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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2003
[ ] 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 CORPORATION
---------------------
(Exact name of registrant as specified in its charter)
Delaware 22-2940378
- --------------------------------------------- ---------------------
(State or other jurisdiction of incorporation (I.R.S. Employer I.D.)
or organization)
92 Deerfield Road, Windsor, Connecticut 06095-4209
- ---------------------------------------- ----------
(Address of principal executive offices) (zip code)
(860) 525-0821
- ---------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes [ ] No [X]
The number of Common Shares of the Company, $0.01 per share par value,
outstanding as of April 30, 2003 was 1,000.
STANADYNE CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS
Part I Financial Information
Item 1 Financial Statements
Condensed Consolidated Balance Sheets as of
March 31, 2003 (unaudited) and December 31, 2002...................................... 3
Condensed Consolidated Statements of Operations for the three
months ended March 31, 2003 and 2002 (unaudited)...................................... 4
Condensed Consolidated Statements of Cash Flows for the three
months ended March 31, 2003 and 2002 (unaudited)...................................... 5
Notes to Condensed Consolidated Financial Statements (unaudited)...................... 6-17
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations............................................................. 18-24
Item 3 Quantitative and Qualitative Disclosures About Market Risk............................ 24
Item 4 Controls and Procedures............................................................... 25
Part II Other Information
Item 6 Exhibits and Reports on Form 8-K...................................................... 26
Signature......................................................................................... 27
Certification of Chief Executive Officer.......................................................... 28-29
Certification of Principal Financial Officer...................................................... 30-31
- 2 -
STANADYNE CORPORATION AND SUBSIDIARIES
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
(UNAUDITED)
MARCH 31, DECEMBER 31,
2003 2002
---- ----
ASSETS
Current assets:
Cash and cash equivalents $ 1,681 $ 4,683
Accounts receivable, net of allowance for uncollectible
accounts of $562 at March 31, 2003 and $522 at December 31, 2002 44,315 33,045
Inventories, net 32,202 33,395
Prepaid expenses and other current assets 1,372 1,299
Deferred income taxes 5,435 5,919
--------- ---------
Total current assets 85,005 78,341
Property, plant and equipment, net 107,553 108,326
Goodwill 69,231 68,090
Intangible and other assets, net 10,170 9,485
Due from Stanadyne Automotive Holding Corp. 4,216 4,216
--------- ---------
Total assets $ 276,175 $ 268,458
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 20,161 $ 19,864
Accrued liabilities 33,505 26,532
Current maturities of long-term debt 9,001 9,456
Current installments of capital lease obligations 128 117
--------- ---------
Total current liabilities 62,795 55,969
Long-term debt, excluding current maturities 88,708 92,999
Deferred income taxes -- 666
Capital lease obligations, excluding current installments 318 324
Other noncurrent liabilities 52,095 50,949
--------- ---------
Total liabilities 203,916 200,907
--------- ---------
Minority interest in consolidated subsidiary 307 232
Commitments and contingencies -- --
Stockholders' equity:
Common stock -- --
Additional paid-in capital 59,858 59,858
Other accumulated comprehensive loss (2,131) (4,174)
Retained earnings 14,225 11,635
--------- ---------
Total stockholders' equity 71,952 67,319
--------- ---------
Total liabilities and stockholders' equity $ 276,175 $ 268,458
========= =========
See notes to condensed consolidated financial statements.
- 3 -
STANADYNE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS)
Three Months Three Months
Ended Ended
March 31, March 31,
2003 2002
---- ----
Net sales $ 70,867 $ 63,787
Cost of goods sold 57,057 51,212
-------- --------
Gross profit 13,810 12,575
Selling, general and administrative expenses 7,790 7,424
Amortization of intangibles 616 868
Management fees 275 275
-------- --------
Operating income 5,129 4,008
Other income (expenses):
Gain from extinguishment of debt 813 -
Interest, net (2,124) (2,410)
-------- --------
Income before income taxes and minority interest 3,818 1,598
Income taxes 1,301 489
-------- --------
Income before minority interest 2,517 1,109
Minority interest in loss of consolidated subsidiary 73 51
-------- --------
Net income $ 2,590 $ 1,160
======== ========
See notes to condensed consolidated financial statements.
- 4 -
STANADYNE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
Three Months Three Months
Ended Ended
March 31, March 31,
2003 2002
---- ----
Cash flows from operating activities:
Net income $ 2,590 $ 1,160
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 5,222 5,177
Deferred income tax benefit (1,630) (280)
Loss applicable to minority interest (73) (51)
Loss on disposal of property, plant and equipment 52 -
Changes in operating assets and liabilities (1,679) (668)
------- -------
Net cash provided by operating activities 4,482 5,338
------- -------
Cash flows from investing activities:
Capital expenditures (2,648) (1,387)
------- -------
Cash flows from financing activities:
Proceeds on foreign term loan 749 -
Net proceeds (payments) on revolving credit facilities 475 (2,350)
Net proceeds on foreign overdraft facilities 823 840
Principal payments on long-term debt (6,944) (1,402)
Payments of capital lease obligations (30) (24)
Proceeds from investment by minority interest 148 102
------- -------
Net cash used in financing activities (4,779) (2,834)
------- -------
Cash and cash equivalents:
Net (decrease) increase in cash and cash equivalents (2,945) 1,117
Effect of exchange rate changes on cash (57) (68)
Cash and cash equivalents at beginning of period 4,683 120
------- -------
Cash and cash equivalents at end of period $ 1,681 $ 1,169
======= =======
See notes to condensed consolidated financial statements.
- 5 -
STANADYNE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT WHERE NOTED OTHERWISE)
(1) SIGNIFICANT ACCOUNTING POLICIES
Description of Business. Stanadyne Corporation (the "Company"), formerly known
as Stanadyne Automotive Corp., is a wholly-owned subsidiary of Stanadyne
Automotive Holding Corp. ("Holdings"). A majority of the outstanding equity of
Holdings is owned by American Industrial Partners Capital Fund II, L.P. ("AIP").
Principles of Consolidation. The consolidated financial statements include the
accounts of the Company and all of the Company's wholly-owned subsidiaries:
Precision Engine Products Corp. ("PEPC"), Stanadyne, SpA ("SpA"), Precision
Engine Products LTDA ("PEPL") and Stanadyne Automotive Foreign Sales Corp.
("FSC") which was dissolved December 30, 2002. A joint venture, Stanadyne
Amalgamations Private Limited ("SAPL"), is fully consolidated based on the
Company's 51% controlling share, while the remaining 49% is recorded as a
minority interest. Intercompany balances have been eliminated in consolidation.
Basis of Presentation. The balance sheet as of December 31, 2002 is condensed
financial information derived from the audited balance sheet. The interim
financial statements are unaudited. These statements have been prepared in
accordance with accounting principles generally accepted in the United States of
America and, in the opinion of management, reflect all adjustments (consisting
of normal recurring accruals) necessary for a fair presentation for the periods
presented. Certain amounts have been reclassified in the 2002 financial
statements to conform to the 2003 presentation. The Company's quarterly results
are subject to fluctuation; consequently the results of operations and cash
flows for any quarter are not necessarily indicative of the results and cash
flows for any future period.
Stock Options. The Company follows the intrinsic method of accounting for its
stock-based compensation under the guidelines set forth in Accounting Principles
Board ("APB") Opinion No. 25 "Accounting for Stock Issued to Employees."
Intrinsic value is the excess of the market value of the common stock over the
exercise price at the date of grant. Because stock options are granted with
fixed terms and with an exercise price equal to the market price of the common
stock at the date of grant, there is no measured compensation cost of stock
options.
- 6 -
STANADYNE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT WHERE NOTED OTHERWISE)
Had compensation costs for options been determined based on the fair value of
options outstanding for the three-month periods ended March 31, 2003 and 2002,
pro forma net income would be as follows:
March 31,
2003 2002
---- ----
Net income as reported $ 2,590 $ 1,160
Stock based compensation using Black-Scholes
option valuation model, net of related tax
effects 52 30
------- -------
Pro forma net income $ 2,538 $ 1,130
======= =======
Adoption of FASB Statement No. 145. In April 2002, the FASB issued Statement of
Financial Accounting Standards ("SFAS") No. 145 "Rescission of FASB Statements
No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections." SFAS No. 145 primarily affects the reporting requirements and
classification of gains and losses from the extinguishment of debt, rescinds the
transitional accounting requirements for intangible assets of motor carriers,
and requires that certain lease modifications with economic effects similar to
sale-leaseback transactions be accounted for in the same manner as
sale-leaseback transactions. SFAS No. 145 is effective for financial statements
issued after April 2002, with the exception of the provisions affecting the
accounting for lease transactions, which are applicable for transactions entered
into after May 15, 2002, and the provisions affecting classification of gains
and losses from the extinguishment of debt, which are applicable for fiscal
years beginning after May 15, 2002. The adoption of SFAS 145 in the first
quarter of 2003 resulted in a $0.8 million gain from the extinguishment of $5.0
million in Senior Subordinated Notes ("Notes") being classified as other income.
(2) INVENTORIES
Components of inventories are as follows:
As of As of
March 31, 2003 December 31, 2002
-------------- -----------------
Raw materials and purchased parts $ 9,010 $ 9,028
Work-in-process 16,171 16,453
Finished goods 7,021 7,914
----------- ----------
$ 32,202 $ 33,395
=========== ==========
- 7 -
STANADYNE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT WHERE NOTED OTHERWISE)
(3) INCOME TAXES
The Company had an effective income tax rate of 34.1% for the first three months
of 2003, compared to 30.6% for the first three months of 2002. In the first
three months of 2003, the Company recorded $1.3 million of tax expense on a
pre-tax income of $3.8 million. Taxes for 2003 include $0.5 million for a
valuation allowance associated with foreign net operating loss carryforwards of
SpA that are anticipated to expire at year end without utilization. In 2002, the
Company recorded $0.5 million of tax expense on a pre-tax income of $1.6
million. The Company received U.S. income tax benefits for export sales in both
periods. The Company applies the estimated annual tax rate to the quarterly
earnings to provide consistent quarterly tax rates based on the estimated
effective tax rate for the year. To the extent there are differences between
components of planned and actual net income, the estimated annual tax rate for
the year could change and, in turn, have an impact on future quarterly tax
rates.
(4) LONG-TERM DEBT
The Company had $71.0 million and $76.0 million of Notes at an interest rate of
10.25% outstanding at March 31, 2003 and December 31, 2002, respectively. The
Notes are due on December 15, 2007. On January 15, 2003 the Company retired $5.0
million in Notes at the market price of $4.1 million. As a result of the early
retirement of the Notes, the Company realized a $0.8 million gain after the
write off of unamortized debt issuance costs of $0.1 million. The transaction
was recorded as other income in the Company's consolidated financial statements.
The Company had $22.9 million and $24.8 million in U.S.-based term loans (the
"Term Loans") outstanding at March 31, 2003 and December 31, 2002, respectively,
at various interest rates on March 31, 2003 ranging from 3.44% to 6.75%. The
Company had $23.9 million and $24.4 million in revolving credit lines (the
"Revolving Credit Lines") available for borrowings at March 31, 2003 and
December 31, 2002, respectively. The Company had $0.5 million borrowed against
the Revolving Credit Lines at March 31, 2003 at an interest rate of 5.75% and
had no borrowings against the Revolving Credit Lines at December 31, 2002. The
Term Loans and the Revolving Credit Lines are governed by a Credit Agreement
dated December 11, 1997, as amended (the "Credit Agreement"). The Company was in
compliance with the quarterly financial performance covenants as established by
the Credit Agreement as of the March 31, 2003 measurement date.
Overseas operations included $2.6 million and $1.7 million in overdraft
borrowings at SpA outstanding at March 31, 2003 and December 31, 2002,
respectively. Also, the Company had $0.8 million in foreign term loan borrowings
at SAPL outstanding at March 31, 2003.
- 8 -
STANADYNE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT WHERE NOTED OTHERWISE)
(5) GOODWILL AND INTANGIBLE AND OTHER ASSETS
Effective January 1, 2002, the Company adopted SFAS No. 142, "Goodwill and Other
Intangible Assets." With the adoption of SFAS No. 142, goodwill is no longer
subject to amortization but is annually assessed for impairment by applying a
fair-value based test. Within six months of adoption of SFAS No. 142, the
Company was required to complete a transitional impairment review using a fair
value methodology to identify if there was impairment to the goodwill or
intangible assets of indefinite life. Any impairment loss resulting from the
transitional impairment test would have been recorded as a cumulative effect of
a change in accounting principle for the quarter ended June 30, 2002. The
Company completed its evaluation of the carrying value of goodwill during the
second quarter of 2002 and determined that there was no impairment of goodwill.
SFAS No. 142 requires that goodwill be tested annually and between annual tests
if events or circumstances change that would more likely than not reduce the
fair value of a reporting unit below its carrying value. Subsequent impairment
losses will be reflected in operating income in the consolidated Statement of
Operations.
Goodwill for the Diesel Group was $57.8 million and $56.7 million at March 31,
2003 and December 31, 2002, respectively. The change in goodwill balances
between periods is due to foreign currency translation of Euros-denominated
goodwill at SpA. Goodwill for Precision Engine was $11.4 million at March 31,
2003 and December 31, 2002. Major components of intangible and other assets at
March 31, 2003 and December 31, 2002 consisted of:
March 31, 2003 December 31, 2002
-------------- -----------------
Gross Gross
Carrying Accumulated Carrying Accumulated
Value Amortization Value Amortization
-------------- -------------- ----------- --------------
Patents $ 9,809 $ 6,798 $ 9,809 $ 6,487
Debt issuance costs 8,024 5,714 8,149 5,466
Pension intangible asset 1,796 - 1,796 -
Deferred income taxes 1,380 - - -
Software 3,544 3,544 3,544 3,544
Customer contracts 1,310 994 1,310 947
Other 1,779 422 1,732 411
-------------- -------------- ----------- -------------
$ 27,642 $ 17,472 $ 26,340 $ 16,855
============== ============== =========== =============
Amortization expense of intangible assets was $616 and $868 for the three months
ended March 31, 2003 and 2002, respectively. Estimated annual amortization
expense of intangible assets is expected to be $2,400 in 2003, $1,153 in 2004,
$818 in 2005, $805 in 2006 and $632 in 2007.
(6) STOCK OPTIONS
The Company has adopted the disclosure provisions of SFAS No. 148, "Accounting
for Stock-Based Compensation - Transition and Disclosure," an amendment of FASB
Statement No. 123.
- 9 -
STANADYNE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT WHERE NOTED OTHERWISE)
The Statement requires prominent disclosures in both annual and interim
financial statements regarding the method of accounting for stock-based employee
compensation and the effect of the method used on reported results. The Company
accounts for stock compensation awards under the intrinsic method of APB Opinion
No. 25 requiring compensation cost to be recognized based on the excess, if any,
between the quoted market price of the stock at the date of grant and the amount
an employee must pay to acquire the stock. All options awarded under the
Company's stock option plans are granted with an exercise price equal to the
fair market value on the date of the grant.
(7) 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 consolidated financial
position or results of operations.
The Company is subject to potential environmental liabilities as a result of
various claims and legal actions, which are pending or may be asserted against
the Company. Reserves for such liabilities have been established, and no
insurance recoveries have been anticipated in the determination of the reserves.
In management's opinion, the aforementioned claims will be resolved without
material adverse effect on the consolidated results of operations, financial
position or cash flows of the Company. Also, in conjunction with the acquisition
of the Company from Metromedia Company ("Metromedia") on December 11, 1997,
Metromedia agreed to partially indemnify the Company and AIP for certain
environmental matters. The effect of this indemnification is to limit financial
exposure for known environmental issues.
In November 2002, the FASB issued FIN No. 45, "Guarantor's Accounting and
Disclosure requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others." The disclosure for the Company's warranty accrual is
provided below:
Three Months Ended March 31,
2003 2002
---- ----
Warranty liability, Beginning of period $ 1,875 $ 3,000
Warranty expense based on products sold 210 131
Adjustments to warranty estimates (150) (704)
Warranty claims paid (247) (167)
--------- ---------
Warranty liability, end of period $ 1,688 $ 2,260
========= =========
The Company's warranty accrual is included as components of accrued liabilities
and other noncurrent liabilities on the consolidated balance sheets.
- 10 -
STANADYNE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT WHERE NOTED OTHERWISE)
(8) COMPREHENSIVE INCOME
The Company's comprehensive income for the three-month periods ended March 31,
2003 and 2002 are as follows:
Three Months
Ended March 31,
2003 2002
---- ----
Net income $ 2,590 $ 1,160
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments 2,043 (585)
-------- -------
Comprehensive income $ 4,633 $ 575
-------- -------
(9) SEGMENTS
The Company has two reportable segments, the Diesel Systems Group (the "Diesel
Group") and Precision Engine Products ("Precision Engine"). The Diesel Group
manufactures diesel fuel injection equipment including fuel pumps, injectors,
filtration systems and miscellaneous non-proprietary products. This segment
accounted for approximately 75% and 79% of the Company's revenues for the three
months ended March 31, 2003 and 2002, respectively. Precision Engine
manufactures roller-rocker arms, hydraulic valve lifters and lash adjusters for
gasoline engines. Revenues for Precision Engine accounted for approximately 25%
and 21% of total revenues for the three months ended March 31, 2003 and 2002,
respectively. The Company considers the Diesel Group and Precision Engine to be
two distinct segments because the operating results of each are compiled,
reviewed and managed separately. There were no inter-segment sales between the
Diesel Group and Precision Engine for any of the periods presented.
The following summarizes key information used by the Company in evaluating the
performance of each segment for the three months ended March 31, 2003 and 2002:
As of and For the Three Months Ended March 31, 2003
---------------------------------------------------
Diesel Precision
Group Engine Eliminations Totals
--------- ---------- ------------ ----------
Net sales $ 53,405 $ 17,462 $ - $ 70,867
Gross profit 12,057 1,753 - 13,810
Depreciation and amortization
expense 4,401 821 - 5,222
Operating income 4,612 517 - 5,129
Net income 2,484 106 - 2,590
Total assets 241,876 50,280 (15,981) 276,175
Total capital expenditures 2,424 224 - 2,648
- 11 -
STANADYNE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT WHERE NOTED OTHERWISE)
As of and For the Three Months Ended March 31, 2002
---------------------------------------------------
Diesel Precision
Group Engine Eliminations Totals
--------- --------- ------------ ---------
Net sales $ 50,674 $ 13,113 $ - $ 63,787
Gross profit 11,423 1,152 - 12,575
Depreciation and amortization
expense 4,321 856 - 5,177
Operating income 3,751 257 - 4,008
Net income (loss) 1,380 (220) - 1,160
Total assets 237,965 51,064 (16,583) 272,446
Total capital expenditures 1,142 245 - 1,387
(10) SUPPLEMENTAL COMBINING CONDENSED FINANCIAL STATEMENTS
The Notes issued December 11, 1997 by the Company are guaranteed jointly, fully,
severally and unconditionally by Precision Engine Products Corp. (the
"Subsidiary Guarantor") on a subordinated basis and are not guaranteed by FSC,
SpA, PEPL and SAPL (the "Non-Guarantor Subsidiaries").
Supplemental combining condensed financial statements for Stanadyne Corporation
("Parent"), the Subsidiary Guarantor and the Non-Guarantor Subsidiaries are
presented below. Separate complete financial statements of the Subsidiary
Guarantor are not presented because management has determined that they are not
material to investors.
- 12 -
STANADYNE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT WHERE NOTED OTHERWISE)
SUPPLEMENTAL COMBINING CONDENSED FINANCIAL STATEMENTS (CONTINUED)
Consolidating Condensed Balance Sheets
March 31, 2003
----------------------------------------------------------------------------
Stanadyne Stanadyne
Corporation Subsidiary Non-Guarantor Corporation
Parent Guarantor Subsidiaries Eliminations & Subsidiaries
----------- ----------- ------------- ------------ --------------
ASSETS
Current assets:
Cash and cash equivalents $ 568 $ 117 $ 928 $ 68 $ 1,681
Accounts receivable, net 29,397 10,623 4,295 - 44,315
Inventories, net 19,813 7,762 4,843 (216) (a) 32,202
Other current assets 5,447 357 1,003 - 6,807
--------------------------------------------------------------------------
Total current assets 55,225 18,859 11,069 (148) 85,005
Property, plant and equipment, net 73,707 16,521 17,325 - 107,553
Goodwill 43,465 11,360 14,406 - 69,231
Intangible and other assets, net 9,562 940 2,110 (2,442) (b) 10,170
Investment in subsidiaries 28,511 (4,312) - (24,199) (c) -
Due from Stanadyne Automotive Holding Corp. 4,216 - - - 4,216
--------------------------------------------------------------------------
Total assets $ 214,686 $ 43,368 $ 44,910 $(26,789) $ 276,175
==========================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and
accrued liabilities $ 38,718 $ 10,255 $ 4,685 $ 8 $ 53,666
Current maturities of long-term
debt and capital lease obligations 6,353 - 2,776 - 9,129
--------------------------------------------------------------------------
Total current liabilities 45,071 10,255 7,461 8 62,795
Long-term debt 87,955 - 1,071 - 89,026
Other noncurrent liabilities 36,457 10,467 7,361 (2,190) (b) 52,095
Minority interest in consolidated subsidiary - - - 307 307
Intercompany accounts (26,979) 7,419 19,799 (239) -
Stockholders' equity 72,182 15,227 9,218 (24,675) (c) 71,952
--------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 214,686 $ 43,368 $ 44,910 $(26,789) $ 276,175
==========================================================================
(a) Amount represents the elimination of inventory for out of period transfers.
(b) Reclassification of deferred tax liability to consolidated net deferred tax
asset.
(c) Elimination of investments in subsidiaries of the Parent and Subsidiary
Guarantor.
- 13 -
STANADYNE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT WHERE NOTED OTHERWISE)
SUPPLEMENTAL COMBINING CONDENSED FINANCIAL STATEMENTS (CONTINUED)
Consolidating Condensed Balance Sheets
December 31, 2002
----------------------------------------------------------------------------
Stanadyne Stanadyne
Corporation Subsidiary Non-Guarantor Corporation
Parent Guarantor Subsidiaries Eliminations & Subsidiaries
----------- ----------- ------------- ------------ --------------
ASSETS
Current assets:
Cash and cash equivalents $ 4,223 $ 8 $ 452 $ - $ 4,683
Accounts receivable, net 22,869 6,506 3,670 - 33,045
Inventories, net 20,348 8,480 4,902 (335) (a) 33,395
Other current assets 5,369 378 1,471 - 7,218
--------------------------------------------------------------------------
Total current assets 52,809 15,372 10,495 (335) 78,341
Property, plant and equipment, net 75,564 17,114 15,336 312 108,326
Goodwill 43,465 11,360 13,265 - 68,090
Intangible and other assets, net 8,474 930 2,037 (1,956) (b) 9,485
Investment in subsidiaries 27,218 (4,328) - (22,890) (c) -
Due from Stanadyne Automotive Holding Corp. 4,216 - - - 4,216
--------------------------------------------------------------------------
Total assets $ 211,746 $ 40,448 $ 41,133 $(24,869) $ 268,458
==========================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and
accrued liabilities $ 33,507 $ 8,083 $ 4,764 $ 42 $ 46,396
Current maturities of long-term
debt and capital lease obligations 7,777 - 1,796 - 9,573
--------------------------------------------------------------------------
Total current liabilities 41,284 8,083 6,560 42 55,969
Long-term debt and capital lease obligations 92,999 - 324 - 93,323
Other noncurrent liabilities 35,763 10,686 6,856 (1,690) (b) 51,615
Minority interest in consolidated subsidiary - - - 232 232
Intercompany accounts (27,950) 7,949 20,034 (33) -
Stockholders' equity 69,650 13,730 7,359 (23,420) (c) 67,319
--------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 211,746 $ 40,448 $ 41,133 $(24,869) $ 268,458
==========================================================================
(a) Amount represents the elimination of inventory for out of period transfers.
(b) Reclassification of deferred tax asset to deferred tax liability.
(c) Elimination of investments in subsidiaries of the Parent and Subsidiary
Guarantor.
- 14 -
STANADYNE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT WHERE NOTED OTHERWISE)
SUPPLEMENTAL COMBINING CONDENSED FINANCIAL STATEMENTS (CONTINUED)
Consolidating Condensed Statements of Operations
Three Months Ended March 31, 2003
---------------------------------------------------------------------------
Stanadyne Stanadyne
Corporation Subsidiary Non-Guarantor Corporation
Parent Guarantor Subsidiaries Eliminations & Subsidiaries
----------- ----------- ------------- ------------ --------------
Net sales $ 49,535 $ 16,959 $ 5,075 $ (702) (a) $ 70,867
Cost of goods sold 37,597 15,259 4,914 (713) (a) 57,057
--------------------------------------------------------------------------
Gross profit 11,938 1,700 161 11 13,810
Selling, general, administrative and
other operating expenses 6,982 1,234 415 50 8,681
--------------------------------------------------------------------------
Operating income (loss) 4,956 466 (254) (39) 5,129
Other income (expenses):
Gain from extinguishment of debt 813 - - - 813
Interest, net (1,633) (158) (309) (24) (2,124)
--------------------------------------------------------------------------
Income (loss) before income
taxes and minority interest 4,136 308 (563) (63) 3,818
Income taxes 498 182 634 (13) 1,301
--------------------------------------------------------------------------
Income (loss) before
minority interest 3,638 126 (1,197) (50) 2,517
Minority interest in loss of consolidated subsidiary - - - 73 73
--------------------------------------------------------------------------
Net income (loss) $ 3,638 $ 126 $ (1,197) $ 23 $ 2,590
==========================================================================
Consolidating Condensed Statements of Operations
Three Months Ended March 31, 2002
---------------------------------------------------------------------------
Stanadyne Stanadyne
Corporation Subsidiary Non-Guarantor Corporation
Parent Guarantor Subsidiaries Eliminations & Subsidiaries
----------- ----------- ------------- ------------ --------------
Net sales $ 47,232 $ 13,059 $ 6,051 $ (2,555) (a) $ 63,787
Cost of goods sold 36,250 12,097 5,341 (2,476) (a) 51,212
------------------------------------------------------------------------
Gross profit 10,982 962 710 (79) 12,575
Selling, general, administrative and
other operating expenses 7,301 1,122 144 - 8,567
------------------------------------------------------------------------
Operating income (loss) 3,681 (160) 566 (79) 4,008
Interest, net (1,855) (167) (328) (60) (2,410)
------------------------------------------------------------------------
Income (loss) before income
taxes and minority interest 1,826 (327) 238 (139) 1,598
Income taxes 393 57 39 - 489
------------------------------------------------------------------------
Income (loss) before
minority interest 1,433 (384) 199 (139) 1,109
Minority interest in loss of consolidated subsidiary - - - 51 51
------------------------------------------------------------------------
Net income (loss) $ 1,433 $ (384) $ 199 $ (88) $ 1,160
========================================================================
(a) Elimination of intercompany sales and cost of goods sold.
- 15 -
STANADYNE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT WHERE NOTED OTHERWISE)
SUPPLEMENTAL COMBINING CONDENSED FINANCIAL STATEMENTS (CONTINUED)
Consolidating Condensed Statements of Cash Flows
Three Months Ended March 31, 2003
--------------------------------------------------------------------------
Stanadyne Stanadyne
Corporation Subsidiary Non-Guarantor Corporation
Parent Guarantor Subsidiaries Eliminations & Subsidiaries
----------- ----------- ------------- ------------ --------------
Cash flows from operating activities:
Net income (loss) $ 3,638 $ 126 $ (1,197) $ 23 $ 2,590
Adjustments to reconcile net income
(loss) to net cash provided by (used in)
operating activities:
Depreciation and amortization 4,038 813 371 - 5,222
Other adjustments (2,079) (7) 521 (13) (1,578)
Loss applicable to minority interest - - - (73) (73)
Changes in operating assets and
liabilities 1,239 (1,955) (783) (180) (1,679)
------------------------------------------------------------------------
Net cash provided by (used in)
operating activities 6,836 (1,023) (1,088) (243) 4,482
------------------------------------------------------------------------
Cash flows from investing activities:
Capital expenditures (1,626) (223) (1,111) 312 (2,648)
Investment in subsidiaries (106) - - 106 -
------------------------------------------------------------------------
Net cash used in
investing activities (1,732) (223) (1,111) 418 (2,648)
------------------------------------------------------------------------
Cash flows from financing activities:
Net change in debt (6,469) - 1,542 - (4,927)
Net change in equity (2,293) 1,355 1,119 (33) 148
------------------------------------------------------------------------
Net cash (used in) provided by
financing activities (8,762) 1,355 2,661 (33) (4,779)
------------------------------------------------------------------------
Net (decrease) increase in cash and
cash equivalents (3,658) 109 462 142 (2,945)
Effect of exchange rate changes on cash 3 - 14 (74) (57)
Cash and cash equivalents at
beginning of period 4,223 8 452 - 4,683
------------------------------------------------------------------------
Cash and cash equivalents at
end of period $ 568 $ 117 $ 928 $ 68 $ 1,681
========================================================================
- 16 -
STANADYNE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT WHERE NOTED OTHERWISE)
SUPPLEMENTAL COMBINING CONDENSED FINANCIAL STATEMENTS (CONCLUDED)
Consolidating Condensed Statements of Cash Flows
Three Months Ended March 31, 2002
--------------------------------------------------------------------------
Stanadyne Stanadyne
Corporation Subsidiary Non-Guarantor Corporation
Parent Guarantor Subsidiaries Eliminations & Subsidiaries
----------- ----------- ------------- ------------ --------------
Cash flows from operating activities:
Net income (loss) $ 1,433 $ (384) $ 199 $ (88) $ 1,160
Adjustments to reconcile net income
(loss) to net cash provided by (used in)
operating activities:
Depreciation and amortization 4,049 846 282 - 5,177
Other adjustments (230) (99) 49 - (280)
Loss applicable to minority interest - - - (51) (51)
Changes in operating assets and
liabilities 559 (399) (1,788) 960 (668)
------------------------------------------------------------------------
Net cash provided by (used in)
operating activities 5,811 (36) (1,258) 821 5,338
------------------------------------------------------------------------
Cash flows from investing activities:
Capital expenditures (1,040) (196) (151) - (1,387)
Proceeds from disposal of property,
plant and equipment (106) - - 106 -
------------------------------------------------------------------------
Net cash used in
investing activities (1,146) (196) (151) 106 (1,387)
------------------------------------------------------------------------
Cash flows from financing activities:
Net change in debt (3,752) - 816 - (2,936)
Net change in equity (419) 248 345 (72) 102
------------------------------------------------------------------------
Net cash (used in) provided by
financing activities (4,171) 248 1,161 (72) (2,834)
------------------------------------------------------------------------
Net increase (decrease) in cash and
cash equivalents 494 16 (248) 855 1,117
Effect of exchange rate changes on cash 1 - 43 (112) (68)
Cash and cash equivalents at
beginning of period 483 5 772 (1,140) 120
------------------------------------------------------------------------
Cash and cash equivalents at
end of period $ 978 $ 21 $ 567 $ (397) $ 1,169
========================================================================
- 17 -
STANADYNE CORPORATION AND SUBSIDIARIES
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULT OF OPERATIONS
(1) OVERVIEW
The Company is a leading designer and manufacturer of highly-engineered,
precision manufactured engine components. The Company's two reporting segments
are the Diesel Group and Precision Engine. The Diesel Group manufactures diesel
fuel injection equipment including fuel pumps, injectors, filtration systems and
other non-proprietary products. Precision Engine manufactures roller-rocker
arms, hydraulic valve lifters and lash adjusters for gasoline engines. Detailed
segment information can be found in Note 9 of Notes to Condensed Consolidated
Financial Statements.
Operations in the first quarter of 2003 benefited from increased customer demand
in both segments. Company sales and net income for the first three months of
2003 increased by $7.1 million and $1.4 million, respectively, from the same
period last year. Increased sales in the Diesel Group, reflecting additional
demand for fuel injection equipment from Deere & Company ("Deere") and added
revenues from the steady growth of the PCA product line, were only partially
offset by a $1.3 million reduction in service sales of the DS fuel pump. Sales
in the Precision Engine segment continued to increase, with first quarter sales
33.2% higher than the same period a year ago. The increase in customer demand
continues to be primarily associated with DaimlerChrysler Corp. ("DCX"), Tritec
Motors, Ltd. ("Tritec") and the service aftermarket sector. Organizational
changes were undertaken in Precision Engine during the first quarter of 2003,
and operational efficiencies began to show signs of improvement as reflected in
the positive net income result of $0.1 million.
BASIS OF PRESENTATION
The following table displays unaudited performance details for the periods
shown. Net sales, cost of goods sold, gross profit, selling, general and
administrative expense ("SG&A"), amortization of intangibles, management fees,
operating income and net income of the Company are presented in thousands of
dollars and as a percentage of net sales. Historical results and percentage
relationships are not necessarily indicative of the results that may be expected
for any future period.
- 18 -
STANADYNE CORPORATION AND SUBSIDIARIES
Three Months Ended March 31,
--------------------------------------
2003 2002
----------------- -----------------
$ % $ %
------ ----- ------ -----
Net sales..................... 70,867 100.0 63,787 100.0
Cost of goods sold............ 57,057 80.5 51,212 80.3
Gross profit.................. 13,810 19.5 12,575 19.7
SG&A.......................... 7,790 11.0 7,424 11.6
Amortization of intangibles... 616 0.9 868 1.4
Management fees............... 275 0.4 275 0.4
Operating income.............. 5,129 7.2 4,008 6.3
Net income.................... 2,590 3.7 1,160 1.8
COMPARISON OF RESULTS OF OPERATIONS:
Three Months Ended March 31, 2003 Compared to Three Months Ended March 31, 2002
Net Sales. Net sales for the first quarter of 2003 totaled $70.9 million and
were 11.1% higher than the $63.8 million reported in the same period last year.
Strength in both segments contributed to this result. Net sales in the Diesel
Group increased by $2.7 million, or 5.4%, to $53.4 million in the first quarter
of 2003 compared to the first quarter of 2002. Primarily driven by additional
OEM sales, this $2.7 million increase reflected $2.6 million in higher demand
for fuel injection equipment from Deere, as well as $2.0 million in higher PCA
sales to Cummins Inc. The continued decline in service demand for the DS fuel
pump resulted in a $1.3 million reduction in 2003 versus 2002 first quarter
sales. This lower level of demand for the DS fuel pump is expected to continue
as the in-service vehicle population diminishes with time. Increases in first
quarter net sales in the Precision Engine segment totaled $4.3 million or 33.2%
more than the same period in 2002. This increase was almost evenly divided
between higher aftermarket sales of slipper tappets and higher OEM sales to DCX
and Tritec. Sales to DCX in 2003 included $2.8 million of first year shipments
of valve-train actuator assemblies ("VTAA") destined for use in the new Pacifica
vehicle. Shipments of the VTAA are expected to increase during 2003 as they
replace the roller-rocker arm products being produced for the DCX L/H platform
scheduled for phase-out later this year.
Gross Profit. Gross profit for the Company in the first quarter of 2003
increased to $13.8 million from $12.6 million for the same period in 2002. The
gross profit as a percentage to net sales decreased slightly in the first
quarter of 2003 to 19.5% from 19.7% for the same period of 2002 due primarily to
a higher percentage of Precision Engine gross profit to total gross profit in
2003. Gross profit results increased in both segments in proportion to the
changes in sales discussed above. A 5.4% increase in first quarter sales in the
Diesel Group resulted in a 5.6% increase in gross profit. In addition to the
higher gross profit generated by the additional sales in the first quarter,
Diesel Group reported lower manufacturing costs in 2003, particularly for PCA
products that were in the early start-up phases of production in early 2002. The
33.2% increase in first
- 19 -
STANADYNE CORPORATION AND SUBSIDIARIES
quarter net sales in Precision Engine, produced a 52.2% increase in gross
profit. Gross profit in this segment was also favorably influenced by lower
overhead costs in the first quarter of 2003 and price increases on slipper
tappets implemented in July of 2002.
SG&A. SG&A of $7.8 million in the first quarter of 2003 was higher than the $7.4
million reported for the first quarter of 2002. Diesel Group SG&A costs totaled
$6.7 million in the first quarters of both 2002 and 2003, with very few
significant differences to report. SG&A results in Precision Engine were $0.4
million higher in the first quarter of 2003 due primarily to $0.2 million of
foreign exchange differences on operations in Brazil.
Amortization of Intangibles. Amortization of intangible assets decreased to $0.6
million in the first quarter of 2003 from $0.9 million in the first quarter of
2002. This reduction reflected the conclusion of the amortization schedule for
the Company's old business systems software that was replaced by the new ERP
system in 2002.
Operating Income. Operating income for the first quarter of 2003 totaled $5.1
million versus $4.0 million for the same period a year ago. As a percentage of
net sales, operating income increased to 7.2% in the first quarter of 2003 from
6.3% in the first quarter of 2002. Higher gross profit and lower amortization
expense resulted in increased operating income for the first quarter of 2003 for
the Diesel Group of $4.6 million or 8.6% of net sales from $3.8 million or 7.4%
of net sales in the first quarter of 2002. Driven primarily by higher gross
profits, operating income for Precision Engine doubled in the first quarter of
2003 to $0.5 million or 3.0% of net sales.
Net Income. Net income in the first quarter of 2003 totaled $2.6 million versus
a net income of $1.2 million for the same period in 2002. This improvement
reflects the combined result of $1.1 million of higher operating income in 2003,
$0.8 million gain on the repurchase of a portion of the Company's bonds, $0.3
million in lower interest expense, due to less debt and lower interest rates,
and $0.8 million increase in income taxes. The increase to income taxes included
$0.5 million for a valuation allowance associated with net operating loss carry
forwards in SpA that are anticipated to partially expire at year end.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of liquidity are cash flows from operations
supplemented by a revolving credit facility under which $23.9 million was
available for borrowings as of March 31, 2003. The Company occasionally utilizes
capital leasing and, for its foreign operations in Italy and India, maintains a
combination of overdraft and term loan facilities with local financial
institutions on an as needed basis. As of March 31, 2003, there were borrowings
of $22.9 million under the Term Loans, $0.5 million under the Revolving Credit
Lines, $2.6 million in foreign overdraft facilities and $0.8 million in foreign
term loans. The Company met all financial covenants set forth in the Credit
Agreement for the March 31, 2003 measurement date.
- 20 -
STANADYNE CORPORATION AND SUBSIDIARIES
Cash Flows From Operating Activities. Cash flows from operations for the three
months ended March 31, 2003 totaled $4.5 million as compared to $5.3 million for
the same period of 2002. This $0.8 million year-to-year decline was primarily
accounted for by increased working capital requirements in the first quarter of
2003. Due to the higher levels of business in both segments, increases to
accounts receivable totaled $11.0 million in the first three months of 2003 and
were partially offset by a $1.5 million decrease to inventory and a $7.4 million
increase to accounts payable and accrued liability accounts. Although sales
levels increased in 2003, better inventory management generated reductions in
both segments and boosted turnover to 8.0 turns by the end of the first quarter.
The growth in first quarter 2003 liability accounts was primarily in support of
higher sales volumes but also reflected a $2.6 million increase to the Company's
federal and state income tax liabilities for 2002 and 2003.
Cash Flows From Investing Activities. The Company's capital expenditures for the
first three months of 2003 totaled $2.6 million compared to $1.4 million for the
same period of 2002. The increased level of capital expenditures in 2003
includes expenditures for two new product programs in the Diesel Group segment:
$1.1 million for a gasoline supply pump program being developed for a European
engine manufacturer with a targeted start of production in 2005; and $1.0
million for a Tier-II compliant fuel system scheduled for production later this
year. The balance of the expenditures incurred in the first quarter of 2003 were
for other new program launches, cost reduction efforts, quality enhancements and
general maintenance projects.
Cash Flows From Financing Activities. Cash flows from financing activities for
the three months ended March 31, 2003 resulted in a net decrease in cash of $4.8
million. Principal payments of long-term debt totaled $6.9 million, including
the early retirement of $5.0 million in outstanding Notes. Borrowings under the
Revolving Credit Facility totaled $0.5 million and additional overdraft
borrowings at SpA were $0.8 million. Foreign term borrowings at SAPL totaling
$0.8 million were required to purchase machinery and equipment for the Company's
joint venture activities in India. Investments in the share capital of SAPL by
the minority partner increased cash flows by $0.1 million in the first quarter
of 2003.
Pension Plans. The Company maintains a qualified defined benefit pension plan
(the "Qualified Plan"), which covers substantially all domestic hourly and
salary employees except for Tallahassee hourly employees and an unfunded
nonqualified plan to provide benefits in excess of amounts permitted to be paid
under the provisions of the tax law to participants in the Qualified Plan.
The value of the Qualified Plan assets decreased from $43.8 million at December
31, 2001 to $37.8 million at December 31, 2002. The combination of weak
investment performance and declining discount rates during 2002 resulted in an
increase in the Qualified Plan unfunded benefit obligation. Contributions to the
Qualified Plan for the 2002 plan year are expected to be approximately $3.2
million to achieve a current liability funding level of 80%. This contribution
will be made on or before September 15, 2003. The Company continues to examine
the longer term projections for pension expense and cash contributions.
- 21 -
STANADYNE CORPORATION AND SUBSIDIARIES
(2) NEW ACCOUNTING STANDARD
The Company has adopted the disclosure provisions of SFAS No. 148, "Accounting
for Stock-Based Compensation - Transition and Disclosure," an amendment of FASB
Statement No. 123. The Statement requires prominent disclosures in both annual
and interim financial statements regarding the method of accounting for
stock-based employee compensation and the effect of the method used on reported
results. The Company accounts for stock compensation awards under the intrinsic
method of APB Opinion No. 25 requiring compensation cost to be recognized based
on the excess, if any, between the quoted market price of the stock at the date
of grant and the amount an employee must pay to acquire the stock. All options
awarded under the Company's stock option plans are granted with an exercise
price equal to the fair market value on the date of the grant.
(3) CRITICAL ACCOUNTING POLICIES
We prepare the consolidated financial statements in conformity with accounting
principles generally accepted in the United States of America. As such, we are
required to make certain estimates, judgments and assumptions that we believe
are reasonable based upon the information available. These estimates and
assumptions affect the reported amounts of assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the periods presented. The significant accounting policies involving
estimates which we believe are the most critical to aid in fully understanding
and evaluating our reported financial results include: product warranty
reserves, inventory reserves for excess or obsolescence, self insurance
healthcare costs, and pension and postretirement benefit liabilities and are
more fully described in the notes to our consolidated financial statements
contained in our annual report on Form 10-K.
(4) CAUTIONARY STATEMENT
This quarterly report contains "forward-looking statements" within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended, including, without limitation,
statements with respect to the financial condition, results of operations and
business of the Company and management's discussion and analysis of financial
condition and results of operations. All of these forward-looking statements are
based on estimates and assumptions made by the management of the Company which,
although believed to be reasonable, are inherently uncertain. Therefore, undue
reliance should not be placed upon such estimates and statements. No assurance
can be given that any such estimates will be realized, and it is likely that
actual results will differ materially from those 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) loss of
material customers; (6) adverse state or federal legislation or regulation or
adverse determinations in pending litigation; (7) changes in the value of the
U.S. dollar relative to foreign currencies of countries where the Company
conducts its
- 22 -
STANADYNE CORPORATION AND SUBSIDIARIES
business; and (8) changes in general economic conditions and/or in the
automobile, light duty trucks, agricultural and construction vehicles and
equipment, industrial products and marine equipment markets in which the Company
competes. Many of such factors are beyond the control of the Company and its
management. The forward-looking statements contained in this report speak only
as of the date on which such statements were made. The Company undertakes no
duty or obligation to publicly update or revise any forward-looking statements
or to reflect new, changing or unanticipated events or circumstances.
- 23 -
STANADYNE CORPORATION AND SUBSIDIARIES
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
The Company is exposed to market risks which include changes in interest rates
and changes in foreign currency exchange rates as measured against the U.S.
dollar.
Interest Rate Risk. The carrying values of the Company's revolving credit lines
and term loans approximate fair value. The term loans are primarily LIBOR-based
borrowings and are repriced approximately every three months based on prevailing
market rates. A 10% change in the interest rate on the term loans would have had
a negligible effect on the interest expense recorded in the first three months
of 2003. The 10 1/4% Notes bear interest at a fixed rate and, therefore, are not
sensitive to interest rate fluctuation. The fair value of the Company's $71.0
million in Notes based on quoted market prices on March 31, 2003 was
approximately $54.6 million.
Foreign Currency Risk. The Company has subsidiaries in Brazil and Italy, a joint
venture in India and a branch office in France, and therefore is exposed to
changes in foreign currency exchange rates. Changes in exchange rates may
positively or negatively affect the Company's sales, gross margins, and retained
earnings. However, historically, these locations have contributed less than 15%
of the Company's net sales and retained earnings, with most of these sales
attributable to the Italian and Brazilian subsidiaries. The Company also sells
its products from the United States to foreign customers for payment in foreign
currencies as well as dollars. Foreign currency exchange differences were net
gains of $0.1 million and $0.3 million for the three months ended March 31, 2003
and 2002, respectively. A majority of the exchange differences are related to
the Company's operations in Brazil. The Company does not hedge against foreign
currency risk.
- 24 -
STANADYNE CORPORATION AND SUBSIDIARIES
ITEM 4: CONTROLS AND PROCEDURES
(a) EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
Within 90 days of the filing of this report, an evaluation of the effectiveness
of the design and operation of the Company's disclosure controls and procedures
was conducted under the supervision and with the participation of the Chief
Executive Officer and Chief Financial Officer. Based on this evaluation, the
Chief Executive Officer and Chief Financial Officer have concluded that the
Company's disclosure controls and procedures were adequate and designed to
ensure that information required to be disclosed by the Company in this report
is recorded, processed, summarized and reported in a timely manner, including
that such information is accumulated and communicated to management, including
the Chief Executive Officer and Chief Financial Officer, as appropriate to allow
timely decisions regarding required disclosure.
(b) CHANGES IN INTERNAL CONTROLS
There were no significant changes in internal controls or in other factors that
could significantly affect internal controls, including any corrective actions
with regard to significant deficiencies and material weaknesses in internal
controls, subsequent to the evaluation described above.
Reference is made to the Certifications of the Chief Executive Officer and Chief
Financial Officer about these and other matters following the signature page of
this report.
- 25 -
STANADYNE CORPORATION AND SUBSIDIARIES
PART II: OTHER INFORMATION
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits:
99 Certification Pursuant to 18 U.S.C. Section 1350 as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
b. No report on Form 8-K was filed during the quarter ended March 31,
2003.
- 26 -
STANADYNE CORPORATION AND SUBSIDIARIES
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Stanadyne Corporation
---------------------
(Registrant)
Date: May 14, 2003 /s/ Stephen S. Langin
---------------------
Stephen S. Langin
Vice President and
Chief Financial Officer
- 27 -
CERTIFICATIONS
I, William D. Gurley, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Stanadyne
Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation,
- 28 -
including any corrective actions with regard to significant deficiencies
and material weaknesses.
Date: May 14, 2003
/s/ William D. Gurley
- ---------------------
William D. Gurley
President and Chief Executive Officer
- 29 -
CERTIFICATIONS
I, Stephen S. Langin, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Stanadyne
Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation,
- 30 -
including any corrective actions with regard to significant deficiencies
and material weaknesses.
Date: May 14, 2003
/s/ Stephen S. Langin
- ---------------------
Stephen S. Langin
Vice President and Chief Financial Officer
- 31 -
EXHIBIT INDEX:
99 Certification Pursuant to 18 U.S.C. Section 1350 as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002