##### 



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the Quarterly Period Ended September 30, 2006
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 Commission File No. 333-124394
 STANDARD AERO HOLDINGS, INC.
 (Exact Name of Registrant as Specified in Its Charter)
 Delaware
    
    98-0432892(State of Incorporation)
    
    (I.R.S. EmployerIdentification Number)
 500-1780 Wellington Avenue
Winnipeg, Manitoba, Canada R3H 1B3
(Address of Principal Executive Offices and Zip Code)
 (204) 987-8860
(Registrants Telephone Number, Including Area Code)
  þ o
  o o þ
 o þ




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##### 



INDEX
 PART I
FINANCIAL INFORMATION
 PageNo.Item 1.
    
    Financial StatementsUnaudited Condensed Consolidated Statements of Operations for the three months and
    
    
    1nine months ended September 30, 2006 and September 30, 2005Unaudited Condensed Consolidated Balance Sheets as of September 30, 2006 and
    
    
    2December 31, 2005Unaudited Condensed Consolidated Statements of Stockholder's Equity for the nine
    
    
    3months ended September 30, 2006 and September 30, 2005Unaudited Condensed Consolidated Statements of Cash Flows for the nine months ended
    
    
    4September 30, 2006 and September 30, 2005Unaudited Notes to Condensed Consolidated Financial Statements
    
    
    5 - 22Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    23 -39Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    40Item 4.
    
    Controls and Procedures
    
    
    41 - 43PART IIOTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    44Item 1A.
    
    Risk Factors
    
    
    44Item 6.
    
    Exhibits
    
    
    45SIGNATURES
    
    
    
    
    46 - 50




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##### 



STANDARD AERO HOLDINGS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands)
 Three months ended September 30
    
    Nine months ended September 302006
    
    2005
    
    2006
    
    2005Revenues
    
    $
    196,083
    
    
    $
    198,267
    
    
    $
    582,252
    
    
    $
    557,462Operating expensesCost of revenues
    
    
    170,432
    
    
    
    163,452
    
    
    
    492,484
    
    
    
    461,818Selling, general and
administrative expense
    
    
    8,506
    
    
    
    12,302
    
    
    
    35,817
    
    
    
    37,806Amortization of intangible assets
    
    
    2,146
    
    
    
    2,346
    
    
    
    6,438
    
    
    
    7,238Restructuring costs
    
    
    
    
    
    
    3,215
    
    
    
    
    
    
    
    3,215Total operating expenses
    
    
    181,084
    
    
    
    181,315
    
    
    
    534,739
    
    
    
    510,077Income from operations
    
    
    14,999
    
    
    
    16,952
    
    
    
    47,513
    
    
    
    47,385Interest expense
    
    
    9,929
    
    
    
    9,072
    
    
    
    28,956
    
    
    
    26,894Income before income taxes
    
    
    5,070
    
    
    
    7,880
    
    
    
    18,557
    
    
    
    20,491Income tax expense (benefit)
    
    
    (608
    )
    
    
    3,685
    
    
    
    1,862
    
    
    
    6,592Net income
    
    $
    5,678
    
    
    $
    4,195
    
    
    $
    16,695
    
    
    $
    13,899
 The accompanying notes are an integral part of the financial statements.
 1




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##### 



STANDARD AERO HOLDINGS, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
 September 30,
    
    December 31,2006
    
    2005ASSETSCurrent assetsCash and cash equivalents
    
    $
    1,234
    
    
    $
    24,056Cash and cash equivalents (restricted)
    
    
    29,303
    
    
    
    Accounts receivable (less allowance for
doubtful accounts of $2,526 and $2,987 at
September 30, 2006 and December 31, 2005,
respectively)
    
    
    130,513
    
    
    
    120,456Inventories
    
    
    150,375
    
    
    
    134,011Prepaid expenses and other current assets
    
    
    6,535
    
    
    
    7,668Income taxes receivable
    
    
    2,223
    
    
    
    3,811Deferred income taxes
    
    
    2,404
    
    
    
    2,407Total current assets
    
    
    322,587
    
    
    
    292,409Deferred finance charges
    
    
    15,936
    
    
    
    18,272Deferred income taxes
    
    
    9,735
    
    
    
    7,920Property, plant and equipment, net
    
    
    133,421
    
    
    
    136,968Intangible assets, net
    
    
    186,460
    
    
    
    195,168Goodwill
    
    
    189,909
    
    
    
    192,301Total assets
    
    $
    858,048
    
    
    $
    843,038LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilitiesAccounts payable
    
    $
    89,885
    
    
    $
    75,301Other accrued liabilities
    
    
    17,417
    
    
    
    29,197Due to related party
    
    
    3,940
    
    
    
    3,940Unearned revenue
    
    
    51,224
    
    
    
    14,196Accrued warranty provision
    
    
    4,176
    
    
    
    3,986Income taxes payable
    
    
    4,376
    
    
    
    9,323Current portion of long-term debt
    
    
    6
    
    
    
    2,574Total current liabilities
    
    
    171,024
    
    
    
    138,517Deferred income taxes
    
    
    68,272
    
    
    
    72,542Long-term debt
    
    
    440,013
    
    
    
    470,000Total liabilities
    
    
    679,309
    
    
    
    681,059Commitments and contingencies (Note 8)Stockholders equityCommon
stock(1,000 shares authorized, issued and outstanding, par value $0.01)
    
    
    
    
    
    
    Additional paid in capital
    
    
    215,000
    
    
    
    215,000Accumulated deficit
    
    
    (36,387
    )
    
    
    (53,082
    )Accumulated other comprehensive income
    
    
    126
    
    
    
    61Total stockholders equity
    
    
    178,739
    
    
    
    161,979Total liabilities and stockholders equity
    
    $
    858,048
    
    
    $
    843,038
 The accompanying notes are an integral part of the financial statements.
 2




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##### 



STANDARD AERO HOLDINGS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
(In thousands)
 Nine months Ended September 30, 2005
 Retained
    
    Accumulatedearnings /
    
    other
    
    TotalCommon
    
    
    
    
    
    (Accumulated
    
    comprehensive
    
    Stockholdersstock
    
    Paid in capital
    
    deficit)
    
    income
    
    equityBalance as of December 31, 2004
    
    $
    
    
    
    $
    215,000
    
    
    $
    (3,901
    )
    
    $
    52
    
    
    $
    211,151Comprehensive incomeNet income
    
    
    
    
    
    
    
    
    
    
    13,899
    
    
    
    
    
    
    
    13,899Other comprehensive incomeUnrealized gain on
cash flow hedge
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20
    
    
    
    20Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    13,899
    
    
    
    20
    
    
    
    13,919Balance as of September 30, 2005
    
    $
    
    
    
    $
    215,000
    
    
    $
    9,998
    
    
    $
    72
    
    
    $
    225,070
 Nine months Ended September 30, 2006
 Accumulatedother
    
    Totalcomprehensive
    
    StockholdersCommon stock
    
    Paid in capital
    
    Accumulated deficit
    
    income
    
    equityBalance as of December 31, 2005
    
    $
    
    
    
    $
    215,000
    
    
    $
    (53,082
    )
    
    $
    61
    
    
    $
    161,979Comprehensive incomeNet income
    
    
    
    
    
    
    
    
    
    
    16,695
    
    
    
    
    
    
    
    16,695Other comprehensive incomeUnrealized gain on
cash flow hedge
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    65
    
    
    
    65Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    16,695
    
    
    
    65
    
    
    
    16,760Balance as of September 30, 2006
    
    $
    
    
    
    $
    215,000
    
    
    $
    (36,387
    )
    
    $
    126
    
    
    $
    178,739
 The accompanying notes are an integral part of the financial statements.
 3




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##### 



STANDARD AERO HOLDINGS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
 Nine Months Ended September 30,2006
    
    2005Operating activitiesNet income for the period
    
    $
    16,695
    
    
    $
    13,899Adjustments to reconcile net income to net cash provided
by (used in) operating activitiesDepreciation and amortization
    
    
    19,443
    
    
    
    18,964Amortization of deferred finance charges
    
    
    2,336
    
    
    
    2,356Deferred income taxes
    
    
    (6,082
    )
    
    
    1,035Loss on disposal of property, plant and equipment
    
    
    509
    
    
    
    48Foreign exchange (gain) loss
    
    
    (940
    )
    
    
    566Changes in assets and liabilitiesAccounts receivable, net
    
    
    (10,057
    )
    
    
    (6,613
    )Inventories
    
    
    (16,364
    )
    
    
    840Prepaid expenses and other current assets
    
    
    1,588
    
    
    
    1,040Accounts payable and other current liabilities
    
    
    10,719
    
    
    
    (33,443
    )Income taxes payable and receivable
    
    
    (967
    )
    
    
    (4,259
    )Net cash provided by (used in) operating activities
    
    
    16,880
    
    
    
    (5,567
    )Investing activitiesAcquisitions of property, plant and equipment
    
    
    (4,156
    )
    
    
    (7,054
    )Proceeds from disposals of property, plant, and equipment
    
    
    18
    
    
    
    51Acquisition of rental assets
    
    
    (12,414
    )
    
    
    (13,040
    )Proceeds from disposals of rental assets
    
    
    8,855
    
    
    
    6,828Net cash used in investing activities
    
    
    (7,697
    )
    
    
    (13,215
    )Financing activitiesRepayment of term loan and other
    
    
    (32,555
    )
    
    
    (16,243
    )Increase in revolving credit facility
    
    
    
    
    
    
    8,000Change in due to related party
    
    
    
    
    
    
    6,185Net cash used in financing activities
    
    
    (32,555
    )
    
    
    (2,058
    )Effect of exchange rate changes on cash and cash
equivalents
    
    
    550
    
    
    
    (566
    )Net decrease in cash and cash equivalents
    
    
    (22,822
    )
    
    
    (21,406
    )Cash and cash equivalents  Beginning of period
    
    
    24,056
    
    
    
    27,891Cash and cash equivalents  End of period
    
    $
    1,234
    
    
    $
    6,485
 The accompanying notes are an integral part of the financial statements.
 4




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##### 



STANDARD AERO HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 1
    
    Nature of operations
 The Company
  Name
    
    Country of IncorporationStandard Aero, Inc.
    
    USAStandard Aero (US) Inc.
    
    USAStandard Aero (San Antonio) Inc.
    
    USAStandard Aero (Alliance) Inc.
    
    USAStandard Aero (US) Legal Inc.
    
    USAStandard Aero Materials Inc.
    
    USAStandard Aero Canada Inc.
    
    USAStandard Aero Redesign Services, Inc.
    
    USAStandard Aero de Mexico
    
    MexicoStandard Aero Limited
    
    CanadaNot FM Canada Inc.
    
    Canada3091781 Nova Scotia Company
    
    Canada3091782 Nova Scotia Company
    
    Canada3091783 Nova Scotia Company
    
    CanadaStandard Aero (Australia) Pty Limited
    
    AustraliaStandard Aero International Pty Limited
    
    AustraliaStandard Aero (Asia) Pte Limited
    
    SingaporeStandard Aero BV
    
    NetherlandsStandard Aero (Netherlands) BV
    
    Netherlands
  Basis of presentation
   5




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##### 



STANDARD AERO HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 2
    
    Summary of significant accounting policiesThe condensed consolidated financial statements of the Company have been prepared in
accordance with accounting principles generally accepted in the United States of America (US
GAAP) and are reported in U.S. dollars.
 a)
    
    Stock based compensationEffective January 1, 2006, the Company adopted Statement of Financial Accounting Standards
No. 123(R), Share-Based Payment, using the prospective method. The prospective method
requires compensation cost to be recognized for new awards and for awards modified,
repurchased, or cancelled after the required effective date. Under the prospective
method, the Company will continue to account for any portion of awards outstanding at the
date of adoption using the provisions of APB No. 25 whereby no stock option compensation
expense was recognized in the determination of net income in the accompanying statement of
operations. For the nine months ended September 30, 2006, there was no impact of adopting
Statement FAS 123(R) as no new awards were granted or existing awards modified,
repurchased or cancelled.For all new awards granted, if any, in the future, SFAS 123(R) requires the Company to
estimate the fair value of share based payment awards on the date of grant using an
option-pricing model. The value of the portion of the award that is ultimately expected
to vest is recognized as expense over the requisite service periods in the Companys
Consolidated Statement of Operations.b)
    
    Consolidation of Variable Interest EntityFinancial Accounting Standards Board Interpretation No. 46R, Consolidation of Variable
Interest Entities (FIN 46), which was issued in December 2003, requires the, primary
beneficiary of a variable interest entity (VIE) to include the VIEs assets,
liabilities and operating results in its consolidated financial statements. In general, a
VIE is a corporation, partnership, limited liability corporation, trust or any other
legal structure used to conduct activities or hold assets that either (i) has an
insufficient amount of equity to carry out its principal activities without additional
subordinate financial support; (ii) has a group of owners that are unable to make
significant decisions about its activities; or (iii) has a group of equity owners that do
not have the obligation to absorb losses or the right to receive returns generated by its
operations.In the normal course of business, the Company enters into agreements to provide engine
repair and maintenance services. Certain of these agreements establish trust accounts,
which the customer will deposit cash into the trust account, generally in advance of the
services to be performed under the contract, based on an agreed upon engine operating fee.
Subject to the terms of each agreement, the Company will generally receive cash
distributions from the trust accounts when maintenance worked is performed. Actual gross
payments by the customer into the trust accounts could exceed the cost of services
performed by the Company. Per the agreements the Company would receive the benefit of the
remaining proceeds in the trust account upon completion of the contract, if any. The
Company has determined that the trust accounts are VIEs and that the Company is the
primary beneficiary. Based on this determination, the Company has consolidated the trust
accounts in its consolidated financial statements during the quarter ended June 30, 2006.The consolidation of the VIE resulted in restricted cash of $29.3 million and unearned
revenue of $29.3 million as at September 30, 2006.
 6




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##### 



STANDARD AERO HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 c)
    
    Comparative figuresCertain comparative figures have been reclassified to conform with the current years
financial statement presentation.d)
    
    New accounting standardsIn June 2006, the FASB issued FIN 48, Accounting for Uncertainty in Income Taxes. FIN 48
prescribes a comprehensive model for how a company should recognize, measure, present, and
disclose in its financial statements uncertain tax positions taken or expected to be taken
on a tax return. Under FIN 48, the tax benefit from an uncertain tax position may be
recognized only if it is more likely than not that the tax position will be sustained,
based solely on its technical merits, with the taxing authority having full knowledge of
all relevant information. The measurement of a tax benefit for an uncertain tax position
that meets the more-likely-than-not threshold is based on a cumulative probability model
under which the largest amount of tax benefit recognized is the amount with a greater than
50 percent likelihood of being realized upon ultimate settlement with a taxing authority
having full knowledge of all relevant information. FIN 48 also requires significant new
annual disclosures. FIN 48 is effective for the Company beginning January 1, 2007. The
Company is currently determining the effect of FIN 48 on the consolidated financial
statements.In September 2006, the FASB issued SFAS No. 158, Employers Accounting for Defined Benefit
Pension and Other Postretirement Benefit Plans. SFAS 158 requires companies to recognize
the overfunded or underfunded status of a defined benefit postretirement plan as an asset
or liability in its statement of financial position. This statement is effective for
financial statements as of the end of fiscal years ending after December 15, 2006. The
Company is currently determining the effect of SFAS 158 on the consolidated financial
statements.In September 2006, the Securities and Exchange Commission (SEC) issued Staff Accounting
Bulletin (SAB) No. 108 which provides interpretative guidance on how the effects of the
carryover or reversal of prior year misstatements should be considered in quantifying a
current year misstatement. The SEC staff believes that registrants should quantify errors
using both a balance sheet and an income statement approach and evaluate whether either
approach results in quantifying a misstatement that, when all relevant quantitative and
qualitative factors are considered, is material. We are currently evaluating the impact of
SAB 108 on our consolidated financial statements.
 3
    
    Inventories
 September 30,
    
    December 31,2006
    
    2005(In thousands)Raw materials
    
    $
    61,596
    
    
    $
    66,241Work in process
    
    
    88,779
    
    
    
    67,770$
    150,375
    
    
    $
    134,011
 7




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##### 



STANDARD AERO HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 4
    
    Intangible assets and goodwillIntangible assets are comprised of:
 Gross Carrying
    
    AccumulatedAmount
    
    Amortization
    
    Net BalanceAt September 30, 2006
    
    (In thousands)Definite lived intangible assets:Customer relationships
    
    $
    98,000
    
    
    $
    15,794
    
    
    $
    82,206OEM authorizations and licenses
    
    
    38,350
    
    
    
    6,304
    
    
    
    32,046Technology and other
    
    
    7,900
    
    
    
    3,292
    
    
    
    4,608144,250
    
    
    
    25,390
    
    
    
    118,860Indefinite lived intangible assets:Trademarks
    
    
    67,600
    
    
    
    
    
    
    
    67,600Total intangible assets
    
    $
    211,850
    
    
    $
    25,390
    
    
    $
    186,460
 Gross Carrying
    
    AccumulatedAmount
    
    Amortization
    
    Net BalanceAt December 31, 2005   
    
    
    
    
    
    (In thousands)Definite lived intangible assets:Customer relationships
    
    $
    98,000
    
    
    $
    10,540
    
    
    $
    87,460OEM authorizations and licenses
    
    
    38,350
    
    
    
    4,035
    
    
    
    34,315Technology and other
    
    
    7,900
    
    
    
    2,107
    
    
    
    5,793144,250
    
    
    
    16,682
    
    
    
    127,568Indefinite lived intangible assets:Trademarks
    
    
    67,600
    
    
    
    
    
    
    
    67,600Total intangible assets
    
    $
    211,850
    
    
    $
    16,682
    
    
    $
    195,168
    AviationMaintenance Repair
    
    Enterpriseand Overhaul
    
    Services
    
    TotalBalance as at December 31, 2005
    
    $
    192,301
    
    
    $
    
    
    
    $
    192,301Reallocated from pre-acquisition contingent liabilities
    
    
    (2,392
    )
    
    
    
    
    
    
    (2,392
    )Balance as at September 30, 2006
    
    $
    189,909
    
    
    $
    
    
    
    $
    189,909
  8




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##### 



STANDARD AERO HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 5
    
    Long-term debt
  September 30,
    
    December 31,2006
    
    2005(In thousands)Term loans
    
    $
    240,000
    
    
    $
    270,000Senior subordinated notes
    
    
    200,000
    
    
    
    200,000Obligations under capital leases
    
    
    19
    
    
    
    2,574440,019
    
    
    
    472,574Less: Current portion
    
    
    (6
    )
    
    
    (2,574
    )Long-term debt
    
    $
    440,013
    
    
    $
    470,000
      9




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##### 



STANDARD AERO HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 6
    
    Employee benefit plansThe Company provides defined contribution pension plans and a defined benefit pension
plan covering substantially all of its employees. The Company does not provide any other
post-retirement benefits or supplemental retirement plans.Costs for the defined contribution pension plans for each of the nine months ended
September 30, 2006 and September 30, 2005 were $4.8 million and $4.9 million,
respectively.Costs for the defined benefit pension plans for each of the nine months ended September
30, 2006 and September 30, 2005 were $0.3 million.7
    
    Income taxesThe Companys effective tax rate for the three months ended September 30, 2006 was a benefit
of 12%, which is lower than the U.S. statutory rate of 35% primarily due to $2.5 million of
provision-to-return adjustments recorded in the third quarter to reconcile the
Companys 2005 tax provision to its 2005 tax returns.The Companys effective tax rate for the nine months ended September 30, 2006 was an
expense of 10%, which is lower than the U.S. statutory rate of 35% primarily due
to $2.5 million of provision-to-return adjustments recorded in the third quarter to
reconcile the Companys 2005 tax provision to its 2005 tax returns, a change in
foreign jurisdiction future tax rates enacted in the second quarter, a change
in tax law in the state of Texas, and the impact of foreign exchange rates on deferred tax balances.Approximately $1.6 million of the provision-to-return adjustments was due to the
correction of errors in the calculation of the 2005 tax provision.  Management has determined these adjustments
are not material to prior year interim and annual periods.Similarly the Companys effective tax rate was 47% and 32% for the three and nine months ended
September 30, 2005, respectively, which is different than the U.S. statutory rate of 35% primarily
because of a change in foreign jurisdiction future tax rates enacted in the second quarter and
the impact of foreign exchange rates on deferred tax balances.The estimated annual effective rate is calculated quarterly based on the projected full year
income projections by legal entity in each corresponding tax jurisdiction and the Companys
corporate structure. The effective rate will fluctuate primarily as changes in income by tax
jurisdiction occur.8
    
    Commitments and contingenciesCommitmentsThe Company leases facilities, office equipment, machinery, computer, and rental engines under
non-cancellable operating leases having initial terms of more than one year.Contingent liabilitiesThe Company is involved, from time to time, in legal actions and claims arising in the ordinary
course of business. While the ultimate result of these claims cannot presently be determined,
management does not expect that these matters will have a material adverse effect on the
financial condition, statement of operations or cash flows of the Company.The Company has facilities that are located on land that has been used for industrial purposes
for an extended period of time. The Company has not been named as a defendant to any
environmental suit. Management believes that the Company is currently in substantial
compliance with environmental laws. The Company incurs capital and operating costs relating to
environmental compliance on an ongoing basis. Management does not, however, believe that the
Company will be required under existing environmental laws to expend amounts that would have a
material adverse effect to its financial condition or results of operations as a whole.
 10




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##### 



STANDARD AERO HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 Kelly Air Force Base subcontract
    
    
    The amendment provides that each extension of KACs prime contract with the U.S. Air
Force, Oklahoma City Air Logistic Center will result in the KAC subcontract being extended
as well. As a result, the KAC subcontract has been extended until February of 2010 and
will be extended for additional years to February 2014 if and when annual option years are
awarded to the prime contractor.
    
    The amendment provides that commencing in the governments fiscal year ending September
30, 2007, the Company will be subject to annual performance evaluations based on objective
criteria. In the event that the Company fails to perform satisfactorily it will be
required to pay liquidated damages to KAC. These liquidated damages are initially capped
at $2 million in any year, but may be as high as $4 million in certain circumstances if
the Company fails to perform satisfactorily in successive years. Based on the past five
years of performance on the contract, the Company estimates that it would have incurred an
aggregate of approximately $500,000 of liquidated damages had the performance evaluation
criteria been in place during those years.
    
    The amendment provides for a commitment by the Company to provide cost savings to KAC
in the form of a reduction in the prices that the Company charges to KAC for MRO services.
The revised terms will result in a pre-determined cost savings for the twelve months
ended September 30, 2007. The cost savings to KAC for each 12-month period thereafter will
be determined by a formula that includes several variables.
  11




---



##### 



STANDARD AERO HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 9
    
    Stock based compensationCertain employees of the Company are eligible to participate in the Companys parent Standard
Aero Acquisition Holdings, Inc.s (SAAHI) Stock Option Plan (the Plan) which was approved by
the Companys Board of Directors in December 2004. A total of 425,000 stock options have been
approved for issuance under this Plan. As of September 30, 2006, SAAHI has 175,725 stock
options outstanding, each of which may be used to purchase one share of SAAHI common stock. The
options have a ten year life and an exercise price of one hundred dollars per share, which was
equivalent to the exercise price at that date. Approximately 32% of the options are time
vesting options that will vest on or prior to December 31, 2008. Approximately 46% of the
options are performance vesting options that will vest on the day immediately preceding the
seventh anniversary of the date of grant, provided the option holder remains continuously
employed with the Company. However, all or a portion of such performance vesting options may
vest and become exercisable over a five-year period, starting with 2004, if certain performance
targets relating to earnings and debt repayment are met. Approximately 22% of the options are
performance vesting options that will vest between December 31, 2006 and December 31, 2008 if
certain performance targets relating to earnings are met. In addition, these options vest upon
the occurrence of certain stated liquidity events, as defined in the Plan.The following is a summary of the stock options:
 Nine months ended September 30,2006
    
    2005Opening balance as of January 1
    
    
    192,398
    
    
    
    206,071Granted
    
    
    
    
    
    
    3,000Exercised
    
    
    
    
    
    
    Cancelled
    
    
    16,673
    
    
    
    Outstanding as of September 30
    
    
    175,725
    
    
    
    209,071Weighted average remaining life as of September 30
    
    4.2 years
    

    
    5.5 yearsOptions exercisable as of September 30
    
    
    38,939
    
    
    
    17,952Weighted average exercise prices
    
    $100 per share
    
    
    $100 per shareAggregate intrinsic value
    
    
    
    
    
    
    
 10
    
    Related party transactionsAt September 30, 2006, the Company has an outstanding payable of $3.9 million to its parent,
Standard Aero Acquisition Holdings, Inc. (SAAHI), for cash advanced by SAAHI. The payable is
non-interest bearing and has no repayment terms, however is payable on demand.The Carlyle Group charges the Company a monthly management fee of $125,000.
 12




---



##### 



STANDARD AERO HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 11
    
    GuaranteesThe Company issues letters of credit, performance bonds, bid bonds or guarantees in the
ordinary course of its business. These instruments are generally issued in conjunction with
contracts or other business requirements. The total of these instruments outstanding at
September 30, 2006 was approximately $3.6 million (September 30, 2005  $2.7 million).Warranty guaranteeReserves are recorded to reflect the Companys contractual liabilities relating to warranty
commitments to customers. Warranty coverage of various lengths and terms is provided to
customers depending on standard offerings and negotiated contractual agreements.Changes in the carrying amount of accrued warranty costs for the nine-month period ended
September 30 are summarized as follows:
 2006
    
    2005(In thousands)Balance at January 1
    
    $
    (3,986
    )
    
    $
    (6,907
    )Warranty costs incurred
    
    
    2,554
    
    
    
    1,811Warranty accrued
    
    
    (2,744
    )
    
    
    (97
    )Balance at September 30
    
    $
    (4,176
    )
    
    $
    (5,193
    )
 12
    
    Segment informationThe Company has two principal operating segments, which are Aviation Maintenance Repair and
Overhaul (Aviation MRO) and Enterprise Services. The Aviation MRO segment provides gas turbine
engine maintenance repair and overhaul services primarily for the aviation market. The
Enterprise Services segment provides services related to the design and implementation of lean
manufacturing operational redesigns. These operating segments were determined based on the
nature of the products and services offered. Operating segments are defined as components of an
enterprise about which separate financial information is available that is evaluated regularly
by the chief operating decision-maker in deciding how to allocate resources and in assessing
performance. The Companys chief executive officer has been identified as the chief operating
decision-maker. The Companys chief operating decision-maker directs the allocation of
resources to operating segments based on profitability and cash flows of each respective
segment.Certain administrative and management services are shared by the segments and are
allocated based on direct usage, revenue and employee levels. Corporate management expenses
and interest expense are not allocated to the segments.There are no revenues between segments.For the three months ended September 30, 2006
 EnterpriseAviation MRO
    
    Services
    
    Unallocated
    
    Total(In thousands)Revenues
    
    $
    186,397
    
    
    $
    9,686
    
    
    $
    
    
    
    $
    196,083Income before income taxes
    
    
    15,679
    
    
    
    631
    
    
    
    (11,240
    )
    
    
    5,070
 13




---



##### 



STANDARD AERO HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 For the three months ended September 30, 2005
 EnterpriseAviation MRO
    
    Services
    
    Unallocated
    
    Total(In thousands)Revenues
    
    $
    195,896
    
    
    $
    2,371
    
    
    $
    
    
    
    $
    198,267Income (loss)
before income taxes
    
    
    23,298
    
    
    
    (697
    )
    
    
    (14,721
    )
    
    
    7,880
 For the nine months ended September 30, 2006
 EnterpriseAviation MRO
    
    Services
    
    Unallocated
    
    Total(In thousands)Revenues
    
    $
    555,032
    
    
    $
    27,220
    
    
    $
    
    
    
    $
    582,252Income before income taxes
    
    
    55,063
    
    
    
    84
    
    
    
    (36,590
    )
    
    
    18,557
 For the nine months ended September 30, 2005
 EnterpriseAviation MRO
    
    Services
    
    Unallocated
    
    Total(In thousands)Revenues
    
    $
    554,457
    
    
    $
    3,005
    
    
    $
    
    
    
    $
    557,462Income (loss)
before income taxes
    
    
    61,811
    
    
    
    (3,379
    )
    
    
    (37,941
    )
    
    
    20,491
 14




---



##### 



STANDARD AERO HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 13
    
    Guarantor informationSeparate financial statements of the Guarantor Subsidiaries are not presented because
guarantees of the Notes are full and unconditional and joint and several. The Guarantor
Subsidiaries guarantee the senior subordinated notes. The Guarantor Subsidiaries are 100%
owned by the Company.
 Condensed Consolidating Statements of Operations
For the three months ended September 30, 2006
(Unaudited)
 Subsidiary
    
    Subsidiary
    
    CombiningParent
    
    Guarantors
    
    Non-Guarantors
    
    Adjustments
    
    Total(In thousands)Revenues
    
    $
    
    
    
    $
    174,345
    
    
    $
    21,991
    
    
    $
    (253
    )
    
    $
    196,083Operating expensesCost of revenues
    
    
    
    
    
    
    145,981
    
    
    
    24,704
    
    
    
    (253
    )
    
    
    170,432Selling, general and
administrative expense
    
    
    1,211
    
    
    
    6,172
    
    
    
    1,123
    
    
    
    
    
    
    
    8,506Amortization of intangible assets
    
    
    
    
    
    
    2,146
    
    
    
    
    
    
    
    
    
    
    
    2,146Total operating expenses
    
    
    1,211
    
    
    
    154,299
    
    
    
    25,827
    
    
    
    (253
    )
    
    
    181,084Income (loss) from operations
    
    
    (1,211
    )
    
    
    20,046
    
    
    
    (3,836
    )
    
    
    
    
    
    
    14,999Interest expense
    
    
    9,530
    
    
    
    297
    
    
    
    102
    
    
    
    
    
    
    
    9,929Income (loss) before income taxes
    
    
    (10,741
    )
    
    
    19,749
    
    
    
    (3,938
    )
    
    
    
    
    
    
    5,070Income tax expense (benefit)
    
    
    (5,338
    )
    
    
    5,393
    
    
    
    (663
    )
    
    
    
    
    
    
    (608
    )Income (loss) before equity
earnings of subsidiaries
    
    
    (5,403
    )
    
    
    14,356
    
    
    
    (3,275
    )
    
    
    
    
    
    
    5,678Equity in earnings (losses) of
subsidiaries
    
    
    11,081
    
    
    
    (2,830
    )
    
    
    
    
    
    
    (8,251
    )
    
    
    Net income (loss)
    
    $
    5,678
    
    
    $
    11,526
    
    
    $
    (3,275
    )
    
    $
    (8,251
    )
    
    $
    5,678
  15




---



##### 



STANDARD AERO HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 Condensed Consolidating Statements of Operations
For the three months ended September 30, 2005
(Unaudited)
 Subsidiary
    
    Subsidiary
    
    CombiningParent
    
    Guarantors
    
    Non-Guarantors
    
    Adjustments
    
    Total(In thousands)Revenues
    
    $
    
    
    
    $
    176,693
    
    
    $
    22,633
    
    
    $
    (1,059
    )
    
    $
    198,267Operating expensesCost of revenues
    
    
    
    
    
    
    144,345
    
    
    
    20,166
    
    
    
    (1,059
    )
    
    
    163,452Selling, general and
administrative expense
    
    
    1,958
    
    
    
    8,988
    
    
    
    1,356
    
    
    
    
    
    
    
    12,302Amortization of intangible assets
    
    
    
    
    
    
    2,346
    
    
    
    
    
    
    
    
    
    
    
    2,346Restructuring costs
    
    
    
    
    
    
    2,014
    
    
    
    1,201
    
    
    
    
    
    
    
    3,215Total operating expenses
    
    
    1,958
    
    
    
    157,693
    
    
    
    22,723
    
    
    
    (1,059
    )
    
    
    181,315Income (loss) from operations
    
    
    (1,958
    )
    
    
    19,000
    
    
    
    (90
    )
    
    
    
    
    
    
    16,952Interest expense
    
    
    8,769
    
    
    
    221
    
    
    
    82
    
    
    
    
    
    
    
    9,072Income (loss) before income taxes
    
    
    (10,727
    )
    
    
    18,779
    
    
    
    (172
    )
    
    
    
    
    
    
    7,880Income tax expense (benefit)
    
    
    (3,758
    )
    
    
    7,414
    
    
    
    29
    
    
    
    
    
    
    
    3,685Income (loss) before equity
earnings of subsidiaries
    
    
    (6,969
    )
    
    
    11,365
    
    
    
    (201
    )
    
    
    
    
    
    
    4,195Equity in earnings (losses) of
subsidiaries
    
    
    11,164
    
    
    
    (249
    )
    
    
    
    
    
    
    (10,915
    )
    
    
    Net income (loss)
    
    $
    4,195
    
    
    $
    11,116
    
    
    $
    (201
    )
    
    $
    (10,915
    )
    
    $
    4,195
 16




---



##### 



STANDARD AERO HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 Condensed Consolidating Statements of Operations
For the nine months ended September 30, 2006
(Unaudited)
 Subsidiary
    
    Subsidiary
    
    CombiningParent
    
    Guarantors
    
    Non-Guarantors
    
    Adjustments
    
    Total(In thousands)Revenues
    
    $
    
    
    
    $
    522,367
    
    
    $
    62,485
    
    
    $
    (2,600
    )
    
    $
    582,252Operating expensesCost of revenues
    
    
    
    
    
    
    432,691
    
    
    
    62,393
    
    
    
    (2,600
    )
    
    
    492,484Selling, general and
administrative expense
    
    
    4,718
    
    
    
    27,003
    
    
    
    4,096
    
    
    
    
    
    
    
    35,817Amortization of intangible assets
    
    
    
    
    
    
    6,438
    
    
    
    
    
    
    
    
    
    
    
    6,438Total operating expenses
    
    
    4,718
    
    
    
    466,132
    
    
    
    66,489
    
    
    
    (2,600
    )
    
    
    534,739Income (loss) from operations
    
    
    (4,718
    )
    
    
    56,235
    
    
    
    (4,004
    )
    
    
    
    
    
    
    47,513Interest expense
    
    
    25,746
    
    
    
    3,093
    
    
    
    117
    
    
    
    
    
    
    
    28,956Income (loss) before income taxes
    
    
    (30,464
    )
    
    
    53,142
    
    
    
    (4,121
    )
    
    
    
    
    
    
    18,557Income tax expense (benefit)
    
    
    (12,638
    )
    
    
    15,349
    
    
    
    (849
    )
    
    
    
    
    
    
    1,862Income (loss) before equity
earnings of subsidiaries
    
    
    (17,826
    )
    
    
    37,793
    
    
    
    (3,272
    )
    
    
    
    
    
    
    16,695Equity in earnings (losses) of
subsidiaries
    
    
    34,521
    
    
    
    (2,617
    )
    
    
    
    
    
    
    (31,904
    )
    
    
    Net income (loss)
    
    $
    16,695
    
    
    $
    35,176
    
    
    $
    (3,272
    )
    
    $
    (31,904
    )
    
    $
    16,695
 17




---



##### 



STANDARD AERO HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 Condensed Consolidating Statements of Operations
For the nine months ended September 30, 2005
(Unaudited)
 Subsidiary
    
    Subsidiary
    
    CombiningParent
    
    Guarantors
    
    Non-Guarantors
    
    Adjustments
    
    Total(In thousands)Revenues
    
    $
    
    
    
    $
    487,925
    
    
    $
    75,722
    
    
    $
    (6,185
    )
    
    $
    557,462Operating expensesCost of revenues
    
    
    
    
    
    
    398,403
    
    
    
    69,600
    
    
    
    (6,185
    )
    
    
    461,818Selling, general and
administrative expense
    
    
    3,944
    
    
    
    28,475
    
    
    
    5,387
    
    
    
    
    
    
    
    37,806Amortization of intangible assets
    
    
    
    
    
    
    7,238
    
    
    
    
    
    
    
    
    
    
    
    7,238Restructuring costs
    
    
    
    
    
    
    2,014
    
    
    
    1,201
    
    
    
    
    
    
    
    3,215Total operating expenses
    
    
    3,944
    
    
    
    436,130
    
    
    
    76,188
    
    
    
    (6,185
    )
    
    
    510,077Income (loss) from operations
    
    
    (3,944
    )
    
    
    51,795
    
    
    
    (466
    )
    
    
    
    
    
    
    47,385Interest expense
    
    
    25,278
    
    
    
    1,224
    
    
    
    392
    
    
    
    
    
    
    
    26,894Income (loss) before income taxes
    
    
    (29,222
    )
    
    
    50,571
    
    
    
    (858
    )
    
    
    
    
    
    
    20,491Income tax expense (benefit)
    
    
    (10,228
    )
    
    
    17,475
    
    
    
    (655
    )
    
    
    
    
    
    
    6,592Income (loss) before equity
earnings of subsidiaries
    
    
    (18,994
    )
    
    
    33,096
    
    
    
    (203
    )
    
    
    
    
    
    
    13,899Equity in earnings (losses) of
subsidiaries
    
    
    32,893
    
    
    
    (431
    )
    
    
    
    
    
    
    (32,462
    )
    
    
    Net income (loss)
    
    $
    13,899
    
    
    $
    32,665
    
    
    $
    (203
    )
    
    $
    (32,462
    )
    
    $
    13,899
 18




---



##### 



STANDARD AERO HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 Condensed Consolidating Balance Sheet
September 30, 2006
(Unaudited)
 Subsidiary
    
    Subsidiary
    
    CombiningParent
    
    Guarantors
    
    Non-Guarantors
    
    Adjustments
    
    Total(In thousands)ASSETSCurrent assetsCash and cash equivalents
    
    $
    339
    
    
    $
    (1,264
    )
    
    $
    2,159
    
    
    $
    
    
    
    $
    1,234Cash and cash equivalents (restricted)
    
    
    
    
    
    
    29,303
    
    
    
    
    
    
    
    
    
    
    
    29,303Accounts receivable
    
    
    
    
    
    
    110,602
    
    
    
    19,911
    
    
    
    
    
    
    
    130,513Due from related party
    
    
    50,558
    
    
    
    189,746
    
    
    
    484
    
    
    
    (240,788
    )
    
    
    Inventories
    
    
    
    
    
    
    121,280
    
    
    
    29,095
    
    
    
    
    
    
    
    150,375Prepaid expenses and other current assets
    
    
    474
    
    
    
    4,990
    
    
    
    1,071
    
    
    
    
    
    
    
    6,535Income taxes receivable
    
    
    
    
    
    
    53
    
    
    
    2,170
    
    
    
    
    
    
    
    2,223Deferred income taxes
    
    
    
    
    
    
    2,107
    
    
    
    297
    
    
    
    
    
    
    
    2,404Total current assets
    
    
    51,371
    
    
    
    456,817
    
    
    
    55,187
    
    
    
    (240,788
    )
    
    
    322,587Deferred finance charges
    
    
    8,302
    
    
    
    7,634
    
    
    
    
    
    
    
    
    
    
    
    15,936Deferred income taxes
    
    
    
    
    
    
    6,621
    
    
    
    3,114
    
    
    
    
    
    
    
    9,735Property, plant and equipment, net
    
    
    
    
    
    
    113,898
    
    
    
    19,523
    
    
    
    
    
    
    
    133,421Intangible assets, net
    
    
    
    
    
    
    182,594
    
    
    
    3,866
    
    
    
    
    
    
    
    186,460Due from related party
    
    
    
    
    
    
    5,729
    
    
    
    
    
    
    
    (5,729
    )
    
    
    Goodwill
    
    
    
    
    
    
    189,909
    
    
    
    
    
    
    
    
    
    
    
    189,909Investments in subsidiaries
    
    
    731,069
    
    
    
    38,392
    
    
    
    
    
    
    
    (769,461
    )
    
    
    Total assets
    
    $
    790,742
    
    
    $
    1,001,594
    
    
    $
    81,690
    
    
    $
    (1,015,978
    )
    
    $
    858,048LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilitiesAccounts payable
    
    $
    21
    
    
    $
    82,869
    
    
    $
    6,995
    
    
    $
    
    
    
    $
    89,885Other accrued liabilities
    
    
    3,542
    
    
    
    11,598
    
    
    
    2,277
    
    
    
    
    
    
    
    17,417Due to related party
    
    
    168,027
    
    
    
    62,474
    
    
    
    14,227
    
    
    
    (240,788
    )
    
    
    3,940Unearned revenue
    
    
    
    
    
    
    44,795
    
    
    
    6,429
    
    
    
    
    
    
    
    51,224Accrued warranty provision
    
    
    
    
    
    
    3,203
    
    
    
    973
    
    
    
    
    
    
    
    4,176Income taxes payable
    
    
    
    
    
    
    4,304
    
    
    
    72
    
    
    
    
    
    
    
    4,376Current portion of long-term debt
    
    
    
    
    
    
    6
    
    
    
    
    
    
    
    
    
    
    
    6Total current liabilities
    
    
    171,590
    
    
    
    209,249
    
    
    
    30,973
    
    
    
    (240,788
    )
    
    
    171,024Deferred income taxes
    
    
    521
    
    
    
    62,660
    
    
    
    5,091
    
    
    
    
    
    
    
    68,272Due to related party
    
    
    
    
    
    
    
    
    
    
    5,729
    
    
    
    (5,729
    )
    
    
    Long-term debt
    
    
    440,000
    
    
    
    13
    
    
    
    
    
    
    
    
    
    
    
    440,013Total liabilities
    
    
    612,111
    
    
    
    271,922
    
    
    
    41,793
    
    
    
    (246,517
    )
    
    
    679,309Stockholders equityCommon stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Additional paid in capital
    
    
    215,000
    
    
    
    709,656
    
    
    
    47,612
    
    
    
    (757,268
    )
    
    
    215,000Retained earnings / (deficit)
    
    
    (36,387
    )
    
    
    20,016
    
    
    
    (7,823
    )
    
    
    (12,193
    )
    
    
    (36,387
    )Accumulated other comprehensive income
    
    
    18
    
    
    
    
    
    
    
    108
    
    
    
    
    
    
    
    126Total stockholders equity
    
    
    178,631
    
    
    
    729,672
    
    
    
    39,897
    
    
    
    (769,461
    )
    
    
    178,739Total liabilities and stockholders equity
    
    $
    790,742
    
    
    $
    1,001,594
    
    
    $
    81,690
    
    
    $
    (1,015,978
    )
    
    $
    858,048
 19




---



##### 



STANDARD AERO HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 Condensed Consolidating Balance Sheet
December 31, 2005
(Unaudited)
 Subsidiary
    
    Subsidiary
    
    CombiningParent
    
    Guarantors
    
    Non-Guarantors
    
    Adjustments
    
    Total(In thousands)ASSETSCurrent assetsCash and cash equivalents
    
    $
    557
    
    
    $
    20,519
    
    
    $
    2,980
    
    
    $
    
    
    
    $
    24,056Accounts receivable
    
    
    
    
    
    
    101,271
    
    
    
    19,185
    
    
    
    
    
    
    
    120,456Due from related party
    
    
    34,635
    
    
    
    114,679
    
    
    
    3,451
    
    
    
    (152,765
    )
    
    
    Inventories
    
    
    
    
    
    
    103,986
    
    
    
    30,025
    
    
    
    
    
    
    
    134,011Prepaid expenses and other current assets
    
    
    100
    
    
    
    6,453
    
    
    
    1,115
    
    
    
    
    
    
    
    7,668Income taxes receivable
    
    
    
    
    
    
    1,389
    
    
    
    2,422
    
    
    
    
    
    
    
    3,811Deferred income taxes
    
    
    
    
    
    
    1,661
    
    
    
    746
    
    
    
    
    
    
    
    2,407Total current assets
    
    
    35,292
    
    
    
    349,958
    
    
    
    59,924
    
    
    
    (152,765
    )
    
    
    292,409Deferred finance charges
    
    
    8,968
    
    
    
    9,304
    
    
    
    
    
    
    
    
    
    
    
    18,272Deferred income taxes
    
    
    
    
    
    
    6,068
    
    
    
    1,852
    
    
    
    
    
    
    
    7,920Property, plant and equipment, net
    
    
    
    
    
    
    115,884
    
    
    
    21,084
    
    
    
    
    
    
    
    136,968Intangible assets, net
    
    
    
    
    
    
    190,894
    
    
    
    4,274
    
    
    
    
    
    
    
    195,168Due from related party
    
    
    
    
    
    
    5,467
    
    
    
    
    
    
    
    (5,467
    )
    
    
    Goodwill
    
    
    
    
    
    
    192,301
    
    
    
    
    
    
    
    
    
    
    
    192,301Investments in subsidiaries
    
    
    698,940
    
    
    
    38,617
    
    
    
    
    
    
    
    (737,557
    )
    
    
    Total assets
    
    $
    743,200
    
    
    $
    908,493
    
    
    $
    87,134
    
    
    $
    (895,789
    )
    
    $
    843,038LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilitiesAccounts payable
    
    $
    135
    
    
    $
    64,654
    
    
    $
    10,512
    
    
    $
    
    
    
    $
    75,301Other accrued liabilities
    
    
    9,980
    
    
    
    16,018
    
    
    
    3,199
    
    
    
    
    
    
    
    29,197Due to related party
    
    
    101,041
    
    
    
    43,708
    
    
    
    11,956
    
    
    
    (152,765
    )
    
    
    3,940Unearned revenue
    
    
    
    
    
    
    7,791
    
    
    
    6,405
    
    
    
    
    
    
    
    14,196Accrued warranty provision
    
    
    
    
    
    
    2,782
    
    
    
    1,204
    
    
    
    
    
    
    
    3,986Income taxes payable
    
    
    
    
    
    
    9,151
    
    
    
    172
    
    
    
    
    
    
    
    9,323Current portion of long-term debt
    
    
    
    
    
    
    2,261
    
    
    
    313
    
    
    
    
    
    
    
    2,574Total current liabilities
    
    
    111,156
    
    
    
    146,365
    
    
    
    33,761
    
    
    
    (152,765
    )
    
    
    138,517Deferred income taxes
    
    
    65
    
    
    
    67,632
    
    
    
    4,845
    
    
    
    
    
    
    
    72,542Due to related party
    
    
    
    
    
    
    
    
    
    
    5,467
    
    
    
    (5,467
    )
    
    
    Long-term debt
    
    
    470,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    470,000Total liabilities
    
    
    581,221
    
    
    
    213,997
    
    
    
    44,073
    
    
    
    (158,232
    )
    
    
    681,059Stockholders equityCommon stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Additional paid in capital
    
    
    215,000
    
    
    
    709,656
    
    
    
    47,612
    
    
    
    (757,268
    )
    
    
    215,000Retained earnings / (deficit)
    
    
    (53,082
    )
    
    
    (15,160
    )
    
    
    (4,551
    )
    
    
    19,711
    
    
    
    (53,082
    )Accumulated other comprehensive income
    
    
    61
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    61Total stockholders equity
    
    
    161,979
    
    
    
    694,496
    
    
    
    43,061
    
    
    
    (737,557
    )
    
    
    161,979Total liabilities and stockholders equity
    
    $
    743,200
    
    
    $
    908,493
    
    
    $
    87,134
    
    
    $
    (895,789
    )
    
    $
    843,038
 20




---



##### 



STANDARD AERO HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 Condensed Consolidating Statement of Cash Flows
For the nine months ended September 30, 2006
(Unaudited)
 Subsidiary
    
    Subsidiary
    
    CombiningParent
    
    Guarantors
    
    Non-Guarantors
    
    Adjustments
    
    Total(In thousands)Operating activitiesNet income (loss) for the period
    
    $
    16,695
    
    
    $
    35,176
    
    
    $
    (3,272
    )
    
    $
    (31,904
    )
    
    $
    16,695Adjustments to reconcile net income to net
Cash provided by (used in) operating activitiesDepreciation and amortization
    
    
    
    
    
    
    16,259
    
    
    
    3,184
    
    
    
    
    
    
    
    19,443Amortization of deferred finance charges
    
    
    666
    
    
    
    1,670
    
    
    
    
    
    
    
    
    
    
    
    2,336Deferred income taxes
    
    
    456
    
    
    
    (5,971
    )
    
    
    (567
    )
    
    
    
    
    
    
    (6,082
    )Gain on disposal of property, plant
and equipment
    
    
    
    
    
    
    7
    
    
    
    502
    
    
    
    
    
    
    
    509Foreign exchange (gain)
    
    
    (390
    )
    
    
    (372
    )
    
    
    (178
    )
    
    
    
    
    
    
    (940
    )Equity in (losses) earnings of subsidiaries
    
    
    (34,521
    )
    
    
    2,617
    
    
    
    
    
    
    
    31,904
    
    
    
    Changes in assets and liabilitiesAccounts receivable, net
    
    
    
    
    
    
    (9,331
    )
    
    
    (726
    )
    
    
    
    
    
    
    (10,057
    )Inventories
    
    
    
    
    
    
    (17,294
    )
    
    
    930
    
    
    
    
    
    
    
    (16,364
    )Prepaid expenses and other current assets
    
    
    (27
    )
    
    
    1,463
    
    
    
    152
    
    
    
    
    
    
    
    1,588Accounts payable and other accrued
liabilities
    
    
    (6,552
    )
    
    
    21,917
    
    
    
    (4,646
    )
    
    
    
    
    
    
    10,719Income taxes payable and receivable
    
    
    2,392
    
    
    
    (3,511
    )
    
    
    152
    
    
    
    
    
    
    
    (967
    )Net cash (used in) provided by operating
activities
    
    
    (21,281
    )
    
    
    42,630
    
    
    
    (4,469
    )
    
    
    
    
    
    
    16,880Investing activitiesAcquisitions of property, plant and equipment
    
    
    
    
    
    
    (3,754
    )
    
    
    (402
    )
    
    
    
    
    
    
    (4,156
    )Proceeds on disposal of property, plant and
Equipment
    
    
    
    
    
    
    8
    
    
    
    10
    
    
    
    
    
    
    
    18Acquisition of rental assets
    
    
    
    
    
    
    (10,497
    )
    
    
    (1,917
    )
    
    
    
    
    
    
    (12,414
    )Proceeds on disposal of rental assets
    
    
    
    
    
    
    8,001
    
    
    
    854
    
    
    
    
    
    
    
    8,855Net cash used in investing activities
    
    
    
    
    
    
    (6,242
    )
    
    
    (1,455
    )
    
    
    
    
    
    
    (7,697
    )Financing activitiesRepayment of debt
    
    
    (30,000
    )
    
    
    (2,242
    )
    
    
    (313
    )
    
    
    
    
    
    
    (32,555
    )Change in due to and (from) related companies
    
    
    51,063
    
    
    
    (56,301
    )
    
    
    5,238
    
    
    
    
    
    
    
    Net cash (used in) provided by financing
activities
    
    
    21,063
    
    
    
    (58,543
    )
    
    
    4,925
    
    
    
    
    
    
    
    (32,555
    )Effect of exchange rate changes on cash and
cash equivalents
    
    
    
    
    
    
    372
    
    
    
    178
    
    
    
    
    
    
    
    550Net decrease in cash and cash
equivalents
    
    
    (218
    )
    
    
    (21,783
    )
    
    
    (821
    )
    
    
    
    
    
    
    (22,822
    )Cash and cash equivalents  Beginning of
period
    
    
    557
    
    
    
    20,519
    
    
    
    2,980
    
    
    
    
    
    
    
    24,056Cash and cash equivalents  End of period
    
    $
    339
    
    
    $
    (1,264
    )
    
    $
    2,159
    
    
    $
    
    
    
    $
    1,234
 21




---



##### 



STANDARD AERO HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 Condensed Consolidating Statement of Cash Flows
For the nine months ended September 30, 2005
(Unaudited)
 Subsidiary
    
    Subsidiary
    
    CombiningParent
    
    Guarantors
    
    Non-Guarantors
    
    Adjustments
    
    Total(In thousands)Operating activitiesNet income (loss) for the period
    
    $
    13,899
    
    
    $
    32,665
    
    
    $
    (203
    )
    
    $
    (32,462
    )
    
    $
    13,899Adjustments to reconcile net income to net
cash provided by (used in) operating activitiesDepreciation and amortization
    
    
    
    
    
    
    16,822
    
    
    
    2,142
    
    
    
    
    
    
    
    18,964Amortization of deferred finance charges
    
    
    1,223
    
    
    
    1,133
    
    
    
    
    
    
    
    
    
    
    
    2,356Deferred income taxes
    
    
    
    
    
    
    930
    
    
    
    105
    
    
    
    
    
    
    
    1,035Loss on disposal of property, plant and
equipment
    
    
    
    
    
    
    48
    
    
    
    
    
    
    
    
    
    
    
    48Foreign exchange loss
    
    
    
    
    
    
    530
    
    
    
    36
    
    
    
    
    
    
    
    566Equity in earnings (losses) of subsidiaries
    
    
    (32,893
    )
    
    
    431
    
    
    
    
    
    
    
    32,462
    
    
    
    Changes in assets and liabilitiesAccounts receivable, net
    
    
    
    
    
    
    (328
    )
    
    
    (6,285
    )
    
    
    
    
    
    
    (6,613
    )Inventories
    
    
    
    
    
    
    947
    
    
    
    (107
    )
    
    
    
    
    
    
    840Prepaid expenses and other current assets
    
    
    (56
    )
    
    
    860
    
    
    
    236
    
    
    
    
    
    
    
    1,040Accounts payable and other accrued
liabilities
    
    
    (6,510
    )
    
    
    (21,065
    )
    
    
    (5,868
    )
    
    
    
    
    
    
    (33,443
    )Income taxes payable and receivable
    
    
    4,729
    
    
    
    (9,157
    )
    
    
    169
    
    
    
    
    
    
    
    (4,259
    )Net cash (used in) provided by operating
activities
    
    
    (19,608
    )
    
    
    23,816
    
    
    
    (9,775
    )
    
    
    
    
    
    
    (5,567
    )Investing activitiesAcquisitions of property, plant and equipment
    
    
    
    
    
    
    (6,373
    )
    
    
    (681
    )
    
    
    
    
    
    
    (7,054
    )Proceeds on disposal of property, plant and
equipment
    
    
    
    
    
    
    51
    
    
    
    
    
    
    
    
    
    
    
    51Acquisition of rental assets
    
    
    
    
    
    
    (10,114
    )
    
    
    (2,926
    )
    
    
    
    
    
    
    (13,040
    )Proceeds on disposal of rental assets
    
    
    
    
    
    
    5,528
    
    
    
    1,300
    
    
    
    
    
    
    
    6,828Net cash used in investing activities
    
    
    
    
    
    
    (10,908
    )
    
    
    (2,307
    )
    
    
    
    
    
    
    (13,215
    )Financing activitiesRepayment of debt
    
    
    (15,000
    )
    
    
    (969
    )
    
    
    (274
    )
    
    
    
    
    
    
    (16,243
    )Increase in revolving credit facility
    
    
    8,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,000Change in due to and (from) related companies
    
    
    23,193
    
    
    
    (25,222
    )
    
    
    8,214
    
    
    
    
    
    
    
    6,185Net cash (used in) provided by financing
activities
    
    
    16,193
    
    
    
    (26,191
    )
    
    
    7,940
    
    
    
    
    
    
    
    (2,058
    )Effect of exchange rate changes on cash and
cash equivalents
    
    
    
    
    
    
    (530
    )
    
    
    (36
    )
    
    
    
    
    
    
    (566
    )Net decrease in cash and cash
equivalents
    
    
    (3,415
    )
    
    
    (13,813
    )
    
    
    (4,178
    )
    
    
    
    
    
    
    (21,406
    )Cash and cash equivalents  Beginning of
period
    
    
    4,116
    
    
    
    18,521
    
    
    
    5,254
    
    
    
    
    
    
    
    27,891Cash and cash equivalents  End of period
    
    $
    701
    
    
    $
    4,708
    
    
    $
    1,076
    
    
    $
    
    
    
    $
    6,485
 22




---



##### 



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Special Note Regarding Forward Looking Statements
 Certain statements included in Managements Discussion and Analysis of Financial Condition and
Results of Operations, other than purely historical information, including estimates, projections,
statements relating to our business plans, objectives and expected operating results, and the
assumptions upon which those statements are based, are forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act
of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements
generally are identified by the words believes, project, expects, anticipates, estimates,
intends, strategy, plan, may, will, would, will be, will continue, will likely
result, and similar expressions. Forward-looking statements are based on current expectations and
assumptions that are subject to risks and uncertainties which may cause actual results to differ
materially from the forward-looking statements, including those risks and uncertainties described
under the caption  Risk Factors herein and in our Annual Report on Form 10-K for the year ended
December 31, 2005. We undertake no obligation to update or revise publicly any forward-looking
statements, whether as a result of new information, future events or otherwise.
 Overview
   
    
    the number of engines in operation (the installed base);
    
    the age of the installed base; and
    
    the utilization rate of the installed base.
   23




---



##### 



Kelly Air Force Base Subcontract
     
    
    The amendment provides that each extension of KACs prime contract with the U.S. Air
Force, Oklahoma City Air Logistic Center will result in the KAC subcontract being extended
as well. As a result, the KAC subcontract has been extended until February 2010 and will be
extended for additional years to February 2014 if and when annual option years are awarded
to KAC under the prime contract.
    
    The amendment provides that commencing in the governments fiscal year ending September
30, 2007, we will be subject to annual performance evaluations based on objective criteria.
In the event that we fail to perform satisfactorily we will be required to pay liquidated
damages to KAC. These liquidated damages are initially capped at $2.0 million in any year
but may be as high as $4.0 million in certain circumstances if we fail to perform
satisfactorily in successive years. Based on the past five years of performance on the
contract, we estimate that we would have incurred an aggregate of approximately $500,000 of
liquidated damages had the performance evaluation criteria been in place during those
years.
    
    The amendment provides for a commitment by us to provide cost savings to KAC in the form
of a reduction in the prices that we charge to KAC for MRO services. The revised terms
will result in a pre-determined cost savings for the twelve months ended September 30,
2007. The cost savings to KAC for each 12-month period thereafter will be determined by a
formula that includes several variables.
  Trends Affecting Our Business
 Military MRO.
 24




---



##### 



Regional Jet Engine MRO.
 25




---



##### 



Turboprop MRO.
 Financial statement presentation
  Revenues.
 Cost of revenues.
 26




---



##### 



Selling, general and administrative expense.
 Critical accounting policies
  Revenue recognition.
 Reserve for warranty costs.
 Reserve for doubtful accounts receivable.
 Goodwill and intangible assets.
 27




---



##### 



Impairment of long-lived assets. Accounting for the Impairment or Disposal of Long-Lived Assets.
 Inventory.
 Income taxes. Accounting for
Income Taxes.
 Results of Operations
 Three Months Ended September 30, 2006 compared with the Three Months ended September 30, 2005
  Three months
    
    Three monthsended September
    
    ended September30, 2006
    
    30, 2005(In thousands)Revenues
    
    $
    196,083
    
    
    $
    198,267Cost of revenues
    
    
    170,432
    
    
    
    163,452Gross profit
    
    
    25,651
    
    
    
    34,815Selling, general and administrative
expense
    
    
    8,506
    
    
    
    12,302Amortization of intangible assets
    
    
    2,146
    
    
    
    2,346Restructuring costs
    
    
    
    
    
    
    3,215Income from operations
    
    
    14,999
    
    
    
    16,952Interest expense
    
    
    9,929
    
    
    
    9,072Income before income taxes
    
    
    5,070
    
    
    
    7,880Income tax expense
    
    
    (608
    )
    
    
    3,685Net income
    
    $
    5,678
    
    
    $
    4,195
 Revenues.
 28




---



##### 



Gross profit.
 Selling, general and administration expense.
 Amortization of intangible assets.
 Restructuring costs.
 Income from operations.
 Interest expense.
 Income
tax expense
 29




---



##### 



Nine Months Ended September 30, 2006 compared with the Nine Months ended September 30, 2005
  Nine months
    
    Nine monthsended September
    
    ended September30, 2006
    
    30, 2005(In thousands)Revenues
    
    $
    582,252
    
    
    $
    557,462Cost of revenues
    
    
    492,484
    
    
    
    461,818Gross profit
    
    
    89,768
    
    
    
    95,644Selling, general and administrative
expense
    
    
    35,817
    
    
    
    37,806Amortization of intangible assets
    
    
    6,438
    
    
    
    7,238Restructuring costs
    
    
    
    
    
    
    3,215Income from operations
    
    
    47,513
    
    
    
    47,385Interest expense
    
    
    28,956
    
    
    
    26,894Income before income taxes
    
    
    18,557
    
    
    
    20,491Income tax expense
    
    
    1,862
    
    
    
    6,592Net income
    
    $
    16,695
    
    
    $
    13,899
 Revenues.
 Gross profit.
 Selling, general and administration expense.
 Amortization of intangible assets.
 Restructuring costs.
 30




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##### 



Income from operations.
 Interest expense.
 Income tax expense.
 Segment Results of Operations
 Three Months Ended September 30, 2006 compared to the Three Months ended September 30, 2005
  Three months
    
    Three monthsended September
    
    ended September30, 2006
    
    30, 2005(In thousands)Revenues:Aviation MRO
    
    $
    186,397
    
    
    $
    195,896Enterprise Services
    
    
    9,686
    
    
    
    2,371Total revenue
    
    
    196,083
    
    
    
    198,267Segment Income (loss) from Operations:Aviation MRO
    
    
    15,679
    
    
    
    23,298Enterprise Services
    
    
    631
    
    
    
    (697
    )Segment income from operations
    
    
    16,310
    
    
    
    22,601Corporate expenses
    
    
    1,311
    
    
    
    5,649Interest expense
    
    
    9,929
    
    
    
    9,072Income before income taxes
    
    
    5,070
    
    
    
    7,880Income tax expense
    
    
    (608
    )
    
    
    3,685Net income
    
    $
    5,678
    
    
    $
    4,195
 31




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##### 



Aviation MRO
 Three Months Ended September 30, 2006 compared to the Three Months ended September 30, 2005
 Revenues.
 Segment income from operations.
 Enterprise Services
 Three Months Ended September 30, 2006 compared to the Three Months ended September 30, 2005
 Revenues.
 Segment income from operations.
 Nine Months Ended September 30, 2006 compared to the Nine Months ended September 30, 2005
  32




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##### 



Nine months
    
    Nine monthsended
    
    endedSeptember 30,
    
    September 30,2006
    
    2005(In thousands)Revenues:Aviation MRO
    
    $
    555,032
    
    
    $
    554,457Enterprise Services
    
    
    27,220
    
    
    
    3,005Total revenue
    
    
    582,252
    
    
    
    557,462Segment Income (loss) from Operations:Aviation MRO
    
    
    55,063
    
    
    
    61,811Enterprise Services
    
    
    84
    
    
    
    (3,379
    )Segment income from operations
    
    
    55,147
    
    
    
    58,432Corporate expenses
    
    
    7,634
    
    
    
    11,047Interest expense
    
    
    28,956
    
    
    
    26,894Income before income taxes
    
    
    18,557
    
    
    
    20,491Income tax expense
    
    
    1,862
    
    
    
    6,592Net income
    
    $
    16,695
    
    
    $
    13,899
 Aviation MRO
 Nine Months Ended September 30, 2006 compared to the Nine Months ended September 30, 2005
 Revenues.
 Segment income from operations.
 33




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##### 



Enterprise Services
 Nine Months Ended September 30, 2006 compared to the Nine Months ended September 30, 2005
 Revenues.
 Segment income from operations.
 Liquidity and capital resources
 Liquidity requirements
    
    
    our senior credit facilities, consisting of an eight-year term loan facility, under
which we had outstanding indebtedness of $240.0 million, and a $50.0 million six-year
revolving credit facility, under which we had not outstanding indebtedness; and
    
    $200.0 million in aggregate principal amount of our 81/4% senior subordinated notes due
2014.
   34




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##### 



Senior credit facilities
     Notional Amount
    
    Term
    
    Floor Strike Rate
    
    Cap Strike Rate$75,000,000
    
    March 27, 2006  December 27, 2006
    
    2.40% (plus applicable margin)
    
    5.25% (plus applicable margin)
 35




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##### 



Senior credit agreement covenant compliance
      36




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##### 



Last 12 monthsJanuary 1 
    
    October 1 
    
    
    endedSeptember 30,
    
    December 31,
    
    
    September 30,2006
    
    2005
    
    
    2006(In millions)Net income (loss)
    
    $
    16.7
    
    
    $
    (63.1
    )
    
    
    $
    (46.4
    )Add:Depreciation and amortization
    
    
    19.4
    
    
    
    6.3
    
    
    
    
    25.8Interest expense, net
    
    
    29.0
    
    
    
    9.6
    
    
    
    
    38.5Provision (benefit) for income taxes
    
    
    1.9
    
    
    
    (6.9
    )
    
    
    
    (5.0
    )Non-recurring expenses (1)
    
    
    6.1
    
    
    
    2.5
    
    
    
    
    8.6Non-recurring impairment (2)
    
    
    
    
    
    
    77.1
    
    
    
    
    77.1Management fee
    
    
    1.1
    
    
    
    0.5
    
    
    
    
    1.6Adjusted EBITDA
    
    $
    74.2
    
    
    $
    26.0
    
    
    
    $
    100.2
 
 (1)
    
    We incurred $6.1 million in costs associated with a charge under a fixed price per engine
utilization contract, professional fees and other costs associated with the KAC contractual
review and a fixed asset write-off during the nine month period ended September 30, 2006. We incurred $2.5 million in
non-recurring professional fees associated with contractual review and employee exit costs
during the period October 1, 2005 to December 31, 2005.(2)
    
    We incurred $77.1 million in goodwill and intangible asset impairment in accordance with SFAS
144 and SFAS 142 related to the potential loss of, or changes to, the Kelly Air Force Base
subcontract during the period October 1, 2005 to December 31, 2005. 37




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##### 



Senior subordinated notes
 1 4
 Cash flows
  Nine months
    
    Nine monthsended September
    
    ended September30, 2006
    
    30, 2005(In thousands)Net cash provided by (used in) operating activities
    
    $
    16,880
    
    
    $
    (5,567
    )Net cash used in investing activities
    
    
    (7,697
    )
    
    
    (13,215
    )Net cash used in financing activities
    
    
    (32,555
    )
    
    
    (2,058
    )Effect of exchange rate changes on cash and cash
equivalents
    
    
    550
    
    
    
    (566
    )Net decrease in cash and cash equivalents
    
    $
    (22,822
    )
    
    $
    (21,406
    )
 Net cash provided by (used in) operating activities
   Net cash used in investing activities
  38




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##### 



Net cash used in financing activities
   39




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##### 



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
  Interest rate risks.
  Maximum
    
    MinimumNotional amount
    
    Period hedged by interest rate collar
    
    interest rate(1)
    
    interest rate(1)$75.0 million
    
    March 27, 2006 - December 27, 2006
    
    
    5.25
    %
    
    
    2.40
    %
 
 (1)
    
    Maximum and minimum interest rates exclude the effect of the Companys credit
spread on the variable rate debt. Currency risks.
 40




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##### 



ITEM 4. CONTROLS AND PROCEDURES.
 Evaluation of Disclosure Controls and Procedures
   Material Weaknesses
  
    
    We failed to maintain effective controls over the valuation and presentation of our
loss-contract accrued liability. Specifically, our controls over the application and
monitoring of accounting policies with respect to loss contracts acquired in connection
with a purchase business combination were ineffective to ensure that such contracts were
recorded in accordance with generally accepted accounting principles.
  41




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##### 




    
    We failed to maintain effective controls over the valuation of discounts for parts that
are recorded within our accounts receivable account. Specifically, we lacked effective
controls, including monitoring, to ensure that our receivable account relating to the
embodiment discount was appropriately valued and recorded.
  Plans for Remediation
  
 
 
  
 
 
 42




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##### 



Changes in Internal Control over Financial Reporting
  43




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##### 



PART II OTHER INFORMATION
 ITEM 1. LEGAL PROCEEDINGS
  ITEM 1A. RISK FACTORS
  A significant portion of our revenues are derived under a single contract that has been the subject
of a dispute and that may be terminated in certain circumstances, some of which are beyond our
control.
  44




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##### 



ITEM 6. EXHIBITS
 ExhibitNumber
    
    Description3.1
    
    
    Certificate of Incorporation of Standard Aero Holdings, Inc. (incorporated by reference to
Exhibit 3.1 of Standard Aero Holdings, Inc.s Registration Statement No. 333-124394).3.2
    
    
    Bylaws of Standard Aero Holdings, Inc. (incorporated by reference to Exhibit 3.17 of
Standard Aero Holdings, Inc.s Registration Statement No. 333-124394).4.1
    
    
    Senior
Subordinated Note Indenture with respect to the 81/4%
Senior Subordinated Notes due 2014, between Standard Aero Holdings, Inc., Wells Fargo Bank
Minnesota, National Association, as trustee, and the Guarantors listed on the signature
pages thereto, dated as of August 20, 2004 (incorporated by reference to Exhibit 4.1 of
Standard Aero Holdings, Inc.s Registration Statement No. 333-124394).4.2
    
    
    Supplemental Indenture, dated as of August 24, 2004, among Dunlop Standard Aerospace
(Nederland) BV and Standard Aero BV, Standard Aero Holdings, Inc. and Wells Fargo Bank,
National Association, as trustee (incorporated by reference to Exhibit 4.2 of Standard
Aero Holdings, Inc.s Registration Statement No. 333-124394).4.3
    
    
    Supplemental Indenture, dated as of August 24, 2004, among Dunlop Standard Aerospace (US)
Inc., Dunlop Standard Aerospace (US) Legal Inc., Standard Aero, Inc., Dunlop Aerospace
Parts, Inc., Standard Aero (San Antonio) Inc., Standard Aero (Alliance) Inc., Standard
Aero Canada, Inc., 3091781 Nova Scotia Company, 3091782 Nova Scotia Company, 3091783 Nova
Scotia Company, Standard Aero Limited, Not FM Canada Inc., Standard Aero Holdings, Inc.
and Wells Fargo Bank, National Association, as trustee (incorporated by reference to
Exhibit 4.3 of Standard Aero Holdings, Inc.s Registration Statement No. 333-124394).4.4
    
    
    Supplemental Indenture, dated as of March 3, 2005, among Standard Aero (US), Inc. (f/k/a
Dunlop Standard Aerospace (U.S.) Inc.); Standard Aero (US) Legal, Inc. (f/k/a Dunlop
Standard Aerospace (US) Legal, Inc.); Standard Aero Inc.; Standard Aero Materials, Inc.
(f/k/a Dunlop Aerospace Parts Inc.); Standard Aero (San Antonio) Inc.; Standard Aero
(Alliance) Inc.; Standard Aero Canada, Inc.; 3091781 Nova Scotia Company; 3091782 Nova
Scotia Company; 3091783 Nova Scotia Company; Standard Aero Limited; Not FM Canada Inc.;
Standard Aero (Netherlands) B.V. (f/k/a Dunlop Standard Aerospace (Nederland) BV) and
Standard Aero BV, Standard Aero Holdings, Inc. and Wells Fargo Bank, National Association,
as trustee (incorporated by reference to Exhibit 4.4 of Standard Aero Holdings, Inc.s
Registration Statement No. 333-124394).4.5
    
    
    Supplemental Indenture, dated as of March 31, 2005, among Standard Aero (US), Inc. (f/k/a
Dunlop Standard Aerospace (U.S.) Inc.); Standard Aero (US) Legal, Inc. (f/k/a Dunlop
Standard Aerospace (US) Legal, Inc.); Standard Aero Inc.; Standard Aero Materials, Inc.
(f/k/a Dunlop Aerospace Parts Inc.); Standard Aero (San Antonio) Inc.; Standard Aero
(Alliance) Inc.; Standard Aero Canada, Inc.; 3091781 Nova Scotia Company; 3091782 Nova
Scotia Company; 3091783 Nova Scotia Company; Standard Aero Limited; Not FM Canada Inc. and
Standard Aero Redesign Services Inc., Standard Aero Holdings, Inc. and Wells Fargo Bank,
National Association, as trustee (incorporated by reference to Exhibit 4.5 of Standard
Aero Holdings, Inc.s Registration Statement No. 333-124394).10.24
    
    
    Amendment No. 92 to Subcontract No. LMKAC-98-0001 between Standard Aero and Lockheed,
dated as of July 11, 2006 (incorporated by reference for Exhibit 10.1 of Standard Aero
Holdings, Inc.s Form 10-Q for the quarterly period ended June 30, 2006, filed August 14,
2006).31.1
    
    
    Certification of Chief Executive Officer pursuant to Rule 15d-14(a) (17 CFR 240.15d-14(a)).31.2
    
    
    Certification of Chief Financial Officer pursuant to Rule 15d-14(a) (17 CFR 240.15d-14(a)).32.1
    
    
    Certification of Chief Executive Officer pursuant to Rule 15d-14(b) (17 CFR 240.15d-14(b))
and 18 U.S.C. Section 1350.32.2
    
    
    Certification of Chief Financial Officer pursuant to Rule 15d-14(b) (17 CFR 240.15d-14(b))
and 18 U.S.C. Section 1350.
 45




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##### 



SIGNATURES
  STANDARD AERO HOLDINGS, INC.Dated: November 10, 2006
    
    /s/ DAVID SHAWName:
    David ShawTitle:
    Chief Executive Officer
(principal executive officer)Dated: November 10, 2006
    
    /s/ BRADLEY BERTOUILLEName:
    Bradley BertouilleTitle:
    Chief Financial Officer
(principal financial and
accounting officer) 46