Attached files

file filename
EX-31.2 - CERTIFICATION OF CFO OF STANADYNE HOLDINGS, INC. PURSUANT TO SECTION 302 - STANADYNE CORPdex312.htm
EX-31.3 - CERTIFICATION OF CEO OF STANADYNE CORPORATION PURSUANT TO SECTION 302 - STANADYNE CORPdex313.htm
EX-32.1 - CERTIFICATION OF PRESIDENT AND CFO OF STANADYNE HOLDINGS, INC. - STANADYNE CORPdex321.htm
EX-32.2 - CERTIFICATION OF CEO AND CFO OF STANADYNE CORPORATION - STANADYNE CORPdex322.htm
EX-31.1 - CERTIFICATION OF PRESIDENT OF STANADYNE HOLDINGS, INC. PURSUANT TO SECTION 302 - STANADYNE CORPdex311.htm
EX-31.4 - CERTIFICATION OF CFO OF STANADYNE CORPORATION PURSUANT TO SECTION 302 - STANADYNE CORPdex314.htm
Table of Contents

 

 

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

OR

 

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

For the transition period from              to             

 

 

 

Commission

File Number

  

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

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

333-124154

  

Stanadyne Holdings, Inc.

92 Deerfield Road

Windsor, CT 06095

(860) 525-0821

   Delaware    20-1398860

333-45823

  

Stanadyne Corporation

92 Deerfield Road

Windsor, CT 06095

(860) 525-0821

   Delaware    22-2940378

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

 

 

Stanadyne Holdings, Inc.

   Yes     ¨    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.)

 

 

 


Table of Contents

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

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 Note 2 of the unaudited restated condensed consolidated financial statements included at Item 1 of this Amended Filing, primarily related to the following:

 

   

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.

 

-2-


Table of Contents

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.

 

-3-


Table of Contents

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

 

-4-


Table of Contents

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

 

-5-


Table of Contents

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

 

-6-


Table of Contents

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

 

-7-


Table of Contents

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

 

-8-


Table of Contents

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         Shares   Amount        

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

 

-9-


Table of Contents

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

 

-10-


Table of Contents

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

 

-11-


Table of Contents

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

 

-12-


Table of Contents

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-


Table of Contents

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              

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-


Table of Contents

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-


Table of Contents

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-


Table of Contents

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

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 are primarily related to the following:

 

   

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.

 

-17-


Table of Contents

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 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 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-


Table of Contents

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-


Table of Contents

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-


Table of Contents

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-


Table of Contents

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-


Table of Contents

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-


Table of Contents

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-


Table of Contents

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-


Table of Contents

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-


Table of Contents

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-


Table of Contents

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-


Table of Contents

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-


Table of Contents

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-


Table of Contents

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-


Table of Contents

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-


Table of Contents

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-


Table of Contents

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-


Table of Contents

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-


Table of Contents

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-


Table of Contents

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

&