spouse and descendants (whether natural or adopted) and any trust
established and maintained solely for the benefit of such individual, such
individual's spouse or such individual's descendants.
"Initial Options" has the meaning set forth in Section 5.2
hereof.
"Matured Shares" means, with respect to any Participant,
Common Stock owned by such Participant for longer than six months.
"Options" means the Initial Options and the Undesignated
Options.
"Option Shares" means, with respect to any Participant, (a)
any shares of Common Stock (or other shares of capital stock of the Company)
issued by the Company upon exercise of any Option by such Participant, and (b)
any shares of the capital stock of the Company issued in respect of any of the
securities described in clause (a) above, by way of stock dividend, stock split,
merger, consolidation, reorganization or other recapitalization.
<PAGE> 4
EXHIBIT 10.14
"Participant" means any Employee who is selected to
participate in the Plan in accordance with Article III of the Plan.
"Performance Plan Term" means the period beginning on the
Closing Date and ending on December 31, 2001.
"Performance Level" means with respect to any Plan Year, the
product of (i) 100 multiplied by (ii) a fraction, the numerator of which is the
actual EBITDA of such Plan Year (treated for this purpose as a single accounting
period) and the denominator of which is the EBITDA Target for such Plan Year.
"Person" means an individual, a partnership, a corporation, an
association, a joint stock company, a trust, a joint venture, an unincorporated
organization and a governmental entity or any department, agency or political
subdivision thereof.
"Plan" means this Management Stock Option Plan, as amended or
supplemented from time to time in accordance with its terms.
"Plan Year" means any of the consecutive calendar years ended
December 31, 1998, 1999, 2000 and 2001, respectively.
"Qualified Public Offering" means the sale, in an underwritten
public offering registered under the Securities Act, of shares of the Company's
Common Stock having an aggregate offering value (before underwriters' discounts
and selling commissions) of at least $30 million.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Exchange Act" means the Securities Exchange Act of
1934, as amended.
"Stockholders Agreement" means the Stockholders Agreement
dated as of the Closing Date among the Company and its stockholders.
"Subsidiary" means any corporation of which the Company owns,
directly or through one or more Subsidiaries, securities having a majority of
the ordinary voting power in electing the board of directors of such
corporation.
"Transfer" means, with respect to any Option, the transfer,
pledge, encumbrance, bequest, assignment or sale of such Option or any interest
therein.
"Undesignated Options" has the meaning set forth in Section
5.3 hereof.
<PAGE> 5
EXHIBIT 10.14
ARTICLE III
ADMINISTRATION
The CEO shall be responsible for the routine administration of
the Plan, subject to the review and approval of the Committee. Subject to the
requirements and limitations of the Plan, the CEO shall have the authority to
select Participants and to grant Initial Options to Participants in such amounts
as the CEO shall in his discretion, determine. Subject to the requirements and
the limitations of the Plan, the Committee shall have the sole and complete
responsibility and authority to: (a) approve the award of Options under this
Plan; (b) interpret the Plan and adopt, amend and rescind administrative
guidelines and other rules and regulations relating to the Plan; (c) correct any
defect or omission or reconcile any inconsistency in the Plan or in any Option
granted hereunder; and (d) make all other determinations and take all other
actions necessary or advisable for the implementation and administration of the
Plan, including actions necessary or advisable in connection with the issuance
of Undesignated Options. All authority not expressly granted to the CEO
hereunder shall remain vested in the Committee. The Committee's determinations
on matters within its authority shall be conclusive and binding upon the
Participants, the Company and all other Persons. All expenses associated with
the administration of the Plan shall be borne by the Company.
ARTICLE IV
LIMITATION ON AVAILABLE OPTION SHARES
4.1 Option Shares. The aggregate number of shares of Common
Stock with respect to which Options may be granted under the Plan shall not
exceed One Hundred Twenty Thousand (120,000) shares; provided, however, that the
aggregate number of shares of Common Stock with respect to which Options may be
granted shall be subject to adjustment in accordance with the provisions of
Section 10.3 below.
4.2 Status of Option Shares. The shares of Common Stock for
which Options may be granted under the Plan may be either authorized and
unissued shares, treasury shares or a combination thereof, as the Committee
shall determine and shall be reserved by the Committee for issuance as provided
in the Plan. To the extent any Undesignated Options are not awarded under the
Plan, the Option Shares reserved for issuance in respect thereof shall become
available for issuance for any purpose that the Committee, in its discretion,
determines. To the extent any outstanding Options expire or are terminated prior
to exercise, the Option Shares in respect of which such Options were issued
shall remain available for reissuance to employees of the Company and its
Subsidiaries pursuant to this Plan or any other plan or agreement approved by
the Board.
<PAGE> 6
EXHIBIT 10.14
ARTICLE V
GRANT OF OPTIONS
5.1 Options. The CEO shall grant Initial Options to
Participants and shall recommend to the Committee any subsequent grant of
Undesignated Options (as defined below) to Participants in accordance with this
Article V.
5.2 Initial Options. On the date hereof, Options (the "Initial
Options") will be issued to Participants selected by the CEO.
5.3 Undesignated Options. Additional Options (the
"Undesignated Options") will be available for award to Employees under this Plan
from time to time. Undesignated Options will be awarded on such terms, at such
times, in such amounts and to such Employees as shall be determined by the
Committee.
5.4 Form of Options.
(a) Initial Options granted under this Plan shall be
non-qualified stock options and are not intended to be "incentive stock
options" within the meaning of Section 422A of the Code or any
successor provisions.
(b) The Exercise Price of each Initial Option granted
pursuant to this Plan shall be $60.28 (subject to adjustment pursuant
to Section 10.3).
(c) Initial Options shall be exercisable upon vesting
(as determined pursuant to Article VI) and shall thereafter be
exercisable until they expire or are terminated (as determined pursuant
to Article VIII).
5.5 Option Agreement. Each Option granted hereunder to a
Participant shall be evidenced by a certificate substantially in the form
attached hereto as Annex I (or in such other form as the Committee may from
time to time adopt) (the "Option Certificate") which shall be signed by the
CEO or such other officer of the Company as the Committee shall designate. For
purposes of the Plan, no Option shall be deemed to be outstanding until it has
been granted to a Participant by the Committee and an Option Certificate has
been executed and delivered by the Company and an Option shall cease to be
outstanding when it is repurchased by the Company, terminates or is exercised
pursuant to the Plan.
5.6 Joinder Agreement. As a condition to exercising any
Options hereunder, any Participant who is not already a party to the
Stockholders Agreement shall be required to execute a Joinder Agreement
substantially in the form attached hereto as Annex II (the "Joinder") and
thereby become a party to the Stockholders Agreement with respect to any
Option Shares issued in connection with such exercise.
<PAGE> 7
EXHIBIT 10.14
ARTICLE VI
VESTING OF OPTIONS
6.1 Vesting of Initial Options. Initial Options issued
pursuant to this Plan may be exercised only to the extent that they have vested.
Not later than 90 days after the end of each Plan Year (so long as no Company
Sale has been consummated prior to such date) the Committee shall determine the
Performance Level for such Plan Year (such determination to be made in good
faith based upon the annual audited consolidated financial statements for the
latest fiscal year of the Company and its Subsidiaries ended on the last day of
such Plan Year).
6.2 Accelerated Vesting of Initial Options. All Initial
Options awarded under the Plan will vest on the seventh anniversary of the date
of grant, subject to acceleration of vesting as set forth in sections 6.3 and
6.5 below; provided, in each case, that the Participant remains continuously
employed with the Company or its Subsidiaries from the date of award through the
date of determination. For purposes of accelerated vesting, each Participant
will be deemed to be employed by the Company or its Subsidiaries with respect to
any Plan Year if such Participant has been continuously employed by the Company
or its Subsidiaries from January 1 of such Plan Year through December 31 of such
Plan Year.
6.3 Performance-Based Acceleration. The vesting of each
Participant's Initial Options shall be subject to acceleration as follows:
(a) No Initial Options will vest for any Plan Year with a
Performance Level at or below 90.
(b) If the Performance Level for a given Plan Year is
less than 100 but exceeds 90, a number of Initial
Options equal to the product of (i) 25% of such
Participant's Initial Options and (ii) a fraction the
numerator of which equals the Performance Level for
such Plan Year minus 90 and the denominator of which
is ten, will vest as of the last day of such Plan
Year.
(c) If the Performance Level for a given Plan Year equals
or exceeds 100, Initial Options representing 25% of
such Participant's Initial Options will vest as of
the last day of such Plan Year.
(d) If (i) the Performance Level for any of the Plan
Years ended December 31, 1998, 1999 or 2000 is less
than 100 (the amount by which 100 exceeds the
Performance Level for such Plan Year, the
"Shortfall") and (ii) the Performance Level for the
next successive Plan Year exceeds 100 by an amount
equal to or exceeding such Shortfall, then, in
addition to the acceleration of vesting for such
successive Plan Year effected pursuant to subsection
(c), above, Initial Options representing the excess
(if any) of (i) the number of Initial Options that
would have vested (not to exceed 25% of such
Participant's Initial Options) if the actual EBITDA
for the preceding Plan Year was increased by the
amount by which the actual EBITDA for the current
year exceeded the EBITDA Target for the current year
over (ii) the number of Initial Options that vested
in the preceding Plan Year, shall vest as of the last
day of such successive Plan Year.
<PAGE> 8
EXHIBIT 10.14
6.4 Termination of Employment. On the date of termination of
employment, all unvested Initial Options held by a terminated Participant shall
cease to vest.
6.5 Vesting on Company Sale. If (a) a Company Sale is
consummated prior to the end of the Performance Plan Term and (b) the
Performance Level for the Plan Year immediately prior to the year in which such
Company Sale is consummated equals or exceeds 100, then the Accelerated Portion
of the remaining Initial Options held by a Participant will vest immediately
prior to the consummation of such Company Sale. For purposes of this Section
6.5, "Accelerated Portion" shall mean that portion of the Initial Options held
by a Participant eligible to vest during each of the Plan Years ended after the
date such Company Sale is consummated that would have vested if the Performance
Level for each such Plan Year was equal to the product of (i) 100 and (ii) a
fraction, the numerator of which is the actual cumulative EBITDA for the Company
and its Subsidiaries during all Plan Years ended before the date such Company
Sale is consummated (treated for this purpose as a single accounting period) and
the denominator of which is the sum of the EBITDA Targets for all such Plan
Years.
<PAGE> 9
EXHIBIT 10.14
ARTICLE VII
EXERCISE OF OPTIONS
7.1 Right to Exercise. Initial Options may not be Transferred
other than by will or the laws of descent and distribution and, during the
lifetime of the Participant, Initial Options may be exercised only by such
Participant (or his legal guardian or legal representative). Any Transfer or
attempted Transfer of an Initial Option contrary to this Section 7.1 shall be
void, and the Company shall not record such Transfer on its books or treat any
purported transferee of such Initial Option as the owner of such Initial Option
for any purpose. In the event of the death of a Participant, exercise of Initial
Options granted hereunder shall be made only by the executor or administrator of
the estate of the deceased Participant or the Person or Persons to whom the
deceased Participant's rights under the Initial Option shall pass by will or the
laws of descent and distribution.
7.2 Procedure for Exercise. Any Participant may exercise all
or any portion of any of such Participant's Initial Options, to the extent they
have vested pursuant to Article VI and are outstanding, at any time and from
time to time prior to its expiration, by completing, signing and delivering to
the Company (to the attention of the Company's Secretary) a notice of exercise
substantially in the form attached hereto as Annex III (or in such other form as
the Committee may from time to time adopt and provide to the Participant) (the
"Exercise Notice"), accompanied by a Joinder (if such Participant is not already
a party to the Stockholders Agreement) together with the related Option
Certificate(s) and payment in full of an amount equal to the product of (i) the
Exercise Price multiplied by (ii) the number of Option Shares to be acquired
(the "Aggregate Exercise Price"). Payment of the Aggregate Exercise Price shall
be made in cash (including check, bank draft or money order); provided that at
any time when the Company is publicly traded, if a Participant owns Matured
Shares with a Fair Market Value exceeding the Aggregate Exercise Price in
connection with such exercise, such Participant may, in lieu of paying the
Aggregate Exercise Price in cash, deliver an Exercise Notice accompanied by the
certificate for the Matured Shares (duly executed) and indicate in such Exercise
Notice that such Participant intends to effect a cash less exercise thereof and
be entitled to receive, in respect of the exercise of the Initial Option and the
cancellation of Matured Shares with an aggregate Fair Market Value equal to the
Aggregate Exercise Price, (x) the number of Option Shares that otherwise would
be issued hereunder if the Aggregate Exercise Price were paid in cash and (y)
the number of Matured Shares with an aggregate Fair Market Value equal to the
excess of the aggregate Fair Market Value of the Matured Shares before such
cashless exercise minus the Aggregate Exercise Price. Notwithstanding anything
in this Section 7.2(a) to the contrary, in the event that any Initial Option
Certificate representing Initial Options granted to a Participant is lost,
stolen or destroyed, the Participant may, in lieu of delivering such Initial
Option Certificate at the time of exercise, deliver an affidavit as to its loss,
theft or destruction and any indemnity that the Company may reasonably request.
A Participant's right to exercise the Initial Option shall be subject to the
satisfaction of all conditions set forth in the Exercise Notice. If a
Participant exercises any Initial Options for less than all of the Option Shares
covered by the relevant Option Certificate, the Company shall issue a new Option
Certificate to such Participant in respect of the portion of such Initial Option
remaining unexercised.
7.3 Securities Laws Restrictions on Transfer of Option Shares.
Each Participant exercising an Initial Option will be required to represent to
the Company in the Exercise Notice that when such Participant exercises his or
her Initial Option such Participant will be purchasing Option Shares for his or
her own account for investment and not on behalf of others or otherwise with a
view toward distributing them. Each Participant is advised that federal and
state securities laws govern and restrict each Participant's right to Transfer,
or offer to
<PAGE> 10
EXHIBIT 10.14
Transfer, any Option Shares unless such Participant's Transfer, or offer to
Transfer, is registered under the Securities Act and state securities laws, or
such Transfer, or offer to Transfer, is exempt from registration or
qualification thereunder. Each Participant is further advised that the
Stockholders Agreement, to which each Participant will become a party upon
exercising of such Participant's Initial Options, imposes additional
restrictions on the transfer of Option Shares, and that the certificates for any
Option Shares issued in connection with such exercise will bear such legends as
the Company deems necessary or desirable in connection with the Securities Act
or other rules, regulations or laws.
7.4 Withholding of Taxes. The Company shall be entitled, if
necessary or desirable, to withhold from any Participant from any amounts due
and payable by the Company to such Participant (or secure payment from such
Participant in lieu of withholding) the amount of any withholding or other tax
due from the Company with respect to any Option Shares issuable under the Plan,
and the Company may defer such issuance unless indemnified to its satisfaction.
7.5 Listing, Registration and Compliance with Laws and
Regulations. Initial Options shall be subject to the requirement that if at any
time the Committee shall make a good faith determination that the listing,
registration or qualification of Option Shares upon any securities exchange or
under any state or federal securities or other law or regulation, or the consent
or approval of any governmental regulatory body, is necessary or desirable as a
condition to or in connection with the granting of the Initial Options or the
issuance or purchase of Option Shares thereunder, no Initial Options may be
granted or exercised, in whole or in part, unless such listing, registration,
qualification, consent or approval shall have been effected or obtained free of
any conditions not reasonably acceptable to the Committee. The Company shall in
good faith, and to the extent consistent with its reasonable business judgment,
exercise all reasonable efforts to obtain any such listing, registration,
qualification or approval. The holders of such Initial Options will supply the
Company with such certificates, representations and information as the Company
shall request and shall otherwise cooperate with the Company in obtaining such
listing, registration, qualification, consent or approval.
ARTICLE VIII
EXPIRATION OF OPTIONS
8.1 Expiration Date. In no event shall any part of any Initial
Option be exercisable after 5:00 p.m. Eastern Standard Time on the tenth
anniversary of the date hereof (the "Expiration Date").
8.2 Accelerated Expiration: Company Sale. Any Initial Options
not exercised or deemed exercised in connection with a Company Sale pursuant to
Section 7.2(b) hereof shall expire upon the consummation of the first Company
Sale occurring after the Closing Date.
8.3 Accelerated Expiration: Termination of Employment. All
unvested Initial Options held by a Participant shall expire and be forfeited on
the date of such Participant's termination of employment. All vested Initial
Options held by a Participant not previously exercised shall expire and be
forfeited
<PAGE> 11
EXHIBIT 10.14
(a) on the date of termination in the event such
Participant shall cease to be an employee of the Company or its
Subsidiaries by reason of such Participant's (i) resignation for any
reason other than retirement during the Performance Plan Term or (ii)
termination for Cause; and
(b) on the thirtieth (30th) day after the date of
termination in the event such Participant shall cease to be an employee
of the Company or its Subsidiaries by reason of such Participant's (i)
retirement during the Performance Plan Term, (ii) resignation for any
reason, including retirement, after the Performance Plan Term or (iii)
termination without Cause.
Anything to the contrary notwithstanding, in the event of the death or
Disability of a Participant, all Initial Options, vested and unvested, held by
such Participant shall not expire or be forfeited but shall be subject to the
provisions of Article IX hereof.
ARTICLE IX
COMPANY REPURCHASE OPTION
Section 9.1 Repurchase Option. In the event a Participant ceases to be
an Employee as a result of such Participant's death or Disability, then the
Company shall have the right, but not the obligation (the "Company Option"), to
purchase from such Participant (or the successors in interest of such
Participant) all or any portion of such Participant's Initial Options at a
purchase price equal to the Fair Market Value of the options to be purchased
(the "Repurchase Price"). The Company Option shall be of no further force and
effect from and after the consummation of a Qualified Public Offering.
Section 9.2 Exercise of Repurchase Option. The Company shall exercise
the Company Option by delivering written notice (the "Repurchase Notice") to the
Participant (or the successors in interest of such Participant) within ninety
days after the date of such Participant's termination of employment (the
"Repurchase Period"), which Repurchase Notice shall set forth the aggregate
number of Option Shares covered by the Initial Option or Initial Options to be
repurchased (the "Repurchase Options"). If the Company exercises the Company
Option as provided herein, the Company shall, within thirty days after delivery
of the Repurchase Notice, pay to the Participant (or the successors in interest
of such Participant), by certified check, the Repurchase Price; provided,
however, that in the event that any such repurchase is prohibited by or would
cause a default under any of the Company's or its Subsidiaries' agreements for
borrowed money, the thirty day time period referred to in this Section 9.2 shall
be tolled for so long as such prohibition or potential default exists. If the
Company exercises the Company Option for only a portion of the Initial Options
evidenced by a single Option Certificate, the Company shall issue an Option
Certificate to the Participant representing the Initial Options remaining after
such exercise.
Section 9.3 Failure to Exercise Repurchase Option. If the Company does
not deliver a Repurchase Notice within the Repurchase Period, the related
Initial Option shall no longer be subject to the provisions of this Article IX.
<PAGE> 12
EXHIBIT 10.14
Section 9.4 Assignment. The Company may assign its rights pursuant to
this Article IX to American Industrial Partners Capital Fund II, L.P. or any of
its Affiliates, in whole or in part, at any time and from time to time. Upon
such an assignment, all references to "the Company" in this Article IX shall be
deemed to be references to the assignee of the Company to the extent of the
interest so assigned.
ARTICLE X
MISCELLANEOUS
10.1 Rights of Participants. Nothing in this Plan shall
interfere with or limit in any way any right of the Company or any of its
Subsidiaries to terminate any Participant's employment at any time (with or
without Cause), nor confer upon any Participant any right to continued
employment by the Company or any of its Subsidiaries for any period of time or
to continue such employee's present (or any other) rate of compensation.
Transfer of an Employee from the Company to a Subsidiary, from a Subsidiary to
the Company and from one Subsidiary to another shall not be considered a
termination of such Employee's employment for purposes of this Plan. No Employee
shall have a right to be selected as a Participant or, having been so selected,
to be selected again as a Participant.
10.2 Supplementation Amendment Suspension and Termination of
Plan. The Committee reserves the right to supplement the Plan in order to
specify the terms and conditions under which the Company shall issue the
Undesignated Options. The Committee may not suspend, terminate or materially
amend the Plan or any portion thereof at any time without the consent of
Participants who hold a majority of the Option Shares issued or issuable
pursuant to Options issued under the Plan or without such greater or other
stockholder approval to the extent such approval is required, by law, agreement
or the rules of any exchange upon which the Common Stock is listed.
Notwithstanding the foregoing, no suspension, termination or amendment of or to
the Plan will affect adversely the rights of any holder of Options with respect
to Options issued hereunder prior to the date of such suspension, termination or
amendment without the consent of such holder.
10.3 Adjustments. In the event of a reorganization,
recapitalization, stock dividend, stock split, share combination or other change
in the shares of Common Stock, the Committee shall make such adjustments in the
number and type of shares authorized by the Plan, the number and type of shares
covered by outstanding Options and the Exercise Prices specified therein and
other amendments to the Plan as the Committee, in good faith, determines to be
appropriate and equitable in order to prevent the dilution or enlargement of the
rights granted hereunder or under any outstanding Options.
10.4 Construction of Plan. The validity, construction,
interpretation, administration and effect of the Plan shall be determined in
accordance with the local law, and not the law of conflicts, of the State of
Delaware.
10.5 Indemnification. The Company will, and will cause each of
its Subsidiaries to, indemnify the CEO and the members of the Committee against
all costs and expenses reasonably incurred by them in connection with any
action, suit or proceeding to which they or any of them may be a party by reason
of any action taken or failure to act under or in connection with the Plan or
any Option granted thereunder or any Option Shares issued pursuant to the
exercise of an Option, and against all amounts paid by them in settlement
<PAGE> 13
EXHIBIT 10.14
thereof (provided such settlement is approved by independent legal counsel
selected by the Company) or paid by them in satisfaction of a judgment in any
such action, suit or proceeding; provided, however, that any such Person shall
be entitled to the indemnification rights set forth in this Section 10.5 only if
such Person has acted in good faith and in a manner that such Person reasonably
believed to be in or not opposed to the best interests of the Company and, with
respect to any criminal action or proceeding, had no reasonable cause to believe
that such conduct was unlawful, and provided further that upon the institution
of any such action, suit or proceeding such Person shall give the Company
written notice thereof and an opportunity, at its own expense, to handle and
defend the same before such Person undertakes to handle and defend it on his or
her own behalf.
[END OF TEXT OF DOCUMENT]
<PAGE> 14
EXHIBIT 10.14
Annex I
THIS OPTION AND THE OPTION SHARES ISSUABLE UPON THE EXERCISE
HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
UNDER THE SECURITIES LAWS OF ANY STATE. THIS OPTION IS ISSUED PURSUANT TO A
MANAGEMENT STOCK OPTION PLAN ADOPTED JUNE 5,1998 BY THE BOARD OF DIRECTORS OF
THE ISSUER (THE "PLAN") AND THIS OPTION IS SUBJECT TO THE TERMS SET FORTH IN THE
PLAN.
OPTION TO PURCHASE__________________________SHARES OF
COMMON STOCK OF
STANADYNE AUTOMOTIVE HOLDING CORP.
OPTION NO._____________ [JUNE 5, 1998]
VOID AFTER [JUNE 5,2008]
This certifies that _______________, ("Participant") is
entitled, upon the due exercise hereof, to purchase up to _____ shares of Common
Stock, par value $0.01 per share (the "Option Shares") of Stanadyne Automotive
Holding Corp., a Delaware corporation (the "Company") at a price (the "Exercise
Price") of [$60.28] per Option Share. This option (this "Option") is issued
pursuant to a Management Stock Option Plan adopted June 5, 1998 by the Company's
Board of Directors (the "Plan") and is subject in its entirety to the terms and
conditions of the Plan, as amended from time to time, all of which are hereby
incorporated in the terms of this Option. Capitalized terms, which are used but
not defined herein shall have the respective meanings ascribed to them in the
Plan.
To the extent otherwise permitted by the Plan, the Participant
may exercise all or any portion of the Option by executing and delivering to the
Company an Exercise Notice and a Joinder to Stockholders Agreement (copies of
which may be obtained from the Company) together with full payment of the
aggregate Exercise Price for all Option Shares being so purchased, such payment
to be made (i) if to be paid in cash, by cash, check, bank draft or money order
made payable to "Stanadyne Automotive Holding Corp." or (ii) if to be paid by
delivery of Matured Shares, by delivery of the certificate(s) for the Matured
Shares (duly executed). Except as otherwise expressly provided by the Plan, this
Option shall be deemed to have been exercised and the Option Shares issuable
upon such exercise shall be deemed to have been issued as of the close of
business on the date upon which all of the foregoing items are received by the
Company.
In the event of reorganization, recapitalization, stock
dividend, stock split, share combination or other change in the Common Stock of
the Company, the number and, if applicable, the type of Option Shares issuable
upon exercise of this Option and the Exercise Price therefor shall be adjusted
as provided in the Plan.
<PAGE> 15
EXHIBIT 10.14
THIS OPTION MAY NOT BE TRANSFERRED BY THE PARTICIPANT EXCEPT
IF AND AS OTHERWISE PERMITTED BY THE PLAN.
Prior to the exercise of this Option as permitted by the Plan,
the Participant shall not, with respect to the Option Shares issuable upon the
due exercise hereof be entitled to any of the rights of a stockholder of the
Company including, without limitation, the right as a stockholder to (i) vote on
or consent to any proposed action of the Company, or (ii) receive dividends or
other distributions made to stockholders, (iii) receive notice of or attend any
meetings of stockholders of the Company, or (iv) receive notice of any other
proceedings of the Company.
IN WITNESS WHEREOF, the Company has executed this Option as of
the date first above written.
STANADYNE AUTOMOTIVE HOLDING CORP.
By: _______________________________
Its:_______________________________
[SEAL]
Attest: _____________________________
<PAGE> 16
EXHIBIT 10.14
Annex II
FORM OF JOINDER TO THE
STOCKHOLDERS AGREEMENT
This Joinder (this "Agreement") is made as of the date written
below by the undersigned (the "Joining Party") in favor of and for the benefit
of Stanadyne Automotive Holding Corp. and the other parties to the Stockholders
Agreement, dated as of December 11, 1997 (the "Stockholders Agreement").
Capitalized terms used but not defined herein shall have the meanings given such
terms in the Stockholders Agreement.
The Joining Party hereby acknowledges, agrees and confirms
that, by his or her execution of this Joinder, the Joining Party will be deemed
to be a party to the Stockholders Agreement and shall have all of the
obligations of an Employee Stockholder thereunder as if he or she had executed
the Stockholders Agreement. The Joining Party hereby ratifies, as of the date
hereof, and agrees to be bound by, all of the terms, provisions and conditions
contained in the Stockholders Agreement.
IN WITNESS WHEREOF, the undersigned has executed this Joinder
as of the date written below.
Date:
--------------------------------
--------------------------------
Name:
<PAGE> 17
EXHIBIT 10.14
Annex III
EXERCISE NOTICE
This Exercise Notice (this "Notice") is given by the
undersigned participant ("Participant") to Stanadyne Automotive Holding Corp., a
Delaware corporation (the "Company") in connection with the Participant's
exercise of an Option granted pursuant to the Company's Management Stock Option
Plan, adopted June 5, 1998 (the "Plan") to purchase Option Shares (as defined in
the Plan). Capitalized terms used but not defined herein shall have the
respective meanings ascribed to them in the Plan.
1. Purchase and Sale of Option Shares.
(a) Upon delivery to the Company of this Notice and
the Option to which it relates, the Company will sell and issue to
Participant, the Option Shares that Participant elects to purchase
hereunder. Participant will deliver to the Company herewith the
aggregate Exercise Price for the Option Shares purchased hereunder (if
payable in cash) by check, bank draft or money order made payable to
"Stanadyne Automotive Holding Corp."
PARTICIPANT IS ADVISED THAT IT MAY BE IN
PARTICIPANT'S OWN BEST INTEREST TO MAKE AN EFFECTIVE ELECTION WITH THE
INTERNAL REVENUE SERVICE UNDER SECTION 83(b) OF THE INTERNAL REVENUE
CODE AND THE REGULATIONS PROMULGATED THEREUNDER, AND THAT PARTICIPANT
SHOULD CONSULT WITH PARTICIPANT'S TAX ADVISOR ABOUT THE DESIRABILITY OF
AND PROCEDURE FOR MAKING SUCH AN ELECTION BEFORE EXERCISING THE OPTION
TO WHICH THIS NOTICE RELATES.
(b) In connection with the purchase and sale of the
Option Shares hereunder, Participant represents and warrants to the
Company that:
(i) The Option Shares to be acquired by
Participant pursuant to Participant's exercise of the Option
will be acquired for Participant's own account and not with a
view to, or intention of, distribution thereof in violation of
the Securities Act, or any applicable state securities laws,
and the Option Shares will not be disposed of in contravention
of the Securities Act or any applicable state securities laws;
(ii) Participant is sophisticated in
financial matters and is able to evaluate the risks and
benefits of the investment in the Option Shares;
(iii) Participant is able to bear the
economic risk of his or her investment in the Option Shares
for an indefinite period of time because the Option Shares
have not been registered under the Securities Act and,
therefore, cannot be sold unless subsequently registered under
the Securities Act or an exemption from such registration is
available;
(iv) Participant has had an opportunity to
ask questions and receive answers concerning the terms and
conditions of the Option Shares and has had full access to
such other
<PAGE> 18
EXHIBIT 10.14
information concerning the Company as he or she has requested;
and
(v) Participant is a resident and
domiciliary of the state or other jurisdiction hereinafter set
forth opposite such Participant's signature and Participant
has no present intention of becoming a resident of any other
state or jurisdiction. If Participant is a resident and
domiciliary of a state that requires the Company to ascertain
certain other information regarding the Participant, the
Company may attach a page to this Notice containing additional
representations to be made by Participant in connection with
such Participant's investment in Option Shares, and by signing
this Notice, Participant shall be deemed to have made such
additional representations to the Company.
(c) Participant further acknowledges and agrees that:
(i) neither the issuance of the Option
Shares to Participant nor any provision contained herein shall
entitle Participant to remain in the employment of the Company
and its Subsidiaries or affect any right of the Company to
terminate Participant's employment at any time for any reason;
(ii) the Company shall have no duty or
obligation to disclose to Participant and Participant shall
have no right to be advised of, any material information
regarding the Company and its Subsidiaries in connection with
the repurchase of Option Shares upon the termination of
Participant's employment with the Company and its Subsidiaries
or as otherwise provided hereunder; and
(iii) the Company shall be entitled to
withhold from participant from any amounts due and payable by
the Company to Participant (or secure payment from Participant
in lieu of withholding) the amount of any withholding or other
tax due from the Company with respect to such Option Shares
and the Company may defer issuance until indemnified to its
satisfaction.
(d) The Company and Participant acknowledge and agree
that the Option Shares issued in connection herewith hereunder, are
issued as a part of the compensation and incentive arrangements between
the Company and Participant.
2. Restriction on Option Shares. Participant acknowledges that
the Option Shares being purchased hereunder are being issued pursuant to the
Plan, the terms and conditions of which are incorporated herein as if set forth
fully herein, and that such Option Shares are subject to certain restrictions on
transfer, rights of repurchase and other provisions set forth in the Plan and
the Stockholders Agreement. Purchaser acknowledges that the certificates
evidencing such Option Shares shall be imprinted with a legend providing notice
of such restrictions substantially in the form set forth in the Stockholders
Agreement.
* * * * *
<PAGE> 19
EXHIBIT 10.14
IN WITNESS WHEREOF, the Participant has executed this Notice
as of the date written below.
No. of Shares of Common Stock:
Aggregate Exercise Price Therefor:
Cashless Exercise (by Delivery of
Matured Shares): Yes No
Signature of Participant Date
Print Participant's Name Participant's Social Security No.
Participant's Residence Address: Mailing Address, if different
from Residence Address:
Street Street
City State Zip Code City State Zip Code
Acknowledged Receipt of Notice as of______________________.
STANADYNE AUTOMOTIVE HOLDING CORP.
By:
Its:
<PAGE> 1
EXHIBIT 12.1
STATEMENT OF COMPUTATION OF RATIOS
<TABLE>
<CAPTION>
Company Predecessor
--------------------------------------------- ---------------------------------------------
Year Ended Year Ended 21 Days Ended 344 Days Ended Year Ended Year Ended
December 31, December 31, December 31, December 10, December 31, December 31,
1999 1998 1997 1997 1996 1995
---- ---- ---- ---- ---- ----
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Income (loss) before taxes,
extraordinary item and cumulative
effect of change in accounting $ 8,284 $ (106) $ 11 $ 4,731 $ 1,648 $ (4,532)
Fixed charges deducted from earnings 15,293 16,854 939 7,406 9,019 10,101
--------- --------- --------- --------- --------- ----------
Earnings available for payment of
fixed charges $ 23,577 $ 16,748 $ 950 $ 12,137 $ 10,667 $ 5,569
========= ========= ========= ========= ========= ==========
Fixed charges:
Interest expense $ 13,576 $ 15,138 $ 880 $ 6,673 $ 8,259 $ 9,292
Amortization of deferred financing
fees 1,151 1,180 41 297 316 290
Portion of rent deemed to be interest 566 536 18 436 444 519
--------- --------- --------- --------- --------- ----------
Total fixed charges $ 15,293 $ 16,854 $ 939 $ 7,406 $ 9,019 $ 10,101
========= ========= ========= ========= ========= ==========
Ratio of earnings to fixed charges 1.5 1.0 1.0 1.6 1.2 0.6
========= ========= ========= ========= ========= ==========
</TABLE>
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF STANADYNE AUTOMOTIVE CORP.
Subsidiaries
DSD International, Inc. (Dissolved October 6, 1998)
Precision Engine Products Corp.
Precision Engine Products LTDA (Formed October 16, 1998)
Stanadyne Automotive Foreign Sales Corporation
Stanadyne Automotive S.p.A.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM STANADYNE
AUTOMOTIVE CORP.'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31,
1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-K.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 4,057
<SECURITIES> 0
<RECEIVABLES> 40,906
<ALLOWANCES> 610
<INVENTORY> 36,582
<CURRENT-ASSETS> 90,746
<PP&E> 148,709
<DEPRECIATION> 29,098
<TOTAL-ASSETS> 306,105
<CURRENT-LIABILITIES> 56,159
<BONDS> 136,263
0
0
<COMMON> 0
<OTHER-SE> 61,681
<TOTAL-LIABILITY-AND-EQUITY> 306,105
<SALES> 281,580
<TOTAL-REVENUES> 281,580
<CGS> 224,204
<TOTAL-COSTS> 259,720
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,098
<INCOME-PRETAX> 8,284
<INCOME-TAX> 3,128
<INCOME-CONTINUING> 5,156
<DISCONTINUED> 0
<EXTRAORDINARY> 750
<CHANGES> 0
<NET-INCOME> 5,906
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
