“The Business is a global Tier II supplier of small to mediumsize, hand lay-up, propulsion and structural composite components and assemblies to original equipment manufacturers (“OEMs”) and Tier 1 suppliers in the aerospace industry. The Business also machines and processes metal aero structure components in its Southeast Asian machining and processing centre; Primus Composites’ metal processing operations are Nadcap accredited. The two legal entities that comprise the Business, Farnborough and Thailand, are each wholly owned indirect subsidiaries of PCC…”
“On August 9, 2011, PCC (NYSE: PCP) acquired Primus International. PCC is a worldwide, diversified manufacturer of complex metal components and products, serving the aerospace, power generation, and general industrial markets. Primus International is a leading supplier of complex components and assemblies to the global aerospace industry, including swaged rods, machined aluminium and titanium components, and advanced composites. While the majority of Primus International is an excellent fit with 47. PCC’s short and long-term business strategy, Primus Composites is not. The composites manufacturing process and materials do not align well with PCC’s core competencies. Additionally, applications utilising composite materials are not among PCC’s targeted aerospace markets. Therefore, PCC has made the strategic decision to divest the Business.”
“More than ninety five percent of the Business’s composite sales are derived from long-term customer agreements …”
“Farnborough has the capability to produce 400,000 hours of composite product annually… The Farnborough facilities are currently operating near capacity… Including 2012 investments, Rayong has 180,000 annual hours of composite manufacturing capacity. However the facility’s existing composite footprint, with additional equipment, is capable of producing 350,000 hours of composite product annually. The current machining capacity at Rayong is 100,000 annual hours. The machining footprint, with additional equipment, is capable of producing 150,000 hours annually. Metal processing capacity is 30,000 hours…”
“We recommend that operational due diligence covers the extent to which efficiencies are likely to be achieved and the timing of such effectiveness. The Group is at a critical point in turning from EBITDA loss to profit. In light of uncertainties surrounding the timing and quantum of the profit improvement, you may wish to protect yourself through either: - Deferring completion pending proof of Q4FY12 and Q1FY13 forecasts by actual results; or - Structuring the Transaction so that part of the consideration is contingent upon the FY13 forecast… … we recommend that Triumph include the following in the transaction terms: – Finalisation and signing of31 March 2012 financial statements prior to deal closure; – Access to31 December 2012 Management accounts to be provided. We understand that these should be available 2 working days post close. – Robust completion accounts process to measure completion net assets versus target Sep12A – Robust warranties and indemnities in relation to financial information provided…”
“Pending Completion the Buyers and any person authorised by it shall be given reasonable access to the books and records of each Target Company and the Sellers shall give all such information and explanations as the Buyers or any person acting on the Buyers’ behalf may reasonably request.”
“Immediately prior to Completion, the Sellers shall deliver to the Buyers written confirmation notifying the Buyers of any breach of the Warranties or of the indemnity set out in clause 28 (“Breach Notice”) which shall include the Sellers’ estimate (acting reasonably and in good faith) of the likely value of any such breach (“an Estimate”). In the event the Estimate is: 6.6.1 less than or equal to US$ 1,500,000 the parties shall proceed to Completion in accordance with clause 7; 6.6.2 less than or equal to US$ 6,353,014 but in excess of US$ 1,500,000 , the parties shall, subject to clause 6.7, proceed to Completion in accordance with clause 7; 6.6.3 in excess of US$ 6,353,014 , either party shall be entitled to elect by notice in writing to the other not to complete the sale and purchase of the shares in accordance with clause 7, in which case this agreement shall automatically terminate save that the rights and liabilities of the parties which have accrued prior to termination shall continue to subsist including those under this clause 6.6 …”
“The Sellers warrant to the Buyers in the terms of the Warranties as at the date of this agreement and the Completion Date.”
“Warranties qualified by the expression “so far as the Sellers are aware” (or any similar expression) are deemed to be given to the actual knowledge of the Sellers after they have made all reasonable enquiries of Doug Fletcher, Paul Jerram, John Merritt, Roger Day and Alex Beysen, who shall themselves have made due and careful enquiries in respect of the aspects of the business of the Target Companies for which they are respectively responsible.”
“any contract or arrangement pursuant to which either Company is entitled to receive or is obliged to pay an annual amount in excess of US$ 500,000 .”
“9.1 The Sellers shall not be liable for a Claim … (each a “Deductible Claim”) unless the amount of all Deductible Claims when taken together exceeds US$ 1,500,000 in which case the Buyers shall only be entitled to recover the amount by which the limit in this clause 9.1 is exceeded. The liability of the Sellers shall absolutely determine and cease if legal proceedings have not been issued and served within nine months of the written notice given in accordance with clause 9.7. 9.2 Save in respect of … the aggregate liability of the Sellers for all Claims… when taken together shall not exceed US$ 15,000,000 … 9.4 Notwithstanding any other provision of this agreement, the aggregate liability of the Sellers for all claims made under this agreement … shall not in any event exceed US$ 63,530,145 . 9.5 The Sellers are not liable for a Claim … to the extent that the matter the subject of the claim: 9.5.1 is Disclosed; or 9.5.2 is provided for in the Accounts … 9.7 The Sellers are not liable for a Claim … unless the Buyers have given the Sellers notice in writing of the claim, summarising the nature of the claim as far as it is known to the Buyers and the amount claimed… 9.7.2 … within the period of eighteen months beginning on the Completion Date… ”
“a claim for breach of any of the Warranties …”
“fairly and clearly disclosed in writing in or under the Disclosure Letter (with sufficient detail to identify the nature of the matter disclosed).”
“the audited financial statements of each Company as at and to the Accounts Date, including the balance sheet and profit and loss account for each Company together with the notes on them and the respective auditor’s and directors’ reports.”
“20.1 A notice given under this agreement: 20.1.1 shall be in writing … 20.1.2 shall be sent for the attention of the person, and to the address specified in this clause 20 (or such other address or person as each party may notify to the others in accordance with the provisions of this clause 20) … 20.2 Any notice to be given to the Sellers under this agreement is deemed to have been properly given if it is given to any two of the persons named in clause 20.3 … 20.3 The addresses for service of notice are: 20.3.1 SELLERS … 20.3.1.2 for the attention of: Roger A.Cooke, Senior vice President & General Counsel … 20.3.1.5 with copies to: (a) Greg Delaney, Vice President Special Projects, Precision Castparts Corp … (b) Paul Edelstyn, Precision Castparts Corp … (c) Alison Scott, Harrison Clark LLP …”
“This letter is the Disclosure Letter referred to in the Agreement and constitutes formal disclosure to the Buyers for the purposes of the Agreement of the facts and circumstances which are inconsistent with the warranties referred to in clause 8 and contained in Schedule 3 of the Agreement (“Warranties”). Such facts and circumstances, provided they are Disclosed, will be deemed to qualify the Warranties accordingly.”
“I further certify that, to the best of my knowledge, after due inquiry and investigation, those warranties and the related information in the Disclosure Letter are complete, accurate and true as of the date of this certificate.”
“Any notice to be given to the Sellers under this agreement is deemed to have been properly given if it is given to any two of the persons named in clause 20.3.”
“The purpose of the notice is to enable discussions to take place between the parties with a view to possible agreement or, more likely, to enable the inquisitorial process to be conducted by the expert. Either way, no more than a general description of the nature of the alleged breaches is needed to allow the process to begin.”
“i) Every notification clause turns on its own individual wording. ii) In particular due regard must be had to the fact that where such notification clauses operate as a condition precedent to liability (as in this case) it is for the party bringing a claim to demonstrate that it has complied with the notification requirement in that it gave proper particulars of its claims and did give those specific details as were available to it … iii) That wording must, however, be interpreted by reference to the commercial intent of the parties; that is to say, the commercial purpose that the clause was to serve. In a case such as this “the clear commercial purpose of the clause includes that the vendor should know at the earliest practical date in sufficiently formal written terms that a particularised claim for breach of warranty is to be made so that they may take such steps as are available to them to deal with it”; in other words “that the notice should be informative” … iv) Where the clause stipulates that particulars “of the grounds on which a claim is based” are to be provided: “Certainty is a crucial foundation for commercial activity. Certainty is only achieved when the vendor is left in no reasonable doubt not only that a claim may be brought but of the particulars of the ground upon which the claim is to be based. The clause contemplates that the notice will be couched in terms which are sufficiently clear and unambiguous as to leave no such doubt and to leave no room for argument about the particulars of the claim” ... v) In all cases it is important to consider the detailed claim being made in terms of both the breach complained of and the remedy being sought, to ensure that it was a claim which was properly notified.”
“I need you to lead us through this Nadcap Audit. I would like to bring the Quality Engineers up to speed for which we can use John [Riddell] for training. Chris [Stiff] will support in specific readiness projects but overall we need to ensure the wider business knows what to expect and is prepared. I see the following as necessary points: 1. Identify key stakeholder teams and prepare training pack to allow team leads to understand the Nadcap requirements and checklists for their areas. 2. Press shop - legalisation of current practices - happy to share the plan on this. 3. 10 minute quality counts - train the QEs on what to look for and have them do spot checks every date and identify NCRs to you and on the team board. 4. Formal Nadcap checklist audits. 5. Identify scope of audit and hence potential product where the process should be reviewed audited in detail …”
“We are time constrained and not well versed in either the requirements nor the location of our objective evidence. You have agreed that Paul will lead the audit process, supported by Chris. It is clear to me that we need some external resource to help us limit the exposure we have. Whilst it is unlikely we will be able to secure John Riddell’s experience nor his Nadcap knowledge, we will need to secure the services of some outside resource to support our preparation – for as we know we have a large gap between our skill sets and those required by Nadcap …”
“We are working on a series of day plans for the 4 days of the audit, and we are, of necessity going to have to limit the areas available for audit and the persons available - we will share the plans as we develop them.”
“Our pre-Nadcap audits have shown housekeeping to [be] a significant issue (in all areas of the business, not just manufacturing!) To address this we need to take immediate action to improve our working environment (for our customers and staff).… Good housekeeping and the 6S approach should be a normal part of our daily care of our employees’ work environment and our customers’ products – I think you all know we could do a lot better. We will be conducting audits on our housekeeping 6S performance starting tomorrow and I ask for your help making improvements in this area. Please don’t wait for the audit but make a start ASAP… The point is that we must improve the standard and then maintain it. I appreciate that it will be a lot of work to reach a good standard but once we are there, the maintenance will be much easier…”
“Misha did a great job, she has identified a further 21 nonconformances, some of which are of major significance – and we should talk thro’ them. Progress has been made on many issues but the big hitters are HR/training records, plans etc, documentation and calibration, press shop and cleanroom disciplines – much as expected.”
“Core shop … We currently have a project running with Eng that is updating all MOMs and the accompanying cutting trim templates as they are all incorrect. So far we have completed about 30% of these jobs… We picked up 5 NCRs on the internal audit, all 5 have been dealt with or assistance asked for today. Press Shop We have completely changed how we operate in the press shop. We have had a new KSP written up which is excellent but we are waiting for RR to sign off on it. During the Nadcap audit I will have 4 operators in the press shop, 3 of which are all trainees with a month training between them. They will not be present during the audit but will be deployed to other departments within #21 for the duration… I am also worried that the press shop has been designated an EMA area. I was under the impression, wrongly it seems that it had been downgraded. We comply with all areas of the EMA apart from forbidden substances. I’m struggling to see how we can separate aerosols, grease, oil and release agents from the work area… We have 20 outstanding NCRs in the press shop. I have returned 7 off to the audit team for review and the other NCRs are with Eng. I am reviewing the outstanding NCRs again today. Can all you please let me know your views, opinions and advice on the points and issue I have raised above please as the more help I get the more chance we have of being successful in this audit…”
“The Nadcap program is part of the PRI (Performance Review Institute) and represents the interests of the various prime customers that we supply. The maintenance of our accreditation is crucial to both our ability to supply parts and to our continued growth.”
“Training The process appears to be significantly fragmented and not complete. There is no standard approach, including recent additions to the team. If the auditor identifies a breach, he will drill down possibly revealing a systemic failure! TPM [preventative maintenance] A Nadcap fundamental, process now partially defined, but little to no history! Core shop MOMs and templates require updating modification, in the region of 70. This process needs to be carefully managed during the audit! Manufacturing practices Clean rooms and cutting implements, requirements defined in KSP C section 9.4, although requirements not fully implemented on the shop, work in progress.”
“As requested a simplified view of the tasks that must be achieved with evidence, so we can respond to audit c/a. Note, this list is not exhaustive and does not include actions that are not being tracked by NADCAP – there are other actions that we know need to be taken but are secondary to these. Please ask if in doubt. List for review at 07.30 am and 16.00 hrs each day to close.”
“Following our NADCAP audit, we have been alerted to uncontrolled documents in use. With our continued growth of employees and the defined need to have an engineering baseline upon which we can rely, it is essential that we have visibility of our processes. So, please review your area, check for informal definitions, these may be sketches, black books, ‘how-to’ guides, or even drawings or process layouts. Please isolate any you find, copy them and pass to engineering. This action is urgent and needs to be confirmed (even if you find nothing) to me or Paul Thomas by email.”
“Furthermore, to facilitate the corrective action process, the external NCRs are adopted within the internal audit system, thus ensuring prompt and adequate closure. Moreover, to prevent recurrence, and to ensure that the NCRs are sustainable and effective, the previous findings are revisited through the quality audit system.”
“A minor nonconformity relates to a single identified lapse, which in itself would not indicate a breakdown in the management system’s ability to effectively control the processors for which it was intended. It is necessary to investigate the underlying cause of any issue to determine corrective action. The proposed action will be reviewed for effective implementation at the next assessment.”
“Nadcap represents our prime customers interests on site. Instead of having separate audits for each customer we have just one. When: 25th – 28th November A good audit result is essential to sustain our approval, without which we will be unable to sell parts to our prime customers Audit data is transparent and visible to all our customers We MUST not fail!”
“Route cards/Method of Manufacture – Prior to commencement of layup or setting to work, the operator is to review MoM with supervisor, sign off on route cards to affirm both understanding and compliance. Any operator or supervisor who identifies a concern should NOT commence the job – instead, contact engineering or quality.”
“Each Company has, and has materially complied with, all licences, consents, permits and associated registrations and authorities (“Permits”) necessary to the carrying on of its business in the places and in the manner in which its business is now carried on.”
“registrations and licenses,” or in section 7.7 as: “permits” but rather in section 12 as: “process accreditations.”
“all licences, consents, permits…”
“necessary to the carrying on of its business … in the manner in which its business is now carried on.”
“Nadcap accreditations are of critical importance in our industry, and Nadcap is a commercial and operational necessity. Major OEMs (Boeing, Airbus, etc.) require Nadcap certification as a basis of awarding manufacturing products suppliers who provide special products or processes (i.e. aerospace structural composites). Achieving and maintaining that Certification assures our OEM customers that suppliers have the ability consistently to provide products that conform to industry standards and all drawing and technical specification requirements… Having the appropriate Nadcap accreditation is usually a contractual “entry-level” requirement for our customers and for the composites parts that we build at Farnborough. It is, in effect, an accreditation needed to enable Farnborough (or any relevant manufacturer) to carry on this business with customers such as Rolls-Royce and Airbus… Customers will not usually engage with a manufacturer and request quotes or product offerings unless the manufacturer carries a Nadcap accreditation. It would not matter whether, as a matter of fact, the manufacturer was able to produce a perfectly adequate product without the accreditation. In my experience of the aerospace industry, a customer will not consider any suppliers who do not hold the relevant Nadcap accreditation when it is tendering new work…”
“We are time constrained and not well versed in either the requirements nor the location of our objective evidence … we will need to secure the services of some outside resource to support our preparation – for as we know we have a large gap between our skill sets and those required by Nadcap …”
“In preparation for next week’s audit I would like to understand who you would propose as the shop floor person to speak with during the audit for the following jobs. Unless I have a name I will list the team leads but by all means you are also welcome to witness the audit. The intent is to pre-audit these jobs again ahead of next week’s audit with the people identified by you…”
“We’ve got our Nadcap composite audit coming up next week (20th – 23rd). David’s identified a number of parts that he believes have the strongest routing. I’ve highlighted the jobs that will likely pass through the Clean Room. Would you be able to identify which operators will be working on each of these parts? We’ll be doing another pre-audit this week and will use it to give additional Nadcap training to the operators that will be exposed to it.”
“I will do my best to steer the audit away from this panel, however as Pieter points out, we really need to fix the problem not hide it away.”
“The November 2012 NADCAP Audit raised concern and nonconformance that our cleanroom facility used for the manufacture of Rolls-Royce parts did not meet the recommended standards and will require significant improvement in order that manufacturing comply with the 2013 audit… We are also preparing for the increasing tool movement to cleanroom 2 as we move RR tools out of cleanroom 1 to accommodate the space requirements of the recent Waldens business uplift. Justification: In the event that we fail NADCAP the impact would be to stop RR production – value of£50k per day plus loss claims from RR which could be£100k per day if we stop engine built lines… The estimate is that the upgrade programme would take approx 6 weeks …”
“For processing, the documented procedure shall be in compliance with customer requirements or in the absence of customer requirements, Table 1 … Exception to processes that may be performed in or out of the CCA may be granted by individual customers as long as they do not violate other customer requirements ...”
“The Nadcap audit scheduled for November will now encompass the Press Shop. There is a concern that the current location of the welding apparatus with regard to the EMA, and a possibility of a major nonconformance being issued. Therefore it has been proposed that any welding activity in Building 21 shall be suspended during the dates identified above. However this proposal does not prevent welding activity from being carried out in an alternative location…” 215.Daryl Munt responded: “We can suspend welding in this area but this will have a definite impact on our output and should be agreed with Mark Meyrick. You mentioned that we can now weld elsewhere but as this area is our base with all required equipment in place, moving will not be easy. Plus, if this request is to eliminate a major nonconformance for the press shop then I have to assume this concern would be the same whatever we are manufacturing parts!”
“Quite apart from the obvious health and safety issues, the proximity of the welding and specifically the weld spatter to the manufacture of composite test pieces is unacceptable. The risk of airborne contamination is too high. The cutter rig appears to be below the extraction equipment. The welding ‘booth’ (I use the term loosely) is adjacent the HV switch gear (on the wall) and the proximity to the press shop is just too great. Apart from that – the area looks great!! I am sure we can find another area where the welding can be done, without potential impact upon [our] processes or products.”
“I have now collated the red/green job list for next week… So for the relevant area, if the box is red we need to avoid production during the audit. If green, then production is normal... We anticipate the auditor to be in cleanroom 1 on Tuesday or Wednesday morning… We will confirm the planned audit route on Monday morning once the auditor is here, and we can then confirm when we plan to start in each area. We will also notify the area once we have finished so they can resume any jobs on hold…”
“I’m growing extremely concerned with the way in which we seem to as a business be preparing for the NADCAP audit next week. We are being asked as engineers to highlight parts that we are concerned may not be good enough for the auditor so that we do not produce during the audit, which to me equates to deliberately hiding non-compliance from the auditor in order to mislead. Whilst I have reluctantly forwarded (to engineers) some of the emails asking us to highlight any such parts instructing them to inform Quality (Richard Tye / Annika) of any such parts, I feel extremely uncomfortable now. This being especially so that although we have some emails instructing us to do so (with managers copied in), we have not had any non-verbal communication directly from management to give this instruction. This makes me more concerned and upset that we seem to be allowing young engineers to appear to be making these decisions, whilst this is obviously not the case. It is now common knowledge in the business that this is our tactic for the audit and was even discussed at the planning meeting as well as openly at the TOC meetings. Since the email yesterday to all engineers I have either been approached or overheard several engineers very uneasy about this, some of them in absolute disbelief that this is happening, however more concerning some other fresh graduates who do not know any better and assume that this is the norm which it is not… I urge you to please take action to address these concerns, and whilst I will not retract any of the instructions I have passed on (as to avoid confusion/chaos amongst the engineers) – I do not wish to be a party to what is currently going on. I realise that there is little time between now and the audit next week, but I’m sure that you share my view in that this is an urgent matter that needs addressing sooner rather than later…”
“Please find attached next week’s Nadcap audit agenda. As you will see the NADCAP agenda only gives a schedule for the process description and not the part to be audited. The parts to be audited will be defined by the auditor based on the composite processes covered by the scope of our composite approval and the jobs we are planning to manufacture for next week and therefore we will be not able to communicate this until next Monday once agreed with the auditor... The attached list of parts planned for next week identifies a red or green status based knowledge for job audits and closed actions. This list is for awareness only and the production plan must still continue to meet customer demand.”
“When undertaking the audit, the auditor would review the previous audit findings and review any corrective actions listed by the facility. If the corrective action has not been sustaining or has not been followed then the auditor could issue an NCR in the current audit. Also if any minor items from a previous audit are repeated then they automatically become major findings. When the facility is preparing for an audit it is therefore essential to review the previous audit’s findings and ensure that all of the NCRs have been addressed.”
“TGI’s strategy was to acquire operationally successful aerospace businesses whose continued growth would benefit from Triumph’s ability to provide investment capital. With minimal corporate overhead and support functions, TGI would seek to acquire operationally successful businesses and retain the acquired company’s existing senior management team. In doing so, the existing leadership team of the acquired business would continue leading the existing operations, managing local customer relations and coordinating business development efforts. This strategy is a crucial part of TGI’s approach to acquisitions.”
“No notice has been received by either Company to suggest that any of the Permits referred to in paragraph 6.1 of this Schedule 3 should be suspended, cancelled, revoked or not renewed on the same terms and so far as the Sellers are aware there are no pending or threatened proceedings which might affect the Permits.”
“Attention to quality – poor quality is costing us money and is also causing us to be late on our deliveries to our customers. Fix our recurring quality problems – we often reject the same parts over and over. Some of these parts our customers give us approval to ship anyway but it takes a lot of effort on our part as well as our customer to deal with each rejection. We must get to the root cause and fix it so we stop the rejections from happening.”
"The situation with the [A350] sewing angles is not acceptable at all…Primus is now jeopardising the production plan for the first aircraft…"
“Overall I have to admit that I am currently very unhappy with the performance of Primus. We have had severe painting issues on both SA and LR parts during the last couple of weeks, even impacting the FAL. This is not what I expect from a reliable supplier. I would appreciate your support to secure that those painting issues and non-recognition during quality check processes do not happen again in the future. The recognition of Primus has really decreased in the Airbus system in the past weeks.”
“During our weekly telecom with Airbus yesterday, Airbus expressed real disappointment about the deterioration in delivery performance over the past 4-6 weeks. We have not been delivering product in line with their POs and arrears have been slowly increasing. In addition to this … we have not been delivering good quantities of critical parts which is causing disruption to the assembly line. There is also a real struggle to give clear visibility on delivery plans and accurate forecasting. As a result of all this Airbus is giving us the next three weeks to improve (month of April) or this situation will be escalated within their organisation and we will be expected to attend a weekly report meeting in Stade.”
“I need to emphasise the criticality of the today situation. The assembly line has been stopped on Wednesday evening due to the missing sewing angles. We need to communicate some messages to the relevant level of management as soon as possible in order to agree on a recovery plan.”
“The delivery situation is absolutely not satisfying and very close to [an] assembly stop in Stade. With the latest forecast received, where the delivery of 18 parts per week was postponed by 4 weeks and now not even 10 AC per week are met anymore, we are running in a very critical delivery situation, which is not acceptable from my side! Our internal stock in Stade is currently down to few parts and with only 2 deliveries planned for this week and further 13 next week we will not be able to fulfil the current needs of 11 AC per week in the assembly line! Please put actions in place to improve the deliveries to minimum 10 per week …”
“LR and A100 rudder nose parts • incomplete deliveries on LR improved rudder nose parts • tough delivery situation due to machining capacity at Primus A320 and A321 flaps • no current issues with deliveries on A320 flaps • no current issues on the A321 flaps Transfer projects • Delivery performance … performance improved, no more arrears!!!”
“• Deliveries: Saint-Nazaire plant assembly process was impacted twice by deliveries occurred a few days too late. Therefore we expect an immediate recovery of deliveries according the nominal planning. In addition and in order to protect from any new issue impact, we request PRIMUS to make up a buffer of one ship set of parts ready to be delivered at any time. This buffer shall be ready beginning of May. -Quality: Defects were detected on the Sewing Angles once delivered to Saint-Nazaire plant and some parts returned to PRIMUS. We expect the parts to be fully checked in your facilities and quality level as per Aeronautics standards to be insured. Further to our discussions and in order to be accurate in the expectation, some acceptance criteria were communicated to you and shall be fully met. Concerning the processes qualification, progress is not at expected level. 15% only are qualified, 55 % are under ATP. The subject needs to be considered with more priority…”
“I mentioned to Mike Voegtlin today that our position with Airbus continues to improve. He countered that Joe and he were in Hamburg 2 weeks ago and heard complaints about our delivery performance… We may be dealing with old or misinformation but it’s clear to me that our reputation inside Airbus has a lot of room for improvement. I want you both to figure out how I can get a weekly update on customer performance and arrears by major program. Additionally, I want a quality metric by customer. I want these metrics as part of the weekly staff package…”
“I agree we have work to do … I’ll try to find out who the source is, as it may be A350 as John & Oliver [Tiniard] received positive feedback on the other legacy product on their visit.”
“An evaluation of your Rolls-Royce supplier scorecard dated5th March 2011 indicates a 'Substandard' Delivery Performance Score of 78%. This would normally trigger entry at Stage 1 of the Delivery Red Flag process. However on the basis of the current delivery plans being worked it has been decided that Primus will enter the process at Pre-Entry stage … It is imperative that Rolls-Royce and its supply chain work together to protect our end customers from late parts deliveries. I am sure you are supportive of this position. One strategy that can help with this is the generation of buffer stock on specific parts that are at risk of delivery failure… The process allows you 4 months to build this buffer, and to improve your delivery performance to >85% with the clear intention of improving this to >95% (class leading) within 6 - 8 AP's. However, in the event that your delivery performance does not improve during this time, Primus will enter the Red Flag process at Stage 1… We may then seek to hold this buffer stock on site at Rolls-Royce at Primus expense. Should the buffer stock be unavailable at that time, escalation to a higher Red Flag stage and a longer time to exit the process becomes more likely, which neither of us would want…”
“Given the current status of the Primus scorecard and red flag position, Rolls-Royce are seriously considering the [implementation] of a Rolls-Royce inspector to be resident at Primus (at the cost of Primus). To negate this RR have suggested that Primus put together a plan to put in place to establish an equivalent governance to a RR inspector…”
“1. Poor Quality and Delivery Score 6 months running 2. Need to improve the [company’s] credibility and perception by the customer. 3. Aim to improve quality score over the next 6 months. 4. How do we achieve this – No quality escapes, reduce concessions. 5. How do we do it – introduce / have CEOs Customer Eyes Only and develop the team so that CEO is not required.”
“Primus Composites are in top 20 Suppliers for poor delivery and it is getting worse … Primus delivery performance is reviewed at most senior levels in RR and its Customers. We are having to report repeated slippages in commitments and actions being taken… Do Primus & PCC understand the significance of the hurt being caused? We need a credible recovery plan across all parts that is delivered every week. Losses through scrap and rework are a significant cost and waste and also an opportunity. Actions taken to date by primus have not resulted in an improved position. We need a joint plan that recovers all aspects of business performance but delivery of commitments must come first.”
“Delivery performance poor and not improving: … … 1. Many areas of waste including poor housekeeping (leading to handling damage), high levels of rework and scrap and poor communication issues. These are viewed by RR as a significant contribution to both delivery and financial performance of Primus. 2. We also see capacity and resource shortages/allocation decisions that lead to critical parts not being worked continuously and subsequent delivery failures. 3. Lack of engagement to ensure delivery commitments are achieved. 4. Recovery plans missed due to issues with parts flow, tooling, resource allocation, sub-tier management and yield at inspection. 5. Delivery commitments made which are subsequently found to be based on poor information.” “What would help: 1. Remove delivery stop threats issued to RR if we do not agree to 100% price increase on compression moulded parts… We agreed previously to fix delivery before we reviewed commercial issues … 2. PCC to deploy resources and toolkit to address flow, planning, resource allocation and quality improvement. 3. Accelerate work started on agreeing/clarifying visul standard acceptance levels to get better flow and yield. 4. Accelerate Thailand ramp rate.”
“• Aircelle are starting to ask questions about the lack of responses on quality issues. • OTD is being impacted • Concessions are not getting raised/processed. • Supplier quality issues are not getting resolved • Engineering issues are not being resolved. • Engineering are struggling to react to day to day issues.”
“Your annual OTD [on time delivery] is less than 50.5. For the last 3 months, your OTD is decreasing to 37%. The logistic performance remains totally unacceptable.”
“Beginning 2012, Aircelle have invested and paid to Primus the amount of 76 646 $ in order to support the production capacity at the level of rate 14 starting end May 2012. In 2012, despite of weekly recovery plan and extra invested capacity, Primus deliveries were far away from the expected level to support our assembly lines. Instead of recovery and improving delivery performance, the OTD was continually declining since July 2012, and end up at only 44% in December 2012 with a very poor year level at 47%. Aircelle have been impacted for this bad delivery performance in constantly re organising its production line to limit the assembly disruption. By this letter, Aircelle request Primus the reimbursement of 76646 $ (PO 4500075404) investment made for the Rate 14. Aircelle also reserve the right to claim the late delivery penalties in relation with the bad delivery performance of the period of September to December 2012 (calculation is on hold).”
“We have successfully delivered our second quarter sales and EBIT (Earnings Before Interest and Tax) as part of our ongoing recovery plan, but we still have a journey in front of us to ensure we meet expectations… We currently have significant arrears with our key customers due to rate increases, new qualifications and material difficulties.”
"any contract or arrangement pursuant to which either Company is entitled to receive or is obliged to pay an annual amount in excess of US$500,000 ."
“Warranties qualified by the expression “so far as the Sellers are aware” (or any similar expression) are deemed to be given to the actual knowledge of the Sellers after they have made all reasonable enquiries of Doug Fletcher, Paul Jerram, John Merritt, Roger Day and Alex Beysen, who shall themselves have made due and careful enquiries in respect of the aspects of the business of the Target Companies for which they are respectively responsible.”
“I do not say that facts made known by disclosure of the means of knowledge in the course of negotiation could never constitute disclosure for such a clause as this but I have no doubt that a clause in this form is primarily designed and intended to require a party who wishes by disclosure to avoid a breach of warranty to give specific notice for the purpose of the agreement, and a protection by disclosure will not normally be achieved by merely making known the means of knowledge which may or do enable the other party to work out certain facts and conclusions.”
“… fair disclosure requires some positive statement of the true position and not just a fortuitous omission from which the buyer may be expected to infer matters of significance.”
"The disclosure letter is distinguished, even in comparison with the agreement, by the obscurity of its language. It incorporates by reference a list of documents, including the last accounts and the management accounts and purports to disclose their content and terms… This repetitive and omnibus approach of an invitation to the purchasers and their representatives to make what they will of the documents with reference to which warranties have been given by the vendors cannot by any stretch of the imagination be considered fair disclosure, with sufficient detail to identify the nature and scope of any matter purportedly disclosed… Mere reference to a source of information, which is in itself a complex document, within which the diligent enquirer might find relevant information will not satisfy the requirements of a clause providing for fair disclosure with sufficient details to identify the nature and scope of the matter disclosed."
“the contents of the Disclosure Letter and of all accompanying documents … fully, clearly and accurately disclosed every matter to which they related”
“It would have been open to the Purchaser to refuse to accept disclosure made in general terms by reference to what had been supplied to its reporting accountants; and to insist that it would only accept disclosure which was specific to each individual warranty. But the Purchaser did not choose to take that course. It was content to rely on its reporting accountants to identify from the documents supplied to them – and to report on – the matters about which it needed to be informed. That is the effect of the terms in which disclosure was made under the disclosure letter; and, for whatever reason, those were the terms upon which the purchaser was content to accept disclosure. In those circumstances, as it seems to me, the disclosure requirement was satisfied in relation to such matters as might fairly be expected to come to the knowledge of the reporting accountants from an examination (in the ordinary course of carrying out the due diligence exercise for which they were engaged) of the documents and written information supplied to them (including board meeting packs and the contents of the Disclosure Bundle).”
“The natural meaning of the words the parties have chosen to use is that only matters that can be directly ascertained from an inspection of the relevant documents are to be treated as having been disclosed.”
“any of the disclosures ... are made against the Warranties as a whole. A disclosure or qualification made by reference to any particular paragraph shall be deemed to be made also in respect of any other paragraph to which the disclosure or qualification may be applicable.”
“The UK Company received a letter from Rolls-Royce plc (“RR”) dated7 April 2011 stating that the UK Company’s delivery performance score had fallen below acceptable levels and requested that the UK Company establish a buffer of 3 weeks stock on certain products. Please refer to document 5.2.1 of the Data Room. No further correspondence has been received from RR regarding this.”
“The UK Company received a letter from RR dated18 September 2012 alleging various instances of late delivery and stating that RR would be claiming compensation from the UK Company. The UK Company responded on25 September 2012 requesting further information from RR so that the allegations of late delivery could be investigated. A further letter dated15 February 2013 has been received from RR. Please refer to documents 6.6.1 and 15.21.1 of the Data Room for copies of the latest correspondence.”
“On23 January 2013 , the UK Company received a letter from Airbus relating to management of the A350 Sewing Angle work package and certain improvements that Airbus believes are required. Please refer to document 15.26.1 of the Data Room for a copy of the letter from Airbus. The UK Company is, as part of its ongoing ordinary course project management review process, liaising with Airbus in respect of the matters raised in its letter.”
“Aircelle has written to the UK company claiming reimbursement of the sum of 476,646 which Aircelle paid to the UK Company to support production capacity at an increased rate. The UK Company does not believe that this sum is repayable to Aircelle and is currently liaising with Aircelle to resolve the matter as part of its ongoing ordinary course project management review process. Please refer to document 15.26.2 of the Data room for a copy of the letter dated6 February 2013 from Aircelle.”
“Zero if enough tooling to give a set to Thailand. Three months otherwise.”
“Each programme will be transferred in line with an agreed plan to ensure continuity of supply to customers during learning and ramp-up in BCD. Each programme has different quantities of tooling associated with the rate of production. For low rates with single tools, a healthy buffer will be built prior to transfer. For higher rate programmes or where tooling capacity does not permit buffer build, additional tooling [will] be bought and proven by FCD. Tooling will then be released to the transfer schedule.”
“I have spoken to Doug and we agreed to change 2012 in LRP Base, LRP Stretch, and Historical File and leave 2013-2017 forecast the same as before. In order for me to do so, I had to do some creative tweaks in the LRP, but it is flowing and we can explain the reasoning if necessary. Attached are the updated LRP Base and Stretch and Historical file for your review and use ...”
“REVENUE All customer revenue for the composite business flows through Farnborough Farnborough Revenue (Customer Revenue) Revenue is made up of six elements: 1. Rate Driven - existing or previously won work that is produced for rate programs. This is calculated at the work package level then summarized by platform. 2. Non‐Rate - spares, primarily Rolls Royce 3. NRC - known non‐recurring associated with previously won new business 4. Price‐up - includes current price increase requests due to scope changes or contract extension. Amounts are probability adjusted from the current “ask”. 5. New Business - unidentified future new business 6. Slower Build Rate Ramp Up - a reduction from the rate based revenue to adjust for new work coming in that is not yet ramped to the platform rates. Rate driven revenue assumptions: … •Customer price is based on current contract prices, including any future contractual step downs. If the step down is tied to when the product is transferred to Thailand or number of units produced, the timeframe for the step down has been estimated based on production rate volumes and the existing Thailand transfer plan … Price increases assumed for Aircelle, Airbus and GKN which have been agreed to as of Sept 30, 2012. Additional assumed price increases on Rolls Royce in negotiation. … Thailand Composite Revenue (intercompany revenue) Thailand revenue is based on assumptions of the transfer of exiting Farnborough work packages to Thailand and new business. Transfer percentages are entered by period for each program being transferred to Thailand based on current transfer plans and assumption of future transfer schedules. … WORKING CAPITAL … Buffer stock is required when moving in-production work from Farnborough to Thailand…”
“Please see my latest numbers. They are not good enough to beat the LRP for next Qtr. If we take the sum of the next 4Q, then we are slightly higher than LRP. Quite a few things need to happen still in order to make it…”
“Let’s discuss. We need to hit the LRP …”
“Have tinkered with the model and increased the hours to 29,244 by: 1. Increasing A320 outers to 20 sets per month (still reduces inventory by 12 sets per month equiv. to 1.5 weeks) 2. Increasing A320 inners to 30 sets per month (still reduces inventory but only by 1 week in the quarter although inners are lower stocked) 3. Increased J12782 to 20 sets in March by transferring 3rd tool in Feb when we have some buffer in FCD. 4. Increased the A100 TEP to 8 sets in March....here is our biggest opportunity I think- we have material in FCD ready to ship, the WIP is healthy and Thai people are trained so we could push the ramp up faster on this - 127 hrs per SS. I haven't tweaked the next 2 RR potential transfers, the 2nd one (carbon seals) is low hours so it might be prudent to invest the time in Spirit BR725 instead which are more hours rich. I wonder if Thailand could increase their output on this earlier from 2 to maybe 4 shipsets? (371 hrs per SS) The 2 suggestions above could yield another 1-2k hrs getting them closer to the 32k mark. Hope this helps?”
“Alex & I spoke and he has sent though updated hrs and milestones. I believe there is still opportunity here to get to 30200hrs but would be better that you talk it. I need to set up a RR ramp up team on this.”
“Ok definitely. I am just sending a small change to the hours plan for q2 as Alex sheet misses the lrp. We were also talking br725 with rolls to transfer , which has the cleanest engineering- I will add this. I will modify the words on the PowerPoint.”
“Updated word on the hours transfer I did not have chance to finalise this with Alex but the Q2 LRP number was low. David A was confident of BR725 move by q2 start but I have only added low hours in June. The hours table I will send in the next 30 minutes when brandon has updated…”
“Just reviewed the numbers with Matt Fox, 3.1 hrs per BR725 sub assembly so I ’ve plugged in 200 per quarter (we sell 350 per quarter so number is reasonable) and it gives us the 600+ hrs per quarter. Hope this is OK.”
“Attached is the final version of what I presented to Triumph today. Overall the call went as well as can be expected. They are impressed by our commercial successes – mainly price ups – and see that we have the potential to add further to that success in the next few months. I committed to getting them a Revenue and EBIT bridge by the end of next week – CY12Q4 actuals to LRP. There are a few key things that come out of the last few days of discussions: Financials (Roger will lead this effort) – we need to understand what happened in Q4 and what impact does this have on our LRP commitments for the next four quarters. We need as many of these answers by the end of next week but we need to dig into this further when we are together in Thailand. - Variable cost – higher overtime, shipping costs, maintenance expenses, scrap, inventory write-offs, etc. – How do we control these better and what is the going forward impact of what happen last quarter? - Slower ramp in Thai composite production – what is the financial impact in CY12Q4 and CY13Q1? - How do the price increases we have secured roll in to our ongoing performance? – it is not clear what happened in Q4 and what can we expect in Q1! - Fixed cost base – How does this compare to the LRP and what is our pipeline to improve? I believe analysis will show that we are substantially above what we have forecasted in the LRP. - What is our pipeline of NRCs and how will this roll into sales and EBIT? … Thailand transfer (Alex/Paul/David) – We now have a new forecast that pushes out the ramp again – but if we can believe it we will catch up and exceed our LRP CY13 forecast. Do we need to organize differently to ensure that we meet and exceed this plan. I want to start the discussion next week but get into this in detail when we are together in Thailand. If we can make meaningful headway on the above five categories in the next 30 days we will be set up well for FY2014…”
“So far as the Sellers are aware, the forward looking projections relating to the Companies have been honestly and carefully prepared.”
“The Experts agree that “carefully prepared” is not a recognised accounting term and that there is no accounting standard or guidance that provides definitive information as to what would constitute a “carefully prepared” forecast. In the absence of any accounting definition, the Experts agree that the assessment of whether a forecast was “not carefully prepared” is a matter of judgement based on professional experience. The Experts agree that a forecaster would consider the following steps to produce a “carefully prepared” forecast: • Consider the latest available financial and operational information up to the date of finalisation of the forecast. • Consult with relevant members of management with appropriate operational and specialist knowledge. • Reflect the forecasting practice in that particular business and industry. • Document the basis of assumptions. • All assumptions should be subject to a process of review and challenge carried out by somebody independent of the preparer of the forecast.” • Consider the latest available financial and operational information up to the date of finalisation of the forecast. • Consult with relevant members of management with appropriate operational and specialist knowledge. • Reflect the forecasting practice in that particular business and industry. • Document the basis of assumptions. • All assumptions should be subject to a process of review and challenge carried out by somebody independent of the preparer of the forecast.”
“… the LRP did not model the creation of the remaining (or any) buffer stock required to complete the transfers. On the contrary, the LRP assumes that sales in a quarter are matched by production in that quarter (i.e. over the life of the LRP units produced = units sold). The LRP does not reflect the build-up of any additional finished parts, products or ship sets…”
“The additional, and more costly, shift patterns (including night shifts, and overtime) were introduced to support recovery of the significant spike in customer arrears following the Nadcap failure. Further, it was necessary to significantly increase the recruitment of temporary direct variable labour to support this recovery.”
“The Farnborough operation is a long standing facility and is profitable. Their strategy is to transfer all their high volume work to their new facility in Thailand to take advantage of lower cost labor. The Thailand operation is operational and will break even in 2012…”
“The financial information provided included the IM, the forecast model and management accounts … Reconciling differences exist between the various sources of financial information, particularly for FY12F results. Management has explained that these reconciling differences have arisen as a result of the sources of information being updated at different points in time. Further the basis of preparation of historical and forecast information are different. As a result historical information can only be mapped to forecast information at revenue, total COGS, total SG&A and EBITDA levels. Farnborough has experienced high levels of staff turnover within the finance team. Doug Fletcher and Roger Day (Finance Director) only joined the management team in 2012. Due to this, Management has limited knowledge of historical financial information and has been unable to provide detailed responses to questions in respect of historical periods. The staff turnover issue has been exacerbated by the recent changes in ownership of the Group such that Deloitte considered the control environment weak. Budgets are prepared for the purposes of reporting to the parent. Management does not consider these to be accurate for monitoring detailed performance of the business, consequently focus has been placed on operational rather than financial budgeting and budgets for FY10, FY11 and YTD12 have not been made available. Therefore we cannot comment on Management’s achievement of past budgets. Deloitte, the auditor identified the Farnborough stock system as weak due to the manual nature of the system resulting in human error, alongside system costing errors. Management believes that implementation of the Syteline ERP system has improved the stock process however it has not yet completed an exercise to determine the appropriate standard hour rate to be applied in the system resulting in a need for additional cost absorption to be provided. As of the writing of this report, the audit of FCD’s March 2012 financial statements is not complete. We understand from Deloitte that the remaining open item relates to the loss contract provision. ... Rolls Royce, Aircelle and Airbus have been and are forecast to remain the Group’s most significant customers contributing 86% (respectively 32.5%, 29.4% and 23.9%) of FY11A revenue of$39.9m . Revenue is forecast to increase by$16.3m , from$55.5m for FY12F to$71.8m for FY14F. Forecast revenues are primarily driven by assumed increases in volumes on existing contracts of$6.9m , and combined new business from Farnborough and Thailand of$9.0m . … Despite historical margins being adversely impacted by the effects of the PCC acquisition (through cost allocations and operating changes) and set-up costs of the Thailand facility, more recently a substantial improvement has been seen. Management has started to shift component production to Thailand in order to benefit from favourable cost rates, expand capacity and allow Farnborough to become a technical development centre. This strategy underpins forecast increases in Group gross margin from 8.1% in FY12F to 21.8% in FY14F The forecast cost base is driven by: build volumes; estimated production hours/ shipset; assumed unchanged material cost/ shipset, consistent with management’s assertion that it can contractually recover material price increases from customers; and labour and overhead absorption rates. Absorption rates are assumed to decrease in most instances in Q412F and Q113F and into the forecast period. Whilst we would expect margin improvement from the transfer to Thailand, it is not possible to confirm the timing or quantity of this by reference to actual results due to the basis of preparation of the forecast and therefore we identify forecast gross margins as an un-quantified sensitivity. We recommend that operational due diligence covers the extent to which efficiencies are likely to be achieved and the timing of such effectiveness. The Group is at a critical point in turning from EBITDA loss to profit. In light of uncertainties surrounding the timing and quantum of the profit improvement, you may wish to protect yourself through either: - Deferring completion pending proof of Q4FY12 and Q1FY13 forecasts by actual results; or - Structuring the Transaction so that part of the consideration is contingent upon the FY13 forecast… … Historically the business has generated negative free cash flows due to (i) significant capital investment in Thailand (ii) lack of senior management oversight over working capital (iii) EBITDA losses incurred due to the investment in Thailand site ahead of the ramp up in revenue. Forecast FCF is negative$5.9m in FY12F resulting in a cash balance of negative$2.2m at Dec12A. Management’s forecast NWC reduces to$14m at Dec13F, based upon assumptions which are stretching compared to historic experience and which management acknowledges are challenging. Our sensitised estimate results in a working capital cash outflow in FY13F and FY14F rather than an assumed cash inflow from working capital movements. We recommend you analyse forecast cash flows, taking account of updated FY12 results once available and considering capex requirements, trading sensitivities identified above and further potential working capital sensitivities to assess the likely forecast funding requirement. Whilst the timing of this capex appears in line with the capacity requirements of new business, we recommend that operational due diligence is performed to assess whether capex spend and timing is sufficient to support projected growth… … Based on the above points we recommend that Triumph include the following in the transaction terms: – Finalisation and signing of31 March 2012 financial statements prior to deal closure; – Access to31 December 2012 Management accounts to be provided. We understand that these should be available 2 working days post close. – Robust completion accounts process to measure completion net assets versus target Sep12A – Robust warranties and indemnities in relation to financial information provided. … Adjusted EBITDA margin per the IM / YTD management accounts is negative 43.9%, negative 25.1% and negative 11.0% in FY10A, FY11A and 9mSep12A respectively. Our further proposed adjustments only change the FY11A EBITDA and EBITDA margin to negative$9.3m and negative 23.4% respectively…”
“So if it had taken slightly longer to get to the$20 million profitability range, you know, I think we would still have done the deal.”
“In the case of a warranty as to the quality of the goods, the purchaser is prima facie entitled to the difference between what the goods as warranted would have been worth and what they were actually worth … On the other hand, if one construes paragraph 32 as a warranty that reasonable care has been taken in the preparation of the forecast, there is no analogy with a warranty of quality. The forecast, though prepared with reasonable care, may on account of unknown or unforeseeable factors turn out to be substantially inaccurate. It therefore does not warrant that the company has any particular quality. The prima facie rule for breach of a warranty of quality of goods cannot be applied. One must therefore return to the general principle of which that rule is only one example, namely that damages for breach of contract are intended to put the plaintiff in the position in which he would have been if the defendant had complied with the terms of the contract. In this case the vendor represented to the purchaser that$2.223m was a figure upon which he could rely in calculating the price. The figure was in fact used in the calculation of the price. If the vendor had made a forecast in accordance with the terms of the warranty, he would have produced a lower figure and the price would have been correspondingly lower. The damages are therefore the difference between the price agreed on the assumption of NZ$2.223m earnings and what the price would have been, using the same method of calculation, if the forecast had been properly made. … the crucial question in this case is the ascertainment of what a properly prepared forecast would have been.”