FORM 6-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16
of the Securities Exchange Act of 1934
Unaudited Financial Statements
For the Nine Months ended September 30, 2003
Commission file number
333-10886
Dunlop Standard Aerospace Holdings plc
(Exact name of registrant as specified in its charter)
Holbrook Lane
Coventry CV6 4AA
United Kingdom
(Address of principal executive offices and zip code)
Indicate by check mark whether the registrant files or will file annual reports
under cover Form 20-F or Form 40-F. Form 20-F |X| Form 40-F | |
Indicate by check mark whether the registrant by furnishing the information
contained in this Form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of
1934.
Yes | | No |X|
This Form 6-K Report of Foreign Issuer is incorporated by reference into the
Registration Statement on Form S-8 of Dunlop Standard Aerospace Holdings plc
(Registration No. 3599235) and the Registration Statement on Form F-4 of Dunlop
Standard Aerospace Holdings plc. (Registration No. 333-10886).
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dunlop Standard Aerospace Holdings plc
By: /s/ David Unruh
-----------------------
David Unruh
Chief Financial Officer
November 13, 2003
CONDENSED PROFIT AND LOSS STATEMENTS Page 1
(UNAUDITED)
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DUNLOP STANDARD AEROSPACE HOLDINGS PLC
CONDENSED CONSOLIDATED PROFIT AND LOSS
(UNAUDITED)
FOR THE QUARTER FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 2003 ENDED SEPTEMBER 30, 2003
2003 2002 2003 2002
(POUND)'000 (POUND)'000 (POUND)'000 (POUND)'000
SALES (pound)107,156 (pound)110,851 (pound)323,076(pound)332,719
COST OF GOODS SOLD 79,719 81,411 237,383 240,327
- ------------------------------------------------ ----------------- --------------- --- -- --------------- ------------
27,437 29,440 85,693 92,392
GROSS MARGIN
SELLING, GENERAL, ADMIN & OTHER EXPENSES 14,328 13,097 40,918 40,669
- ------------------------------------------------ ----------------- --------------- --- -- --------------- ------------
OPERATING PROFIT 13,109 16,343 44,775 51,723
FINANCE COSTS, NET 7,557 11,197 23,825 33,805
- ------------------------------------------------ ----------------- --------------- --- -- --------------- ------------
PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION 5,552 5,146 20,950 17,918
TAXATION 2,093 2,253 8,045 7,068
- ------------------------------------------------ ----------------- --------------- --- -- --------------- ------------
PROFIT FOR THE FINANCIAL PERIOD (POUND)3,459 (POUND)2,893 (POUND)12,905(POUND)10,850
================================================ ================= =============== === == =============== ============
The accompanying notes are an integral part of these condensed financial
statements.
CONDENSED BALANCE SHEETS PAGE 2
(UNAUDITED)
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DUNLOP STANDARD AEROSPACE HOLDINGS PLC
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
30 SEPTEMBER 30 SEPTEMBER 31 DECEMBER
2003 2002 2002
(POUND)'000 (POUND)'000 (POUND)'000
FIXED ASSETS
Intangible fixed assets:
Goodwill (pound)310,785 (pound)316,448 (pound)313,856
Development costs / licenses 28,606 28,549 28,089
- --------------------------------------------------------- ------------------ ----------------- ------------------
Total Intangible fixed assets 339,391 344,997 341,945
Tangible fixed assets 165,710 176,730 173,545
- --------------------------------------------------------- ------------------ ----------------- ------------------
TOTAL INTANGIBLE AND TANGIBLE FIXED ASSETS 505,101 521,727 515,490
- --------------------------------------------------------- ------------------ ----------------- ------------------
CURRENT ASSETS
Debtors:
Trade & other debtors 105,393 111,513 105,277
Deferred costs - initial parts provided 26,227 24,669 25,002
Stocks 69,588 69,886 74,450
Cash at bank and in hand 15,097 26,376 33,585
- --------------------------------------------------------- ------------------ ----------------- ------------------
TOTAL CURRENT ASSETS 216,305 232,444 238,314
- --------------------------------------------------------- ------------------ ----------------- ------------------
CREDITORS - AMOUNTS FALLING DUE WITHIN ONE YEAR
Trade and other creditors (95,303) (105,919) (85,038)
Current portion of long term debt (37,386) (41,250) (67,910)
- --------------------------------------------------------- ------------------ ----------------- ------------------
TOTAL CREDITORS (132,689) (147,169) (152,948)
- --------------------------------------------------------- ------------------ ----------------- ------------------
NET CURRENT ASSETS 83,616 85,275 85,366
- --------------------------------------------------------- ------------------ ----------------- ------------------
TOTAL ASSETS LESS CURRENT LIABILITIES 588,717 607,002 600,856
- --------------------------------------------------------- ------------------ ----------------- ------------------
CREDITORS - AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR
Bank loans and Senior notes (323,388) (359,301) (343,571)
Accruals and deferred income (3,818) (7,044) (8,951)
- --------------------------------------------------------- ------------------ ----------------- ------------------
(327,206) (366,345) (352,522)
PROVISIONS FOR LIABILITIES & CHARGES (22,987) (19,825) (22,615)
- --------------------------------------------------------- ------------------ ----------------- ------------------
NET ASSETS (POUND)238,524 (POUND)220,832 (POUND)225,719
- --------------------------------------------------------- ------------------ ----------------- ------------------
SHARE CAPITAL AND RESERVES
160,000,000 ordinary shares of(pound)1 each
Called up share capital (pound)160,000 (pound)160,000 (pound)160,000
Profit and loss account 78,524 60,832 65,719
- --------------------------------------------------------- ------------------ ----------------- ------------------
TOTAL EQUITY SHAREHOLDERS' FUNDS (POUND)238,524 (POUND)220,832 (POUND)225,719
- --------------------------------------------------------- ------------------ ----------------- ------------------
The accompanying notes are an integral part of these condensed financial
statements.
CONDENSED FINANCIAL STATEMENTS PAGE 3
(UNAUDITED)
- ------------------------------------------------------------------------------------------------------------------------------------
DUNLOP STANDARD AEROSPACE HOLDINGS PLC
CONDENSED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
(UNAUDITED)
30 SEPTEMBER 30 SEPTEMBER 31 DECEMBER
2003 2002 2002
(POUND)'000 (POUND)'000 (POUND)'000
Profit for the financial period before dividends (pound)12,905 (pound)10,850 (pound)11,860
Exchange adjustments (100) (5,506) (1,629)
- --------------------------------------------------- ------------------------- -------------------------- -- -----------------
TOTAL RECOGNISED GAINS AND LOSSES (POUND)12,805 (POUND)5,344 (POUND)10,231
Profit and Loss - Beginning 65,719 55,488 55,488
- --------------------------------------------------- ------------------------- -------------------------- -- -----------------
PROFIT AND LOSS - ENDING (POUND)78,524 (POUND)60,832 (POUND)65,719
- --------------------------------------------------- ------------------------- -------------------------- -- -----------------
DUNLOP STANDARD AEROSPACE HOLDINGS PLC
CONDENSED RECONCILILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
(UNAUDITED)
NINE MONTHS NINE MONTHS YEAR ENDED
ENDED 30 SEPTEMBER ENDED 30 SEPTEMBER 31 DECEMBER
2003 2002 2002
(POUND)'000 (POUND)'000 (POUND)'000
Profit for the financial period (pound)12,905 10,850 (pound)11,860
Exchange adjustments (100) (5,506) (1,629)
- --------------------------------------------------- ------------------------- -------------------------- -- -----------------
NET INCREASE IN SHAREHOLDERS' FUNDS 12,805 5,344 10,231
Shareholders' funds - beginning of period 225,719 215,488 215,488
- --------------------------------------------------- ------------------------- -------------------------- -- -----------------
SHAREHOLDERS' FUNDS - END OF PERIOD (POUND)238,524 (POUND)220,832 (POUND)225,719
- --------------------------------------------------- ------------------------- -------------------------- -- -----------------
The accompanying notes are an integral part of these condensed financial
statements.
MANAGEMENT DISCUSSION OF FINANCIAL RESULTS PAGE 4
(UNAUDITED)
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DUNLOP STANDARD AEROSPACE HOLDINGS PLC
CONDENSED CONSOLIDATED CASH FLOW STATEMENT
(UNAUDITED)
QUARTER QUARTER NINE MONTHS NINE MONTHS
ENDED ENDED ENDED ENDED
30 SEPT 30 SEPT 30 SEPT 30 SEPT
2003 2002 2003 2002
(POUND)'000 (POUND)'000 (POUND)'000 (POUND)'000
Operating profit (pound)13,109 (pound)16,343 (pound)44,775 (pound)51,723
Depreciation 3,705 3,716 11,010 10,743
Amortisation of deferred costs 1,155 1,466 3,554 3,624
Gain / (loss) on disposal of fixed assets (12) 70 36 85
Change in stock 2,854 1,114 2,742 (686)
Change in debtors (3,419) (4,500) (4,371) (17,817)
Change in trade creditors 1,878 1,936 4,147 3,067
Capital Grant Release & Other (754) (785) (2,274) (2,483)
- ------------------------------------------------------- --------------- -------------- --- --------------- ------------------
NET CASH INFLOW FROM OPERATING ACTIVITIES 18,516 19,360 59,619 48,256
- ------------------------------------------------------- --------------- -------------- --- --------------- ------------------
RETURNS ON INVESTMENTS AND SERVICING OF FINANCE
INTEREST AND FINANCE CHARGES PAID (4,739) (6,012) (19,234) (28,274)
- ------------------------------------------------------- --------------- -------------- --- --------------- ------------------
TAXATION
Tax paid (727) (410) (4,611) (1,732)
- ------------------------------------------------------- --------------- -------------- --- --------------- ------------------
CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT
(Payments) to acquire tangible fixed assets - net (2,335) (5,015) (5,360) (26,501)
(Payments) for development expenditure, licensing and
OEM fees (3,082) (899) (5,729) (1,639)
- ------------------------------------------------------- --------------- -------------- --- --------------- ------------------
NET CASH (OUTFLOW) FROM CAPITAL EXPENDITURE AND
FINANCIAL INVESTMENT (5,417) (5,914) (11,089) (28,140)
- ------------------------------------------------------- --------------- -------------- --- --------------- ------------------
CURRENCY AND OTHER (36) 749 398 (950)
- ------------------------------------------------------- --------------- -------------- --- --------------- ------------------
NET CASH INFLOW / (OUTFLOW) BEFORE FINANCING 7,597 7,773 25,083 (10,840)
- ------------------------------------------------------- --------------- -------------- --- --------------- ------------------
FINANCING
Bank loans (repaid) /received - 7,401 (10,400) 10,846
Working capital loans 3,000 (141) (15,075) (2,141)
- ------------------------------------------------------- --------------- -------------- --- --------------- ------------------
NET CASH (OUTFLOW) / INFLOW FROM FINANCING 3,000 7,260 (25,475) 8,705
- ------------------------------------------------------- --------------- -------------- --- --------------- ------------------
INCREASE (DECREASE) IN CASH 10,597 15,033 (392) (2,135)
Exchange adjustments (6) (283) 52 (552)
Cash - beginning of period 4,506 11,626 15,437 29,063
- ------------------------------------------------------- --------------- -------------- --- --------------- ------------------
CASH - END OF PERIOD (NET OF BANK OVERDRAFTS) (POUND)15,097 (POUND)26,376 (POUND)15,097 (POUND)26,376
- ------------------------------------------------------- --------------- -------------- --- --------------- ------------------
The accompanying notes are an integral part of these condensed financial
statements.
MANAGEMENT DISCUSSION OF FINANCIAL RESULTS PAGE 5
(UNAUDITED)
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1. SIGNIFICANT ACCOUNTING POLICIES
INTERIM CONDENSED FINANCIAL STATEMENTS
During interim periods, Dunlop Standard Aerospace Holdings plc (the "Company")
follows the accounting policies set forth in its Annual Report to Shareholders
and applies appropriate interim financial reporting standards, as indicated
below. Users of financial information produced for interim periods are
encouraged to refer to the notes contained in the Annual Report to Shareholders
when reviewing interim financial results. Copies of the Company's 1999 to 2002
annual reports have been filed with the Securities and Exchange Commission.
Interim financial reporting standards require management to make estimates that
are based on assumptions regarding the outcome of future events and
circumstances not known at the present time, including the use of estimated
effective tax rates. Inevitably, some assumptions may not materialise and
unanticipated events and circumstances may occur which vary from those
estimates and such variations may significantly affect the Company's future
results. In the opinion of management, the accompanying unaudited condensed
consolidated financial statements of the Company contain all adjustments of a
normal and recurring nature which are necessary to present fairly the financial
positions of the Company as of 30 September 2003 and 30 September 2002, and the
results of its operations and cash flows for the nine month periods ended 30
September 2003 and 2002.
Certain of the comparative financial information have been restated to conform
to the current presentation. The company and Dunlop Standard Aerospace Group
Limited, our parent, and its subsidiaries (the "Group") has now adopted
Financial Reporting Standard 19 `Deferred Tax' such that deferred taxation is
accounted for on an undiscounted basis at expected tax rates on all differences
arising from the inclusion of items of income and expenditure in taxation
computations in periods different from those in which they are included in the
accounts. A deferred tax asset is only recognised when it is more likely than
not that the asset will be recoverable in the foreseeable future out of
suitable taxable profits from which the underlying timing differences can be
deducted.
FOREIGN EXCHANGE RATES
The following exchange rates have been used to convert the Group's subsidiary
company balance sheets and income statements from United States Dollars, to
Pounds Sterling:
NINE MONTHS ENDED NINE MONTHS ENDED YEAR ENDED
SEPT 30, 2003 SEPT 30, 2002 DEC. 2002
Income Statement (pound) = $1.61 $1.48 $1.50
Balance Sheet (pound) = $1.66 $1.57 $1.61
2. NATURE OF OPERATIONS
The company was incorporated on 16 July 1998 as a holding company for the
aerospace businesses it ultimately acquired from BTR plc on 1 October 1998.
Subsidiaries were formed prior to the closing or acquired as part of the
acquisition in Canada, the United States of America, the United Kingdom,
Holland, Singapore and Australia in order to purchase directly from BTR plc or
its respective subsidiaries, the aerospace operations in those countries,
effective 1 October 1998. The purchase method of accounting was adopted for the
acquisition. Accordingly, the general basis for valuation of the assets
acquired and liabilities assumed is the fair value at the date of acquisition.
The results of the operations of the acquired companies are included in the
profit and loss account of the group from 1 October 1998. The total cost of the
acquisition was (pound)537 million, which included (pound)22 million in
acquisition expenses. This was financed by debt of (pound)382 million and
equity of (pound)155 million. Goodwill, representing the excess purchase price
over the fair value of net assets acquired, arising on acquisition was
(pound)311.8 million, which has been capitalised. Following finalisation of
certain items with the vendors, goodwill was adjusted effective 31 December
1999 to (pound)312.2 million. Since then, goodwill has been adjusted to reflect
changes in foreign exchange rates at each balance sheet date. The goodwill is
considered to have an indefinite life and accordingly has not been amortised.
In accordance with FRS 11 `Impairment of Fixed Assets and Goodwill', goodwill
will be reviewed annually for possible impairment.
3. SEGMENTAL ANALYSIS
The Group reports results of its business divisions in two segments, Engine
Repair and Overhaul and Design and Manufacturing. The Engine Repair and
Overhaul segment primarily provides services for gas-turbine engine and
accessory repair and overhaul. The Design and Manufacturing segment designs and
manufactures wheels, brakes and brake management systems, heat exchangers and
bleed valves, combustion heaters, airfoil separators, actuators and customised
high technology rubber and polymer products. Transactions between reportable
segments are not material.
QUARTER QUARTER NINE MONTHS NINE MONTHS
ENDED ENDED ENDED ENDED
30 SEPT 30 SEPT 30 SEPT 30 SEPT
2003 2002 2003 2002
SALES (POUND)'000 (POUND)'000 (POUND)'000 (POUND)'000
Engine Repair and Overhaul (pound)78,378 (pound)79,682 (pound)232,099 (pound)232,354
Design and Manufacturing 28,778 31,169 90,977 100,365
- --------------------------------------------- ----------------- -------------------- -------------------- --------------------
TOTAL SALES (POUND)107,156 (POUND)110,851 (POUND)323,076 (POUND)332,719
- --------------------------------------------- ----------------- -------------------- -------------------- --------------------
OPERATING PROFIT
Engine Repair and Overhaul 6,385 7,345 19,946 20,483
Design and Manufacturing 6,724 8,998 24,829 31,240
- --------------------------------------------- ----------------- -------------------- -------------------- --------------------
Operating Profit 13,109 16,343 44,775 51,723
Finance costs (7,557) (11,197) (23,825) (33,805)
- --------------------------------------------- ----------------- -------------------- -------------------- --------------------
Profit on ordinary activities before tax 5,552 5,146 20,950 17,918
Taxation (2,093) (2,253) (8,045) (7,068)
- --------------------------------------------- ----------------- -------------------- -------------------- --------------------
PROFIT FOR THE FINANCIAL PERIOD (POUND)3,459 (POUND)2,893 (POUND)12,905 (POUND)10,850
- --------------------------------------------- ----------------- -------------------- -------------------- --------------------
NET OPERATING ASSETS 30 SEPT 30 SEPT 31 DECEMBER
2003 2002 2002
(POUND)'000 (POUND)'000 (POUND)'000
Engine Repair and Overhaul (pound)174,650 (pound)186,556 (pound)189,979
Design and Manufacturing 148,030 137,065 137,129
- --------------------------------------------- ----------------- -------------------- --------------------
Sub-total 322,680 323,621 327,108
Unallocated net liabilities (18,204) (15,566) (9,307)
Goodwill 310,785 316,448 313,856
Taxation (31,060) (29,496) (28,042)
Net debt (including current portion but net
of cash) (345,677) (374,175) (377,896)
- --------------------------------------------- ----------------- -------------------- --------------------
SHAREHOLDERS' FUNDS (POUND)238,524 (POUND)220,832 (POUND)225,719
- --------------------------------------------- ----------------- -------------------- --------------------
PART 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion represents management's analysis of the financial
condition and results of operations for the period from 1 January to 30
September 2003. This discussion should be read in conjunction with the
Consolidated Financial Statements and Notes thereto included in the Company's
2002 and 2001 Report and Group Accounts, along with the condensed consolidated
financial statements and related notes included in and referred to within this
report.
Certain information contained herein in "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and elsewhere in this Report,
which are not historical facts (including statements concerning the Company's
financial results and condition, and plans and strategy for its business or
economic performance and related financing, or assumptions related thereto) are
"forward-looking statements" within the meaning of the federal securities laws
made pursuant to the safe harbor provisions of the Private Securities
Litigation Reform Act 1995. Such forward-looking statements involve
uncertainties and risks, including, but not limited to, factors described in
this Report and in other documents published by the Company, including
documents filed with the U.S. Securities and Exchange Commission. In addition,
the Company and its representatives may from time to time make other oral or
written statements which are also "forward-looking statements". These
forward-looking statements are based upon management's expectations and beliefs
concerning future events affecting the Company. Management cautions that
forward-looking statements are not guarantees and that the Company's actual
financial results and condition, plans and strategy for its business, and
related financing may differ materially from such forward-looking statements.
While the Company periodically reassesses material trends and uncertainties
affecting the Company's results of operations and financial condition in
connection with the preparation of Management's Discussion and Analysis of
Financial Condition and Results of Operations, and certain other sections
contained in the Company's quarterly, annual or other reports filed with or
submitted to the U.S. Securities and Exchange Commission, the Company does not
intend to review or revise any particular forward-looking statement in light of
such future events.
A discussion of important factors that could cause the actual results of
operations or financial condition of the Company to differ from expectations
has been set forth in this Report and should be read in conjunction with this
discussion. In addition, other factors have been or may be discussed from time
to time in the Company's filings with or submissions to the U.S. Securities and
Exchange Commission. The Company's results for the period 1 January to 30
September 2003 are not necessarily indicative of results that will be achieved
during the year ending 31 December 2003.
1. RESULTS OF OPERATIONS - PERIOD ENDED 30 SEPTEMBER 2003
SALES
Net sales decreased (pound)3.7 million (3.3%) to (pound)107.2 million in the
third quarter of 2003 compared to (pound)110.9 million in the third quarter of
2002. Design and Manufacturing 2003 third quarter sales decreased 7.7%,
compared to the third quarter of 2002. Sales of new manufactured OEM parts and
brakes declined from sales levels in 2002 reflecting de-stocking, reduced build
levels and reduced spare requirements for most of our customers. Cancelled
programmes, such as the Concorde, also negatively impacted sales. Engine Repair
and Overhaul underlying (excluding currency movements) third quarter 2003 sales
grew 2.4% compared to the third quarter of 2002. This reflects growth in
military and regional segments where utilization rates have improved over 2002,
including the impact of new CF34 business. After taking into account the
movement in the USD-GBP exchange rate, Engine Repair and Overhaul sales fell
1.6% in the third quarter of 2003 compared to the third quarter of 2002.
GROSS MARGIN
Gross margin decreased (pound)2.0 million (6.8%) during the third quarter of
2003, compared to the third quarter of 2002. Design and Manufacturing third
quarter gross margin was down (pound)2.1 million (13.5%), primarily due to the
volume shortfall and costs associated with new program management and
development. Engine Repair & Overhaul third quarter gross margin is broadly in
line with the third quarter of the prior year.
SELLING, GENERAL, ADMINISTRATION & OTHER EXPENSES
Total selling, general, administration and other expenses increased (pound)1.2
million (9.4%) in the third quarter of 2003, compared to the third quarter of
2002. Design and Manufacturing selling, general, administration and other
expenses are broadly in line to prior year third quarter. Engine Repair &
Overhaul selling, general, administrative and other expenses in the third
quarter of 2003 increased (pound)1.1 million (15.6%) compared to the third
quarter of 2002. This rise reflects increased insurance premiums as well as
increased depreciation and amortisation related to the recent plant expansion
of the new CF34 program.
OPERATING PROFIT
Operating profit during the third quarter of 2003 was (pound)3.2 million
(19.8%) lower than the third quarter of 2002, primarily as a result of lower
sales and gross margin in Design & Manufacturing.
Design and Manufacturing Division operating profit for the third quarter of
2003 was (pound)2.3 million (25.3%) lower than the third quarter of 2002
reflecting reduced sales. Engine Repair and Overhaul operating profit for the
third quarter of 2003 was (pound)1.0M (13.1%) lower than the third quarter of
2002 primarily as a result of increased selling, general administration & other
expenses as described above as well as the impact from the movement in the USD
to GBP exchange rate.
FINANCE COSTS
Interest expense decreased by (pound)3.6 million (32.5%) during the third
quarter of 2003 compared to the third quarter of 2002. This decrease is
primarily the result of the expiration of the derivative contracts in November
2002. Current interest rates are considerably less than the rates previously
obtained via the derivative contracts.
Amortisation of finance costs during the third quarter of 2003 was
approximately the same as the third quarter of 2002.
TAXATION
Taxation charge for the third quarter of 2003 reflects an average tax rate of
38% of profit on ordinary activities before taxation (2002: 44%).
NET EARNINGS
Net earnings were (pound)3.4 million in the third quarter of 2003 compared to
(pound)2.9 million for the third quarter of 2002. The primary reason for the
increase is the reduction of finance costs as described above.
NEW PROGRAMMES
General Electric CF34 Authorisation: In September 2001, we entered into an
agreement with GE Engine Services Inc. to become an Authorised CF34(TM) Service
Provider. Revenue has been recognized on production engines processed through
the facility since September 2002.
Contractor Furnished Material (CFM) Conversion: Effective October 1, 2003, our
Propulsion Business Area (PBA) labour only contract has been amended to include
Contractor Furnished Material (CFM) which was formerly provided by the US
Government, for all the Defence Logistics Agency (DLA) managed line items. This
contract modification is estimated to increase annual sales by more than
(pound)60 million per year.
Brake Programs: In partnership with Honeywell Inc., we have been selected to
provide carbon brakes for the Airbus A380 program and the Joint Strike Fighter
program. Development of these new programs is progressing and we expect to
generate initial revenues in 2006 for the A380 and 2008 for the Joint Strike
Fighter program.
Affordable Readiness and Transformation (ART): In late 2002, the company began
marketing its unique business redesign methodology to maintenance, repair and
overhaul organizations. The company has been successful throughout 2003 in
securing (pound)3.5M in contracts for future revenues and will continue to
actively market its redesign services.
2. LIQUIDITY AND CAPITAL RESOURCES
The Company's principal liquidity requirements over the next several years are
expected to consist of funds required for the following:
o fund capital expenditures for the maintenance of our facilities;
o purchase testing equipment, repair equipment, replacement parts and
whole replacement engines in order to support expected growth in the
repair and overhaul market;
o expand our business;
o fund potential acquisitions consistent with our business strategy;
o fund debt service requirements;
o fund research and development;
o fund new program bids;
o fund working capital requirements;
o fund expenditures on free-of-charge brake ship-sets;
o fund costs of obtaining OEM authorizations; and
o fund taxation arising in various jurisdictions.
NET CURRENT ASSETS
Net current assets decreased (pound)1.7 million (2.0%) from (pound)85.3 million
at 31 December 2002 to (pound)83.6 million at 30 September 2003, primarily
resulting from decreases in stocks.
CAPITAL EXPENDITURE
Overall, Company capital expenditure on fixed assets and capitalised
development costs for the first nine months of 2003 totalled (pound)11.1
million. Capital expenditures are lower than in the first nine months of 2002
by (pound)21.1 million. The majority of payments for capital associated with
the new CF34 programme occurred in 2002. Expenditures of (pound)16.8 million
were made on this programme in 2002. Expenditures in the first nine months of
2003 are primarily for new equipment, as well as development costs related to
braking programmes.
CASH FLOW
Operating cash flow was (pound)59.6 million for the first nine months of 2003.
This is higher than the same period in 2002 by (pound)11.4M. Primarily as a
result of significant reductions in interest payments and capital expenditures,
net cash flow before financing was (pound)35.9 million higher for the first
nine months of 2003 compared to 2002.
HEDGING
The Company's operations are conducted by entities in many countries, and,
accordingly, the Company's results of operations are subject to currency
translation risk and currency transaction risk. In order to mitigate
translation risks, borrowings are drawn down in local functional currencies. In
addition, from time to time, short-term funding loans are made from one
operating subsidiary to another. The Company usually arrange forward currency
transactions at the inception of these loans to eliminate exchange risk arising
on the underlying loan.
In addition to currency translation risk, the Company incurs currency
transaction risk whenever one of its operating subsidiaries enters into either
a purchase or sales transaction using a currency other than its functional
currency. Currency transaction risk is reduced by matching sales revenues and
costs in the same currency, which is generally the practice in the aerospace
industry. Currency hedging is generally used to protect against the transaction
risk arising from forward purchase commitments of aircraft parts, the prices of
which are denominated in US dollars, and from its receipt of revenues in
foreign currencies.
Under the credit agreement, the Company entered into interest rate hedging
arrangements as detailed in notes to the Company's 2001 Report and Group
Accounts. These arrangements expired in November 2002. Given the significant
fall in LIBOR rates since the original swaps were initiated, the directors
intend to further consider their hedging strategy for 2003 and 2004.
BORROWINGS AND EQUITY
At 30 September 2003, the Company had (pound)360.8 million outstanding in total
borrowings, of which (pound)37.4 million is due within one year.
The Company made the scheduled repayment of (pound)11.2 million on 1 April 2003
under the credit agreements or other long term borrowings, notwithstanding
certain provisions of the credit agreements and the Senior Notes which require
prepayment of the debt in certain circumstances including out of the proceeds
of material disposals and out of excess cash flow as described in the credit
agreement. The Company has also made scheduled repayments of (pound)11.2
million and $1.7 million on 1 October 2003 in accordance with the credit
agreements.
The Company also has available to it a (pound)50 million Revolving Credit
Facility available to fund, among other things, seasonal working capital needs.
At 30 September 2003, (pound)13.0 million is outstanding under this Revolving
Credit Facility. In addition, approximately (pound)11.0 million is unavailable
as a result of offsets required by the credit agreement for any outstanding
bank overdraft lines established for our local operating units. A further
(pound)49.1 million facility is available to fund capital expenditures
associated with our new CF34 engine repair and overhaul program and certain
capital expenditures funded at 1 October 1998. At 30 September 2003,
(pound)37.0 million of this facility has been drawn.
Pursuant to the requirements of the Offering Memorandum dated 7th May 1999, and
the exchange offer dated September 1999, Dunlop Standard Aerospace Holdings plc
has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
DUNLOP STANDARD AEROSPACE HOLDINGS PLC
By: /s/ David Unruh
-----------------------
Name: David Unruh
Title: Chief Financial Officer
Date: November 13, 2003