##### 



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 June 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)
 98-0432892Delaware
    
    (I.R.S. Employer(State of Incorporation)
    
    Identification 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
six months ended June 30, 2006 and June 30, 2005
    
    
    1Unaudited Condensed Consolidated Balance Sheets as of June 30, 2006 and December 31,
2005
    
    
    2Unaudited Condensed Consolidated Statements of Stockholders Equity for the six
months ended June 30, 2006 and June 30, 2005
    
    
    3Unaudited Condensed Consolidated Statements of Cash Flows for the six months ended
June 30, 2006 and June 30, 2005
    
    
    4Unaudited Notes to Condensed Consolidated Financial Statements
    
    
    5 - 22Item 2.  Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    23 - 38Item 3.  Quantitative and Qualitative Disclosures About Market Risk
    
    
    38 - 39Item 4.  Controls and Procedures
    
    
    39 - 40PART IIOTHER INFORMATIONItem 1.    Legal Proceedings
    
    
    41Item 1A. Risk Factors
    
    
    41Item 6.    Exhibits
    
    
    42SIGNATURES
    
    
    43




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##### 



STANDARD AERO HOLDINGS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands)
 Three months ended June 30,
    
    Six months ended June 30,2006
    
    2005
    
    2006
    
    2005Revenues
    
    $
    200,371
    
    
    $
    171,781
    
    
    $
    386,169
    
    
    $
    359,195Operating expensesCost of revenues
    
    
    167,078
    
    
    
    144,578
    
    
    
    322,052
    
    
    
    298,366Selling, general and
administrative expense
    
    
    13,758
    
    
    
    12,851
    
    
    
    27,311
    
    
    
    25,504Amortization of intangible assets
    
    
    2,146
    
    
    
    2,446
    
    
    
    4,292
    
    
    
    4,892Total operating expenses
    
    
    182,982
    
    
    
    159,875
    
    
    
    353,655
    
    
    
    328,762Income from operations
    
    
    17,389
    
    
    
    11,906
    
    
    
    32,514
    
    
    
    30,433Interest expense
    
    
    9,554
    
    
    
    8,721
    
    
    
    19,027
    
    
    
    17,822Income before income taxes
    
    
    7,835
    
    
    
    3,185
    
    
    
    13,487
    
    
    
    12,611Income tax expense
    
    
    592
    
    
    
    39
    
    
    
    2,470
    
    
    
    2,907Net income
    
    $
    7,243
    
    
    $
    3,146
    
    
    $
    11,017
    
    
    $
    9,704
 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)
 June 30,
    
    December 31,2006
    
    2005ASSETSCurrent assetsCash and cash equivalents
    
    $
    6,991
    
    
    $
    24,056Cash and cash equivalents (restricted)
    
    
    23,492
    
    
    
    Accounts receivable (less allowance for
doubtful accounts of $2,944 and $2,987 at
June 30, 2006 and December 31, 2005,
respectively)
    
    
    134,841
    
    
    
    120,456Inventories
    
    
    143,814
    
    
    
    134,011Prepaid expenses and other current assets
    
    
    8,030
    
    
    
    7,668Income taxes receivable
    
    
    3,479
    
    
    
    3,811Deferred income taxes
    
    
    3,024
    
    
    
    2,407Total current assets
    
    
    323,671
    
    
    
    292,409Deferred finance charges
    
    
    16,799
    
    
    
    18,272Deferred income taxes
    
    
    8,437
    
    
    
    7,920Property, plant and equipment, net
    
    
    138,447
    
    
    
    136,968Intangible assets, net
    
    
    189,363
    
    
    
    195,168Goodwill
    
    
    191,342
    
    
    
    192,301Total assets
    
    $
    868,059
    
    
    $
    843,038LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilitiesAccounts payable
    
    $
    82,120
    
    
    $
    75,301Other accrued liabilities
    
    
    27,581
    
    
    
    29,197Due to related party
    
    
    3,940
    
    
    
    3,940Unearned revenue
    
    
    40,321
    
    
    
    14,196Accrued warranty provision
    
    
    3,958
    
    
    
    3,986Income taxes payable
    
    
    6,555
    
    
    
    9,323Current portion of long-term debt
    
    
    11,621
    
    
    
    2,574Total current liabilities
    
    
    176,096
    
    
    
    138,517Deferred income taxes
    
    
    68,622
    
    
    
    72,542Long-term debt
    
    
    450,015
    
    
    
    470,000Total liabilities
    
    
    694,733
    
    
    
    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
    
    
    (42,065
    )
    
    
    (53,082
    )Accumulated other comprehensive income
    
    
    391
    
    
    
    61Total stockholders equity
    
    
    173,326
    
    
    
    161,979Total liabilities and stockholders equity
    
    $
    868,059
    
    
    $
    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)
 Six months Ended June 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
    
    
    
    
    
    
    
    
    
    
    9,704
    
    
    
    
    
    
    
    9,704Other comprehensive incomeUnrealized loss on
cash flow hedge
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (14
    )
    
    
    (14
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    9,704
    
    
    
    (14
    )
    
    
    9,690Balance as of June 30, 2005
    
    $
    
    
    
    $
    215,000
    
    
    $
    5,803
    
    
    $
    38
    
    
    $
    220,841
 Six months Ended June 30, 2006
 Accumulatedother
    
    TotalCommon
    
    
    
    
    
    Accumulated
    
    comprehensive
    
    Stockholdersstock
    
    Paid in capital
    
    deficit
    
    income
    
    equityBalance as of December 31, 2005
    
    $
    
    
    
    $
    215,000
    
    
    $
    (53,082
    )
    
    $
    61
    
    
    $
    161,979Comprehensive incomeNet income
    
    
    
    
    
    
    
    
    
    
    11,017
    
    
    
    
    
    
    
    11,017Other comprehensive incomeUnrealized gain on
cash flow hedge
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    330
    
    
    
    330Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    11,017
    
    
    
    330
    
    
    
    11,347Balance as of June 30, 2006
    
    $
    
    
    
    $
    215,000
    
    
    $
    (42,065
    )
    
    $
    391
    
    
    $
    173,326
 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)
 Six Months Ended June 30,2006
    
    2005Operating activitiesNet income for the period
    
    $
    11,017
    
    
    $
    9,704Adjustments to reconcile net income to net cash provided
by (used in) operating activitiesDepreciation and amortization
    
    
    12,898
    
    
    
    13,218Amortization of deferred finance charges
    
    
    1,473
    
    
    
    1,769Deferred income taxes
    
    
    (5,054
    )
    
    
    (1,240
    )Gain on disposal of property, plant and equipment
    
    
    (9
    )
    
    
    (9
    )Foreign exchange (gain) loss
    
    
    (428
    )
    
    
    578Changes in assets and liabilitiesAccounts receivable, net
    
    
    (14,385
    )
    
    
    9,970Inventories
    
    
    (9,803
    )
    
    
    (2,610
    )Prepaid expenses and other current assets
    
    
    421
    
    
    
    (1,403
    )Accounts payable and other current liabilities
    
    
    7,808
    
    
    
    (32,190
    )Income taxes payable and receivable
    
    
    (1,477
    )
    
    
    (4,573
    )Net cash provided by (used in) operating activities
    
    
    2,461
    
    
    
    (6,786
    )Investing activitiesAcquisitions of property, plant and equipment
    
    
    (3,056
    )
    
    
    (5,882
    )Proceeds from disposals of property, plant, and equipment
    
    
    11
    
    
    
    42Acquisition of rental assets
    
    
    (9,179
    )
    
    
    (9,293
    )Proceeds from disposals of rental assets
    
    
    3,661
    
    
    
    4,730Net cash used in investing activities
    
    
    (8,563
    )
    
    
    (10,403
    )Financing activitiesRepayment of
term loans and other, net
    
    
    (20,938
    )
    
    
    (15,851
    )Increase in revolving credit facility
    
    
    10,000
    
    
    
    Change in due to related party
    
    
    
    
    
    
    5,810Net cash used in financing activities
    
    
    (10,938
    )
    
    
    (10,041
    )Effect of exchange rate changes on cash and cash
equivalents
    
    
    (25
    )
    
    
    (578
    )Net decrease in cash and cash equivalents
    
    
    (17,065
    )
    
    
    (27,808
    )Cash and cash equivalents  Beginning of period
    
    
    24,056
    
    
    
    27,891Cash and cash equivalents  End of period
    
    $
    6,991
    
    
    $
    83
 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 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 six months ended June 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, if any. The Company has determined that the
trust accounts are VIEs 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s increased restricted cash by $23.5 million and increased
unearned revenue by $23.5 million as at June 30, 2006. There is no income statement
effect upon the consolidation of the VIEs.
 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.
 3
    
    Inventories
 June 30,
    
    December 31,2006
    
    2005(In thousands)Raw materials
    
    $
    63,643
    
    
    $
    66,241Work in process
    
    
    80,171
    
    
    
    67,770$
    143,814
    
    
    $
    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
    
    
    AccumulatedAt June 30, 2006
    
    Amount
    
    
    Amortization
    
    
    Net Balance(In thousands)Definite lived intangible assets:Customer relationships
    
    $
    98,000
    
    
    $
    14,042
    
    
    $
    83,958OEM authorizations and licenses
    
    
    38,350
    
    
    
    5,548
    
    
    
    32,802Technology and other
    
    
    7,900
    
    
    
    2,897
    
    
    
    5,003144,250
    
    
    
    22,487
    
    
    
    121,763Indefinite lived intangible assets:Trademarks
    
    
    67,600
    
    
    
    
    
    
    
    67,600Total intangible assets
    
    $
    211,850
    
    
    $
    22,487
    
    
    $
    189,363
 Gross Carrying
    
    
    AccumulatedAt December 31, 2005
    
    Amount
    
    
    Amortization
    
    
    Net Balance(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 Repairand Overhaul
    
    
    Enterprise Services
    
    
    TotalBalance as at December 31, 2005
    
    $
    192,301
    
    
    $
    
    
    
    $
    192,301Reallocated from pre-acquisition contingent liabilities
    
    
    (959
    )
    
    
    
    
    
    
    (959
    )Balance as at June 30, 2006
    
    $
    191,342
    
    
    $
    
    
    
    $
    191,342
  8




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##### 



STANDARD AERO HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 5
    
    Long-term debtLong-term debt is summarized as follows:
 June 30,
    
    
    December 31,2006
    
    
    2005(In thousands)Term loans
    
    $
    250,000
    
    
    $
    270,000Senior subordinated notes
    
    
    200,000
    
    
    
    200,000Obligations under capital leases
    
    
    1,636
    
    
    
    2,574Revolving credit facility
    
    
    10,000
    
    
    
    461,636
    
    
    
    472,574Less: Current portion
    
    
    (11,621
    )
    
    
    (2,574
    )Long-term debt
    
    $
    450,015
    
    
    $
    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 six months ended June 30,
2006 and June 30, 2005 were $3.3 million.Costs for the defined benefit pension plans for each of the six months ended June 30, 2006
and June 30, 2005 were $0.2 million.7
    
    Income taxesThe Companys effective tax rate was 8% and 18%
 for the three and six months ended June 30, 2006, respectively,
which is lower than
the estimated annual effective rate of 42% primarily because of a change in foreign
jurisdiction future tax rates enacted in the second quarter and a change in tax law in the State of
Texas.Similarly the Companys effective tax rate was 1% and 23%
 for the three and six months ended June 30, 2005, respectively,
which is
lower than the estimated annual effective rate of 32% 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)
 9
    
    Subsequent eventKelly Air Force Base subcontractDuring the fourth quarter of 2005, Kelly Aviation Center, L.P. (KAC) indicated it disagreed
with the Companys interpretation regarding the terms of the subcontract with KAC under which
the Company provides maintenance, repair and overhaul (MRO) services for U.S. Government T56
engines managed by the U.S. Air Force and that it did not intend to make a decision whether to
exercise the option to extend the subcontract for periods beyond February 2007. On January 25,
2006, the Company was formally notified by KAC that it did not intend to extend the subcontract
beyond February 2007.On July 11, 2006, the Company reached agreement with KAC regarding the terms of the
subcontract. In connection with the agreement, the parties have amended the terms of the KAC
subcontract, which was filed by the Company as Exhibit 10.21 to its Registration Statement on
Form S-4 filed with the Commission on July 14, 2005.The following are the material terms of the amendment to the KAC 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 U.S. 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)
 10
    
    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 June 30, 2006, SAAHI has 177,036 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:
 Six months ended June 30,2006
    
    
    2005Opening balance as of January 1
    
    
    192,398
    
    
    
    206,071Granted
    
    
    
    
    
    
    3,000Exercised
    
    
    
    
    
    
    Cancelled
    
    
    15,362
    
    
    
    Outstanding as of June 30
    
    
    177,036
    
    
    
    209,071Weighted average remaining life as of June 30
    
    4.5 years
    
    5.5 yearsOptions exercisable as of June 30
    
    
    40,710
    
    
    
    17,952Weighted average exercise prices
    
    $100 per share
    
    $100 per shareAggregate intrinsic value
    
    
    
    
    
    
    
 11
    
    Related party transactionsAt June 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)
 12
    
    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 June
30, 2006 was approximately $4.7 million (June 30, 2005  $3.8 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 six-month period ended June 30
are summarized as follows:
 2006
    
    
    2005(In thousands)Balance at December 31
    
    $
    (3,986
    )
    
    $
    (6,907
    )Warranty costs incurred
    
    
    1,530
    
    
    
    1,329Warranty accrued
    
    
    (1,502
    )
    
    
    (174
    )Balance at June 30
    
    $
    (3,958
    )
    
    $
    (5,752
    )
 13
    
    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 June 30, 2006
 EnterpriseAviation MRO
    
    
    Services
    
    
    Unallocated
    
    
    Total(In thousands)Revenues
    
    
    $
    191,365
    
    
    $
    9,006
    
    
    $
    
    
    
    $
    200,371Income (loss)
before income taxes
    
    
    
    20,241
    
    
    
    (64
    )
    
    
    (12,342
    )
    
    
    7,835
 13




---



##### 



STANDARD AERO HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 For the three months ended June 30, 2005
 EnterpriseAviation MRO
    
    
    Services
    
    
    Unallocated
    
    
    TotalIn thousands)Revenues
    
    
    $
    171,550
    
    
    $
    231
    
    
    $
    
    
    
    $
    171,781Income (loss)
before income taxes
    
    
    
    15,878
    
    
    
    (1,434
    )
    
    
    (11,259
    )
    
    
    3,185
 For the six months ended June 30, 2006
 EnterpriseAviation MRO
    
    
    Services
    
    
    Unallocated
    
    
    Total(In thousands)Revenues
    
    
    $
    368,635
    
    
    $
    17,534
    
    
    $
    
    
    
    $
    386,169Income (loss)
before income taxes
    
    
    
    39,384
    
    
    
    (547
    )
    
    
    (25,350
    )
    
    
    13,487
 For the six months ended June 30, 2005
 EnterpriseAviation MRO
    
    
    Services
    
    
    Unallocated
    
    
    Total(In thousands)Revenues
    
    
    $
    358,561
    
    
    $
    634
    
    
    $
    
    
    
    $
    359,195Income (loss)
before income taxes
    
    
    
    38,513
    
    
    
    (2,682
    )
    
    
    (23,220
    )
    
    
    12,611
 14




---



##### 



STANDARD AERO HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 14
    
    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 June 30, 2006
 Subsidiary
    
    
    Subsidiary
    
    
    CombiningParent
    
    
    Guarantors
    
    
    Non-Guarantors
    
    
    Adjustments
    
    
    Total(In thousands)Revenues
    
    $
    
    
    
    $
    182,226
    
    
    $
    19,451
    
    
    $
    (1,306
    )
    
    $
    200,371Operating expensesCost of revenues
    
    
    
    
    
    
    149,968
    
    
    
    18,416
    
    
    
    (1,306
    )
    
    
    167,078Selling, general and administrative
expense
    
    
    1,488
    
    
    
    10,939
    
    
    
    1,331
    
    
    
    
    
    
    
    13,758Amortization of intangible assets
    
    
    
    
    
    
    2,146
    
    
    
    
    
    
    
    
    
    
    
    2,146Total operating expenses
    
    
    1,488
    
    
    
    163,053
    
    
    
    19,747
    
    
    
    (1,306
    )
    
    
    182,982Income (loss) from operations
    
    
    (1,488
    )
    
    
    19,173
    
    
    
    (296
    )
    
    
    
    
    
    
    17,389Interest expense
    
    
    8,577
    
    
    
    991
    
    
    
    (14
    )
    
    
    
    
    
    
    9,554Income (loss) before income taxes
    
    
    (10,065
    )
    
    
    18,182
    
    
    
    (282
    )
    
    
    
    
    
    
    7,835Income tax expense (benefit)
    
    
    (3,920
    )
    
    
    4,334
    
    
    
    178
    
    
    
    
    
    
    
    592Income (loss) before equity earnings of
subsidiaries
    
    
    (6,145
    )
    
    
    13,848
    
    
    
    (460
    )
    
    
    
    
    
    
    7,243Equity in earnings (losses) of
subsidiaries
    
    
    13,388
    
    
    
    (290
    )
    
    
    
    
    
    
    (13,098
    )
    
    
    Net income (loss)
    
    $
    7,243
    
    
    $
    13,558
    
    
    $
    (460
    )
    
    $
    (13,098
    )
    
    $
    7,243
 The parent and certain of the Guarantor Subsidiaries file a consolidated tax return. The
losses of the parent reduce the income taxes payable of the consolidated group. The taxes
receivable of the parent are reported in the due from related parties.
 15




---



##### 



STANDARD AERO HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 Condensed Consolidating Statements of Operations
For the three months ended June 30, 2005
 Subsidiary
    
    
    Subsidiary
    
    
    CombiningParent
    
    
    Guarantors
    
    
    Non-Guarantors
    
    
    Adjustments
    
    
    Total(In thousands)Revenues
    
    $
    
    
    
    $
    145,952
    
    
    $
    27,405
    
    
    $
    (1,576
    )
    
    $
    171,781Operating expensesCost of revenues
    
    
    
    
    
    
    121,146
    
    
    
    25,008
    
    
    
    (1,576
    )
    
    
    144,578Selling, general and administrative
expense
    
    
    1,252
    
    
    
    9,291
    
    
    
    2,308
    
    
    
    
    
    
    
    12,851Amortization of intangible assets
    
    
    
    
    
    
    2,446
    
    
    
    
    
    
    
    
    
    
    
    2,446Total operating expenses
    
    
    1,252
    
    
    
    132,883
    
    
    
    27,316
    
    
    
    (1,576
    )
    
    
    159,875Income (loss) from operations
    
    
    (1,252
    )
    
    
    13,069
    
    
    
    89
    
    
    
    
    
    
    
    11,906Interest expense
    
    
    8,206
    
    
    
    299
    
    
    
    216
    
    
    
    
    
    
    
    8,721Income (loss) before income taxes
    
    
    (9,458
    )
    
    
    12,770
    
    
    
    (127
    )
    
    
    
    
    
    
    3,185Income tax expense (benefit)
    
    
    (3,404
    )
    
    
    3,774
    
    
    
    (331
    )
    
    
    
    
    
    
    39Income (loss) before equity earnings of
subsidiaries
    
    
    (6,054
    )
    
    
    8,996
    
    
    
    204
    
    
    
    
    
    
    
    3,146Equity in earnings (losses) of
subsidiaries
    
    
    9,200
    
    
    
    (3
    )
    
    
    
    
    
    
    (9,197
    )
    
    
    Net income (loss)
    
    $
    3,146
    
    
    $
    8,993
    
    
    $
    204
    
    
    $
    (9,197
    )
    
    $
    3,146
 16




---



##### 



STANDARD AERO HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 Condensed Consolidating Statements of Operations
For the six months ended June 30, 2006
 Subsidiary
    
    
    Subsidiary
    
    
    CombiningParent
    
    
    Guarantors
    
    
    Non-Guarantors
    
    
    Adjustments
    
    
    Total(In thousands)Revenues
    
    $
    
    
    
    $
    348,022
    
    
    $
    40,494
    
    
    $
    (2,347
    )
    
    $
    386,169Operating expensesCost of revenues
    
    
    
    
    
    
    286,710
    
    
    
    37,689
    
    
    
    (2,347
    )
    
    
    322,052Selling, general and administrative
expense
    
    
    3,507
    
    
    
    20,831
    
    
    
    2,973
    
    
    
    
    
    
    
    27,311Amortization of intangible assets
    
    
    
    
    
    
    4,292
    
    
    
    
    
    
    
    
    
    
    
    4,292Total operating expenses
    
    
    3,507
    
    
    
    311,833
    
    
    
    40,662
    
    
    
    (2,347
    )
    
    
    353,655Income (loss) from operations
    
    
    (3,507
    )
    
    
    36,189
    
    
    
    (168
    )
    
    
    
    
    
    
    32,514Interest expense
    
    
    16,216
    
    
    
    2,796
    
    
    
    15
    
    
    
    
    
    
    
    19,027Income (loss) before income taxes
    
    
    (19,723
    )
    
    
    33,393
    
    
    
    (183
    )
    
    
    
    
    
    
    13,487Income tax expense (benefit)
    
    
    (7,300
    )
    
    
    9,956
    
    
    
    (186
    )
    
    
    
    
    
    
    2,470Income (loss) before equity earnings of
subsidiaries
    
    
    (12,423
    )
    
    
    23,437
    
    
    
    3
    
    
    
    
    
    
    
    11,017Equity in earnings (losses) of
subsidiaries
    
    
    23,440
    
    
    
    213
    
    
    
    
    
    
    
    (23,653
    )
    
    
    Net income (loss)
    
    $
    11,017
    
    
    $
    23,650
    
    
    $
    3
    
    
    $
    (23,653
    )
    
    $
    11,017
 17




---



##### 



STANDARD AERO HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 Condensed Consolidating Statements of Operations
For the six months ended June 30, 2005
 Subsidiary
    
    
    Subsidiary
    
    
    CombiningParent
    
    
    Guarantors
    
    
    Non-Guarantors
    
    
    Adjustments
    
    
    Total(In thousands)Revenues
    
    $
    
    
    
    $
    311,232
    
    
    $
    53,089
    
    
    $
    (5,126
    )
    
    $
    359,195Operating expensesCost of revenues
    
    
    
    
    
    
    254,058
    
    
    
    49,434
    
    
    
    (5,126
    )
    
    
    298,366Selling, general and administrative
expense
    
    
    1,986
    
    
    
    19,487
    
    
    
    4,031
    
    
    
    
    
    
    
    25,504Amortization of intangible assets
    
    
    
    
    
    
    4,892
    
    
    
    
    
    
    
    
    
    
    
    4,892Total operating expenses
    
    
    1,986
    
    
    
    278,437
    
    
    
    53,465
    
    
    
    (5,126
    )
    
    
    328,762Income (loss) from operations
    
    
    (1,986
    )
    
    
    32,795
    
    
    
    (376
    )
    
    
    
    
    
    
    30,433Interest expense
    
    
    16,509
    
    
    
    1,003
    
    
    
    310
    
    
    
    
    
    
    
    17,822Income (loss) before income taxes
    
    
    (18,495
    )
    
    
    31,792
    
    
    
    (686
    )
    
    
    
    
    
    
    12,611Income tax expense (benefit)
    
    
    (6,470
    )
    
    
    10,061
    
    
    
    (684
    )
    
    
    
    
    
    
    2,907Income (loss) before equity earnings of
subsidiaries
    
    
    (12,025
    )
    
    
    21,731
    
    
    
    (2
    )
    
    
    
    
    
    
    9,704Equity in earnings (losses) of
subsidiaries
    
    
    21,729
    
    
    
    (182
    )
    
    
    
    
    
    
    (21,547
    )
    
    
    Net income (loss)
    
    $
    9,704
    
    
    $
    21,549
    
    
    $
    (2
    )
    
    $
    (21,547
    )
    
    $
    9,704
 18




---



##### 



STANDARD AERO HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 Condensed Consolidating Balance Sheet
June 30, 2006
 Subsidiary
    
    
    Subsidiary
    
    
    CombiningParent
    
    
    Guarantors
    
    
    Non-Guarantors
    
    
    Adjustments
    
    
    Total(In thousands)ASSETSCurrent assetsCash and cash equivalents
    
    $
    259
    
    
    $
    4,993
    
    
    $
    1,739
    
    
    $
    
    
    
    $
    6,991Cash and cash equivalents (restricted)
    
    
    
    
    
    
    23,492
    
    
    
    
    
    
    
    
    
    
    
    23,492Accounts receivable
    
    
    
    
    
    
    116,232
    
    
    
    18,609
    
    
    
    
    
    
    
    134,841Due from related party
    
    
    35,672
    
    
    
    153,311
    
    
    
    495
    
    
    
    (189,478
    )
    
    
    Inventories
    
    
    
    
    
    
    111,411
    
    
    
    32,403
    
    
    
    
    
    
    
    143,814Prepaid expenses and other current assets
    
    
    564
    
    
    
    6,091
    
    
    
    1,375
    
    
    
    
    
    
    
    8,030Income taxes receivable
    
    
    
    
    
    
    1,294
    
    
    
    2,185
    
    
    
    
    
    
    
    3,479Deferred income taxes
    
    
    
    
    
    
    2,316
    
    
    
    708
    
    
    
    
    
    
    
    3,024Total current assets
    
    
    36,495
    
    
    
    419,140
    
    
    
    57,514
    
    
    
    (189,478
    )
    
    
    323,671Deferred finance charges
    
    
    8,695
    
    
    
    8,104
    
    
    
    
    
    
    
    
    
    
    
    16,799Deferred income taxes
    
    
    
    
    
    
    6,506
    
    
    
    1,931
    
    
    
    
    
    
    
    8,437Property, plant and equipment, net
    
    
    
    
    
    
    118,175
    
    
    
    20,272
    
    
    
    
    
    
    
    138,447Intangible assets, net
    
    
    
    
    
    
    185,361
    
    
    
    4,002
    
    
    
    
    
    
    
    189,363Due from related party
    
    
    
    
    
    
    5,642
    
    
    
    
    
    
    
    (5,642
    )
    
    
    Goodwill
    
    
    
    
    
    
    191,342
    
    
    
    
    
    
    
    
    
    
    
    191,342Investments in subsidiaries
    
    
    722,380
    
    
    
    38,830
    
    
    
    
    
    
    
    (761,210
    )
    
    
    Total assets
    
    $
    767,570
    
    
    $
    973,100
    
    
    $
    83,719
    
    
    $
    (956,330
    )
    
    $
    868,059LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilitiesAccounts payable
    
    $
    125
    
    
    $
    73,772
    
    
    $
    8,223
    
    
    $
    
    
    
    $
    82,120Other accrued liabilities
    
    
    9,079
    
    
    
    16,562
    
    
    
    1,940
    
    
    
    
    
    
    
    27,581Due to related party
    
    
    124,952
    
    
    
    55,621
    
    
    
    12,845
    
    
    
    (189,478
    )
    
    
    3,940Unearned revenue
    
    
    
    
    
    
    34,961
    
    
    
    5,360
    
    
    
    
    
    
    
    40,321Accrued warranty provision
    
    
    
    
    
    
    2,869
    
    
    
    1,089
    
    
    
    
    
    
    
    3,958Income taxes payable
    
    
    
    
    
    
    6,453
    
    
    
    102
    
    
    
    
    
    
    
    6,555Current portion of long-term debt
    
    
    10,000
    
    
    
    1,576
    
    
    
    45
    
    
    
    
    
    
    
    11,621Total current liabilities
    
    
    144,156
    
    
    
    191,814
    
    
    
    29,604
    
    
    
    (189,478
    )
    
    
    176,096Deferred income taxes
    
    
    386
    
    
    
    63,125
    
    
    
    5,111
    
    
    
    
    
    
    
    68,622Due to related party
    
    
    
    
    
    
    
    
    
    
    5,642
    
    
    
    (5,642
    )
    
    
    Long-term debt
    
    
    450,000
    
    
    
    15
    
    
    
    
    
    
    
    
    
    
    
    450,015Total liabilities
    
    
    594,542
    
    
    
    254,954
    
    
    
    40,357
    
    
    
    (195,120
    )
    
    
    694,733Stockholders equity
Common stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Additional paid in capital
    
    
    215,000
    
    
    
    709,656
    
    
    
    47,612
    
    
    
    (757,268
    )
    
    
    215,000Retained earnings / (deficit)
    
    
    (42,065
    )
    
    
    8,490
    
    
    
    (4,548
    )
    
    
    (3,942
    )
    
    
    (42,065
    )Accumulated other comprehensive income
    
    
    93
    
    
    
    
    
    
    
    298
    
    
    
    
    
    
    
    391Total stockholders equity
    
    
    173,028
    
    
    
    718,146
    
    
    
    43,362
    
    
    
    (761,210
    )
    
    
    173,326Total liabilities and stockholders equity
    
    $
    767,570
    
    
    $
    973,100
    
    
    $
    83,719
    
    
    $
    (956,330
    )
    
    $
    868,059
 19




---



##### 



STANDARD AERO HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 Condensed Consolidating Balance Sheet
December 31, 2005
 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 six months ended June 30, 2006
 Subsidiary
    
    
    Subsidiary
    
    
    CombiningParent
    
    
    Guarantors
    
    
    Non-Guarantors
    
    
    Adjustments
    
    
    Total(In thousands)Operating activitiesNet income (loss) for the period
    
    $
    11,017
    
    
    $
    23,650
    
    
    $
    3
    
    
    $
    (23,653
    )
    
    $
    11,017Adjustments to reconcile net income to netCash provided by (used in) operating activitiesDepreciation and amortization
    
    
    
    
    
    
    10,623
    
    
    
    2,275
    
    
    
    
    
    
    
    12,898Amortization of deferred finance charges
    
    
    273
    
    
    
    1,200
    
    
    
    
    
    
    
    
    
    
    
    1,473Deferred income taxes
    
    
    321
    
    
    
    (5,600
    )
    
    
    225
    
    
    
    
    
    
    
    (5,054
    )Gain on disposal of property, plant
and equipment
    
    
    
    
    
    
    (6
    )
    
    
    (3
    )
    
    
    
    
    
    
    (9
    )Foreign exchange (gain)/loss
    
    
    (453
    )
    
    
    169
    
    
    
    (144
    )
    
    
    
    
    
    
    (428
    )Equity in (losses) earnings of subsidiaries
    
    
    (23,440
    )
    
    
    (213
    )
    
    
    
    
    
    
    23,653
    
    
    
    Changes in assets and liabilitiesAccounts receivable, net
    
    
    
    
    
    
    (14,961
    )
    
    
    576
    
    
    
    
    
    
    
    (14,385
    )Inventories
    
    
    
    
    
    
    (7,425
    )
    
    
    (2,378
    )
    
    
    
    
    
    
    (9,803
    )Prepaid expenses and other current assets
    
    
    21
    
    
    
    362
    
    
    
    38
    
    
    
    
    
    
    
    421Accounts payable and other accrued
liabilities
    
    
    (911
    )
    
    
    13,427
    
    
    
    (4,708
    )
    
    
    
    
    
    
    7,808Income taxes payable and receivable
    
    
    
    
    
    
    (1,644
    )
    
    
    167
    
    
    
    
    
    
    
    (1,477
    )Net cash (used in) provided by operating
activities
    
    
    (13,172
    )
    
    
    19,582
    
    
    
    (3,949
    )
    
    
    
    
    
    
    2,461Investing activitiesAcquisitions of property, plant and equipment
    
    
    
    
    
    
    (2,773
    )
    
    
    (283
    )
    
    
    
    
    
    
    (3,056
    )Proceeds on disposal of property, plant and
Equipment
    
    
    
    
    
    
    8
    
    
    
    3
    
    
    
    
    
    
    
    11Acquisition of rental assets
    
    
    
    
    
    
    (7,679
    )
    
    
    (1,500
    )
    
    
    
    
    
    
    (9,179
    )Proceeds on disposal of rental assets
    
    
    
    
    
    
    2,894
    
    
    
    767
    
    
    
    
    
    
    
    3,661Net cash used in investing activities
    
    
    
    
    
    
    (7,550
    )
    
    
    (1,013
    )
    
    
    
    
    
    
    (8,563
    )Financing activitiesRepayment of term loans and other, net
    
    
    (20,000
    )
    
    
    (670
    )
    
    
    (268
    )
    
    
    
    
    
    
    (20,938
    )Increase in revolving credit facility
    
    
    10,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,000Change in due to and (from) related companies
    
    
    22,874
    
    
    
    (26,719
    )
    
    
    3,845
    
    
    
    
    
    
    
    Net cash (used in) provided by financing
activities
    
    
    12,874
    
    
    
    (27,389
    )
    
    
    3,577
    
    
    
    
    
    
    
    (10,938
    )Effect of exchange rate changes on cash and
cash equivalents
    
    
    
    
    
    
    (169
    )
    
    
    144
    
    
    
    
    
    
    
    (25
    )Net decrease in cash and cash
equivalents
    
    
    (298
    )
    
    
    (15,526
    )
    
    
    (1,241
    )
    
    
    
    
    
    
    (17,065
    )Cash and cash equivalents  Beginning of
period
    
    
    557
    
    
    
    20,519
    
    
    
    2,980
    
    
    
    
    
    
    
    24,056Cash and cash equivalents  End of period
    
    $
    259
    
    
    $
    4,993
    
    
    $
    1,739
    
    
    $
    
    
    
    $
    6,991
 21




---



##### 



STANDARD AERO HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 Condensed Consolidating Statement of Cash Flows
For the six months ended June 30, 2005
 Subsidiary
    
    
    Subsidiary
    
    
    CombiningParent
    
    
    Guarantors
    
    
    Non-Guarantors
    
    
    Adjustments
    
    
    Total(In thousands)Operating activitiesNet income (loss) for the period
    
    $
    9,704
    
    
    $
    21,549
    
    
    $
    (2
    )
    
    $
    (21,547
    )
    
    $
    9,704Adjustments
to reconcile net income to net cash provided by (used in) operating activitiesDepreciation and amortization
    
    
    
    
    
    
    11,608
    
    
    
    1,610
    
    
    
    
    
    
    
    13,218Amortization of deferred finance charges
    
    
    916
    
    
    
    853
    
    
    
    
    
    
    
    
    
    
    
    1,769Deferred income taxes
    
    
    
    
    
    
    (1,154
    )
    
    
    (86
    )
    
    
    
    
    
    
    (1,240
    )Gain on disposal of property, plant and
equipment
    
    
    
    
    
    
    (9
    )
    
    
    
    
    
    
    
    
    
    
    (9
    )Foreign exchange loss
    
    
    
    
    
    
    78
    
    
    
    500
    
    
    
    
    
    
    
    578Equity in earnings (losses) of subsidiaries
    
    
    (21,729
    )
    
    
    182
    
    
    
    
    
    
    
    21,547
    
    
    
    Changes in assets and liabilitiesAccounts receivable, net
    
    
    
    
    
    
    17,845
    
    
    
    (7,875
    )
    
    
    
    
    
    
    9,970Inventories
    
    
    
    
    
    
    (2,859
    )
    
    
    249
    
    
    
    
    
    
    
    (2,610
    )Prepaid expenses and other current assets
    
    
    
    
    
    
    (1,739
    )
    
    
    336
    
    
    
    
    
    
    
    (1,403
    )Accounts payable and other accrued
liabilities
    
    
    (1,277
    )
    
    
    (24,983
    )
    
    
    (5,930
    )
    
    
    
    
    
    
    (32,190
    )Income taxes payable and receivable
    
    
    4,729
    
    
    
    (7,809
    )
    
    
    (1,493
    )
    
    
    
    
    
    
    (4,573
    )Net cash (used in) provided by operating
activities
    
    
    (7,657
    )
    
    
    13,562
    
    
    
    (12,691
    )
    
    
    
    
    
    
    (6,786
    )Investing activitiesAcquisitions of property, plant and equipment
    
    
    
    
    
    
    (5,353
    )
    
    
    (529
    )
    
    
    
    
    
    
    (5,882
    )Proceeds on disposal of property, plant and
equipment
    
    
    
    
    
    
    42
    
    
    
    
    
    
    
    
    
    
    
    42Acquisition of rental assets
    
    
    
    
    
    
    (6,628
    )
    
    
    (2,665
    )
    
    
    
    
    
    
    (9,293
    )Proceeds on disposal of rental assets
    
    
    
    
    
    
    4,015
    
    
    
    715
    
    
    
    
    
    
    
    4,730Net cash used in investing activities
    
    
    
    
    
    
    (7,924
    )
    
    
    (2,479
    )
    
    
    
    
    
    
    (10,403
    )Financing activitiesRepayment of term loans and other, net
    
    
    (15,000
    )
    
    
    (639
    )
    
    
    (212
    )
    
    
    
    
    
    
    (15,851
    )Change in due to and (from) related companies
    
    
    18,643
    
    
    
    (26,651
    )
    
    
    13,818
    
    
    
    
    
    
    
    5,810Net cash (used in) provided by financing
activities
    
    
    3,643
    
    
    
    (27,290
    )
    
    
    13,606
    
    
    
    
    
    
    
    (10,041
    )Effect of exchange rate changes on cash and
cash equivalents
    
    
    
    
    
    
    (78
    )
    
    
    (500
    )
    
    
    
    
    
    
    (578
    )Net decrease in cash and cash
equivalents
    
    
    (4,014
    )
    
    
    (21,730
    )
    
    
    (2,064
    )
    
    
    
    
    
    
    (27,808
    )Cash and cash equivalents  Beginning of
period
    
    
    4,116
    
    
    
    18,521
    
    
    
    5,254
    
    
    
    
    
    
    
    27,891Cash and cash equivalents  End of period
    
    $
    102
    
    
    $
    (3,209
    )
    
    $
    3,190
    
    
    $
    
    
    
    $
    83
 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 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 the prime contractor.
    
    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 June 30, 2006 compared with the Three Months ended June 30, 2005
  Three months
    
    
    Three months endedended June 30, 2006
    
    
    June 30, 2005(In thousands)Revenues
    
    $
    200,371
    
    
    $
    171,781Cost of revenues Cost of revenues
    
    
    167,078
    
    
    
    144,578Gross profit
    
    
    33,293
    
    
    
    27,203Selling, general and administrative
expense
    
    
    13,758
    
    
    
    12,851Amortization of intangible assets
    
    
    2,146
    
    
    
    2,446Income from operations
    
    
    17,389
    
    
    
    11,906Interest expense
    
    
    9,554
    
    
    
    8,721Income before income taxes
    
    
    7,835
    
    
    
    3,185Income tax expense
    
    
    592
    
    
    
    39Net income
    
    $
    7,243
    
    
    $
    3,146
 Revenues.
 28




---



##### 



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




---



##### 



Six Months Ended June 30, 2006 compared with the Six Months ended June 30, 2005
  Six months
    
    
    Six months endedended June 30, 2006
    
    
    June 30, 2005(In thousands)Revenues
    
    $
    386,169
    
    
    $
    359,195Cost of revenues Cost of revenues
    
    
    322,052
    
    
    
    298,366Gross profit
    
    
    64,117
    
    
    
    60,829Selling, general and administrative
expense
    
    
    27,311
    
    
    
    25,504Amortization of intangible assets
    
    
    4,292
    
    
    
    4,892Income from operations
    
    
    32,514
    
    
    
    30,433Interest expense
    
    
    19,027
    
    
    
    17,822Income before income taxes
    
    
    13,487
    
    
    
    12,611Income tax expense
    
    
    2,470
    
    
    
    2,907Net income
    
    $
    11,017
    
    
    $
    9,704
 Revenues.
 Gross profit.
 Selling, general and administration expense.
 Amortization of intangible assets.
 Income from operations.
 Interest expense.
 30




---



##### 



Income tax expense.
 Segment Results of Operations
 Three Months Ended June 30, 2006 compared to the Three Months ended June 30, 2005
  Three months
    
    
    Three months endedended June 30, 2006
    
    
    June 30, 2005(In thousands)Revenues:Aviation MRO
    
    $
    191,365
    
    
    $
    171,550Enterprise Services
    
    
    9,006
    
    
    
    231Total revenue
    
    
    200,371
    
    
    
    171,781Segment Income (loss) from Operations:Aviation MRO
    
    
    20,241
    
    
    
    15,878Enterprise Services
    
    
    (64
    )
    
    
    (1,434
    )Segment income from operations
    
    
    20,177
    
    
    
    14,444Corporate expenses
    
    
    2,788
    
    
    
    2,538Interest expense
    
    
    9,554
    
    
    
    8,721Income before income taxes
    
    
    7,835
    
    
    
    3,185Income tax expense
    
    
    592
    
    
    
    39Net income
    
    $
    7,243
    
    
    $
    3,146
 Aviation MRO
 Three Months Ended June 30, 2006 compared to the Three Months ended June 30, 2005
 Revenues.
 31




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##### 



Segment income from operations.
 Enterprise Services
 Three Months Ended June 30, 2006 compared to the Three Months ended June 30, 2005
 Revenues.
 Segment loss from operations.
 Six Months Ended June 30, 2006 compared to the Six Months ended June 30, 2005
  Six months
    
    
    Six months endedended June 30, 2006
    
    
    June 30, 2005(In thousands)Revenues:Aviation MRO
    
    $
    368,635
    
    
    $
    358,561Enterprise Services
    
    
    17,534
    
    
    
    634Total revenue
    
    
    386,169
    
    
    
    359,195Segment Income (loss) from Operations:Aviation MRO
    
    
    39,384
    
    
    
    38,513Enterprise Services
    
    
    (547
    )
    
    
    (2,682
    )Segment income from operations
    
    
    38,837
    
    
    
    35,831Corporate expenses
    
    
    6,323
    
    
    
    5,398Interest expense
    
    
    19,027
    
    
    
    17,822Income before income taxes
    
    
    13,487
    
    
    
    12,611Income tax expense
    
    
    2,470
    
    
    
    2,907Net income
    
    $
    11,017
    
    
    $
    9,704
 32




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##### 



Aviation MRO
 Six Months Ended June 30, 2006 compared to the Six Months ended June 30, 2005
 Revenues.
 Segment income from operations.
 Enterprise Services
 Six Months Ended June 30, 2006 compared to the Six Months ended June 30, 2005
 Revenues.
 Segment loss 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 $250.0 million, and a $50.0 million six-year
revolving credit facility, under which we had no outstanding indebtedness;
    
    $1.6 million in capital lease obligations; and
    
    $200.0 million in aggregate principal amount of our 81/4% senior subordinated notes due 2014.
 33




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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)
 34




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##### 



Senior credit agreement covenant compliance
     
 35




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##### 



July 1 -
    
    
    
    Last 12 monthsJanuary 1 
    
    
    December
    
    
    
    endedJune 30, 2006
    
    
    31, 2005
    
    
    
    June 30, 2006(In millions)Net income (loss)
    
    $
    11.0
    
    
    $
    (58.9
    )
    
    
    $
    (47.9
    )Add:Depreciation and amortization
    
    
    12.9
    
    
    
    12.1
    
    
    
    
    24.2Interest expense, net
    
    
    19.0
    
    
    
    18.6
    
    
    
    
    37.6Provision (benefit) for income taxes
    
    
    2.5
    
    
    
    (3.2
    )
    
    
    
    (0.7
    )Non-recurring expenses
(1)
    
    
    1.9
    
    
    
    6.2
    
    
    
    
    8.1Non-recurring impairment
(2)
    
    
    
    
    
    
    77.1
    
    
    
    
    77.1Management fee
    
    
    0.7
    
    
    
    0.9
    
    
    
    
    1.6Adjusted EBITDA
    
    $
    48.0
    
    
    $
    52.8
    
    
    
    $
    100.8
 
 (1)
    
    We incurred $1.9 million in professional fees and other costs associated with the KAC
contractual review during the period ended June 30, 2006. We incurred $3.7 million in
employee exit costs and $2.5 million in non-recurring professional fees associated with
contractual review, potential acquisitions and the exchange offer of our senior subordinated
notes during the period July 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 July 1, 2005 to December 31, 2005.
 36




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##### 



Senior subordinated notes
 1 4
 Cash flows
  Six months
    
    
    Six months endedended June 30, 2006
    
    
    June 30, 2005(In thousands)Net cash provided by (used in) operating activities
    
    $
    2,461
    
    
    $
    (6,786
    )Net cash used in investing activities
    
    
    (8,563
    )
    
    
    (10,403
    )Net cash used in financing activities
    
    
    (10,938
    )
    
    
    (10,041
    )Effect of exchange rate changes on cash and cash
equivalents
    
    
    (25
    )
    
    
    (578
    )Net decrease in cash and cash equivalents
    
    $
    (17,065
    )
    
    $
    (27,808
    )
 Net cash provided by (used in) operating activities
   Net cash used in investing activities
 
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##### 



Net cash used in financing activities
   ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
  Interest rate risks.
  Maximum interest
    
    
    Minimum interestNotional amount
    
    
    Period hedged by interest rate collar
    
    rate(1)
    
    
    rate(1)$75.0  million
    

March 27,
2006  December 27, 2006
    
    
    5.25
    %
    
    
    2.40
    %
 
 (1)
 Currency risks.
 38




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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.
  
    
    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.
  39




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##### 



Plans for Remediation
  
 
 
  
 
 
  Changes in Internal Control over Financial Reporting
  40




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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.
  41




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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 8 1/4%
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).10.1
    
    Amendment No. 92 to Subcontract No. LMKAC-98-0001 between Standard Aero and Lockheed,
dated as of July 11, 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.
 
 
 42




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##### 



SIGNATURES
  STANDARD AERO HOLDINGS, INC.Dated: August 14, 2006
    
    /s/ DAVID SHAWName:
    
    David ShawTitle:
    
    Chief Executive Officer(principal executive officer)Dated: August 14, 2006
    
    /s/ BRADLEY BERTOUILLEName:
    
    Bradley BertouilleTitle:
    
    Chief Financial Officer(principal financial and accountingofficer)
 43