STANADYNE CORP - FORM 10-Q/A

STANADYNE CORP - FORM 10-Q/A - August 26, 2010

Attached files

Attached files

STANADYNE CORP Reports

file	filename
EX-31.2 - CERTIFICATION OF CFO OF STANADYNE HOLDINGS, INC. PURSUANT TO SECTION 302 - STANADYNE CORP	dex312.htm
EX-31.3 - CERTIFICATION OF CEO OF STANADYNE CORPORATION PURSUANT TO SECTION 302 - STANADYNE CORP	dex313.htm
EX-32.1 - CERTIFICATION OF PRESIDENT AND CFO OF STANADYNE HOLDINGS, INC. - STANADYNE CORP	dex321.htm
EX-32.2 - CERTIFICATION OF CEO AND CFO OF STANADYNE CORPORATION - STANADYNE CORP	dex322.htm
EX-31.1 - CERTIFICATION OF PRESIDENT OF STANADYNE HOLDINGS, INC. PURSUANT TO SECTION 302 - STANADYNE CORP	dex311.htm
EX-31.4 - CERTIFICATION OF CFO OF STANADYNE CORPORATION PURSUANT TO SECTION 302 - STANADYNE CORP	dex314.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10–Q/A

(Amendment No. 1)

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

For the quarterly period ended June 30, 2009

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

For the transition period from to

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	¨	No	þ
Stanadyne Corporation	Yes	¨	No	þ

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


Stanadyne Holdings, Inc.	Yes	¨	No	¨
Stanadyne Corporation	Yes	¨	No	¨

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


Stanadyne Holdings, Inc.	Large Accelerated Filer ¨	Accelerated Filer ¨	Non-Accelerated Filer þ	Smaller Reporting Company ¨
Stanadyne Corporation	Large Accelerated Filer ¨	Accelerated Filer ¨	Non-Accelerated Filer þ	Smaller Reporting Company ¨

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


Stanadyne Holdings, Inc.	Yes	¨	No	þ
Stanadyne Corporation	Yes	¨	No	þ

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


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

EXPLANATORY NOTES

This Form 10-Q/A 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.

We are filing this Amended Quarterly Report on Form 10-Q/A (the “Amended Filing” or “Form 10-Q/A”) to our Quarterly Report on Form 10-Q for the three and six-month periods ended June 30, 2009 (the “Original Filing”) to amend and restate our unaudited condensed consolidated financial statements and related disclosures for the three and six-month periods ended June 30, 2009 and 2008, as discussed in Note 2 to the accompanying restated unaudited condensed consolidated financial statements. The Original Filing was filed with the Securities and Exchange Commission (“SEC”) on August 14, 2009.

Restatement

•

The use of an incorrect base year index when calculating LIFO liquidation adjustments in 2006, 2007 and 2008.

•

The use of inaccurate participant information in the calculation of the curtailment gain associated with freezing benefits covered by our pension plan in 2007 and inaccurate surviving beneficiary information used to calculate our periodic pension expense in 2008.

•

The misclassification of our accrued pension liability and amounts recoverable from our workers compensation insurance carrier.

•

The failure to calculate the foreign currency translation effect related to goodwill associated with Stanadyne, SpA since 2004.

•

The use of an incorrect method to amortize deferred debt origination costs since 2004.

•

The recording of certain 2006 and 2007 sales in the incorrect year affecting 2006, 2007 and 2008 sales.

•

The use of an incorrect rate for calculating state deferred income taxes in connection with the Stanadyne purchase price allocation in 2004 and in subsequent periods for determining deferred income taxes.

•

The failure to record a valuation allowance for deferred income tax assets related to Stanadyne, SpA in 2007.

As a consequence of these errors, on April 15, 2010, the Audit Committee of the Board of Directors of each of Holdings and Stanadyne, in consultation with management, concluded that the Company would restate its consolidated financial statements as of January 1, 2007 and for the years ended December 31, 2007 and December 31, 2008 as well as the first three quarters of 2008 and 2009 in order to correctly present the Company’s financial results and correct the errors identified.

Restated Financial Information

On June 21, 2010, we filed our 2009 Annual Report on Form 10-K which included restated financial statements as of January 1, 2007 and for the years ended December 31, 2008 and 2007 reflecting the correction of the errors noted above. On August 13, 2010 we filed our amended Quarterly Report on Form 10-Q/A for the three month period ended March 31, 2009. With this amendment to our Quarterly Report on Form 10-Q/A for the quarterly period ended June 30, 2009, we are concurrently filing an amendment to our Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2009. The amendments to our Quarterly Reports on Form 10-Q are being filed to restate our unaudited condensed consolidated financial statements and related financial information for the year to date and quarterly periods ended June 30, 2009 and September 30, 2009 as well as for the comparative corresponding 2008 quarterly periods.

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Internal Controls

In connection with the restatement of the Company’s consolidated financial statements, management has identified control deficiencies in its internal controls that constitute a material weakness as discussed in Item 4T of this Amended Report. If not remediated, these control deficiencies could result in future material misstatements to the Company’s consolidated financial statements. Accordingly, management determined that these control deficiencies represented a material weakness in internal control over financial reporting. A material weakness is a deficiency, or combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented or detected and corrected on a timely basis. Management has also determined that the Company’s disclosure controls and procedures were ineffective as of June 30, 2009. For a discussion of management’s consideration of the Company’s disclosure controls and procedures and material weakness identified, see Item 4T of this Amended Filing.

For the convenience of the reader, this Amended Filing sets forth the Original Filing in its entirety, as modified and superseded where necessary to reflect the restatement. The following items have been amended principally as a result of, and to reflect, the restatement:

•

Part I — Item 1. Financial Statements;

•

Part I — Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations;

•

Part I — Item 4T. Controls and Procedures;

•

Part II — Item 1A. Risk Factors; and

•

Part II — Item 6. Exhibits.

In accordance with applicable SEC rules, this Amended Filing includes certifications from Holdings’ President and Chief Financial Officer and Stanadyne’s Chief Executive Officer and Chief Financial Officer dated as of the date of this filing.

The sections of the Form 10-Q which were not amended are unchanged and continue in full force and effect as originally filed. This Amended Filing speaks as of the date of the Original Filing on the Form 10-Q and has not been updated to reflect events occurring subsequent to the original filing date other than those associated with the restatement of the Company’s unaudited consolidated financial statements.

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STANADYNE HOLDINGS, INC. AND SUBSIDIARIES

STANADYNE CORPORATION AND SUBSIDIARIES

TABLE OF CONTENTS


Part I Financial Information

Item 1 Restated Financial Statements

Stanadyne Holdings, Inc.

Restated Condensed Consolidated Balance Sheets as of June 30, 2009 and December 31, 2008 (unaudited)		5

Restated Condensed Consolidated Statements of Operations for the three months ended June 30, 2009 and 2008 (unaudited)		6

Restated Condensed Consolidated Statements of Operations for the six months ended June 30, 2009 and 2008 (unaudited)		7

Restated Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2009 and 2008 (unaudited)		8

Restated Condensed Consolidated Statements of Changes in Equity for the three and six months ended June 30, 2009 and 2008 (unaudited)		9

Stanadyne Corporation

Restated Condensed Consolidated Balance Sheets as of June 30, 2009 and December 31, 2008 (unaudited)		10

Restated Condensed Consolidated Statements of Operations for the three months ended June 30, 2009 and 2008 (unaudited)		11

Restated Condensed Consolidated Statements of Operations for the six months ended June 30, 2009 and 2008 (unaudited)		12

Restated Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2009 and 2008 (unaudited)		13

Restated Condensed Consolidated Statements of Changes in Equity for the three and six months ended June 30, 2009 and 2008 (unaudited)		14

Notes to Restated Condensed Consolidated Financial Statements		15-39

Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations		40-49

Item 3 Quantitative and Qualitative Disclosures about Market Risk		50

Item 4T Controls and Procedures		51-54

Part II Other Information

Item 1A Risk Factors		55

Item 6 Exhibits		56

Signatures		57

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PART I: FINANCIAL INFORMATION

ITEM 1:

RESTATED FINANCIAL STATEMENTS

STANADYNE HOLDINGS, INC. AND SUBSIDIARIES

RESTATED CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

(in thousands)


	June 30, 2009			December 31, 2008
ASSETS		(Restated)			(Restated)
Current assets:
Cash and cash equivalents	$	30,594		$	49,010
Accounts receivable, net of allowance for uncollectible accounts of $219 as of June 30, 2009 and $209 as of December 31, 2008		28,117			32,171
Inventories, net		26,224			26,646
Prepaid expenses and other assets		1,120			1,657
Deferred income taxes		1,247			904

Total current assets		87,302			110,388
Property, plant and equipment, net		76,655			80,933
Goodwill		143,068			142,410
Intangible and other assets, net		82,770			85,128

Total assets	$	389,795		$	418,859

LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	12,514		$	18,396
Accrued liabilities		19,014			28,446
Current maturities of long-term debt		9,778			13,871
Current portion of capital lease obligations		472			316

Total current liabilities		41,778			61,029
Long-term debt, excluding current maturities		259,041			258,513
Deferred income taxes		9,270			12,085
Capital lease obligations, excluding current portion		1,100			830
Other non current liabilities		56,396			55,279

Total liabilities		367,585			387,736

Commitments and contingencies
Equity:
Stanadyne Holdings, Inc. 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 June 30, 2009 and December 31, 2008, respectively		1,065			1,065
Additional paid-in capital		54,254			54,222
Accumulated other comprehensive loss		(11,496	)		(12,797	)
Accumulated deficit		(20,739	)		(11,073	)
Treasury stock, at cost, 690,000 and 477,500 shares as of June 30, 2009 and December 31, 2008, respectively		(557	)		(335	)

Total Stanadyne Holdings, Inc. stockholders’ equity		22,527			31,082
Non-controlling interest		(317	)		41

Total equity		22,210			31,123

Total liabilities and equity	$	389,795		$	418,859

See notes to restated condensed consolidated financial statements

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STANADYNE HOLDINGS, INC. AND SUBSIDIARIES

RESTATED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

(in thousands)


	Three Months Ended June 30, 2009			Three Months Ended June 30, 2008
	(Restated)			(Restated)
Net sales	$	47,520		$	74,555
Cost of goods sold		35,206			54,381

Gross profit		12,314			20,174
Selling, general and administrative expenses		7,610			9,677
Amortization of intangible assets		809			818
Management fees		187			187

Operating income		3,708			9,492
Interest expense		7,502			7,213

(Loss) income from operations before income tax (benefit) expense		(3,794	)		2,279
Income tax (benefit) expense		(556	)		1,271

Net (loss) income		(3,238	)		1,008
Less: net loss attributable to non-controlling interest		206			39

Net (loss) income attributable to the stockholders of Stanadyne Holdings, Inc.	$	(3,032	)	$	1,047

See notes to restated condensed consolidated financial statements

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STANADYNE HOLDINGS, INC. AND SUBSIDIARIES

RESTATED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

(in thousands)


	Six Months Ended June 30, 2009			Six Months Ended June 30, 2008
	(Restated)			(Restated)
Net sales	$	87,861		$	147,936
Cost of goods sold		68,714			107,384

Gross profit		19,147			40,552
Selling, general and administrative expenses		15,211			19,145
Amortization of intangible assets		1,625			1,634
Management fees		375			375

Operating income		1,936			19,398
Interest expense		14,835			14,312

(Loss) income from operations before income tax (benefit) expense		(12,899	)		5,086
Income tax (benefit) expense		(2,911	)		2,090

Net (loss) income		(9,988	)		2,996
Less: net loss attributable to non-controlling interest		322			16

Net (loss) income attributable to the stockholders of Stanadyne Holdings, Inc.	$	(9,666	)	$	3,012

See notes to restated condensed consolidated financial statements

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STANADYNE HOLDINGS, INC. AND SUBSIDIARIES

RESTATED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(in thousands)


	Six Months Ended June 30, 2009			Six Months Ended June 30, 2008
	(Restated)			(Restated)
Cash flows from operating activities:
Net (loss) income	$	(9,988	)	$	2,996
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:
Depreciation and amortization		10,840			10,619
Amortization of debt discount and deferred financing fees		6,590			5,875
Stock-based compensation expense		31			51
Deferred income taxes		(3,158	)		(2,899	)
Loss on disposal of property, plant and equipment		—			56
Changes in operating assets and liabilities		(8,532	)		(15,763	)

Net cash (used in) provided by operating activities		(4,217	)		935

Cash flows from investing activities:
Capital expenditures		(4,073	)		(4,723	)

Net cash used in investing activities		(4,073	)		(4,723	)

Cash flows from financing activities:
Payment on U.S. term loans		(9,710	)		(6,200	)
Proceeds from foreign term loans		—			480
Payments on foreign term loans		(75	)		(146	)
Proceeds from foreign overdraft facilities		264			2,260
Payments on capital lease obligations		(226	)		(90	)
Proceeds from exercise of stock options		—			12
Purchase of treasury stock		(223	)		(66	)

Net cash used in financing activities		(9,970	)		(3,750	)

Cash and cash equivalents:
Net decrease in cash and cash equivalents		(18,260	)		(7,538	)
Effect of exchange rate changes on cash		(156	)		(21	)
Cash and cash equivalents at beginning of period		49,010			37,950

Cash and cash equivalents at end of period	$	30,594		$	30,391

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING TRANSACTIONS:

During the six months ended June 30, 2009 and 2008, Stanadyne Corporation entered into capital leases for new equipment resulting in capital lease obligations of $536 and $944, respectively.

See notes to restated condensed consolidated financial statements

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STANADYNE HOLDINGS, INC. AND SUBSIDIARIES

RESTATED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(UNAUDITED)

(in thousands)


	Common Stock			Additional Paid-In Capital		Accumulated Other Comprehensive Income (Loss)			Accumulated Deficit			Treasury Stock				Total Stockholders’ Equity			Non- controlling Interest			Total Equity
	Shares	Amount		Additional Paid-In Capital		Accumulated Other Comprehensive Income (Loss)			Accumulated Deficit			Shares	Amount			Total Stockholders’ Equity			Non- controlling Interest			Total Equity
Restated balance – December 31, 2007	106,430,081	$	1,064	$	54,085	$	7,247		$	(13,297	)	365,000	$	(229	)	$	48,870		$	122		$	48,992
Common stock issued	15,000				7												7						7
Purchase of treasury stock, at cost												65,000		(56	)		(56	)					(56	)
Stock compensation expense					26												26						26
Comprehensive income:
Restated net income										1,965							1,965			23			1,988
Restated foreign currency translation adjustment							735										735			(1	)		734
Total comprehensive income																	2,700			22			2,722

Restated balance – March 31, 2008	106,445,081		1,064		54,118		7,982			(11,332	)	430,000		(285	)		51,547			144			51,691
Common stock issued	10,000				5												5						5
Purchase of treasury stock, at cost												10,000		(10	)		(10	)					(10	)
Stock compensation expense					26												26						26
Comprehensive income:
Restated net income										1,047							1,047			(39	)		1,008
Restated foreign currency translation adjustment							496										496			(7	)		489
Total comprehensive income																	1,543			(46	)		1,497

Restated balance – June 30, 2008	106,455,081	$	1,064	$	54,149	$	8,478		$	(10,285	)	440,000	$	(295	)	$	53,111		$	98		$	53,209

Restated balance – December 31, 2008	106,505,081	$	1,065	$	54,222	$	(12,797	)	$	(11,073	)	477,500	$	(335	)	$	31,082		$	41		$	31,123
Purchase of treasury stock, at cost												212,500		(222	)		(222	)					(222	)
Stock compensation expense					16												16						16
Comprehensive income:
Restated net loss										(6,634	)						(6,634	)		(116	)		(6,750	)
Restated foreign currency translation adjustment							77										77			16			93
Total comprehensive income																	(6,557	)		(100	)		(6,657	)

Restated balance – March 31, 2009	106,505,081		1,065		54,238		(12,720	)		(17,707	)	690,000		(557	)		24,319			(59	)		24,260
Purchase of treasury stock, at cost
Stock compensation expense					16												16						16
Comprehensive income:
Restated net loss										(3,032	)						(3,032	)		(206	)		(3,238	)
Restated foreign currency translation adjustment							1,224										1,224			(52	)		1,172
Total comprehensive income																	(1,808	)		(258	)		(2,066	)

Restated balance – June 30, 2009	106,505,081	$	1,065	$	54,254	$	(11,496	)	$	(20,739	)	690,000	$	(557	)	$	22,527		$	(317	)	$	22,210

See notes to restated condensed consolidated financial statements

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STANADYNE CORPORATION AND SUBSIDIARIES

RESTATED CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

(in thousands)


	June 30, 2009			December 31, 2008
ASSETS		(Restated)			(Restated)
Current assets:
Cash and cash equivalents	$	30,593		$	48,844
Accounts receivable, net of allowance for uncollectible accounts of $219 as of June 30, 2009 and $209 as of December 31, 2008		28,117			32,170
Inventories, net		26,224			26,646
Prepaid expenses and other assets		1,120			1,657
Deferred income taxes		1,247			904

Total current assets		87,301			110,221
Property, plant and equipment, net		76,655			80,933
Goodwill		143,068			142,410
Intangible and other assets, net		81,307			83,541

Total assets	$	388,331		$	417,105

LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	12,514		$	18,394
Accrued liabilities		19,060			28,433
Current maturities of long-term debt		9,778			13,871
Current portion of capital lease obligations		472			316

Total current liabilities		41,824			61,014
Long-term debt, excluding current maturities		160,424			165,479
Deferred income taxes		20,568			21,837
Capital lease obligations, excluding current portion		1,100			830
Other non-current liabilities		56,396			55,279
Due to Stanadyne Holdings, Inc.		1,803			1,871

Total liabilities		282,115			306,310

Commitments and contingencies
Equity:
Stanadyne Corporation stockholder’s equity
Common stock, par value $.01, authorized 10,000 shares, issued and outstanding 1,000 shares		—			—
Additional paid-in capital		105,000			105,000
Accumulated other comprehensive loss		(11,495	)		(12,797	)
Retained earnings		13,028			18,551

Total Stanadyne Corporation stockholder’s equity		106,533			110,754
Non-controlling interest		(317	)		41

Total equity		106,216			110,795

Total liabilities and equity	$	388,331		$	417,105

See notes to restated condensed consolidated financial statements

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STANADYNE CORPORATION AND SUBSIDIARIES

RESTATED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

(in thousands)


	Three Months Ended June 30, 2009			Three Months Ended June 30, 2008
	(Restated)			(Restated)
Net sales	$	47,520		$	74,555
Cost of goods sold		35,206			54,381

Gross profit		12,314			20,174
Selling, general and administrative expenses		7,590			9,663
Amortization of intangible assets		809			817
Management fees		187			187

Operating income		3,728			9,507
Interest expense		4,609			4,640

(Loss) income from operations before income tax expense		(881	)		4,867
Income tax expense		256			1,980

Net (loss) income		(1,137	)		2,887
Less: net loss attributable to non-controlling interest		206			39

Net (loss) income attributable to the stockholder of Stanadyne Corporation	$	(931	)	$	2,926

See notes to restated condensed consolidated financial statements

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STANADYNE CORPORATION AND SUBSIDIARIES

RESTATED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

(in thousands)


	Six Months Ended June 30, 2009			Six Months Ended June 30, 2008
	(Restated)			(Restated)
Net sales	$	87,861		$	147,936
Cost of goods sold		68,714			107,384

Gross profit		19,147			40,552
Selling, general and administrative expenses		15,181			19,119
Amortization of intangible assets		1,625			1,633
Management fees		375			375

Operating income		1,966			19,425
Interest expense		9,129			9,237

(Loss) income from operations before income tax (benefit) expense		(7,163	)		10,188
Income tax (benefit) expense		(1,318	)		3,454

Net (loss) income		(5,845	)		6,734
Less: net loss attributable to non-controlling interest		322			16

Net (loss) income attributable to the stockholder of Stanadyne Corporation	$	(5,523	)	$	6,750

See notes to restated condensed consolidated financial statements

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STANADYNE CORPORATION AND SUBSIDIARIES

RESTATED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(in thousands)


	Six Months Ended June 30, 2009			Six Months Ended June 30, 2008
	(Restated)			(Restated)
Cash flows from operating activities:
Net (loss) income	$	(5,845	)	$	6,734
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:
Depreciation and amortization		10,840			10,619
Amortization of deferred financing fees		885			797
Stock-based compensation expense		31			51
Deferred income taxes		(1,612	)		(950	)
Loss on disposal of property, plant and equipment		—			56
Changes in operating assets and liabilities		(8,574	)		(16,367	)

Net cash (used in) provided by operating activities		(4,275	)		940

Cash flows from investing activities:
Capital expenditures		(4,073	)		(4,723	)

Net cash used in investing activities		(4,073	)		(4,723	)

Cash flows from financing activities:
Payments on U.S. term loan		(9,710	)		(6,200	)
Proceeds from foreign term loans		—			480
Payments on foreign term loans		(75	)		(146	)
Proceeds from foreign overdraft facilities		264			2,260
Payments on capital lease obligations		(226	)		(90	)

Net cash used in financing activities		(9,747	)		(3,696	)

Cash and cash equivalents:
Net decrease in cash and cash equivalents		(18,095	)		(7,479	)
Effect of exchange rate changes on cash		(156	)		(22	)
Cash and cash equivalents at beginning of period		48,844			37,711

Cash and cash equivalents at end of period	$	30,593		$	30,210

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING TRANSACTIONS:

During the six months ended June 30, 2009 and 2008, Stanadyne Corporation entered into capital leases for new equipment resulting in capital lease obligations of $536 and $944, respectively.

See notes to restated condensed consolidated financial statements

-13-

STANADYNE CORPORATION AND SUBSIDIARIES

RESTATED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(UNAUDITED)

(in thousands)


	Common Stock			Additional Paid-In Capital		Accumulated Other Comprehensive Income (Loss)			Accumulated Deficit			Total Stockholders’ Equity			Non- controlling Interest			Total Equity
	Shares	Amount		Additional Paid-In Capital		Accumulated Other Comprehensive Income (Loss)			Accumulated Deficit			Total Stockholders’ Equity			Non- controlling Interest			Total Equity
Restated balance – December 31, 2007	1,000	$	—	$	105,000	$	7,247		$	8,727		$	120,974		$	122		$	121,096
Comprehensive income:
Restated net income										3,824			3,824			23			3,847
Restated foreign currency translation adjustment							735						735			(1	)		734
Total comprehensive income													4,559			22			4,581

Restated balance – March 31, 2008	1,000		—		105,000		7,982			12,551			125,533			144			125,677
Comprehensive income:
Restated net income										2,926			2,926			(39	)		2,887
Restated foreign currency translation adjustment							496						496			(7	)		489
Total comprehensive income													3,422			(46	)		3,376

Restated balance – June 30, 2008	1,000	$	—	$	105,000	$	8,478		$	15,477		$	128,955		$	98		$	129,053

Restated balance – December 31, 2008	1,000	$	—	$	105,000	$	(12,797	)	$	18,551		$	110,754		$	41			110,795
Comprehensive income:
Restated net loss										(4,592	)		(4,592	)		(116	)		(4,708	)
Restated foreign currency translation adjustment							77						77			16			93
Total comprehensive income													(4,515	)		(100	)		(4,615	)

Restated balance – March 31, 2009	1,000		—		105,000		(12,720	)		13,959			106,239			(59	)		106,180
Comprehensive income:
Restated net loss										(931	)		(931	)		(206	)		(1,137	)
Restated foreign currency translation adjustment							1,225						1,225			(52	)		1,173
Total comprehensive income													294			(258	)		36

Restated balance – June 30, 2009	1,000	$	—	$	105,000	$	(11,495	)	$	13,028		$	106,533		$	(317	)	$	106,216

See notes to restated condensed consolidated financial statements

-14-

STANADYNE HOLDINGS, INC. AND SUBSIDIARIES

STANADYNE CORPORATION AND SUBSIDIARIES

NOTES TO RESTATED 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”). SAHC 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, SAHC and Stanadyne hereinafter are referred to as the “Company.” Holdings and Stanadyne are separate reporting companies. Holdings is a holding company with no operations beyond those of its indirectly, wholly-owned subsidiary, Stanadyne. Stanadyne is a leading designer and manufacturer of highly engineered, precision manufactured engine components, including fuel injection equipment for diesel engines. Stanadyne sells engine components to original equipment manufacturers in a variety of applications, including agricultural and construction vehicles and equipment, industrial products, automobiles, light duty trucks and marine equipment. The aftermarket is a significant element of Stanadyne’s operations.

Basis of Presentation. The restated 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 statement for the periods presented. The Company’s quarterly results are subject to fluctuation; consequently, the results of operations and cash flows for any quarter are not necessarily indicative of the results and cash flows for any future period. These notes to the restated condensed consolidated financial statements apply to both Holdings and Stanadyne unless otherwise noted.

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

Income Tax Accounting. The Company has computed its provision for income taxes based on the actual effective tax rate for the three and six month periods ended June 30, 2009 by applying the discrete method as the Company determined that small changes in estimated income would result in significant changes in the estimated annual effective tax rate and therefore applying an estimate of the annual effective tax rate would not provide a reliable estimate for interim reporting periods.

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.

-15-

STANADYNE HOLDINGS, INC. AND SUBSIDIARIES

STANADYNE CORPORATION AND SUBSIDIARIES

NOTES TO RESTATED 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 the 2004 Equity Incentive Plan for the three and six month periods ended June 30, 2009:


	Three Months Ended June 30, 2009
	Outstanding			Exercisable
	Stock Options	Weighted Average Exercise Price *		Stock Options	Weighted Average Exercise Price *
April 1, 2009	12,997,500	$	0.54	3,071,250	$	0.47
Exercised	—		—	—		—
Cancelled	—		—	—		—

June 30, 2009	12,997,500	$	0.54	3,071,250	$	0.47


	Six Months Ended June 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	—		—

June 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 second quarter of 2009. During the first quarter, one employee retired from the Company resulting in the cancellation of 1,350,000 unvested stock options.

As of June 30, 2009, there was $156 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 June 2009 is expected to be $63.

Non-controlling 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 non-controlling interest for the three and six month periods ended June 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 non-controlling interest as of December 31, 2008 in the accompanying condensed consolidated balance sheets has been retroactively restated as a component of equity to conform to the 2009 presentation.

-16-

STANADYNE HOLDINGS, INC. AND SUBSIDIARIES

STANADYNE CORPORATION AND SUBSIDIARIES

NOTES TO RESTATED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(dollars in thousands, except where noted otherwise)

(1)

Business, Organization and Significant Accounting Policies (continued)

Subsequent Events. The Subsequent Events topic of ASC 855 (“Subsequent Events”) 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. The Subsequent Events topic is effective for the interim or annual financial periods ending after June 15, 2009. The Company adopted these standards effective on June 30, 2009, and such adoption did not have a material impact on the Company’s condensed consolidated financial statements.

The Company evaluated subsequent events through the date the accompanying restated condensed consolidated financial statements were issued.

Codification. On July 1, 2009, the FASB issued Statement of Financial Accounting Standard (“SFAS”) No. 168, “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles”, also known as ASC 105 “Generally Accepted Accounting Principles” (“ASC 105”) (the “Codification”). ASC 105 establishes the exclusive authoritative reference for U.S. GAAP for use in financial statements, except for Securities and Exchange Commission (“SEC”) rules and interpretive releases, which are also authoritative Generally Accepted Accounting Principles (“GAAP”) for SEC registrants. The Codification supersedes all existing non-SEC accounting and reporting standards. Going forward, the FASB will not issue new standards in the form of Statements, FASB Staff Positions or Emerging Issues Task Force Abstracts. Instead, it will issue Accounting Standards Updates (“ASU”), which will serve to update the Codification, provide background information about the guidance and provide the basis for conclusions on the changes to the Codification. We have included references to the Codification, as appropriate, in these restated condensed consolidated financial statements.

In April 2009, the FASB issued FSP FAS 107-1 and APB 28-1, “Interim Disclosure about Fair Value of Financial Instruments” (FSP FAS 107-1 & APB 28-1) [ASC 825-10]. ASC 825-10 amends SFAS No. 107 (SFAS 107) [ASC 825-10], Disclosures About Fair Value of Financial Instruments, and requires interim disclosures regarding the fair values of financial instruments that are within the scope of SFAS No. 107, “Disclosures about the Fair Value of Financial Instruments.” Additionally, ASC 825-10 also amends APB Opinion No. 28 (APB 28) [ASC 270-10], Interim Financial Reporting, and requires disclosure of the methods and significant assumptions used to estimate the fair value of financial instruments on an interim basis as well as changes in the methods and significant assumptions from prior periods. ASC 825-10 does not change the accounting treatment for these financial instruments. We adopted ASC 825-10 during the quarter ended June 30, 2009.

(2)

Restatement of Condensed Consolidated Financial Statements

•

The use of an incorrect base year index when calculating LIFO liquidation adjustments in 2006, 2007 and 2008.

•

-17-

STANADYNE HOLDINGS, INC. AND SUBSIDIARIES

STANADYNE CORPORATION AND SUBSIDIARIES

NOTES TO RESTATED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(dollars in thousands, except where noted otherwise)

(2)

Restatement of Condensed Consolidated Financial Statements (continued)

•

The misclassification of our accrued pension liability and amounts recoverable from our workers’ compensation insurance carrier.

•

The failure to calculate and record the foreign currency translation effect related to goodwill associated with Stanadyne, SpA since 2004.

•

The use of an incorrect method to amortize deferred debt origination costs since 2004.

•

The recording of certain 2006 and 2007 sales in the incorrect year affecting 2006, 2007 and 2008 sales.

•

The failure to record a valuation allowance for deferred income tax assets related to Stanadyne, SpA in 2007.

As a consequence of certain of these errors, on April 15, 2010, the Audit Committee of the Board of Directors of each of Holdings and Stanadyne, in consultation with management, concluded that the Company would restate its consolidated financial statements as of January 1, 2007 and for the years ended December 31, 2007 and December 31, 2008 as well as the first three quarters of 2008 and 2009 in order to correctly present the Company’s financial results and correct the errors identified.

On June 21, 2010, the Company filed its 2009 Annual Report on Form 10-K which included restated financial statements as of January 1, 2007 and for the years ended December 31, 2008 and 2007 reflecting the correction of the errors noted below. On August 13, 2010, the Company filed its amended Quarterly Report on Form 10-Q/A for the three month period ended March 31, 2009. The condensed consolidated financial statements as of June 30, 2009 and for the quarterly periods ended June 30, 2009 and 2008 have been restated to correct these errors.

A description of the errors follows:

LIFO inventory – Beginning in 2006, and again in 2007 and 2008, the Company liquidated its LIFO inventory using an incorrect base year index. The cumulative effect of this error resulted in the LIFO inventory balance being overstated by $2,273 as of June 30, 2009 and December 31, 2008. There was no impact to cost of goods sold for the three-month and six-month periods ended June 30, 2008 and 2009.

Pension plan accounting – Effective March 31, 2007, the Company amended the Stanadyne Corporation Pension Plan (a defined benefit plan) (the “Pension Plan”) to freeze the Pension Plan with respect to all participants so that no future benefits accrue after that date. The effect of the Pension Plan freeze resulted in a previously reported curtailment gain of $10,015 in 2007. During the quarter ended December 31, 2009, the Company discovered that incomplete data had been used in 2007 for 31 of the 1,407 plan participants to calculate the remaining projected benefit obligation for the Pension Plan. As a result, the curtailment gain, which is included in selling, general, administrative and other operating expenses, had been overstated by $957 in the year ending December 31, 2007. Also during the quarter ended December 31, 2009, the Company identified an error in the information related to surviving beneficiaries that was omitted from the measurement of the projected benefit obligation in 2008 by the Company’s actuary. The curtailment gain and the error did not have material effects on the previous reported pension expense for the three and six month periods ended June 30, 2009 and 2008. The cumulative nature of these errors resulted in the understatement of the projected benefit obligation by $1,835 at December 31, 2008 and June 30, 2009. Accumulated other comprehensive loss was understated $718 as of June 30, 2009 and December 31, 2008. Further, the Company has reclassified $6,251 and $2,411 of its accrued pension liability from current to long-term as of June 30, 2009 and December 31, 2008, respectively, to properly reflect the long-term nature of the liability.

-18-

STANADYNE HOLDINGS, INC. AND SUBSIDIARIES

STANADYNE CORPORATION AND SUBSIDIARIES

NOTES TO RESTATED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(dollars in thousands, except where noted otherwise)

(2)

Restatement of Condensed Consolidated Financial Statements (continued)

Foreign currency translation of goodwill – Beginning in August 2004, the Company had not translated goodwill arising from the acquisition of Stanadyne, SpA using foreign currency rates at the end of each reporting period. As a result, goodwill was understated and accumulated other comprehensive loss was overstated $853 and $194 as of June 30, 2009 and December 31, 2008, respectively. Also, other comprehensive income was understated $653 and $169 for the three month periods ended June 30, 2009 and 2008, respectively, and $658 and $395 for the six month periods ended June 30, 2009 and 2008, respectively.

Purchase accounting – In connection with the acquisition of Stanadyne in 2004, the Company used an incorrect rate to record the state deferred income tax liabilities in the opening balance sheet. As such, deferred income tax liabilities were overstated by $2,359 June 30, 2009 and December 31, 2008. The offsetting adjustment was to decrease goodwill associated with that acquisition by $2,359 as of June 30, 2009 and December 31, 2008.

Deferred debt origination cost amortization – The Company had been using the straight-line method for amortizing deferred debt origination costs instead of the effective interest method which is required by accounting principles generally accepted in the United States of America. As such Holdings interest expense was overstated by $29 and $117 for the three month periods ended June 30, 2009 and 2008, respectively, and overstated by $120 and $222 for the six month periods ended June 30, 2009 and 2008, respectively. Stanadyne interest expense was overstated by $34 and $114 for the three month periods ended June 30, 2009 and 2008, respectively, and $129 and $216 for the six month periods ended June 30, 2009 and 2008, respectively. Further, deferred debt origination costs for Holdings were understated by $1,093 and $973 as of June 30, 2009 and December 31, 2008, respectively. Stanadyne’s deferred debt origination costs were understated by $936 and $807 as of June 30, 2009 and December 31, 2008, respectively.

Sales cut-off – The Company identified certain sales that were shipped in 2007 that were recorded as sales in the incorrect year. To correct these errors, the Company increased net sales by $2,951 and increased cost of goods sold by $2,408 for the six month period ended June 30, 2008.

Deferred Income Tax Valuation Allowance – The Company corrected its previous position regarding the realization of deferred income tax assets related to its SpA subsidiary. Although the Company had taken actions in 2007 to improve operating results, SpA had reported significant operating losses over the three year period ended December 31, 2007. Management has concluded that the negative evidence related to the accumulated operating losses outweighed the positive evidence related to anticipated future improvements in operating results as a result of changes in operations. As such, management has corrected this error and has recorded a $4.0 million deferred income tax valuation allowance adjustment for the year ended December 31, 2007. The Company maintained these income tax valuation allowances for 2009 and 2008.

Other errors – The condensed consolidated balance sheets at June 30, 2009 and December 31, 2008 have also been restated to report, on a gross basis, the amount recoverable from the Company’s workers’ compensation insurance carrier that had previously been netted against our related workers’ compensation liability. As such, intangible and other assets and other non-current liabilities have both been increased by $1,878 and $1,613 as of June 30, 2009 and December 31, 2008, respectively. Furthermore, accumulated depreciation expense was increased by $192 for the three month and six month periods ended June 30, 2009 to reflect the amount of additional depreciation expense related to the surplus equipment resulting from the closure of Windsor, Connecticut manufacturing operations in 2010.

Other Income taxes – The Company has recorded the income tax effect of the above corrections and other interim tax adjustments. Also, the Company reduced its deferred tax rate for 2009 and 2008 to correct an error in the state tax rate used in those years. Further, Holdings income tax expense was decreased for the three and six month periods ended June 30, 2008, respectively, to record the tax effects of non-deductible interest expense in the proper period. The combined income tax adjustment for Holdings, including the adjustments for deferred income tax valuation allowance related to SpA described above, was a decrease of income tax benefit of $127 and $389 for the three and six month periods ended June 30, 2009, respectively, and an increase of income tax expense of $129 for the three month period ended June 30, 2008 and a decrease of $311 for the six month period ended June 30, 2008. The combined income tax adjustment for Stanadyne, including the adjustments for deferred income tax valuation allowance related to SpA described above, was an increase of income tax expense of $163 and a decrease of

-19-

STANADYNE HOLDINGS, INC. AND SUBSIDIARIES

STANADYNE CORPORATION AND SUBSIDIARIES

NOTES TO RESTATED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(dollars in thousands, except where noted otherwise)

(2)

Restatement of Condensed Consolidated Financial Statements (continued)

income tax benefit of $472 for the three and six month periods ended June 30, 2009, respectively and an increase of income tax expense of $148 for the three months period ended June 30, 2008 and a decrease of income tax expense of $47 for the six month period ended June 30, 2008. The cumulative income tax adjustment resulted in a decrease in Holdings current deferred income tax asset of $1,587 as of June 30, 2009 and $702 as of December 31, 2008, and a decrease in Holdings deferred income tax liabilities of $1,444 as of June 30, 2009 and a decrease of $232 as of December 31, 2008. The cumulative income tax adjustment resulted in an increase in deferred income tax liabilities for Stanadyne of $920 and $256 as of June 30, 2009 and December 31, 2008, respectively.

Cumulative adjustments as of January 1, 2008 – As of January 1, 2008, the Holdings accumulated deficit was understated by $6,064 related to the overstatement of amortization of debt issuance costs of $698, the understatement of the LIFO inventory adjustment of $1,731, the overstatement of accounts receivable and understatement of inventories relating to delivery terms associated with certain shipments of $2,951 and $2,409, respectively, the understatement of pension expenses of $1,008, and the overstatement of warranty expenses of $150 and a $228 charge to retained earnings for the adoption of new guidance on uncertain tax positions. The net income tax benefit related to these errors totaled $615 and was in addition to the $4,017 increase to income tax expense for the valuation allowance for SpA deferred tax assets described above. As of January 1, 2008, Stanadyne retained earnings was overstated by $6,617 related to the overstatement of amortization of debt issuance costs of $538, the understatement of the LIFO inventory adjustment of $1,731, the overstatement of accounts receivable and understatement of inventories relating to delivery terms associated with certain shipments of $2,951 and $2,409, respectively, the understatement of pension expenses of $1,008, and the overstatement of warranty expenses of $150. Total net income tax benefit related to these errors totaled $221 and was in addition to the $4,017 increase to income tax expense for the valuation allowance for SpA deferred tax assets described above. Further, accumulated other comprehensive income for Holdings and Stanadyne as of January 1, 2008 was understated by $1,121 related to the foreign currency translation of the Stanadyne, SpA goodwill of $1,088 and translation of other restated accounts of $33.

Impact of the restatement

The effects of the restatements on the Holdings condensed consolidated balance sheets as of June 30, 2009 and December 31, 2008 follow:


	As of June 30, 2009
	Previously Reported			Adjustments			Restated
Inventories, net	$	28,497		$	(2,273	)	$	26,224
Deferred income taxes		2,834			(1,587	)		1,247
Total current assets		91,162			(3,860	)		87,302
Property, plant and equipment, net		76,847			(192	)		76,655
Goodwill		144,575			(1,507	)		143,068
Intangible and other assets, net		79,799			2,971			82,770
Total assets		392,383			(2,588	)		389,795
Accrued liabilities		23,972			(4,958	)		19,014
Total current liabilities		46,736			(4,958	)		41,778
Deferred income taxes		10,714			(1,444	)		9,270
Other non-current liabilities		46,434			9,962			56,396
Total liabilities		364,025			3,560			367,585
Accumulated other comprehensive loss		(11,638	)		142			(11,496	)
Accumulated deficit		(14,471	)		(6,268	)		(20,739	)
Total stockholders’ equity		28,651			(6,124	)		22,527
Total equity		28,358			(6,148	)		22,210
Total liabilities and equity		392,383			(2,588	)		389,795

-20-

STANADYNE HOLDINGS, INC. AND SUBSIDIARIES

STANADYNE CORPORATION AND SUBSIDIARIES

NOTES TO RESTATED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(dollars in thousands, except where noted otherwise)

(2)

Restatement of Condensed Consolidated Financial Statements (continued)


	As of December 31, 2008
	Previously Reported			Adjustments			Restated
Inventories, net	$	28,919		$	(2,273	)	$	26,646
Deferred income taxes		1,606			(702	)		904
Total current assets		113,364			(2,976	)		110,388
Goodwill		144,575			(2,165	)		142,410
Intangible and other assets, net		82,542			2,586			85,128
Total assets		421,414			(2,555	)		418,859
Accrued liabilities		30,640			(2,194	)		28,446
Total current liabilities		63,221			(2,192	)		61,029
Deferred income taxes		12,317			(232	)		12,085
Other non-current liabilities		49,420			5,859			55,279
Total liabilities		384,301			3,435			387,736
Accumulated other comprehensive loss		(12,602	)		(195	)		(12,797	)
Accumulated deficit		(5,266	)		(5,807	)		(11,073	)
Total stockholders’ equity		37,084			(6,002	)		31,082
Total equity		37,113			(5,990	)		31,123
Total liabilities and equity		421,414			(2,555	)		418,859

-21-

STANADYNE HOLDINGS, INC. AND SUBSIDIARIES

STANADYNE CORPORATION AND SUBSIDIARIES

NOTES TO RESTATED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(dollars in thousands, except where noted otherwise)

(2)

Restatement of Condensed Consolidated Financial Statements (continued)

The effects of the restatements on the Holdings condensed consolidated statements of operations for the three and six month periods ended June 30, 2009 and 2008 follow:


	For the three month period ended June 30, 2009
	Previously Reported			Adjustments			Restated
Cost of goods sold	$	35,014		$	192		$	35,206
Gross profit		12,506			(192	)		12,314
Selling, general, administrative expenses		7,607			3			7,610
Amortization of intangible assets		812			(3	)		809
Management fees		188			(1	)		187

Operating income		3,899			(191	)		3,708
Interest expense		7,531			(29	)		7,502

Loss before income tax benefit		(3,632	)		(162	)		(3,794	)
Income tax benefit		(683	)		127			(556	)

Net loss		(2,949	)		(289	)		(3,238	)
Net loss attributable to non-controlling interest		206			—			206

Net loss attributable to the stockholders of Stanadyne Holdings, Inc.	$	(2,743	)	$	(289	)	$	(3,032	)


	For the three month period ended June 30, 2008
	Previously Reported			Adjustments			Restated
Operating income	$	9,491		$	1		$	9,492
Interest expense		7,328			(115	)		7,213

Income before income tax expense		2,163			116			2,279
Income tax expense		1,142			129			1,271

Net income		1,021			(13	)		1,008
Net loss attributable to non-controlling interest		39			—			39

Net income attributable to the stockholders of Stanadyne Holdings, Inc.	$	1,060		$	(13	)	$	1,047

-22-

STANADYNE HOLDINGS, INC. AND SUBSIDIARIES

STANADYNE CORPORATION AND SUBSIDIARIES

NOTES TO RESTATED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(dollars in thousands, except where noted otherwise)

(2)

Restatement of Condensed Consolidated Financial Statements (continued)


	For the six month period ended June 30, 2009
	Previously Reported			Adjustments			Restated
Cost of goods sold	$	68,522		$	192		$	68,714
Gross profit		19,339			(192	)		19,147
Operating income		2,128			(192	)		1,936
Interest expense		14,955			(120	)		14,835

Loss before income tax benefit		(12,827	)		(72	)		(12,899	)
Income tax benefit		(3,300	)		389			(2,911	)

Net loss		(9,527	)		(461	)		(9,988	)
Net loss attributable to non-controlling interest		322			—			322

Net income attributable to the stockholders of Stanadyne Holdings, Inc.	$	(9,205	)	$	(461	)	$	(9,666	)


	For the six month period ended June 30, 2008
	Previously Reported			Adjustments			Restated
Net sales	$	144,985		$	2,951		$	147,936
Cost of goods sold		104,976			2,408			107,384

Gross profit		40,009			543			40,552
Selling, general, administrative expenses		19,145			—			19,145
Amortization of intangible assets		1,634			—			1,634
Management fees		375			—			375

Operating income		18,855			543			19,398
Interest expense		14,533			(221	)		14,312

Income before income tax expense		4,322			764			5,086
Income tax expense		2,401			(311	)		2,090

Net income		1,921			1,075			2,996
Net loss attributable to non-controlling interest		15			1			16

Net loss attributable to the stockholders of Stanadyne Holdings, Inc.	$	1,936		$	1,076		$	3,012

-23-

STANADYNE HOLDINGS, INC. AND SUBSIDIARIES

STANADYNE CORPORATION AND SUBSIDIARIES

NOTES TO RESTATED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(dollars in thousands, except where noted otherwise)

(2)

Restatement of Condensed Consolidated Financial Statements (continued)

The effects of the restatements on the Holdings condensed consolidated statements of cash flows for the six month periods ended June 30, 2009 and 2008 follow:


	Six month period ended June 30, 2009
	Previously Reported			Adjustments			Restated
Cash flows from operating activities:
Net loss	$	(9,527	)	$	(461	)	$	(9,988	)
Depreciation and amortization		10,648			192			10,840
Amortization of debt discount and deferred financing fees		6,712			(122	)		6,590
Deferred income taxes		(2,952	)		(206	)		(3,158	)
Changes in operating assets and liabilities		(9,129	)		597			(8,532	)

Net cash used in operating activities		(4,217	)		—			(4,217	)

	Six month period ended June 30, 2008
	Previously Reported			Adjustments			Restated
Cash flows from operating activities:
Net income	$	1,921		$	1,075		$	2,996
Amortization of debt discount and deferred financing fees		6,094			(219	)		5,875
Deferred income taxes		(222	)		(2,677	)		(2,899	)
Changes in operating assets and liabilities		(17,584	)		1,821			(15,763	)

Net cash provided by operating activities		935			—			935

-24-

STANADYNE HOLDINGS, INC. AND SUBSIDIARIES

STANADYNE CORPORATION AND SUBSIDIARIES

NOTES TO RESTATED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(dollars in thousands, except where noted otherwise)

(2)

Restatement of Condensed Consolidated Financial Statements (continued)

The effects of the restatements on the Stanadyne condensed consolidated balance sheets as of June 30, 2009 and December 31, 2008 follow:


	As of June 30, 2009
	Previously Reported			Adjustments			Restated
Inventories, net	$	28,497		$	(2,273	)	$	26,224
Deferred income taxes		2,834			(1,587	)		1,247
Total current assets		91,161			(3,860	)		87,301
Property, plant and equipment, net		76,847			(192	)		76,655
Goodwill		144,575			(1,507	)		143,068
Intangible and other assets, net		78,494			2,813			81,307
Total assets		391,077			(2,746	)		388,331
Accrued liabilities		23,972			(4,912	)		19,060
Total current liabilities		46,736			(4,912	)		41,824
Deferred income taxes		21,488			(920	)		20,568
Other non-current liabilities		46,434			9,962			56,396
Due to Stanadyne Holdings, Inc.		1,235			568			1,803
Total liabilities		277,417			4,698			282,115
Accumulated other comprehensive loss		(11,638	)		143			(11,495	)
Retained earnings		20,591			(7,563	)		13,028
Total stockholder’s equity		113,953			(7,420	)		106,533
Total equity		113,660			(7,444	)		106,216
Total liabilities and equity		391,077			(2,746	)		388,331

	As of December 31, 2008
	Previously Reported			Adjustments			Restated
Inventories, net	$	28,919		$	(2,273	)	$	26,646
Deferred income taxes		1,606			(702	)		904
Total current assets		113,196			(2,975	)		110,221
Goodwill		144,575			(2,165	)		142,410
Intangible and other assets, net		81,121			2,420			83,541
Total assets		419,825			(2,720	)		417,105
Accrued liabilities		30,626			(2,193	)		28,433
Total current liabilities		63,207			(2,193	)		61,014
Deferred income taxes		21,581			256			21,837
Due to Stanadyne Holdings, Inc.		1,302			569			1,871
Other non-current liabilities		49,420			5,859			55,279
Total liabilities		301,819			4,491			306,310
Accumulated other comprehensive loss		(12,602	)		(195	)		(12,797	)
Retained earnings		25,579			(7,028	)		18,551
Total stockholder’s equity		117,977			(7,223	)		110,754
Total equity		118,006			(7,211	)		110,795
Total liabilities and equity		419,825			(2,720	)		417,105

-25-

STANADYNE HOLDINGS, INC. AND SUBSIDIARIES

STANADYNE CORPORATION AND SUBSIDIARIES

NOTES TO RESTATED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(dollars in thousands, except where noted otherwise)

(2)

Restatement of Condensed Consolidated Financial Statements (continued)

The effects of the restatements on the Stanadyne condensed consolidated statements of operations for the three and six month periods ended June 30, 2009 and 2008 follow:


	For the three month period ended June 30, 2009
	Previously Reported			Adjustments			Restated
Cost of goods sold	$	35,014		$	192		$	35,206
Gross profit		12,506			(192	)		12,314
Selling, general, administrative expenses		7,587			3			7,590
Amortization of intangible assets		812			(3	)		809
Management fees		188			(1	)		187

Operating income		3,919			(191	)		3,728
Interest expense		4,643			(36	)		4,609

Loss before income tax expense		(724	)		(157	)		(881	)
Income tax expense		93			163			256

Net loss		(817	)		(320	)		(1,137	)
Loss attributable to non-controlling interest		206			—			206

Net loss attributable to the stockholder of Stanadyne Corporation	$	(611	)	$	(320	)	$	(931	)


	For the three month period ended June 30, 2008
	Previously Reported			Adjustments			Restated
Operating income	$	9,507		$	—		$	9,507
Interest expense		4,754			(114	)		4,640

Income before income tax expense		4,753			114			4,867
Income tax expense		1,832			148			1,980

Net income		2,921			(34	)		2,887
Loss attributable to non-controlling interest		39			—			39

Net income attributable to the stockholder of Stanadyne Corporation	$	2,960		$	(34	)	$	2,926

-26-

STANADYNE HOLDINGS, INC. AND SUBSIDIARIES

STANADYNE CORPORATION AND SUBSIDIARIES

NOTES TO RESTATED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(dollars in thousands, except where noted otherwise)

(2)

Restatement of Condensed Consolidated Financial Statements (continued)


	For the six month period ended June 30, 2009
	Previously Reported			Adjustments			Restated
Cost of goods sold	$	68,522		$	192		$	68,714
Gross profit		19,339			(192	)		19,147
Selling, general, administrative expenses		15,181			—			15,181
Amortization of intangible assets		1,625			—			1,625
Management fees		375			—			375

Operating income		2,158			(192	)		1,966
Interest expense		9,258			(129	)		9,129

Loss before income tax benefit		(7,100	)		(63	)		(7,163	)
Income tax benefit		(1,790	)		472			(1,318	)

Net loss		(5,310	)		(535	)		(5,845	)
Loss attributable to non-controlling interest		322			—			322

Net loss attributable to the stockholder of Stanadyne Corporation	$	(4,988	)	$	(535	)	$	(5,523	)


	For the six month period ended June 30, 2008
	Previously Reported			Adjustments			Restated
Net sales	$	144,985		$	2,951		$	147,936
Cost of goods sold		104,976			2,408			107,384

Gross profit		40,009			543			40,552
Selling, general, administrative expenses		19,118			1			19,119
Amortization of intangible assets		1,634			(1	)		1,633
Management fees		375			—			375

Operating income		18,882			543			19,425
Interest expense		9,452			(215	)		9,237

Income before income tax expense		9,430			758			10,188
Income tax expense		3,501			(47	)		3,454

Net income		5,929			805			6,734
Loss attributable to non-controlling interest		15			1			16

Net income attributable to the stockholder of Stanadyne Corporation	$	5,944		$	806		$	6,750

-27-

STANADYNE HOLDINGS, INC. AND SUBSIDIARIES

STANADYNE CORPORATION AND SUBSIDIARIES

NOTES TO RESTATED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(dollars in thousands, except where noted otherwise)

(2)

Restatement of Condensed Consolidated Financial Statements (concluded)

The effects of the restatements on the Stanadyne condensed consolidated statements of cash flows for the six month periods ended June 30, 2009 and 2008 follow:


	Six month period ended June 30, 2009
	Previously Reported			Adjustments			Restated
Cash flows from operating activities:
Net loss	$	(5,310	)	$	(535	)	$	(5,845	)
Depreciation and amortization		10,648			192			10,840
Amortization of deferred financing fees		1,013			(128	)		885
Deferred income taxes		(1,183	)		(429	)		(1,612	)
Changes in operating assets and liabilities		(9,474	)		900			(8,574	)

Net cash used in operating activities		(4,275	)		—			(4,275	)

	Six month period ended June 30, 2008
	Previously Reported			Adjustments			Restated
Cash flows from operating activities:
Net income	$	5,929		$	805		$	6,734
Amortization of deferred financing fees		1,011			(214	)		797
Deferred income taxes		1,136			(2,086	)		(950	)
Changes in operating assets and liabilities		(17,862	)		1,495			(16,367	)

Net cash provided by operating activities		940			—			940

-28-

STANADYNE HOLDINGS, INC. AND SUBSIDIARIES

STANADYNE CORPORATION AND SUBSIDIARIES

NOTES TO RESTATED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(dollars in thousands, except where noted otherwise)

(3)

Inventories

Components of inventories are as follows:


	As of June 30, 2009 (Restated)		As of December 31, 2008 (Restated)
Raw materials and purchased parts	$	11,400	$	10,326
Work-in-process		9,681		10,792
Finished goods		5,143		5,528

	$	26,224	$	26,646

(4)

Intangible and Other Assets

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


	Holdings
	As of June 30, 2009				As of December 31, 2008
	Gross Carrying Value		Accumulated Amortization		Gross Carrying Value		Accumulated Amortization
	(Restated)		(Restated)		(Restated)		(Restated)
Trademarks / trade names	$	51,100	$	—	$	51,100	$	—
Technology / patents		24,300		10,943		24,300		10,081
Customer contracts		15,252		7,478		15,252		6,715
Debt issuance costs		18,447		9,890		18,447		8,882
Other		2,056		74		1,781		74

	$	111,155	$	28,385	$	110,880	$	25,752


	Stanadyne
	As of June 30, 2009				As of December 31, 2008
	Gross Carrying Value		Accumulated Amortization		Gross Carrying Value		Accumulated Amortization
	(Restated)		(Restated)		(Restated)		(Restated)
Trademarks / trade names	$	51,100	$	—	$	51,100	$	—
Technology / patents		24,300		10,943		24,300		10,081
Customer contracts		15,252		7,478		15,252		6,715
Debt issuance costs		16,092		8,998		16,090		8,112
Other		2,056		74		1,781		74

	$	108,800	$	27,493	$	108,523	$	24,982

Amortization expense of intangible assets for the Company, exclusive of the amortization of debt issuance costs, was $809 and $818 for the three months ended June 30, 2009 and 2008, respectively, and $1,625 and $1,634 for the six months ended June 30, 2009 and 2008, respectively. Estimated annual amortization expense for the Company’s intangible assets is expected to be $3,249 in 2009, $3,160 in 2010, $2,944 in 2011, $2,816 in 2012 and $2,816 in 2013.

Amortization of debt discount and debt issuance costs is included as interest expense in the accompanying restated condensed consolidated statements of operations for Holdings of $3,365 and $2,966 for the three months ended June 30, 2009 and 2008, respectively, and $6,590 and $5,875 for the six months ended June 30, 2009 and 2008, respectively. Amortization of debt issuance costs for Stanadyne was $473 and $392 for the three months ended June 30, 2009 and 2008, respectively, and $885 and $797 for the six months ended June 30, 2009 and 2008, respectively. These amounts are included as interest expense in the accompanying restated condensed consolidated statements of operations.

-29-

STANADYNE HOLDINGS, INC. AND SUBSIDIARIES

STANADYNE CORPORATION AND SUBSIDIARIES

NOTES TO RESTATED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(dollars in thousands, except where noted otherwise)

(5)

Long-term Debt

Long-term debt consisted of:


	Holdings				Stanadyne
	June 30, 2009		December 31, 2008		June 30, 2009		December 31, 2008
Revolving credit lines	$	—	$	—	$	—	$	—
Term Loans		5,290		15,000		5,290		15,000
Senior Subordinated Notes		160,000		160,000		160,000		160,000
Holdings Senior Discount Notes, net of unamortized discount of $1,383 and $6,966 at June 30, 2009 and December 31, 2008		98,617		93,034		—		—
SAPL debt, payable to India Overseas Bank through 2013, bearing interest at rates ranging from 6.26% to 9.00%		1,075		957		1,075		957
SCC debt, payable to Pudong Development Bank, bearing interest at 7.62%		439		440		439		440
SpA debt payable to Italian banks through 2009, bearing interest rates ranging from 6.00% to 3.82%		3,398		2,953		3,398		2,953

Long-term debt		268,819		272,384		170,202		179,350
Less current maturities of long-term debt		9,778		13,871		9,778		13,871

Long-term debt, excluding current maturities	$	259,041	$	258,513	$	160,424	$	165,479

The fair values of the Company’s Term Loans and short-term borrowings approximated their recorded values at June 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 June 30, 2009 and December 31, 2008 was approximately $124.2 million and $109.6 million, respectively. The fair value of Holdings’ Discount Notes based on bid prices at June 30, 2009 and December 31, 2008 was $44.6 million and $45.0 million, respectively.

On August 6, 2009, the Revolving Credit Line expired and on August 13, 2009, the Company entered into a new long-term revolving credit facility (See Note 10).

(6)

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 June 30,						Six Months Ended June 30,
	2009 (Restated)			2008 (Restated)			2009 (Restated)			2008 (Restated)
Interest cost	$	1,464		$	1,436		$	2,929		$	2,872
Expected return on plan assets		(1,072	)		(1,663	)		(2,145	)		(3,326	)
Amortization of prior service costs		497			7			995			15

Net periodic pension expense (income)	$	889		$	(220	)	$	1,779		$	(439	)

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

-30-

STANADYNE HOLDINGS, INC. AND SUBSIDIARIES

STANADYNE CORPORATION AND SUBSIDIARIES

NOTES TO RESTATED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(dollars in thousands, except where noted otherwise)

(6)

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

Defined Contribution Plan

The Company offers to its employees the Stanadyne Corporation Savings Plus Plan (the “401(k) Plan”). The 401(k) Plan provides for the following:

(i)

A matching contribution of 100% of employee pre-tax contributions on the first 1% of compensation and 50% of employee pre-tax contributions on the next 5% of compensation so that if an employee contributes 6% of compensation, the Stanadyne match would total 3.5% of that employee’s compensation; and

(ii)

Also, the 401(k) Plan provides for automatic enrollment at 3% of compensation for all new employees and all current employees who are not then contributing 3% or more of compensation.

Due to the downturn in business caused by the global economic recession, on March 31, 2009, Stanadyne amended the 401(k) plan to temporarily suspend the Stanadyne matching contributions beginning May 16, 2009. The 401(k) plan expense representing the Company’s cost for matching contributions was $0.2 million and $0.4 million for the three months ended June 30, 2009 and 2008, and $0.5 million and $0.9 million for the six months ended June 30, 2009 and 2008, respectively.

Postretirement Health Care and Life Insurance

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


	Three Months Ended June 30,						Six Months Ended June 30,
	2009			2008			2009			2008
Service cost	$	12		$	38		$	23		$	86
Interest cost		47			87			104			197
Recognized net actuarial income		(256	)		(164	)		(459	)		(228	)

Net periodic postretirement (benefit) expense	$	(197	)	$	(39	)	$	(332	)	$	55

(7)

Reorganization and Contingencies

During the second quarter of 2009, as a part of its strategic plan and cost reduction initiatives, the Company decided to consolidate its U.S. based manufacturing capacity. This will result in the closure of manufacturing operations in the Company’s Windsor, Connecticut location by mid-2011 and expansion of its operations in its North Carolina locations. The Company incurred $0.2 million in reorganization costs related to this consolidation in the second quarter of 2009, primarily for staffing to manage the project and costs to relocate equipment. These costs are reflected as a component of selling, general and administrative expenses within the accompanying restated 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 is involved in various legal and regulatory proceedings generally incidental to its business. While the results of any litigation or regulatory issue contain an element of uncertainty, management believes that the outcome of any known, pending or threatened legal proceeding, or all of them combined, will not have a material adverse effect on the Company’s consolidated financial position or results of operations.

-31-

STANADYNE HOLDINGS, INC. AND SUBSIDIARIES

STANADYNE CORPORATION AND SUBSIDIARIES

NOTES TO RESTATED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(dollars in thousands, except where noted otherwise)

(7)

Reorganization and Contingencies (continued)

The Company is subject to potential environmental liabilities as a result of various claims and legal actions, which are pending or may be asserted against the Company. Reserves for such liabilities have been established, and no insurance recoveries have been anticipated in the determination of the reserves. In management’s opinion, the aforementioned claims will be resolved without material adverse effect on the consolidated results of operations, financial position or cash flows of the Company. In conjunction with the acquisition of SAHC from Metromedia Company (“Metromedia”) on December 11, 1997, Metromedia agreed to partially indemnify Stanadyne and American Industrial Partners Capital Fund II, L.P. for certain environmental matters. The effect of this indemnification is to limit the Company’s financial exposure for known environmental issues.

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


	Three Months Ended June 30,						Six Months Ended June 30,
	2009			2008 (Restated)			2009			2008 (Restated)
Warranty liability, beginning of period	$	1,130		$	1,305		$	1,085		$	2,386
Warranty expense based on products sold		206			741			410			981
Warranty claims paid		(206	)		(288	)		(365	)		(1,609	)

Warranty liability, end of period	$	1,130		$	1,758		$	1,130		$	1,758

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

(8)

Comprehensive (Loss) Income

Comprehensive (loss) income is as follows:


	Holdings
	Three Months Ended June 30,					Six Months Ended June 30,
	2009 (Restated)			2008 (Restated)		2009 (Restated)			2008 (Restated)
Net (loss) income	$	(3,032	)	$	1,047	$	(9,666	)	$	3,012
Other comprehensive income:
Foreign currency translation adjustments		1,224			496		1,301			1,231

Comprehensive (loss) income	$	(1,808	)	$	1,543	$	(8,365	)	$	4,243


	Stanadyne
	Three Months Ended June 30,					Six Months Ended June 30,
	2009 (Restated)			2008 (Restated)		2009 (Restated)			2008 (Restated)
Net (loss) income	$	(931	)	$	2,926	$	(5,523	)	$	6,750
Other comprehensive income:
Foreign currency translation adjustments		1,225			496		1,302			1,231

Comprehensive (loss) income	$	294		$	3,422	$	(4,221	)	$	7,981

(9)

Segments

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

-32-

STANADYNE HOLDINGS, INC. AND SUBSIDIARIES

STANADYNE CORPORATION AND SUBSIDIARIES

NOTES TO RESTATED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(dollars in thousands, except where noted otherwise)

(10)

Subsequent Event

On August 13, 2009, Stanadyne (as borrower) and SAHC (as guarantor) entered into a new revolving credit agreement with Wells Fargo Foothill, LLC (“U.S. Revolver”). This U.S. Revolver replaced the Revolving Credit Line that expired on August 6, 2009 which was part of the Company’s senior credit facility with Goldman Sachs and CIT Group. The U.S. Revolver provides for borrowings of $30 million and is secured by all Stanadyne and SAHC assets, as well as a pledge of 65% of Stanadyne’s stock in SpA, SAPL, and SCC. The U.S. Revolver is comprised of a domestic inventory accounts receivable facility, a domestic fixed asset facility and a foreign accounts receivable sub-facility guaranteed by the United States Export Import Bank. In conjunction with the completion of the agreement for the new U.S. Revolver, the Company retired 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. All 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, as well as certain other affirmative and negative covenants common to an asset backed loan agreement. The U.S. Revolver also allows dividends and other payments to be made by Stanadyne to Holdings, subject to certain limitations.

In connection with this new loan agreement, the Company made two changes. First, SAHC changed its legal name to Stanadyne Intermediate Holding Corp. (“SIHC”) 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.

-33-

STANADYNE HOLDINGS, INC. AND SUBSIDIARIES

STANADYNE CORPORATION AND SUBSIDIARIES

NOTES TO RESTATED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(dollars in thousands, except where noted otherwise)

(11)

Restated Supplemental Consolidating Condensed Financial Statements

The Notes issued August 6, 2004 by Stanadyne are guaranteed jointly, fully, severally and unconditionally by Precision Engine Products Corp. (the “Subsidiary Guarantor”) on a subordinated basis and are not guaranteed by SpA, SCC and SAPL (the “Non-Guarantor Subsidiaries”). We sold substantially all of the assets of the Subsidiary Guarantor on July 31, 2006 and discontinued its operations. As discussed in Note 1, prior periods have been retroactively restated to conform to the 2009 presentation of non-controlling interest required by standards set forth on the Consolidation Topic of the FASB Accounting Standards Codification.

Supplemental consolidating condensed financial statements for Stanadyne (“Parent”), the Subsidiary Guarantor and the Non-Guarantor Subsidiaries are presented below. Separate complete financial statements of the Subsidiary Guarantor are not required.


	Stanadyne Corporation and Subsidiaries Consolidating Condensed Balance Sheet June 30, 2009 (Restated)
	Stanadyne Corporation Parent			Subsidiary Guarantor		Non- Guarantor Subsidiaries		Eliminations			Stanadyne Corporation & Subsidiaries
ASSETS
Current assets:
Cash and cash equivalents	$	29,148		$	—	$	583	$	862	(a)	$	30,593
Accounts receivable, net		23,409			—		4,708		—			28,117
Inventories, net		20,380			—		6,146		(302	) (a)		26,224
Other current assets		368			—		1,999		—			2,367

Total current assets		73,305			—		13,436		560			87,301
Property, plant and equipment, net		52,391			—		24,264		—			76,655
Intangible and other assets, net		217,909			—		6,832		(366	) (a)		224,375
Investment in subsidiaries		18,185			—		—		(18,185	) (b)		—

Total assets	$	361,790		$	—	$	44,532	$	(17,991	)	$	388,331

LIABILITIES AND EQUITY
Current liabilities:
Accounts payable and accrued liabilities	$	25,702		$	—	$	5,877	$	(5	) (a)	$	31,574
Current maturities of long-term debt and capital lease obligations		5,290			—		4,960		—			10,250

Total current liabilities		30,992			—		10,837		(5	)		41,824
Long-term debt and capital lease obligations		161,353			—		424		(253	)		161,524
Other non-current liabilities		67,341			—		9,987		(364	) (a)		76,964
Intercompany accounts		(4,429	)		—		5,099		1,133	(a)		1,803	(c)
Total Stanadyne stockholder’s equity		106,533			—		18,185		(18,185	) (b)		106,533

Non-controlling interest		—			—		—		(317	)		(317	)
Total equity		106,533			—		18,185		18,502			106,216

Total liabilities and equity	$	361,790		$	—	$	44,532	$	(17,991	)	$	388,331

(a)	Amounts represent the adjustments to reflect the reporting of certain subsidiaries on a one month lag basis.

(b)	Elimination of investments in subsidiaries of the Parent.

(c)	Amount due to Stanadyne Holdings, Inc.

-34-

STANADYNE HOLDINGS, INC. AND SUBSIDIARIES

STANADYNE CORPORATION AND SUBSIDIARIES

NOTES TO RESTATED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(dollars in thousands, except where noted otherwise)

(11)

Restated Supplemental Consolidating Condensed Financial Statements (continued)


	Stanadyne Corporation and Subsidiaries Consolidating Condensed Balance Sheet Year Ended December 31, 2008 (Restated)
	Stanadyne Corporation Parent			Subsidiary Guarantor		Non- Guarantor Subsidiaries		Eliminations			Stanadyne Corporation & Subsidiaries
ASSETS
Current assets:
Cash and cash equivalents	$	47,067		$	—	$	793	$	984	(a)	$	48,844
Accounts receivable, net		25,054			—		7,116		—			32,170
Inventories, net		21,143			—		5,403		100	(a)		26,646
Other current assets		1,800			—		761		—			2,561

Total current assets		95,064			—		14,073		1,084			110,221
Property, plant and equipment, net		58,497			—		22,436		—			80,933
Intangible and other assets, net		220,153			—		6,127		(329	) (a)		225,951
Investment in subsidiaries		16,909			—		—		(16,909	) (b)		—

Total assets	$	390,623		$	—	$	42,636	$	(16,154	)	$	417,105

LIABILITIES AND EQUITY
Current liabilities:
Accounts payable and accrued liabilities	$	39,065		$	—	$	8,026	$	(264	) (a)	$	46,827
Current maturities of long-term debt and capital lease obligations		10,000			—		4,187		—			14,187

Total current liabilities		49,065			—		12,213		(264	)		61,014
Long-term debt and capital lease obligations		165,000			—		479		—			165,479
Other non-current liabilities		69,246			—		9,030		(330	) (a)		77,946
Intercompany accounts		(3,442	)		—		4,005		1,308	(a)		1,871	(c)
Total Stanadyne stockholder’s equity		110,754			—		16,909		(16,909	) (b)		110,754

Non-controlling interest		—			—		—		41			41
Total equity		110,754			—		16,909		(16,868	)		110,795

Total liabilities and equity	$	390,623		$	—	$	42,636	$	(16,154	)	$	417,105

(a)	Amounts represent the adjustments to reflect the reporting of certain subsidiaries on a one month lag basis.

(b)	Elimination of investments in subsidiaries of the Parent.

(c)	Amount due to Stanadyne Holdings, Inc.

-35-

STANADYNE HOLDINGS, INC. AND SUBSIDIARIES

STANADYNE CORPORATION AND SUBSIDIARIES

NOTES TO RESTATED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(dollars in thousands, except where noted otherwise)

(11)

Restated Supplemental Consolidating Condensed Financial Statements (continued)


	Stanadyne Corporation and Subsidiaries Consolidating Condensed Statement of Operations Three Months Ended June 30, 2009 (Restated)
	Stanadyne Corporation Parent			Subsidiary Guarantor		Non- Guarantor Subsidiaries			Eliminations			Stanadyne Corporation & Subsidiaries
Net sales	$	44,518		$	—	$	3,857		$	(855	) (a)	$	47,520
Cost of goods sold		30,959			—		4,979			(732	) (a)		35,206

Gross profit (loss)		13,559			—		(1,122	)		(123	)		12,314
Selling, general, administrative and other operating expenses		7,855			—		731			—			8,586

Operating income (loss)		5,704			—		(1,853	)		(123	)		3,728
Interest expense		4,496			—		113			—			4,609

Income (loss) from operations before income tax benefit and non-controlling interest		1,208			—		(1,966	)		(123	)		(881	)
Subsidiary losses		1,550			—		—			(1,550	) (b)		—
Income tax expense (benefit)		672			—		(416	)		—			256

Net loss		(1,014	)		—		(1,550	)		1,427			(1,137	)
Less: Net loss attributed to non-controlling interest		—			—		—			206			206

Net loss attributed to Stanadyne Corporation	$	(1,014	)	$	—	$	(1,550	)	$	1,633		$	(931	)


	Stanadyne Corporation and Subsidiaries Consolidating Condensed Statement of Operations Three Months Ended June 30, 2008 (Restated)
	Stanadyne Corporation Parent			Subsidiary Guarantor		Non- Guarantor Subsidiaries			Eliminations			Stanadyne Corporation & Subsidiaries
Net sales	$	67,504		$	—	$	8,903		$	(1,852	) (a)	$	74,555
Cost of goods sold		47,501			—		8,771			(1,891	) (a)		54,381

Gross profit		20,003			—		132			39			20,174
Selling, general, administrative and other operating expenses		9,887			—		780			—			10,667

Operating income (loss)		10,116			—		(648	)		39			9,507
Interest expense		4,534			—		106			—			4,640

Income (loss) before income tax expense (benefit) and non-controlling interest		5,582			—		(754	)		39			4,867
Subsidiary losses		619			—		—			(619	) (b)		—
Income tax expense (benefit)		2,115			—		(135	)		—			1,980

Net income (loss)		2,848			—		(619	)		658			2,887
Less: Net loss attributed to non-controlling interest		—			—		—			39			39

Net income (loss) attributed to Stanadyne Corporation	$	2,848		$	—	$	(619	)	$	697		$	2,926

(a)	Elimination of intercompany sales and cost of goods sold.

(b)	Elimination of investments in subsidiaries of the Parent.

-36-

STANADYNE HOLDINGS, INC. AND SUBSIDIARIES

STANADYNE CORPORATION AND SUBSIDIARIES

NOTES TO RESTATED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(dollars in thousands, except where noted otherwise)

(11)

Restated Supplemental Consolidating Condensed Financial Statements (continued)


	Stanadyne Corporation and Subsidiaries Consolidating Condensed Statement of Operations Six Months Ended June 30, 2009 (Restated)
	Stanadyne Corporation Parent			Subsidiary Guarantor		Non- Guarantor Subsidiaries			Eliminations			Stanadyne Corporation & Subsidiaries
Net sales	$	81,324		$	—	$	8,433		$	(1,896	) (a)	$	87,861
Cost of goods sold		59,533			—		10,898			(1,717	) (a)		68,714

Gross profit (loss)		21,791			—		(2,465	)		(179	)		19,147
Selling, general, administrative and other operating expenses		15,734			—		1,447			—			17,181

Operating income (loss)		6,057			—		(3,912	)		(179	)		1,966
Interest expense		8,878			—		251			—			9,129

Loss from operations before income tax benefit and non-controlling interest		(2,821	)		—		(4,163	)		(179	)		(7,163	)
Subsidiary losses		(3,175	)		—		—			3,175	(b)		—
Income tax benefit		(330	)		—		(988	)		—			(1,318	)

Net loss		(5,666	)		—		(3,175	)		2,996			(5,845	)
Less: Net loss attributed to non-controlling interest		—			—		—			322			322

Net loss attributed to Stanadyne Corporation	$	(5,666	)	$	—	$	(3,175	)	$	3,318		$	(5,523	)


	Stanadyne Corporation and Subsidiaries Consolidating Condensed Statement of Operations Six Months Ended June 30, 2008 (Restated)
	Stanadyne Corporation Parent			Subsidiary Guarantor		Non- Guarantor Subsidiaries			Eliminations			Stanadyne Corporation & Subsidiaries
Net sales	$	135,152		$	—	$	17,069		$	(4,285	) (a)	$	147,936
Cost of goods sold		94,767			—		16,953			(4,336	) (a)		107,384

Gross profit		40,385			—		116			51			40,552
Selling, general, administrative and other operating expenses		19,441			—		1,686			—			21,127

Operating income (loss)		20,944			—		(1,570	)		51			19,425
Interest expense, net		9,034			—		203			—			9,237

Income (loss) before income tax expense (benefit) and non-controlling interest		11,910			—		(1,773	)		51			10,188
Subsidiary losses		1,351			—		—			(1,351	) (b)		—
Income tax expense (benefit)		3,876			—		(422	)		—			3,454

Net income (loss)		6,683			—		(1,351	)		1,402			6,734
Less: Net loss attributed to non-controlling interest		—			—		—			16			16

Net income (loss) attributed to Stanadyne Corporation	$	6,683		$	—	$	(1,351	)	$	1,418		$	6,750

(a)	Elimination of intercompany sales and cost of goods sold.

(b)	Elimination of investments in subsidiaries of the Parent.

-37-

STANADYNE HOLDINGS, INC. AND SUBSIDIARIES

STANADYNE CORPORATION AND SUBSIDIARIES

NOTES TO RESTATED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(dollars in thousands, except where noted otherwise)

(11)

Restated Supplemental Consolidating Condensed Financial Statements (continued)


	Stanadyne Corporation and Subsidiaries Consolidating Condensed Statement of Cash Flows Six Months Ended June 30, 2009 (Restated)
	Stanadyne Corporation Parent			Subsidiary Guarantor		Non- Guarantor Subsidiaries			Eliminations			Stanadyne Corporation & Subsidiaries
Cash flows from operating activities:
Net loss	$	(5,666	)	$	—	$	(3,175	)	$	2,996	(b)	$	(5,845	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		8,841			—		1,999			—			10,840
Amortization of deferred financing fees		885			—		—			—			885
Stock-based compensation expense		31			—		—			—			31
Deferred tax benefit		(485	)		—		(1,127	)		—			(1,612	)
Subsidiary losses		3,175			—		—			(3,175	) (b)		—
Changes in operating assets and liabilities		(9,446	)		—		642			200	(a)		(8,574	)

Net cash used in operating activities		(2,635	)		—		(1,661	)		21			(4,275	)

Cash flows from investing activities:
Capital expenditures		(2,561	)		—		(1,512	)		—			(4,073	)
Investment in subsidiary		(3,010	)		—		—			3,010	(b)		—

Net cash used in investing activities		(5,571	)		—		(1,512	)		3,010			(4,073	)

Cash flows from financing activities:
Payments on debt		(9,710	)		—		(37	)		—			(9,747	)
Investment from parent		—			—		3,010			(3,010	) (b)		—

Net cash used in financing activities		(9,710	)		—		2,973			(3,010	)		(9,747	)

Net decrease in cash and cash equivalents		(17,916	)		—		(200	)		21			(18,095	)
Effect of exchange rate changes on cash		(3	)		—		(10	)		(143	)		(156	)
Cash and cash equivalents at beginning of period		47,067			—		793			984			48,844

Cash and cash equivalents at end of period	$	29,148		$	—	$	583		$	862		$	30,593

(a)	Amounts represent adjustments to reflect the reporting of certain subsidiaries on a one month lag basis.

(b)	Elimination of investments in subsidiaries of the Parent.

-38-

STANADYNE HOLDINGS, INC. AND SUBSIDIARIES

STANADYNE CORPORATION AND SUBSIDIARIES

NOTES TO RESTATED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(dollars in thousands, except where noted otherwise)

(11)

Restated Supplemental Consolidating Condensed Financial Statements (concluded)


	Stanadyne Corporation and Subsidiaries Consolidating Condensed Statement of Cash Flows Six Months Ended June 30, 2008 (Restated)
	Stanadyne Corporation Parent			Subsidiary Guarantor		Non- Guarantor Subsidiaries			Eliminations			Stanadyne Corporation & Subsidiaries
Cash flows from operating activities:
Net income (loss)	$	6,683		$	—	$	(1,351	)	$	1,402	(b)	$	6,734
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization		8,642			—		1,977			—			10,619
Amortization of debt discount and deferred financing fees		797			—		—			—			797
Subsidiary losses		1,351			—		—			(1,351	) (b)		—
Loss on disposal of property and equipment		25					31			—			56
Stock-based compensation expense		51			—		—			—			51
Deferred tax expense (benefit)		(353	)		—		(597	)		—			(950	)
Changes in operating assets and liabilities		(13,336	)		—		(3,188	)		157	(a)		(16, 367	)

Net cash provided by operating activities		3,860			—		(3,128	)		208			940

Cash flows from investing activities:
Capital expenditures		(2,416	)		—		(2,307	)		—			(4,723	)
Investment in subsidiary		(825	)				—			825	(b)		—

Net cash used in investing activities		(3,241	)		—		(2,307	)		825			(4,723	)

Cash flows from financing activities:
Net (payments on) proceeds from debt		(7,177	)		—		3,481			—			(3,696	)
Investment from parent		—			—		825			(825	) (b)		—

Net cash used in financing activities		(7,177	)		—		4,306			(825	)		(3,696	)

Net decrease in cash and cash equivalents		(6,558	)		—		(1,129	)		208			(7,479	)
Effect of exchange rate changes on cash		7			—		29			(58	)		(22	)
Cash and cash equivalents at beginning of period		34,900			—		1,915			896			37,711

Cash and cash equivalents at end of period	$	28,349		$	—	$	815		$	1,046		$	30,210

(a)	Amounts represent adjustments to reflect the reporting of certain subsidiaries on a one month lag basis.

(b)	Elimination of investments in subsidiaries of the Parent.

-39-

STANADYNE HOLDINGS, INC. AND SUBSIDIARIES

STANADYNE CORPORATION AND SUBSIDIARIES

ITEM 2:

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

In connection with the preparation of the consolidated financial statements of Holdings and Stanadyne for the fiscal year ended December 31, 2009, certain errors were identified that affected the Company’s reported results for the fiscal years ended December 31, 2004 through 2008 as well as the first three quarters of 2009 and 2008. The errors are more fully described in the Explanatory Note to this Quarterly Report on Form 10-Q/A and Note 2 of our restated condensed consolidated financial statements included in Item 1 of this report. The Company has restated its condensed consolidated financial statements for each of the three month and six month periods ended June 30, 2009 and 2008 to correct these errors. The following tables and analyses have been restated to reflect the restated financial statement amounts.

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 onset of a global economic recession in late 2008 continued to negatively impact demand for our products in the second quarter of 2009. Lower end market demand for our products in the agriculture, construction and automotive industries, resulted in sales totaling $47.5 million in the second quarter of 2009, reflecting a decrease of $27.0 million and 36.3% from the second quarter of 2008 sales of $74.6 million. While significantly less than prior year second quarter, sales in the most recent quarter were $7.2 million and 17.8% greater than sales in the first quarter of 2009 which was negatively impacted by both lower end market demand as well as inventory reductions throughout the supply chain. Year-over-year second quarter sales were lower for virtually every market, customer and industry we serve, except for sales of our gasoline direct injection pump sold to Daimler AG (“Daimler”) that increased by $3.1 million reflecting the expanded product offering to include the Mercedes C and E-class vehicles.

Our operating income for the second quarter of 2009 totaled $3.7 million and 7.8% of net sales, reflecting an improvement of $5.5 million from the operating loss of $1.8 million reported in the first quarter of 2009. Cost reduction actions taken this year 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.

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 our Windsor, Connecticut location by mid-2011 as well as expansion of operations in our North Carolina locations. We incurred $0.2 million in reorganization costs related to this consolidation in the second quarter of 2009, primarily involving staffing to manage the project and cost to relocate equipment. On June 23, 2009, the Company announced that hourly and salaried employees of the Windsor, Connecticut based workforce displaced by this consolidation would receive compensation, based on years of service and skill level, if they remained employed until their positions were eliminated. This “completion bonus” is projected to approximate $2.4 million.

In order to better position for growth in emerging markets, we intend to expand our operations in Chennai, India and Changshu, China to accommodate the needs of the local markets for diesel fuel injection equipment. These expanded operations are expected to be completed by mid 2010. We incurred $0.3 million in cost during the second quarter of 2009, primarily for staffing to manage the project and site preparations of a non-capital nature.

The Company’s liquidity remains strong. Despite lower levels of business this year, reduced levels of working capital in the first six months of 2009 helped limit cash consumed by operations to $4.2 million. We made $4.1 million in capital expenditures this year and reduced our Term Debt by $9.7 million in the second quarter of 2009,

-40-

STANADYNE HOLDINGS, INC. AND SUBSIDIARIES

STANADYNE CORPORATION AND SUBSIDIARIES

based on excess cash flow generated in 2008, while still maintaining $30.6 million of cash on hand as of June 30, 2009. Availability under the U.S.-based Revolving Credit Facility totaled $23.4 million as of June 30, 2009. On August 13, 2009, we entered into a new revolving credit agreement with Wells Fargo Foothill, LLC (“U.S. Revolver”). This U.S. Revolver replaced the U.S.-based Revolving Credit Line which was part of our senior credit facility with CIT Group that expired on August 6, 2009. The U.S. Revolver provides for borrowings of $30 million and is guaranteed by SAHC and secured by all Stanadyne and SAHC assets, as well as a pledge of 65% of Stanadyne’s stock in SpA, SAPL, and SCC. The U.S. Revolver also allows dividends and other payments to be made by Stanadyne to Holdings, subject to certain limitations. Concurrent with entering into the agreement for the U.S. Revolver, we also repaid the remaining balance of $5.3 million of the term loans outstanding on our senior credit facility using cash on hand.

Basis of Presentation

The following table displays restated unaudited information for the three and six month periods ended June 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 June 30, 2009				Three Months Ended June 30, 2008		Six Months Ended June 30, 2009				Six Months Ended June 30, 2008
	(Restated)				(Restated)		(Restated)				(Restated)
	$		%		$	%	$		%		$	%
Net sales	47,520		100.0		74,555	100.0	87,861		100.0		147,936	100.0
Cost of goods sold	35,206		74.1		54,381	72.9	68,714		78.2		107,384	72.6
Gross profit	12,314		25.9		20,174	27.1	19,147		21.8		40,552	27.4
SG&A	7,610		16.0		9,677	13.0	15,211		17.3		19,145	12.9
Amortization of intangibles	809		1.7		818	1.1	1,625		1.8		1,634	1.1
Management fees	187		0.4		187	0.3	375		0.4		375	0.3
Operating income	3,708		7.8		9,492	12.7	1,936		2.2		19,398	13.1
Net (loss) income attributable to Holdings	(3,032	)	(6.4	)	1,047	1.4	(9,666	)	(11.0	)	3,012	2.0

	Stanadyne
	Three Months Ended June 30, 2009				Three Months Ended June 30, 2008		Six Months Ended June 30, 2009				Six Months Ended June 30, 2008
	(Restated)				(Restated)		(Restated)				(Restated)
	$		%		$	%	$		%		$	%
Net sales	47,520		100.0		74,555	100.0	87,861		100.0		147,936	100.0
Cost of goods sold	35,206		74.1		54,381	72.9	68,714		78.2		107,384	72.6
Gross profit	12,314		25.9		20,174	27.1	19,147		21.8		40,552	27.4
SG&A	7,590		16.0		9,663	13.0	15,181		17.3		19,119	12.9
Amortization of intangibles	809		1.7		817	1.1	1,625		1.8		1,633	1.1
Management fees	187		0.4		187	0.3	375		0.4		375	0.3
Operating income	3,728		7.8		9,507	12.8	1,966		2.2		19,425	13.1
Net (loss) income attributable to Stanadyne	(931	)	(2.0	)	2,926	3.9	(5,523	)	(6.3	)	6,750	4.6

-41-

STANADYNE HOLDINGS, INC. AND SUBSIDIARIES

STANADYNE CORPORATION AND SUBSIDIARIES

Comparison of Results of Operations:

The Three Months Ended June 30, 2009 for Holdings and Stanadyne Compared to

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

Net Sales. Sales in the second quarter of 2009 totaled $47.5 million and were $27.0 million or 36.3% less than sales of $74.6 million in the second quarter of 2008. The global recession continued to affect customer demand in our major end markets in the second quarter of 2009. With very few exceptions, we experienced reduced sales to our major customers from 30% to 70% when compared to the same period in 2008. Sales to the original equipment manufacturer (“OEM”) market decreased by $18.6 million or 43.7%, while sales to the service markets were slightly less impacted by the recession, decreasing by $8.4 million or 26.3%.

Sales to OEM customers totaled $24.0 million and represented 50.5% of our second quarter 2009 revenues as compared to $42.6 million and 57.2% of our second quarter 2008 revenues. Demand from all of our diesel products OEM customers was lower in the second quarter of 2009 when compared to the same period last year. OEM sales to Deere and Company (“Deere”) were $6.6 million less in the second quarter of 2009 when compared to the second quarter of 2008 due to depressed end market demand in the agriculture and construction businesses. Sales of diesel fuel pumps to General Engine Products (“GEP”) for the High Mobility Multi-purpose Wheeled Vehicle (“HMMWV”) were only $0.9 million or 16.3% less in the second quarter of 2009 when compared to the same period in the prior year. Only sales of our high pressure gasoline injection pump to Daimler-Benz (“Daimler”) increased by $4.6 million in the second quarter of 2009 when compared to the second quarter of 2008, reflecting the expanded product offering to include the Mercedes C and E-class vehicles.

Sales to the service markets in the second quarter of 2009 totaled $23.5 million and 49.5% of total revenues, reflecting a decrease of $8.4 million or 26.3% from the $31.9 million and 42.8% of prior year second quarter revenues. Lower service demand from Deere resulted in $3.0 million lower second quarter sales. A decrease in service orders from General Motors Service Parts Organization resulted in a $3.1 million decrease in sales in the second quarter of 2009 when compared to the same period a year ago. Sales to our central distributors, which comprise our independent service network, were only $0.6 million lower in the second quarter, indicating some recovery in demand from the prior quarter.

Sales in the second 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. As discussed above, only sales of our high pressure gasoline pumps reflected a second quarter year-over-year increase.

Cost of Goods Sold and Gross Profit. Gross profit totaled $12.3 million and 25.9% of net sales in the second quarter of 2009, as compared to $20.2 million and 27.1% of net sales in the second quarter of 2008. This $7.9 million decrease in gross profit was due to the following. Lower sales volume in both the OEM and service markets resulted in $11.8 million lower gross profit in the second quarter of 2009. Aggressive cost reduction actions taken this year in response to the impact the economic recession has had on our businesses have helped to preserve the gross profit margin as a percent of sales at a level comparable to the second quarter of 2008. A combination of staff reductions to more closely match the lower sales demand in the second quarter of 2009, wage and salary reductions, elimination of overtime premiums, a suspension of certain employee benefits and a number of austerity measures taken at all locations, helped reduce manufacturing costs in our India, Italy and U.S. operations by a combined $4.2 million when compared to the same period a year ago. These savings were partially offset by $0.2 million higher overhead costs in the second quarter of 2009 in our China facility, as compared to the second quarter 2008 pre-production period, and $0.2 million of additional depreciation expense on the assets in Windsor, Connecticut that will no longer be used following the completion of our reorganization of our North American manufacturing operations.

Selling, General and Administrative Expenses (“SG&A”). SG&A decreased by $2.1 million to $7.6 million and 16.0% of net sales in the second quarter of 2009 from $9.7 million and 13.0% of second quarter sales in 2008. Cost reduction actions taken earlier in the year in response to the depressed business levels contributed to a $2.3 million reduction in overall SG&A costs in the second quarter of 2009 when compared to SG&A costs in the second quarter

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of 2008. Additional savings recognized in the second quarter of 2009 included $0.2 million lower freight on sales and $0.2 million from favorable cost trends in the retiree health benefit plans. SG&A costs increased in the second quarter of 2009 from the same period a year ago as the Company incurred $0.2 million for the recently announced consolidation of its U.S. manufacturing operations and $0.4 million for expansion of operations in its China and India-based operations.

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

Operating Income. Our operating income in the second quarter of 2009 totaled $3.7 million and 7.8% of net sales as compared to operating income of $9.5 million and 12.7% of net sales in the second quarter of 2008. This $5.8 million decrease in year-over-year second quarter operating income was driven by $7.9 million lower gross profit due primarily to lower sales volumes, partially offset by $2.1 million lower SG&A resulting from management’s aggressive cost reduction actions.

Net (Loss) Income. Net loss for Stanadyne in the second quarter of 2009 totaled $0.9 million and 2.0% of net sales versus net income of $2.9 million and 3.9% of net sales in the second quarter of 2008. The $3.9 million erosion in net income was due to $5.8 million lower operating income, partially offset by $1.7 million in lower income tax expense on reduced earnings.

Net loss for Holdings in the second quarter of 2009 totaled $3.0 million and was $2.1 million less than the net loss reported for Stanadyne due to $2.9 million of additional interest expense on the Discount Notes, partially offset by $0.6 million of income tax benefits.

The Six Months Ended June 30, 2009 for Holdings and Stanadyne Compared to

The Six Months Ended June 30, 2008 for Holdings and Stanadyne

Net Sales. Net sales for the six months ended June 30, 2009 totaled $87.9 million and was $60.0 million or 40.6% less than sales of $147.9 million for the comparable period in 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. This broad-based decline in market demand lead to lower sales to both our OEM and service customers during the first six months of 2009.

OEM sales represented 49.6% of our total sales in the first six months of 2009 as compared to 56.7% in the same period of 2008. Sales to our OEM customers were $40.3 million less in the first half of 2009, due primarily to $16.1 million lower sales to Deere. Demand from Deere decreased for our products used in their construction and forestry equipment as well as utility tractors. Lower demand from our other major OEM customers including Caterpillar, Cummins, Inc., AGCO SISU POWER, Perkins Engines Co. Ltd., Lombardini SRL, Iveco S.p.A., Case New Holland and J C Bamford Excavators Ltd combined for a $23.1 million decrease in sales during the first six months of 2009 as compared to the same period in the prior year. Sales to GEP for fuel pumps used in the military HMMWV were $1.7 million less in the first six months of 2009. The only significant increase in OEM business during the first six months of 2009 was for our high pressure gasoline pump sold to Daimler, where an expanded product offering of the gasoline direct injected engine to include the Mercedes C and E-class vehicles resulted in $4.9 million higher sales as compared to the same period of 2008.

Sales to the service markets represented 50.4% of our total sales in the first six months of 2009 as compared to only 43.3% in the same period of 2008. Sales to our service customers decreased $19.8 million or 30.8% in the first half of 2009 versus the first half of 2008. Service sales to Deere accounted for $8.8 million of this difference. Service orders from General Motors Corporation for fuel pumps in the first six months of 2009 were $6.3 million lower when compared to the same period a year earlier. The balance of the reduction in service sales in the first six months of the year was due to lower demand from our independent service network and our aftermarket fuel filter customers.

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

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Cost of Goods Sold and Gross Profit. Gross profit in the first six months of 2009 totaled $19.1 million and 21.8% of net sales compared to $40.6 million and 27.4% of net sales in the first six months of 2008. Lower sales volume in the first six months of 2009 when compared to the same period of 2008, resulted in $27.1 million lower gross profit. Aggressive cost reduction actions taken this year in response to the impact the economic recession has had on our businesses have helped to offset the impact on earnings caused by the much lower sales volumes. In order to more closely match our costs to the lower sales volumes this year, we reduced staffing levels, utilized temporary furloughs, reduced wages and salaries, minimized overtime premiums in our factories, suspended certain employee benefits to generate combined reduction in labor costs of $5.2 million in the first six months of 2009. Severance costs related to the permanent staff reductions totaled $0.4 million in the first six months of 2009. A number of austerity measures, taken at all locations, helped further reduce factory overhead costs at all of our global locations during the first six months of 2009 by a combined $1.8 million when compared to the same period a year ago. These savings were partially offset by $0.6 million higher overhead costs this year in our China facility, as compared to the first six months of 2008 during our pre-production period, and $0.2 million of additional depreciation expense on the assets in Windsor, Connecticut that will no longer be used following the completion of reorganization of our North American manufacturing operations.

Selling, General and Administrative Expenses (“SG&A”) totaled $15.2 million and 17.3% of net sales in the first six months of 2009, as compared to $19.1 million and 12.9% of net sales for the same period in 2008. The lower business levels in 2009 were balanced through a combination of cost saving measures including staff reductions, a graduated salary reduction of 4-15%, and suspension of certain employee benefits that contributed to $2.2 million lower labor costs in the first six months of 2009. Freight on sales was $0.5 million less in the first six 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 six months of 2009 contributed $0.8 million to the overall decrease in SG&A costs. SG&A costs were less this year when compared to 2008 when $0.3 million in costs were incurred for the closure of our former Trappes, France office. Additional year-over-year savings of $0.8 million in SG&A costs were realized from a number of austerity measures. All of these savings were partially offset by $0.5 million of costs incurred for the recently announced consolidation of our U.S. manufacturing operations and $0.5 million for expansion of operations in our China and India operations.

Amortization of Intangible Assets. Amortization of intangible assets totaled $1.6 million through the first six months of 2009 and was unchanged from the amount in the first half of 2008.

Operating Income. Operating income for the first six months of 2009 totaled $1.9 million and 2.2% of net sales and was $17.3 million less than the $19.4 million and 13.1% of net sales in the first six months of 2008. This decrease in 2009 operating income was driven by $21.5 million lower gross profit due primarily to lower sales volumes, partially offset by $3.9 million lower SG&A resulting from management’s aggressive cost reduction actions.

Net (Loss) Income. Net loss for Stanadyne for the first six months of 2009 totaled $5.5 million and 6.3% of sales versus net income of $6.8 million and 4.6% of sales for the first six months of 2008. This $12.3 million decrease in net income was due to $17.5 million lower operating income on depressed business levels, partially offset by $0.1 million less interest expense on lower outstanding debt and $4.8 million in lower income tax expense on reduced earnings.

Net loss for Holdings in the first six months of 2009 totaled $9.7 million and was $4.2 million more than the net loss reported for Stanadyne due to $5.7 million of additional interest expense on the Discount Notes, partially offset by $1.5 million of income tax benefits. Net income for Holdings in the first six months of 2008 totaled $3.0 million and was $3.7 million less than the amount reported for Stanadyne due to $5.2 million of additional interest expense on the Discount Notes, partially offset by $1.5 million of income tax benefits.

Liquidity and Capital Resources

Our principal sources of liquidity are cash and cash equivalents on hand, which totaled $30.6 million on June 30, 2009, and cash flows from operations. Cash equivalents as of June 30, 2009 represent commercial paper and certificates of deposit. Stanadyne also maintains a U.S.-based revolving credit facility under which $23.4 million was available for borrowing as of June 30, 2009, of which $6.4 million was used to secure standby letters of credit.

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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 June 30, 2009 totaled $170.2 million and was comprised of $160.0 million of Notes, $5.3 million in domestic term loans, no borrowings under the domestic Revolving Credit Line, $4.4 million in foreign overdraft and revolving credit facilities and $0.5 million in foreign term loans. Unless the availability of funds under the Revolving Credit Line is less than $5.0 million, the U.S.-based Senior Credit Facilities are not subject to financial covenants. Excess Cash Flow, as defined by the terms of the Senior Credit Facility, generated in 2008 resulted in a term loan payment of $9.7 million in the second quarter of 2009.

Indebtedness for Holdings as of June 30, 2009 totaled $268.8 million, comprised of the same debt balances for Stanadyne, plus an additional $98.6 million of Discount Notes. The Discount Notes will accrete interest to a total face value of $100.0 million in August, 2009, after which time the 12% coupon will be payable semi-annually beginning in February, 2010. Holdings has no independent financial resources of its own. The Senior Credit Facilities 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 six months ended June 30, 2009.

Holdings has failed to comply with the reporting covenant contained in the indenture governing the Senior Discount Notes and Stanadyne has failed to comply with the reporting covenant contained in the indenture governing the Notes insofar as the Company did not, within the time period specified in the SEC’s rules and regulations, file with the SEC or furnish to the bondholders (a) the Company’s annual financial information for the fiscal year ended December 31, 2009 and a report on the annual financial statements by the Companies’ certified independent accountants as required under the indentures or (b) the Company’s Quarterly Report on Form 10-Q for the interim periods ended March 31, 2010 and June 30, 2010. The delay in the filing of these reports for each of Holdings and Stanadyne is due to the restatement described in this report. While the Company believes the filing of the Annual Report on June 21, 2010 has cured the failure to so file the Annual Report on Form 10-K for the fiscal year ended December 31, 2009, the Company has not yet filed its Quarterly Report on Form 10-Q for the interim periods ended March 31, 2010 and June 30, 2010. As a result, the trustee or holders of at least 25% of the aggregate principal amount of the notes under either of the indentures may notify Stanadyne or Holdings, as applicable, of its failure to comply with the reporting covenant of the applicable indenture, in which case Stanadyne or Holdings, as applicable, will have 60 days in which to cure such failure. No such notice has been received through the date of this filing.

Cash Flows from Operating Activities. Stanadyne’s cash flows from operating activities consumed $4.3 million in cash during the six months ended June 30, 2009 as compared to $0.9 million cash generated during the same period of 2008. Lower operating profit on reduced business levels in the first six months of 2009 was partially offset by lower cash requirements for working capital accounts.

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Changes in asset and liability accounts, primarily working capital accounts, required $7.8 million less cash in the first six months of 2009 versus the comparable period in 2008.

•

Positive cash flows from changes in accounts receivable were $10.0 million greater in the first six months of 2009, as customer receivables decreased proportionately with the lower levels of sales in the first six months of 2009 as compared to the same period in 2008.

•

Cash flows from changes in inventory levels required $1.9 million less cash in the first six months of 2009 as compared to the first six months of 2008. Lower customer demand in 2009 resulted in reduced inventory levels 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 June 30, 2009, as reflected in erosion in the turnover to 6.4x in 2009 from 7.7x in 2008. We continue to target further reductions in our U.S. and Italy-based inventories in the third quarter.

•

Cash flows from changes in accounts payable balances consumed $0.1 million more cash in the first six months of 2009 than the same period in 2008. The year-to-year change reflected declining accounts payable balances on reduced business levels in the first half of 2009.

•

Cash flows from changes in other accrued liabilities in the first six months of 2009 consumed $3.0 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 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 six 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 six months of 2009 were limited to $4.1 million in capital expenditures in the first six months of 2009 and were $0.6 million less than the $4.7 million in capital expenditures in the first six 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 the Company in the first six months of 2009 consumed $9.7 million in cash compared to $3.7 million of cash consumed by financing activities in the first six months of 2008.

Cash flows from financing activities in our U.S. based operations in the first six months of 2009 and 2008 were comprised of reductions in term debt of $9.7 million and $6.2 million, respectively, based on the terms of the Senior Credit Facility related to excess cash flow generated in 2008 and 2007. There were no borrowings under the U.S. based revolving credit line as of June 30, 2009 and 2008, which after reductions for outstanding letters of credit, provided available liquidity of $17.0 million and $24.7 million at each date, respectively.

Cash flows from financing activities in our foreign operations in the first six months of 2009 included a $0.1 million increase in overdraft borrowings at SpA as well as payments of capital lease obligations totaling $0.2 million. Increased overdraft borrowings at SpA were used to support working capital requirements. Cash flows from financing activities in SAPL were comprised of a $0.1 million term loan payment and $0.2 million in cash from increased borrowings from the credit facilities with Indian Overseas Bank.

Cash flows from financing activities for Holdings in the first six 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.

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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 $28.4 million from the prior year to $40.9 million as of December 31, 2008. This increased liability resulted in an equal pretax amount included in accumulated other comprehensive loss.

The Company contributed $1.0 million to the Pension Plan during the first six months of 2009 and expects the minimum required contributions to the Pension Plan to total approximately $2.4 million in 2009. The Company contributed $1.6 million to the Pension Plan in the first six 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 management’s discussion and analysis of financial condition and results of operations. Forward-looking statements generally can be identified by the use of forward-looking terminology such as “may,” “will,” “expect,” “intend,” “estimate,” “anticipate,” “believe,” “project,” or “continue” or the negative thereof or other similar words. From time to time, we also may provide oral or written forward-looking statements in other materials we release to the

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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;

•

the impact of the restatement described in this report;

•

the impact of the material weaknesses on our ability to report our financial condition and results of operations accurately or on a timely basis, including with respect to our delay in providing timely reports under our indentures;

•

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 Stanadyne’s revolving credit lines and term loans approximate fair value. The term loans are primarily LIBOR-based borrowings and are re-priced every one to three months. A 10% change in the interest rate on the term loans would have changed the recorded interest expense for the first six months of 2009 by less than $0.1 million. The Notes and Discount Notes bear interest at a fixed rate and, therefore, are not sensitive to interest rate fluctuation. The fair value of Stanadyne’s $160.0 million in Notes based on bid prices on June 30, 2009 was approximately $124.2 million. The fair value of Holdings’ Discount Notes based on bid prices at June 30, 2009 was $44.6 million.

Foreign Currency Risk. The Company has operating subsidiaries in China, Italy, and India and therefore is exposed to changes in foreign currency exchange rates. Changes in exchange rates may positively or negatively affect the Company’s sales, gross margins, and retained earnings. However, historically, these locations have contributed less than 15% of the Company’s net sales, with most of these sales attributable to the Italian subsidiary. The Company also sells its products from the United States to foreign customers for payment in foreign currencies as well as U.S. dollars. Foreign currency exchange for the six months ended June 30, 2009 and 2008 were net losses $0.2 million. The Company does not hedge against foreign currency risk.

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ITEM 4T:

CONTROLS AND PROCEDURES (RESTATED)

Restatement

(a) Background

In connection with the preparation of the consolidated financial statements of Holdings and Stanadyne for the fiscal year ended December 31, 2009, certain errors were identified that affected the Company’s reported results for the fiscal years ended December 31, 2004 through 2008 as well as the first three quarters of 2008 and 2009. The errors, which are more fully described in the Explanatory Note to this Quarterly Report on Form 10-Q/A and Note 2 of our unaudited condensed consolidated financial statements included in Item 1 of this Quarterly Report, primarily related to the following:

•

The use of an incorrect base year index when calculating LIFO liquidation adjustments in 2006, 2007 and 2008.

•

The misclassification of our accrued pension liability and amounts recoverable from our worker’s compensation insurance carrier.

•

The failure to calculate and record the foreign currency translation effect related to goodwill associated with Stanadyne, SpA since 2004.

•

The use of an incorrect method to amortize deferred debt origination costs since 2004.

•

The recording of certain 2006 and 2007 sales in the incorrect year affecting 2006, 2007 and 2008 sales.

•

The failure to record a valuation allowance on deferred income tax assets related to Stanadyne, SpA in 2007.

As a consequence of these errors, on April 15, 2010, the Audit Committee of the Board of Directors of each of Holdings and Stanadyne, in consultation with management, concluded that the Company would restate its consolidated financial statements for the years ended December 31, 2007 and December 31, 2008 and as of January 1, 2007 as well as the first three quarters of 2008 and 2009 in order to correctly present the Company’s financial results and correct the errors identified.

The Company’s unaudited condensed consolidated financial statements included in Item 1 of this Quarterly Report on Form 10-Q/A have been restated to correct the identified errors.

(b) Evaluation of disclosure controls and procedures

Holdings

At the time of our Original Filing, our President and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of June 30, 2009. Subsequent to that evaluation, our management, including the President and Chief Financial Officer, has re-evaluated the effectiveness of the design and operations of our disclosure controls and procedures as of the period covered by this report. Disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (“Exchange Act”)) include controls and procedures designed to ensure that information required to be disclosed in reports filed

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or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and 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. Based on this re-evaluation and in connection therewith, the restatement of previously issued financial statements described above and the identification of a material weakness in internal control over financial reporting described below, the President and Chief Financial Officer of Holdings have concluded that Holdings’ disclosure controls and procedures were not effective as of June 30, 2009.

A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of Holdings’ annual or interim financial statements will not be prevented or detected on a timely basis.

Holdings did not maintain effective controls to ensure completeness, valuation and appropriate presentation and disclosure over certain accounts described below, which led to the misstatement of its financial statements and related financial disclosures for the years ended December 31, 2008 and 2007 and for the first three quarters of 2009 and 2008. Management has concluded that (a) Holdings lacks sufficient accounting professionals with necessary knowledge, experience and training to adequately account for and perform adequate supervisory reviews of certain significant and primarily non-routine transactions and technical accounting matters and (b) Holdings lacks adequate controls regarding training in the relevant accounting guidance, review, and documentation of certain complex, and primarily non-routine accounting transactions and review of required accounting disclosures. Collectively, these factors resulted in the misapplication of accounting principles primarily impacting several accounts including cost of goods sold, interest expense and income taxes as reported on our consolidated statements of operations and inventories, pension liabilities, deferred debt origination costs, certain components of other comprehensive income, goodwill and deferred income taxes as reported on our consolidated balance sheets. Because these control deficiencies could result in misstatements of the aforementioned accounts or other accounts not noted and disclosures that would result in a material misstatement of the consolidated financial statements that would not be prevented or detected, management has determined that these control deficiencies constitute a material weakness.

Stanadyne

At the time of our Original Filing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of June 30, 2009. Subsequent to that evaluation, our management, including the Chief Executive Officer and Chief Financial Officer, has re-evaluated the effectiveness of the design and operations of our disclosure controls and procedures as of the period covered by this report. Disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) include controls and procedures designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and 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. Based on this re-evaluation and in connection therewith, the restatement of previously issued financial statements described above and the identification of a material weakness in internal control over financial reporting described below, the Chief Executive Officer and Chief Financial Officer of Stanadyne have concluded that Stanadyne’s disclosure controls and procedures were not effective as of June 30, 2009.

A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of Stanadyne’s annual or interim financial statements will not be prevented or detected on a timely basis.

Stanadyne did not maintain effective controls to ensure completeness, valuation and appropriate presentation and disclosure over certain accounts described below, which led to the misstatement of its financial statements and related financial disclosures for the years ended December 31, 2008 and 2007 and for the first three quarters of 2009 and 2008. Management has concluded that (a) Stanadyne lacks sufficient accounting professionals with necessary knowledge, experience and training to adequately account for and perform adequate supervisory reviews of certain significant and primarily non-routine transactions and technical accounting matters and (b) Stanadyne lacks

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STANADYNE HOLDINGS, INC. AND SUBSIDIARIES

STANADYNE CORPORATION AND SUBSIDIARIES

adequate controls regarding training in the relevant accounting guidance, review, and documentation of certain complex, and primarily non-routine accounting transactions and review of required accounting disclosures. Collectively, these factors resulted in the misapplication of accounting principles primarily impacting several accounts including cost of goods sold, interest expense and income taxes as reported on our consolidated statements of operations and inventories, pension liabilities, deferred debt origination costs, certain components of other comprehensive income, goodwill and deferred income taxes as reported on our consolidated balance sheets. Because these control deficiencies could result in misstatements of the aforementioned accounts or other accounts not noted and disclosures that would result in a material misstatement of the consolidated financial statements that would not be prevented or detected, management has determined that these control deficiencies constitute a material weakness.

(c) Changes in internal control over financial reporting

There were no changes in internal control over financial reporting that have occurred during the second quarter that have materially affected, or are reasonably likely to affect, Holdings’ internal control over financial reporting.

There were no changes in internal control over financial reporting that have occurred during the second quarter that have materially affected, or are reasonably likely to affect, Stanadyne’s internal control over financial reporting.

(d) Remediation Plan

Holdings

As of the date of the filing of this Form 10-Q/A, Holdings had not completed the remediation of the material weakness. We have initiated the following action steps:

•

Filling our vacant Manager of Financial Reporting position with an accountant with the necessary knowledge, experience and expertise in U.S. GAAP with respect to significant non-routine transactions and technical accounting matters.

•

Implementing controls regarding the enhancement of detailed accounting policies, and updating those policies for new developments and accounting pronouncements.

•

Instituting periodic internal control and accounting training for our accounting department designed to ensure our accounting personnel further develops its knowledge, expertise and training in U.S. GAAP with respect to significant non-routine transactions and technical accounting matters.

•

Implementing and modifying controls to ensure that significant, complex and non-routine transactions are timely identified, researched, documented, reviewed and evaluated so that such transactions are properly recorded and disclosed in accordance with U.S. GAAP.

•

Identifying technical accounting and other assistance from third parties to supplement our accounting department when evaluating the proper accounting for significant and non-routine transactions and implementing a policy with respect to the engagement of such third parties.

Management is developing a detailed plan and timetable for the implementation of the foregoing remediation efforts and will monitor the implementation. In addition, under the direction of the Audit Committee, management will continue to review and make necessary changes to the overall design of the Holdings’ internal control environment, as well as policies and procedures to improve the overall effectiveness of internal control over financial reporting.

Stanadyne

As of the date of the filing of this Form 10-Q/A, Stanadyne had not completed the remediation of the material weakness. We have initiated the following action steps:

•

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STANADYNE HOLDINGS, INC. AND SUBSIDIARIES

STANADYNE CORPORATION AND SUBSIDIARIES

•

Implementing controls regarding the enhancement of detailed accounting policies, and updating those policies for new developments and accounting pronouncements.

•

Management is developing a detailed plan and timetable for the implementation of the foregoing remediation efforts and will monitor the implementation. In addition, under the direction of the Audit Committee, management will continue to review and make necessary changes to the overall design of the Stanadyne’s internal control environment, as well as policies and procedures to improve the overall effectiveness of internal control over financial reporting.

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STANADYNE HOLDINGS, INC. AND SUBSIDIARIES

STANADYNE CORPORATION AND SUBSIDIARIES

PART II: OTHER INFORMATION

ITEM 1A:

RISK FACTORS

The discussion and analysis of our financial condition, results of operations and cash flows for the three and six months ended June 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 as well as the additional risk factors described below:

Failure to maintain effective internal controls over financial reporting may lead investors and other users to lose confidence in our financial data.

Maintaining effective internal controls over financial reporting is necessary for us to produce reliable financial statements. In evaluating the effectiveness of its internal controls over financial reporting as of December 31, 2009, management concluded that there was a material weakness in internal control over financial reporting related to the insufficiency of the Company’s accounting professionals’ experience and knowledge in reviewing significant non-routine transactions and technical accounting matters. This material weakness led to the need for the restatement of the Company’s financial statements for the years ended December 31, 2004 through 2008 and for the first three quarters of 2008 and 2009 and the failure of the Company to file its Annual Report on Form 10-K for the fiscal year ended December 31, 2009 and its Quarterly Reports on Form 10-Q for the interim periods ended March 31, 2010 and June 30, 2010 on a timely basis.

We are in the process of remediating this material weakness by, among other things, augmenting our professional staff by hiring a manager of financial reporting, providing additional training for our accounting staff, implementing and modifying certain controls, and seeking assistance from third parties with technical accounting issues. If we fail to remediate this material weakness or fail to otherwise maintain effective controls over financial reporting in the future, it could result in a material misstatement of our financial statements that would not be prevented or detected on a timely basis and which could cause investors and other users to lose confidence in our financial statements.

The indentures governing our notes contain financial reporting covenants that we have been unable to comply with due to the restatement.

Holdings has failed to comply with the reporting covenant contained in the indenture governing the Senior Discount Notes and Stanadyne has failed to comply with the reporting covenant contained in the indenture governing the Notes insofar as the Company did not, within the time period specified in the SEC’s rules and regulations, file with the SEC or furnish to the noteholders the Company’s Quarterly Reports on Form 10-Q for the interim periods ended March 31, 2010 and June 30, 2010. The delay in the filing of these reports for each of Holdings and Stanadyne is due to the restatement described in this report. As a result, the trustee or holders of at least 25% of the aggregate principal amount of the notes under either of the indentures may notify Stanadyne or Holdings, as applicable, of its failure to comply with the reporting covenant of the applicable indenture, in which case Stanadyne or Holdings, as applicable, will have 60 days in which to cure such failure. While the Company has not received any such notice from the trustee or the requisite noteholders as of the date of this filing, there can be no assurance that the Company will not receive such notice or that, if the Company does receive such notice, that the Company will be able to file its Quarterly Reports on Form 10-Q for the interim periods ended March 31, 2010 and June 30, 2010 within 60 days of receipt of such notice.

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STANADYNE HOLDINGS, INC. AND SUBSIDIARIES

STANADYNE CORPORATION AND SUBSIDIARIES

ITEM 6:

EXHIBITS



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

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, and the 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. The registrants agree to furnish a copy of the Credit Agreement and the EXIM Guarantied Credit Agreement to the Securities and Exchange Commission upon request.

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STANADYNE HOLDINGS, INC. AND SUBSIDIARIES

STANADYNE CORPORATION AND SUBSIDIARIES

Signature

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


		Stanadyne Holdings, Inc.
		(Registrant)

Date: August 26, 2010		/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: August 26, 2010		/s/ Stephen S. Langin
		Stephen S. Langin
		Chief Financial Officer

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EXHIBIT INDEX:



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

Commission

File Number

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

State of
Incorporation

I.R.S. Employer
Identification No.

Stanadyne Holdings, Inc.

92 Deerfield Road

Windsor, CT 06095

(860) 525-0821

Stanadyne Corporation

92 Deerfield Road

Windsor, CT 06095

(860) 525-0821