Attached files

file filename
EX-31.1 - CERTIFICATION OF PRESIDENT OF STANADYNE HOLDINGS, INC. PURSUANT TO SECTION 302 - STANADYNE CORPdex311.htm
EX-32.1 - CERTIFICATION OF PRESIDENT AND CFO OF STANADYNE HOLDINGS, INC. - STANADYNE CORPdex321.htm
EX-32.2 - CERTIFICATION OF CEO AND CFO OF STANADYNE CORPORATION - STANADYNE CORPdex322.htm
EX-31.4 - CERTIFICATION OF CFO OF STANADYNE CORPORATION PURSUANT TO SECTION 302 - STANADYNE CORPdex314.htm
EX-31.3 - CERTIFICATION OF CEO OF STANADYNE CORPORATION PURSUANT TO SECTION 302 - STANADYNE CORPdex313.htm
EX-31.2 - CERTIFICATION OF CFO OF STANADYNE HOLDINGS, INC. PURSUANT TO SECTION 302 - STANADYNE CORPdex312.htm
EX-10.1.3 - SECURITY AGREEMENT DATED AS OF AUGUST 13, 2009 - STANADYNE CORPdex1013.htm
EX-10.1.2 - GENERAL CONTINUING GUARANTY DATED AS OF AUGUST 13, 2009 - STANADYNE CORPdex1012.htm
EX-10.1.4 - COPYRIGHT SECURITY AGREEMENT DATED AS OF AUGUST 13, 2009 - STANADYNE CORPdex1014.htm
EX-10.1.6 - TRADEMARK SECURITY AGREEMENT DATED AS OF AUGUST 13, 2009 - STANADYNE CORPdex1016.htm
EX-10.1.5 - PATENT SECURITY AGREEMENT DATED AS OF AUGUST 13, 2009 - STANADYNE CORPdex1015.htm
EX-10.1.1 - CREDIT AGREEMENT DATED AS OF AUGUST 13, 2009 - STANADYNE CORPdex1011.htm
EX-10.2.2 - EXPORT-IMPORT BANK OF THE UNITED STATES WORKING CAPITAL GUARANTEE PROGRAM - STANADYNE CORPdex1022.htm
EX-10.2.1 - EXIM GUARANTIED CREDIT AGREEMENT DATED AS OF AUGUST 13, 2009 - STANADYNE CORPdex1021.htm
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10–Q

 

 

 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2009

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

  

Exact name of registrant as specified in its
charter, Principal Executive Office Address
and Telephone Number

   State of
Incorporation
   I.R.S. Employer
Identification No.

333-124154

  

Stanadyne Holdings, Inc.

92 Deerfield Road

Windsor, CT 06095

(860) 525-0821

   Delaware    20-1398860

333-45823

  

Stanadyne Corporation

92 Deerfield Road

Windsor, CT 06095

(860) 525-0821

   Delaware    22-2940378

 

 

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.

 

 

Stanadyne Holdings, Inc.

   Yes     þ    No     ¨   
 

Stanadyne Corporation

   Yes     þ    No     ¨   

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

 

 

Stanadyne Holdings, Inc.

   Yes     ¨    No     ¨   
 

Stanadyne Corporation

   Yes     ¨    No     ¨   

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Stanadyne Holdings, Inc.

  Large Accelerated Filer  ¨   Accelerated Filer  ¨   Non-Accelerated Filer  þ   Smaller Reporting Company  ¨

Stanadyne Corporation

  Large Accelerated Filer  ¨   Accelerated Filer  ¨   Non-Accelerated Filer  þ   Smaller Reporting Company  ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

 

 

Stanadyne Holdings, Inc.

   Yes     ¨    No     þ   
 

Stanadyne Corporation

   Yes     ¨    No     þ   

The number of shares of the registrant’s common stock (only one class for each registrant) outstanding as of September 30, 2009:

 

Stanadyne Holdings, Inc.    105,815,081 shares
Stanadyne Corporation    1,000 shares (100% owned by Stanadyne Intermediate Holding Corp., a direct and wholly-owned subsidiary of Stanadyne Holdings, Inc.)

 

 

 


Table of Contents

STANADYNE HOLDINGS, INC. AND SUBSIDIARIES

STANADYNE CORPORATION AND SUBSIDIARIES

TABLE OF CONTENTS

 

Part I Financial Information

  

Item 1 Financial Statements

  

Stanadyne Holdings, Inc.

  

Condensed Consolidated Balance Sheets as of September 30, 2009 and December 31, 2008 (unaudited)

   4

Condensed Consolidated Statements of Operations for the three months ended September  30, 2009 and 2008 (unaudited)

   5

Condensed Consolidated Statements of Operations for the nine months ended September  30, 2009 and 2008 (unaudited)

   6

Condensed Consolidated Statements of Cash Flows for the nine months ended September  30, 2009 and 2008 (unaudited)

   7

Condensed Consolidated Statements of Changes in Stockholders’ Equity for the three and nine months ended September 30, 2009 and 2008 (unaudited)

   8

Stanadyne Corporation

  

Condensed Consolidated Balance Sheets as of September 30, 2009 and December 31, 2008 (unaudited)

   9

Condensed Consolidated Statements of Operations for the three months ended September 30, 2009 and 2008 (unaudited)

   10

Condensed Consolidated Statements of Operations for the nine months ended September  30, 2009 and 2008 (unaudited)

   11

Condensed Consolidated Statements of Cash Flows for the nine months ended September  30, 2009 and 2008 (unaudited)

   12

Condensed Consolidated Statements of Changes in Stockholder’s Equity for the three and nine months ended September 30, 2009 and 2008 (unaudited)

   13

Notes to Condensed Consolidated Financial Statements

   14-21

Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations

   22-30

Item 3 Quantitative and Qualitative Disclosures about Market Risk

   31

Item 4T Controls and Procedures

   32

Part II Other Information

  

Item 1A Risk Factors

   33

Item 6 Exhibits

   33

Signatures

   34

 

-2-


Table of Contents

STANADYNE HOLDINGS, INC. AND SUBSIDIARIES

STANADYNE CORPORATION AND SUBSIDIARIES

 

TABLE OF CONTENTS

EXPLANATORY NOTE

This Form 10-Q is a combined quarterly report being filed separately by two registrants: Stanadyne Holdings, Inc. and Stanadyne Corporation. Unless the context indicates otherwise, any reference in this report to “Holdings” refers to Stanadyne Holdings, Inc., and any reference to “Stanadyne” refers to Stanadyne Corporation, the indirect wholly-owned subsidiary of Holdings. The “Company,” “we,” “us” and “our” refer to Stanadyne Holdings, Inc. together with its direct and indirect subsidiaries, including Stanadyne Corporation. Each registrant hereto is filing on its own behalf all of the information contained in this quarterly report that relates to such registrant. Each registrant hereto is not filing any information that does not relate to such registrant, and therefore makes no representation as to any such information.

 

-3-


Table of Contents

PART I: FINANCIAL INFORMATION

ITEM 1: FINANCIAL STATEMENTS

STANADYNE HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

(in thousands)

 

     September 30,
2009
    December 31,
2008
 

ASSETS

    

Current Assets:

    

Cash and cash equivalents

   $ 21,997      $ 49,010   

Accounts receivable, net of allowance for uncollectible accounts of $220 as of September 30, 2009 and $209 as of December 31, 2008

     28,455        32,171   

Inventories, net

     27,744        28,919   

Prepaid expenses and other assets

     1,761        1,658   

Deferred income taxes

     3,516        1,606   
                

Total current assets

     83,473        113,364   

Property, plant and equipment, net

     75,536        80,933   

Goodwill

     144,575        144,575   

Intangible and other assets, net

     79,191        82,542   
                

Total assets

   $ 382,775      $ 421,414   
                

LIABILITIES AND STOCKHOLDERS’ EQUITY

    

Current Liabilities:

    

Accounts payable

   $ 13,453      $ 18,394   

Accrued liabilities

     19,204        30,640   

Current maturities of long-term debt

     4,387        13,871   

Current portion of capital lease obligations

     476        316   
                

Total current liabilities

     37,520        63,221   

Long-term debt, excluding current maturities

     260,411        258,513   

Deferred income taxes

     10,798        12,317   

Capital lease obligations, excluding current portion

     1,023        830   

Other non current liabilities

     47,668        49,420   
                

Total liabilities

     357,420        384,301   
                

Commitments and Contingencies

     —          —     

Stockholders’ equity:

    

Common stock, par value $.01, 150,000,000 authorized shares, 106,505,081 issued shares, and 105,815,081 and 106,027,581 outstanding shares as of September 30, 2009 and December 31, 2008, respectively

     1,065        1,065   

Additional paid-in capital

     54,269        54,222   

Accumulated other comprehensive loss

     (11,299     (12,602

Accumulated deficit

     (17,553     (5,266

Treasury stock, at cost, 690,000 and 477,500 shares as of September 30, 2009 and December 31, 2008, respectively

     (558     (335
                

Total Stanadyne Holdings, Inc. stockholders’ equity

     25,924        37,084   

Noncontrolling interest

     (569     29   
                

Total stockholders’ equity

     25,355        37,113   
                

Total liabilities and stockholders’ equity

   $ 382,775      $ 421,414   
                

See notes to condensed consolidated financial statements

 

-4-


Table of Contents

STANADYNE HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

(in thousands)

 

     Three Months
Ended
September 30,
2009
    Three Months
Ended
September 30,
2008
 

Net sales

   $ 46,434      $ 66,043   

Cost of goods sold

     33,156        49,913   
                

Gross profit

     13,278        16,130   

Selling, general and administrative expenses

     8,314        9,334   

Amortization of intangible assets

     812        816   

Management fees

     187        187   
                

Operating income

     3,965        5,793   

Interest expense

     8,026        7,340   
                

Loss from operations before income tax benefit

     (4,061     (1,547

Income tax benefit

     703        465   
                

Net loss

     (3,358     (1,082

Net loss attributable to noncontrolling interest

     276        32   
                

Net loss attributable to Stanadyne Holdings, Inc.

   $ (3,082   $ (1,050
                

See notes to condensed consolidated financial statements

 

-5-


Table of Contents

STANADYNE HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

(in thousands)

 

     Nine Months
Ended
September 30,
2009
    Nine Months
Ended
September 30,
2008
 

Net sales

   $ 134,295      $ 211,028   

Cost of goods sold

     101,678        154,889   
                

Gross profit

     32,617        56,139   

Selling, general and administrative expenses

     23,525        28,481   

Amortization of intangible assets

     2,437        2,448   

Management fees

     563        563   
                

Operating income

     6,092        24,647   

Interest expense

     22,981        21,873   
                

(Loss) income from operations before income tax benefit (expense)

     (16,889     2,774   

Income tax benefit (expense)

     4,004        (1,937
                

Net (loss) income

     (12,885     837   

Net loss attributable to noncontrolling interest

     598        48   
                

Net (loss) income attributable to Stanadyne Holdings, Inc.

   $ (12,287   $ 885   
                

See notes to condensed consolidated financial statements

 

-6-


Table of Contents

STANADYNE HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(in thousands)

 

     Nine Months
Ended
September 30,
2009
    Nine Months
Ended
September 30,
2008
 

Cash flows from operating activities:

    

Net (loss) income

   $ (12,885   $ 837   

Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:

    

Depreciation and amortization

     15,191        16,102   

Amortization of debt discount and deferred financing fees

     9,068        9,257   

Stock-based compensation expense

     47        77   

Deferred income tax benefit

     (3,651     (925

Loss on disposal of property, plant and equipment

     21        56   

Changes in operating assets and liabilities

     (12,429     (21,154
                

Net cash (used in) provided by operating activities

     (4,638     4,250   
                

Cash flows from investing activities:

    

Capital expenditures

     (5,755     (5,974
                

Net cash used in investing activities

     (5,755     (5,974
                

Cash flows from financing activities:

    

Payment on U.S. term loans

     (15,000     (6,200

Proceeds from foreign term loans

     —          360   

Payments on foreign term loans

     (76     —     

Proceeds from foreign overdraft facilities

     141        2,483   

Payments on capital lease obligations

     (318     (230

Proceeds from exercise of stock options

     —          12   

Purchase of treasury stock

     (223     (66

Payments of debt issuance cost

     (1,175     —     
                

Net cash used in financing activities

     (16,651     (3,641
                

Cash and cash equivalents:

    

Net decrease in cash and cash equivalents

     (27,044     (5,365

Effect of exchange rate changes on cash

     31        (32

Cash and cash equivalents at beginning of period

     49,010        37,950   
                

Cash and cash equivalents at end of period

   $ 21,997      $ 32,553   
                

SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING TRANSACTIONS:

During the nine months ended September 30, 2009 and 2008, Stanadyne Corporation entered into capital leases for new equipment resulting in capital lease obligations of $536 and $1,118, respectively.

See notes to condensed consolidated financial statements

 

-7-


Table of Contents

STANADYNE HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN

STOCKHOLDERS’ EQUITY

(UNAUDITED)

(in thousands)

 

     Common
Stock
   Additional
Paid-In
Capital
   Accumulated
Other
Comprehensive
Income (Loss)
    Accumulated
Deficit
    Treasury
Stock
    Non-controlling
Interest
    Total  

December 31, 2007

   $ 1,064    $ 54,085    $ 5,994      $ (7,233   $ (229   $ 76      $ 53,757   

Net income

     —        —        —          876        —          24        900   

Foreign currency translation adjustment

     —        —        652        —          —          —          652   

Common stock issued

     —        7      —          —          —          —          7   

Purchase of treasury stock, at cost

     —        —        —          —          (56     —          (56

Stock compensation expense

     —        26      —          —          —          —          26   
                                                      

March 31, 2008

     1,064      54,118      6,646        (6,357     (285     100        55,286   
                                                      

Net income (loss)

     —        —        —          1,060        —          (39     1,021   

Foreign currency translation adjustment

     —        —        420        —          —          —          420   

Common stock issued

     —        5      —          —          —          —          5   

Stock compensation expense

     —        25      —          —          —          —          25   
                                                      

June 30, 2008

     1,064      54,148      7,066        (5,297     (285     61        56,757   
                                                      

Net loss

     —        —        —          (1,050     —          (32     (1,082

Foreign currency translation adjustment

     —        —        (871     —          —          —          (871

Purchase of treasury stock, at cost

     —        —        —          —          (10     —          (10

Stock compensation expense

     —        26      —          —          —          —          26   
                                                      

September 30, 2008

   $ 1,064    $ 54,174    $ 6,195      $ (6,347   $ (295   $ 29      $ 54,820   
                                                      

December 31, 2008

   $ 1,065    $ 54,222    $ (12,602   $ (5,266   $ (335   $ 29      $ 37,113   

Net loss

     —        —        —          (6,462     —          (116     (6,578

Foreign currency translation adjustment

     —        —        82        —          —          —          82   

Purchase of treasury stock, at cost

     —        —        —          —          (223     —          (223

Stock compensation expense

     —        16      —          —          —          —          16   
                                                      

March 31, 2009

     1,065      54,238      (12,520     (11,728     (558     (87     30,410   
                                                      

Net loss

     —        —        —          (2,743     —          (206     (2,949

Foreign currency translation adjustment

     —        —        882        —          —          —          882   

Stock compensation expense

     —        15      —          —          —          —          15   
                                                      

June 30, 2009

     1,065      54,253      (11,638     (14,471     (558     (293     28,358   
                                                      

Net loss

     —        —        —          (3,082     —          (276     (3,358

Foreign currency translation adjustment

     —        —        339        —          —          —          339   

Stock compensation expense

     —        16      —          —          —          —          16   
                                                      

September 30, 2009

   $ 1,065    $ 54,269    $ (11,299   $ (17,553   $ (558     (569   $ 25,355   
                                                      

See notes to condensed consolidated financial statements

 

-8-


Table of Contents

STANADYNE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

(in thousands)

 

     September 30,
2009
    December 31,
2008
 
ASSETS     

Current Assets:

    

Cash and cash equivalents

   $ 21,997      $ 48,844   

Accounts receivable, net of allowance for uncollectible accounts of $220 as of September 30, 2009 and $209 as of December 31, 2008

     28,455        32,170   

Inventories, net

     27,744        28,919   

Prepaid expenses and other assets

     1,761        1,657   

Deferred income taxes

     3,516        1,606   
                

Total current assets

     83,473        113,196   

Property, plant and equipment, net

     75,536        80,933   

Goodwill

     144,575        144,575   

Intangible and other assets, net

     77,943        81,121   
                

Total assets

   $ 381,527      $ 419,825   
                
LIABILITIES AND STOCKHOLDER’S EQUITY     

Current Liabilities:

    

Accounts payable

   $ 13,453      $ 18,394   

Accrued liabilities

     17,665        30,626   

Current maturities of long-term debt

     4,387        13,871   

Current portion of capital lease obligations

     476        316   
                

Total current liabilities

     35,981        63,207   

Long-term debt, excluding current maturities

     160,411        165,479   

Deferred income taxes

     22,363        21,581   

Capital lease obligations, excluding current portion

     1,023        830   

Other non current liabilities

     47,668        49,420   

Due to Stanadyne Holdings, Inc.

     1,239        1,302   
                

Total liabilities

     268,685        301,819   
                

Commitments and Contingencies

     —          —     

Stockholder’s equity:

    

Common stock, par value $.01, authorized 10,000 shares, issued and outstanding 1,000 shares

     —          —     

Additional paid-in capital

     105,000        105,000   

Accumulated other comprehensive loss

     (11,299     (12,602

Retained earnings

     19,710        25,579   
                

Total Stanadyne Corporation stockholder’s equity

     113,411        117,977   

Noncontrolling interest

     (569     29   
                

Total stockholder’s equity

     112,842        118,006   
                

Total liabilities and stockholder’s equity

   $ 381,527      $ 419,825   
                

See notes to condensed consolidated financial statements

 

-9-


Table of Contents

STANADYNE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

(in thousands)

 

     Three Months
Ended
September 30,
2009
    Three Months
Ended
September 30,
2008
 

Net sales

   $ 46,434      $ 66,043   

Cost of goods sold

     33,156        49,913   
                

Gross profit

     13,278        16,130   

Selling, general and administrative expenses

     8,299        9,309   

Amortization of intangible assets

     812        816   

Management fees

     187        187   
                

Operating income

     3,980        5,818   

Interest expense

     5,051        4,688   
                

(Loss) income from operations before income tax expense

     (1,071     1,130   

Income tax expense

     (86     (249
                

Net (loss) income

     (1,157     881   

Net loss attributable to noncontrolling interest

     276        32   
                

Net (loss) income attributable to Stanadyne Corporation

   $ (881   $ 913   
                

See notes to condensed consolidated financial statements

 

-10-


Table of Contents

STANADYNE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

(in thousands)

 

     Nine Months
Ended
September 30,
2009
    Nine Months
Ended
September 30,
2008
 

Net sales

   $ 134,295      $ 211,028   

Cost of goods sold

     101,678        154,889   
                

Gross profit

     32,617        56,139   

Selling, general and administrative expenses

     23,479        28,429   

Amortization of intangible assets

     2,437        2,448   

Management fees

     563        563   
                

Operating income

     6,138        24,699   

Interest expense

     14,309        14,139   
                

(Loss) income from operations before income tax benefit (expense)

     (8,171     10,560   

Income tax benefit (expense)

     1,704        (3,751
                

Net (loss) income

     (6,467     6,809   

Net loss attributable to noncontrolling interest

     598        48   
                

Net (loss) income attributable to Stanadyne Corporation

   $ (5,869   $ 6,857   
                

See notes to condensed consolidated financial statements

 

-11-


Table of Contents

STANADYNE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(in thousands)

 

     Nine Months
Ended
September 30,
2009
    Nine Months
Ended
September 30,
2008
 

Cash flows from operating activities:

    

Net (loss) income

   $ (6,467   $ 6,809   

Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:

    

Depreciation and amortization

     15,191        16,102   

Amortization of deferred financing fees

     1,928        1,519   

Stock-based compensation expense

     47        77   

Deferred income tax (benefit) expense

     (959     1,149   

Loss on disposal of property, plant and equipment

     21        56   

Changes in operating assets and liabilities

     (14,456     (21,459
                

Net cash (used in) provided by operating activities

     (4,695     4,253   
                

Cash flows from investing activities:

    

Capital expenditures

     (5,755     (5,974
                

Net cash used in investing activities

     (5,755     (5,974
                

Cash flows from financing activities:

    

Payments on U.S. term loan

     (15,000     (6,200

Proceeds from foreign term loans

     —          360   

Payments on foreign term loans

     (76     —     

Proceeds from foreign overdraft facilities

     141        2,483   

Payments on capital lease obligations

     (318     (230

Payments of debt issuance cost

     (1,175     —     
                

Net cash used in financing activities

     (16,428     (3,587
                

Cash and cash equivalents:

    

Net decrease in cash and cash equivalents

     (26,878     (5,308

Effect of exchange rate changes on cash

     31        (32

Cash and cash equivalents at beginning of period

     48,844        37,711   
                

Cash and cash equivalents at end of period

   $ 21,997      $ 32,371   
                

SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING TRANSACTIONS:

During the nine months ended September 30, 2009 and 2008, Stanadyne Corporation entered into capital leases for new equipment resulting in capital lease obligations of $536 and $1,118, respectively.

See notes to condensed consolidated financial statements

 

-12-


Table of Contents

STANADYNE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN

STOCKHOLDER’S EQUITY

(UNAUDITED)

(in thousands)

 

     Common
Stock
   Additional
Paid-In
Capital
   Accumulated
Other
Comprehensive
Income (loss)
    Retained
Earnings
    Non-controlling
Interest
    Total  

December 31, 2007

   $ —      $ 105,000    $ 5,994      $ 15,344      $ 76      $ 126,414   

Net income

     —        —        —          2,983        24        3,007   

Foreign currency translation adjustment

     —        —        652        —          —          652   
                                              

March 31, 2008

     —        105,000      6,646        18,327        100        130,073   
                                              

Net income

     —        —        —          2,960        (39     2,921   

Foreign currency translation adjustment

     —        —        420        —          —          420   
                                              

June 30, 2008

     —        105,000      7,066        21,287        61        133,414   
                                              

Net income

     —        —        —          913        (32     881   

Foreign currency translation adjustment

     —        —        (871     —          —          (871
                                              

September 30, 2008

   $ —      $ 105,000    $ 6,195      $ 22,200      $ 29      $ 133,424   
                                              

December 31, 2008

   $ —      $ 105,000    $ (12,602   $ 25,579      $ 29      $ 118,006   

Net loss

     —        —        —          (4,377     (116     (4,493

Foreign currency translation adjustment

     —        —        82        —          —          82   
                                              

March 31, 2009

     —        105,000      (12,520     21,202        (87     113,595   
                                              

Net loss

     —        —        —          (611     (206     (817

Foreign currency translation adjustment

     —        —        882        —          —          882   
                                              

June 30, 2009

     —        105,000      (11,638     20,591        (293     113,660   
                                              

Net loss

     —        —        —          (881     (276     (1,157

Foreign currency translation adjustment

     —        —        339        —          —          339   
                                              

September 30, 2009

   $ —      $ 105,000    $ (11,299   $ 19,710      $ (569   $ 112,842   
                                              

See notes to condensed consolidated financial statements

 

-13-


Table of Contents

STANADYNE HOLDINGS, INC. AND SUBSIDIARIES

STANADYNE CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(dollars in thousands, except where noted otherwise)

 

(1) Business, Organization and Significant Accounting Policies

Description of Business. Stanadyne Holdings, Inc. (“Holdings”) owns all of the outstanding common stock of Stanadyne Automotive Holdings Corp. (“SAHC”). The name of SAHC was changed on July 29, 2009 to Stanadyne Intermediate Holding Corp. (“SIHC”). SIHC owns all of the outstanding common stock of Stanadyne Corporation (together with its consolidated subsidiaries, “Stanadyne”). A majority of the outstanding common stock of Holdings is owned by funds managed by Kohlberg Management IV, L.L.C. Collectively, Holdings, SIHC and Stanadyne hereinafter are referred to as the “Company.” Holdings and Stanadyne are separate reporting companies. Holdings is a holding company with no operations beyond those of its indirectly, wholly-owned subsidiary, Stanadyne. Stanadyne is a leading designer and manufacturer of highly engineered, precision manufactured engine components, including fuel injection equipment for diesel engines. Stanadyne sells engine components to original equipment manufacturers in a variety of applications, including agricultural and construction vehicles and equipment, industrial products, automobiles, light duty trucks and marine equipment. The aftermarket is a significant element of Stanadyne’s operations.

Basis of Presentation. The condensed consolidated financial statements presented herein 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 but subject to normal year end adjustments) necessary for a fair presentation for the periods presented. 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. These notes to condensed consolidated financial statements apply to both Holdings and Stanadyne unless otherwise noted.

Principles of Consolidation. The condensed consolidated financial statements of Holdings include the accounts of Holdings and all of Holdings’ direct and indirect wholly-owned subsidiaries: SIHC, Stanadyne, Stanadyne, SpA (“SpA”), and Stanadyne Changshu Corporation (“SCC”). The condensed consolidated financial statements of Stanadyne include the accounts of Stanadyne and of Stanadyne’s wholly-owned subsidiaries: SpA and SCC. A joint venture, Stanadyne Amalgamations Private Limited (“SAPL”), is fully consolidated with Holdings and Stanadyne based on the Stanadyne’s 51% controlling share, while the remaining 49% is recorded as a noncontrolling interest. Intercompany balances have been eliminated in consolidation.

Stock Options. In 2004, Holdings established the 2004 Equity Incentive Plan to provide for the award of non-qualified stock options to attract and retain people who are in a position to make a significant contribution to the success of the Company and its subsidiaries. Awards granted under the 2004 Equity Incentive Plan vest over a period of one to four years contingent upon achievement of certain financial performance targets as defined by the 2004 Equity Incentive Plan and expire 10 years after the date of grant.

The Company uses a Black-Scholes option-pricing model to calculate the fair value of options. The key assumptions for this valuation method include the expected term of the option, stock price volatility, risk-free interest rate, dividend yield, exercise price, and forfeiture rate. Many of these assumptions are judgmental and highly sensitive in the determination of compensation expense.

 

-14-


Table of Contents

STANADYNE HOLDINGS, INC. AND SUBSIDIARIES

STANADYNE CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(dollars in thousands, except where noted otherwise)

 

(1)    Business, Organization and Significant Accounting Policies (continued)

The following table summarizes information about 2004 Equity Incentive Plan for the three and nine month periods ended September 30, 2009:

 

     Three Months Ended September 30, 2009
     Outstanding    Exercisable
     Stock
Options
   Weighted
Average
Exercise Price *
   Stock
Options
   Weighted
Average
Exercise Price *

July 1, 2009

   12,997,500    $ 0.54    3,071,250    $ 0.47

Exercised

   —        —      —        —  

Cancelled

   —        —      —        —  
                       

September 30, 2009

   12,997,500    $ 0.54    3,071,250    $ 0.47
                       
     Nine Months Ended September 30, 2009
     Outstanding    Exercisable
     Stock
Options
   Weighted
Average
Exercise Price *
   Stock
Options
   Weighted
Average
Exercise Price *

January 1, 2009

   14,347,500    $ 0.53    3,071,250    $ 0.47

Exercised

   —        —      —        —  

Cancelled

   1,350,000      0.47    —        —  
                       

September 30, 2009

   12,997,500    $ 0.54    3,071,250    $ 0.47
                       

 

* Represents per share price.

There were no stock options granted, exercised or cancelled during the third quarter of 2009. During the first quarter of 2009, one employee retired from the Company resulting in the cancellation of 1,350,000 unvested stock options.

As of September 30, 2009, there was $140 of total unrecognized compensation cost related to non-vested share-based compensation awards granted under the 2004 Equity Incentive Plan. The total stock-based employee compensation expense for the year ending December 31, 2009 for the stock options awarded through September 2009 is expected to be $63.

Noncontrolling Interests. Effective January 1, 2009, the Company adopted the standards set forth on the Consolidation Topic of the FASB Accounting Standards Codification. In accordance with these standards, the presentation and disclosure requirements were applied retrospectively for all periods presented. Accordingly, the presentation of income attributable to noncontrolling interest for the three and nine month periods ended September 30, 2008 in the accompanying condensed consolidated statements of operations has been retroactively restated to conform to the 2009 presentation. In addition, the amount attributable to noncontrolling interest as of December 31, 2008 in the accompanying condensed consolidated balance sheets has been retroactively restated as a component of stockholder’s equity to conform to the 2009 presentation.

 

-15-


Table of Contents

STANADYNE HOLDINGS, INC. AND SUBSIDIARIES

STANADYNE CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(dollars in thousands, except where noted otherwise)

 

(1)    Business, Organization and Significant Accounting Policies (continued)

New Accounting Pronouncements. The Subsequent Events topic of the Accounting Standards Codification establishes general standards of accounting for, and disclosure of, events that occur after the balance sheet date but before financial statements are issued or are available to be issued. In particular, this statement sets forth: (1) the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, (2) the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements and (3) the disclosures that an entity should make about events or transactions that occurred after the balance sheet date. Certain standards within the Subsequent Events topic are effective for the interim or annual financial periods ending after June 15, 2009. The Company adopted these standards effective on June 30, 2009, and such adoption did not have a material impact on the Company’s condensed consolidated financial statements. The Company evaluated subsequent events through the date the accompanying condensed consolidated financial statements were issued, which was November 16, 2009.

In June 2009, the FASB issued Statement of Financial Accounting Standards No. 167 “Amendments to FASB Interpretation No. 46(R)” (‘Consolidation of Variable Interest Entities’) (“SFAS 167”). This standard is not currently defined in the FASB Accounting Standards Codification. SFAS 167 applies prospectively to variable interest entities existing on or after November 15, 2009. The objective of SFAS 167 is to require an enterprise to perform an analysis to determine whether the enterprise’s variable interest or interests give it a controlling financial interest in a variable interest entity. This analysis identifies the primary beneficiary of a variable interest entity as the enterprise that has both of the following characteristics: (1) the power to direct the activities of a variable interest entity that most significantly impact the entity’s economic performance and (2) the obligation to absorb losses of the entity that could potentially be significant to the variable interest entity or the right to receive benefits from the entity that could potentially be significant to the variable interest entity. Additionally, an enterprise is required to assess whether it has an implicit financial responsibility to ensure that a variable interest entity operates as designed when determining whether it has the power to direct activities of the variable interest entity that most significantly impact the entity’s economic performance. The Company is currently evaluating what impact, if any, SFAS 167 will have on its financial statements.

 

(2) Inventories

Components of inventories are as follows:

 

     As of
September 30,
2009
   As of
December 31,
2008

Raw materials and purchased parts

   $ 11,749    $ 11,152

Work-in-process

     9,621      11,749

Finished goods

     6,374      6,018
             
   $ 27,744    $ 28,919
             

 

-16-


Table of Contents

STANADYNE HOLDINGS, INC. AND SUBSIDIARIES

STANADYNE CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(dollars in thousands, except where noted otherwise)

 

(3) Intangible and Other Assets

Major components of intangible and other assets at September 30, 2009 and December 31, 2008 are listed below:

 

     Holdings
      As of September 30, 2009    As of December 31, 2008
     Gross
Carrying

Value
   Accumulated
Amortization
   Gross
Carrying

Value
   Accumulated
Amortization

Trademarks / trade names

   $ 51,100    $ —      $ 51,100    $ —  

Technology / patents

     24,300      11,373      24,300      10,082

Customer contracts

     15,252      7,860      15,252      6,715

Debt issuance costs

     16,549      8,881      18,447      9,854

Other

     179      75      168      74
                           
   $ 107,380    $ 28,189    $ 109,267    $ 26,725
                           
     Stanadyne
      As of September 30, 2009    As of December 31, 2008
     Gross
Carrying

Value
   Accumulated
Amortization
   Gross
Carrying

Value
   Accumulated
Amortization

Trademarks / trade names

   $ 51,100    $ —      $ 51,100    $ —  

Technology / patents

     24,300      11,373      24,300      10,082

Customer contracts

     15,252      7,860      15,252      6,715

Debt issuance costs

     14,193      7,773      16,090      8,918

Other

     179      75      168      74
                           
   $ 105,024    $ 27,081    $ 106,910    $ 25,789
                           

Amortization expense of intangible assets for the Company, exclusive of the amortization of debt issuance costs, was $812 and $816 for the three months ended September 30, 2009 and 2008, respectively, and $2,437 and $2,448 for the nine months ended September 30, 2009 and 2008, respectively. Estimated annual amortization expense for the Company’s intangible assets is expected to be $3,249 in 2009, $3,160 in 2010, $2,944 in 2011, $2,816 in 2012 and $2,816 in 2013.

Amortization of debt discount and debt issuance costs is included as interest expense in the accompanying condensed consolidated statements of operations for Holdings of $2,356 and $3,163 for the three months ended September 30, 2009 and 2008, respectively, and $9,068 and $9,257 for the nine months ended September 30, 2009 and 2008, respectively. Amortization of debt issuance costs for Stanadyne was $915 and $508 for the three months ended September 30, 2009 and 2008, respectively, and $1,928 and $1,519 for the nine months ended September 30, 2009 and 2008, respectively. These amounts are included as interest expense in the accompanying condensed consolidated statements of operations.

Included in amortization of debt issuance costs for both Stanadyne and Holdings for the three and nine months ended September 30, 2009, is $0.5 million of accelerated amortization related to the retirement of the Company’s U.S. term loans. Additionally, approximately $1.2 million of debt issuance costs were capitalized in connection with the Company’s new revolving credit facility (see Note 4) which will be amortized over the four year term of that facility.

 

-17-


Table of Contents

STANADYNE HOLDINGS, INC. AND SUBSIDIARIES

STANADYNE CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(dollars in thousands, except where noted otherwise)

 

(4) Long-term Debt

Long-term debt consisted of:

 

     Holdings    Stanadyne
     September 30,
2009
   December 31,
2008
   September 30,
2009
   December 31,
2008

Revolving credit lines

   $ —      $ —      $ —      $ —  

U.S. Term Loans

     —        15,000      —        15,000

Senior Subordinated Notes

     160,000      160,000      160,000      160,000

Holdings Senior Discount Notes, net of unamortized discount of $6,966 at December 31, 2008

     100,000      93,034      —        —  

SAPL debt, payable to India Overseas Bank through 2013, bearing interest at rates ranging from 5.14% to 9.00% as of September 30, 2009

     1,041      957      1,041      957

SCC debt, payable to Pudong Development Bank, bearing interest at 5.84% as of September 30, 2009

     439      440      439      440

SpA debt payable to Italian banks through 2009, bearing interest rates ranging from 2.39% to 5.00% as of September 30, 2009

     3,318      2,953      3,318      2,953
                           

Long-term debt

     264,798      272,384      164,798      179,350

Less current maturities of long-term debt

     4,387      13,871      4,387      13,871
                           

Long-term debt, excluding current maturities

   $ 260,411    $ 258,513    $ 160,411    $ 165,479
                           

The fair values of the Company’s Term Loans and short-term borrowings approximated their recorded values at September 30, 2009 and December 31, 2008 based on similar borrowing agreements offered by other major institutional banks. The fair value of the Notes based on bid prices at September 30, 2009 and December 31, 2008 was approximately $134.4 million and $109.6 million, respectively. The fair value of Holdings’ Discount Notes based on bid prices at September 30, 2009 and December 31, 2008 was $60.0 million and $45.0 million, respectively.

On August 13, 2009, Stanadyne (as borrower) and SIHC (as guarantor) entered into a new revolving credit agreement with Wells Fargo Foothill, LLC (“U.S. Revolver”). This U.S. Revolver replaced the Revolving Credit Line that expired on August 6, 2009 which was part of the Company’s senior credit facility with Goldman Sachs and CIT Group. The U.S. Revolver provides for maximum borrowings of $30 million based on availability, as defined, and is secured by all Stanadyne and SIHC assets, as well as a pledge of 65% of Stanadyne’s stock in SpA, SAPL, and SCC. The U.S. Revolver is comprised of a domestic inventory accounts receivable facility, a domestic fixed asset facility and a foreign accounts receivable sub-facility guaranteed by the United States Export Import Bank. In conjunction with the completion of the agreement for the new U.S. Revolver, the Company repaid the remaining $5.3 million outstanding under the Term Loan using cash on hand. Interest on borrowings under the U.S. Revolver is at either the Base Rate (as defined by the agreement) or three month LIBOR, plus an applicable margin ranging between 3.75% and 4.25%, depending on the level of excess availability. Any borrowings under the U.S. Revolver become due and payable on August 13, 2013. The U.S. Revolver is subject to a fixed charge coverage ratio covenant test if availability is less than $4.0 million, and certain other affirmative and negative covenants common to an asset-backed loan agreement. The U.S. Revolver also limits the amount of dividends and other payments that can be made by Stanadyne to Holdings.

In connection with this new loan agreement, the Company made two changes. First, as discussed in Note 1, SAHC changed its legal name to Stanadyne Intermediate Holding Corp. to better reflect its positioning in the overall corporate structure. Second, the former Precision Engine Products Corp. entity was formally dissolved on July 22, 2009. As a result of the dissolution of PEPC, the guarantee structure related to the Senior Subordinated Notes is no longer in place, and accordingly, the supplemental consolidating condensed financial statements relating to the guarantor and non-guarantor subsidiaries of Stanadyne are no longer required.

 

-18-


Table of Contents

STANADYNE HOLDINGS, INC. AND SUBSIDIARIES

STANADYNE CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(dollars in thousands, except where noted otherwise)

 

(5) Pension Plans, Defined Contribution Plan and Other Postretirement Health Care and Life Insurance Pension Plans

The Company has a noncontributory defined benefit pension plan for eligible domestic employees and also has two nonqualified plans, which are designed to supplement the benefits payable to designated employees. The components of the net periodic pension expense (income) for the periods shown are as follows:

 

     Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
     2009     2008     2009     2008  

Interest cost

   $ 1,458      $ 1,410      $ 4,373      $ 4,230   

Expected return on plan assets

     (1,072     (1,664     (3,218     (4,992

Recognized net actuarial losses

     515        8        1,543        23   
                                

Net periodic pension expense (income)

   $ 901      $ (246   $ 2,698      $ (739
                                

The Company funds the pension plan in an amount at least equal to the minimum required contribution as determined by the plan’s actuaries, but not in excess of the maximum tax-deductible amount under Section 404 of the Internal Revenue Code. The Company may make discretionary contributions of any amount within this range based on financial circumstances and strategic considerations, which typically vary from year to year.

Postretirement Health Care and Life Insurance

The Company’s domestic subsidiaries make available certain health care and life insurance benefits for eligible retired employees. The components of the net periodic (benefit) expense for the periods shown were as follows:

 

     Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
     2009     2008     2009     2008  

Service cost

   $      11      $        43      $      34      $      129   

Interest cost

     52        99        156        296   

Recognized net actuarial income

     (230     (114     (689     (342
                                

Net periodic postretirement (benefit) expense

   $ (167   $     28      $ (499   $ 83   
                                

 

(6) Reorganization and Contingencies

During the second quarter of 2009, as a part of its strategic plan and cost reduction initiatives, the Company decided to consolidate its U.S. based manufacturing capacity. This will result in the closure of manufacturing operations in the Company’s Windsor, Connecticut location by mid-2011 and expansion of its operations in its North Carolina locations. The Company incurred $0.7 million and $1.0 million in reorganization costs related to this consolidation in the three and nine months ended September 30, 2009, respectively. These costs were primarily for staffing to manage the project and costs to relocate equipment and are reflected as a component of selling, general and administrative expenses within the accompanying condensed consolidated statements of operations. On June 23, 2009, the Company announced that hourly and salaried employees of the Windsor, Connecticut workforce that will be displaced by this consolidation will receive compensation, based on years of service and skill level, if they remain employed until their positions are eliminated. This “completion bonus” is projected to approximate $2.4 million. The Company accrued $0.6 million in relation to this completion bonus in the third quarter of 2009 which is reflected as a component of cost of goods sold within the accompanying condensed consolidated statements of operations.

 

-19-


Table of Contents

STANADYNE HOLDINGS, INC. AND SUBSIDIARIES

STANADYNE CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(dollars in thousands, except where noted otherwise)

 

(6) Reorganization and Contingencies (continued)

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. In conjunction with the acquisition of SAHC from Metromedia Company (“Metromedia”) on December 11, 1997, Metromedia agreed to partially indemnify Stanadyne and American Industrial Partners Capital Fund II, L.P. for certain environmental matters. The effect of this indemnification is to limit the Company’s financial exposure for known environmental issues.

The Company estimates and records the liability associated with its manufactured products at the time they are sold. The changes in the Company’s warranty liability are provided below:

 

     Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
     2009     2008     2009     2008  

Warranty liability, beginning of period

   $ 1,130      $ 1,908      $ 1,086      $ 2,536   

Warranty expense based on products sold

     204        690        612        1,670   

Warranty claims paid

     (132     (226     (496     (1,834
                                

Warranty liability, end of period

   $ 1,202      $ 2,372      $ 1,202      $ 2,372   
                                

The Company’s warranty accrual is included as a component of accrued liabilities on the condensed consolidated balance sheets.

 

(7) Comprehensive (Loss) Income

Comprehensive (loss) income is as follows:

 

     Holdings  
     Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
     2009     2008     2009     2008  

Net (loss) income

   $ (3,358   $ (1,082   $ (12,885   $ 837   

Other comprehensive income:

        

Foreign currency translation adjustments

     339        871        1,303        (201
                                

Comprehensive (loss) income

   $ (3,019   $ (221   $ (11,582   $ 636   
                                
     Stanadyne  
     Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
     2009     2008     2009     2008  

Net (loss) income

   $ (1,071   $ 1,130      $ (6,467   $ 6,809   

Other comprehensive income:

        

Foreign currency translation adjustments

     339        871        1,303        (201
                                

Comprehensive (loss) income

   $ (732   $ 2,001      $ (5,164   $ 6,608   
                                

 

-20-


Table of Contents

STANADYNE HOLDINGS, INC. AND SUBSIDIARIES

STANADYNE CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(dollars in thousands, except where noted otherwise)

 

(8) Segments

The Company has one reportable segment which it refers to as “Precision Products.” Precision Products manufactures its own proprietary products including fuel pumps for diesel and gasoline engines, injectors and filtration systems for diesel engines, and various non-proprietary products manufactured under contract for other companies. The Company’s proprietary products currently account for the majority of Precision Products’ sales.

 

-21-


Table of Contents

STANADYNE HOLDINGS, INC. AND SUBSIDIARIES

STANADYNE CORPORATION AND SUBSIDIARIES

 

ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

This Management Discussion and Analysis of Financial Condition and Results of Operations reflects the results of operations and financial condition of Holdings and its subsidiaries, which are materially the same as the results of operations and financial condition of Stanadyne and its subsidiaries. Therefore, the discussions provided are applicable to both Holdings and Stanadyne except where otherwise noted.

We are a leading designer and manufacturer of highly-engineered, precision manufactured engine components, primarily for the off-highway markets. We manufacture our own proprietary products including fuel pumps for diesel and gasoline engines, injectors and filtration systems for diesel engines, and various non-proprietary products manufactured under contract for other companies.

The global economic recession continued to negatively impact demand for our products in the third quarter of 2009. Lower end market demand for our products in the agriculture, construction and automotive industries resulted in sales totaling $46.4 million in the third quarter of 2009, reflecting a decrease of $19.6 million and 29.7% from the third quarter of 2008 sales of $66.0 million. Sales in the third quarter of 2009 were $1.0 million less than the second quarter of 2009, indicating that the underlying market demand appears to have stabilized. Third quarter sales compared to the same quarter in 2008 were lower for virtually every market, customer and industry we serve. Sales to our original equipment manufacturers (“OEMs”) continued to reflect the largest year-over-year decreases with third quarter 2009 sales 45.2% lower than the same period in 2008. Sales to the service channels in the third quarter of 2009 decreased a comparatively modest 7.5% when compared to the same period in 2008, and represented 54% of our total third quarter revenues.

Our operating income for the third quarter of 2009 improved slightly from the prior quarter to $4.0 million and 8.5% of net sales, reflecting benefits from the cost reduction actions taken earlier this year that included permanent staff reductions, temporary furloughs of personnel on an as-needed basis, wage and salary reductions ranging from 3-15%, and several other austerity measures targeting savings in utilities, travel, benefits, professional fees and other costs.

A realignment of the Company’s global manufacturing capacity was initiated earlier this year. Consolidation of the North American manufacturing activities continued on schedule, requiring $0.3 million in costs primarily for relocating equipment from the Windsor, Connecticut plant to other global locations. Likewise, the Company incurred $0.6 million in cost during the third quarter of 2009 for start-up costs including equipment relocation, training and salaries related to the expanded operation in our Changshu, China and Chennai, India locations.

Despite the recessionary business levels, the Company’s liquidity remains adequate. Cash consumed by operations in the third quarter of 2009 was limited to $1.6 million. In the third quarter of 2009, we made $1.7 million in capital expenditures and reduced our term debt by an additional $5.3 million in connection with the establishment of a new revolving credit agreement to support our U.S. operations. Availability under this new four year revolving credit agreement, when combined with $22.0 million of cash on hand as of September 30, 2009, provides $37.2 million of liquidity.

 

-22-


Table of Contents

STANADYNE HOLDINGS, INC. AND SUBSIDIARIES

STANADYNE CORPORATION AND SUBSIDIARIES

 

Basis of Presentation

The following table displays unaudited information for the three and nine month periods ended September 30, 2009 and 2008 for Holdings and Stanadyne. Amounts 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.

 

     Holdings
     Three Months Ended
September 30, 2009
    Three Months Ended
September 30, 2008
    Nine Months Ended
September 30, 2009
    Nine Months Ended
September 30, 2008
     $     %     $     %     $     %     $    %

Net sales

   46,434      100.0      66,043      100.0      134,295      100.0      211,028    100.0

Cost of goods sold

   33,156      71.4      49,913      75.6      101,678      75.7      154,889    73.4

Gross profit

   13,278      28.6      16,130      24.4      32,617      24.3      56,139    26.6

SG&A

   8,314      17.9      9,334      14.1      23,525      17.5      28,481    13.5

Amortization of intangibles

   812      1.7      816      1.2      2,437      1.8      2,448    1.2

Management fees

   187      0.4      187      0.3      563      0.4      563    0.3

Operating income

   3,965      8.5      5,793      8.8      6,092      4.5      24,647    11.7

Net (loss) income

   (3,082   (6.6   (1,050   (1.6   (12,286   (9.1   885    0.4
     Stanadyne
     Three Months Ended
September 30, 2009
    Three Months Ended
September 30, 2008
    Nine Months Ended
September 30, 2009
    Nine Months Ended
September 30, 2008
     $     %     $     %     $     %     $    %

Net sales

   46,434      100.0      66,043      100.0      134,295      100.0      211,028    100.0

Cost of goods sold

   33,156      71.4      49,913      75.6      101,678      75.7      154,889    73.4

Gross profit

   13,278      28.6      16,130      24.4      32,617      24.3      56,139    26.6

SG&A

   8,299      17.9      9,309      14.1      23,479      17.5      28,429    13.5

Amortization of intangibles

   812      1.7      816      1.2      2,437      1.8      2,448    1.2

Management fees

   187      0.4      187      0.3      563      0.4      563    0.3

Operating income

   3,980      8.5      5,818      8.8      6,138      4.6      24,699    11.7

Net income

   (881   (1.9   913      1.4      (5,869   (4.4   6,857    3.2

 

-23-


Table of Contents

STANADYNE HOLDINGS, INC. AND SUBSIDIARIES

STANADYNE CORPORATION AND SUBSIDIARIES

 

Comparison of Results of Operations:

The Three Months Ended September 30, 2009 for Holdings and Stanadyne

Compared to

The Three Months Ended September 30, 2008 for Holdings and Stanadyne

Net Sales. Sales in the third quarter of 2009 totaled $46.4 million and were $19.6 million or 29.7% less than sales of $66.0 million in the third quarter of 2008. The global recession continued to affect customer demand, particularly OEM customer demand, in our major end markets in the third quarter of 2009. Sales to the OEM market decreased by $17.6 million or 45.2%, while sales to the service markets showed some signs of recovery from prior quarters this year, decreasing by only $2.0 million or 7.5%.

Sales to OEM customers totaled $21.3 million and represented 46% of our third quarter 2009 revenues as compared to $38.9 million and 59% of our third quarter 2008 revenues. Demand from all of our diesel products OEM customers was lower in the third quarter of 2009 when compared to the same period last year. OEM sales to Deere and Company (“Deere”) were $6.7 million less in the third quarter of 2009 when compared to the third quarter of 2008 due to continued depressed end market demand in the agriculture and construction businesses. OEM sales to Cummins were $3.4 million less in the third quarter of 2009 as compared to the same period a year ago, reflecting lower demand in the heavy duty truck, construction and power generation markets. Sales of diesel fuel pumps to General Engine Products (“GEP”) for the HMMWV were only $0.5 million or 9% less in the third quarter of 2009 when compared to the same period in the prior year.

Sales to the service markets in the third quarter of 2009 totaled $25.1 million and 54% of total revenues, reflecting a comparatively smaller decrease of $2.0 million or 7.5% from the prior year third quarter sales. Lower service demand was most pronounced in lower third quarter sales to Deere ($2.1 million), General Motors Service Parts Organization ($1.3 million), fuel filter manufacturers ($1.2 million) and most of the service organizations for our OEMs. Sales to our central distributors, which comprise our independent service network, were $4.0 million higher in the third quarter, indicating some recovery in demand from this important segment of our business.

Sales in the third quarter of 2009, when compared to the same period a year ago, reflected decreases in all of our major product lines including diesel fuel pumps, filters, diesel fuel injectors, and Precision Components and Assembly (“PCA”) products.

Gross Profit. Gross profit totaled $13.3 million and 28.6% of net sales in the third quarter of 2009, as compared to $16.1 million and 24.4% of net sales in the third quarter of 2008. Lower sales volumes in both the OEM and service markets resulted in $6.9 million lower gross profit in the third quarter of 2009. Aggressive cost reduction actions taken earlier this year partially offset the lower earnings due to decreased sales volumes. A combination of staff reductions, wage and salary reductions, elimination of overtime premiums, suspension of certain employee benefits and a number of austerity measures taken at all locations helped reduce third quarter 2009 manufacturing costs in our India, Italy and U.S. operations by a combined $3.3 million when compared to the same period a year ago. These savings were partially offset by $0.6 million of employee severance cost accrued in the third quarter of 2009 related to the completion bonus to be paid to Windsor Connecticut employees that are terminated as a result of the consolidation of North American manufacturing operations. Depreciation expense was $0.9 million less in the third quarter of 2009 when compared to the third quarter of 2008, as certain equipment acquired in 2004 was fully depreciated at the end of the prior quarter.

Selling, General and Administrative Expenses (“SG&A”). SG&A decreased by $1.0 million to $8.3 million and 17.9% of net sales in the third quarter of 2009 from $9.3 million and 14.1% of third quarter sales in 2008. Cost reduction actions taken earlier in the year in response to the depressed business levels contributed to a $1.4 million reduction in overall SG&A costs in the third quarter of 2009 when compared to SG&A costs in the third quarter of 2008. Additional savings recognized in the third quarter of 2009 included $0.4 million lower freight on sales and $0.2 million from favorable cost trends in the retiree health benefit plans. All of these savings were partially offset by $0.3 million in costs associated with the consolidation of its U.S. manufacturing operations and $0.6 million for start-up costs including equipment relocation, training and salaries related to the expanded operations in our China and India locations.

 

-24-


Table of Contents

STANADYNE HOLDINGS, INC. AND SUBSIDIARIES

STANADYNE CORPORATION AND SUBSIDIARIES

 

Amortization of Intangible Assets. Amortization of intangible assets totaled $0.8 million in the third quarter of 2009 and was unchanged from the amount for the third quarter of 2008.

Operating Income. Our operating income in the third quarter of 2009 totaled $4.0 million and 8.5% of net sales as compared to operating income of $5.8 million and 8.8% of net sales in the third quarter of 2008. The $1.8 million decrease in year-over-year third quarter operating income resulted from $2.8 million lower gross profit due primarily to lower sales volumes, partially offset by $1.0 million lower SG&A resulting from management’s aggressive cost reduction actions.

Net (Loss) Income. Net loss for Stanadyne in the third quarter of 2009 totaled $0.9 million and 1.9% of net sales versus net income of $0.9 million and 1.4% of net sales in the third quarter of 2008. The $1.8 million erosion in net income was due to $1.8 million lower operating income, plus $0.4 million additional interest expense inclusive of $0.5 million in accelerated amortization of debt issuance costs related to the former Senior Credit Facility that was retired in August, 2009, partially offset by $0.2 million of lower income tax expense on reduced earnings and $0.2 million higher net loss attributable to noncontrolling interest.

Net loss for Holdings in the third quarter of 2009 totaled $3.1 million and was $2.2 million more than the net loss reported for Stanadyne due to $3.0 million of additional interest expense on the Discount Notes, partially offset by $0.8 million of income tax benefits.

The Nine Months Ended September 30, 2009 for Holdings and Stanadyne

Compared to

The Nine Months Ended September 30, 2008 for Holdings and Stanadyne

Net Sales. Net sales for the nine months ended September 30, 2009 totaled $134.3 million and were $76.7 million or 36.4% less than sales of $211.0 million for the nine months ended September 30, 2008. The global recession has had a severe negative impact on customer demand in all of our primary end markets for agricultural, industrial and construction equipment. The reduction in customer demand was most severe in the first half of 2009, however our businesses continued to experience lower sales to most of our OEM and service customers for the entire first nine months of 2009.

Sales to our OEM customers totaled $64.9 million and 48.3% of total sales for the first nine months of 2009, reflecting a decrease of $55.0 million or 46% from sales for the first nine months of 2008. This downturn in OEM demand was broad based, including most customers with very few exceptions. Decreased demand from Deere for our products used in their construction and forestry equipment as well as utility tractors resulted in $21.3 million lower sales in the first nine months of 2009 when compared to the same period in 2008. Lower demand from our other major OEM customers including Caterpillar, Cummins, Inc., AGCO SISU POWER, Ford, Perkins Engines Co. Ltd., Lombardini SRL, Iveco S.p.A., Case New Holland and J C Bamford Excavators Ltd combined for a $31.1 million decrease in sales during the first nine months of 2009 as compared to the same period a year earlier. Sales to GEP for fuel pumps used in the military HMMWV were also $2.2 million less in the first nine months of 2009. The only significant increase in OEM business during the first nine months of 2009 was for our high pressure gasoline pump sold to Daimler, where an expanded product offering of the gasoline direct injected engine included in the Mercedes C and E-class vehicles resulted in $5.0 million higher sales as compared to the same period of 2008.

Demand for our products from our service customers in the first nine months of 2009 did not decrease as much as the OEM demand. Sales to service customers totaled $69.4 million and 52% of our total sales, reflecting a $21.8 million and 24% decrease in sales from the first nine months of 2008. Service sales to Deere accounted for half or $10.9 million of this difference. Service orders from General Motors Corporation for fuel pumps in the first nine months of 2009 were $7.6 million lower when compared to the same period a year earlier. The balance of the reduction in service sales in the first nine months of the year was due to lower demand from our independent service network and our aftermarket fuel filter customers.

 

-25-


Table of Contents

STANADYNE HOLDINGS, INC. AND SUBSIDIARIES

STANADYNE CORPORATION AND SUBSIDIARIES

 

Sales in the first nine months of 2009 were lower in all of our major product lines, including fuel pumps, fuel injectors, fuel filters, and PCA products. As discussed above, only OEM sales of our high pressure gasoline pumps reflected a year-over-year increase.

Gross Profit. Gross profit in the first nine months of 2009 totaled $32.6 million and 24.3% of net sales compared to $56.1 million and 26.6% of net sales in the first nine months of 2008. Lower sales volumes in the first nine months of 2009, when compared to the same period of 2008, resulted in $33.4 million lower gross profit. Aggressive cost reduction actions taken this year in response to the impact the economic recession has had on our businesses helped to offset the impact on earnings caused by the much lower sales volumes. We reduced staffing levels, utilized temporary furloughs, reduced wages and salaries, minimized overtime premiums in our factories, and suspended certain employee benefits to generate combined reduction in labor costs of $8.0 million in the first nine months of 2009. Severance costs related to the permanent staff reductions totaled $0.4 million in the first nine months of 2009 and an additional $0.6 million was accrued as of September 30, 2009 that related to the completion bonus to be paid to Windsor Connecticut employees that are terminated as a result of the consolidation of North American manufacturing operations. A number of austerity measures, taken at all locations, helped further reduce factory overhead costs at all of our global locations during the first nine months of 2009 by a combined $1.4 million when compared to the same period a year ago. These savings were partially offset by $0.3 million higher overhead costs this year in our China facility, as compared to the first nine months of 2008 during our pre-production period. Depreciation expense in the first nine months of 2009 was $0.9 million less than the same period of 2008, as certain equipment was fully depreciated.

Selling, General and Administrative Expenses (“SG&A”) totaled $23.5 million and 17.5% of net sales in the first nine months of 2009, as compared to $28.5 million and 13.5% of net sales for the same period in 2008. The lower business levels in 2009 drove a number of cost saving measures including staff reductions, a graduated salary reduction of 4-15%, and suspension of certain employee benefits that resulted in $3.4 million lower labor costs in the first nine months of 2009. Freight on sales was $0.9 million less in the first nine months of 2009 when compared to the same period a year ago, due primarily to the depressed sales volumes. Lower R&D expenses and favorable cost trends in retiree health benefit plans in the first nine months of 2009 accounted for $1.2 million of the year-over-year decrease in SG&A costs. Additional year-over-year savings of $1.6 million in SG&A costs were realized from a number of austerity measures. All of these savings were partially offset by $0.7 million of costs incurred for the recently announced consolidation of our U.S. manufacturing operations and $1.1 million for start-up costs including equipment relocation, training and salaries related to the expanded operations in our China and India locations.

Amortization of Intangible Assets. Amortization of intangible assets totaled $2.4 million through the first nine months of 2009 and was unchanged from the amount in the first nine months of 2008.

Operating Income. Operating income for the first nine months of 2009 totaled $6.1 million and 4.5% of net sales and was $18.6 million less than the $24.7 million and 11.7% of net sales in the first nine months of 2008. This decrease in 2009 operating income resulted from $23.5 million lower gross profit due primarily to lower sales volumes, partially offset by $5.0 million lower SG&A resulting from management’s aggressive cost reduction actions.

Net Income. Net loss for Stanadyne for the first nine months of 2009 totaled $5.9 million and 4.4% of sales versus net income of $6.9 million and 3.2% of sales for the first nine months of 2008. This $12.8 million decrease in net income was due to $18.6 million lower operating income on depressed business levels, plus $0.2 million additional interest expense inclusive of $0.5 million in accelerated amortization of debt issuance costs related to the former Senior Credit Facility that was retired in August, 2009, partially offset by $5.5 million of lower income tax expense on reduced earnings and $0.6 million higher net loss attributable to noncontrolling interest.

Net loss for Holdings in the first nine months of 2009 totaled $12.3 million and was $6.4 million more than the net loss reported for Stanadyne due to $8.7 million of additional interest expense on the Discount Notes, partially offset by $2.3 million of income tax benefits. Net income for Holdings in the first nine months of 2008 totaled $0.9 million and was $6.0 million less than the amount reported for Stanadyne due to $7.7 million of additional interest expense on the Discount Notes, partially offset by $1.8 million of income tax benefits.

 

-26-


Table of Contents

STANADYNE HOLDINGS, INC. AND SUBSIDIARIES

STANADYNE CORPORATION AND SUBSIDIARIES

 

Liquidity and Capital Resources

Our principal sources of liquidity are cash and cash equivalents on hand, which totaled $22 million on September 30, 2009, and cash flows from operations. Cash equivalents as of September 30, 2009 represent commercial paper and certificates of deposit. On August 13, 2009, Stanadyne (as borrower) and SIHC (as guarantor) entered into a new revolving credit agreement with Wells Fargo Foothill, LLC (“U.S. Revolver”). This U.S. Revolver replaced the Revolving Credit Line that expired on August 6, 2009 which was part of the Company’s senior credit facility with Goldman Sachs and CIT Group. The U.S. Revolver provides for maximum borrowings of $30 million, based on availability, as defined, and is secured by all Stanadyne and SIHC assets, as well as a pledge of 65% of Stanadyne’s stock in SpA, SAPL, and SCC. There were no amounts outstanding under the U.S. Revolver as of September 30, 2009, representing $21.0 million of available borrowing, of which $5.8 million was used to secure standby letters of credit. We occasionally utilize capital leasing and, for our foreign operations in Italy and India, maintain a combination of overdraft, working capital and term loan facilities with local financial institutions on an as-needed basis.

Indebtedness for Stanadyne as of September 30, 2009 totaled $164.8 million and was comprised of $160.0 million of Notes, $4.3 million in foreign overdraft and revolving credit facilities and $0.5 million in foreign term loans. There were no borrowings under the U.S. Revolver. Unless the availability of funds under the U.S. Revolver is less than $4.0 million, this credit facility is not subject to financial covenants. Excess Cash Flow, as defined by the terms of the expired Senior Credit Facility, generated in 2008 resulted in a term loan payment of $9.7 million in the second quarter of 2009. The $5.3 million balance of the Senior Credit Facility was retired in connection with the establishment of the U.S. Revolver.

Indebtedness for Holdings as of September 30, 2009 totaled $264.8 million, comprised of the same debt balances for Stanadyne, plus an additional $100.0 million of Discount Notes. The Discount Notes accreted to their full face value in August, 2009. The 12% coupon will be payable semi-annually beginning in February, 2010. Holdings has no independent financial resources of its own. The U.S. Revolver and the indenture governing the Notes limit the ability of Stanadyne and its subsidiaries to pay dividends or make other distributions to Holdings. There were no dividends paid to Holdings by any of its direct or indirect subsidiaries during the nine months ended September 30, 2009.

Cash Flows from Operating Activities. Stanadyne’s cash flows from operating activities consumed $4.7 million in cash during the nine months ended September 30, 2009 as compared to $4.3 million cash generated during the same period of 2008. Lower operating profit on reduced business levels in the first nine months of 2009 was partially offset by lower cash requirements for working capital accounts.

Changes in asset and liability accounts, primarily working capital accounts, consumed $7.0 million less cash in the first nine months of 2009 versus the comparable period in 2008.

 

   

Positive cash flows from changes in accounts receivable were $2.3 million greater in the first nine months of 2009, as customer receivables decreased proportionately with the lower levels of sales in the first nine months of 2009 as compared to the same period in 2008.

 

   

Positive cash flows from changes in inventory levels required $5.3 million less cash in the first nine months of 2009 as compared to the first nine months of 2008. Lower customer demand in 2009 has required inventory reductions at all locations. While inventory levels have decreased since the end of 2008, they were not entirely aligned with this lower customer demand as of September 30, 2009 as reflected in erosion in the turnover to 6.5x in 2009 from 8.0x in 2008. The consolidation of our North American operations involves relocation of the entire Windsor, Connecticut manufacturing activity. This process will occasionally require increases in inventory (“banking”) in order to meet customer delivery schedules while we move equipment to a different location. These inventory banks totaled approximately $0.3 million as of September 30, 2009. We continue to target further reductions in our U.S. and Italy-based inventories in the fourth quarter.

 

   

Positive cash flows from changes in accounts payable balances required $1.5 million less cash in the first nine months of 2009 than the same period in 2008. Declining accounts payable balances on reduced business levels in the first nine months of 2009 have stabilized.

 

-27-


Table of Contents

STANADYNE HOLDINGS, INC. AND SUBSIDIARIES

STANADYNE CORPORATION AND SUBSIDIARIES

 

   

Negative cash flows from changes in accrued liabilities in the first nine months of 2009 consumed $2.2 million more cash than in the comparable period of 2008, due primarily to differences in timing of disbursements between the two periods, as well as disbursement of the 2008 performance bonus payments this year with no offsetting increase in the bonus liability as it is expected that no bonuses will be earned in 2009.

Cash flows from operating activities for Holdings for the first nine months of 2009 were substantially the same as the amounts reported for Stanadyne.

Cash Flows from Investing Activities. Cash flows from investing activities for the first nine months of 2009 were limited to $5.8 million in capital expenditures in the first nine months of 2009 and were $0.2 million less than $6.0 million in capital expenditures in the first nine month of 2008. Capital expenditures in 2009 reflected necessary investments in equipment to support our global operations in the U.S., China, India and Italy.

Cash Flows from Financing Activities. Cash flows from financing activities for Stanadyne in the first nine months of 2009 consumed $16.4 million in cash compared to $3.6 million of cash consumed by financing activities in the first nine months of 2008.

Cash flows from financing activities in our U.S. based operations in the first nine months of 2009 and 2008 were comprised of reductions in term debt of $15.0 million and $6.2 million, respectively. The terms of the expired Senior Credit Facility related to excess cash flow generated in 2009 and 2008 required reductions in term debt of $9.7 million and $6.2 million, respectively. The remaining $5.3 million of term debt was prepaid in August 2009. There were no borrowings under the U.S. revolving credit lines as of September 30, 2009 and 2008, which after reductions for outstanding letters of credit, provided available liquidity of $15.2 million and $23.1 million at each date, respectively. Additionally, financing cash flows included $1.2 million of payments of debt issuance costs related to the U.S. Revolver.

Cash flows from financing activities in our foreign operations in the first nine months of 2009 included a $0.1 million increase in overdraft borrowings at SAPL to finance working capital requirements, as well as payments of $0.1 million in term loan payments. Cash flows from financing activities in SpA were limited to payments of capital lease obligations totaling $0.3 million.

Cash flows from financing activities for Holdings in the first nine months of 2009 included the amounts reported for Stanadyne as well as $0.2 million for the net cash consumed for the exercise of stock options and the repurchase of shares of common stock from retiring management shareholders.

Pension Plans. We maintain the Stanadyne Corporation Pension Plan, a qualified defined benefit pension plan (the “Pension Plan”), which covers substantially all domestic hourly and salary employees and the Supplemental Retirement Benefit Plan, 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 Pension Plan. Effective March 31, 2007, Stanadyne amended the Pension Plan to freeze the Pension Plan with respect to all participants so that no future benefits will accrue after that date. The freeze of the Pension Plan also resulted in the freeze of the Supplemental Retirement Benefit Plan.

Due to the poor returns in the U.S. equity markets in 2008, the fair value of the Pension Plan assets decreased to $54.6 million at December 31, 2008, from $80.8 million at December 31, 2007. As a result, the unfunded liability for the combined Pension Plan and non-qualified plan increased by $27.3 million from the prior year to $39.0 million as of December 31, 2008. This increased liability resulted in an equal pretax amount included in accumulated other comprehensive loss.

The Company contributed $1.9 million to the Pension Plan during the first nine months of 2009 and expects the minimum required contributions to the Pension Plan to total approximately $2.4 million in 2009. The Company contributed $2.6 million to the Pension Plan in the first nine months of 2008 and $3.1 million for the full year of 2008.

 

-28-


Table of Contents

STANADYNE HOLDINGS, INC. AND SUBSIDIARIES

STANADYNE CORPORATION AND SUBSIDIARIES

 

Critical Accounting Policies

We prepare our condensed 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 which we believe are the most critical to aid in fully understanding and evaluating our reported financial results include: revenue recognition, product warranty reserves, inventory reserves, pension and postretirement benefit liabilities and self-insurance reserves.

Revenue Recognition. We record sales and related cost of goods sold when products are shipped to customers, unless delivery terms specify transfer of title at point of destination in which case the sales and related cost of sales are recognized when goods are delivered. The Company enters into long-term contracts with certain customers for the supply of parts during the contract period. We establish estimates for sales returns and allowances based on historical experience. We do not provide customers with general rights of return for products sold; however, in limited circumstances, we will allow sales returns and allowances from customers if the products sold do not conform to specifications.

Product Warranty Reserves. We provide a limited warranty for specific products and recognize the projected cost for this warranty in the period the products are sold. Liability reserves are determined by applying historical warranty experience rates to current product sales data. Warranty accruals are adjusted for known or anticipated warranty claims as new information becomes available.

Inventory Reserves. We maintain our inventories at the lower of cost or market value. Cost is determined on a last-in, first-out (“LIFO”) basis for all domestic inventories and on a first-in, first-out (“FIFO”) basis for all foreign inventory. When conditions warrant (usually highlighted by slow-moving products or products with pricing constraints), reserves are established to reduce the value of inventory to net realizable values. We identify and assess all inventories in excess of certain sales requirements and reserve for “slow moving” or obsolete inventory as it has no realizable value. As business conditions change during the year, we reassess our evaluations of necessary reserves.

Pension and Other Postretirement Benefits. We provide for pension and other postretirement benefits and make assumptions with the assistance of independent actuaries about discount rates, expected long-term rates of return on plan assets and health care cost trends to determine the net periodic pension and postretirement health care cost. These estimates are based on our best judgment, including consideration of both current and future market conditions. We consider both internal and external evidence to determine the appropriate assumptions. In the event a change in any of the assumptions is warranted, future pension cost could increase or decrease.

Self-Insurance Reserves. We are self-insured for a substantial portion of our health care and workers’ compensation insurance programs. With advice and assistance from outside experts, reserves are established using estimates based on, among other factors, reported claims to date, prior claims history, and projections of claims incurred but not reported. Future medical cost trends are incorporated in the projected costs to settle existing claims. If actual results in any of these areas change from prior periods, adjustments to recorded reserves may be required.

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. Forward-looking statements generally can be identified by the use of forward-looking terminology such as “may,” “will,” “expect,” “intend,” “estimate,” “anticipate,” “believe,” “project,” or “continue” or the negative thereof or other similar words. From time to time, we also may provide oral or written forward-looking statements in other materials we release to the

 

-29-


Table of Contents

STANADYNE HOLDINGS, INC. AND SUBSIDIARIES

STANADYNE CORPORATION AND SUBSIDIARIES

 

public. Any or all of our forward-looking statements in this report and in any public statements we make may turn out to be wrong. They can be affected by inaccurate assumptions we might make or by known or unknown risks or uncertainties. Consequently, no forward-looking statements can be guaranteed. Actual results may vary materially.

Investors are cautioned not to place undue reliance on any forward-looking statements. Investors should also understand that it is not possible to predict or identify all the risks and uncertainties that could affect future events and should not consider the following list to be a complete statement of all potential risks and uncertainties.

Any change in the following factors may materially adversely affect our business and our financial results:

 

   

adverse conditions in the general economy and financial markets;

 

   

worldwide political and macro-economic uncertainties and fears;

 

   

changes in technology, manufacturing techniques or customer demands;

 

   

loss or adverse change in our relationship with our material customers;

 

   

changes in the performance or growth of our customers;

 

   

increased competition and pricing pressures in our existing and future markets;

 

   

changes in the price and availability of raw materials, particularly steel and aluminum;

 

   

risks associated with international operations;

 

   

the loss of key members of management;

 

   

risk that our intellectual property may be misappropriated;

 

   

loss of any of our key manufacturing facilities;

 

   

adverse state or federal legislative or regulatory developments or litigation or other disputes;

 

   

changes in the business, market trends, projected growth rates and general economic conditions related to the markets in which we operate, including agricultural and construction equipment, industrial machinery, trucks, marine equipment and automobiles;

 

   

our ability to satisfy our debt obligations, including related covenants; and

 

   

increases in our cost of borrowing or inability or unavailability of additional debt or equity capital.

The forgoing factors are not exhaustive, and new factors may emerge or changes to the foregoing factors may occur that could impact our business. Except to the extent required by law, we undertake no obligation to publicly update or revise any forward-looking statements whether as a result of new information, future events or otherwise.

 

-30-


Table of Contents

STANADYNE HOLDINGS, INC. AND SUBSIDIARIES

STANADYNE CORPORATION AND SUBSIDIARIES

 

ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is exposed to market risks including limited exposure to 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 Stanadyne’s revolving credit lines and term loans approximate fair value. The term loans are primarily LIBOR-based borrowings and are re-priced every one to three months. A 10% change in the interest rate on the term loans would have changed the recorded interest expense for the first nine months of 2009 by less than $0.1 million. The Notes and Discount Notes bear interest at a fixed rate and, therefore, are not sensitive to interest rate fluctuation. The fair value of Stanadyne’s $160.0 million in Notes based on bid prices on September 30, 2009 was approximately $134.4 million. The fair value of Holdings’ Discount Notes based on bid prices at September 30, 2009 was $60.0 million.

Foreign Currency Risk. The Company has operating subsidiaries in China, Italy, and India 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, 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 U.S. dollars. Foreign currency exchange for the nine months ended September 30, 2009 and 2008 were net gains of $0.2 million and $0.3 million, respectively. The Company does not hedge against foreign currency risk.

 

-31-


Table of Contents

STANADYNE HOLDINGS, INC. AND SUBSIDIARIES

STANADYNE CORPORATION AND SUBSIDIARIES

 

ITEM 4T: CONTROLS AND PROCEDURES

(a) Evaluation of disclosure controls and procedures

As of the end of the period covered by this quarterly report, an evaluation of the effectiveness of the design and operation of Holdings’ disclosure controls and procedures was conducted under the supervision and with the participation of the President and Chief Financial Officer of Holdings. Based on this evaluation, the President and Chief Financial Officer of Holdings have concluded that Holdings’ disclosure controls and procedures were effective and designed to ensure that information required to be disclosed by Holdings 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 President and Chief Financial Officer of Holdings, as appropriate to allow timely decisions regarding required disclosure.

As of the end of the period covered by this quarterly report, an evaluation of the effectiveness of the design and operation of Stanadyne’s disclosure controls and procedures was conducted under the supervision and with the participation of the Chief Executive Officer and Chief Financial Officer of Stanadyne. Based on this evaluation, the Chief Executive Officer and Chief Financial Officer of Stanadyne have concluded that Stanadyne’s disclosure controls and procedures were effective and designed to ensure that information required to be disclosed by Stanadyne 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 of Stanadyne, as appropriate to allow timely decisions regarding required disclosure.

(b) Changes in internal controls

We routinely review Holdings’ internal control over financial reporting and from time to time make changes intended to enhance the effectiveness of our internal control over financial reporting. There was no change in internal control over financial reporting that materially affected or is reasonably likely to materially affect Holdings’ internal control over financial reporting, including any corrective actions with regard to significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting, subsequent to the evaluation described above.

We routinely review Stanadyne’s internal control over financial reporting and from time to time make changes intended to enhance the effectiveness of our internal control over financial reporting. There was no change in internal control over financial reporting that materially affected or is reasonably likely to materially affect Stanadyne’s internal control over financial reporting, including any corrective actions with regard to significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting, subsequent to the evaluation described above.

Reference is made to the Certifications of the President and Chief Financial Officer of Holdings about these and other matters filed as exhibits to this report.

Reference is made to the Certifications of the Chief Executive Officer and Chief Financial Officer of Stanadyne about these and other matters filed as exhibits to this report.

 

-32-


Table of Contents

STANADYNE HOLDINGS, INC. AND SUBSIDIARIES

STANADYNE CORPORATION AND SUBSIDIARIES

 

PART II: OTHER INFORMATION

 

ITEM 1A: RISK FACTORS

The discussion and analysis of our financial condition, results of operations and cash flows for the three and nine months ended September 30, 2009 should be read in conjunction with the risk factors contained in Part I – Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2008.

 

ITEM 6: EXHIBITS

 

10.1.1

   Credit Agreement dated as of August 13, 2009 by and among Stanadyne Intermediate Holding Corp., as Parent, Stanadyne Corporation, as Borrower, the Lenders that are signatories thereto, and Wells Fargo Foothill, LLC, as the Arranger and Administrative Agent.

10.1.2

   General Continuing Guaranty dated as of August 13, 2009 by and among Stanadyne Intermediate Holding Corp., as Parent, Stanadyne Corporation, as Borrower and Wells Fargo Foothill, LLC, as Administrative Agent for the Lender Group and the Bank Product Providers.

10.1.3

   Security Agreement dated as of August 13, 2009 by and among Stanadyne Intermediate Holding Corp., as Parent, Stanadyne Corporation, as Borrower and Wells Fargo Foothill, LLC, as Administrative Agent for the Lender Group and the Bank Product Providers.

10.1.4

   Copyright Security Agreement dated as of August 13, 2009 by and among Stanadyne Intermediate Holding Corp., as Parent, Stanadyne Corporation, as Borrower and Wells Fargo Foothill, LLC, as Administrative Agent for the Lender Group and the Bank Product Providers.

10.1.5

   Patent Security Agreement dated as of August 13, 2009 by and among Stanadyne Intermediate Holding Corp., as Parent, Stanadyne Corporation, as Borrower and Wells Fargo Foothill, LLC, as Administrative Agent for the Lender Group and the Bank Product Providers.

10.1.6

   Trademark Security Agreement dated as of August 13, 2009 by and among Stanadyne Intermediate Holding Corp., as Parent, Stanadyne Corporation, as Borrower and Wells Fargo Foothill, LLC, as Administrative Agent for the Lender Group and the Bank Product Providers.

10.2.1

   EXIM Guarantied Credit Agreement dated as of August 13, 2009 by and among Stanadyne Intermediate Holding Corp., as Parent, Stanadyne Corporation, as Borrower, the Lenders that are signatories thereto, and Wells Fargo Foothill, LLC, as the Arranger and Administrative Agent.

10.2.2

   Export-Import Bank of the United States Working Capital Guarantee Program Borrower Agreement by and among Stanadyne Corporation, as Borrower and Wells Fargo Foothill, LLC, as Lender.

31.1

   Certification of President of Stanadyne Holdings, Inc. Pursuant to Rule 15d-14(a) of the Securities Exchange Act as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2

   Certification of Chief Financial Officer of Stanadyne Holdings, Inc. Pursuant to Rule 15d-14(a) of the Securities Exchange Act as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.3

   Certification of Chief Executive Officer of Stanadyne Corporation Pursuant to Rule 15d-14(a) of the Securities Exchange Act as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.4

   Certification of Chief Financial Officer of Stanadyne Corporation Pursuant to Rule 15d-14(a) of the Securities Exchange Act as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1

   Certification of President and Chief Financial Officer of Stanadyne Holdings, Inc. Pursuant to Rule 15d-14(b) of the Securities Exchange Act and 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2

   Certification of Chief Executive Officer and Chief Financial Officer of Stanadyne Corporation Pursuant to Rule 15d-14(b) of the Securities Exchange Act and 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

-33-


Table of Contents

STANADYNE HOLDINGS, INC. AND SUBSIDIARIES

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 Holdings, Inc.

    (Registrant)
Date: November 16, 2009  

  /s/ Stephen S. Langin

    Stephen S. Langin
    Chief Financial Officer

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: November 16, 2009  

  /s/ Stephen S. Langin

    Stephen S. Langin
    Vice President and Chief Financial Officer

 

-34-


Table of Contents

EXHIBIT INDEX:

 

10.1.1

   Credit Agreement dated as of August 13, 2009 by and among Stanadyne Intermediate Holding Corp., as Parent, Stanadyne Corporation, as Borrower, the Lenders that are signatories thereto, and Wells Fargo Foothill, LLC, as the Arranger and Administrative Agent.

10.1.2

   General Continuing Guaranty dated as of August 13, 2009 by and among Stanadyne Intermediate Holding Corp., as Parent, Stanadyne Corporation, as Borrower and Wells Fargo Foothill, LLC, as Administrative Agent for the Lender Group and the Bank Product Providers.

10.1.3

   Security Agreement dated as of August 13, 2009 by and among Stanadyne Intermediate Holding Corp., as Parent, Stanadyne Corporation, as Borrower and Wells Fargo Foothill, LLC, as Administrative Agent for the Lender Group and the Bank Product Providers.

10.1.4

   Copyright Security Agreement dated as of August 13, 2009 by and among Stanadyne Intermediate Holding Corp., as Parent, Stanadyne Corporation, as Borrower and Wells Fargo Foothill, LLC, as Administrative Agent for the Lender Group and the Bank Product Providers.

10.1.5

   Patent Security Agreement dated as of August 13, 2009 by and among Stanadyne Intermediate Holding Corp., as Parent, Stanadyne Corporation, as Borrower and Wells Fargo Foothill, LLC, as Administrative Agent for the Lender Group and the Bank Product Providers.

10.1.6

   Trademark Security Agreement dated as of August 13, 2009 by and among Stanadyne Intermediate Holding Corp., as Parent, Stanadyne Corporation, as Borrower and Wells Fargo Foothill, LLC, as Administrative Agent for the Lender Group and the Bank Product Providers.

10.2.1

   EXIM Guarantied Credit Agreement dated as of August 13, 2009 by and among Stanadyne Intermediate Holding Corp., as Parent, Stanadyne Corporation, as Borrower, the Lenders that are signatories thereto, and Wells Fargo Foothill, LLC, as the Arranger and Administrative Agent.

10.2.2

   Export-Import Bank of the United States Working Capital Guarantee Program Borrower Agreement by and among Stanadyne Corporation, as Borrower and Wells Fargo Foothill, LLC, as Lender.

31.1

   Certification of President of Stanadyne Holdings, Inc. Pursuant to Rule 15d-14(a) of the Securities Exchange Act as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2

   Certification of Chief Financial Officer of Stanadyne Holdings, Inc. Pursuant to Rule 15d-14(a) of the Securities Exchange Act as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.3

   Certification of Chief Executive Officer of Stanadyne Corporation Pursuant to Rule 15d-14(a) of the Securities Exchange Act as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.4

   Certification of Chief Financial Officer of Stanadyne Corporation Pursuant to Rule 15d-14(a) of the Securities Exchange Act as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1

   Certification of President and Chief Financial Officer of Stanadyne Holdings, Inc. Pursuant to Rule 15d-14(b) of the Securities Exchange Act and 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2

   Certification of Chief Executive Officer and Chief Financial Officer of Stanadyne Corporation Pursuant to Rule 15d-14(b) of the Securities Exchange Act and 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002