##### 



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 
 FORM 10-Q/A
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the Quarterly Period Ended June 30, 2005
 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)
 o þ
 o þ
 o þ




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##### 



INDEX
 PageNo.PART IFINANCIAL INFORMATIONItem 1.
    
    Financial Statements (Unaudited).
    
    
    2  4Notes to Condensed Consolidated Financial Statements (Unaudited).
    
    
    5  26Item 2.
    
    Managements Discussion and Analysis of Financial Condition and
Results of Operations.
    
    
    27  43Item 4.
    
    Controls and Procedures.
    
    
    44PART IIOTHER INFORMATIONItem 6.
    
    Exhibits.SIGNATURES
    
    
    47




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##### 



EXPLANATORY NOTE
   Form 10-Q/A
 
    
    Part I, Item 1, Financial Information;
    
    Part I, Item 2, Managements Discussion and Analysis of Financial Condition and Results of Operations;
    
    Part I, Item 4, Controls and Procedures; and
    
    Part II, Item 6, Exhibits.




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##### 



Standard Aero Holdings, Inc.
 Condensed Consolidated Statement of Operations (Successor) (Unaudited)/
Condensed Combined Statement of Operations (Predecessor) (Unaudited)
(In thousands of U.S. dollars)
 Three months ended June 30,
    
    Six months ended June 30,2005
    
    
    2004
    
    2005
    
    
    2004(Successor)
    
    
    (Predecessor)
    
    (Successor)
    
    
    (Predecessor)(restated)
    
    
    
    
    (restated)Revenues
    
    $
    171,781
    
    
    
    $
    189,917
    
    
    $
    359,195
    
    
    
    $
    367,868Operating expensesCost of revenues
    
    
    (144,591
    )
    
    
    
    (154,748
    )
    
    
    (298,494
    )
    
    
    
    (301,978
    )Selling, general and administrative
expense
    
    
    (12,838
    )
    
    
    
    (11,531
    )
    
    
    (25,376
    )
    
    
    
    (22,440
    )Amortization of intangible assets
    
    
    (2,446
    )
    
    
    
    (688
    )
    
    
    (4,892
    )
    
    
    
    (1,376
    )Total operating expenses
    
    
    (159,875
    )
    
    
    
    (166,967
    )
    
    
    (328,762
    )
    
    
    
    (325,794
    )Income from operations
    
    
    11,906
    
    
    
    
    22,950
    
    
    
    30,433
    
    
    
    
    42,074Interest expense
    
    
    (8,721
    )
    
    
    
    (1,896
    )
    
    
    (17,822
    )
    
    
    
    (3,835
    )Income before income taxes
    
    
    3,185
    
    
    
    
    21,054
    
    
    
    12,611
    
    
    
    
    38,239Income
tax expense
    
    
    (39
    )
    
    
    
    (7,924
    )
    
    
    (2,907
    )
    
    
    
    (14,418
    )Net income
    
    $
    3,146
    
    
    
    $
    13,130
    
    
    $
    9,704
    
    
    
    $
    23,821
 The accompanying notes are an integral part of these statements.
 2




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##### 



Standard Aero Holdings, Inc.
 Condensed Consolidated Balance Sheet (Successor)
(In thousands of U.S. dollars)
 June 30,
    
    
    December 31,2005
    
    
    2004(Successor)
    
    
    (Successor)(restated)AssetsCurrent assetsCash and cash equivalents
    
    $
    83
    
    
    
    $
    27,891Accounts receivable (less allowance for
doubtful accounts of $3,932 and $3,909 at
December 31, 2004 and June 30, 2005,
respectively)
    
    
    100,522
    
    
    
    
    110,492Inventories
    
    
    149,013
    
    
    
    
    146,403Prepaid expenses and other current assets
    
    
    7,705
    
    
    
    
    10,994Income taxes receivable
    
    
    6,262
    
    
    
    
    4,563Deferred income taxes
    
    
    3,584
    
    
    
    
    4,118Total current assets
    
    
    267,169
    
    
    
    
    304,461Deferred finance charges
    
    
    19,446
    
    
    
    
    21,215Deferred income taxes
    
    
    4,642
    
    
    
    
    5,197Property, plant and equipment, net
    
    
    140,039
    
    
    
    
    136,439Intangible assets, net
    
    
    230,874
    
    
    
    
    237,280Goodwill
    
    
    242,570
    
    
    
    
    242,570Total assets
    
    $
    904,740
    
    
    
    $
    947,162Liabilities and stockholders equityCurrent liabilitiesAccounts payable
    
    $
    74,028
    
    
    
    $
    102,423Other accrued liabilities
    
    
    26,285
    
    
    
    
    28,498Due to related party
    
    
    3,940
    
    
    
    
    2,808Unearned revenue
    
    
    12,092
    
    
    
    
    12,519Accrued warranty provision
    
    
    5,752
    
    
    
    
    6,907Income taxes payable
    
    
    6,106
    
    
    
    
    8,980Current portion of long-term debt
    
    
    1,825
    
    
    
    
    1,985Total current liabilities
    
    
    130,028
    
    
    
    
    164,120Deferred income taxes
    
    
    82,301
    
    
    
    
    84,630Long-term debt
    
    
    471,570
    
    
    
    
    487,261Total liabilities
    
    
    683,899
    
    
    
    
    736,011Commitments and contingenciesStockholders equityCommon stock(1,000 shares authorized,
issued and outstanding, par value $0.01)
    
    
    
    
    
    
    
    Additional paid in capital
    
    
    215,000
    
    
    
    
    215,000Retained
earnings / (Accumulated deficit)
    
    
    5,803
    
    
    
    
    (3,901
    )Accumulated other comprehensive income
    
    
    38
    
    
    
    
    52Total stockholders equity
    
    
    220,841
    
    
    
    
    211,151Total liabilities and stockholders equity
    
    $
    904,740
    
    
    
    $
    947,162
 The accompanying notes are an integral part of these statements.
 3




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##### 



Standard Aero Holdings, Inc.
 Condensed Consolidated Statement of Cash Flows (Successor) (Unaudited)/
Condensed Combined Statements of Cash Flows (Predecessor) (Unaudited)
(In thousands of U.S. dollars)
 Six months ended June 30,2005
    
    
    2004(Successor)
    
    
    (Predecessor)(restated)Cash provided by (used in)Operating activitiesNet income for the period
    
    $
    9,704
    
    
    
    $
    23,821Adjustments to reconcile net income to net cash provided by
operating activitiesDepreciation and amortization
    
    
    13,218
    
    
    
    
    10,151Amortization of deferred finance charges
    
    
    1,769
    
    
    
    
    272Deferred income taxes
    
    
    (1,240
    )
    
    
    
    (3,423
    )Gain on disposal of property, plant and equipment
    
    
    (9
    )
    
    
    
    Other
    
    
    
    
    
    
    
    47Changes in assets and liabilitiesAccounts receivable
    
    
    9,970
    
    
    
    
    (33,838
    )Inventories
    
    
    (2,610
    )
    
    
    
    (35,943
    )Prepaid expenses and other current assets
    
    
    (1,403
    )
    
    
    
    397Accounts payable and other current liabilities
    
    
    (32,190
    )
    
    
    
    66,742Income taxes payable and receivable
    
    
    (4,573
    )
    
    
    
    (657
    )Net cash
provided by (used in) operating activities
    
    
    (7,364
    )
    
    
    
    27,569Investing activitiesAcquisition
of intangibles  licenses
    
    
    
    
    
    
    
    (125
    )Acquisition of rental assets
    
    
    (9,293
    )
    
    
    
    (6,889
    )Acquisition of property, plant and equipment
    
    
    (5,882
    )
    
    
    
    (4,202
    )Proceeds from disposals of rental assets
    
    
    4,730
    
    
    
    
    4,845Proceeds from disposals of property, plant, and equipment
    
    
    42
    
    
    
    
    12Net cash used in investing activities
    
    
    (10,403
    )
    
    
    
    (6,359
    )Financing activitiesRepayment of long-term debt
    
    
    (15,851
    )
    
    
    
    (843
    )Change in
due to and (from) related companies
    
    
    5,810
    
    
    
    
    2,366Net cash provided by (used in) financing activities
    
    
    (10,041
    )
    
    
    
    1,523Net (decrease) increase in cash and cash equivalents
    
    
    (27,808
    )
    
    
    
    22,733Cash and cash equivalents  Beginning of period
    
    
    27,891
    
    
    
    
    22,698Cash and cash equivalents  End of period
    
    $
    83
    
    
    
    $
    45,431
 The accompanying notes are an integral part of these statements.
 4




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##### 



STANDARD
AERO HOLDINGS, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 1
    
    Nature of operations
 The Company
 SuccessorStandard Aero Holdings, Inc. was incorporated on June 20, 2004 in the State of Delaware to
acquire the MRO business (as described below). Standard Aero Holdings, Inc. and its
subsidiaries (the Company or the Successor) commenced operations on August 25, 2004.The Company is an independent provider of aftermarket maintenance repair and overhaul (MRO)
services for gas turbine engines used primarily for military, regional and business aircraft.
The Company repairs and overhauls a wide range of aircraft engines and provides its customers
with comprehensive, value-added maintenance solutions.
 The AcquisitionOn August 24, 2004, pursuant to a purchase agreement with Meggitt plc, the Company acquired from
Meggitt the MRO Division of Dunlop Standard Aerospace Group Limited (the Predecessor) for cash
consideration of $699.7 million, including direct costs of the Acquisition of $28.0 million.
This transaction is referred to as the Acquisition. The Company is a wholly owned subsidiary of
Standard Aero Acquisition Holdings, Inc., which is a corporation formed at the direction of The
Carlyle Group. Affiliates of The Carlyle Group own 98.2% of Standard Aero Acquisition Holdings,
Inc. common stock. The purchase price was financed by a $215.0 million equity investment from
the Companys parent company, Standard Aero Acquisition Holdings, Inc., $325.0 million of term
loans and $200.0 million of senior subordinated notes.The accompanying financial statements include the consolidated accounts of the Company and its
subsidiaries subsequent to the Acquisition and also include the combined accounts of the
Predecessor prior to the Acquisition. All significant intercompany accounts and transactions,
including profit and loss as a result of those transactions, have been eliminated in the
consolidation. The financial statements of the Predecessor are presented for comparative
purposes and include the combined historical financial statements of the MRO Division of Dunlop
Standard Aerospace Group Limited. As a result of the Acquisition, the combined financial
statements of the Predecessor Company are not fully comparable to the consolidated financial
statements of the Successor Company due to the different basis of accounting and change in
capital structures.
 The Company accounted for the Acquisition using the purchase method of accounting in accordance
with SFAS No. 141, Business Combinations and, accordingly, the Acquisition resulted in a new
basis of accounting for the Company. The Company allocated the purchase price based on the fair
values of the assets acquired and liabilities assumed at the Acquisition date, as follows:
 August 25, 2004(restated)Current assetsCash and cash equivalents
    
    $
    35,700Accounts receivable
    
    
    106,372Inventories
    
    
    186,718Prepaid expenses and other current assets
    
    
    3,205Property, plant and equipment
    
    
    136,123Goodwill
    
    
    242,570Intangible assets
    
    
    241,550Total assets acquired
    
    
    952,238Current liabilitiesAccounts payable
    
    
    120,415Other current liabilities
    
    
    18,903Unearned revenue
    
    
    17,120Accrued warranty provision
    
    
    6,740Long-term debt
    
    
    4,872Deferred income taxes
    
    
    84,477Total liabilities assumed
    
    
    252,527Net assets acquired for cash
    
    $
    699,711
 The excess of the cost of the Acquisition over the fair values of the net tangible and
intangible assets acquired of $242.6 million (restated) has been allocated to goodwill. All of the
goodwill has been allocated to the Aviation Maintenance, Repair and Overhaul reporting segment
of the Company. As at June 30, 2005, the goodwill had not yet been assigned to reporting units.
In accordance with SFAS No. 142, this goodwill will not be amortized but will be reviewed
annually for impairment. The majority of the goodwill will not be deductible for income tax
purposes. Of the $241.6 million of acquired intangible assets, $97.3 million was assigned to
trademarks that have indefinite lives, $98.0 million was assigned to customer relationships that
have an estimated weighted average useful life of 17.4 years, $38.4 million was assigned to OEM
authorizations and licenses that have an estimated weighted average useful life of 14.2 years,
and $7.9 million was assigned to technology and other that have an estimated average useful life
of 5 years.
 5




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##### 



STANDARD
AERO HOLDINGS, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 PredecessorThe financial statements of the Predecessor reflect the combined financial position, combined
results of operations and combined cash flows of the Predecessor business which includes the
accounts of Standard Aero (US) Inc. (formerly Dunlop Standard Aerospace (US) Inc.), related to
the MRO business and the accounts of the following entities:
 Name
    
    Country of IncorporationStandard Aero, Inc.
    
    USAStandard Aero (San Antonio) Inc.
    
    USAStandard Aero (Alliance) Inc.
    
    USAStandard Aero Limited
    
    CanadaStandard Aero de Mexico de C.V.
    
    MexicoStandard Aero (Australia) Pty Limited
    
    AustraliaStandard Aero International Pty Limited
    
    AustraliaStandard Aero BV
    
    NetherlandsStandard Aero (Asia) Pte Limited
    
    SingaporeStandard Aero (Netherlands) BV (formerly Dunlop
Standard Aerospace (Nederland) BV)
    
    NetherlandsStandard Aero (US) Legal Inc. (formerly Dunlop
Standard Aerospace (US) Legal Inc.)
    
    USAStandard Aero Materials Inc. (formerly Dunlop
Aerospace Parts Inc.)
    
    USANot FM Canada Inc.
    
    CanadaStandard Aerospace BV
    
    NetherlandsStandard Aero vof
    
    Netherlands
 Standard Aero (US) Inc.s (formerly Dunlop Standard Aerospace (US) Inc.) accounts include
investments in two wholly-owned subsidiaries which carry on business not related to the MRO
Division and, therefore, these investments have been excluded from the Predecessors financial
statements. All material intra-group balances and transactions have been eliminated in the
combination. The combined financial statements reflect a divisional equity account which
represents the parent companys initial investments, accumulated earnings less distributions and
advances to and from the parent company. Divisional equity also includes advances to or from
related companies made at the discretion of the parent company that are considered investing and
financing activities in these financial statements.Certain administration, management and other services were provided by Dunlop Standard Aerospace
Group Limited including, but not limited to, executive and strategic management, accounting and
financial reporting, treasury, cash management, employee benefit administration, training and
redesign services. The Predecessor was charged an allocation for these services by Dunlop
Standard Aerospace Group Limited. All allocations and estimates are based on assumptions that
management believes are reasonable. However, the combined results of operations, combined
divisional equity and combined cash flows of the Predecessor for the period from January 1, 2004
to June 30, 2004, may not necessarily reflect those that would have occurred had the Predecessor
operated autonomously as an entity independent of Dunlop Standard Aerospace Group Limited.SeasonalityThe Company does not experience significant fluctuations in earnings or cash flows due to
seasonality.
 6
      STANDARD
AERO HOLDINGS, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 Restatement
  Error in Recording Loss Contract. Business
Combinations
  
    
    changes to the Companys opening consolidated balance sheet as of the date of the
Acquisition to reflect (1) an increase of the recorded liability related to the Loss
Contract of $3.3 million representing the present value of the Loss Contract as of the date
of the Acquisition (the Loss Contract Liability) partially offset by an increase of $2.1
million in the carrying value of goodwill, net of $1.2 million of deferred taxes.
    
    a reclassification of the Loss Contract Liability from accounts payable to other
accrued liabilities in the amount of $3.6 million as of June 30, 2005.
    
    changes to the Companys consolidated balance sheet at the end of each of the restated
periods to reflect (1) the re-measured present value of the Loss Contract Liability over
the life of the Loss Contract; (2) reductions in the carrying amount of the Loss Contract
Liability as costs were incurred in excess of the net realizable value of inventory.
Accordingly, the restated period reflects a decrease in the carrying amount of the Loss
Contract Liability of $4.1 million as of June 30, 2005.
    
    changes to the Companys cost of revenues for each of the restated periods reflecting
the elimination of the actual losses recognized prior to the identification of the error
and charges to non-cash interest expense reflecting the present value accretion associated
with the Loss Contract Liability. Accordingly, the restated periods reflect: (1) reduction
in cost of revenues in the amount of $0.7 million and $1.1 million for the three and six months ended June 30, 2005, and appropriate tax effects respectively, and (2) increase in interest expense in the amount of $0.2 million and $0.3 million for the three and six months ended
June 30, 2005 and appropriate tax effects respectively.
 Accounts Receivable Error.
  
    
    changes to the Companys consolidated balance sheets to reflect the elimination of
approximately $1.5 million in overstated accounts receivable at as of June 30, 2005.
 Other adjustments.
 7
      STANDARD
AERO HOLDINGS, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
  Statement of Operations
    
    Three months ended June 30, 2005
    
    
    Six months ended June 30 , 2005As
    
    
    
    
    
    
    AsPreviously
    
    
    As
    
    
    Previously
    
    
    AsReported
    
    
    Restated
    
    
    Reported
    
    
    RestatedCost of revenues
    
    $
    145,264
    
    
    $
    144,591
    
    
    $
    299,569
    
    
    $
    298,494Selling, general and
administrative expense
    
    
    12,851
    
    
    
    12,838
    
    
    
    25,395
    
    
    
    25,376Total operating expenses
    
    
    160,561
    
    
    
    159,875
    
    
    
    329,856
    
    
    
    328,762Income from operations
    
    
    11,220
    
    
    
    11,906
    
    
    
    29,339
    
    
    
    30,433Interest expense
    
    
    8,547
    
    
    
    8,721
    
    
    
    17,475
    
    
    
    17,822Income before income taxes
    
    
    2,673
    
    
    
    3,185
    
    
    
    11,864
    
    
    
    12,611Income tax expense (benefit)
    
    
    (126
    )
    
    
    39
    
    
    
    2,587
    
    
    
    2,907Net income
    
    $
    2,799
    
    
    $
    3,146
    
    
    $
    9,277
    
    
    $
    9,704
 Balance SheetAs at June 30, 2005AsPreviously
    
    
    AsReported
    
    
    RestatedASSETSAccounts receivable
    
    $
    102,022
    
    
    $
    100,522Inventories
    
    
    150,026
    
    
    
    149,013Income taxes receivable
    
    
    7,225
    
    
    
    6,262Total current assets
    
    
    270,645
    
    
    
    267,169Deferred income taxes  long-term
    
    
    3,545
    
    
    
    4,642Property, plant and equipment, net
    
    
    139,740
    
    
    
    140,039Goodwill
    
    
    240,490
    
    
    
    242,570Total assets
    
    $
    904,740
    
    
    $
    904,740LIABILITIES AND STOCKHOLDERS EQUITYAccounts payable
    
    $
    77,614
    
    
    $
    74,028Other accrued liabilities
    
    
    23,481
    
    
    
    26,285Income taxes payable
    
    
    6,640
    
    
    
    6,106Total current liabilities
    
    
    131,344
    
    
    
    130,028Deferred income taxes  long-term
    
    
    82,193
    
    
    
    82,301Total liabilities
    
    
    685,107
    
    
    
    683,899Retained
earnings
    
    
    4,595
    
    
    
    5,803Total stockholders equity
    
    
    219,633
    
    
    
    220,841Total liabilities and stockholders
equity
    
    $
    904,740
    
    
    $
    904,740
   8
      STANDARD AERO HOLDINGS, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 Basis of presentationThe unaudited condensed consolidated financial statements of the Successor and the unaudited
condensed combined consolidated financial statements of the Predecessor included herein have
been prepared in accordance with accounting principles generally accepted in the United States
for interim financial information. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with accounting principles generally
accepted in the United States have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the disclosures are adequate to make the
information presented not misleading. In the opinion of management, the unaudited consolidated
financial statements and the unaudited combined financial statements include all adjustments
necessary for a fair presentation of the results
of operations for the interim periods. Results for the interim periods are not necessarily
indicative of results that may be expected for the fiscal year ending December 31, 2005. These
interim financial statements should be read in conjunction with the consolidated financial
statements and footnotes of the Company as of December 31, 2004 and for the period from August
25, 2004 to December 31, 2004 and the combined financial statements and footnotes of the MRO
Division of Dunlop Standard Aerospace Group Limited as of December 31, 2003 and for the period
from January 1, 2004 to August 24, 2004 and the years ended December 31, 2003 and December 31,
2002.2
    
    Summary of significant accounting policiesThe consolidated and combined financial statements of the Company and the Predecessor,
respectively, have been prepared in accordance with accounting principles generally accepted in
the United States (US GAAP) and are reported in U.S. dollars.
 a)
    
    Revenue recognitionThe Companys revenues related to engine maintenance, repair and overhaul services includes the
provision of services and parts which are accounted for as a single accounting unit. These
revenues and related cost of revenues are recognized when the services are completed or repaired
parts are shipped to the customer. The Companys standard terms and conditions provide that title
and risk of loss passes to the customer when the customer owned material is shipped to the
customer. Amounts received in advance from customers are recorded as unearned revenue.Certain of the Companys contracts may include multiple elements consisting both of engine repair
and overhaul services and engine rentals. In these arrangements, the service and rental elements
are divided into separate units of accounting based on relative fair values of each unit and each
unit is accounted for in accordance with the polices noted above.Lease income associated with the rental of engines or engine modules to customers is recorded based
on time incurred (i.e., on the number of hours flown) as reported to the Company by the customer.The Company has entered into long-term contracts to provide services to a number of customers.
These long-term contracts allow customers to pay an engine operating fee based on the engine
utilization (i.e., on the number of hours or cycles flown). The engine operating fee is determined
in each of the long term contracts. The Company recognizes revenue and related cost of revenue
when the services are completed or repaired parts are shipped to the customer. Provided that the
outcome of long-term contracts can be assessed with reasonable certainty, the attributable profit
recognized is based on the overall contract profitability, after including an appropriate risk
factor, which is progressively reduced over the life of the contract.
 9
      STANDARD AERO HOLDINGS, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 b)
    
    Goodwill and intangible assetsIntangible assets with definite lives of the Successor are
being amortized over 1 to 20 years. Intangible assets with definite lives of the Predecessor
were being amortized over 3 to 40 years. Intangible assets
determined to have indefinite lives are tested for impairment
annually and intangible assets with both definite and indefinite lives are
tested for impairment if the situation indicates that the asset might
be impaired. Goodwill is tested for impairment annually in the fourth
quarter or if the situation indicates that the asset might be impaired.Intangible assets having definite lives are recorded at cost and amortized over their
estimated useful lives or terms of licenses, using the straight-line method, as summarized
below:
 Successor
    
    PredecessorCustomer relationships
    
    1 to 20 years
    
    13 to 40 yearsOEM authorizations and licenses
    
    4 to 17 years
    
    3 to 10 yearsTechnology and other
    
    5 years
    
    
 c)
    
    Income taxesThe Company recognizes deferred tax assets and liabilities using the liability method.
Under this method, deferred tax assets and liabilities are determined based on the
difference between the financial statement and tax bases of assets and liabilities using
enacted tax rates in effect for the year in which the differences are expected to reverse.
Deferred tax assets are reduced by a valuation allowance to record the deferred tax
assets at an amount expected more likely than not to be recoverable. Deferred tax assets
and liabilities are adjusted for the effects of changes in tax laws and rates on the date
of enactment.Investment tax credits are accounted as a reduction in the cost of the asset or as a
reduction in associated operating costs when it is likely that such credits will be
realized. These investment tax credits are used to reduce current and future taxes
payable.d)
    
    Share-based compensationThe Company does not have a share-based compensation plan. However, certain employees of
the Company participate in the Stock Option and Purchase Plan of the Companys parent,
Standard Aero Acquisition Holdings, Inc. Options granted by Standard Aero Acquisition
Holdings, Inc. had an exercise price equal to fair value of the underlying stock on the
date of the grant. The parent company accounts for stock-based employee compensation
using the intrinsic value method under Accounting Principles Board Opinion No. 25,
Accounting to Stock Issued to Employees.The following table illustrates the effect on net income of the Successor if Standard Aero
Acquisition Holdings, Inc. had applied the fair value recognition provisions of Statement
of Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based
Compensation:
 January 1, 2005to June 30, 2005(In thousands)Net income, as restated
    
    $
    9,704Deduct: Stock-based compensation expense calculated in
accordance with SFAS No. 123
    
    
    (253
    )Pro forma net income
    
    $
    9,451
 10
      STANDARD AERO HOLDINGS, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 e)
    
    New accounting standards
   f)
    
    Comparative Figures
  3 Inventories
 June 30,
    
    December 31,2005
    
    2004(Successor)
    
    (Successor)(restated)Raw materials
    
    $
    76,302
    
    
    $
    74,897Work in process
    
    
    72,711
    
    
    
    71,506$
    149,013
    
    
    $
    146,403
 11
      STANDARD AERO HOLDINGS, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 4 Intangible assets
  Gross carrying
    
    Accumulated
    
    Net carryingAt June 30, 2005 (Successor)
    
    amount
    
    Amortization
    
    amountDefinite lived intangible assets
subject to amortization:Customer relationships
    
    $
    98,000
    
    
    $
    6,837
    
    
    $
    91,163OEM authorizations and licenses
    
    
    38,350
    
    
    
    2,522
    
    
    
    35,828Technology and other
    
    
    7,900
    
    
    
    1,317
    
    
    
    6,583144,250
    
    
    
    10,676
    
    
    
    133,574Indefinite lived intangible assets not
subject to amortization:Trademarks
    
    
    97,300
    
    
    
    
    
    
    
    97,300Total intangible assets
    
    $
    241,550
    
    
    $
    10,676
    
    
    $
    230,874
 Gross carrying
    
    Accumulated
    
    Net carryingAt December 31, 2004 (Successor)
    
    amount
    
    amortization
    
    amountDefinite lived intangible assets
subject to amortization:Customer relationships
    
    $
    98,000
    
    
    $
    2,735
    
    
    $
    95,265OEM authorizations and licenses
    
    
    38,350
    
    
    
    1,008
    
    
    
    37,342Technology and other
    
    
    7,900
    
    
    
    527
    
    
    
    7,373144,250
    
    
    
    4,270
    
    
    
    139,980Indefinite lived intangible assets not
subject to amortization:Trademarks
    
    
    97,300
    
    
    
    
    
    
    
    97,300Total intangible assets
    
    $
    241,550
    
    
    $
    4,270
    
    
    $
    237,280
    12
      STANDARD AERO HOLDINGS, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 5 Long-term debt
  June 30,
    
    December 31,2005
    
    2004(Successor)
    
    (Successor)Term loans
    
    $
    270,000
    
    
    $
    285,000Senior subordinated notes
    
    
    200,000
    
    
    
    200,000Obligations under capital leases
    
    
    3,395
    
    
    
    4,246473,395
    
    
    
    489,246Less: Current portion
    
    
    1,825
    
    
    
    1,985Long-term debt
    
    $
    471,570
    
    
    $
    487,261
       13
      STANDARD AERO HOLDINGS, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 6 Employee benefit plans
  7 Commitments and contingencies
 Commitments
  Contingent liabilities
   8 Stock options
  14
      STANDARD AERO HOLDINGS, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
  Outstanding as of December 31, 2004
    
    
    206,071Granted
    
    
    3,000Exercised
    
    
    Cancelled
    
    
    Outstanding as of June 30, 2005
    
    
    209,071Weighted average remaining life as of June 30, 2005
    
    
    5.5Options exercisable as of June 30, 2005
    
    
    17,952
   9 Related party transactions
   10 Guarantees
   15
      STANDARD AERO HOLDINGS, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 Warranty guarantee
   (In thousands)Balance at December 31, 2003 (Predecessor)
    
    $
    (4,627
    )Warranty costs incurred
    
    
    1,297Warranty accrued
    
    
    (1,853
    )Warranty reversal
    
    
    1,245Balance at June 30, 2004 (Predecessor)
    
    
    (3,938
    )Balance at December 31, 2004 (Successor)
    
    
    (6,907
    )Warranty costs incurred
    
    
    1,329Warranty accrued
    
    
    (174
    )Balance at June 30, 2005 (Successor)
    
    $
    (5,752
    )
 11 Segment information
     16
      STANDARD AERO HOLDINGS, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 As of and for the three months ended June 30, 2005 (Successor)
 Aviationmaintenancerepair andoverhaul
    
    Other Services
    
    Unallocated
    
    Total(restated)
    
    
    
    (restated)
    
    (restated)Revenues
    
    $
    166,652
    
    
    $
    5,129
    
    
    $
    
    
    
    $
    171,781Income (loss) from operations
    
    
    16,255
    
    
    
    (1,811
    )
    
    
    (2,538
    )
    
    
    11,906Depreciation and amortization
    
    
    6,228
    
    
    
    232
    
    
    
    
    
    
    
    6,460Total assets
    
    
    847,921
    
    
    
    28,412
    
    
    
    28,407
    
    
    
    904,740Goodwill
    
    
    242,570
    
    
    
    
    
    
    
    
    
    
    
    242,570Capital and intangible
expenditures
    
    
    7,884
    
    
    
    429
    
    
    
    13
    
    
    
    8,326
 For the three months ended June 30, 2004 (Predecessor)
 Aviationmaintenancerepair andoverhaul
    
    Other Services
    
    Unallocated
    
    TotalRevenues
    
    $
    182,507
    
    
    $
    7,410
    
    
    $
    
    
    
    $
    189,917Income (loss) from operations
    
    
    25,855
    
    
    
    (1,229
    )
    
    
    (1,676
    )
    
    
    22,950Depreciation and amortization
    
    
    5,282
    
    
    
    239
    
    
    
    
    
    
    
    5,521Goodwill
    
    
    
    
    
    
    
    
    
    
    74,751
    
    
    
    74,751Capital and intangible
expenditures
    
    
    5,603
    
    
    
    425
    
    
    
    
    
    
    
    6,028
 17
      STANDARD AERO HOLDINGS, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 As of and for the six months ended June 30, 2005 (Successor)
 Aviationmaintenancerepair andoverhaul
    
    Other Services
    
    Unallocated
    
    Total(restated)
    
    
    
    (restated)
    
    (restated)Revenues
    
    $
    349,156
    
    
    $
    10,039
    
    
    $
    
    
    
    $
    359,195Income (loss) from operations
    
    
    38,982
    
    
    
    (3,151
    )
    
    
    (5,398
    )
    
    
    30,433Depreciation and amortization
    
    
    12,725
    
    
    
    493
    
    
    
    
    
    
    
    13,218Total assets
    
    
    847,921
    
    
    
    28,412
    
    
    
    28,407
    
    
    
    904,740Goodwill
    
    
    242,570
    
    
    
    
    
    
    
    
    
    
    
    242,570Capital and intangible
expenditures
    
    
    14,472
    
    
    
    677
    
    
    
    26
    
    
    
    15,175
 For the six months ended June 30, 2004 (Predecessor)
 Aviationmaintenancerepair andoverhaul
    
    Other Services
    
    Unallocated
    
    TotalRevenues
    
    $
    353,881
    
    
    $
    13,987
    
    
    $
    
    
    
    $
    367,868Income (loss) from operations
    
    
    47,068
    
    
    
    (2,107
    )
    
    
    (2,887
    )
    
    
    42,074Depreciation and amortization
    
    
    9,668
    
    
    
    483
    
    
    
    
    
    
    
    10,151Goodwill
    
    
    
    
    
    
    
    
    
    
    74,751
    
    
    
    74,751Capital and intangible
expenditures
    
    
    10,432
    
    
    
    777
    
    
    
    7
    
    
    
    11,216
 18
      STANDARD AERO HOLDINGS, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 12 Guarantor Information
  Condensed Combining Statements of Operations (Successor)
For the three months ended June 30, 2005(restated)
 Subsidiary
    
    Subsidiary
    
    CombiningParent
    
    Guarantors
    
    Non-Guarantors
    
    Adjustments
    
    TotalRevenues
    
    $
    
    
    
    $
    145,952
    
    
    $
    27,405
    
    
    $
    (1,576
    )
    
    $
    171,781Operating ExpensesCost of revenues
    
    
    
    
    
    
    (121,146
    )
    
    
    (25,021
    )
    
    
    1,576
    
    
    
    (144,591
    )Selling, general and administrative
expense.
    
    
    (1,252
    )
    
    
    (9,291
    )
    
    
    (2,295
    )
    
    
    
    
    
    
    (12,838
    )Amortization of intangible assets
    
    
    
    
    
    
    (2,446
    )
    
    
    
    
    
    
    
    
    
    
    (2,446
    )Total operating expenses
    
    
    (1,252
    )
    
    
    (132,883
    )
    
    
    (27,316
    )
    
    
    1,576
    
    
    
    (159,875
    )Income (loss) from operations
    
    
    (1,252
    )
    
    
    13,069
    
    
    
    89
    
    
    
    
    
    
    
    11,906Interest expense
    
    
    (8,206
    )
    
    
    (299
    )
    
    
    (216
    )
    
    
    
    
    
    
    (8,721
    )Income (loss) before income taxes
    
    
    (9,458
    )
    
    
    12,770
    
    
    
    (127
    )
    
    
    
    
    
    
    3,185Income tax expense (benefit)
    
    
    3,404
    
    
    
    (3,774
    )
    
    
    331
    
    
    
    
    
    
    
    (39
    )Income before equity earnings in
Subsidiaries.
    
    
    (6,054
    )
    
    
    8,996
    
    
    
    204
    
    
    
    
    
    
    
    3,146Equity in Earnings of subsidiaries
    
    
    9,200
    
    
    
    (3
    )
    
    
    
    
    
    
    (9,197
    )
    
    
    Net income (loss)
    
    $
    3,146
    
    
    $
    8,993
    
    
    $
    204
    
    
    $
    (9,197
    )
    
    $
    3,146
  19
      STANDARD AERO HOLDINGS, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 Condensed Combining Statement of Operations (Predecessor)
For the three months ended June 30, 2004
 Subsidiary
    
    Subsidiary
    
    CombiningGuarantors
    
    Non-Guarantors
    
    Adjustments
    
    TotalRevenues
    
    $
    177,137
    
    
    $
    14,083
    
    
    $
    (1,303
    )
    
    $
    189,917Operating Expenses.Cost of revenues
    
    
    (142,231
    )
    
    
    (13,820
    )
    
    
    1,303
    
    
    
    (154,748
    )Selling, general and administrative
    
    
    (9,676
    )
    
    
    (1,855
    )
    
    
    
    
    
    
    (11,531
    )Amortization of intangible assets
    
    
    (493
    )
    
    
    (195
    )
    
    
    
    
    
    
    (688
    )Total operating expenses
    
    
    (152,400
    )
    
    
    (15,870
    )
    
    
    1,303
    
    
    
    (166,967
    )Income (loss) from operations
    
    
    24,737
    
    
    
    (1,787
    )
    
    
    
    
    
    
    22,950Interest expense
    
    
    (1,921
    )
    
    
    25
    
    
    
    
    
    
    
    (1,896
    )Income (loss) before income taxes
    
    
    22,816
    
    
    
    (1,762
    )
    
    
    
    
    
    
    21,054Income tax expense (benefit)
    
    
    (8,451
    )
    
    
    527
    
    
    
    
    
    
    
    (7,924
    )Net income (loss)
    
    $
    14,365
    
    
    $
    (1,235
    )
    
    $
    
    
    
    $
    13,130
 20
      STANDARD AERO HOLDINGS, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 Condensed Combining Statements of Operations (Successor)
For the six months ended June 30, 2005(restated)
 Subsidiary
    
    Subsidiary
    
    CombiningParent
    
    Guarantors
    
    Non-Guarantors
    
    Adjustments
    
    TotalRevenues
    
    $
    
    
    
    $
    311,232
    
    
    $
    53,089
    
    
    $
    (5,126
    )
    
    $
    359,195Operating ExpensesCost of revenues
    
    
    
    
    
    
    (254,058
    )
    
    
    (49,562
    )
    
    
    5,126
    
    
    
    (298,494
    )Selling, general and administrative
expense
    
    
    (1,986
    )
    
    
    (19,487
    )
    
    
    (3,903
    )
    
    
    
    
    
    
    (25,376
    )Amortization of intangible assets
    
    
    
    
    
    
    (4,892
    )
    
    
    
    
    
    
    
    
    
    
    (4,892
    )Total operating expenses
    
    
    (1,986
    )
    
    
    (278,437
    )
    
    
    (53,465
    )
    
    
    5,126
    
    
    
    (328,762
    )Income (loss) from operations
    
    
    (1,986
    )
    
    
    32,795
    
    
    
    (376
    )
    
    
    
    
    
    
    30,433Interest expense
    
    
    (16,509
    )
    
    
    (1,003
    )
    
    
    (310
    )
    
    
    
    
    
    
    (17,822
    )Income (loss) before income taxes
    
    
    (18,495
    )
    
    
    31,792
    
    
    
    (686
    )
    
    
    
    
    
    
    12,611Income tax expense (benefit)
    
    
    6,470
    
    
    
    (10,061
    )
    
    
    684
    
    
    
    
    
    
    
    (2,907
    )Income before equity earnings in
Subsidiaries
    
    
    (12,025
    )
    
    
    21,731
    
    
    
    (2
    )
    
    
    
    
    
    
    9,704Equity in Earnings of subsidiaries
    
    
    21,729
    
    
    
    (182
    )
    
    
    
    
    
    
    (21,547
    )
    
    
    Net income (loss)
    
    $
    9,704
    
    
    $
    21,549
    
    
    $
    (2
    )
    
    $
    (21,547
    )
    
    $
    9,704
 Condensed Combining Statement of Operations (Predecessor)
For the six months ended June 30, 2004
 Subsidiary
    
    Subsidiary
    
    CombiningGuarantors
    
    Non-Guarantors
    
    Adjustments
    
    TotalRevenues
    
    $
    339,119
    
    
    $
    30,951
    
    
    $
    (2,202
    )
    
    $
    367,868Operating ExpensesCost of revenues
    
    
    (275,284
    )
    
    
    (28,896
    )
    
    
    2,202
    
    
    
    (301,978
    )Selling, general and administrative
    
    
    (19,065
    )
    
    
    (3,375
    )
    
    
    
    
    
    
    (22,440
    )Amortization of intangible assets
    
    
    (1,086
    )
    
    
    (290
    )
    
    
    
    
    
    
    (1,376
    )Total operating expenses
    
    
    (295,435
    )
    
    
    (32,561
    )
    
    
    2,202
    
    
    
    (325,794
    )Income (loss) from operations
    
    
    43,684
    
    
    
    (1,610
    )
    
    
    
    
    
    
    42,074Interest expense
    
    
    (3,738
    )
    
    
    (97
    )
    
    
    
    
    
    
    (3,835
    )Income (loss) before income taxes
    
    
    39,946
    
    
    
    (1,707
    )
    
    
    
    
    
    
    38,239Income tax expense (benefit)
    
    
    (14,955
    )
    
    
    537
    
    
    
    
    
    
    
    (14,418
    )Net income (loss)
    
    $
    24,991
    
    
    $
    (1,170
    )
    
    $
    
    
    
    $
    23,821
 21
      STANDARD AERO HOLDINGS, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 Condensed Consolidating Balance Sheet (Successor)
June 30, 2005(restated)
 Subsidiary
    
    Subsidiary
    
    CombiningParent
    
    Guarantors
    
    Non-Guarantors
    
    Adjustments
    
    TotalAssetsCurrent AssetsCash and cash equivalents
    
    $
    102
    
    
    $
    (3,209
    )
    
    $
    3,190
    
    
    $
    
    
    
    $
    83Accounts Receivable
    
    
    
    
    
    
    80,513
    
    
    
    20,009
    
    
    
    
    
    
    
    100,522Due from related party
    
    
    21,274
    
    
    
    84,057
    
    
    
    1,485
    
    
    
    (106,816
    )
    
    
    Inventories
    
    
    
    
    
    
    118,777
    
    
    
    30,236
    
    
    
    
    
    
    
    149,013Prepaid expenses and other current
assets
    
    
    455
    
    
    
    6,546
    
    
    
    704
    
    
    
    
    
    
    
    7,705Income taxes receivable
    
    
    
    
    
    
    319
    
    
    
    5,943
    
    
    
    
    
    
    
    6,262Deferred income taxes
    
    
    
    
    
    
    2,460
    
    
    
    1,124
    
    
    
    
    
    
    
    3,584Total current assets
    
    
    21,831
    
    
    
    289,463
    
    
    
    62,691
    
    
    
    (106,816
    )
    
    
    267,169Deferred charges
    
    
    10,388
    
    
    
    9,058
    
    
    
    
    
    
    
    
    
    
    
    19,446Deferred income taxes
    
    
    
    
    
    
    4,642
    
    
    
    
    
    
    
    
    
    
    
    4,642Property, plant and equipment, net
    
    
    
    
    
    
    119,314
    
    
    
    20,645
    
    
    
    
    
    
    
    140,039Intangible assets, net
    
    
    
    
    
    
    226,328
    
    
    
    4,546
    
    
    
    
    
    
    
    230,874Due from related party
    
    
    
    
    
    
    5,292
    
    
    
    
    
    
    
    (5,292
    )
    
    
    Goodwill
    
    
    
    
    
    
    242,570
    
    
    
    
    
    
    
    
    
    
    
    242,570Investments in subsidiaries
    
    
    741,656
    
    
    
    37,410
    
    
    
    
    
    
    
    (779,066
    )
    
    
    Total assets
    
    $
    773,875
    
    
    $
    934,157
    
    
    $
    87,882
    
    
    $
    (891,174
    )
    
    $
    904,740Liabilities and stockholders equityCurrent liabilitiesAccounts payable
    
    $
    
    
    
    $
    66,963
    
    
    $
    7,065
    
    
    $
    
    
    
    $
    74,028Other accrued liabilities
    
    
    11,130
    
    
    
    12,984
    
    
    
    2,171
    
    
    
    
    
    
    
    26,285Unearned revenue
    
    
    
    
    
    
    10,653
    
    
    
    1,439
    
    
    
    
    
    
    
    12,092Accrued warranty provisions
    
    
    
    
    
    
    3,481
    
    
    
    2,271
    
    
    
    
    
    
    
    5,752Income taxes payable
    
    
    
    
    
    
    6,008
    
    
    
    98
    
    
    
    
    
    
    
    6,106Due to related party
    
    
    71,904
    
    
    
    17,789
    
    
    
    21,063
    
    
    
    (106,816
    )
    
    
    3,940Current portion of long-term debt
    
    
    
    
    
    
    1,356
    
    
    
    469
    
    
    
    
    
    
    
    1,825Total current liabilities
    
    
    83,034
    
    
    
    119,234
    
    
    
    34,576
    
    
    
    (106,816
    )
    
    
    130,028Deferred income taxes
    
    
    
    
    
    
    77,306
    
    
    
    4,995
    
    
    
    
    
    
    
    82,301Due to related party
    
    
    
    
    
    
    
    
    
    
    5,292
    
    
    
    (5,292
    )
    
    
    Long-term debt
    
    
    470,000
    
    
    
    1,570
    
    
    
    
    
    
    
    
    
    
    
    471,570Total liabilities
    
    
    553,034
    
    
    
    198,110
    
    
    
    44,863
    
    
    
    (112,108
    )
    
    
    683,899Stockholders equityCommon Stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Paid in capital
    
    
    215,000
    
    
    
    709,656
    
    
    
    47,612
    
    
    
    (757,268
    )
    
    
    215,000Retained earnings (Accumulated deficit)
    
    
    5,803
    
    
    
    26,391
    
    
    
    (4,593
    )
    
    
    (21,798
    )
    
    
    5,803Accumulated other comprehensive
income
    
    
    38
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    38Total stockholders equity
    
    
    220,841
    
    
    
    736,047
    
    
    
    43,019
    
    
    
    (779,066
    )
    
    
    220,841Total liabilities and stockholders
equity / divisional equity
    
    $
    773,875
    
    
    $
    934,157
    
    
    $
    87,882
    
    
    $
    (891,174
    )
    
    $
    904,740
 22
      STANDARD AERO HOLDINGS, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 Condensed Combining Balance Sheet (Successor)
December 31, 2004
 Subsidiary
    
    Subsidiary
    
    CombiningParent
    
    Guarantors
    
    Non-Guarantors
    
    Adjustments
    
    TotalAssetsCurrent AssetsCash and cash equivalents
    
    $
    4,116
    
    
    $
    18,521
    
    
    $
    5,254
    
    
    $
    
    
    
    $
    27,891Accounts Receivable
    
    
    4,678
    
    
    
    93,680
    
    
    
    12,134
    
    
    
    
    
    
    
    110,492Due from related party
    
    
    13,352
    
    
    
    52,090
    
    
    
    3,910
    
    
    
    (69,352
    )
    
    
    Inventories
    
    
    
    
    
    
    115,918
    
    
    
    30,485
    
    
    
    
    
    
    
    146,403Prepaid expenses and other current assets
    
    
    469
    
    
    
    9,485
    
    
    
    1,040
    
    
    
    
    
    
    
    10,994Income taxes receivable
    
    
    4,729
    
    
    
    
    
    
    
    4,563
    
    
    
    (4,729
    )
    
    
    4,563Deferred income taxes
    
    
    
    
    
    
    2,670
    
    
    
    1,448
    
    
    
    
    
    
    
    4,118Total current assets
    
    
    27,344
    
    
    
    292,364
    
    
    
    58,834
    
    
    
    (74,081
    )
    
    
    304,461Deferred charges
    
    
    11,304
    
    
    
    9,911
    
    
    
    
    
    
    
    
    
    
    
    21,215Deferred income taxes
    
    
    
    
    
    
    5,197
    
    
    
    
    
    
    
    
    
    
    
    5,197Property, plant and equipment, net
    
    
    
    
    
    
    116,929
    
    
    
    19,510
    
    
    
    
    
    
    
    136,439Intangible assets, net
    
    
    
    
    
    
    232,461
    
    
    
    4,819
    
    
    
    
    
    
    
    237,280Due from related party
    
    
    
    
    
    
    5,117
    
    
    
    
    
    
    
    (5,117
    )
    
    
    Goodwill
    
    
    
    
    
    
    242,570
    
    
    
    
    
    
    
    
    
    
    
    242,570Investments in subsidiaries
    
    
    719,927
    
    
    
    37,592
    
    
    
    
    
    
    
    (757,519
    )
    
    
    Total assets
    
    $
    758,575
    
    
    $
    942,141
    
    
    $
    83,163
    
    
    $
    (836,717
    )
    
    $
    947,162Liabilities and divisional equityCurrent liabilitiesAccounts payable
    
    $
    5,058
    
    
    $
    88,693
    
    
    $
    8,672
    
    
    $
    
    
    
    $
    102,423Other accrued liabilities
    
    
    7,349
    
    
    
    17,461
    
    
    
    3,688
    
    
    
    
    
    
    
    28,498Due to related party
    
    
    50,017
    
    
    
    12,291
    
    
    
    9,852
    
    
    
    (69,352
    )
    
    
    2,808Unearned revenue
    
    
    
    
    
    
    9,126
    
    
    
    3,393
    
    
    
    
    
    
    
    12,519Accrued warranty provisions
    
    
    
    
    
    
    3,784
    
    
    
    3,123
    
    
    
    
    
    
    
    6,907Income taxes payable
    
    
    
    
    
    
    13,498
    
    
    
    211
    
    
    
    (4,729
    )
    
    
    8,980Current portion of long-term debt
    
    
    
    
    
    
    1,304
    
    
    
    681
    
    
    
    
    
    
    
    1,985Total current liabilities
    
    
    62,424
    
    
    
    146,157
    
    
    
    29,620
    
    
    
    (74,081
    )
    
    
    164,120Deferred income taxes
    
    
    
    
    
    
    79,225
    
    
    
    5,405
    
    
    
    
    
    
    
    84,630Due to related party
    
    
    
    
    
    
    
    
    
    
    5,117
    
    
    
    (5,117
    )
    
    
    Long-term debt
    
    
    485,000
    
    
    
    2,261
    
    
    
    
    
    
    
    
    
    
    
    487,261Total liabilities
    
    
    547,424
    
    
    
    227,643
    
    
    
    40,142
    
    
    
    (79,198
    )
    
    
    736,011Stockholders equityCommon Stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Paid in capital
    
    
    215,000
    
    
    
    709,656
    
    
    
    47,612
    
    
    
    (757,268
    )
    
    
    215,000Retained
earnings (Accumulated deficit)
    
    
    (3,901
    )
    
    
    4,842
    
    
    
    (4,591
    )
    
    
    (251
    )
    
    
    (3,901
    )Accumulated
other comprehensive income
    
    
    52
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    52Total stockholders equity
    
    
    211,151
    
    
    
    714,498
    
    
    
    43,021
    
    
    
    (757,519
    )
    
    
    211,151Total liabilities and stockholders
    
    $
    758,575
    
    
    $
    942,141
    
    
    $
    83,163
    
    
    $
    (836,717
    )
    
    $
    947,162
 23
      STANDARD AERO HOLDINGS, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 Condensed
Consolidating Statement of Cash Flows (Successor)
For the six months ended June 30, 2005
(restated)
 Subsidiary
    
    Subsidiary
    
    CombiningParent
    
    Guarantors
    
    Non-Guarantors
    
    Adjustments
    
    TotalCash provided by (used in)Operating activitiesNet income for the period
    
    $
    9,704
    
    
    $
    21,549
    
    
    $
    (2
    )
    
    $
    (21,547
    )
    
    $
    9,704Adjustments to reconcile net income to net
cash provided by operating activitiesDepreciation and amortization
    
    
    
    
    
    
    11,608
    
    
    
    1,610
    
    
    
    
    
    
    
    13,218Amortization of deferred charges
    
    
    916
    
    
    
    853
    
    
    
    
    
    
    
    
    
    
    
    1,769Deferred income taxes
    
    
    
    
    
    
    (1,154
    )
    
    
    (86
    )
    
    
    
    
    
    
    (1,240
    )Gain on disposal of property, plant
and equipment
    
    
    
    
    
    
    (9
    )
    
    
    
    
    
    
    
    
    
    
    (9
    )Equity in earnings of subsidiaries
    
    
    (21,729
    )
    
    
    182
    
    
    
    
    
    
    
    21,547
    
    
    
    Changes in assets and liabilitiesAccounts receivable
    
    
    
    
    
    
    17,845
    
    
    
    (7,875
    )
    
    
    
    
    
    
    9,970Inventories
    
    
    
    
    
    
    (2,859
    )
    
    
    249
    
    
    
    
    
    
    
    (2,610
    )Prepaid expenses
    
    
    
    
    
    
    (1,739
    )
    
    
    336
    
    
    
    
    
    
    
    (1,403
    )Accounts payable and other accrued
Liabilities
    
    
    (1,277
    )
    
    
    (24,983
    )
    
    
    (5,930
    )
    
    
    
    
    
    
    (32,190
    )Income taxes payable
    
    
    4,729
    
    
    
    (7,809
    )
    
    
    (1,493
    )
    
    
    
    
    
    
    (4,573
    )Net cash provided by operating activities
    
    
    (7,657
    )
    
    
    13,484
    
    
    
    (13,191
    )
    
    
    
    
    
    
    (7,364
    )Investing activitiesAcquisition
of intangibles  licenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Acquisitions of rental assets
    
    
    
    
    
    
    (6,628
    )
    
    
    (2,665
    )
    
    
    
    
    
    
    (9,293
    )Acquisitions of property, plant and equipment
    
    
    
    
    
    
    (5,353
    )
    
    
    (529
    )
    
    
    
    
    
    
    (5,882
    )Proceeds on disposal of rental assets
    
    
    
    
    
    
    4,015
    
    
    
    715
    
    
    
    
    
    
    
    4,730Proceeds on disposal of property, plant and
Equipment
    
    
    
    
    
    
    42
    
    
    
    
    
    
    
    
    
    
    
    42Net cash used in investing activities
    
    
    
    
    
    
    (7,924
    )
    
    
    (2,479
    )
    
    
    
    
    
    
    (10,403
    )Financing activitiesRepayment of debt
    
    
    (15,000
    )
    
    
    (639
    )
    
    
    (212
    )
    
    
    
    
    
    
    (15,851
    )Change in due to (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
    )Net (decrease) increase 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
 24
      STANDARD AERO HOLDINGS, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 Condensed
Consolidating Statement of Cash Flows (Predecessor)
For the six months ended June 30, 2004
 Subsidiary
    
    Subsidiary
    
    CombiningGuarantors
    
    Non-Guarantors
    
    Adjustments
    
    TotalCash provided by (used in)Operating activitiesNet income for the period
    
    $
    24,991
    
    
    $
    (1,170
    )
    
    $
    
    
    
    $
    23,821Adjustments
to reconcile net income to net cash provided by
operating activitiesDepreciation and amortization
    
    
    8,677
    
    
    
    1,474
    
    
    
    
    
    
    
    10,151Amortization of deferred charges
    
    
    272
    
    
    
    
    
    
    
    
    
    
    
    272Deferred income taxes
    
    
    (3,345
    )
    
    
    (78
    )
    
    
    
    
    
    
    (3,423
    )Other
    
    
    47
    
    
    
    
    
    
    
    
    
    
    
    47Changes in assets and liabilitiesAccounts receivable
    
    
    (30,148
    )
    
    
    (3,690
    )
    
    
    
    
    
    
    (33,838
    )Inventories
    
    
    (23,570
    )
    
    
    (12,373
    )
    
    
    
    
    
    
    (35,943
    )Prepaid expenses
    
    
    (1,430
    )
    
    
    1,827
    
    
    
    
    
    
    
    397Accounts payable and other accrued liabilities
    
    
    50,923
    
    
    
    15,819
    
    
    
    
    
    
    
    66,742Income taxes receivable and payable
    
    
    5,538
    
    
    
    (6,195
    )
    
    
    
    
    
    
    (657
    )Net cash provided by operating activities
    
    
    31,955
    
    
    
    (4,386
    )
    
    
    
    
    
    
    27,569Investing activitiesAcquisitions of intangibles  licenses
    
    
    
    
    
    
    (125
    )
    
    
    
    
    
    
    (125
    )Acquisition of rental assets
    
    
    (6,551
    )
    
    
    (338
    )
    
    
    
    
    
    
    (6,889
    )Acquisition of property, plant and equipment
    
    
    (4,077
    )
    
    
    (125
    )
    
    
    
    
    
    
    (4,202
    )Proceeds on disposal of rental assets
    
    
    4,278
    
    
    
    567
    
    
    
    
    
    
    
    4,845Proceeds from disposals of property, plant and
equipment
    
    
    12
    
    
    
    
    
    
    
    
    
    
    
    12Net cash used in investing activities
    
    
    (6,338
    )
    
    
    (21
    )
    
    
    
    
    
    
    (6,359
    )Financing activitiesRepayment of debt
    
    
    (591
    )
    
    
    (252
    )
    
    
    
    
    
    
    (843
    )Change in due to (from) related companies
    
    
    (8,891
    )
    
    
    11,257
    
    
    
    
    
    
    
    2,366Net cash (used in) provided by financing activities
    
    
    (9,482
    )
    
    
    11,005
    
    
    
    
    
    
    
    1,523Net (decrease) increase in cash and cash equivalents
    
    
    16,135
    
    
    
    6,598
    
    
    
    
    
    
    
    22,733Cash and cash equivalents  beginning of period
    
    
    15,188
    
    
    
    7,510
    
    
    
    
    
    
    
    22,698Cash and cash equivalents  end of period
    
    $
    31,323
    
    
    $
    14,108
    
    
    $
    
    
    
    $
    45,431
 25
      STANDARD AERO HOLDINGS, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 13
    
    Subsequent EventIn July 2005 the Company instituted a workforce reduction program, to address volume
reductions. As a result there was a reduction of approximately 100
employees with an estimated cost of $2.0 million.
 26
      ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  Basis of Presentation
   Overview
  Disclosures about Segments
of an Enterprise and Related Information
 27
      
    
    the number of engines in operation (the installed base);
    
    the age of the installed base; and
    
    the utilization rate of the installed base.
   Current
Restatement
  Accounting Errors
  Error in Recording Loss Contract Business Combinations
 28
      
    
    changes to our opening consolidated balance sheet as of the date of
the Acquisition to reflect an increase of the recorded liability related to
the Loss Contract of $3.3 million representing the present value of the Loss
Contract as of the date of the Acquisition (the Loss Contract
Liability)
partially offset by an increase of $2.1 million in the carrying value of goodwill, net of
$1.2 million of deferred taxes.
    
    a reclassification of the Loss Contract Liability from accounts payable to other
accrued liabilities in the amount of $3.6 million as of June 30, 2005.
    
    changes to our consolidated balance sheet at the end of each of the restated periods
to reflect (1) the re-measured present value of the Loss Contract Liability over the life of
the Loss Contract, and (2) reductions in the carrying amount of the Loss Contract Liability as
costs are incurred in excess of the net realizable value of inventory.  Accordingly, the restated
period reflects a decrease in the carrying amount of the Loss Contract Liability of $4.1 million
as of June 30, 2005.
    
    changes to our cost of revenues for each of the restated periods reflecting the elimination of the actual losses recognized prior to the identification of the error and changes to non-cash interest expense reflecting the present value accretion associated with the Loss Contract Liability.  Accordingly, the restated periods reflect (1) reduction in cost of revenues in the amount of $0.7 million and $1.1 million for the three and six months ended June 30, 2005, and appropriate tax effects respectively, and (2) increase in interest expense in the amount of $0.2 million and $0.3 million for the three and six months ended June 30, 2005, and appropriate tax effects respectively.
 Accounts Receivable Error
  
    
    changes to our consolidated balance sheets to reflect the elimination of
approximately $1.5 million in overstated accounts receivable as of June 30, 2005.
 Other adjustments
 29
      Effects of Restatement
  Statement of Operations
    
    Three months ended June 30, 2005
    
    
    Six months ended June 30, 2005As
    
    
    
    
    
    
    AsPreviously
    
    
    As
    
    
    Previously
    
    
    AsReported
    
    
    Restated
    
    
    Reported
    
    
    RestatedCost of revenues
    
    $
    145,264
    
    
    $
    144,591
    
    
    $
    299,569
    
    
    $
    298,494Selling, general and
administrative expense
    
    
    12,851
    
    
    
    12,838
    
    
    
    25,395
    
    
    
    25,376Total operating expenses
    
    
    160,561
    
    
    
    159,875
    
    
    
    329,856
    
    
    
    328,762Income from operations
    
    
    11,220
    
    
    
    11,906
    
    
    
    29,339
    
    
    
    30,433Interest expense
    
    
    8,547
    
    
    
    8,721
    
    
    
    17,475
    
    
    
    17,822Income before income taxes
    
    
    2,673
    
    
    
    3,185
    
    
    
    11,864
    
    
    
    12,611Income tax expense (benefit)
    
    
    (126
    )
    
    
    39
    
    
    
    2,587
    
    
    
    2,907Net income
    
    $
    2,799
    
    
    $
    3,146
    
    
    $
    9,277
    
    
    $
    9,704
 Balance SheetAs at June 30, 2005AsPreviously
    
    
    AsReported
    
    
    RestatedASSETSAccounts receivable
    
    $
    102,022
    
    
    $
    100,522Inventories
    
    
    150,026
    
    
    
    149,013Income taxes receivable
    
    
    7,225
    
    
    
    6,262Total current assets
    
    
    270,645
    
    
    
    267,169Deferred income taxes  long-term
    
    
    3,545
    
    
    
    4,642Property, plant and equipment, net
    
    
    139,740
    
    
    
    140,039Goodwill
    
    
    240,490
    
    
    
    242,570Total assets
    
    $
    904,740
    
    
    $
    904,740LIABILITIES AND STOCKHOLDERS EQUITYAccounts payable
    
    $
    77,614
    
    
    $
    74,028Other accrued liabilities
    
    
    23,481
    
    
    
    26,285Income taxes payable
    
    
    6,640
    
    
    
    6,106Total current liabilities
    
    
    131,344
    
    
    
    130,028Deferred income taxes  long-term
    
    
    82,193
    
    
    
    82,301Total liabilities
    
    
    685,107
    
    
    
    683,899Retained
earnings
    
    
    4,595
    
    
    
    5,803Total stockholders equity
    
    
    219,633
    
    
    
    220,841Total liabilities and stockholders
equity
    
    $
    904,740
    
    
    $
    904,740
   Previous
Restatement
  Accounting Errors and Reclassifications
  30
      Accounting for Income Taxes
 Effects of Restatement and Reclassification
   Three Months Ended
    
    August 25 -
    
    
    January 1 March 31
    
    December 31,
    
    
    August 24,
    

    Year Ended December 31,2005
    
    2004
    
    2004
    
    
    2004
    
    
    2003
    
    2002Successor
    
    Predecessor
    
    Successor
    
    
    
    
    
    

    Predecessor(In millions)Increase (decrease) in:Selling, general and
administrative expense
    
    
    $
    0.0
    
    
    $
    (0.2
    )
    
    $
    1.4
    
    
    
    $
    (0.2
    )
    

    $
    1.8
    
    
    $
    2.1Total operating expenses
    
    
    
    0.0
    
    
    
    (0.2
    )
    
    
    1.4
    
    
    
    
    (0.2
    )
    

    
    1.8
    
    
    
    2.1Income from operations
    
    
    
    0.0
    
    
    
    (0.2
    )
    
    
    1.4
    
    
    
    
    (0.2
    )
    

    
    1.8
    
    
    
    2.1Income before income taxes
    
    
    
    0.0
    
    
    
    (0.2
    )
    
    
    1.4
    
    
    
    
    (0.2
    )
    

    
    1.8
    
    
    
    2.1Provision for income taxes
    
    
    
    0.3
    
    
    
    0.2
    
    
    
    (2.9
    )
    
    
    
    0.2
    
    

    
    (1.8
    )
    
    
    (2.1
    )Net income (loss)
    
    
    $
    0.3
    
    
    $
    0.0
    
    
    $
    (1.5
    )
    
    
    $
    0.0
    
    

    $
    0.0
    
    
    $
    0.0
 Trends Affecting Our Business
   31
      rd
    Effect of the Acquisition
  32
      WeightedGross
    
    
    averagecarrying
    
    
    amortization(In millions of dollars)
    
    value
    
    
    periodCustomer
relationships
    
    $
    98.0
    
    
    17.4 yearsOEM authorizations
    
    
    38.4
    
    
    14.2 yearsTechnology
    
    
    2.0
    
    
    5 yearsDatabases
    
    
    5.9
    
    
    5 years
    Financial statement presentation
  Revenues.
 Cost of revenues.
 33
      Selling, general and administrative expense.
 Critical accounting policies
  Revenue recognition.
 Reserve for warranty costs.
 Reserve for doubtful accounts receivable.
 Goodwill and intangible assets.
 34
      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, 2005 compared with Three Months Ended June 30, 2004
  35
      Three months endedJune 30,(In thousands of dollars)
    2005

2004(Successor)
    
    
    (Predecessor)(restated)Revenues
    
    $
    171,781
    
    
    
    $
    189,917Cost of revenues
    
    
    (144,591
    )
    
    
    
    (154,748
    )Gross profit
    
    
    27,190
    
    
    
    
    35,169Selling, general and administrative
expense
    
    
    (12,838
    )
    
    
    
    (11,531
    )Amortization of intangible assets
    
    
    (2,446
    )
    
    
    
    (688
    )Income from operations
    
    
    11,906
    
    
    
    
    22,950Interest expense
    
    
    (8,721
    )
    
    
    
    (1,896
    )Income before income taxes
    
    
    3,185
    
    
    
    
    21,054Benefit (provision) for income taxes
    
    
    (39
    )
    
    
    
    (7,924
    )Net income
    
    $
    3,146
    
    
    
    $
    13,130
 Revenues.
 Gross
profit.
 Selling, general and administration expense.
 Amortization of intangible assets.
 Income
from operations.
 36
      Interest
expense.
 Six Months Ended June 30, 2005 compared with Six Months Ended June 30, 2004
  Six months endedJune 30,(In thousands of dollars)
    
    2005
    
    
    2004(Successor)
    
    
    (Predecessor)(restated)Revenues
    
    $
    359,195
    
    
    
    $
    367,868Cost of revenues
    
    
    (298,494
    )
    
    
    
    (301,978
    )Gross profit
    
    
    60,701
    
    
    
    
    65,890Selling, general and administrative
expense
    
    
    (25,376
    )
    
    
    
    (22,440
    )Amortization of intangible assets
    
    
    (4,892
    )
    
    
    
    (1,376
    )Income from operations
    
    
    30,433
    
    
    
    
    42,074Interest expense
    
    
    (17,822
    )
    
    
    
    (3,835
    )Income before income taxes
    
    
    12,611
    
    
    
    
    38,239Provision for income taxes
    
    
    (2,907
    )
    
    
    
    (14,418
    )Net income
    
    $
    9,704
    
    
    
    $
    23,821
 Revenues.
 Gross
profit.
 Selling, general and administration expense.
 37
      Amortization of intangible assets.
 Income
from operations.
 Interest expense.
 38
      Segment Results of Operations
  Three months endedJune 30,(In thousands of dollars)
    
    2005
    
    
    2004(Successor)
    
    
    (Predecessor)(restated)Revenues:Aviation MRO
    
    $
    166,652
    
    
    
    $
    182,507Other Services
    
    
    5,129
    
    
    
    
    7,410Total Revenue
    
    
    171,781
    
    
    
    
    189,917Segment Income (Loss) From
Operations:Aviation MRO
    
    
    16,255
    
    
    
    
    25,855Other Services
    
    
    (1,811
    )
    
    
    
    (1,229
    )Segment income from operations
    
    
    14,444
    
    
    
    
    24,626Corporate expenses
    
    
    (2,538
    )
    
    
    
    (1,676
    )Income from operations
    
    
    11,906
    
    
    
    
    22,950Interest expense
    
    
    (8,721
    )
    
    
    
    (1,896
    )Income before income taxes
    
    
    3,185
    
    
    
    
    21,054Provision for income taxes
    
    
    (39
    )
    
    
    
    (7,924
    )Net income
    
    $
    3,146
    
    
    
    $
    13,130
 Aviation MRO
 Three Months Ended June 30, 2005 compared with Three Months Ended June 30, 2004
 Revenues.
 Segment income from operations.
 39
      Six Months Ended June 30, 2005 compared with Six Months Ended June 30, 2004
  Six months endedJune 30,(In thousands of dollars)
    

2005
    
    2004(Successor)
    
    (Predecessor)(restated)Revenues:Aviation MRO
    
    $
    349,156
    
    

    $
    353,881Other Services
    
    
    10,039
    
    

    
    13,987Total Revenue
    
    
    359,195
    
    

    
    367,868Segment Income (Loss) From
Operations:Aviation MRO
    
    
    38,982
    
    

    
    47,068Other Services
    
    
    (3,151

)
    
    
    (2,107
    )Segment income from operations
    
    
    35,831
    
    

    
    44,961Corporate expenses
    
    
    (5,398

)
    
    
    (2,887
    )Income from operations
    
    
    30,433
    
    

    
    42,074Interest expense
    
    
    (17,822

)
    
    
    (3,835
    )Income before income taxes
    
    
    12,611
    
    
    
    38,239Provision for income taxes
    
    
    (2,907

)
    
    
    (14,418
    )Net income
    
    $
    9,704
    
    

    $
    23,821
 Aviation MRO
 Six Months Ended June 30, 2005 compared with Six Months Ended June 30, 2004
 Revenues.
 Segment income from operations.
 40
      Factors That May Affect Future Results
  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 $270.0 million and a $50.0 million six-year
revolving credit facility, under which we had $12.5 million outstanding indebtedness;
    
    $3.4 million in capital lease obligations; and
    
    $200.0 million in aggregate principal amount of our 81/4% Senior Subordinated Notes due 2014.
 Senior Credit Facilities
  41
      Notional Amount
    
    Term
    
    Floor Strike Rate
    
    Cap Strike Rate$75,000,000
    
    March 28, 2005  September 26, 2005
    
    2.00% (plus applicable margin)
    
    3.50% (plus applicable margin)$75,000,000
    
    September 27, 2005  March 26, 2006
    
    2.00% (plus applicable margin)
    
    4.25% (plus applicable margin)$75,000,000
    
    March 27, 2006  December 27, 2006
    
    2.40% (plus applicable margin)
    
    5.25% (plus applicable margin)
 Senior Subordinated Notes
    42
      Covenant Compliance
   1 4
   August 25 
    
    July 1 January 1  June
    
    December 31,
    
    August 24,
    
    Last 12 Months30, 2005
    
    2004
    
    2004
    
    June 30, 2005(In millions)
    
    Successor
    
    Successor
    
    Predecessor
    
    Combined(5)(restated)
    
    (restated)
    
    
    
    (restated)Net income
    
    $
    9.7
    
    
    $
    (3.9
    )
    
    $
    9.4
    
    
    $
    15.2Add:Depreciation and amortization
    
    
    13.2
    
    
    
    8.8
    
    
    
    4.1
    
    
    
    26.1Interest expense, net
    
    
    17.8
    
    
    
    14.0
    
    
    
    1.0
    
    
    
    32.8Provision for income taxes
    
    
    2.9
    
    
    
    0.1
    
    
    
    1.4
    
    
    
    4.4Expenses associated with the disposal of Dunlop
Standard (1)
    
    
    
    
    
    
    
    
    
    
    2.3
    
    
    
    2.3Expenses associated with Acquisition (2)
    
    
    
    
    
    
    2.4
    
    
    
    
    
    
    
    2.4Effect of write-up of inventory and work in progress (3)
    
    
    
    
    
    
    21.4
    
    
    
    
    
    
    
    21.4Non-recurring expenses (4)
    
    
    0.6
    
    
    
    
    
    
    
    
    
    
    
    0.6Management fee
    
    
    0.8
    
    
    
    0.5
    
    
    
    
    
    
    
    1.3Adjusted EBITDA
    
    $
    45.0
    
    
    $
    43.3
    
    
    $
    18.2
    
    
    $
    106.5
 
 (1)
    
    The Predecessor incurred approximately $2.3 million in compensation expenses associated
with the disposal of Dunlop Standard. 43
      (2)
    
    We incurred approximately $2.4 million in fees and other expenses associated with negotiating,
financing and consummating the Acquisition that were not capitalized as part of the purchase price
or as deferred financing charges.(3)
    
    As a result of the Acquisition and the requirements of purchase accounting, our assets and
liabilities, including the amounts recorded for inventory and work in process, were adjusted
to their fair market values as of the closing date.(4)
    
    We incurred $0.2 million in severance costs during the quarter ended June 30, 2005. We
expect to incur an additional $1.8 million in severance costs during the remainder of 2005.
We have also incurred $0.4 million in costs associated with the exchange offer of our senior
subordinated notes and expect additional costs during the remainder of 2005.(5)
    
    Successor and Predecessor results have been combined to give twelve months results as
required under the senior credit facilities. Cash Flows
  Six months endedJune 30,2005
    
    2004(In thousands of dollars)
    
    (Successor)
    
    (Predecessor)(restated)Net cash provided by (used in) operating activities
    
    $
    (7,364
    )
    
    $
    27,569Net cash used in investing activities
    
    
    (10,403
    )
    
    
    (6,359
    )Net cash provided from (used in) financing activities
    
    
    (10,041
    )
    
    
    1,523Net increase (decrease) in cash and cash equivalents
    
    $
    (27,808
    )
    
    $
    22,733
 Net Cash (Used in) Provided by Operating Activities
   Net Cash Used in Investing Activities
  44
      Net Cash Provided by (Used in) Financing Activities
   45
      ITEM
4. CONTROLS AND PROCEDURES.
 Evaluation of
Disclosure Controls and Procedures
     Changes in Internal Control over Financial Reporting
  46
      PART II OTHER INFORMATION
 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).
 47
      ExhibitNumber
    
    Description31.1
    
    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 and Chief Financial Officer pursuant to Rule
15d-14(b) (17 CFR 240.15d-14(b)) and 18 U.S.C. Section 1350.
 48
      SIGNATURES
  STANDARD AERO HOLDINGS, INC.Dated: May 12, 2006
    
    /s/ DAVID SHAWName:
    
    David ShawTitle:
    
    Chief Executive Officer(principal executive officer)Dated: May 12, 2006
    
    /s/ BRADLEY BERTOUILLEName:
    
    Bradley BertouilleTitle:
    
    Chief Financial Officer(principal financial and accounting officer)
 49