UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10–K


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

For the fiscal year ended December 31, 2013


¨	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

Securities registered pursuant to Section 12(b) or 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.



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

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.



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

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	x	No	¨
Stanadyne Corporation	Yes	x	No	¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required 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	x	No	¨
Stanadyne Corporation	Yes	x	No	¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.



Stanadyne Holdings, Inc.		x
Stanadyne Corporation		x

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 x	Smaller Reporting Company ¨

Stanadyne Corporation	Large Accelerated Filer ¨	Accelerated Filer ¨	Non-Accelerated Filer x	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	x
Stanadyne Corporation	Yes	¨	No	x

As of December 31, 2013, there was no established public trading market for the shares of either of the registrant’s common stock, and no shares of common stock were held by non-affiliates of either registrant.

The number of shares of the registrant’s common stock (only one class for each registrant) outstanding as of March 1, 2014:



Stanadyne Holdings, Inc.		105,652,581 shares
Stanadyne Corporation		1,000 shares (100% owned by Stanadyne Intermediate Holding Corp., a direct and wholly-owned subsidiary of Stanadyne Holdings, Inc.)

DOCUMENTS INCORPORATED BY REFERENCE - None

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STANADYNE HOLDINGS, INC.

STANADYNE CORPORATION

FORM 10-K

TABLE OF CONTENTS



		PAGE
PART I:
ITEM 1.	Business	3
ITEM 1A.	Risk Factors	8
ITEM 1B.	Unresolved Staff Comments	14
ITEM 2.	Properties	14
ITEM 3.	Legal Proceedings	14
ITEM 4.	Mine Safety Disclosures	14
PART II:
ITEM 5.	Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	15
ITEM 6.	Selected Financial Data	16
ITEM 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
ITEM 7A.	Quantitative and Qualitative Disclosures About Market Risk	32
ITEM 8.	Financial Statements and Supplementary Data	33
ITEM 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	38
ITEM 9A.	Controls and Procedures	38
ITEM 9B.	Other Information	39
PART III:
ITEM 10.	Directors, Executive Officers and Corporate Governance	40
ITEM 11.	Executive Compensation	44
ITEM 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	53
ITEM 13.	Certain Relationships and Related Transactions, and Director Independence	55
ITEM 14.	Principal Accountant Fees and Services	56
PART IV:
ITEM 15.	Exhibits and Financial Statement Schedules	57
Signatures		62

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EXPLANATORY NOTES

Presentation

This Form 10-K is a combined annual 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,” the “Companies,” “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 annual 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.

Our SEC filings are also available for reading and copying at the SEC’s Public Reference Room at 100 F Street, NE, Washington, D.C. 20549. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains an Internet site (http://www.sec.gov) containing reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.

PART I


ITEM 1.	BUSINESS

GENERAL

Stanadyne Holdings, Inc. (“Holdings”) owns all of the outstanding common stock of Stanadyne Intermediate Holdings Corp. (“SIHC”). The name of SIHC was changed on July 29, 2009 from Stanadyne Automotive Holding Corp. (“SAHC”). SIHC owns all of the outstanding common stock of Stanadyne Corporation (together with its consolidated subsidiaries, “Stanadyne”). A majority of the outstanding common stock of Holdings is owned by funds managed by Kohlberg Management IV, L.L.C. Collectively, Holdings, SIHC and Stanadyne hereinafter are referred to as the “Company.” Holdings and Stanadyne are separate reporting companies. Holdings is a holding company with no operations beyond those of its indirectly, wholly-owned subsidiary, Stanadyne. Stanadyne is a leading designer and manufacturer of highly engineered, precision manufactured engine components, including fuel injection equipment for diesel and gasoline engines. With over 130 years of machining experience and over 50 years as a supplier of diesel fuel injection equipment, Stanadyne’s core competencies in product design, precision machining, and the assembly and testing of complex components have earned the Company a reputation for innovative, high quality products. The Company possesses an extremely broad range of manufacturing technology and know-how and is capable of high-volume production runs, machining high-quality components within tolerances of 20 millionths of an inch on a cost-effective basis. In addition to designing and manufacturing, the Company manufactures and assembles, on an exclusive contract basis, components designed by other companies.

The Company sells engine components to original equipment manufacturers (“OEMs”) 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 core element of the Company’s operations. The Company sells replacement parts and units through various global channels to service its products, including the service organizations of its OEM customers, its own authorized network of distributors and dealers, and major aftermarket distribution companies.

Stanadyne, a Delaware corporation formed in 1988, is a wholly-owned subsidiary of SIHC, a Delaware corporation formed in 1997. SIHC is a wholly-owned subsidiary of Holdings, a Delaware corporation formed in 2004. A majority of the outstanding equity of Holdings is owned by funds managed by Kohlberg Management IV, L.L.C., an affiliate of Kohlberg and Company L.L.C. (“Kohlberg”). On August 6, 2004, Kohlberg, through a series of transactions (the “Transactions”) purchased the outstanding equity of SIHC from American Industrial Partners Capital Fund II, L.P. (“AIP”) and certain other stockholders (the “Sellers”). AIP had purchased Stanadyne from Metromedia Company (“Metromedia”) on December 11, 1997.

OVERVIEW

Stanadyne is one of only five independent worldwide manufacturers of diesel fuel injection systems selling to the geographic areas in which the Company competes. Net sales for Stanadyne were $267.8 million, $251.5 million and $245.8 million for 2013, 2012 and 2011, respectively. Operating income for Stanadyne was $21.3 million, $22.5 million and $11.0 million for 2013, 2012 and 2011, respectively. Total assets of Stanadyne were $374.8 million, $362.6 million and $368.9 million at December 31, 2013, 2012 and 2011, respectively.

Products. Stanadyne manufactures its own proprietary products including pumps for gasoline engines and diesel engines (up to 250 horsepower, an engine range comprising approximately 90% of all diesel engines produced worldwide), fuel injectors and fuel filtration systems for diesel engines and various non-proprietary products manufactured under contract for other companies. Stanadyne sells its fuel injection products to its customers on an individual component basis or by complete line. The primary

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focus of Stanadyne is the agricultural and industrial off-highway segments of the market, although the increased fuel injection pressures required by some on-highway engines are good applications for Stanadyne technology. Fuel pumps, fuel injectors and fuel filters, Stanadyne’s primary products, are the most highly engineered, precision manufactured components on a diesel engine and comprise the core components of a diesel engine’s fuel system. Because fuel system components are so elemental to the proper functioning and optimal performance of a diesel engine, they are essentially custom engineered for a specific engine platform. As a result, the Company typically supplies these components on a sole source basis for the life of engine platforms and enjoys a leading position in the aftermarket for its products. Stanadyne also manufactures diesel fuel management systems including fuel filters, fuel heaters and water separators, oil pumps and other precision manufactured components and distributes diesel and gasoline fuel conditioners, stabilizers and diesel engine diagnostic equipment. Stanadyne has more recently developed fuel pumps for high pressure gasoline engines for the on-highway market. Due to its competencies in precision manufacturing, assembly and testing of complex products, the Company also manufactures and assembles, on an exclusive contract basis, components designed by other companies.

Customers. Stanadyne’s primary customers are OEMs of diesel and gas engines. Stanadyne’s largest customers, Deere & Company (“Deere”) and General Motors ("GM"), accounted for $128.2 million, or 47.9% of Stanadyne’s 2013 net sales. In 2012, Deere and Cummins, Inc. (“Cummins”) accounted for $118.1 million, or 47.0% of Stanadyne's 2012 net sales. In 2011, Deere, Cummins and Ford Motor Company (“Ford”) accounted for $119.5 million, or 48.6% of Stanadyne’s 2011 net sales. Deere and GM were the only customers that accounted for more than 10% of Stanadyne's net sales in 2013 at 30.2% and 17.7%, respectively. Deere was the only customer that accounted for more than 10% of Stanadyne’s net sales in 2012 and 2011, at 41.4%, and 38.3%, respectively.

Stanadyne supports the servicing of its own products through sales of aftermarket units and parts to the service organizations of its OEM customers, through its own global network of authorized distributors and dealers, and through major aftermarket distribution companies. Total shipments to all service market channels represented 44.6%, 50.2% and 44.8% of Stanadyne’s sales in 2013, 2012 and 2011, respectively.

Joint Venture. The Company has a joint venture with Amalgamations Private Limited in the state of Tamil Nadu, India. The joint venture, named Stanadyne Amalgamations Private Limited (“SAPL”), started manufacturing diesel fuel injection equipment for export markets in the second quarter of 2003. Through additional investment in 2010, Stanadyne’s controlling share increased from 51.0% to 64.9%.

RAW MATERIALS AND COMPONENT PARTS

The Company’s products are made largely of specially designed metal parts, most of which are designed, purchased, cast or stamped and machined by the Company to its own technical specifications. Metallic raw materials such as steel, aluminum, copper and brass are commodity items readily available from a number of suppliers. Certain parts, such as electronic components, are made to the Company’s specifications. Other parts, such as fasteners, are purchased by the Company from outside suppliers as standardized parts or are made to the Company’s specifications. Although from time to time the Company has experienced temporary supply shortages due to localized conditions, no such shortage has had a material adverse effect on the Company, and no supplier accounts for more than 10% of material component purchases.

COMPETITION

Because of the technical expertise required to design and manufacture the Company’s products to the tolerances required, the existence of longstanding supply relationships in the engine component business and the significant capital expenditures and lead time required to enter the business, there are a limited number of manufacturers selling to the global markets in which the Company operates. The Company competes on the basis of technological innovation, product quality, processing and manufacturing capabilities, service support and price. The Company is smaller in size and therefore has fewer resources relative to its competitors.

PATENTS AND TRADEMARKS

The Company relies upon patent, trademark and copyright protection as well as upon unpatented technological know-how and other trade secrets for certain products, components, processes and applications. However, the Company’s operations are not dependent upon any single or related group of patents, copyrights or trademarks or their duration. The patents have remaining durations from less than one year to 18 years. The Company considers its proprietary information important, especially in the maintenance of its competitive position in the aftermarket business, and actively protects its intellectual property rights.

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EMPLOYEES

At December 31, 2013, the Company employed approximately 1,730 people of whom approximately 34% were salaried and 66% were hourly employees. All of the Company’s employees are non-unionized with the exception of those in Stanadyne, S.p.A. (“SpA”). The Company believes its relations with its employees are good.

TECHNOLOGY, RESEARCH AND DEVELOPMENT

Engine manufacturers are required to continually improve engine performance and fuel economy. This often requires improvements in fuel systems technologies. Accordingly, the Company’s research and development investment is significant. In general, the Company funds its own research and development expenses, although some of those expenses may be customer-funded during the pre-production program phase or offset through state incentive programs. Research and development costs incurred for 2013, 2012 and 2011 were $20.1 million, $19.7 million and $18.1 million, respectively, of which $5.5 million, $4.2 million and $4.1 million, respectively, were reimbursed by customers or offset through state incentives.

Once an OEM commits to purchasing a product from the Company, which usually occurs one to three years into the development or application process, the Company may need to make capital expenditures for the machinery, equipment and tooling necessary for engine program launch, ramp-up and production volume increases. Furthermore, given the significant existing investment in plant and equipment, the Company has on-going programs to maintain, upgrade and replace its fixed assets. In 2013, 2012 and 2011, the Company spent $15.7 million, $12.1 million and $5.2 million, respectively, on capital expenditures.

FINANCIAL INFORMATION ABOUT INTERNATIONAL AND DOMESTIC OPERATIONS AND EXPORT SALES

The Company has manufacturing operations in the United States, Italy, India and China. The products manufactured in the United States and Italy are sold within their respective domestic markets, as well as exported throughout the world. These products are sold to both OEM and aftermarket (“Service”) customers. The sales of products manufactured in India are balanced between the local market and export to the European market and Company facilities in the United States and Italy. The products manufactured in China are sold in that domestic market as well as North and South America.

The sales to OEM and Service customers during 2013, 2012 and 2011 were as follows (dollars in millions):



	2013		2012		2011
OEM	$	148.5	$	125.2	$	135.7
Service	119.4		126.3		110.1
Total net sales	$	267.8	$	251.5	$	245.8

Information regarding net sales to geographic areas, operating income from manufacturing facilities in geographic areas and assets by geographic areas for the years ended December 31, 2013, 2012 and 2011 appears below (dollars in millions).



	2013		2012		2011
* Net sales:
United States	$	110.9	$	101.7	$	94.2
Mexico	43.6		33.2		29.9
France	26.8		25.4		26.5
United Kingdom	20.2		20.5		21.4
Italy	16.4		16.2		17.3
India	12.2		19.4		15.6
Germany	10.6		9.5		16.2
All other geographic areas	27.1		25.4		24.7
Total net sales	$	267.8	$	251.5	$	245.8


*	Net sales were the same for Holdings and Stanadyne.

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	2013		2012		2011
Holdings operating income (loss):
United States	$	18.5	$	16.4	$	7.3
Italy	0.9		0.2		2.7
India	—		4.9		1.1
China	1.6		0.7		(0.2		)
Total operating income	$	21.0	$	22.2	$	10.9
Stanadyne operating income (loss):
United States	$	18.8	$	16.7	$	7.4
Italy	0.9		0.2		2.7
India	—		4.9		1.1
China	1.6		0.7		(0.2		)
Total operating income	$	21.3	$	22.5	$	11.0



	December 31, 2013		December 31, 2012
* Long-lived assets:
United States	$	50.1	$	48.6
Italy	11.5		11.8
India	7.6		9.6
China	10.6		9.4
Total long-lived assets	$	79.8	$	79.4


*	Long-lived assets were the same for Holdings and Stanadyne.

The Company’s worldwide operations are subject to the risks normally associated with foreign operations including, but not limited to, the disruption of markets, changes in export or import laws, labor unrest, political instability, restrictions on transfers of funds, unexpected changes in regulatory environments, difficulty obtaining distribution and support, and potentially adverse tax consequences. In addition, even though the Company generally matches, to the extent possible, related costs and revenues in a single currency, and generally includes exchange rate protections in its sales contracts, the U.S. dollar value of the Company’s foreign sales varies with foreign currency exchange rate fluctuations. There can be no assurance that any of the foregoing factors will not have a material adverse effect on the Company.

ENVIRONMENTAL MATTERS

The Company’s facilities are subject to federal, state and local environmental requirements, including those governing discharges to the air and water, the handling and disposal of industrial and hazardous wastes, and the remediation of contamination associated with releases of hazardous substances. The Company operates under various environmental permits and approvals, the violation of which may subject the Company to fines and penalties. There are no known violations of environmental permits or approvals that may have a material adverse effect to the Company’s financial position or results of operations. The Company’s manufacturing operations involve the use of hazardous substances and, if a release of hazardous substances occurs or has occurred on or from the Company’s facilities, the Company may be held liable and may be required to pay the cost of remedying the condition. The amount of any such liability could be material. Pursuant to the terms of the acquisition of the Company on December 11, 1997, Metromedia agreed to conduct and complete remediation of soil and groundwater contamination at the Company’s Windsor, CT and Jacksonville, NC locations. While many of these remediations are underway and Metromedia agreed to complete these remediations and has indemnified the Company with respect to these matters and certain other environmental matters, there can be no assurance that Metromedia has the ability to completely fulfill its obligations to indemnify the Company for such matters. While the Company believes Metromedia will be able to meet its financial obligations, if Metromedia is unable to do so, the Company would be responsible for such matters and the cost could be material. Metromedia’s commitment to indemnify the Company has not changed as a result of the Transactions. See Note 21 of notes to the consolidated financial statements contained in Item 8 of this report.

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DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

This annual report contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including, without limitation, statements with respect to the financial condition, results of operations and business of the Company and management’s discussion and analysis of financial condition and results of operations. Forward-looking statements generally can be identified by the use of forward-looking terminology such as “may,” “will,” “expect,” “intend,” “estimate,” “anticipate,” “believe,” “project,” or “continue” or other similar words. All of these forward-looking statements are based on estimates and assumptions made by the management of the Company which, although believed to be reasonable, are inherently uncertain. Therefore, undue reliance should not be placed upon such estimates and statements. No assurance can be given that any such estimates will be realized, and it is likely that actual results will differ materially from those contemplated by such forward-looking statements.

Factors that may cause such differences include:


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


•	increases in our cost of borrowing or inability or unavailability of additional debt or equity capital, including to refinance our existing debt obligations;


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


•	worldwide political and macro-economic uncertainties and fears;


•	changes in the performance or growth of our customers;


•	changes in technology, manufacturing techniques or customer demands;


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


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


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


•	risks associated with international operations;


•	the loss of key members of management;


•	risk that our intellectual property may be misappropriated;


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


•	loss of any of our key manufacturing facilities.

Many of such factors are beyond the control of the Company and its management. The forward-looking statements contained in this report speak only as of the date on which such statements were made. The Company undertakes no duty or obligation to publicly update or revise any forward-looking statements to reflect new, changing or unanticipated events or circumstances.

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ITEM 1A.	RISK FACTORS

Our consolidated results of operations, financial condition and cash flows can be adversely affected by various risks. These risks include, but are not limited to, the principal factors listed below and the other matters set forth in this Form 10-K.

Our inability to refinance $217.0 million of debt scheduled to mature within 12 months and an additional $100.0 million of debt scheduled to mature within 14 months would have a material adverse effect on the financial position, results of operations and cash flows for both Holdings and Stanadyne.

The Company does not anticipate that current sources of cash will be sufficient to repay debt scheduled to mature beginning on April 30, 2014 and accordingly is evaluating various options aimed at refinancing such amounts prior to their maturity, or restructuring its business and exploring other strategic alternatives in order to address the maturing debt. The Company can provide no assurance that it will be able to discharge the maturing obligations or complete their refinancing or that financing options available will be on favorable or acceptable terms. If the Company were unable to discharge, refinance or replace the maturing debt obligations, it would be in default under the terms of agreements governing that indebtedness, which would result in cross-defaults under its other outstanding indebtedness and would allow the lenders for both Holdings and Stanadyne to exercise their rights and remedies as defined under their respective agreements, including their right to accelerate the repayment of existing indebtedness. Such an acceleration would have a material adverse effect on the financial position, results of operations and cash flows for both Holdings and Stanadyne. Given the conditions and events described above and the current uncertainty relating to the refinancing or other strategic options, management has concluded that there is substantial doubt about the Company's ability to continue as a going concern, and the accompanying Reports of Independent Registered Public Accounting Firm contain an explanatory paragraph describing the existence of substantial doubt about the Company's ability to continue as a going concern.

We are highly leveraged, and such leverage could adversely affect our ability to fulfill our debt obligations and may place us at a competitive disadvantage in our industry.

We are highly leveraged, and such leverage may have negative consequences since we must dedicate a substantial portion of our cash flow to debt service. Our significant leverage may:


•	increase our vulnerability to adverse changes in general economic, industry and competitive conditions;


•	require us to dedicate a substantial portion of our cash flows from operations to payments on our debt, thereby reducing the availability of our cash flows to fund working capital, capital expenditures, product development efforts, and other general operating requirements;


•	restrict us from pursuing business opportunities; and


•	place us at a competitive disadvantage compared to competitors that have less debt.

Our business may not generate cash flow in an amount sufficient to enable us to pay the principal of, or interest on, our indebtedness. If we cannot fund our liquidity needs, we will have to take actions such as reducing or delaying capital expenditures and product development efforts; reducing headcount, selling assets; restructuring or refinancing our debt; seeking additional equity capital or restructuring our business. Such actions could further negatively impact our ability to generate cash flows. We cannot assure you that any of these actions could, if necessary, be effected on commercially reasonable terms, or at all, or that they would permit us to meet our scheduled debt service obligations. Certain of our debt agreements limit the use of the proceeds from any disposition of assets, and, as a result, we may not be allowed, under those agreements, to use the proceeds from such dispositions to satisfy all current debt service obligations. Our current debt agreements limit our ability to incur additional indebtedness, so our ability to borrow additional money may be limited by our debt holders or by conditions in the credit markets. In addition, if we incur additional debt, the risks associated with our substantial leverage, including the risk that we will be unable to service our debt or generate enough cash flow to fund our liquidity needs, could intensify.

Holdings is solely responsible for paying certain promissory notes it issued and since it has no independent operations and its subsidiaries are restricted up to a certain limit from making distributions to Holdings, Holdings may be unable to repay the notes.

On December 20, 2004, Holdings issued $100 million of senior discount notes (the “Discount Notes”) due in 2015. The Discount Notes bear interest at a stated annual rate of 12.0%. The Discount Notes are unsecured senior obligations of Holdings and are subordinated to all existing and future senior indebtedness. The Discount Notes are not guaranteed by any of Holdings’ subsidiaries and are effectively subordinated to all of Stanadyne’s secured debt. Holdings has no independent financial resources of its own. The indenture governing Stanadyne’s senior subordinated notes limits the amount of dividends that can be paid to an amount calculated under a Restricted Payments Basket (as defined by the terms of the indenture) (“RP Basket”). Holdings relies on dividends from SIHC which are received from Stanadyne to make semi-annual interest payments on its senior discount notes. Failure to make these interest payments would result in an event of default under the terms of the senior discount notes. Kohlberg

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has advised Holdings that it will provide financial assistance to Holdings, to the extent necessary, in meeting the semi-annual interest payments. Such assistance was provided in August, 2013 and again in February, 2014. Should Kohlberg be unable to provide this financial assistance to Holdings and the amounts available in the RP Basket not be sufficient to allow dividends from SIHC which are received from Stanadyne to pay the interest on Holdings senior discount notes, an event of default would occur.

We are subject to worldwide economic cycles.

Worldwide economic cycles affect the markets that the Company’s business serve and could affect demand for the Company’s products and impact profitability. Among other factors, disruptions in the global credit and financial markets, including diminished liquidity and credit availability, swings in consumer confidence and spending, unstable economic growth and fluctuations in unemployment rates could cause further economic instability and could have a negative impact on the Company’s results of operations, financial condition and liquidity and make it difficult to accurately forecast and plan future business activities. Demand for the Company’s products may be affected by continued uncertainty regarding the overall economic outlook for both U.S. and non-U.S. economies.

The industries in which we operate are cyclical, which can make our sales vary in unpredictable ways.

Sales of our products to off-highway OEMs for use in the agricultural industry generally are related to the health of the agricultural industry, which is affected by farm income and debt levels, farm land values, and farm cash receipts, all of which reflect levels of commodity prices, acreage planted, crop yields, demand, government policies and government subsidies. Historically, the agricultural industry has been cyclical and subject to a variety of economic factors, governmental regulations and legislation, and weather conditions. Trends in the industry, such as farm consolidations, may also affect the sales of products for use in the agricultural industry. In addition, weather conditions, such as heat waves or droughts, and pervasive livestock diseases can affect farmers’ buying decisions. Downturns in the agricultural industry due to these and other factors are likely to decrease the sales of products to off-highway OEMs for use in the agricultural industry, which could adversely affect our sales, growth, results of operations and financial condition.

In addition, our financial performance depends, to a lesser extent, on conditions in the other cyclical industries that we serve, including the domestic and foreign production of automobiles and light duty vehicles. Historically, the North American and European automotive industries have experienced periodic, cyclical downturns. A substantial decrease in demand for such engine platforms could have a material adverse effect on us.

We are subject to risks associated with changes in technology, changes in manufacturing techniques and changes in customer product demands or specifications, which could place us at a competitive disadvantage.

The successful implementation of our business strategy requires us to continuously evolve our existing technology, manufacturing processes and products. We must also introduce new products to meet customers’ needs in the industries we serve and want to serve. The demanding requirements of engine manufacturers to improve engine performance and fuel economy and to meet the increasingly stringent worldwide emission regulations create technical challenges that may necessitate technological changes to our products. Our engineers typically work with our customers’ engineering staff for a period of two to five years prior to a product launch in order to develop or adapt new technology to satisfy our customers’ requirements. Our inability to develop the requisite technology in the necessary timeframe could adversely affect our business.

Our products are also characterized by stringent performance and specification requirements that mandate a high degree of manufacturing and engineering expertise. If we fail to meet these specification requirements, we could be subject to significant product warranty expenses that could place our business at risk.

Our success will depend on our ability to continue to meet our customers’ changing specifications and product demands. We cannot assure that we will be able to address our customers’ demands or introduce new products that may be necessary to remain competitive within our businesses. Furthermore, we cannot assure that we can adequately protect any of our own technological developments to produce a sustainable competitive advantage.

Our base of customers is concentrated, and the loss of business from a major customer or the failure to maintain our customer relationships could materially adversely affect us.

Because of the relative importance of our largest customers and the high degree of concentration with OEMs in the on-highway and off-highway markets, our business is exposed to a high degree of risk related to customer concentration. Our top five customers represented 60.5% of net sales in 2013. None of our top customers are obligated to continue to produce the engines which require our products or renew contracts with us when they expire. A substantial decrease in orders from any of our large customers could have a material adverse effect on us. Even if we maintain our relationships, net sales concentration as a result of these relationships increases the potential impact to our business that could result from any changes in the economic terms of that relationship. Any

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change in our relationships could have a material impact on our financial position and results of operations. Any changes could, for example, result in decreased sales. Relationships with our customers for the development of new products are also important, and our net sales will be significantly diminished if we fail to maintain these prospective development relationships. In addition, because our customer base is highly concentrated and the maintenance of these relationships is of significant importance to us, from time to time we may find it necessary to allow price reductions as to certain of our products. If we were unable to reach agreement on pricing with one or more of our major customers, or if we were forced to accept an economic arrangement in which pricing was materially lower than in our past experience, our sales and profitability would be materially harmed.

We face competition in our markets, which could hurt market share and sales.

While there are a limited number of competitors, including the captive component operations of certain engine manufacturers as well as other independent suppliers, most are larger and have greater financial and other resources available to them. Our products may not continue to compete successfully with the products of other companies, and engine manufacturers may not continue to purchase engine components from outside suppliers. Although we have significant market positions in each of our primary lines within the aftermarket, we may not be able to maintain our current market share. Competition in our business lines is based on a number of considerations, including product performance, quality of client service and support, timely delivery and price. To remain competitive, we will need to invest continuously in manufacturing operations, working capital, customer service and support, marketing and distribution networks. We may not have sufficient resources to continue to make such investments, and we may not be able to maintain our competitive position within each of the markets we serve.

Increases in our raw material costs or the loss of a substantial number of our suppliers could adversely affect our financial health.

Our business is subject to the risk of price fluctuations and periodic delays in the delivery of certain raw materials, including steel and aluminum. For example, the domestic steel industry has experienced substantial financial instability due to numerous factors, including energy costs and the effect of foreign competition. In addition, the recent general global economic downturn, or a deterioration in the global economy, may create an imbalance in the supply and demand for many of the purchased components and raw materials used. Any material long-term increase in the price of one or more of our raw materials could have an adverse impact on our cost of sales. In addition, a failure by our suppliers to continue to supply us with certain raw materials on commercially reasonable terms due to uneven supply and demand could have a material adverse effect on us. Our exposure to this risk will increase as our reliance on outside suppliers’ increases, as is the case in our recent actions to outsource certain manufacturing operations to achieve cost reductions.

Our international operations are subject to uncertainties that could adversely affect our operating results.

Our business is subject to certain risks associated with doing business internationally. Approximately 58.6% of our net sales in 2013 were derived from products sold outside of the United States. In addition, we operate three manufacturing facilities outside of the United States. Accordingly, our future results could be harmed by a variety of factors associated with foreign operations, including:


•	disruptions of markets;


•	changes in export or import laws, including compliance with U.S. Department of Commerce export controls;


•	labor unrest or differing labor regulations;


•	geopolitical instability;


•	restrictions on transfers of funds, including exchange controls;


•	unexpected changes in regulatory environments;


•	difficulty in obtaining distribution and support;


•	interest rates;


•	restrictions on our ability to own or operate subsidiaries, make investments or acquire new businesses in these jurisdictions;


•	restrictions on our ability to repatriate dividends from our subsidiaries; and


•	exposure to liabilities under the U.S. Foreign Corrupt Practices Act.

In addition, fluctuations in currency exchange rates may significantly impact our results of operations and affect the comparability of our results between financial periods. Because the results of the operations and the financial position of our foreign subsidiaries are reported in the relevant foreign currencies and then translated into U.S. dollars at the applicable exchange rates for inclusion in our consolidated financial statements, our financial results are impacted by currency fluctuations between the dollar and the

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euro, the dollar and the Chinese yuan, the dollar and the Indian rupee and, to a lesser extent, other currencies which are unrelated to our underlying results of operations. We have not entered into contracts to hedge our currency risk.

As we continue to expand our business globally, we will also be faced with the operational challenges of managing a significant portion of our business at great distances from our corporate headquarters, hiring talented local employees with the skills necessary to support an international business, indoctrinating international employees regarding Company policies and procedures, and integrating our core infrastructure, including our accounting systems and software. Our success will depend, in large part, on our ability to anticipate and effectively manage these and other risks associated with our international operations. However, any of the factors identified above could adversely affect our international operations and, consequently, our operating results.

We have significant pension obligations with respect to our employees.

A portion of our active and retired employees participate in defined benefit plans. As of December 31, 2013, the fair value of assets of our pension plan was less than the projected benefit obligation of the plan. The Company is obligated to provide the required levels of benefits regardless of the value of the underlying assets, if any, of the applicable defined benefit plans. These underlying assets are subject to investment risk and market fluctuation which may require additional cash contributions from us to pay benefits which could have an adverse material impact on our ability to generate sufficient cash to invest in the growth of the business.

Unionization of our labor force could increase our operating costs and impact profitability.

Because our workforce is non-unionized, except where required by law (Italy), we believe our average labor costs are lower than those of larger unionized competitors. In order to achieve our business strategies, we must maintain this competitive advantage. If our employees become unionized, labor costs, and consequently, operating expenses, would likely increase, thereby reducing profitability.

We depend on the services of key individuals and relationships, the loss of which would materially harm us.

Our success will depend, in part, on the efforts of our executive officers and other key employees. In addition, future success will depend on, among other factors, the ability to attract and retain other qualified personnel. The loss of the services of any of the key employees or the failure to attract or retain employees could have a material adverse effect on us.

Our intellectual property may be misappropriated or subject to claims of infringement.

We attempt to protect our intellectual property rights through a combination of patent, trademark, copyright and trade secret protection, as well as licensing agreements and third-party nondisclosure and invention assignment agreements. Our applications for protection of our intellectual property rights may not be approved and others may infringe or challenge our intellectual property rights. We also may rely on unpatented proprietary technology. Our competitors may independently develop the same or similar technology or otherwise obtain access to our unpatented technology. To protect our trade secrets and other proprietary information, our employees, consultants and advisors must enter into confidentiality agreements. These agreements may not provide meaningful protection for our trade secrets, know-how or other proprietary information if there is any unauthorized use, misappropriation or disclosure. In addition, we from time to time pursue and are pursued in potential litigation relating to the protection of certain intellectual property rights, including with respect to some of our more profitable products. If we are unable to maintain the proprietary nature of our technologies, our ability to sustain margins on some or all of our products may be affected, which could reduce our sales and profitability.

We could face potential product liability claims relating to products we manufacture or distribute.

We face exposure to product liability claims if the use of our products is alleged to have resulted in injury or other adverse effects. We currently maintain product liability insurance coverage, but we may not be able to obtain such insurance on acceptable terms in the future, if at all, and any such insurance may not provide adequate coverage against potential claims. Product liability claims can be expensive to defend and can divert the attention of management and other personnel for long periods of time, regardless of the ultimate outcome. An unsuccessful product liability defense could have a material adverse effect on our business, financial condition, results of operations or our ability to make payments on our obligations when due. In addition, our business depends on the strong brand reputation we have developed. If this reputation is damaged, we may face difficulty in maintaining pricing positions with respect to some of our products, which would reduce net sales and profitability.

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We may have exposure to additional tax liabilities which could have a material impact on our results of operations and financial position.

As a company with international operations, we are subject to income taxes, as well as non-income based taxes, in both the United States and various foreign jurisdictions. Significant judgment is required in determining our worldwide tax liabilities. Although we believe our estimates are reasonable, the ultimate outcome with respect to the taxes we owe may differ from the amounts recorded in our financial statements. If the Internal Revenue Service, or other taxing authority, disagrees with the positions we take, we could have additional tax liability, and this could have a material impact on our results of operations and financial position. Our effective tax rate could be adversely affected by changes in the mix of earnings in countries with different statutory tax rates, changes in the valuation of deferred tax assets and liabilities, changes in tax laws and regulations, changes in interpretations of tax laws, including pending tax law changes, changes in our manufacturing activities and changes in our future levels of research and development spending. In addition, the United States government and other governments are considering and may adopt tax reform measures that significantly increase our worldwide tax liabilities. There are several proposals under consideration in the United States to reform tax law, including proposals that may reduce or eliminate the deferral of U.S. income tax on our unrepatriated foreign earnings. A significant change to U.S. tax policy, such as a change to the taxation of income earned outside the United States, could have a material and adverse effect on our business, financial condition and results of operations.

Our insurance coverage may be inadequate to protect against the potential hazards incident to our business.

We maintain property, business interruption, product liability and casualty insurance coverage which we believe is in accordance with customary industry practices, but we cannot be fully insured against all potential hazards incident to our business, including losses resulting from war risks or terrorist acts. A catastrophic loss of the use of all or a portion of our facilities due to accident, labor issues, weather conditions, other natural disaster or otherwise, whether short or long-term, could have a material adverse effect. As a result of market conditions, premiums and deductibles for some of our insurance policies can increase substantially and, in some instances, some types of insurance may become available only for reduced amounts of coverage, if at all. In addition, our insurers may challenge coverage for certain claims. If we were to incur a significant liability that was not fully insured or that our insurers disputed, it could have a material adverse effect on our financial position, results of operations and cash flow.

Environmental regulation may impose significant environmental compliance costs and liabilities on us.

We are subject to many laws and regulations related to the environment, health and safety and associated compliance and permitting obligations. We have incurred and expect to continue to incur significant costs to maintain or achieve compliance with applicable environmental laws and regulations. Moreover, if these environmental laws and regulations become more stringent or more stringently enforced in the future, we could incur additional costs. Our failure to comply with applicable environmental laws and regulations and permit requirements could result in civil or criminal fines, penalties or enforcement actions, third-party claims for property damage and personal injury, requirements to clean up property or to pay for the costs of cleanup or regulatory or judicial orders enjoining or curtailing operations or requiring corrective measures, including the installation of pollution control equipment or remedial actions. Some environmental laws and regulations impose liability for contamination on present and former owners, operators or users of facilities and sites, or the generators of waste disposed of at the facility or site, without regard to causation or knowledge of contamination. There is ongoing remediation at our properties in Connecticut and North Carolina, and we have been named as a potentially responsible party at certain other sites. However, we believe that nearly all of our liabilities for such matters are covered by an indemnity that we received from Metromedia, our former owner. If Metromedia was unable or unwilling to perform to the terms of the indemnity, or should new contamination be identified, or if the extent of the known contamination is greater than presently anticipated, environmental liabilities could have a material adverse effect on our financial condition and results of operations.

In addition, our products are applied to engines and vehicles which are subject to various emission standards and regulations which vary by geographic market. We continually seek to incorporate new design features into our products to assist customers in meeting those emissions standards and regulations applicable to their product offerings, including engines and vehicles. Although a plan to revise an existing emission standard or regulation is generally known by the public a few years in advance of enforcement, providing the opportunity to make changes to products in order to comply with the anticipated changes to the emissions standard or regulation, any subsequent changes to such plan could have a direct and significant effect on our customers’ ability to sell their products, and correspondingly, our ability to sell products to such customers.

If we are unable to meet future capital investment requirements, our business may be adversely affected.

We periodically make capital investments to, among other things, launch new products, maintain and upgrade our facilities and enhance our production processes. Additionally, as our business grows, we may have to incur capital expenditures to increase capacity. We may also incur significant capital expenditures to make changes to products in order to comply with evolving emissions standards and regulations. However, we may not have or be able to obtain adequate funds to make all necessary capital expenditures when required, or the amount of future capital expenditures may be materially in excess of our anticipated or current expenditures.

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If we are unable to make necessary capital expenditures, our product line may become dated, our productivity may be decreased and the quality of our products may be adversely affected, which, in turn, could reduce net sales and profitability.

Compliance with changing corporate governance regulations and public disclosures may result in additional risks and exposure.

Changing laws, regulations and standards relating to corporate governance and public disclosure, including new regulations from the SEC, are creating uncertainty for public companies such as ours. These laws, regulations, and standards are subject to varying interpretations in many cases and as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies, which could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. Our efforts to comply with evolving laws, regulations, and standards have resulted in, and are likely to continue to result in, increased selling, general, and administrative expenses and an increase of our management’s time and attention.

New regulations related to conflict minerals could adversely impact our business.

The Dodd-Frank Wall Street Reform and Consumer Protection Act contains provisions to improve transparency and accountability concerning the supply of certain minerals, known as conflict minerals, originating from the Democratic Republic of Congo (DRC) and adjoining countries. As a result, in August 2012, the SEC adopted annual disclosure and reporting requirements for those companies who use conflict minerals mined from the DRC and adjoining countries in their products. These new requirements required due diligence efforts in fiscal 2013, with initial disclosure requirements beginning in May 2014. There will be costs associated with complying with these disclosure requirements, including for diligence to determine the sources of conflict minerals used in our products and other potential changes to products, processes or sources of supply as a consequence of such verification activities. The implementation of these rules could adversely affect the sourcing, supply and pricing of materials used in our products. As there may be only a limited number of suppliers offering “conflict-free” conflict minerals, we cannot be sure that we will be able to obtain necessary conflict minerals from such suppliers in sufficient quantities or at competitive prices. Also, we may face reputational challenges if we determine that certain of our products contain minerals not determined to be conflict free or if we are unable to sufficiently verify the origins for all conflict minerals used in our products through the procedures we may implement.

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ITEM 1B.	UNRESOLVED STAFF COMMENTS

Not applicable.


ITEM 2.	PROPERTIES

The Company’s executive offices are located in Windsor, Connecticut. The Company believes that substantially all of its properties and equipment are in good condition, and that it has sufficient capacity to meet its current and projected manufacturing and distribution needs.

Below is a summary of the existing facilities:



Location	Square Footage	Type of Interest	Principal Use
Windsor, CT	642,000	Owned	Corporate Offices, Engineering Center, Manufacturing, Sales and Marketing
Jacksonville, NC	111,000	Owned	Manufacturing
	20,000	Leased	Manufacturing, Distribution
Washington, NC	180,000	Owned	Manufacturing
Brescia, Italy	180,000	Owned	Manufacturing, Engineering, Sales and Marketing
Chennai, India	208,000	Leased	Manufacturing, Engineering, Sales and Marketing
Changshu, China	140,000	Leased	Manufacturing, Engineering, Sales and Marketing


ITEM 3.	LEGAL PROCEEDINGS

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 materially adverse effect on the Company’s consolidated financial position or results of operations.

The Company is subject to potential environmental liability and various claims and legal actions, which are pending or may be asserted against the Company concerning environmental matters. 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 materially adverse effects on the results of operations, financial position or cash flows of the Company. In conjunction with the acquisition of the Company on December 11, 1997, Metromedia agreed to partially indemnify the Company relating to certain environmental matters. See “Environmental Matters” in Item 1 of this report.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

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PART II


ITEM 5.	MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

As of March 1, 2014, SIHC was the holder of record of all the outstanding shares of common stock, par value, $0.01 per share, of Stanadyne (the “Stanadyne Common Stock”). Also as of March 1, 2014, Holdings was the holder of record of all the outstanding shares of common stock, par value, $0.01 per share, of SIHC (the “SIHC Common Stock”). There is no established trading market for the Stanadyne Common Stock or the SIHC Common Stock. Stanadyne is restricted in the amount of dividends it can pay under the covenants of its subordinated note indenture and revolving credit agreements. Stanadyne does not have any compensation plans under which its equity securities are authorized for issuance.

As of March 1, 2014, Holdings is authorized by its Certificate of Incorporation to issue 150,000,000 shares of common stock, par value $0.01 per share (“Holdings Common Stock”), of which 105,652,581 shares were outstanding. Holdings is restricted from paying dividends under the covenants of its Discount Notes indenture. A group of investors led by Kohlberg and current and retired members of management of the Company, totaling 32 holders, own substantially all of Holdings Common Stock. There is no established trading market for Holdings Common Stock.

Stanadyne has paid a cash dividend to SIHC which in turn paid a dividend to Holdings in order for Holdings to service its debt. The dividend was in compliance with the terms of the U.S. Revolver and the indenture governing the Notes. Stanadyne would expect to continue to pay dividends used to service Holdings’ debt to the extent permitted by the terms of the U.S. Revolver and the indenture governing the Notes. Holdings does not regularly pay or declare cash dividends.

Holdings created the 2004 Equity Incentive Plan (“Option Plan”), which provides for the grant of non-qualified stock options to certain key employees and/or directors of the Company. The following table sets forth information regarding the Option Plan as of December 31, 2013. Holdings’ stockholder-approved Option Plan is described further in Note 16 of the Notes to Consolidated Financial Statements contained in Item 8 of this Report.



Plan category	Number of securities to be issued upon exercise of outstanding options, warrants and rights (a)		Weighted-average exercise price of outstanding options, warrants and rights (b)		Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c)
Equity compensation plans approved by security holders	11,303,750		$	0.49	3,953,670
Equity compensation plans not approved by security holders	875,000		0.47		—
Total	12,178,750	⁽¹⁾	$	0.49	3,953,670


(1)	Consists of 3,883,750 vested outstanding exercisable options and 8,295,000 unvested outstanding options.

On September 30, 2013, in connection with the retirement of Stanadyne's former President and CEO, M. David Jones, previously issued unvested options to purchase 3,375,000 shares were cancelled in accordance with the Option Plan. In addition, the Company extended the expiration date of Mr. Jones' vested options to purchase 875,000 shares through March 30, 2016 and granted to Mr. Jones stock options to purchase 875,000 shares of Holdings common stock at an exercise price of $0.47 per share in substitution of a portion of previously issued unvested options, which terminated upon his retirement. These new stock options were issued outside of the Company's Option Plan, were fully vested at grant, and are exercisable only upon a change of control. Their exercise price of $0.47 per share is the same as the exercise price of his previous options.

In claiming the exemption under Section 4(a)(2) with respect to grant of the option described above, Holdings relied in part on the following facts: (1) the offers and sales involved one employee; (2) the employee has access to information regarding Holdings and Stanadyne; (3) the employee represented that he (a) had the requisite knowledge and experience in financial and business matters to evaluate the merits and risk of an investment in Holdings; (b) was able to bear the economic risk of an investment in Holdings; (c) acquired the shares for his own account in a transaction not involving any general solicitation or general advertising, and not with a view to the distribution thereof; and (4) a restrictive legend was placed on each certificate or other instrument evidencing the shares and options.

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ITEM 6.	SELECTED FINANCIAL DATA

The following table sets forth selected consolidated historical financial and operating data of the Company and its subsidiaries for the five years ended December 31, 2013. The selected consolidated financial data were derived from the consolidated financial statements of the Company for the years ended December 31, 2013, 2012, 2011, 2010 and 2009. The data presented below should be read in conjunction with the Company’s consolidated financial statements and the related footnotes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” (dollars in thousands)



		Year Ended			Year Ended			Year Ended			Year Ended			Year Ended
		December 31, 2013			December 31, 2012			December 31, 2011			December 31, 2010			December 31, 2009
STANADYNE HOLDINGS, INC.

Statement of Operations Data:
Net sales		$	267,831		$	251,459		$	245,761		$	250,593		$	185,848
Cost of goods sold		206,623			182,682			187,459			177,380			139,031
Gross profit		61,208			68,777			58,302			73,213			46,817
Selling, general and administrative expenses		40,163			46,591			47,386			52,361			37,760
Goodwill impairment	(a)	—			—			—			—			6,547
Operating income		21,045			22,186			10,916			20,852			2,510
Interest expense and other, net		34,924			33,167			32,100			30,800			29,726
Loss before income tax (benefit) expense		(13,879		)	(10,981		)	(21,184		)	(9,948		)	(27,216		)
Income tax (benefit) expense	(b)	(5,045		)	524			11,316			38			(3,510		)
Net loss from continuing operations		(8,834		)	(11,505		)	(32,500		)	(9,986		)	(23,706		)
Non-controlling interest in loss (income) of consolidated subsidiary		402			(1,218		)	334			1,508			886
Loss from continuing operations attributable to stockholders		$	(8,432	)	$	(12,723	)	$	(32,166	)	$	(8,478	)	$	(22,820	)
Balance Sheet Data (at year end):
Property, plant and equipment, net		$	79,786		$	79,391		$	74,528		$	80,023		$	78,860
Total assets		374,875			362,471			366,906			382,072			378,828
Long-term debt and capital leases (including current portion)		327,561			301,690			285,851			276,984			267,497
Total (deficit) equity		(57,809		)	(64,156		)	(47,319		)	1,245			13,713
Ratio of earnings to fixed charges (See Exhibit 12)		(c)			(c)			(c)			(c)			(c)


(a)	In the fourth quarter of 2009, the Company recorded a goodwill impairment charge of $6.5 million related to its Stanadyne, SpA reporting unit.

(b)

In 2007, the Company recorded a $4.0 million valuation allowance on certain deferred tax assets at its wholly owned subsidiary, Stanadyne, SpA and in 2011 reversed $1.9 million of the valuation allowance related to current year utilization of net operating losses and the passage of new tax legislation in Italy. Also in 2011, the Company recorded a $19.1 million valuation allowance at Stanadyne Holdings, Inc. and in 2013, recorded a valuation allowance $13.7 million at Stanadyne Corporation. Refer to Note 14 of the Consolidated Financial Statements included at Item 8 of this Annual Report for additional information.


(c)	In 2013, 2012, 2011, 2010 and 2009 ratios are not presented as such amounts were lower than 1.0. The deficiency of earnings at Stanadyne Holdings, Inc. was $13,879, $10,981, $21,184, $9,948 and $27,216 during the years ended December 31, 2013, 2012, 2011, 2010 and 2009, respectively.

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		Year Ended			Year Ended			Year Ended			Year Ended			Year Ended
		December 31, 2013			December 31, 2012			December 31, 2011			December 31, 2010			December 31, 2009
STANADYNE CORPORATION

Statement of Operations Data:
Net sales		$	267,831		$	251,459		$	245,761		$	250,593		$	185,848
Cost of goods sold		206,623			182,682			187,459			177,380			139,031
Gross profit		61,208			68,777			58,302			73,213			46,817
Selling, general and administrative expenses		39,927			46,290			47,278			52,303			37,700
Goodwill impairment	(a)	—			—			—			—			6,547
Operating income		21,281			22,487			11,024			20,910			2,570
Interest expense and other, net		22,388			20,907			19,840			18,539			17,973
(Loss) income before income tax expense (benefit)		(1,107		)	1,580			(8,816		)	2,371			(15,403		)
Income tax expense (benefit)	(b)	10,796			68			(4,260		)	3,300			(204		)
Net (loss) income from continuing operations		(11,903		)	1,512			(4,556		)	(929		)	(15,199		)
Non-controlling interest in loss (income) of consolidated subsidiary		402			(1,218		)	334			1,508			886
(Loss) income from continuing operations attributable to stockholder		$	(11,501	)	$	294		$	(4,222	)	$	579		$	(14,313	)
Balance Sheet Data (at year end):
Property, plant and equipment, net		$	79,786		$	79,391		$	74,528		$	80,023		$	78,860
Total assets		374,825			362,587			368,913			380,998			377,494
Long-term debt and capital leases (including current portion)		221,561			201,690			185,851			176,984			167,496
Total equity		50,446			47,836			61,824			88,141			103,495
Ratio of earnings to fixed charges (See Exhibit 12)		(c)			1.1			(c)			1.1			(c)


(a)	In the fourth quarter of 2009, the Company recorded a goodwill impairment charge of $6.5 million related to its Stanadyne, SpA reporting unit.

(b)

In 2007, the Company recorded a $4.0 million valuation allowance on certain deferred tax assets at its wholly owned subsidiary, Stanadyne, SpA and in 2011 reversed $1.9 million of the valuation allowance related to current year utilization of net operating losses and the passage of new tax legislation in Italy. In 2013, the Company recorded a valuation allowance $13.7 million at Stanadyne Corporation. Refer to Note 14 of the Consolidated Financial Statements included at Item 8 of this Annual Report for additional information.


(c)	In 2013, 2011 and 2009, the ratios are not presented as such amounts were lower than 1.0. The deficiency of earnings at Stanadyne Corporation was $1,107, $8,816 and $15,404 during the year ended December 31, 2013, 2011 and 2009, respectively.

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ITEM 7.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following tables display performance details for the periods shown (dollars in thousands).



	Year Ended December 31,
	2013				2012				2011
	$		%		$		%		$		%
STANADYNE HOLDINGS, INC.
Net sales	267,831		100.0	%	251,459		100.0	%	245,761		100.0	%
Cost of goods sold	206,623		77.1	%	182,682		72.6	%	187,459		76.3	%
Gross profit	61,208		22.9	%	68,777		27.4	%	58,302		23.7	%
Selling, general and administrative expenses	37,347		13.9	%	43,212		17.2	%	43,692		17.8	%
Amortization of intangibles	2,816		1.1	%	2,816		1.1	%	2,944		1.2	%
Management fees	—		—	%	563		0.2	%	750		0.3	%
Operating income	21,045		7.9	%	22,186		8.8	%	10,916		4.4	%
Net loss attributable to stockholders	(8,432	)	(3.1	)%	(12,723	)	(5.1	)%	(32,166	)	(13.1	)%



	Year Ended December 31,
	2013				2012			2011
	$		%		$	%		$		%
STANADYNE CORPORATION
Net sales	267,831		100.0	%	251,459	100.0	%	245,761		100.0	%
Cost of goods sold	206,623		77.1	%	182,682	72.6	%	187,459		76.3	%
Gross profit	61,208		22.9	%	68,777	27.4	%	58,302		23.7	%
Selling, general and administrative expenses	37,111		13.9	%	42,911	17.1	%	43,584		17.7	%
Amortization of intangibles	2,816		1.1	%	2,816	1.1	%	2,944		1.2	%
Management fees	—		—	%	563	0.2	%	750		0.3	%
Operating income	21,281		7.9	%	22,487	8.9	%	11,024		4.5	%
Net (loss) income attributable to stockholder	(11,501	)	(4.3	)%	294	0.1	%	(4,222	)	(1.7	)%

COMPARISON OF RESULTS OF OPERATIONS

Overview

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

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

Our business in 2013 continued to grow and respond to changes in the global markets for our products. New product development of high-pressure diesel and gasoline fuel system components, as well as diesel fuel filtration products, will provide the latest technology fuel systems to our customers. Robert Isaman was appointed the new President and Chief Executive Officer of Stanadyne and President of Holdings on September 30, 2013, replacing M. David Jones who retired from Stanadyne and Holdings. Mr. Isaman brings strong leadership, technical knowledge and extensive experience in various manufacturing industries, including heavy machinery, and in developing global specialty businesses.

Business conditions in the first half of 2013 slowly recovered from the lower levels of customer demand experienced in late 2012 that were influenced by economic recession in Europe, drought conditions in certain areas of the world and slowing economies in China and India. The year was highlighted by the first quarter launch of our high-pressure gasoline fuel pump sold to General

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Motors ("GM"). This pump is part of GM's gasoline direct injection fuel system technology that powers their pick-up truck and sport-utility vehicles. Production of the pump for GM in our Jacksonville, North Carolina facility reached mature levels in the third quarter and sales of the pump for the year totaled $47.3 million.

Sales by Category

(dollars in millions)



	OEM Sales		%		Service Sales			%		Total Sales		%
Twelve months ended December 31, 2012	$	125.2	49.8	%	$	126.3		50.2	%	$	251.5	100.0	%
Twelve months ended December 31, 2013	148.5		55.4	%	119.4			44.6	%	267.8		100.0	%
Change	$	23.3	18.6	%	$	(6.9	)	(5.5	)%	$	16.4	6.5	%

Sales in 2013 grew to $267.8 million, reflecting an increase of $16.4 million or 6.5% when compared to sales in 2012. This increase was driven by sales of our new high pressure gasoline fuel pump to GM and higher demand for our fuel filter products, partially offset by continued sluggish demand for our diesel fuel pumps. Sales to the Original Equipment Manufacturers ("OEMs") increased by $23.3 million and 18.6%, primarily reflecting the successful launch of the GM gas pump business, partially offset by lower sales of diesel pump and injector products. Demand for our military-style pumps sold to General Engine Products ("GEP") for use on the HUMMWV totaled less than $2.0 million in 2013. Sales to the Service channels in 2013 decreased by 5.5% from 2012 levels, due entirely to $7.9 million lower sales to our distributor network, in part reflecting that $3.2 million of sales in 2012 represented past due orders that had accumulated in 2011 during our manufacturing reorganization.

Stanadyne's operating income in 2013 was $21.3 million and 7.9% of sales, representing a decrease of $1.2 million from 2012. This decrease resulted from $7.6 million lower gross profit in 2013, offset by $5.8 million in lower SG&A costs and $0.6 million lower management fees. Gross profit in 2013 was negatively impacted by $4.3 million of first-year manufacturing inefficiencies associated with the GM gas pump production launch and $2.9 million of accelerated depreciation expense in the first quarter of the year that related to consolidation of the remaining operations at the Company's Windsor, Connecticut site. The quarterly operating income trended favorably in 2013, and management has targeted specific areas of the business for further cost reductions in 2014.

Liquidity remained sufficient to fund operations and support new product development in 2013, with cash on hand as of December 31, 2013 totaling $2.3 million primarily in our international locations and availability under the U.S.-based revolving credit facility of $29.7 million. Stanadyne's cash flows from operations in 2013 decreased by $11.1 million compared to 2012, driven by higher working capital requirements during the year for increased accounts receivable and inventory in support of the growing gasoline pump business. To ensure sufficient liquidity during the new product launch, in February 2013, the Company amended the terms of the U.S. Revolver to increase the overall facility by $5.0 million and entered into a $25.0 million term loan agreement with Jefferies Finance, LLC.

However, the Company does not anticipate that current sources of cash will be sufficient to repay the $25.0 million of indebtedness under the Second-Lien Term Loan Agreement with Jefferies Finance LLC or the $160.0 million of indebtedness under the Senior Subordinated Notes scheduled to mature on June 30, 2014 and August 15, 2014, respectively, and accordingly is evaluating various options aimed at refinancing such amounts prior to their maturity. One such option includes refinancing these maturing obligations with a senior secured second lien term loan through certain funds and accounts managed or advised by Beach Point Capital Management LP (the "Lenders"), pursuant to a Commitment Letter entered into on February 12, 2014, under which the Lenders have committed to provide a $220.0 million senior secured second lien term loan (the “Loan”) to Stanadyne. This Loan may be drawn in the sole discretion of Stanadyne on or prior to April 30, 2014. As of the date of this filing, we have not yet drawn upon the Commitment Letter, and therefore have not completed this refinancing, because we are evaluating other strategic alternatives in order to address the maturing debt. While we believe that we will be able to address the debt obligations as they mature, there can be no assurance that we will be able to discharge the maturing obligations or complete the refinancing or that financing options available will be on favorable or acceptable terms. If the Company were unable to discharge, refinance or replace the maturing debt obligations, it would be in default under the terms of agreements governing that indebtedness, which would result in cross-defaults under its other outstanding indebtedness and would allow the lenders for both Holdings and Stanadyne to exercise their rights and remedies as defined under their respective agreements, including their right to accelerate the repayment of existing indebtedness. Such an acceleration would have a material adverse effect on the financial position, results of operations and cash flows for both Holdings and Stanadyne. Given the conditions and events described above and the current uncertainty relating to the refinancing or other strategic options, management has concluded that there is substantial doubt about the Company's ability to continue as a going concern, and the accompanying Reports of Independent Registered Public Accounting Firm contain an explanatory paragraph describing the existence of substantial doubt about the Company's ability to continue as a going concern.

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2013 COMPARED TO 2012

Net Sales. Net sales for 2013 totaled $267.8 million and were $16.4 million, and 6.5% more than sales of $251.5 million for 2012. A slow start to the year in the first quarter of 2013, when we experienced much lower demand from our customers in China, Europe and India due to sluggish economies in those regions, was followed by three quarters of year-over-year sales growth. Increasing demand from GM for our high pressure gasoline pump and growth in sales of our diesel fuel filtration products more than offset lower demand from some of our OEM customers.

Included in the 2013 sales was an unfavorable currency translation effect of 0.2%.



Sales by Customer
(dollars in millions)
	2013		2012		$ Change			% Change
OEM Sales	$	148.5	$	125.2	$	23.3		18.6	%
Service Sales	119.4		126.3		(6.9		)	(5.5	)%
Total Sales	$	267.8	$	251.5	$	16.4		6.5	%

OEM sales increased to 55.4% of our total sales in 2013 as compared to 49.8% in 2012. Growth in OEM sales was due entirely to $47.3 million of sales of our new high pressure gasoline pump to GM, partially offset by lower sales of our diesel fuel injection system products. Sales to our two largest diesel fuel system component customers, Deere and Cummins, were $20.9 million less in 2013 when compared to 2012, with almost half of this difference traceable to the first quarter. These lower sales reflected a combination of reduced demand this year for our products used in our customers' agriculture, construction, and forestry equipment, and utility tractors, as well as $5.8 million of OEM sales in 2012 for past due customer orders that accumulated in 2011 during our manufacturing reorganization. Sales to GEP were $5.2 million less in the first nine months of 2013 when compared to the same period in 2012, reflecting very low demand this year for diesel fuel pumps used to power the military HUMMWV.

Sales to the service markets decreased to 44.6% of our total sales in 2013 as compared to 50.2% in 2012. The $6.9 million decrease in our 2013 service sales was due entirely to $7.9 million lower sales our distributor network, in part reflecting $3.2 million of sales in 2012 represented past due orders that had accumulated in 2011 during our manufacturing reorganization.

Sales by major product line in 2013, when compared to 2012, reflected increases in sales of our new high pressure gasoline pump and an increase in sales of diesel fuel filters and fuel additives, partially offset by sales decreases in our diesel fuel pump, diesel fuel injector and Precision Components and Assembly (“PCA”) products lines.

Cost of Goods Sold and Gross Profit. Cost of goods sold totaled $206.6 million and 77.1% of net sales in 2013, compared to $182.7 million and 72.6% of net sales in 2012. Gross profit totaled $61.2 million and 22.9% of net sales in 2013 compared to $68.8 million and 27.4% of net sales in 2012. This $7.6 million decrease in gross profit was due to the following increases and decreases in 2013 cost of goods sold when compared to 2012:



Gross Profit
(-) Decrease (+) Increase
Decreases in gross profit -
Sales volume and market/product mix	-	$	804
Manufacturing inefficiencies for gas pumps	-	$	4,280
Accelerated Depreciation	-	$	2,851
Higher depreciation expense	-	$	1,001

Increases in gross profit -
Lower factory overhead expenses	+	$	1,359

Although total sales were 6.5% higher in 2013 than in 2012, a shift in the composition of sales between years, from higher margin products especially in the service markets to lower margin OEM products resulted in an overall $0.8 million decrease in gross profit in 2013. The ramp-up in production of our high pressure gasoline pump in 2013 included manufacturing inefficiencies, primarily reflecting labor costs and scrap, that increased cost of goods sold by approximately $4.3 million. These higher production costs have been trending lower each quarter. Depreciation expense in 2013 was $3.9 million greater than in 2012 for two reasons.

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First, in early 2013, the Company committed to a plan to consolidate the remaining operations on its Windsor, Connecticut campus by the end of the first quarter. This plan allowed the Company to vacate one of its buildings, resulting in a decrease in operating costs and a more efficient utilization of available space. The book value of the vacated building and the related building improvements was depreciated down to its salvage value, resulting in $2.9 million of additional depreciation expense in the first three months of 2013. The costs to maintain this idle facility totaled $0.8 million in 2013. Second, depreciation associated with new capital investments related to the high pressure gasoline pump placed into production in 2013 accounted for most of the additional $1.0 million of depreciation during the year.

These decreases in the year-over-year gross profit comparison were partially offset by a $1.4 million improvement in factory overhead costs. Factory overhead costs in 2013 when compared to 2012 were $0.7 million lower in our U.S. operations and $0.9 million lower in our India operations, reflecting cost reduction actions taken in response to the lower production requirements in our diesel fuel systems business in 2013. Factory overhead costs in 2013 were $0.2 million higher in our China operations when compared to 2012 primarily to support increased manufacturing levels for our diesel fuel injectors.

Selling, General and Administrative Expenses (“SG&A”). SG&A totaled $37.1 million or 13.9% of net sales in 2013, as compared to $42.9 million or 17.1% of net sales in 2012. This $5.8 million decrease in SG&A costs in 2013 from 2012 was driven by savings in several areas of our business. In the fourth quarter 2012, we discontinued utilizing outside consulting services to assist us with establishing operational and management processes for the reorganized operations in the U.S., which decreased SG&A costs by $3.2 million in 2013 when compared to 2012. SG&A costs for premium transportation of products to our customers were also $1.0 million less in 2013 compared to 2012 when we incurred substantial amounts of premium freight costs to expedite past due orders to our customers. Research and development costs were $2.2 million lower in 2013, reflecting lower prototype hardware costs and increased customer funding for development programs, when compared to the same period in 2012.

Higher SG&A costs in some areas of our business partially offset these savings, most notably $0.3 million higher unrealized mark-to-market losses on foreign denominated liabilities in our international subsidiaries, driven primarily by erosion in the value of the Indian rupee, and $0.9 million of expense related to the retirement of our former CEO.

The Company incurred no management fees payable to Kohlberg & Company L.L.C. for management services provided in 2013 compared to $0.6 million in 2012. There were no fees charged to the Company by Kohlberg & Company L.L.C. for management services in 2013 due to the comparatively low levels of business.

Operating Income. Operating income for Stanadyne in 2013 totaled $21.3 million and 7.9% of net sales and was $1.2 million less than operating income of $22.5 million and 8.9% of net sales in 2012. This decrease in operating income was due to $7.6 million lower gross profit in 2013, driven primarily by $4.3 million manufacturing inefficiencies related to the launch of our gasoline fuel pump, as well as $2.9 million accelerated depreciation expense, $5.8 million in lower SG&A expense and $0.6 million in lower management fees. Operating income for Holdings in 2013 was $0.2 million less than for Stanadyne due to additional SG&A costs at Holdings.

Income tax expense (benefit). Income tax expense for Stanadyne in 2013 totaled $10.8 million and (975.2)% of pre-tax loss versus expense of $0.1 million and 4.3% of pre-tax income in 2012. The effective income tax rates differed from the amount computed by applying the U.S. statutory rate of 35% to pre-tax (loss) income in 2013 and 2012. The difference in 2013 resulted primarily from the establishment of a valuation allowance against deferred tax assets in the U.S. as it was determined that it was more likely than not that deferred tax assets would not be realized based on recent losses incurred by Stanadyne. The difference in 2012 resulted primarily from the non-deductible changes to the SAPL debenture options, foreign taxes, and the profitability in the foreign jurisdictions where the related tax impact was offset by corresponding changes in the foreign valuation allowances.

Income tax benefit for Holdings in 2013 was $5.0 million and 36.3% of pre-tax loss versus an income tax expense of $0.5 million and (4.8)% of pre-tax loss in 2012. The effective income tax rates differed from the amount computed by applying the U.S. statutory rate of 35% to the pre-tax loss in 2013 and 2012. The difference in 2013 resulted primarily from changes to the valuation allowances as well as non-deductible interest expense. The difference in 2012 resulted primarily from changes to the valuation allowances, non-deductible changes to the SAPL debenture options and non-deductible interest expense at Holdings.

Net (Loss) Income. Net loss for Stanadyne in 2013 totaled $11.5 million or (4.3)% of net sales as compared to net income in 2012 of $0.3 million or 0.1% of net sales. This $11.8 million decrease in net income was due to $1.2 million of lower operating income, $3.4 million of higher interest expense on higher levels of debt, $10.7 million of higher income tax expense, offset by $1.9 million of income related to the revaluation of a derivative instrument and receipt of Indian export credits and $1.6 million of lower income attributable to the non-controlling interest in Stanadyne Amalgamations Private Limited (“SAPL”).

Net loss for Holdings in 2013 was $3.1 million less than Stanadyne's reported net income due to $12.5 million of additional net interest expense on Holdings’ senior discount notes and $0.2 million of additional SG&A expenses at Holdings, offset by $15.8 million of income tax expense compared to Stanadyne.

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2012 COMPARED TO 2011

Net Sales. Net sales for 2012 totaled $251.5 million and were $5.7 million, and 2.3% more than sales of $245.8 million for 2011. Included in the 2012 sales was an unfavorable currency translation effect of l.7%. Customer demand for our OEM and service products in the first half of 2012 remained strong, while production constraints related to the reorganization of our rotary pump and fuel injector manufacturing operations in 2011 were resolved in the first half of 2012. Demand from our OEM's in Europe, India and China began to weaken in the second half of 2012, due to decreasing economic activity in those regions, as well as drought conditions that reduced service customer demand for our agricultural related products.



Sales by Customer
(dollars in millions)
	2012		2011		$ Change			% Change
OEM Sales	$	125.2	$	135.7	$	(10.5	)	(7.7	)%
Service Sales	126.3		110.1		16.2			14.7	%
Total Sales	$	251.5	$	245.8	$	5.7		2.3	%

OEM sales decreased to 49.8% of our total sales in 2012 as compared to 55.2% in 2011. The decrease in our 2012 OEM business was primarily driven by lower demand in the second half of the year. Sales to our primarily European OEM customers, including AGCO SISU POWER (“SISU”), Perkins Engines Co. Ltd. (“Perkins”), Lombardini SRL, Iveco S.p.A., Case New Holland and J C Bamford Excavators Ltd. were collectively $5.3 million lower in 2012 as compared to the prior year, again reflecting the slower economic conditions in that region. Our OEM sales to Ford were also $6.5 million lower in 2012 as compared to 2011, due to the anticipated roll-off of an OE filter program late in 2011. One notable exception to the lower OEM activity in 2012 was increased demand from Deere for products used in their agriculture, construction and forestry equipment as well as utility tractors, resulting in $4.4 million higher sales in 2012 than the prior year.

Sales to the service markets increased to 50.2% of our total sales in 2012 as compared to 44.8% in 2011. The $16.2 million increase in our 2012 service sales reflected increased demand primarily for fuel pump components and fuel injectors, as well as shipments for past due orders that originated in 2011. Service sales to Deere and our independent distribution network were $14.5 million higher in 2012 when compared to 2011.

Sales by major product line in 2012, when compared to 2011, were higher for fuel pumps and fuel injectors and lower for PCA products and filtration products. Higher sales of fuel pumps and injectors in 2012 included past due customer orders originating in 2011.

Cost of Goods Sold and Gross Profit. Cost of goods sold totaled $182.7 million and 72.6% of net sales in 2012, compared to $187.5 million and 76.3% of net sales in 2011. Gross profit totaled $68.8 million and 27.4% of net sales in 2012 compared to $58.3 million and 23.7% of net sales in 2011. This $10.5 million increase in gross profit was due to the following increases and decreases in 2012 cost of goods sold when compared to 2011:



Gross Profit
(+) Increase (-) Decrease
Increases in gross profit -
Higher sales volume and market/product mix	+	$	7.3
Overhead cost reductions in U.S. operations	+	$	5.7

Decreases in gross profit -
Higher factory overhead expenses in non-U.S. operations	-	$	2.4
Higher depreciation expense	-	$	0.1

Approximately $7.3 million of the increase in gross profit in 2012 was due to higher year-over-year sales volumes from our operations in the U.S., China, and India, as well as a more favorable mix of OEM and service parts sold in 2012.

Factory overhead in our U.S. operations decreased $5.7 million in 2012 when compared to 2011. This change reflected improved manufacturing efficiencies in 2012 and lower costs for labor, utilities, building maintenance and operating supplies resulting from

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the plant reorganization activities concluded in 2011. These lower costs also required an adjustment to our 2012 LIFO inventory value resulting in $0.8 million of income when compared to $2.2 million of LIFO expense in 2011.

Cost of goods sold in our non-U.S. operations increased in 2012 by $2.4 million when compared to 2011 due primarily to added costs to support the continued ramp up of production in our India operation for rotary pump manufacture and in our China operation for fuel injector manufacture. Both locations reached full production capabilities during 2012; however, lower customer demand limited production output.

Depreciation expense was $0.1 million higher in 2012 as compared to 2011 due to additional depreciation of equipment acquired to increase manufacturing capacity in India.

Selling, General and Administrative Expenses (“SG&A”). SG&A totaled $42.9 million or 17.1% of net sales in 2012, as compared to $43.6 million or 17.7% of net sales in 2011. This $0.7 million decrease in SG&A costs in 2012 from 2011 was driven by savings in the following areas of our business.

•

A $3.2 million reduction in costs incurred in 2011 to reorganize our global manufacturing operations. These costs reflected the amounts paid for equipment relocation, training and salaries related to management of the reorganization process. We continued to temporarily utilize outside consulting services in 2012 to assist with establishing operational and management processes for the reorganized operations in the U.S. These services were discontinued in the fourth quarter of 2012.


•	SG&A costs in 2012 were also $0.7 million lower than 2011 due to reductions in premium transportation cost for products sold to our customers, which had been delayed.


•	Other SG&A costs and expenses were $0.7 million less in 2012 as compared to 2011 due to several austerity measures targeted to reduce spending during the year.

Higher SG&A costs in the following areas of our business partially offset these savings.


•	Research and development costs in 2012 increased $1.6 million from 2011, reflecting the added costs to develop the Company's high pressure gasoline and diesel common rail fuel systems; however, customer funding for development programs was only $0.1 million higher in 2012 compared to customer funding received in 2011.


•	Growth in our operations drove a $2.0 million increase in salaries and benefits in 2012. Additionally, a downturn in customer demand during the second half of the year required workforce reductions in our global operations that resulted in $0.3 million of severance costs.

Amortization of intangible assets totaled $2.8 million in 2012 and $2.9 million in 2011. This reduction in 2012 amortization expense was due to certain intangible assets becoming fully amortized in 2011.

The Company incurred management fees of $0.6 and $0.8 in 2012 and 2011, respectively, payable to Kohlberg & Company L.L.C. for management services provided.

Operating Income. Operating income for Stanadyne in 2012 totaled $22.5 million and 8.9% of net sales and was $11.5 million more than operating income of $11.0 million and 4.5% of net sales in 2011. This increase in operating income was due to $10.5 million higher gross profit in 2012 driven primarily by higher sales volume and favorable product mix, as well as reductions in overhead costs, $0.7 million in lower SG&A expense, $0.1 million lower amortization expense and $0.2 million in lower management fees. Operating income for Holdings in 2012 was $0.3 million less than for Stanadyne due to additional SG&A costs at Holdings.

Income tax expense (benefit). Income tax expense for Stanadyne in 2012 totaled $0.1 million and 4.3% of pre-tax income versus a benefit of $4.3 million and 48.3% of pre-tax loss in 2011. In 2012 and 2011, the valuation allowance previously established on foreign deferred tax assets was partially released due to current utilization of the net operating loss carry forwards resulting in tax benefits of $1.1 million and $1.4 million in each year, respectively. Also, the income tax rates applied to income earned in foreign jurisdictions differ from the amount computed by applying the U.S. statutory rate of 35% to pre-tax income in 2012 and 2011. Further, in 2012, the adjustment to the value of the SAPL options is not deductible for income tax purposes.

Income tax expense for Holdings in 2012 was $0.5 million and (4.8)% of pre-tax loss versus an income tax expense of $11.3 million and (53.4)% of pre-tax loss in 2011. In 2011, Holdings established a full valuation allowance of $17.6 million against its U.S. deferred income tax assets as it was determined that it is more likely than not that these deferred tax assets would not be realized. Factors considered in this determination included losses in recent periods. In 2012, valuation allowances increased by $2.9 million related to results from operations. Also, the income tax rates applied to income earned in foreign jurisdictions differ

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from the amount computed by applying the U.S. statutory rate of 35% to pre-tax income in 2012 and 2011. Further, the adjustment to the value of the SAPL options and a percentage of Holdings interest expense are not deductible for income tax purposes.

Net Income (Loss). Net income for Stanadyne in 2012 totaled $0.3 million or 0.1% of net sales as compared to net loss in 2011 of $4.2 million or (1.7)% of net sales. This $4.5 million increase in net income was due to $11.5 million of higher operating income offset by $0.6 million of expenses related to the revaluation of a derivative instrument, $0.4 million of higher interest expense on higher levels of debt, $4.3 million of lower income tax benefits, and $1.6 million of higher income attributable to the non-controlling interest in Stanadyne Amalgamations Private Limited (“SAPL”).

Net loss for Holdings in 2012 was $13.0 million more than Stanadyne's reported net income due to $12.3 million of additional net interest expense on Holdings’ senior discount notes, $0.5 million less in income tax benefits compared to Stanadyne and $0.3 million of additional SG&A expenses at Holdings.

LIQUIDITY AND CAPITAL RESOURCES

Our principal sources of liquidity are cash and cash equivalents on hand primarily in our international locations, which totaled $2.3 million on December 31, 2013, and cash flows from operations, supplemented as needed by our short-term financing arrangements described below. Cash equivalents as of December 31, 2013 consisted of commercial paper and certificates of deposit.

Our revolving credit agreement (“U.S. Revolver”) with Wells Fargo Capital Finance, LLC (“Wells Fargo”) provides for borrowings based on Availability of eligible collateral, as defined, and is secured by all Stanadyne and SIHC U.S.-based assets, a pledge of 65% of Stanadyne’s stock in SpA, SAPL, and Stanadyne Changshu Corp. (“SCC”), as well as a $20.8 million guarantee (the "Guaranteed Facility") from the investment funds (and certain of their investors) which are managed by Kohlberg Management IV, L.L.C. The investment funds (and certain of their investors) which are managed by Kohlberg Management IV, L.L.C. that are the primary equity holders of Holdings are the guarantors of the Guaranteed Facility. There were five amendments to the U.S. Revolver and related facilities between 2011 and February 2013 as described below.


1.	On March 25, 2011, the Company and Wells Fargo amended the U.S. Revolver to provide for terms and conditions that reflected current market offerings for similar asset-based lending arrangements. The effect of this amendment reduced the cost of borrowing, increased the amount of eligible collateral and extended the term of the U.S. Revolver by one year to August 13, 2014.


2.	On September 26, 2011, the Company and Wells Fargo amended the U.S. Revolver to increase the maximum amount available under the agreement from $30.0 million to $35.0 million, based on an increase in the EXIM guaranteed sub-facility from $10.0 million to $15.0 million.


3.	On December 16, 2011, the Company and Wells Fargo amended the U.S. Revolver to increase the maximum amount available under the agreement from $35.0 million to $55.8 million by adding a Guaranteed Facility for $20.8 million, and changed the expiration date for the U.S. Revolver to April 30, 2014 from August 13, 2014.


4.	On March 28, 2012, the Company and Wells Fargo amended the U.S. Revolver to allow the Company to permanently reduce the amount of available credit under the Guaranteed Facility, in increments of $1.0 million, with a 10 day notice. Such actions would be taken at the direction of Kohlberg in the event equity infusions are made to Holdings.


5.	On February 13, 2013, the U.S. Revolver was amended to increase the maximum revolver by $5 million, increase interest rates and modify certain clauses within the inventory sub facility to add an inventory block and within the accounts receivable facility to increase the eligible collateral and to update customer concentration limits.

There was $17.2 million outstanding under the U.S. Revolver as of December 31, 2013, with additional Availability of $29.7 million, based on eligible collateral and after considering $3.2 million used for standby letters of credit and other limitations related to inventory and accounts receivable. The U.S. Revolver matures on April 30, 2014 and the Company is actively engaged in activities that would include the renewal or replacement of this expiring credit facility, but as of the the date of this filing, has not secured a renewal or replacement.

Stanadyne is required to provide annual audited financial statements to Wells Fargo within 105 days of year end without any qualifications, including going concern qualifications. The accompanying Reports of Independent Registered Public Accounting Firm contain an explanatory paragraph describing the existence of substantial doubt about the Company's ability to continue as a going concern and therefore Stanadyne entered into an agreement with Wells Fargo dated March 27, 2014, stipulating that the

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going concern qualification shall not constitute an event of default, as it pertains to the U.S. Revolver, the Second-Lien Term Loan Agreement with Jefferies Finance LLC and the Senior Subordinated Notes.

On February 13, 2013, Stanadyne and Jefferies Finance LLC (“Jefferies”) entered into a Second-Lien Term Loan Agreement (the “Term Loan Agreement”) providing for a term loan in an aggregate original principal amount of $25.0 million (with potential incremental term loans up to an additional $15.0 million in aggregate). The term loan is guaranteed by Stanadyne's immediate parent, SIHC, and is secured by a second-lien position in certain tangible and intangible assets of Stanadyne, including property, plant and equipment, fixed assets, copyrights, trademarks and patents. Covenants include restrictions on pre-payments, restrictions on dividends, and limitations on sales of assets and sale and leaseback transactions. The term loan bears interest at 10.0% per annum and matures on June 30, 2014. Interest only is payable quarterly. Prepayment may be required upon sales of assets or a change of control.

We also occasionally utilize capital leasing and, for our foreign operations in China, Italy and India, maintain a combination of overdraft, bankers acceptance, working capital and term loan facilities with local financial institutions on an as-needed basis.

Indebtedness for Stanadyne as of December 31, 2013 totaled $218.6 million and was comprised of $160.0 million of Notes, $25.0 million under the Second Lien term Loan Agreement, $10.5 million in foreign overdraft and revolving credit facilities, $17.2 million borrowed under the U.S. Revolver, $1.1 million of SAPL debentures and $4.8 million in foreign term loans. The U.S. Revolver is not subject to financial covenants unless the availability of funds is less than $4.0 million, when it is then subject to a ratio of earnings to fixed charges ratio covenant of 1.1 to 1.0.

Indebtedness for Holdings as of December 31, 2013 totaled $324.6 million, was comprised of the same debt balances for Stanadyne, plus an additional $100.0 million of Discount Notes and $6.0 million of Convertible Notes. The Discount Notes accreted to their full face value in August 2009. The 12% coupon is payable semi-annually and payments have been made in February and August each year utilizing the proceeds of $6.0 million of dividends received in the first and third quarters of 2012 and the first quarter of 2013. These dividends were in compliance with the terms of the U.S. Revolver and the indenture governing the Notes. The semi-annual coupon paid on August 15, 2013 was completed utilizing the proceeds of $6.0 million of Convertible Notes (as described below).

On August 14, 2013, and February 14, 2014, Holdings and Kohlberg entered into Convertible Subordinated Note (the "Notes") agreements providing for term loans in an aggregate principal amount of $6.0 million each, for a total of $12.0 million. The Notes carry 5-year terms with an interest rate of 12.0% per annum payable in semi-annual installments in arrears commencing in February 2014. At the option of the Company, the interest payments may be made utilizing payment-in-kind notes. The Notes include mandatory prepayment provisions upon change of control or refinancing of Holdings' Senior Discount Notes. They are subordinated to the Senior Discount Notes and are convertible to common stock at fair market value.

In conjunction with issuance of the Notes, on August 14, 2013 and February 14, 2014, the Guaranteed Facility was reduced to $15.8 million and $10.8 million, respectively, reducing the maximum borrowings under the revolver to $55.8 million at December 31, 2013, and $50.8 million at February 14, 2014.

Holdings and Stanadyne are both highly leveraged with total debt of $324.6 million and $218.6 million, respectively, outstanding at December 31, 2013. Stanadyne has $218.6 million of short-term debt, including $17.2 million outstanding under the U.S. Revolver which matures on April 30, 2014, $25.0 million under a Term Loan agreement which matures June 30, 2014 and $160.0 million of indebtedness which matures on August 15, 2014. In addition, Holdings has $100.0 million of indebtedness which matures on February 15, 2015. The Company does not anticipate that current sources of cash will be sufficient to repay the debt obligations scheduled to mature beginning on April 30, 2014 and, accordingly, intends to refinance such amounts prior to their maturity in order to maintain sufficient resources for its operations.

Accordingly, on February 12, 2014, Stanadyne entered into a Commitment Letter (the “Commitment Letter”) with certain funds and accounts managed or advised by Beach Point Capital Management LP (collectively, the “Lenders”) pursuant to which the Lenders have committed, subject to the terms and conditions specified in the Commitment Letter, to provide a $220.0 million senior secured second lien term loan (the “Loan”) to Stanadyne, maturing on the fifth anniversary of closing. The Loan may be drawn in the sole discretion of Stanadyne on or prior to April 30, 2014. As of the date of this filing, Stanadyne has not yet drawn upon the Commitment Letter, and therefore has not completed this refinancing.

The obligation of the Lenders to make the Loan is subject to a number of conditions, including: (i) Stanadyne shall repay in full all outstanding amounts under (a) the Second Lien Term Loan Agreement and (b) Stanadyne’s 10.00% Senior Subordinated Notes due 2014 issued under an Indenture dated as of August 6, 2004; (ii) Stanadyne shall refinance or amend the agreement for the U.S. Revolver and reduce commitments thereunder to an aggregate amount no greater than $35.0 million; (iii) the execution and delivery by Stanadyne of definitive documentation with respect to the Loan consistent with the Commitment Letter; (iv) delivery of customary closing documents, including Stanadyne financial statements, legal opinions, solvency opinion, collateral perfection documents and an officer’s certificate providing a bring-down in all material respects of customary representations made in the

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Commitment Letter and; (v) the satisfaction of certain other customary closing conditions, including, but not limited to, the absence of any material adverse changes in Stanadyne since December 31, 2012.

The Lenders may terminate their commitment under the Commitment Letter if Stanadyne incurs a material breach under the Commitment Letter and the Lenders, in their reasonable discretion, determine that the breach has not been cured or a material adverse change in Stanadyne occurs. The commitment of the Lenders under the Commitment Letter will automatically expire on April 30, 2014.

Stanadyne will be obligated to pay to the Lenders a fee equal to between 2% and 4% of the Loan at the closing or upon the termination of the commitments of the Lenders under the Commitment Letter.

The Company is also pursuing additional refinancing alternatives.

The Company can provide no assurance that it will be able to complete any refinancing. If the Company were unable to refinance or replace the maturing debt obligations, it would be in default under the terms of agreements governing that indebtedness, which would result in cross-defaults under its other outstanding indebtedness and would allow the lenders for both Holdings and Stanadyne to exercise their rights and remedies as defined under their respective agreements, including their right to accelerate the repayment of existing indebtedness. Such an acceleration would have a material adverse effect on the financial position, results of operations and cash flows for both Holdings and Stanadyne.

Our financial position, results of operations and cash flows have been and may continue to be adversely affected by economic recession in global areas where we do business, significant volatility in the worldwide capital, credit and commodities markets, concerns about inflation, lower corporate profits and increased capital spending. Holdings incurred consolidated net losses and negative cash flows from operations in each of the last three years. Stanadyne incurred a net loss and negative cash flows from operations in 2011 and 2013. Holdings and Stanadyne are both highly leveraged with total debt of $324.6 million and $218.6 million, respectively, outstanding at December 31, 2013. Holdings relies on dividends paid by Stanadyne to SIHC which are in turn paid to Holdings to make semi-annual interest payments on the Discount Notes. Failure to make these interest payments would result in an event of default under the terms of the Discount Notes. Kohlberg has advised Holdings that it will provide financial assistance to Holdings, to the extent necessary, in meeting the semi-annual interest payments that will come due during the next twelve months. Such assistance was provided by Kohlberg to Holdings in the form of $6.0 million in Convertible Notes issued in August, 2013 and an additional $6.0 million in Convertible Notes issued in February, 2014.

Cash Flows From Operating Activities

- 2013 compared to 2012

Stanadyne’s cash flows from operating activities in 2013 were negative $0.4 million as compared to positive $10.7 million in 2012. Higher cash requirements for working capital accounts combined with operating losses resulted in $11.1 million less cash from operating activities in 2013 versus 2012.

Changes in asset and liability accounts, primarily working capital accounts, consumed $13.0 million more cash in 2013 than in 2012. The significant changes to our working capital accounts were as follows:

•

Cash flows from changes in accounts receivable used $17.0 million more cash in 2013 than in 2012. These higher levels of accounts receivable reflected growth in our gasoline pump business with GM, as well as some slower payments from our customers in Europe and India. The average days sales outstanding improved from 61.9 days at the end of 2012 to 58.3 days at the end of 2013. Stanadyne continues to carefully manage customer credit and collections activities. There were no significant credit risks in our customer accounts receivable at the end of 2013.

•

Cash inflows from changes in inventory balances required $2.4 million more cash in 2013 than in 2012. Inventory increased by $1.0 million in 2013 as compared to a $1.3 million reduction inventory in 2012. Inventory levels increased in our U.S. operations by only $1.1 million in 2013, as we were able to offset much of the higher inventory needed to support the growing production requirements in the U.S. operations for our high pressure gasoline pumps for GM with inventory reductions in our diesel products business. Cash flows from changes in inventory levels in our international operations in China, India and Italy in 2013 required $2.9 million less cash than required in the same period in 2012, again commensurate with the lower business levels in those regions in 2013. Inventory turnover for Stanadyne improved from 5.9x in 2012 to 6.7x in 2013. Although the inventory levels were better managed in 2013, management believes that additional improvements can be realized in 2014.

•

Cash inflows from changes in other current asset accounts used $3.0 million more cash in 2013 than in 2012. This change primarily reflected the difference between $2.1 million in federal income tax refunds received in 2012 and $1.1 million in tax payments to the India government in 2013 required to change the form of business for SAPL from an export oriented entity to one focused on domestic markets.

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•

Cash outflows from changes in accounts payable balances provided $12.4 million more cash in 2013 than in 2012. Accounts payable balances increased by $7.3 million in 2013 versus a $5.2 million decrease in accounts payable balances in 2012. The increase in 2013 accounts payable balances was driven primarily by the higher value for purchased materials related to the production ramp-up in our gasoline pump program.


•	Cash flows from changes in all other asset and liability accounts provided $3.1 million more cash in 2013 than in 2012. This difference was due primarily to the net change of lower accruals in 2012 as well as a $0.7 million return of cash to Holdings in 2013, representing the amounts paid in prior years for stock options exercised by former employees, which was held by Stanadyne.

Cash flows from operating activities for Holdings were $11.3 million less in 2013 than the amount reported for Stanadyne which was due to $12.0 million of interest payments made for the Discount Notes reduced by $0.7 million of cash returned by Stanadyne to Holdings related to amounts for prior year Holdings' stock option exercises.

- 2012 compared to 2011

Stanadyne’s cash flows from operating activities in 2012 were $10.7 million as compared to negative $6.9 million in 2011.

The $17.5 million increase in Stanadyne's annual cash flow from operations was due primarily to a $6.1 million increase in net income from 2011 to 2012, an $8.2 million increase in cash flows from changes in asset and liability accounts, and an increase of $3.2 million in non-cash and other charges, most notably deferred taxes.

Changes in asset and liability accounts, primarily working capital accounts, affecting our 2012 cash flows from operating activities included the following:

•

Cash inflows from changes in accounts receivable were $3.8 million better in 2012, as customer receivables decreased proportionately with the declining levels of sales in the latter half of 2012 as compared to increasing sales in the latter half of 2011. Shorter payment terms from our U.S. customers in 2012 also contributed to the favorable year-over-year cash flow change. However, the average days sales outstanding for our accounts receivable increased to 61.9 days at the end of 2012 from 55.9 at the end of 2011 as a result of slower payments from our customers in Europe and India. There were no significant credit risks in our customer accounts receivable at the end of 2012.

•

Cash inflows from changes in inventory balances were $10.5 million more in 2012 than in 2011. Inventory turnover for Stanadyne improved from 5.1x in 2011 to 5.9x in 2012. Following inventory increases of $9.2 million in 2011 that were related to the reorganization of our manufacturing activities, inventory decreased by $1.3 million in 2012. Manufacturing efficiencies steadily improved in our U.S.-based operations during 2012, leading to $4.4 million reduction in inventory levels by the end of the year, as compared to the $3.6 million increase in inventory during 2011. Lower sales in 2012 drove inventory levels in our Italy-based operations lower by $0.5 million, reflecting a $2.1 million improvement from the period of inventory growth in 2011. There were only minor changes in the year-over-year comparison of cash flows from changes in inventory levels in our India and China-based operations.


•	Cash inflows from changes in other current asset accounts provided $2.1 million more cash in 2012 than in 2011, due primarily to $2.1 million of federal income tax refunds received in the fourth quarter of 2012.

•

Cash outflows from changes in accounts payable balances consumed $12.0 million more cash in 2012 than in 2011. Accounts payable balances decreased by $5.2 million in 2012, reflecting lower business levels in the last few months of the year. Accounts payable balances increased by $6.8 million in 2011, reflecting a higher value for purchased materials resulting from the outsourcing of components previously manufactured in our Windsor, Connecticut facility and extended payment terms to some of our supply base.


•	Cash flows from changes in all other asset and liability accounts provided $3.7 million more cash in 2012 than in 2011. This difference was due primarily to differences in timing of disbursements between the two periods, including a $3.0 million amount paid in 2011 for performance bonuses accrued in the prior year.

Cash flows from operating activities for Holdings were $12.0 million less in 2012 than the amount reported for Stanadyne which was due to $12.0 million of interest payments made in 2012 for Holding’s $100.0 million Discount Notes.

Cash Flows From Investing Activities.

Cash used in investing activities in 2013, 2012 and 2011, totaled $15.2 million, $11.9 million and $5.3 million, respectively, primarily reflecting our investment in capital equipment in each of those years.

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Capital expenditures in all three years reflected investments in equipment to launch new programs, increase capacity, reduce costs, and improve quality, safety and ergonomics.

Capital expenditures in 2013 included an additional $8.0 million for equipment needed to increase production capacity for the high pressure gasoline pump for GM. Capital expenditures to support the existing gasoline pump program in the U.S. are essentially complete. Capital expenditures in 2013 also included investments in equipment necessary to produce diesel common rail fuel pumps in our China operation starting in 2014.

Capital expenditures of approximately $8.8 million in 2012 were for production equipment and facility improvements to support the 2013 production launch of our new high pressure gasoline fuel pump manufactured in our Jacksonville, North Carolina facility.

Capital expenditures of $1.3 million in 2011 represented capital expenditures for equipment and leasehold improvements for the expansion of our manufacturing operations in India. The expanded operations in India support the manufacture of diesel fuel pumps for local customers and components for our assembly plants in the U.S. The balance of the capital expenditures in 2011 reflected necessary investments in equipment to support our global operations in the U.S., China, and Italy.

Cash Flows From Financing Activities.

- 2013 compared to 2012

Stanadyne’s cash flows from financing activities provided cash of $14.1 million in 2013, and consumed cash of $1.7 million and $2.8 million in 2012 and 2011, respectively.

Cash flows from financing activities in our U.S. operations in 2013 included $25.0 million of proceeds from a term loan with Jefferies, $3.9 million of net cash payments against the U.S. Revolver, $1.6 million of debt origination costs, $5.3 million of dividends paid to SIHC, and $0.6 million of payments against capital lease obligations.

Cash flows from financing activities in SAPL in 2013 provided $1.8 million of net cash proceeds from revolving loans and consumed $0.5 million in net payments against term loan commitments. Payments against capital lease obligations totaled $0.1 million. Cash flows from financing activities in SpA included $0.3 million net cash proceeds provided by overdraft borrowings used to finance working capital requirements and $0.3 million in payments against capital lease obligations. Cash flows from financing activities in SCC included $0.4 million of cash payments on revolving loans and $0.1 million in payments against capital lease obligations.

Cash flows from financing activities for Holdings in 2013 included the amounts reported for Stanadyne less the dividends paid by Stanadyne, offset by proceeds from the Convertible Subordinated Note.

- 2012 compared to 2011

Stanadyne’s cash flows from financing activities provided cash of $1.7 million in 2012, and consumed $2.8 million and $1.6 million in 2011 and 2010, respectively.

Cash flows from financing activities in our U.S. operations in 2012 provided $1.0 million: $13.1 million net borrowings under the U.S. Revolver, offset by $12.0 million dividends paid and $0.1 million of payments of capital lease obligations.

Cash flows from financing activities in SAPL during 2012 included cash proceeds of $1.9 million net proceeds from increases in term loan and overdraft facilities, partially offset by payments of capital lease obligations totaling $0.1 million. Cash flows from financing activities in SpA included $0.3 million cash consumed to reduce overdraft borrowings and payments of capital lease obligations of $0.4 million. Cash flows from financing activities in SCC included a $0.1 million increase in overdraft borrowings and a decrease of $0.5 million in outstanding Bankers Acceptances used to finance working capital requirements.

Pension Plans.

We maintain a qualified defined benefit pension plan (the “Pension Plan”), which covers substantially all domestic hourly and salary employees and an unfunded nonqualified plan to provide benefits in excess of amounts permitted to be paid under the provisions of the tax law to participants in the Pension Plan. Effective March 31, 2007, Stanadyne amended the Pension Plan to freeze the Pension Plan with respect to all participants so that no future benefits accrued after that date. As required by law, benefits already accrued as of such date were not affected. With respect to such benefits, participants continue to vest and all other retirement options, including early retirement reduction factors continue unchanged. The assets continue to be held in trust for participants until they retire. The accrual of benefits for certain executives participating in the Supplemental Retirement Benefit Plan is based on the accrual of benefits under the Pension Plan. Therefore, the freeze of the Pension Plan also resulted in the freeze of the Supplemental Retirement Benefit Plan.

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The expected long-term rate of return on assets assumption is developed with reference to historical returns, forward-looking return expectations, the Pension Plan’s investment allocation, and peer comparisons. Stanadyne, with input from the Pension Plan investment adviser, selected an 8.0% expected return assumption which was used for determination of 2013 net periodic pension expense. The investment adviser analyzed actual historical returns and future expected returns of asset class benchmarks appropriate to the Pension Plan’s target investment allocation. The analysis also reflected asset return premiums anticipated as a result of active portfolio management, as appropriate for each benchmark asset class. Based on these considerations, Stanadyne used an expected long-term rate of return assumption of 7.75% for 2013 and 8.0% for 2012. Since the expected return on assets assumption is long-term in nature, changes in this assumption are made less frequently than changes in the discount rate assumption.

The discount rate used to value the pension obligation was developed with reference to a number of factors, including the current interest rate environment, benchmark fixed-income yields, peer comparisons, and expected future pension benefit payments. A discount rate of 4.90 % established for December 31, 2013 reflects an increase of 1.00% from the 3.90% rate used at December 31, 2012. The discount rate selected is consistent with the market yields on high quality fixed income securities between December 31, 2012 and December 31, 2013. We use a weighted-average of the Moody’s Baa and Aaa rates as a key reference point for discount rate selection. In selecting the discount rate assumption for 2013, we also utilize the results of a cash flow model based on the AON Hewitt's AA Above Media yield curve (which is the AON Hewitt curve most consistent with the Towers Watson RATE:Link model used for 2012). Under this approach, we discounted the expected future benefit payments under the Company’s Pension Plan using the discount curve, and solved for the single discount rate that would produce the same present value.

The value of invested Pension Plan assets grew to $105.3 million at December 31, 2013, representing an increase of $14.7 million from the $90.6 million value at December 31, 2012. The Company contributed $4.5 million to the Pension Plan in 2013.

The value of invested Pension Plan assets grew to $90.6 million at December 31, 2012, representing an increase of $11.5 million from the $79.1 million value at December 31, 2011. The Company contributed $5.0 million to the Pension Plan in 2012.

During 2013, the unfunded liability for the combined Pension Plan and non-qualified plan decreased by $23.0 million from the prior year to $20.8 million as of December 31, 2013. An increase in the discount rates for the Pension Plan from 3.90% to 4.90% and for the non-qualified plan from 3.60% to 4.60% resulted in a $15.7 million decrease to the combined liability that was further reduced by positive returns on invested assets.

During 2012, the unfunded liability for the combined Pension Plan and non-qualified plan increased by $1.4 million from the prior year to $43.8 million as of December 31, 2012. Reduction in the discount rates for the Pension Plan from 4.75% to 3.90% and for the non-qualified plan from 4.25% to 3.60% resulted in a $12.8 million increase to the combined liability that was partially offset by positive returns on invested assets.

OFF-BALANCE SHEET OBLIGATIONS

The Company has no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on its financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

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CONTRACTUAL OBLIGATIONS AND COMMITMENTS

As of December 31, 2013, the Company had the following obligations and commitments:



	Payments Due By Period
	(dollars in thousands)
	Total		Less than 1 Year		1 to 3 Years		3 to 5 Years		More than 5 Years
Operating Leases	$	3,900	$	901	$	1,391	$	1,180	$	428
Capital Leases	3,417		1,116		1,636		665		—
Senior Subordinated Debt	160,000		160,000		—		—		—
Interest on Senior Subordinated Debt	9,956		9,956		—		—		—
Other Debt	58,613		54,498		3,744		371		—
Interest on Other Debt	3,432		2,951		459		22
Purchase Obligations ⁽¹⁾	957		957		—		—		—
Other Long-Term Liabilities ⁽²⁾	15,019		7,049		2,067		1,087		4,816
Total – Stanadyne	255,294		237,428		9,297		3,325		5,244
Unsecured Notes	106,000		—		100,000		6,000		—
Interest on Unsecured Notes	16,797		12,720		2,907		1,170		—
Total – Holdings	$	378,091	$	250,148	$	112,204	$	10,495	$	5,244

(1)

Consists of obligations for capital purchases of plant improvements, machinery and equipment. Not included in these amounts are routine trade commitments the Company enters into with its suppliers for the purchase of raw materials and other goods and services under customary purchase order terms. The Company is unable to determine the aggregate value of these purchase orders and does not have any material agreements for purchases that exceed expected requirements to satisfy customer demand.


(2)	Consists of estimated benefit payments over the next ten years to retirees under an unfunded domestic nonqualified pension plan, the 2014 minimum pension contribution for the Stanadyne pension plan, an uncertain income tax position and, with respect to the Italian subsidiary, an unfunded leaving indemnity liability.

CRITICAL ACCOUNTING POLICIES

We prepare the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America. As such, we are required to make certain estimates, judgments and assumptions that we believe are reasonable based upon the information available. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the periods presented. The issues involving significant accounting policies which we believe are the most critical to aid in fully understanding and evaluating our reported financial results include: product warranty reserves, inventory valuation adjustments for excess or obsolescence, impairment of long-lived assets, goodwill and other intangible assets, pension and postretirement benefit liabilities, self-insurance reserves and determination of income tax balances including valuation allowances.

Product Warranty Reserves. The Company provides an accrual for the estimated future warranty costs of its products at the time the sale is recognized. These costs are based upon analyses of historical experience of product returns and the related cost.

Inventory Valuation Adjustments. Inventories are stated at the lower of cost or market. The principal components of costs included in inventories are materials, labor, subcontract costs and overhead. The Company uses the last-in/first-out (“LIFO”) method of valuing its inventory, except for the inventories of SCC, SpA and SAPL, which are valued using the first-in/first-out (“FIFO”) method. At December 31, 2013 and 2012, inventories valued at LIFO represented $25.8 million and $24.7 million of total inventories, respectively. Application of purchase accounting to the Company’s inventories in conjunction with the 2004 change in control resulted in a base year LIFO inventory value that was greater than the FIFO value through December 31, 2013. The LIFO inventory reserve value represents the amount necessary to state the Company’s U.S.-based inventories valued on a FIFO to LIFO basis.

Impairment of Long-Lived Assets, Goodwill and Other Intangible Assets. The Company evaluates the carrying value of long-lived assets (including property and equipment, goodwill and other intangible assets) when events or circumstances warrant such a review. Goodwill and intangible assets with indefinite lives are tested for impairment annually during the fourth fiscal quarter each year or more often if events or circumstances indicate a reduction in the fair value below the carrying value. Goodwill is

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allocated and reviewed for impairment by reporting unit. The goodwill is allocated to the reporting unit in which the business that created the goodwill resides. To test for goodwill impairment, the carrying value of the reporting unit is compared with its fair value. If the carrying value of the goodwill or long-lived asset is considered impaired, a loss is recognized based on the amount by which the carrying value exceeds the fair value of the asset (see Note 6). The fair value of our reporting unit with goodwill was determined to be substantially in excess of its carrying value.

Pension and Other Postretirement Benefit Liabilities. The Company amortizes unrecognized gains and losses exceeding 10% of the accumulated benefit obligation for the pension plans and for the health and life insurance benefits over the average remaining service period of the plan participants. This period approximates the period during which the benefits are earned. This amortization method of postretirement benefit obligations distributes gains and losses over the benefit period of the participants, thereby minimizing any volatility caused by actuarial gains and losses.

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

Income Taxes. Income taxes are accounted for in accordance with the asset and liability method. Stanadyne is included in the consolidated federal income tax return filed by Holdings. In accordance with its historical tax accounting policy, taxes for Stanadyne are recorded as if they had been calculated on a separate company basis. Deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the tax basis of assets and liabilities and their financial reporting amounts and are measured at the current enacted tax rates. A valuation allowance is assessed and recorded when realization of the deferred tax asset is not more likely than not. A valuation allowance is assessed for Stanadyne on the basis of its projected separate return results and is recorded when realization of deferred tax assets is not more likely than not.

NEW ACCOUNTING STANDARDS

Comprehensive Income. In February 2013, the FASB issued ASU No. 2013-02, “Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income.” This ASU intends to improve the reporting of reclassifications out of accumulated other comprehensive income by requiring entities to provide information about the reclassified amounts by component. The guidance was effective prospectively for reporting periods beginning after December 15, 2012. This ASU did not have a material impact on our financial statements or disclosures.

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ITEM 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is exposed to market risks including changes in interest rates and changes in foreign currency exchange rates as measured against the U.S. dollar.

Interest Rate Risk. The carrying values of the Company’s revolving credit lines and term loans approximate fair value. The revolving credit line in the U.S. is priced based on 90-day LIBOR. The revolving credit and terms loans in the international operations are priced based on prevailing market rates that are adjusted every one to twelve months. A 10% change in the interest rate on the revolving credit lines and term loans would have increased or decreased the 2013 interest expense by $0.2 million. The Notes and Discount Notes bear interest at a fixed rate and, therefore, are not sensitive to interest rate fluctuation. The fair value of the Notes based on bid prices at December 31, 2013 was $157.2 million. The fair value of Holdings’ Discount Notes based on bid prices at December 31, 2013 was $62.3 million.

Foreign Currency Risk. The Company has operating subsidiaries in China, Italy, and India and therefore is exposed to changes in foreign currency exchange rates. Changes in exchange rates may positively or negatively affect the Company’s sales, gross margins, and accumulated deficit. However, historically, these locations have contributed less than 20% of the Company’s net sales and accumulated deficit, with most of these sales attributable to the Italian subsidiary. The Company also sells its products from the United States to foreign customers for payment in foreign currencies as well as U.S. dollars. Foreign currency exchange losses totaled $0.8 million and $0.5 million in 2013 and 2012, respectively. The Company does not hedge against foreign currency risk.

Commodity Price Risk. Some raw materials and operating supplies are subject to price and supply fluctuations caused by market dynamics. Our strategic sourcing initiatives are focused on mitigating the impact of commodity price risk. Although some of our commercial agreements allow us to pass on certain unusual increases in component and raw material costs to our customers in limited situations, we may not be fully compensated for such increased costs. To a lesser extent, we also are exposed to fluctuations in the prices of certain utilities and services, such as electricity, natural gas, and freight.

We generally do not employ forward contract or other financial instruments to hedge commodity price or other price risks, although we continue to review a full range of business options focused on strategic risk management for all raw material commodities. Any failure by our suppliers to provide acceptable raw materials, components, or sub-assemblies could adversely affect our production schedules and contract profitability. We assess qualification of suppliers and continually monitor them to control risk associated with such supply base reliance.

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ITEM 8.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Index to Financial Statements and Supplementary Data



	Page

STANADYNE HOLDINGS, INC. AND SUBSIDIARIES

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM	F-1
Consolidated Balance Sheet as of December 31, 2013 and 2012	F-3
Consolidated Statement of Operations for the Years Ended December 31, 2013, 2012 and 2011	F-4
Consolidated Statement of Comprehensive Income (Loss) for the Years Ended December 31 2013, 2012 and 2011	F-5
Consolidated Statement of Changes in Equity (Deficit) for the Years Ended December 31, 2013, 2012 and 2011	F-6
Consolidated Statement of Cash Flows for the Years Ended December 31, 2013, 2012 and 2011	F-7

STANADYNE CORPORATION AND SUBSIDIARIES

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM	F-2
Consolidated Balance Sheet as of December 31, 2013 and 2012	F-8
Consolidated Statement of Operations for the Years Ended December 31, 2013, 2012 and 2011	F-9
Consolidated Statement of Comprehensive Income (Loss) for the Years Ended December 31, 2013, 2012 and 2011	F-10
Consolidated Statement of Changes in Equity for the Years Ended December 31, 2013, 2012 and 2011	F-11
Consolidated Statement of Cash Flows for the Years Ended December 31, 2013, 2012 and 2011	F-12

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS	F-13

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Report of Independent Registered Public Accounting Firm

To The Board of Directors and Stockholders of Stanadyne Holdings, Inc:

In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, of comprehensive income (loss), of changes in equity (deficit) and of cash flows present fairly, in all material respects, the financial position of Stanadyne Holdings, Inc. and its subsidiaries (the “Company”) at December 31, 2013 and December 31, 2012, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2013 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has a significant amount of outstanding debt maturing in the next twelve months that raises substantial doubt regarding its ability to continue as a going concern. Management’s plans in regard to these matters are discussed in Note 1 to the consolidated financial statements. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ PricewaterhouseCoopers LLP

Hartford, Connecticut

March 31, 2014

F-1

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Report of Independent Registered Public Accounting Firm

To The Board of Directors and Stockholder of Stanadyne Corporation:

In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, of comprehensive income (loss), of changes in equity and of cash flows present fairly, in all material respects, the financial position of Stanadyne Corporation and its subsidiaries (“Stanadyne”) at December 31, 2013 and December 31, 2012, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2013 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of Stanadyne’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

The accompanying consolidated financial statements have been prepared assuming that Stanadyne will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, Stanadyne has a significant amount of outstanding debt maturing in the next twelve months that raises substantial doubt regarding its ability to continue as a going concern. Management’s plans in regard to these matters are discussed in Note 1 to the consolidated financial statements. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ PricewaterhouseCoopers LLP

Hartford, Connecticut

March 31, 2014

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Table of Contents

STANADYNE HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET

(dollars in thousands)



	December 31, 2013			December 31, 2012

ASSETS
Current Assets:
Cash and cash equivalents	$	2,313		$	2,907
Accounts receivable, net of allowance for uncollectible accounts of $220 and $258 as of December 31, 2013 and 2012, respectively	47,718			32,688
Inventories, net	40,758			40,203
Prepaid expenses and other assets	4,949			3,366
Deferred income taxes	161			—
Total current assets	95,899			79,164
Property, plant and equipment, net	79,786			79,391
Goodwill	136,705			136,705
Intangible and other assets, net	62,485			67,211
Total assets	$	374,875		$	362,471
LIABILITIES AND EQUITY
Current Liabilities:
Accounts payable	$	30,249		$	24,134
Accrued liabilities	23,760			23,331
Current maturities of long-term debt	217,008			32,416
Current portion of capital lease obligations	817			1,043
Current deferred income tax liability	564			751
Total current liabilities	272,398			81,675
Long-term debt, excluding current maturities	107,605			265,268
Deferred income taxes	19,643			19,530
Capital lease obligations, excluding current portion	2,131			2,963
Other non-current liabilities	30,216			56,252
Total liabilities	431,993			425,688
Commitments and Contingencies (Notes 8 and 21)
Redeemable non-controlling interest	691			939
Stockholders’ Deficit:
Common stock, par value $0.01, authorized 150,000,000 shares, issued 106,542,581 shares and outstanding 105,652,581 shares	1,065			1,065
Additional paid-in capital	52,555			52,693
Accumulated other comprehensive loss	(14,545		)	(29,462		)
Accumulated deficit	(96,233		)	(87,801		)
Treasury stock, at cost, 890,000 shares as of December 31, 2013 and 2012	(651		)	(651		)
Total stockholders’ deficit	(57,809		)	(64,156		)
Total liabilities and stockholders' deficit	$	374,875		$	362,471

See accompanying notes to consolidated financial statements.

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STANADYNE HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF OPERATIONS

(dollars in thousands)



	Year Ended December 31, 2013			Year Ended December 31, 2012			Year Ended December 31, 2011
Net sales	$	267,831		$	251,459		$	245,761
Cost of goods sold	206,623			182,682			187,459
Gross profit	61,208			68,777			58,302
Selling, general, administrative and other operating expenses	40,163			46,591			47,386
Operating income	21,045			22,186			10,916
Other (income) expense:
Interest income	(13		)	(5		)	(29		)
Interest expense	36,077			32,444			32,008
Other (income) expense	(1,140		)	728			121
Loss from operations before income tax (benefit) expense	(13,879		)	(10,981		)	(21,184		)
Income tax (benefit) expense	(5,045		)	524			11,316
Net loss	(8,834		)	(11,505		)	(32,500		)
Less: net loss (income) attributable to non-controlling interest	402			(1,218		)	334
Net loss attributable to stockholders	$	(8,432	)	$	(12,723	)	$	(32,166	)

See accompanying notes to consolidated financial statements

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STANADYNE HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS)

(dollars in thousands)



	Year Ended December 31, 2013			Year Ended December 31, 2012			Year Ended December 31, 2011
Net loss	$	(8,834	)	$	(11,505	)	$	(32,500	)
Other comprehensive (loss) income:
Change in additional pension liability, net of tax expense of $5,457 as of December 31, 2013 and nil as of December 31, 2012 and 2011	14,350			(4,943		)	(17,105		)
Foreign currency translation adjustments	567			(154		)	918
Comprehensive income (loss), net of tax	6,083			(16,602		)	(48,687		)
Less: comprehensive loss (income) attributable to the non-controlling interest	402			(1,218		)	334
Comprehensive income (loss) attributable to the stockholders of Stanadyne Holdings, Inc.	$	6,485		$	(17,820	)	$	(48,353	)

See accompanying notes to consolidated financial statements

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STANADYNE HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (DEFICIT)

(dollars in thousands)



	Common Stock			Additional Paid-In			Accumulated Other Comprehensive			Accumulated			Treasury Stock				Total
	Shares	Amount		Capital			Income (Loss)			Deficit			Shares	Amount			Equity (Deficit)
December 31, 2010	106,505,081	$	1,065	$	51,736		$	(8,178	)	$	(42,727	)	890,000	$	(651	)	$	1,245
Net loss										(32,166		)					(32,166		)
Other comprehensive loss, net of tax							(16,187		)								(16,187		)
Adjustment of the redeemable non-controlling interest to redemption value				(229		)											(229		)
Common Stock issued	37,500			18													18
December 31, 2011	106,542,581	1,065		51,525			(24,365		)	(74,893		)	890,000	(651		)	(47,319		)
Net loss										(12,723		)					(12,723		)
Other comprehensive loss, net of tax							(5,097		)								(5,097		)
Adjustment of the redeemable non-controlling interest to redemption value				1,168						(185		)					983
December 31, 2012	106,542,581	1,065		52,693			(29,462		)	(87,801		)	890,000	(651		)	(64,156		)
Net loss										(8,432		)					(8,432		)
Other comprehensive income, net of tax							14,917										14,917
Adjustment of the redeemable non-controlling interest to redemption value				(138		)				—							(138		)
December 31, 2013	106,542,581	$	1,065	$	52,555		$	(14,545	)	$	(96,233	)	890,000	$	(651	)	$	(57,809	)

See accompanying notes to consolidated financial statements.

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STANADYNE HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS

(dollars in thousands)



	Year Ended December 31, 2013			Year Ended December 31, 2012			Year Ended December 31, 2011
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(8,834	)	$	(11,505	)	$	(32,500	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	16,473			12,621			12,651
Amortization of debt issuance costs	3,181			1,999			1,784
Deferred income taxes	(5,717		)	74			13,499
(Gain) loss on disposal of property, plant and equipment	(188		)	27			(14		)
Changes in assets and liabilities:
Accounts receivable	(15,268		)	1,718			(2,108		)
Inventories	(1,026		)	1,346			(9,190		)
Prepaid expenses and other assets	(1,413		)	1,564			(638		)
Accounts payable	7,271			(5,154		)	6,843
Accrued liabilities	(6,233		)	(1,397		)	(9,434		)
Other non-current liabilities	—			(2,635		)	217
Net cash used in operating activities	(11,754		)	(1,342		)	(18,890		)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures	(15,674		)	(12,060		)	(5,215		)
Decrease (increase) in restricted cash	—			179			(179		)
Proceeds from disposal of property, plant and equipment	494			—			48
Net cash used in investing activities	(15,180		)	(11,881		)	(5,346		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from U.S. revolver	93,285			78,655			8,000
Payments on U.S. revolver	(97,215		)	(65,565		)	—
Proceeds from foreign overdraft facilities	4,547			5,502			25,430
Payments on foreign overdraft facilities	(3,020		)	(4,637		)	(24,869		)
Proceeds from U.S. long-term debt	31,000			—			—
Proceeds from foreign long-term debt	1,264			1,713			2,237
Payments on foreign long-term debt	(1,792		)	(1,374		)	(885		)
Payments on capital lease obligations	(1,042		)	(568		)	(510		)
Payments of debt issuance cost	(1,584		)	—			(202		)
Proceeds from exercise of stock options	—			—			18
Net cash provided by financing activities	25,443			13,726			9,219
Net (decrease) increase in cash and cash equivalents	(1,491		)	503			(15,017		)
Effect of exchange rate changes on cash and cash equivalents	897			633			839
Cash and cash equivalents at beginning of period	2,907			1,771			15,949
Cash and cash equivalents at end of period	$	2,313		$	2,907		$	1,771

SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING TRANSACTIONS:

During the years ended December 31, 2012 and 2011, Stanadyne Holdings, Inc. and subsidiaries entered into capital leases for new equipment resulting in capital lease obligations of $2,663 and $773, respectively.

See accompanying notes to consolidated financial statements.

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STANADYNE CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET

(dollars in thousands)



	December 31, 2013			December 31, 2012

ASSETS
Current Assets:
Cash and cash equivalents	$	2,308		$	2,906
Accounts receivable, net of allowance for uncollectible accounts of $220 and $258 as of December 31, 2013 and 2012, respectively	47,718			32,688
Inventories, net	40,758			40,203
Prepaid expenses and other assets	4,949			3,366
Deferred income taxes	408			669
Total current assets	96,141			79,832
Property, plant and equipment, net	79,786			79,391
Goodwill	136,705			136,705
Intangible and other assets, net	62,193			66,659
Total assets	$	374,825		$	362,587
LIABILITIES AND EQUITY
Current Liabilities:
Accounts payable	$	30,249		$	24,134
Accrued liabilities	18,885			18,723
Current maturities of long-term debt	217,008			32,416
Current portion of capital lease obligations	817			1,043
Total current liabilities	266,959			76,316
Long-term debt, excluding current maturities	1,605			165,268
Deferred income taxes	20,454			9,779
Capital lease obligations, excluding current portion	2,131			2,963
Due to Stanadyne Holdings, Inc.	2,323			3,234
Other non-current liabilities	30,216			56,252
Total liabilities	323,688			313,812
Commitments and Contingencies (Notes 8 and 21)
Redeemable non-controlling interest	691			939
Stockholder’s Equity:
Common stock, par value $0.01, authorized 10,000 shares, issued and outstanding 1,000 shares	—			—
Additional paid-in capital	69,347			74,823
Accumulated other comprehensive loss	(1,725		)	(21,312		)
Accumulated deficit	(17,176		)	(5,675		)
Total stockholder’s equity	50,446			47,836
Total liabilities and equity	$	374,825		$	362,587

See accompanying notes to consolidated financial statements.

F-8

Table of Contents

STANADYNE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF OPERATIONS

(dollars in thousands)



	Year Ended December 31, 2013			Year Ended December 31, 2012			Year Ended December 31, 2011
Net sales	$	267,831		$	251,459		$	245,761
Cost of goods sold	206,623			182,682			187,459
Gross profit	61,208			68,777			58,302
Selling, general, administrative and other operating expenses	39,927			46,290			47,278
Operating income	21,281			22,487			11,024
Other (income) expense:
Interest income	(13		)	(5		)	(29		)
Interest expense	23,541			20,184			19,748
Other (income) expense	(1,140		)	728			121
(Loss) income from operations before income tax expense (benefit)	(1,107		)	1,580			(8,816		)
Income tax expense (benefit)	10,796			68			(4,260		)
Net (loss) income	(11,903		)	1,512			(4,556		)
Less: net loss (income) attributable to non-controlling interest	402			(1,218		)	334
Net (loss) income attributable to stockholder	$	(11,501	)	$	294		$	(4,222	)

See accompanying notes to consolidated financial statements.

F-9

Table of Contents

STANADYNE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS)

(dollars in thousands)



	Year Ended December 31, 2013			Year Ended December 31, 2012			Year Ended December 31, 2011
Net (loss) income	$	(11,903	)	$	1,512		$	(4,556	)
Other comprehensive (loss) income:
Change in additional Pension Liability, net of tax expense (benefit) of $787, $(1,830) and $(6,322)	19,020			(3,113		)	(10,785		)
Foreign currency translation adjustments	567			(154		)	918
Comprehensive income (loss), net of tax	7,684			(1,755		)	(14,423		)
Less: comprehensive loss (income) attributable to the non-controlling interest	402			(1,218		)	334
Comprehensive income (loss) attributable to the stockholder of Stanadyne Corporation	$	8,086		$	(2,973	)	$	(14,089	)

See accompanying notes to consolidated financial statements

F-10

Table of Contents

STANADYNE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

(dollars in thousands)



	Common Stock			Additional Paid-In			Accumulated Other Comprehensive			Accumulated			Total
	Shares	Amount		Capital			Income (Loss)			Deficit			Equity
December 31, 2010	1,000	$	—	$	97,881		$	(8,178	)	$	(1,562	)	$	88,141
Net loss										(4,222		)	(4,222		)
Other comprehensive loss, net of tax							(9,867		)				(9,867		)
Adjustment of the redeemable non-controlling interest to redemption value				(228		)							(228		)
Dividend paid				(12,000		)							(12,000		)
December 31, 2011	1,000	—		85,653			(18,045		)	(5,784		)	61,824
Net loss										294			294
Other comprehensive loss, net of tax							(3,267		)				(3,267		)
Adjustment of the redeemable non-controlling interest to redemption value				1,170						(185		)	985
Dividend paid				(12,000		)							(12,000		)
December 31, 2012	1,000	—		74,823			(21,312		)	(5,675		)	47,836
Net loss										(11,501		)	(11,501		)
Other comprehensive income, net of tax							$	19,587					19,587
Adjustment of the redeemable non-controlling interest to redemption value				(138		)				—			(138		)
Dividend paid				(5,338		)							(5,338		)
December 31, 2013	1,000	$	—	$	69,347		$	(1,725	)	$	(17,176	)	$	50,446

See accompanying notes to consolidated financial statements.

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Table of Contents

STANADYNE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS

(dollars in thousands)



	Year Ended December 31, 2013			Year Ended December 31, 2012			Year Ended December 31, 2011
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income	$	(11,903	)	$	1,512		$	(4,556	)
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:
Depreciation and amortization	16,473			12,621			12,651
Amortization of debt issuance costs	2,921			1,739			1,523
Deferred income taxes	10,124			(382		)	(3,402		)
(Gain) loss on disposal of property, plant and equipment	(188		)	27			(14		)
Changes in assets and liabilities:
Accounts receivable	(15,268		)	1,718			(2,108		)
Inventories	(1,026		)	1,346			(9,189		)
Prepaid expenses and other assets	(1,412		)	1,564			(572		)
Due to Stanadyne Holdings, Inc.	(911		)	(226		)	1,153
Accounts payable	7,271			(5,154		)	6,844
Accrued liabilities	(6,500		)	(1,472		)	(9,465		)
Other non-current liabilities	—			(2,635		)	263
Net cash (used in) provided by operating activities	(419		)

Stanadyne Holdings, Inc. 10-K