StandardAero Inc

Nature of operations and basis of presentation

Operations

StandardAero, Inc. (formerly Dynasty Parent Co., Inc.) (the “Company”) was incorporated on September 5, 2018, in the state of Delaware and is an independent provider of aftermarket services for fixed and rotary wing aircraft gas turbine engines and auxiliary power units (“APUs”) to the commercial, business and military aircraft markets. The Company also provides aftermarket and upgrade services for business aviation and helicopter airframes and avionics, providing customers within those markets with comprehensive value-added solutions. On September 5, 2024, the Company changed its name from Dynasty Parent Co., Inc. to StandardAero, Inc.

Basis of presentation

The accompanying unaudited condensed consolidated financial statements are prepared in accordance with the accounting principles generally accepted in the United States of America (“U.S. GAAP”) and include the accounts of StandardAero, Inc. (formerly Dynasty Parent Co., Inc.) and its subsidiaries. In the opinion of the Company, the accompanying unaudited condensed consolidated financial statements contain all adjustments, consisting of only normal recurring adjustments, necessary for a fair statement of its financial position as of September 30, 2024, and its results of operations for the three and nine months ended September 30, 2024 and 2023, and cash flows for the nine months ended September 30, 2024, and 2023. The condensed balance sheet at December 31, 2023, was derived from audited annual financial statements but does not contain all of the footnote disclosures from the annual financial statements.

Forward Stock Split

On September 20, 2024, the Company effected a 103-for-one forward stock split of its issued and outstanding shares of common stock. Accordingly, all share and per share amounts for all periods presented in these unaudited condensed consolidated financial statements and notes have been adjusted retroactively, where applicable, to reflect this stock split.

Authorized Shares

On September 20, 2024, the Company amended its certificate of incorporation to increase the number of authorized voting common stock from 5,000,000 to 3,500,000,000 and authorized non-voting common stock from 100,000 to 70,000,000. Accordingly, the authorized share amounts disclosed in the unaudited condensed consolidated balance sheets have been adjusted to retroactively reflect this change.

Initial Public Offering

Subsequent to the end of the fiscal quarter ended September 30, 2024, the Company completed its initial public offering (“IPO”) of ordinary shares at a price of $24.00 per share. The offering included 69,000,000 registered ordinary shares, of which, the Company issued and sold 53,250,000 ordinary shares and the selling existing stockholders sold 15,750,000 ordinary shares, including 9,000,000 ordinary shares issued pursuant to the full exercise of the underwriters option to purchase additional shares from the selling existing stockholders. The ordinary shares sold in the IPO were registered under the Securities Act pursuant to a Registration Statement on Form S-1 (the “IPO Registration Statement”), which was declared effective by the SEC on October 1, 2024. The IPO generated net proceeds from the issuance of primary shares of $1,202.8 million after deducting underwriting discounts and commissions of approximately $67.1 million as well as estimated offering expenses of $8.1 million.

Summary of significant accounting policies

a)

Recently issued accounting pronouncements – not yet adopted

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. The ASU aims to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses with disclosure of significant segment expenses that are regularly provided to the chief operating decision maker and included within each reported measure of segment profit or loss. The update also requires disclosure regarding the chief operating decision maker and expands the interim segment disclosure requirements. The guidance is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. The Company is currently evaluating the impact on its consolidated financial statements.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, to enhance the transparency and decision usefulness of income tax disclosures primarily related to the tax rate reconciliation and income taxes paid information. For public companies the amendments in this ASU are effective for annual periods beginning after December 15, 2024 and for all other entities the amendments are effective for annual periods beginning after December 15, 2025. The amendments should be applied on a prospective basis. Early adoption and retrospective application are permitted.

In November 2024, the FASB issued ASU 2024-03, “Income Statement (Topic 220): Disaggregation of Income Statement Expenses” which requires additional disclosures of certain amounts included in the expense captions presented on the Statement of Operations as well as disclosures about selling expenses. The ASU is effective on a prospective basis, with the option for retrospective application, for annual periods beginning after December 15, 2026 and interim reporting periods beginning after December 15, 2027, and early adoption is permitted. The Company is currently evaluating the impacts of adopting this guidance on its financial statement disclosures.

In 2021, the Organization for Economic Cooperation and Development (“OECD”) released Pillar Two Global Anti-Base Erosion model rules (“Pillar Two Rules”), designed to ensure large corporations are taxed at a minimum rate of 15% in all countries of operation. On June 20, 2024, as part of Bill C-69, Canada enacted its Pillar Two legislation effective January 1, 2024. Canada Bill C-59 was also enacted on June 20, 2024 and included the excessive interest and financing expenses limitation (EIFEL) regime effective for tax years beginning on or after September 30, 2023. The Company is continuing to evaluate the potential impact by the Pillar Two legislation and the new EIFEL regime.

Acquisitions

AERO Turbine, Inc.

On August 23, 2024, the Company acquired 100% of the shares of AERO Turbine, Inc. (“ATI”) for a purchase price of approximately $132.0 million, subject to post-closing adjustments, comprised of an initial cash purchase price of $116.8 million and $15.2 million representing the estimated fair value of additional consideration contingently payable based upon the achievement of gross profit in excess of certain gross profit targets for the period from January 1, 2024, to December 31, 2026. The maximum contingent consideration payable from the Company to the Seller is $21.0 million. The current portion of the contingent consideration liability is recorded in Accrued and other current liabilities and the non-current portion is recorded in Other non-current liabilities. ATI is a provider of engine component repair, overhaul services and other engineering services for U.S. and foreign military customers.

The results of operations of ATI have been included in the condensed consolidated financial statements of the Company from August 23, 2024, the closing date of the acquisition. For the three and nine months ended September 30, 2024, results of operations included $8.4 million in revenues and $2.5 million in net income, respectively. ATI is reported within the Component Repair Services segment.

The Company has provisionally allocated the purchase price based on the fair values of the assets acquired and liabilities assumed at the ATI acquisition date as follows:

The fair values presented were estimated by management. The fair value of the assets acquired includes accounts receivable of $4.1 million, of which all is expected to be collectible. The excess of the cost of acquisition over the fair value of the net tangible assets acquired of $128.4 million has been allocated as $75.0 million of customer relationships and $53.4 million of goodwill. The initial accounting for the business combination is incomplete as the valuation of the acquired intangible assets is not yet finalized. As such there may be adjustments to the purchase accounting and those adjustments could be material. The goodwill recognized is attributable to ATI’s workforce, market position, quality, customized repairs and reliable turnaround times. Goodwill will not be amortized but will be reviewed annually for impairment. None of the goodwill is expected to be deductible for income tax purposes. Customer relationships are expected to be amortized over 15 years.

Acquisition related costs of $1.3 million were incurred for thethree and nine months ended September 30, 2024. These costs are reported in the Consolidated Statements of Operations as “Acquisition costs”. Such expenses include professional fees and other third-party costs.

The following reflects the pro forma impact of the purchase of ATI on the Company’s results of operations giving effect of the transaction if it had taken place on January 1, 2023:

Western Jet Aviation

On February 2, 2023, the Company acquired 100% of the shares of Western Jet Aviation, Inc. (“Western Jet”) for a purchase price of approximately $32.7 million. Western Jet is a certified repair station for business jet maintenance, specializing in Gulfstream aircraft, offering maintenance and interior services, plus heavy avionics support on many business aviation aircraft.

The results of operations of Western Jet have been included in the condensed consolidated financial statements of the Company from February 2, 2023, the closing date of the acquisition. For the three and nine months ended September 30, 2023, results of operations included $8.6 million and $24.4 million in revenues and $0.5 million and $1.9 million net income, respectively. Western Jet is reported within our Engine Services segment.

The Company allocated the purchase price based on the fair values of the assets acquired and liabilities assumed at the Western Jet acquisition date as follows:

The fair values presented were estimated by management. The fair value of the assets acquired included accounts receivable of $7.0 million, the gross amount due under contracts is $7.1 million, of which $0.1 million was expected to be uncollectible. The excess of the cost of acquisition over the fair value of the net tangible assets acquired of $23.5 million has been allocated to goodwill. The goodwill recognized is attributable to Western Jet’s market position, quality, customized repairs and reliable turnaround times. Goodwill will not be amortized but will be reviewed annually for impairment. None of the goodwill is expected to be deductible for income tax purposes.

Acquisition related costs of $0.0 million and $1.5 million were incurred for thethree and nine months ended September 30, 2023, respectively. These costs are reported in the Consolidated Statements of Operations as “Acquisition costs”. Such expenses include professional fees and other third-party costs.

The following reflects the pro forma impact of the purchase of Western Jet on the Company’s results of operations giving effect of the transaction if it had taken place on January 1, 2022:

Revenue recognition

Disaggregated revenue

The following table summarizes total revenue by the Company’s segments:

The following table presents revenues from customers that contributed to more than 10% of revenues:

The following table presents revenues from external customers by end market:

Contract assets and liabilities

The following table provides information about contract assets and contract liabilities from contracts with customers:

Changes in contract assets and contract liabilities primarily result from the timing difference between our performance of services and payments from customers.

Changes in the Company’s contract liabilities were as follows:

Remaining performance obligations

As of September 30, 2024, the Company had approximately $322.3 million of remaining performance obligations. The Company expects that the majority of contract liabilities will be recognized as revenue over the next 12 months and remainder will be recognized over the next three years. The amount of remaining performance obligations that are expected to be recognized as revenue beyond 12 months, primarily relate to the Company’s long-term engine utilization contracts where the customer payments based on flight hours may differ from the timing of satisfaction of performance obligations. The expected timing of the performance obligations is dependent on the timing of the customer's maintenance requirements and as such, the timing of the revenue recognition is subject to estimation uncertainty.

Inventories

Inventories consist of the following:

Inventory balances were net of reserves for slow moving, excess or obsolete engine and aircraft parts inventory of $110.2 million as at September 30, 2024 and $100.3 million as at December 31, 2023.

Goodwill

The changes in the carrying amount of goodwill for the periods ended September 30, 2024 and 2023, are as follows:

During the fourth quarter of 2023 the Company performed its goodwill impairment testing based on a qualitative assessment. Based on the Company’s evaluation of the events, results during the period, and current market conditions, the Company determined that it is more likely than not that the fair value exceeds the carrying amount and, therefore, determined thatno impairment had occurred on goodwill and no additional tests were performed.

Long-term debt

Long-term debt consists of the following:

On August 24, 2023, the Company amended the Credit Agreement to combine the Term Loans and the 2021 Term Loan to 2023 Term Loans in the amount of $2,575.0 million less a 1.0% discount. The new 2023 Term Loans incur interest at the Term SOFR Rate plus 4.00% or the Base Prime Rate plus 3.00%, maturing on August 24, 2028. All other terms of the Company’s Credit Agreement remained unchanged. As a result of the amendment, the Company recognized $0.8 million in deferred charges related to the 2023 Term Loans which are recorded as a reduction of long-term debt on the Unaudited Condensed Consolidated Balance Sheets. The original issue discount and deferred charges are amortized over the term of the loan agreement. As a result of the amendment, in the quarter ending September 30, 2023, the Company recognized a loss on the extinguishment of debt of $6.2 million, representing the write-off of the unamortized deferred finance charges and original issue discount related to the extinguished portion of the Term Loans and 2021 Term Loan. In addition, $19.9 million in third party fees related to the modified portion of the Term Loans were expensed as these costs did not meet the criteria for deferral.

On March 25, 2024, the Company amended its Credit Agreement, dated as of April 4, 2019 (as amended, restated, modified and/or supplemented from time to time, the “Credit Agreement”), among Dynasty Acquisition Co., Inc. as the U.S. borrower (the “U.S. Borrower”), Standard Aero Limited, as the Canadian borrower (the “Canadian Borrower”), Credit Suisse AG, Cayman Islands Branch, as administrative agent and collateral agent, and certain other parties thereto, to refinance the $2,562.1 million existing senior secured term loans then-outstanding thereunder (the “2023 Term Loans”) and provide the Company with an incremental $200.0 million as additional term loans (together with the refinanced 2023 Term Loans, the “2024 Term Loans” and the facilities in respect thereof, the “2024 Term Loan Facilities”). In addition, the amendment reduced the applicable interest rate to the Term SOFR Rate plus 3.25% to 3.50% or the Base Prime Rate plus 2.25% to 2.50%. All other terms of the Credit Agreement remained unchanged. The incremental proceeds from the 2024 Term Loans were used toward the partial redemption of the Senior Notes. As a result of the amendment, the Company recognized a loss on the extinguishment of debt of $0.7 million, representing the write-off of the unamortized deferred finance charges related to the extinguished portion of the 2023 Term Loans. In addition, $4.9 million in third party fees related to the modified portion of the Term Loans were expensed as these costs did not meet the criteria for deferral. The Company recognized $0.1 million in deferred charges which are recorded as a reduction of long-term debt on the Unaudited Condensed Consolidated Balance Sheets. The original issue discount and deferred charges were amortized over the term of the Credit Agreement using the straight-line method, which approximates the effective interest rate method.

On September 6, 2024, the Company amended the Credit Agreement to incur additional 2024 Term Loans in a principal amount of $200.0 million which were, in part, used to paydown a portion of the advances under the Company’s ABL Credit Facility used to fund the acquisition of ATI. There were no other substantive changes made to the Credit Agreement. As a result of the amendment, $1.5 million in third party fees related to the modified portion of the Term Loans were expensed as these costs did not meet the criteria for deferral. The original issue discount and deferred charges were amortized over the term of the Credit Agreement using the straight-line method, which approximates the effective interest rate method.

As at September 30, 2024, the 2024 Term Loans had a carrying value of $2,909.4 million, which is net of a $22.8 million discount and $15.6 million of deferred charges, and as at December 31, 2023, the 2023 Term Loans had a carrying value of $2,516.0 million, which is net of $26.9 million of discounts and $19.2 million of deferred charges. The 2024 Term Loans are denominated and repayable in installments of approximately $6.6 million per quarter and the remainder due on maturity. The 2024 Term Loans bore interest at 8.75% as at September 30, 2024, and the 2023 Term Loans bore interest at 9.36% as at December 31, 2023.

As at September 30, 2024 and December 31, 2023, the senior secured multicurrency cash flow revolving credit facility available under the Credit Agreement (the “2023 Revolving Credit Facility”) hadno outstanding loans under it, and $1.3 million and $1.4 million of deferred charges, respectively. The 2023 Revolving Credit Facility bore interest at the Adjusted Term SOFR rate plus 3.125% to 3.50%. The applicable rates on borrowing under the credit agreement were based on the Consolidated First Lien Net Leverage Ratio. The 2023 Revolving Credit Facility was subject to a maximum Consolidated First Lien Net Leverage Ratio that was tested at the end of any fiscal quarter if the total revolving credit loans outstanding under the 2023 Revolving Credit Facility on such date exceed 35.0% of the aggregate amount of all commitments in respect of the 2023 Revolving Credit Facility. The 2023 Revolving Credit Facility had a capacity of $150.0 million(of which up to $75.0 million was available for the issuance of letters of credit).

On May 28, 2024, the Company amended its ABL Credit Agreement (as amended, restated, modified and/or supplemented from time to time, the “ABL Credit Agreement” and, together with the Credit Agreement, the “Senior Secured Credit Agreements”), among the U.S. Borrower, the Canadian Borrower, Royal Bank of Canada, administrative agent and collateral agent, and certain other parties thereto, to replace CDOR as a reference rate for Canadian dollar-denominated loans under the Canadian Commitment with a Term CORRA-based rate, plus a credit spread adjustment ranging from 0.29547% to 0.32138% (subject to a 0.0% floor).

As at September 30, 2024, the Company had borrowings of $25.0 million under the ABL Credit Facility, and $2.0 million of deferred charges. As at December 31, 2023, the Company didnot have borrowings under this agreement with $2.4 million of deferred charges. At the Company’s discretion, the borrowings under the ABL Credit Facility bore interest at the Adjusted Term SOFR rate plus 1.50% to 2.00%, Prime Lending Rate plus 0.50% to 1.00%, or the Base Rate on Canadian borrowings plus 0.50% to 1.00%, with the spread dependent on the amount of the borrowing and was subject to certain financial covenants. The ABL Credit Facility was repayable in U.S. dollars and matured on May 1, 2028.

The ABL Credit Facility had an annual commitment fee of 0.250% to 0.375% based on the excess availability. The ABL Credit Facility contained financial covenants which were required to be calculated immediately prior to or during the continuance of a trigger period. The trigger period was a period where borrowing availability is less than the greater of 10% of the line cap and $30.0 million. The net ABL Credit Facility borrowing availability was $358.9 million as at September 30, 2024 and $379.4 million as at December 31, 2023.

The senior unsecured notes (“the Senior Notes”) bore an interest rate of 10.0%, and mature on April 4, 2027. On March 25, 2024, the Company redeemed $200.0 million of the Senior Notes. As a result of the redemption, the Company recognized a loss on the redemption of $2.9 million, representing the write-off of the unamortized deferred finance charges related to the redeemed portion of the Senior Notes.

As at September 30, 2024, the Senior Notes had a carrying value of $469.8 million, which is net of $5.6 million of deferred charges and as at December 31, 2023 the Senior Notes had a carrying value of $665.0 million, which is net of $13.6 million of deferred charges. The deferred charges were amortized over the term of the indenture using the straight-line method, which approximates the effective interest rate method.

The Company’s weighted average interest rate of borrowings under its Senior Secured Credit Agreements was 8.94% and 9.13% for thethree and nine months ended September 30, 2024, and 9.25% and 9.00% for thethree and nine months ended September 30, 2023.

The Senior Secured Credit Agreements and indenture had covenants that restricted the Company’s ability to transfer funds between subsidiary entities and parent companies, including restrictions to both the Company’s ability to raise additional financings in the future and the Company’s ability to pay dividends.

As at September 30, 2024, the amounts of the long-term debt payable for the years ending on December 31 are as follows:

Subsequent to the reporting period, the Company completed its initial public offering of ordinary shares, of which net proceeds of $1,202.8 million were used to redeem the senior unsecured notes and repay a portion of the outstanding credit facilities, and also completed a refinancing of its remaining debt. See Note 19, “Subsequent Events” for further information on the debt repayment.

Leases

Lease costs consist of the following:

The impact of leasing on the Condensed Consolidated Balance Sheets consists of the following:

Supplemental cash flow information related to leases consisted of the following:

Future minimum operating lease payments consist of the following for the twelve months ending December 31:

Weighted average remaining lease term and borrowing rate consisted of the following:

The Company’s depreciation expense for all property, plant and equipment, including assets recorded under finance leases was $14.9 million and $17.2 million for thethree months ended September 30, 2024 and 2023, respectively. The Company’s depreciation expense was $47.0 million and $52.8 million for thenine months ended September 30, 2024 and 2023, respectively. Depreciation expense is included within cost of revenues.

Income taxes

The Company’s estimated annual effective tax rate for the nine months ended September 30, 2024 was 57.5%, the difference between this and the U.S. statutory rate of 21.0% is primarily due to the mix of earnings between US and foreign jurisdictions as well as the Company increasing its valuation allowance in connection with the deferred tax asset related to the interest limitation under Section 163(j). The additional material items causing the rate differential are non-deductible expenses, impact of the Tax Cuts and Jobs Act of 2017 and state and foreign tax rates.

The Company also recorded a one-time discrete tax expense due to prior period adjustments related to revenue recognition in the amount of $1.7 M, which is not included in the above estimated annual effective tax rate.

For the nine months ended September 30, 2023, the forecasted mix of earnings and significant rate impacting items did not provide a reliable annual effective tax rate or year to date tax expense, therefore the Company calculated its effective rate and tax expense based on year to date figures. The Company’s year to date effective tax rate for the nine months ended September 30, 2023 was 797%. The abnormally high rate is driven by nominal projected full year pretax income offset by the various tax only adjustments discussed below.

The difference between the 797.0% estimated annual effective tax rate and the U.S. statutory rate of 21.0% is primarily due to the mix of earnings between US and foreign jurisdictions as well as the Company increasing its valuation allowance in connection with the deferred tax asset related to the interest limitation under Section 163(j). The additional material items causing the rate differential are non-deductible expenses,impact of the Tax Cuts and Jobs Act of 2017 and state and foreign tax rates.

The Company did not record any significant changes in its unrecognized tax benefits or total interest and penalties for tax years remaining open to examination during the nine months ended September 30, 2024 and September 30, 2023. Currently, there are not any ongoing audits or examinations with any tax jurisdictions.

In 2021, the Organization for Economic Cooperation and Development (“OECD”) released Pillar Two Global Anti-Base Erosion model rules (“Pillar Two Rules”), designed to ensure large corporations are taxed at a minimum rate of 15% in all countries of operation. On June 20, 2024, as part of Bill C-69, Canada enacted its Pillar Two legislation effective January 1, 2024. Canada Bill C-59 was also enacted on June 20, 2024 and included the excessive interest and financing expenses limitation (EIFEL) regime effective for tax years beginning on or after September 30, 2023. The Company is continuing to evaluate the potential impact by the Pillar Two legislation and the new EIFEL regime.

Commitments and contingencies

Contingent liabilities

The Company is involved, from time to time, in legal actions and claims arising in the ordinary course of business. Although predicting the outcome of legal actions and claims is difficult, based on current knowledge and consultation with legal counsel, the Company does not expect the outcome of these matters, either individually or in aggregate, to have a material adverse effect on the Company’s consolidated financial position.

From time to time, the Company enters into contracts that contain liquidated damage provisions, which provide for the payment of damages to the Company’s customers in the event of non-compliance with certain contractually-specified terms and conditions. The Company evaluates its exposure to these provisions on a contract-by-contract basis, and records provisions for such contractual provisions when it has been determined that a loss is probable and estimable. As at September 30, 2024 and December 31, 2023 the provision is nominal.

The Company has facilities that are located on land that has been used for industrial purposes for an extended period of time. The Company has not been named as a defendant to any environmental suit. Management believes that the Company is currently in substantial compliance with environmental laws. The Company incurs capital and operating costs relating to environmental compliance on an ongoing basis. The Company does not believe it will be required under existing environmental laws to expend amounts that would have a material adverse effect on its financial position or results of operations as a whole.

Guarantees

The Company issues letters of credit, performance bonds, bid bonds or guarantees in the ordinary course of business. These instruments are generally issued in conjunction with contracts or other business requirements. The total of these instruments outstanding was approximately $20.5 million and $25.2 million as at September 30, 2024 and December 31, 2023, respectively.

Warranty reserves

Reserves are recorded to reflect the Company’s contractual liabilities relating to warranty commitments to customers. Warranty coverage of various lengths and terms is provided to customers depending on standard offerings and negotiated contractual agreements.

Changes in the warranty reserve are summarized and recorded in the Condensed Consolidated Balance Sheets within “Accrued expenses and other current liabilities” as follows:

Related party transactions

The Company entered into a consulting agreement with Carlyle Investment Management L.L.C. (“Carlyle”), and Beamer Investment Inc. (“Beamer”), an affiliate of GIC Private Limited pursuant to which Carlyle and Beamer (“Consultants”) provide certain management, advisory and consulting services in relation to, among other things, development and execution of business strategy, analysis of industries and markets, acquisition and disposition strategy, business due diligence, business integration and other matters relating to the strategic and financial management of the business. The agreement will remain in effect for as long as (i) the Consultants own, directly or indirectly, at least 10% of the outstanding voting securities of the Company and (ii) a representative of the Consultant serves as a member of the board of directors or similar governing body of the Company. The agreement may be terminated at any time by written notice to the Company from the Consultant. Pursuant to this agreement, and subject to certain conditions, the Company pays Carlyle an annual fee of $2.4 million and pays Beamer an annual fee of $0.6 million payable in quarterly installments. Other services provided, other than consulting services can result in additional fees, and the Company will reimburse customary out-of-pocket expenses. Certain of the Company’s directors are also employees of Carlyle.

The Company expensed $0.8 million and $2.3 million for advisory services for the three months andnine months ended September 30, 2024 and 2023, respectively, for advisory and consulting services, as well as an additional $1.2 million during thenine months ended September 30, 2024 for arrangement fees under the credit agreement amendment.

The Company had a $0.1 million advance as at December 31, 2023.

CFGI, a portfolio company of a fund affiliated with Carlyle, provides the Company with accounting advisory and consulting services. For the three months and nine months ended September 30, 2024 the Company expensed $1.3 million and $3.6 million, respectively, and paid $1.4 million and $3.0 million, respectively, to CFGI for accounting advisory and consulting services. There wereno similar payments to CFGI for the three and nine months ended September 30, 3023.

Employee benefit plans

Defined contribution pension plans

The Company has several defined contribution plans covering substantially all of its employees. Costs for the defined contribution plans were $5.7 million and $5.4 million for thethree months ended September 30, 2024 and 2023, respectively. Costs for the defined contribution plans were $18.0 million and $16.5 million for thenine months ended September 30, 2024 and 2023, respectively.

Defined benefit pension plans

The Company maintains defined benefit plans for certain employees in the United Kingdom and France.

In the United Kingdom, the Company maintainstwo defined benefit schemes which provide both pensions in retirement and death benefits to members. Pension benefits are related to the member’s final salary at retirement (or their career average revalued salary) and their length of service. The main scheme is the Vector Aerospace International Limited Pension Scheme (the “Scheme”). The other defined benefit scheme is the Vector Aerospace 1998 Pension Plan (the “Plan”). The Scheme and Plan are generally closed for new members, who participate in a separate defined contribution plan.

In France, the defined benefit plan is a government-mandated defined obligation that provides employees with retirement indemnities in the form of lump sums on the basis of the length of service and employee compensation levels. The plan is unfunded and benefits are paid when amounts become due, commencing when participants retire. Actuarial gains and losses of the year for long service awards are immediately recognized in the Consolidated Statements of Operations.

Costs for the defined benefit plans were $0.1 million for thethree months ended September 30, 2024 and 2023, respectively. Costs for the defined contribution plans were $0.4 million for thenine months ended September 30, 2024 and 2023, respectively.

Fair value measurements

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The inputs used to measure fair value into the following hierarchy are determined as follows:

For cash and cash equivalents, accounts receivable, income taxes receivable and accounts payable, the fair value approximates the carrying value due to the short maturity periods of these financial instruments. For long-term borrowings, the fair value is measured using Level 2 market values.

The interest rate swaps, interest rate caps and foreign exchange contracts are carried at fair value in the Condensed Consolidated Balance Sheets. The fair value measurement is classified within Level 2 of the fair value hierarchy, as the inputs to the derivative pricing model are generally observable and do not contain a high level of subjectivity. The fair value of the interest rate agreements are estimated using industry standard valuation models using market-based observable inputs.

Valuation of Contingent Consideration Liability

The fair value of earnout consideration was estimated based on applying a Monte Carlo simulation method to forecast achievement of the gross profit targets. This method involves many possible value outcomes which are evaluated to establish an estimated value. Key inputs in the valuation include volatility and discount rates. Due to the significant unobservable inputs used in the valuations, these liabilities are categorized within Level 3 of the fair value hierarchy.

The Company determined the initial value for the contingent consideration liability of $15.2 million using the Level 3 inputs as of the issuance date on August 23, 2024. No changes in fair value of contingent consideration liability were recorded during the three and nine months ended of September 30, 2024 in the condensed consolidated statements of operations and comprehensive loss as the initial fair value approximates the fair value as of September 30, 2024.

The following table represents the significant inputs used in calculating the fair value of the contingent consideration liability on the issuance date and as of September 30, 2024:

The following table summarizes the carrying amounts and fair values of financial instruments:

(1)

The carrying amount of debt instruments is presented net of the debt issuance costs, premium and discount. Refer to Note 7, “Debt”, for gross carrying amounts

The gains (losses) on the Company’s derivative instruments were as follows:

Derivatives and hedging

The Company is exposed to, among other things, the impact of changes in interest rates and foreign currency exchanges rates in the normal course of business. The Company’s objective in risk management is to utilize interest rate derivatives to add stability to interest expense and manage its exposure to interest rate movements, and utilize foreign exchange rate derivatives to add stability to foreign exchange expense and manage its exposure to exchange rate movements. To accomplish this objective, the Company primarily uses (i) interest-rate swaps and interest-rate caps as part of its interest rate risk management strategy and (ii) foreign currency forward contracts to protect against the foreign currency exchange rate risk inherent on forecasted transactions.

The Company uses derivative financial instruments only to the extent necessary to hedge identified business risks and does not enter into such transactions for trading purposes.

Interest-rate swap and interest-rate cap agreements

Interest-rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. Interest-rate caps designated as cash flow hedges involve payment of a fixed premium to a counterparty in exchange for the company receiving a SOFR cap over the life of the agreement without exchange of the underlying notional amount.

During the nine months ended September 30, 2024, and 2023 such derivatives were used to hedge the variable cash flows associated with its long-term debt agreements.

The tables below summarize the key terms of the interest-rate swap and interest-rate cap agreements:

Interest-rate swap agreements:

Interest-rate cap agreements:

(1)

The original interest-rate cap agreement, dated November 30, 2022, has an initial notional amount of $500.0 million, increasing to $1,000.0 million on March 31, 2023, and increased to $1,500.0 million on March 28, 2024

The amounts shown in the table below represent the gross amounts of recognized assets and liabilities, the amounts offset in the Condensed Consolidated Balance Sheets and the net amounts of assets and liabilities presented therein:

For the interest-rate swaps, differences between the hedged interest rate and the fixed rate are recorded as interest expense in the Consolidated Statements of Operations in the same period that the related interest is recorded for the Company’s long-term debt agreements.

For the interest-rate caps, monthly premiums and differences received between the hedged interest rate and the interest rate cap are recorded to interest expense in the Consolidated Statements of Operations in the same period that the related interest is recorded for the Company’s long-term debt agreements.

Foreign currency forward exchange contracts

The Company has operations in Canada, as well as other countries outside of North America, and consequently the Condensed Consolidated Balance Sheets can be affected by movements in exchange rates for limited balances denominated in foreign currency. Currency exposures can also arise from certain revenue and purchase transactions denominated in foreign currencies, primarily payroll costs which are in local currencies.

The Company enters into short term foreign exchange contracts throughout the year designated as a cash flow hedge to manage the exposure to changes in the exchange rate on its Canadian and United Kingdom payroll costs, requiring the Company to buy a notional amount of Canadian dollars and British Pounds Sterling. The contracts require the Company to buy a notional amount of the foreign currency at a set rate weekly from a reference date to maturity date, or until a maximum value is reached. The Company hasone foreign currency contract outstanding as of September 30, 2024. The contract was entered April 12, 2024 at a notional value of GBP 17.5 million and matures on December 31, 2024.

Accumulated other comprehensive income (loss)

Comprehensive income (loss) includes all non-stockholder changes in equity. The changes in accumulated other comprehensive income (loss) by component is as follows:

Net income (loss) per share

The following table summarize the computation of basic and diluted net income (loss) per share attributable to the stockholder:

The Company didnot have any dilutive securities for the three ornine months ended September 30, 2024 and 2023. Therefore, the weighted average number of common shares outstanding used to calculate both basic and diluted net income (loss) per share attributable to stockholder is the same. The Company has contingently issuable shares, issuable upon the Company’s completion of a liquidity event which has not occurred as of September 30, 2024, and are therefore excluded from the calculation of net income (loss) per share.

Segment information

The Company’s chief operating decision making officer (“CODM”) is the Company’s Chief Executive Officer. Consistent with how the Company evaluates its performance and the way the Company is organized internally, the Company reports its activities intwo segments: i) Engine Services, and ii) Component Repair Services.

The Company's chief operating decision maker evaluates the performance of our segments based on segment Revenue and segment Adjusted EBITDA. Management believes segment Adjusted EBITDA is indicative of operational performance and ongoing profitability and is used to evaluate the operating performance of the Company’s segments and for planning and forecasting purposes, including the allocation of resources and capital. No asset information is provided to the CODM on the reportable segments.

The Company defines Segment Adjusted EBITDA as net income (loss) before interest expense, income tax expense (benefit), depreciation and amortization directly attributable to each operating segment and adjusted for certain non-cash items that the Company may record each period, as well as non-recurring items such as acquisition costs, integration and severance costs, refinance fees, business transformation costs and other discrete expenses, when applicable.

The Company's Engine Services segment provides a full suite of aftermarket services, including maintenance, repair and overhaul, on-wing and field service support, asset management, and engineering and related solutions to customers in the commercial aerospace, military & helicopter, and business aviation end markets. Revenue in the Engine Services segment is primarily derived from the repair and overhaul of a wide variety of gas turbine engines and auxiliary power units that power fixed and rotary wing aircraft. The Company also provides complementary maintenance, repair, upgrade and other related services for airframes and avionics systems in the business aviation and helicopter end markets. Cost of revenue consists primarily of cost of materials, direct labor and overhead.

The Company's Component Repair Services segment provides engine component and accessory repairs to the Commercial Aerospace, Military & Helicopter, and Other, including land and marine, and oil and gas end markets. Revenue in the Component Repair Services segment is derived from the engine piece part and accessory repairs that we perform, repair development engineering and other related services, and some engine new part manufacturing. Cost of revenue consists primarily of cost of materials, direct labor and overhead.

Our segment disclosure includes intersegment revenues, which primarily consist of subcontract services between segments. The revenue and corresponding cost of revenue are eliminated on consolidation. The elimination of such intersegment transactions is included within intersegment revenue in the table below. The revenue is eliminated with the segment receiving the subcontract services. The segment providing services retains revenue while the segment receiving the services records the elimination.

Selected financial information for each segment is as follows:

(1)

Corporate primarily consists of costs related to executive and staff functions, including Information Technology, Human Resources, Legal, Finance, Marketing, Corporate Supply Chain and Corporate Engineering Services finance, which benefit the enterprise as a whole. These costs are primarily related to the general management of these functions on a corporate level and the design and development of programs, policies, and procedures that are then implemented in the individual segments, with each segment bearing its own cost of implementation. The Corporate function also includes expenses associated with the Company's debt.

(2)

(3)

Represents other non-recurring costs including quarterly management fees payable to Carlyle Investment Management L.L.C. and Beamer Investment Inc. under consulting services agreements, representation and warranty insurance costs associated with acquisitions, and costs for professional services incurred as a result of our IPO readiness that are the result of other, non-comparable events to measure operating performance as these events arise outside of our ordinary course of continuing operations. See Note 12, “Related party transactions” to our unaudited consolidated financial statements included elsewhere in this report for descriptions of the consulting services agreements with Carlyle Investment Management L.L.C. and Beamer Investment Inc.

(1)

Corporate primarily consists of costs related to executive and staff functions, including Information Technology, Human Resources, Legal, Finance, Marketing, Corporate Supply Chain and Corporate Engineering Services finance, which benefit the enterprise as a whole. These costs are primarily related to the general management of these functions on a corporate level and the design and development of programs, policies, and procedures that are then implemented in the individual segments, with each segment bearing its own cost of implementation. The Corporate function also includes expenses associated with the Company's debt.

(2)

(3)

Represents other non-recurring costs including quarterly management fees payable to Carlyle Investment Management L.L.C. and Beamer Investment Inc. under consulting services agreements, representation and warranty insurance costs associated with acquisitions, and costs for professional services incurred as a result of our IPO readiness that are the result of other, non-comparable events to measure operating performance as these events arise outside of our ordinary course of continuing operations. See Note 12, “Related party transactions” to our unaudited consolidated financial statements included elsewhere in this report for descriptions of the consulting services agreements with Carlyle Investment Management L.L.C. and Beamer Investment Inc.

(1)

Corporate primarily consists of costs related to executive and staff functions, including Information Technology, Human Resources, Legal, Finance, Marketing, Corporate Supply Chain and Corporate Engineering Services finance, which benefit the enterprise as a whole. These costs are primarily related to the general management of these functions on a corporate level and the design and development of programs, policies, and procedures that are then implemented in the individual segments, with each segment bearing its own cost of implementation. The Corporate function also includes expenses associated with the Company's debt.

(2)

(3)

Represents other non-recurring costs including quarterly management fees payable to Carlyle Investment Management L.L.C. and Beamer Investment Inc. under consulting services agreements, representation and warranty insurance costs associated with acquisitions, and costs for professional services incurred as a result of our IPO readiness that are the result of other, non-comparable events to measure operating performance as these events arise outside of our ordinary course of continuing operations. See Note 12, “Related party transactions” to our unaudited consolidated financial statements included elsewhere in this report for descriptions of the consulting services agreements with Carlyle Investment Management L.L.C. and Beamer Investment Inc.

(1)

Corporate primarily consists of costs related to executive and staff functions, including Information Technology, Human Resources, Legal, Finance, Marketing, Corporate Supply Chain and Corporate Engineering Services finance, which benefit the enterprise as a whole. These costs are primarily related to the general management of these functions on a corporate level and the design and development of programs, policies, and procedures that are then implemented in the individual segments, with each segment bearing its own cost of implementation. The Corporate function also includes expenses associated with the Company's debt.

(2)

(3)

Represents other non-recurring costs including quarterly management fees payable to Carlyle Investment Management L.L.C. and Beamer Investment Inc. under consulting services agreements, representation and warranty insurance costs associated with acquisitions, and costs for professional services incurred as a result of our IPO readiness that are the result of other, non-comparable events to measure operating performance as these events arise outside of our ordinary course of continuing operations. See Note 12, “Related party transactions” to our unaudited consolidated financial statements included elsewhere in this report for descriptions of the consulting services agreements with Carlyle Investment Management L.L.C. and Beamer Investment Inc.

The following table presents revenues from external customers by geographic area based on location of the customer:

(1)

Countries grouped within Rest of Europe, Asia, and Rest of world are individually immaterial as compared to total revenue with no country representing more than 2% and 3% of total revenue for the three ended September 30, 2024 and 2023, respectively, and no country representing more than 3% and 3% of total revenue for thenine months ended September 30, 2024 and 2023, respectively.

Subsequent events

Subsequent events have been evaluated by the Company up to and including November 13, 2024, the date the condensed consolidated financial statements were issued.

Debt Repayment

On October 3, 2024, the Company used the majority of net primary proceeds from the initial public offering to repay the full outstanding principal and accrued interest on the Senior Notes, totaling $487.5 million, and repaid a portion of the outstanding principal amount and accrued interest on 2024 Term Loan Facilities, in the amount of $726.1 million.

Refinancing

On October 31, 2024, certain direct and indirect wholly owned subsidiaries of the Company entered into the New Credit Agreement providing for (i) the New 2024 Term Loan Facilities due October 31, 2031 in an aggregate principal amount of $2,250.0 million, bearing interest at SOFR +2.25% and (ii) the New 2024 Revolving Credit Facility due October 31, 2029 in an aggregate principal amount of up to $750.0 million, bearing interest at Term SOFR +2.00%.

Concurrent with the closing of the New Credit Agreement, the Company used the proceeds of the New 2024 Term Loan Facilities and approximately $95.0 million of the proceeds of the New 2024 Revolving Credit Facility to repay in full amounts outstanding under (i) the Credit Agreement and (ii) the ABL Credit Agreement, terminating each and the debt facilities thereunder. The Company incurred arranger fees of $11.3 million, commitment fees of $3.8 million, and original issue discounts of $2.8 million as a part of the refinancing transaction.