Standard Aero Holdings, Inc. Report of Second Quarter Results
SAN ANTONIO, Aug. 14, 2006 -- Standard Aero Holdings, Inc. (Standard Aero) today announced its summary financial results for the second quarter ended June 30, 2006.
"We are very satisfied with our second quarter results including a 17% increase in revenues over the same period last year," stated David Shaw, CEO of Standard Aero Holdings Inc. "We are also pleased to have reached an agreement with Kelly Aviation Center, L.P. to be the T56 depot maintenance provider for the full term of the Propulsion Business Area (PBA) contract with the U.S. Air Force. As we have since 1998, we remain committed to supporting Kelly Aviation Center as our important and valued customer."
Commenting on recent contract awards, Mr. Shaw stated, "We continue to add to our order book in our other engines lines, having recently been awarded a contract by Sikorsky Support Services Inc. to provide engine MRO for the U.S. Navy's T-34 and T-44 trainer aircraft. In addition, GoJet Airlines exercised options on 5 additional CRJ-700 aircraft which will add an additional 10 engines to our exclusive CF34 MRO contract and continue the growth in our CF34 regional jet engine backlog."
Revenues for the three months ended June 30, 2006 were $200.4 million, an increase of $28.6 million or 17% compared to the three months ended June 30, 2005. This increase was primarily attributable to an increase in revenue in our Aviation MRO segment due to higher sales to our turbofan customers and increased revenues on our T56 military contracts. Revenue in our Enterprise Services business, increased $8.8 million reflecting revenues under our subcontract agreements with Battelle to provide redesign services to the United States Air Force at Tinker Air Force Base in Oklahoma City, Oklahoma and Hill Air Force Base in Ogden, Utah.
Income from operations was $17.4 million for the three months ended June 30, 2006 compared to income from operations of $11.9 million for the three months ended June 30, 2005. Net income for the three months ended June 30, 2006 was $7.2 million as compared to $3.1 million for the three months ended June 30, 2005. Adjusted EBITDA, as defined by our senior secured credit agreement, was $25.7 million for the three months ended June 30, 2006, an increase of 33% compared to Adjusted EBITDA of $19.3 million for the three months ended June 30, 2005.
Revenues for the six months ended June 30, 2006 were $386.2 million, an increase of $27.0 million or 8% compared to the six months ended June 30, 2005. This increase was primarily due to a $16.9 million increase in revenues in our Enterprise Services business.
Income from operations for the six months ended June 30, 2006 increased by $2.1 million or 7% to $32.5 million compared to $30.4 million for the six months ended June 30, 2005. The increase in income from operations was primarily due to gross profit on higher Enterprise Service revenues. Net income for the six months ended June 30, 2006 increased to $11.0 million from $9.7 million for the six months ended June 30, 2005. Adjusted EBITDA was $48.0 million for the six months ended June 30, 2006, an increase of 7% compared to Adjusted EBITDA of $45.0 million for the six months ended June 30, 2005.
At June 30, 2006, total indebtedness was $461.6 million and cash on hand was $7.0 million. Net capital expenditures during the six months ended June 30, 2006 were $8.6 million, compared to $10.4 million during the six months ended June 30, 2005.
Adjusted EBITDA
Information concerning Adjusted EBITDA has been included because Standard Aero uses this measure to evaluate its compliance with covenants under its senior secured credit agreement. Standard Aero also believes that Adjusted EBITDA provides useful information regarding its ability to service and incur debt. Adjusted EBITDA is not a recognized term under generally accepted accounting principles (GAAP), and should not be considered in isolation or as an alternative to net income, net cash provided by operating activities or other measures prepared in accordance with GAAP. Additionally, Adjusted EBITDA is not intended to be an indicator of free cash flow available for management's discretionary use, as it does not consider certain cash requirements such as capital expenditures, tax payments and debt service requirements. Adjusted EBITDA is not necessarily comparable to similarly titled measures reported by other companies. A reconciliation of Adjusted EBITDA to net income is provided below.
Recent Developments
On July 11, 2006, we reached agreement with KAC regarding the terms of the subcontract under which we provide MRO services for U.S. Government T56 engines managed by the U.S. Air Force. Standard Aero will remain KAC's T56 depot maintenance provider for the full term of the Propulsion Business Area (PBA) contract with the U.S. Air Force. The subcontract, which was due to expire in February 2007, has been extended until February 2010. Based upon government option award to KAC, the contract will be extended for additional years, up to 2014, as the prime contract is extended. Standard Aero employees will continue to overhaul T56 engines in San Antonio, Texas and Winnipeg, Canada. The T56 engine is used on the C-130 Hercules, P-3 Orion, and C-2 Greyhound aircraft.
Additionally, Standard Aero has become a Rolls-Royce Authorized Military Overhaul Facility, with Rolls-Royce technical support on T56 engine maintenance. This business integrates the maintenance, repair and overhaul (MRO) experience of Standard Aero with the technical expertise of Rolls-Royce, the original equipment manufacturer (OEM) for the T56.
Second Quarter 2006 Conference Call
Standard Aero Holdings, Inc will hold its second quarter 2006 conference call on Wednesday, August 16, 2006 at 2:00 pm (New York City time). Call in details are as follows: 1-877-317-8409 reservation number 21301765.
A replay of the call will be available from 4:00 pm (New York City time) on August 16, 2006 until 23:59 pm (New York City time) on August 23, 2006 by calling 1-800-633-8284, reservation number 21301765.
About Standard Aero Holdings, Inc.
Standard Aero is one of the world's largest independent providers of repair and overhaul services for small gas turbine engine and engine accessories. Standard Aero performs repair and overhaul on Rolls-Royce, General Electric, Pratt & Whitney Canada and Honeywell engines used in regional airlines, business aviation, military and government aircraft and in industrial applications. Standard Aero applies specialized MRO process redesign concepts to both its operations and those of its customers, providing the tools and training to drive profitable growth and improved business performance.
Information in this release may involve guidance, expectations, beliefs, plans, intentions or strategies regarding the future. These forward-looking statements involve risks and uncertainties. All forward-looking statements included in this release are based upon information available to Standard Aero Holdings, Inc. as of the date of the release, and Standard Aero Holdings, Inc. assumes no obligation to update any such forward-looking statements. The statements in this release are not guarantees of future performance and actual results could differ materially from current expectations. Numerous factors could cause or contribute to such differences, many of which are beyond the company's control.
Standard Aero Holdings, Inc.
Condensed Consolidated Statement of Operations
(unaudited)
(In thousands) Three months ended
June 30, 2006 June 30, 2005
Revenues $200,371 $171,781
Operating expenses
Cost of revenues 167,078 144,578
Selling, general and administrative 13,758 12,851
Amortization of intangible assets 2,146 2,446
Total operating expenses 182,982 159,875
Income from operations 17,389 11,906
Interest expense 9,554 8,721
Income before income taxes 7,835 3,185
Income tax expense 592 39
Net income $7,243 $3,146
(In thousands) Six months ended
June 30, 2006 June 30, 2005
Revenues $386,169 $359,195
Operating expenses
Cost of revenues 322,052 298,366
Selling, general and administrative 27,311 25,504
Amortization of intangible assets 4,292 4,892
Total operating expenses 353,655 328,762
Income from operations 32,514 30,433
Interest expense 19,027 17,822
Income before income taxes 13,487 12,611
Income tax expense 2,470 2,907
Net income $11,017 $9,704
Standard Aero Holdings, Inc.
Condensed Consolidated Balance Sheet
(unaudited)
(In thousands) June 30, December 31,
2006 2005
Assets
Current assets
Cash and cash equivalents $6,991 $24,056
Cash 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) 134,841 120,456
Inventories 143,814 134,011
Prepaid expenses and other current assets 8,030 7,668
Income taxes receivable 3,479 3,811
Deferred income taxes 3,024 2,407
Total current assets 323,671 292,409
Deferred finance charges 16,799 18,272
Deferred income taxes 8,437 7,920
Property, plant and equipment, net 138,447 136,968
Intangible assets, net 189,363 195,168
Goodwill 191,342 192,301
Total assets $868,059 $843,038
Liabilities and divisional equity
Current liabilities
Accounts payable $82,120 $75,301
Other accrued liabilities 27,581 29,197
Due to related party 3,940 3,940
Unearned revenue 40,321 14,196
Accrued warranty provision 3,958 3,986
Income taxes payable 6,555 9,323
Current portion of long-term debt 11,621 2,574
Total current liabilities 176,096 138,517
Deferred income taxes 68,622 72,542
Long-term debt 450,015 470,000
Total liabilities 694,733 681,059
Divisional equity
Common Stock (1,000 shares, par value $0.01) - -
Additional paid in capital 215,000 215,000
Accumulated deficit (42,065) (53,082)
Accumulated other comprehensive income 391 61
Total stockholder's equity 173,326 161,979
Total liabilities and stockholder's equity $868,059 $843,038
Standard Aero Holdings, Inc.
Condensed Consolidated Statement of Cash Flows
(unaudited)
Six months Ended June 30,
(In thousands) 2006 2005
Operating activities
Net income for the period $11,017 $9,704
Adjustments to reconcile net income to net
cash provided by (used in) operating activities
Depreciation and amortization 12,898 13,218
Amortization of deferred finance charges 1,473 1,769
Deferred income taxes (5,054) (1,240)
Gain on disposal of property, plant and equipment (9) (9)
Foreign exchange (gain) loss (428) 578
Changes in assets and liabilities
Accounts receivable, net (14,385) 9,970
Inventories (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 activities
Acquisitions of property, plant and equipment (3,056) (5,882)
Proceeds from disposals of property,
plant, and equipment 11 42
Acquisition of rental assets (9,179) (9,293)
Proceeds from disposals of rental assets 3,661 4,730
Net cash used in investing activities (8,563) (10,403)
Financing activities
Repayment of debt, net (20,938) (15,851)
Increase in revolving credit facility 10,000 -
Change in due to related party - 5,810
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)
Cash and cash equivalents - Beginning of period 24,056 27,891
Cash and cash equivalents - End of period $6,991 $83
Standard Aero Holdings, Inc.
Reconciliation of Net Income to Adjusted EBITDA
(unaudited)
Our Adjusted EBITDA is calculated as follows:
(In millions) Three months ended Six months ended
June 30, June 30, June 30, June 30,
2006 2005 2006 2005
Net income 7.2 3.1 11.0 9.7
Add:
Depreciation and amortization 7.0 6.5 12.9 13.2
Interest expense 9.6 8.7 19.0 17.8
Provision for income taxes 0.6 - 2.5 2.9
Management Fee 0.4 0.4 0.7 0.8
Other (1) 0.9 0.6 1.9 0.6
Adjusted EBITDA 25.7 19.3 48.0 45.0
(1) Standard Aero incurred $1.9 million in professional fees associated
with the KAC contractual review during the period ended June 30, 2006
and $0.6 million in costs associated with the exchange offer of our
senior subordinated notes and severance costs during the period ended
June 30, 2005.