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Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10Q
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 |
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 registrants 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
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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.
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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
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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
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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
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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
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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
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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 STOCKHOLDERS 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 |
| | ||||||
Stockholders 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 stockholders equity |
113,411 | 117,977 | ||||||
Noncontrolling interest |
(569 | ) | 29 | |||||
Total stockholders equity |
112,842 | 118,006 | ||||||
Total liabilities and stockholders equity |
$ | 381,527 | $ | 419,825 | ||||
See notes to condensed consolidated financial statements
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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
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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
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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
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STANADYNE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS 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
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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 Stanadynes 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 Companys 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 Stanadynes wholly-owned subsidiaries: SpA and SCC. A joint venture, Stanadyne Amalgamations Private Limited (SAPL), is fully consolidated with Holdings and Stanadyne based on the Stanadynes 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.
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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 stockholders equity to conform to the 2009 presentation.
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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 Companys 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 enterprises 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 entitys 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 entitys 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 | |||
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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 Companys 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 Companys U.S. term loans. Additionally, approximately $1.2 million of debt issuance costs were capitalized in connection with the Companys new revolving credit facility (see Note 4) which will be amortized over the four year term of that facility.
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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 Companys 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 Companys 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 Stanadynes 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.
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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 plans 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 Companys 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 Companys 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.
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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 Companys 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 managements 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 Companys 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 Companys 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 Companys 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 | ||||||
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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 Companys proprietary products currently account for the majority of Precision Products sales.
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STANADYNE HOLDINGS, INC. AND SUBSIDIARIES
STANADYNE CORPORATION AND SUBSIDIARIES
ITEM 2: | MANAGEMENTS 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 Companys 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 Companys 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.
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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 |
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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.
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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 managements 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.
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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 managements 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.
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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 Companys 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 Stanadynes 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. Stanadynes 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. |
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| 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.
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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 managements 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
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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.
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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 Stanadynes 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 Stanadynes $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 Companys sales, gross margins, and retained earnings. However, historically, these locations have contributed less than 15% of the Companys 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.
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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 Stanadynes 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 Stanadynes 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 Stanadynes 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 Stanadynes 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.
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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 |
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Table of Contents
STANADYNE HOLDINGS, INC. AND SUBSIDIARIES
STANADYNE CORPORATION AND SUBSIDIARIES
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 |
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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 |