United States

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

 

[ X ]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2014

 

[    ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

 

Commission File No. 0-18348

 

B/E AEROSPACE, INC.

(Exact name of registrant as specified in its charter)

 

 

1400 Corporate Center Way 

Wellington, Florida 33414

(Address of principal executive offices)

(561) 791-5000

(Registrant's telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

 

Securities registered pursuant to Section 12(g) of the Act: None

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes [X] No [ ]

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

Yes [ ] No [X]

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. 

Yes [X] No [ ]

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X] No [ ]

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer [X] Accelerated filer [ ] Non-accelerated filer (do not check if a smaller reporting company) [ ]

Smaller reporting company [ ]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes [ ] No [X]

 

The aggregate market value of the registrant's voting stock held by non-affiliates was approximately $7,102 million on June 30, 2014 based on the closing sales price of the registrant's common stock as reported on the NASDAQ Global Select Market as of such date, which is the last business day of the registrant's most recently completed second fiscal quarter. Shares of common stock held by executive officers and directors have been excluded since such persons may be deemed affiliates. This determination of affiliate status is not a determination for any other purpose. The number of shares of the registrant's common stock, $.01 par value, outstanding as of February 23, 2015 was 105,963,213 shares.

 

DOCUMENTS INCORPORATED BY REFERENCE

 

Certain sections of the registrant's Proxy Statement to be filed with the Commission in connection with the 2015 Annual Meeting of Stockholders are incorporated by reference in Part III of this Form 10-K. With the exception of those sections that are specifically incorporated by reference in this Annual Report on Form 10-K, such Proxy Statement shall not be deemed filed as part of this Report or incorporated by reference herein.

 

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INDEX

 

 

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

 

The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking statements to encourage companies to provide prospective information to investors. This Annual Report on Form 10-K (Form “10-K”) includes forward-looking statements that reflect our current expectations and projections about our future results, performance, prospects, payment of dividends and repurchase of shares. Forward-looking statements include all statements that are not historical in nature or are not current facts. We have tried to identify these forward-looking statements by using words including “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “should,” “will” and similar expressions. These forward-looking statements are subject to a number of risks, uncertainties, assumptions and other factors that could cause our actual results, performance, prospects and ability to pay dividends to differ materially from those expressed in, or implied by, these forward-looking statements. These factors include the risks, uncertainties, assumptions and other factors discussed under the headings “Item 1A. Risk Factors,” as well as “Item 1. Business,” “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this Form 10-K, including: future events that may have the effect of reducing our available operating income and cash balances, such as unexpected operating losses, the impact of rising fuel prices on our airline customers, outbreaks in national or international hostilities, terrorist attacks, prolonged health and environmental issues that reduce air travel demand, delays in, or unexpected costs associated with, the integration of our acquired businesses, conditions in the airline industry, conditions in the business jet industry, problems meeting customer delivery requirements, our success in winning new or expected refurbishment contracts from customers, capital expenditures, increased leverage, possible future acquisitions, facility closures, product transition costs, labor disputes involving us, our significant customers’ suppliers or airframe manufacturers, the impact of a prolonged global recession, the possibility of a write-down of intangible assets, delays or inefficiencies in the introduction of new products, fluctuations in currency exchange rates or our inability to properly manage our rapid growth.  

 

In light of these risks and uncertainties, you are cautioned not to unduly rely on such forward-looking statements when evaluating the information presented herein. These statements should be considered only after carefully reading this entire Form 10-K. Except as required under the federal securities laws and rules and regulations of the Securities and Exchange Commission (“SEC”), we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Additional risks that we may currently deem immaterial or that are not presently known to us could also cause the forward-looking events discussed in this Form 10-K not to occur.      

 

Unless otherwise indicated, the industry data contained in this Form 10-K is from the January/February 2015 issue of the Airline Monitor, December 2014 reports of the International Air Transport Association (“IATA”), the Boeing Current Market Outlook 2014, “The ACAS Database” or the Airbus and The Boeing Company (“Boeing”) corporate websites.

 

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PART I

 

ITEM 1.    BUSINESS

 

Our Company

 

General

 

Based on our experience in the industry, we believe we are the world’s largest manufacturer of cabin interior products for commercial aircraft and for business jets.  We sell our products and provide our services directly to virtually all of the world’s major airlines and aerospace manufacturers. Also, based on our experience, we believe that we have achieved leading global market positions in each of our major product categories, which include:

 

 

 

 

 

 

We provide comprehensive aircraft cabin interior reconfiguration, program management and certification services. In addition, we also design, engineer and manufacture customized fully integrated thermal and power management solutions.

 

Since our organization as a corporation in Delaware in 1987, we have substantially expanded the size, scope and nature of our business as a result of a number of acquisitions. Between 1989 and 2011, we completed 28 acquisitions, for an aggregate purchase price of approximately $1.2 billion. We believe these acquisitions enabled us to position ourselves as a preferred global supplier to our customers. During this period we consolidated facilities and product lines, implemented lean manufacturing and continuous improvement programs and invested in our information technology. All of these efforts allowed us to continually improve our productivity and expand our operating margins.  

 

In June 2014, the Company acquired the outstanding shares of the Emteq, Inc. group of companies, a domestic provider of aircraft interior and exterior lighting systems, as well as aircraft cabin management and power systems for a purchase price of $256.3 million, net of cash acquired. The Company also acquired the outstanding shares of the F+E Fischer + Entwicklungen GmbH & Co. KG group of companies, a leading Europe-based manufacturer of seating products for civilian helicopters for a purchase price of $212.3 million, net of cash acquired. During the second quarter, the Company also acquired the outstanding shares of Wessex Advanced Switching Products Ltd., a company engaged in the production of lighting, control units and switches, based in Europe for a purchase price of $63.0 million, net of cash acquired. These acquisitions are included in the business jet segment.

 

On June 10, 2014, we announced a plan to spin-off our Consumables Management Segment into a separate publicly traded company. To accomplish the spin-off, we formed a new company, KLX Inc. (“KLX”). 

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On December 16, 2014 (the “Distribution Date”), we completed the spin-off of KLX by means of the transfer of our Consumables Management Segment to KLX and the subsequent distribution to our stockholders of all of the outstanding shares of KLX common stock. As part of the spin-off, we also entered into several related agreements with KLX including a separation and distribution agreement (the “Separation and Distribution Agreement”) and a tax sharing and indemnification agreement (the “Tax Sharing and Indemnification Agreement”). The historical operating results of the Consumables Management Segment prior to the spin-off are excluded from Earnings from Continuing Operations and are presented as Earnings from Discontinued Operations in our consolidated statements of earnings and comprehensive income. Discontinued Operations include the results of KLX’s business except for certain corporate overhead costs and certain costs associated with transition services that will be provided by us to KLX.  Discontinued Operations also include other costs incurred by us to spin-off KLX.  The assets, liabilities, and cash flows of the Consumables Management Segment are included in our consolidated balance sheet and our consolidated statements of cash flows for periods prior to the Distribution Date.

 

Our principal executive offices and corporate headquarters are located at 1400 Corporate Center Way, Wellington, Florida 33414-2105 and our telephone number is 561-791-5000.

 

Industry Overview

 

The commercial and business jet aircraft cabin interior products industries encompass a broad range of products and services, including aircraft seating, passenger entertainment and service systems, food and beverage preparation and storage systems, galley systems, passenger and crew oxygen storage, oxygen distribution and delivery systems, lavatory systems,  wastewater management systems, lighting systems, evacuation equipment and overhead bins, as well as interior reconfigurations and a variety of other engineering, design, integration, installation, retrofit and certification services, such as passenger-to-freighter conversions. 

 

Historically, the airline cabin interior products industry has derived revenues from five sources:

 

 

 

 

 

 

The retrofit and refurbishment cycles for commercial aircraft cabin interior products differ by product category. Aircraft seating typically has a refurbishment cycle of one to two years and a retrofit cycle of four to eight years. Food and beverage preparation and storage equipment is periodically upgraded or repaired, and requires a continual flow of spare parts, but may be retrofitted only once or twice during the useful life of an aircraft.

 

Based on industry sources and studies, we estimate that during 2014, the global commercial and business jet cabin interior products industry, for the principal products of the type which we manufacture, exclusive of service revenues, had annual sales of approximately $4.4 billion.  We estimate that the total worldwide installed base of commercial and general aviation aircraft cabin interior products for the principal products of the type which we manufacture, valued at replacement prices, was approximately $26.6 billion as of December 31, 2014.

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During 2014, global air traffic increased by 5.5% as compared with global traffic increases of 5.7% in 2013 and 4.8% in 2012. The increases in global traffic demand from 2012 through 2014 reflect the global macroeconomic environment. The Airline Monitor 2015 forecast calls for a global passenger traffic increase of approximately 5.8% and capacity growth of approximately 5.5%.

 

IATA expects the global airline industry to generate a profit of approximately $19.9 billion in 2014, an increase of 88% compared to 2013. Overall performance in 2014 has been positively impacted by strong passenger traffic growth of approximately 5.5%, near record load factors of about 80% and a modest reduction in yields as compared with 2013.  For 2015 IATA expects global profits to improve to $25.0 billion, or 26% higher than 2014.

 

The airlines have substantially strengthened their balance sheets over the past several years through operating profits and by accessing capital markets. As a result, we believe airline balance sheets are much stronger than in any time in the past ten years.

 

Approximately 710 business jets were delivered in 2014 versus 678 business jets in 2013 and 672 business jets in 2012. 

 

Other factors expected to affect the industries we serve include the following:

 

Wide-Body Aircraft Deliveries. Deliveries of wide-body, long-haul aircraft constitute an increasing share of total new aircraft deliveries and are an increasing percentage of the worldwide fleet. Wide-body aircraft represented approximately 26% of all new commercial aircraft (excluding regional jets) delivered over the four-year period ended December 31, 2014. According to the Airline Monitor, 377 new wide-body aircraft were delivered in 2014 and approximately 390 are expected to be delivered in 2015. Over the 2015-2018 period, 1,730 wide-body aircraft deliveries are expected, averaging approximately 433 such aircraft per year, or a 15% higher delivery level as compared with 2014 and representing approximately 28% of total deliveries. The Airline Monitor also predicts that nearly 5,090 twin-aisle aircraft will be delivered over the 2015-2025 timeframe or approximately 463 wide-body and super wide-body aircraft per year, which is 23% higher, on average, as compared to 2014 deliveries. According to the Airline Monitor, wide-body aircraft deliveries are expected to grow at a 7% compounded annual growth rate (“CAGR”) over the four-year period ending 2018.

 

Long-Term Growth in Worldwide Fleet. According to the Airline Monitor, new deliveries of large commercial aircraft increased to 1,352 aircraft in 2014, as compared to 1,274 aircraft in 2013 and 1,189 in 2012. According to the Airline Monitor, new aircraft deliveries are expected to total 1,430 in 2015 and 1,470 in 2016. Worldwide air traffic is expected to grow by approximately 5.8% in 2015 and the Airline Monitor has forecasted revenue passenger miles to increase at a CAGR of approximately 5.3% during the 2014-2029 period, increasing from 3.7 trillion miles in 2014 to approximately 8.0 trillion miles by 2029. As a result, the Airline Monitor expects the worldwide fleet of commercial jet aircraft to increase by approximately 74% from approximately 23,868 regional, single-aisle and twin-aisle aircraft at December 31, 2014 to approximately 41,582 aircraft at December 31, 2029.  

 

Existing Installed Base. According to industry sources, the world's active commercial passenger aircraft fleet consisted of approximately 23,868 aircraft as of December 31, 2014. Additionally, based on industry sources, there are approximately 19,007 business jets currently in service. Based on such fleet numbers, we estimate that the total worldwide installed base of commercial and general aviation aircraft cabin interior products for the principal products of the type which we manufacture, valued at replacement prices, was approximately $26.6 billion as of December 31, 2014. The size of the installed base is expected to increase as a result of the growth in the world-wide fleet and is expected to generate additional and continued demand for retrofit, refurbishment and spare parts.

 

Engineering Services Markets. Historically, the airlines have relied primarily on their own in-house engineering resources to provide engineering, design, integration and installation services, as well as services

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related to repairing or replacing cabin interior products that have become damaged or otherwise non-functional. As cabin interior product configurations have become increasingly sophisticated and the airline industry increasingly competitive, the airlines have begun to outsource certain of these services in order to increase productivity and reduce costs.

 

Outsourced services include:

 

 

 

 

Competitive Strengths

 

We believe that we have a strong competitive position attributable to a number of factors, including the following:

 

Large Installed Base.  We have a large installed base of commercial and general aviation aircraft cabin interior products for the principal products of the type which we manufacture, valued at replacement prices, of approximately $10.9 billion as of December 31, 2014. Based on our experience in the industry, we believe our installed base is substantially larger than that of our competitors. We believe that our large installed base is a strategic advantage, as airlines tend to purchase aftermarket products and services, including spare parts, retrofit and refurbishment programs, from the original supplier. As a result, we expect our large installed base to generate continued aftermarket revenue as airlines continue to maintain, evolve and reconfigure their aircraft cabin interiors. 

 

Increasing Content of B/E Aerospace Products in Individual Aircraft Platforms Through Development and Sales of Seller Furnished Equipment (“SFE”). Traditionally, we, and our competitors, have sold customized cabin interior products directly to the airlines. Approximately six years ago we began a campaign to develop a range of new aircraft interior products and to market certain interior systems directly to Boeing and Airbus. During 2011, we were awarded one of the most important new business programs in our history when Boeing selected us as the exclusive manufacturer of modular lavatory systems for Boeing’s 737 NG family of airplanes, as well as the Boeing 737 MAX. The award was initially valued in excess of $800 million, exclusive of retrofit orders. This innovative SFE system will become standard equipment on these aircraft. Our proprietary lavatory systems create the opportunity to add up to six incremental passenger seats on each new 737 NG airplane.

 

We have also been selected by Boeing to manufacture our light-emitting-diode (“LED”) cabin lighting systems for the Boeing 737 Sky Interior aircraft. This has facilitated our growth on lighting retrofits for both narrow-body and wide-body aircraft where we have won several awards as we continue to offer all-LED lighting throughout the cabin into the existing worldwide fleet of aircraft. To date, we have been selected by Boeing to manufacture our patented Pulse OxygenTM system and passenger service units for the B787 and B747-8, and we have been selected by Airbus to manufacture our next generation galley systems and our patented passenger oxygen delivery system for the A350 XWB. Additionally, we have been selected by major business jet manufacturers to provide vacuum wastewater systems. As of December 31, 2014, the SFE programs we have won are currently expected to generate approximately $5.0 billion in revenues over time, and are expected to significantly increase our content per aircraft type; however, only a small portion of these programs are included in our reported backlog as of December 31, 2014. This effort to develop and market new interior systems directly to the original equipment manufacturers (“OEMs”) is important to us as it represents a significant potential increase in the dollar value of our products on each such aircraft type.

 

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Focus on Innovation and New Product Development. Our aircraft cabin interior products businesses are engaged in extensive product development and marketing efforts for both new features on existing products and new products. We believe, based on our experience in the industry, that we are a technological leader, with the largest research and development organization in the cabin interior products industry. The success of these and other new product development efforts are expected to increase demand for our products in both newly purchased aircraft and in aftermarket retrofits and it has allowed us to grow our backlog and improve the product mix of our current backlog. Newly introduced products include a broad range of amenities such as luxurious first class cabins (offering high privacy and high density seats) with appointments such as lie-flat seating, mini-bars, closets, flat screen TVs, digital LED mood lighting, electric lie-flat first and business class seats, Pulse Oxygen™ gaseous passenger oxygen systems for the Boeing 787 and Airbus A350 XWB, next-generation galley systems for the Airbus A350 XWB, electric fully berthing business jet seating, lightweight, lower maintenance wastewater systems for business and commercial jets and a full range of business and executive jet seating. We recently introduced our new patented Pinnacle® main cabin seating platform, which we believe is the industry’s lightest full-featured seat that significantly reduces cost of ownership, simplifies maintenance and increases overall passenger living space. We also introduced our digital LED lighting system for the Boeing 737 Sky Interior aircraft. This innovative, lightweight LED system features adjustable lighting with full spectrum color capabilities, providing superior cabin ambiance and unprecedented lighting control. Market acceptance of our LED lighting systems has continued to gain strength, and since 2012 we have been receiving orders from various airlines to retrofit their Boeing 737, 757, 767 and 777 aircraft with our LED lighting systems.

 

As of December 31, 2014, we had 2,296 employees in engineering, research and development and program management. We believe our engineering, research and development efforts and our on-site technicians at both the airlines and airframe manufacturers enable us to play a leading role in developing and introducing innovative products to meet emerging industry trends, and thereby gain early entrant advantages.

 

Exposure to International Markets.  Revenues and booked backlog by geographic region are set forth in the following charts:

 

 

We believe this geographic diversification makes us less susceptible to a downturn in a specific geographic region and allows us to take advantage of regional growth trends.

 

Diverse Product Offering and Broad Customer Base. We provide a comprehensive line of products and services to a broad customer base. During the year ended December 31, 2014,  Boeing accounted for 12% of our consolidated revenues (no other customer represented more than 10% of consolidated revenues). Our commercial aircraft and business jet segments have a broad range of over 350 principal customers, including all of the world’s major airlines, commercial aircraft and business jet manufacturers and completion centers. During the year ended December 31, 2014,  our sales to Boeing and Airbus together represented approximately 18% of our total sales. We believe that our broad product offering and large customer base make us less vulnerable to the loss of any one customer or program. We have continued to expand our available products and services based on our belief that the airline industry increasingly will seek an

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integrated approach to the design, development, integration, installation, testing and sourcing of aircraft cabin interior equipment.

 

Experience with a  Complex Regulatory Environment. The airline industry is heavily regulated. The Federal Aviation Administration (the “FAA”) prescribes standards and licensing requirements for manufacturers and sellers of many aircraft components, including virtually all commercial airline and general aviation cabin interior products, and licenses component repair stations within the United States. Comparable agencies, such as the European Aviation Safety Agency (the “EASA”), the Japanese Civil Aviation Board (the “JCAB”), and the Civil Aviation Administration of China (the “CAAC”), prescribe standards, establish licensing requirements and regulate these matters in other countries. In addition, designing new products to meet existing regulatory requirements and retrofitting products to comply with new regulatory requirements can be both expensive and time consuming. We have a long history and extensive experience with the complex regulatory environments in which we operate and believe this enables us to efficiently obtain the required approvals for new products and services.

 

Growth Opportunities

 

We believe that we will benefit from the following industry trends:

 

Growth of Wide-Body Aircraft Fleet. New aircraft deliveries of wide-body aircraft are expected to continue to grow over the long term, reflecting the expected growth in revenue passenger miles over the 2015-2029 period. The trend toward a global fleet with a higher percentage of wide-body aircraft is significant to us because wide-body aircraft require up to six-to-ten times the dollar value content of the principal products of the type which we manufacture as compared to narrow-body aircraft. For example, wide-body aircraft carry up to three or four times the number of seats as narrow-body aircraft and have multiple classes of service, including super first class compartments and first class and business class configurations. In addition, aircraft cabin crews on wide-body aircraft flights may make and serve between 300 and 900 meals and may brew and serve more than 2,000 cups of coffee and serve more than 200 glasses of wine on a single flight, thereby generating substantial demand for seating products and food and beverage preparation and storage equipment, as well as extensive oxygen storage, distribution and delivery systems and lighting systems.

 

Worldwide Aircraft Fleet Creates Demand for Aftermarket Products. The size of the worldwide aircraft fleet is important to us since the proper maintenance of the fleet generates ongoing demand for spare parts and refurbishment retrofits. Our substantial existing installed base of products typically generates continued retrofit, replacement, upgrade, refurbishment, repair and spare parts revenue as airlines maintain their aircraft interiors. For the years ended December 31, 2014 and 2013, approximately 40% and 40%, respectively, of our revenues were derived from the aftermarket. In addition, aftermarket revenues are generally driven by aircraft usage, and as such, have historically tended to recover more quickly than revenues from OEMs. As used in this Form 10-K, aftermarket sales include sales to support existing commercial and business jet fleets. We believe that there are substantial growth opportunities for retrofit programs for the wide-body aircraft that service international routes and that the major global airlines will need to invest in cabin interiors for their international fleets or face the prospect of losing market share on their international routes. Additionally, the expected growth in the worldwide fleet will serve to increase the size of our installed base.

 

Backlog Aided by Aftermarket Demand from International Airlines Retrofitting Existing Fleets. We believe that many major international airlines are in the process of reinitiating or planning to reinitiate previously deferred cabin interior upgrade programs. This activity is expected to continue to be driven by both the age of the existing cabin interiors as well as the desire by many of the leading international carriers to achieve a competitive advantage by investing in cabin interior products that incorporate leading comfort amenities, thereby improving passenger loads and yields, or that reduce airline operating costs by reducing maintenance costs and/or providing lower weight and fuel burn. We believe that as international traffic continues to grow, the life cycle of premium products, such as lie-flat international business class seats and the products comprising our super first class suites, will continue to compress as airlines seek greater competitive advantage through state-of-the-art cabin interior products.

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Growth in New Aircraft Introductions Leads to New Cabin Interior Product Introductions and Major Retrofit Opportunities. According to Airbus, 18 customers have placed orders for 317 of the new Airbus A380 super wide-body aircraft and 40 customers have placed 780 orders for the new A350 XWB. According to Boeing, through December 31, 2014, 58 customers have placed orders for 1,071 of the new B787 wide-body aircraft. Six customers have placed 286 orders for the B777X. We believe the airlines often use the occasion of introduction into service of a new aircraft fleet type to introduce next generation cabin interior products. In such cases, we believe airlines will also invest in programs to retrofit their existing fleets to incorporate these new interior products and configurations in order to enhance their revenue and/or cost advantages realized on the new fleets and to maintain product and service commonality.

 

Long-Term Growth in Business Jet and VIP Aircraft Markets. Business jet deliveries were up 4.7% in 2014 at 710 aircraft as compared to 2013 after remaining flat in 2013 as compared to 2012. According to industry sources, new business jet deliveries in 2015 are expected to begin to increase and average annual deliveries of new business jets are expected to continue to expand over the four-year period ending December 31, 2018.

 

Business Strategy

 

Our business strategy is to maintain a leadership position and to best serve our customers by:

 

 

 

 

 

 

Products and Services

 

We conduct our operations through strategic business units that have been aggregated under two reportable segments: commercial aircraft (“CAS”) and business jet (“BJS”).

 

The following is a summary of revenues for our reportable segments:

 

 

 

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Commercial Aircraft Segment

 

Seating Products. We believe, based on our experience in the industry, that we are the world's leading manufacturer of aircraft seats, offering a wide selection of first class, business class, tourist class and regional aircraft seats. A typical seat manufactured and sold by us includes the seat frame, cushions, armrests, tray table and a variety of optional features such as adjustable lumbar supports, electrical actuation systems, footrests, reading lights, head/neck supports, and other comfort amenities. We also integrate a wide variety of in-flight entertainment equipment into our seats, which is supplied to us by our customers or third-party suppliers.  

 

First and Business Class Seats. Based upon major airlines' program selection and our backlog, we believe we are the leading worldwide manufacturer of premium class seats. Our line of first class lie-flat seats incorporates full electric actuation, an electric ottoman, privacy panels and sidewall-mounted tables. Our business class seats incorporate features developed over 25 years of seating design. The business class seats include electrical or mechanical actuation, PC power ports, iPod connectivity, telephones, individual video monitors, leg rests, adjustable lumbar cushions, four-way adjustable headrests and fiber optic reading lights. The first and business class products are substantially more expensive than tourist class seats due to these luxury appointments.

 

Tourist Class and Regional Jet Seats. We believe, based on our installed base, that we are a leading worldwide manufacturer of tourist class seats and regional aircraft seats. We believe our Spectrum® coach class seat has become the industry's most popular seat platform for single-aisle aircraft since its launch in late 2002. We believe the seat improves comfort and offers significantly improved passenger living space as well as benefiting the airlines with simplified maintenance and spare parts purchasing. Spectrum® was engineered for use across the entire single-aisle aircraft fleet, including regional jets. In 2010, we introduced our new patented Pinnacle® main cabin seating platform, which we believe is the industry’s lightest full-featured seat. The Pinnacle® seat platform utilizes advanced proprietary technologies that we believe significantly reduce cost of ownership, simplify maintenance and increase overall passenger living space and comfort. Since its launch, the Pinnacle® seating platform has received awards to equip more than 2,000 new or existing aircraft, surpassing the Spectrum® in popularity and making the Pinnacle® the most successful new product launch in our history and of the whole seating industry, as measured by the number of contract awards. These awards are valued at approximately $1.4 billion and are for both narrow-body and wide-body aircraft.

 

Spares. Aircraft seats require regularly scheduled maintenance in the course of normal passenger use. Airlines depend on seat manufacturers and secondary suppliers to provide spare parts and kit upgrade programs. As a result, a significant market exists for spare parts and kit upgrades.

 

Oxygen Delivery Systems. We believe, based on our experience in the industry, that we are the leading manufacturer of oxygen storage, distribution and delivery systems for both commercial and business jet aircraft. We have the capability to both produce all required components and to fully integrate overhead passenger service units with either chemical or gaseous oxygen equipment. Our oxygen equipment has been approved for use on all Boeing and Airbus aircraft and is also found on essentially all general aviation and VIP aircraft. The Boeing 787 was the first aircraft equipped with a passenger oxygen system using our advanced Pulse OxygenTM and passenger service unit technology. Airbus has also selected us to provide similar technology for its passenger and crew oxygen systems for the A350 XWB. We have also been selected by both Boeing and Airbus to provide installed lavatory oxygen as their preferred line-fit solution for all platforms.

 

Coffee Makers/Water Boilers, Ovens, and Refrigeration Equipment. We believe, based on our experience in the industry, that we are the leading manufacturer of aircraft coffee and beverage makers. We manufacture a broad line of coffee makers, including the Endura® beverage maker, coffee warmers and water boilers, and a Combi Unit® which will both brew coffee and boil water for tea while utilizing 25% less electrical power than traditional 5,000-watt water boilers. We also manufacture a cappuccino/espresso maker. We believe, based on our experience in the industry, that we are the leading manufacturer of a broad line of specialized ovens,

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including high efficiency convection ovens, steam ovens and warming ovens. Our DS Steam OvenTM uses a method of preparing in-flight food by maintaining constant temperature and moisture in the food. Our DS Steam OvenTM addresses the airlines' need to provide a wider range of food offerings than can be prepared by convection ovens. We believe, based on our experience in the industry, that we are the worldwide industry leader in the design, manufacture and supply of commercial aircraft refrigeration equipment. We manufacture self-contained wine and beverage chillers, refrigerators/freezers and galley air chilling systems.

 

Modular Lavatory, Wastewater and Galley Systems. We recently entered the modular lavatory systems market. Our modular lavatory system utilizes our patented Spacewall® technology, which frees up floor space in the cabin, creating the opportunity to add up to six incremental passenger seats on each airplane. The modular lavatory systems integrate our technologically advanced Aircraft Ecosystems® vacuum toilet, long-life LED lighting and tamper proof state-of-the-art lavatory oxygen system. We believe our Aircraft Ecosystems® vacuum toilets have 25% greater reliability than existing systems and allow components to be replaced in a few minutes, as compared to up to an hour for existing systems. We have been selected by Boeing to become the exclusive manufacturer of the modular lavatory systems for Boeing’s Next-Generation 737 airplane. Our innovative SFE system will become standard equipment on all Boeing 737 NG’s, as well as the 737 MAX which enters service later this decade. We believe that retrofit demand for our lavatory systems could be substantial.  We have also entered the vacuum wastewater system market. Our vacuum wastewater system incorporates a proprietary design which we believe eliminates the primary cause of failure which plagues other vacuum systems. In addition, we believe our systems include advanced proprietary components and systems that will significantly lower the overall cost of ownership, simplify maintenance and improve lavatory hygiene as our system is rolled out to additional commercial and business jet platforms. We believe the cost of ownership savings will be achieved through weight savings and reliability improvements as a result of combining our proprietary composite components with optimized integrated systems. Our wastewater systems are configurable so savings can be realized on both new aircraft and existing in-service aircraft. We believe the design modularity will reduce airframe corrosion issues and provide for simplified, faster maintenance and ease of removal, resulting in up to a 60% reduction in service time. Our innovative, modular approach to the design of galley systems allows the airlines to select galley positions and configurations for their specific operational needs, while minimizing total aircraft system weight. We have been selected by Airbus to provide next generation galley systems for the Airbus A350 aircraft, which is designed to accommodate the aircraft’s “flex zones” allowing airlines to select from a  wide range of galley configurations.

 

Engineering, Design, Integration, Installation and Certification Services. We believe, based on our experience in the industry, that we are a leading supplier of engineering, design, integration, installation and certification services for commercial aircraft passenger cabin interiors. We also offer our customers’ in-house capabilities to design, manage, integrate, test and certify reconfigurations and modifications for commercial aircraft and to manufacture related products, including engineering kits and interface components. We provide a broad range of interior reconfiguration services which enable airlines to modify the cabin layout, install telecommunications and entertainment equipment, and relocate galleys, lavatories, overhead bins, and crew rest compartments. 

 

We estimate that, as of December 31, 2014, we had an aggregate installed base of products produced by our commercial aircraft segment, valued at replacement prices, of approximately $9.3 billion.

 

Business Jet Segment

 

We believe, based on our experience in the industry, that we are a  leading manufacturer of a broad product line of furnishings for business jets. Our products include a complete line of business jet seating and sofa products, including electric fully berthing lie-flat seats, direct and indirect lighting, air valves and oxygen delivery systems as well as sidewalls, bulkheads, credenzas, closets, galley structures, lavatories, wastewater systems and tables. We have the capability to provide complete interior packages for business jets and executive VIP or head-of-state aircraft interiors, including design services, interior components and

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program management services. Our product portfolio also includes premium lightweight helicopter seats for double engine helicopter airframes. 

 

Our business jet segment, which has had decades of experience in equipping executive, VIP and head-of-state aircraft, is the leading manufacturer of super first class cabin interior products for commercial wide-body aircraft. Super first class products incorporate a broad range of amenities such as luxurious first class cabins with appointments such as lie-flat seating, mini-bars, closets, flat screen televisions and mood lighting, which, until recently, were found only in VIP and head-of-state aircraft. We also produce lightweight seats for helicopters that help drive the longest range of operation.

 

We estimate that, as of December 31, 2014, we had an aggregate installed base of business jet and super first class equipment, valued at replacement prices, of approximately $1.6 billion. 

 

Research, Development and Engineering

 

We work closely with commercial airlines, business jet and aerospace manufacturers and global leasing companies to improve existing products and identify customers' emerging needs. Our expenditures in research, development and engineering totaled $284.3 million,  $220.9 million and $191.7 million for the years ended December 31, 2014, 2013 and 2012, respectively, representing 10.9%, 10.0% and 10.0% of revenues, respectively, for each of those years. We employed 2,296 professionals in engineering, research and development and program management as of December 31, 2014. We believe, based on our experience in the industry, that we have the largest engineering organization in the cabin interior products industry, with mechanical, electrical, electronic and software design skills, as well as substantial expertise in program management, materials composition and custom cabin interior layout design and certification.

 

Customers, Competition and Marketing

 

The commercial aircraft cabin interior products market is relatively fragmented, with a number of competitors in each of the individual product categories. Due to the global nature of the commercial aerospace industry, competition comes from both U.S. and foreign manufacturers. However, as aircraft cabin interiors have become increasingly sophisticated and technically complex, airlines have demanded higher levels of engineering support and customer service than many smaller cabin interior products suppliers can provide. At the same time, airlines have recognized that cabin interior product suppliers must be able to integrate a wide range of products, including sophisticated electronic components, such as video and live broadcast TV, particularly in wide-body aircraft. We believe that the airlines' increasing demands will result in a continuing consolidation of suppliers. We have participated in this consolidation through strategic acquisitions and we intend to continue to participate in the consolidation.

 

We market and sell our commercial aircraft products directly to virtually all of the world's major airlines, aircraft leasing companies and airframe manufacturers. Airlines select manufacturers of cabin interior products primarily on the basis of custom design capabilities, product quality and performance, on-time delivery, after-sales customer service, product support and price. We market our thermal and power management products and services directly to first tier defense manufacturers, aerospace OEMs, their suppliers and the airlines.

 

We believe that airlines prefer our integrated worldwide marketing approach, which is focused by airline and encompasses our entire product line. Led by senior executives, teams representing each product line serve designated airlines that together account for the vast majority of the purchases of products manufactured by our commercial aircraft segment, including our super first class products. Our teams have developed customer-specific strategies to meet each airline's product and service needs. We also staff "on-site" customer engineers at major airlines and airframe manufacturers to represent our entire product line and to work closely with customers to develop specifications for each successive generation of products required by the airlines. These engineers help customers integrate our wide range of cabin interior products and assist in obtaining the applicable regulatory certification for each particular product or cabin configuration. Through

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our on-site customer engineers, we expect to be able to more efficiently design and integrate products that address the requirements of our customers. We provide program management services, integrating all on-board cabin interior equipment and systems, including installation and FAA certification, allowing airlines to substantially reduce costs. We believe that we are the only supplier in the commercial aircraft cabin interior products industry with the size, resources, breadth of product line and global product support capability to operate in this manner.

 

Traditionally, we, and our competitors, have sold customized cabin interior products directly to the airlines. Approximately six years ago we began a campaign to develop a range of new aircraft interior products and to market certain interior systems directly to Boeing and Airbus, thereby potentially increasing our content per aircraft. During 2011, Boeing selected us as the exclusive manufacturer of modular lavatory systems for Boeing’s 737 airplane, in a program initially valued in excess of $800 million, exclusive of retrofit orders, which we believe could be substantial. This innovative SFE system will become standard equipment on all Boeing 737 NG’s and the Boeing 737 MAX. We have also been selected by Boeing to manufacture our LED cabin lighting for the next generation Boeing 737 Sky Interior aircraft. To date, we have also been selected by Boeing to manufacture our patented Pulse OxygenTM system and passenger service units for the B787 and B747-8, by Airbus to manufacture our next generation galley systems and our patented passenger oxygen delivery system for the A350 XWB and by several major business jet manufacturers to provide vacuum wastewater systems. As of December 31, 2014,  the SFE programs we have won are currently expected to generate approximately $5.0 billion in revenues over time, and are expected to significantly increase our content per aircraft type. We believe we were successful in our initiative as a result of our extensive experience with other cabin interior products, and our continuous focus on new product development. 

 

Our program management approach assigns a program management team to each significant contract. The program management team leader is responsible for all aspects of the specific contract and profitability, including managing change orders, negotiating related upfront engineering charges and monitoring the progress of the contract through its delivery dates. We believe that our customers benefit substantially from our program management approach, including better on-time delivery and higher service levels. We also believe our program management approach results in higher customer satisfaction.

 

We believe that our large installed base, our timely responsiveness in connection with custom design, manufacture, delivery and after-sales customer service and product support, our broad product line and stringent customer and regulatory requirements, all present barriers to entry for potential new competitors in the cabin interior products and thermal and power management markets. Our principal competitors for our commercial aircraft segment are Groupe Zodiac Aerospace S.A., Recaro Aircraft Seating GmbH & Co. KG, Diehl Aerosystems Holding GmBH and Jamco America, Inc.

 

We market our business jet products directly to all of the world's general aviation airframe manufacturers, completion centers and operators. Business jet owners typically rely upon the airframe manufacturers and completion centers to coordinate the procurement and installation of their interiors. Business jet owners select manufacturers of business jet products on a basis similar to commercial aircraft interior products: custom design capabilities, product quality and performance, on-time delivery, after-sales customer service, product support and price. Barriers to entry include regulatory requirements, our large installed product base, our custom design capability, manufacturing capability, delivery, after-sales customer service, product support and our broad product line. The market for business jet products is highly fragmented, consisting of numerous competitors including a wholly-owned subsidiary of United Technologies Corp.

 

As of December 31, 2014, our direct sales, marketing and product support organizations consisted of 457 employees. In addition, we currently retain 64 independent sales representatives. Our sales to non-U.S. customers were approximately $1.7 billion and $1.4 billion during the years ended December 31, 2014 and 2013, respectively, which represents approximately 67% and 64% of revenues, respectively.  Approximately 68% of our total revenues were derived from airlines, aircraft leasing companies, maintenance, repair and overhaul providers (“MROs”), and other commercial aircraft operators during each of the two years ended

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December 31, 2014. Approximately 40% and 40% of our revenues during the years ended December 31, 2014 and 2013, respectively, were from the aftermarket.  

 

Backlog

 

Our booked backlog at December 31, 2014 was $3.0 billion, as compared with booked backlog of $2.8 billion as of December 31, 2013 and $2.8 billion as of December 31, 2012. The charts below reflect information related to booked backlog by geographic region and the expected roll-out of booked backlog.

 

 

We record backlog when we enter into a definitive order for the delivery of products to our customers in the future. Within backlog, we differentiate between booked backlog and awarded but unbooked backlog. For manufacturing programs, generally if there are definitive delivery dates then the backlog is considered booked. When we receive the delivery date specificity in writing from our customers on these long-term contracts, we include such amount in booked backlog. If a contract does not provide that level of specificity, the production requirements are generally provided to us through purchase orders issued against the underlying contracts at which point the amount of the purchase orders is classified as booked. The remaining portion of the underlying contract is considered awarded but unbooked.

 

As of December 31, 2014, we had a record booked backlog of $3.0 billion. While the expected delivery dates of our backlog varies from year to year, generally about 60% of the backlog is deliverable in the following 12 months, with the balance generally deliverable over approximately the next two years. As an example, we believe approximately 62% of our December 31, 2014 booked backlog will be delivered during 2015. As of December 31, 2014, approximately 77% of booked backlog is related to CAS and 23% is related to BJS. The quality of our backlog has continued to improve as a result of partnering with key long-term customers, outstanding engineering, global sourcing and program management capabilities resulting in superior products which we believe are the most innovative cabin interior products solutions for our customers. We believe the quality of our backlog has continued to improve and we expect to continue to improve our margins as a result of our current backlog, scheduled deliveries of new aircraft, our ongoing operational excellence initiatives, including lean activities, global sourcing, program management, quality, and engineering excellence initiatives. While we do operate in a cyclical industry, program cancellations are the exception, not the norm; historically, backlog cancellations have not been significant. This is due to the fact that airlines seek fleet commonality once they begin to outfit their fleets with a particular cabin interior product or configuration. This is important to an airline due to customer expectations for a certain level of service, particularly on international routes as well as complexities that arise from maintaining multiple layouts and products with spare parts on a global basis, and other similar considerations. As a result, these programs tend to be deferred to later periods, rather than being cancelled. As an example in 2008 following the global credit crisis, our airline customers experienced a significant contraction in demand, which resulted in the deferral of a number of programs from delivery in the 2008-2009 period to 2009-2011. Despite the negative impacts on our customers from this severe global recession, no significant retrofit programs were cancelled. For a more detailed discussion on risks associated with our backlog, see Item 1A. Risk Factors – We have a significant backlog that may be deferred or may not be entirely realized.

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SFE program awards will be added to booked backlog when we receive purchase orders or otherwise are provided with specificity regarding delivery dates. At December 31, 2014, we estimate the value of these awards at $5.0 billion, substantially all of which relates to CAS programs.

 

Total backlog, both booked and awarded but unbooked, expanded to a record $8.0 billion, an increase of 2.6%  from December 31, 2013.

 

Customer Service

 

We believe that our customers place a high value on customer service and product support and that this service level is a critical differentiating factor in our industry. The key elements of such service include:

 

 

 

 

 

 

Customer service is particularly important to the airlines due to the high costs associated with late delivery, malfunctions and other problems.

 

Warranty and Product Liability

 

We warrant our products, or specific components thereof, for periods ranging from one to ten years, depending on product and component type. We establish reserves for product warranty expense after considering relevant factors such as our stated warranty policies and practices, historical frequencies of claims to replace or repair products under warranty and recent sales and claims trends. Actual warranty costs reduce the warranty reserve as they are incurred. We periodically review the adequacy of accrued product warranty reserves and revisions of such reserves are recognized in the period in which such revisions are determined.

 

We also carry product liability insurance. We believe that our insurance is sufficient to cover product liability claims.

 

Manufacturing and Raw Materials

 

Our manufacturing operations consist of both the in-house manufacturing of component parts and sub-assemblies and the assembly of our designed component parts that are purchased from outside vendors. We maintain up-to-date facilities, and we have an ongoing strategic manufacturing improvement plan utilizing lean manufacturing processes. We constantly strive for continuous improvement from implementation of these plans for each of our product lines. We have implemented common information technology platforms company-wide, as appropriate. These activities should lower our production costs, shorten cycle times and reduce inventory requirements and at the same time improve product quality, customer response and profitability. We do not believe we are materially dependent on any single supplier or assembler for any of our raw materials or specified and designed component parts and, based upon the existing arrangements with vendors, our current and anticipated requirements and market conditions, we believe that we have made adequate provisions for acquiring raw materials.

 

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Government Regulation

 

The FAA prescribes standards and licensing requirements for aircraft components, and licenses component repair stations within the United States. Comparable agencies regulate such matters in other countries. We hold several FAA component certificates and perform component repairs at a number of our U.S. facilities under FAA repair station licenses. We also hold an approval issued by the EASA to design, manufacture, inspect and test aircraft seating products in Leighton Buzzard, England and to manufacture and ship from our Kilkeel, Northern Ireland facility. We also have the necessary approvals to design, manufacture, inspect, test and repair our interior systems products in Nieuwegein, the Netherlands. Additionally we hold EASA/LBA (Luftfahrtbundesamt, the National German Aviation Authority) approval to manufacture, inspect, test and repair our commercial life support systems equipment and the approval of the German Federal Office of Defense and Procurement (BWB) to design, manufacture and repair military aviation equipment in Lübeck, Germany.

 

In March 1992, the FAA adopted Technical Standard Order C127, or TSO-C127, which provides a design approval that the FAA may issue to seat manufacturers for seats tested dynamically to meet the requirements of 14 CFR 25.562 (commonly referred to as “16G”). We believe we have developed and certified more seat models that meet the requirements of TSO-C127 than our competitors. The FAA and EASA also prescribe that seats meet certain flammability and electrical interference specifications. In October 2005, the FAA adopted regulation 14 CFR 121.311(j), which requires dynamic testing of all seats installed in all new aircraft certified after January 1,1988 and produced after October 27, 2009. The EASA is expected to establish a similar rule. Our large installed base of 16G seats demonstrates our industry leadership in seat certification requirements.

 

In November 2002, our seating group became the first passenger seating supplier to sign a Partnership for Safety Plan (“PSP”) with the FAA. Based on established qualifications of personnel and systems, the PSP provides us with increased authority to approve test plans and reports and to witness tests. The PSP provides us with a number of business benefits including greater planning flexibility, simplified scheduling and greater program control and eliminates variables such as FAA workload and priorities.

 

In May 2009, our Structures and Integration Group in Marysville, WA was granted FAA Organization Designation Authorization (“ODA”) that includes delegated authority to issue Supplemental Type Certificates (“STC”) and produce parts under a FAA Production Certificate (“PC”). Our ODA STC allows us to reconfigure the interior of airplanes, install crew rests, install satellite communications and perform passenger-to-freighter conversions on all major transport category aircraft types. Under our ODA STC we can approve the design of an aircraft modification and the parts that go into it, and issue the STC in support of the return to service of the modified airplane. This authorization allows us to install new and prototype parts on the aircraft and upon STC issuance add these parts to our PC and designate them as airworthy approved production parts.

 

Environmental Matters

 

Our operations are subject to extensive and changing federal, state and foreign laws and regulations establishing health and environmental quality standards, including those governing discharges of pollutants into the air and water and the management and disposal of hazardous substances and wastes. We may be subject to liabilities or penalties for violations of those standards. We are also subject to laws and regulations, such as the Federal Superfund Law and similar state statutes, governing remediation of contamination at facilities that we currently or formerly owned or operated or to which we send hazardous substances or wastes for treatment, recycling or disposal. We believe that we are currently compliant, in all material respects, with applicable environmental laws and regulations. However, we could become subject to future liabilities or obligations as a result of new or more stringent interpretations of existing laws and regulations. In addition, we may have liabilities or obligations in the future if we discover any environmental contamination or liability relating to our facilities or operations.

 

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Patents

 

We currently hold 349 U.S. patents and 513 foreign patents, as well as 253 U.S. patent applications and 594 foreign patent applications covering a variety of products. We believe that the termination, expiration or infringement of one or more of such patents would not have a material adverse effect on us.

 

Employees

 

As of December 31, 2014, we had approximately 9,617 employees. Approximately 62% of our employees are engaged in manufacturing/distribution operations, quality and purchasing, 24% in engineering, research and development and program management, 5% in sales, marketing and product support and 9% in finance, human resources, information technology, legal and general administration. Unions represent approximately 16% of our worldwide employees. One domestic labor contract, representing approximately 5% of our employees, expires in May 2015. The labor contract with the only other domestic union, which represents 1% of our employees, expires in October 2017. The remaining portion of our unionized employees are located in the United Kingdom and the Netherlands, which tend to have government mandated union organizations. We consider our employee relations to be good and we have not experienced a business disruption due to labor relations.

 

Financial Information About Segments and Foreign and Domestic Operations

 

Financial and other information by segment and relating to foreign and domestic operations for the years ended December 31, 2014, 2013 and 2012, is set forth in note 13 to our consolidated financial statements.

 

Available Information

 

Our filings with the SEC, including this Form 10-K, our Quarterly Reports on Form 10-Q, our Proxy Statement, Current Reports on Form 8-K and amendments to any of those reports are available free of charge on our website as soon as reasonably practicable after they are filed with, or furnished to, the SEC. Our internet website is located at http://www.beaerospace.com. Information included in or connected to our website is not incorporated by reference in this annual report.

 

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ITEM 1A.    RISK FACTORS

 

You should carefully consider the following risks and uncertainties, along with the other information contained in or incorporated by reference in this Form 10-K. If any of the following events actually occur, our business, financial condition and financial results could be materially adversely affected. Additional risks and uncertainties that we do not presently know about or currently believe are not material may also adversely affect our business and operations. 

 

See "Cautionary Statement Regarding Forward-Looking Statements."

 

Risks Relating to Our Industry

 

The airline industry is heavily regulated and failure to comply with applicable laws could reduce our sales, or require us to incur additional costs to achieve compliance, which could negatively impact our results of operations and financial condition.

 

The FAA prescribes standards and licensing requirements for aircraft components, including virtually all commercial airline and general aviation cabin interior products and licenses component repair stations within the United States. Comparable agencies, such as the EASA, the CAAC and the JCAB, regulate these matters in other countries. If we fail to obtain a required license for one of our products or services or lose a license previously granted, the sale of the subject product or service would be prohibited by law until such license is obtained, reinstated or renewed. In addition, designing new products to meet existing regulatory requirements and retrofitting installed products to comply with new regulatory requirements can be both expensive and time consuming.

 

From time to time, these regulatory agencies propose new regulations. These new regulations generally cause an increase in costs to comply with these regulations. For example, the FAA dynamic testing requirements originally established in 1988 under 14 CFR 25.562 are currently required for certain new generation aircraft types. The enactment of 14 CFR 121.311(j) will require dynamic testing of all seats installed in all new aircraft produced after October 27, 2009. The EASA is expected to establish a similar rule. Compliance with this rule may require industry participants to expand engineering, plant and equipment to ensure that all products meet this rule. Smaller seating companies may not have the resources, financial or otherwise, to comply with this rule and may be required to sell their business or cease operations. To the extent the FAA implements rule changes in the future, we may incur additional costs to achieve compliance.

 

The airline industry is subject to extensive health, safety and environmental regulations, any violation of which could subject us to significant liabilities and penalties.

 

We are subject to extensive and changing federal, state and foreign laws and regulations establishing health, safety and environmental quality standards, and may be subject to liabilities or penalties for violations of those standards. We are also subject to laws and regulations governing remediation of contamination at facilities currently or formerly owned or operated by us or to which we have sent hazardous substances or waste for treatment, recycling or disposal. We may be subject to future liabilities or obligations as a result of new or more stringent interpretations of existing laws and regulations. In addition, we may have liabilities or obligations in the future if we discover any environmental contamination or liability at any of our facilities, or at facilities we may acquire.

 

Risks Relating to Our Business

 

We are directly dependent upon the conditions in the airline and business jet industries and a continued economic downturn could negatively impact our results of operations and financial condition.

 

Although the economy has exhibited signs of recovery, global financial markets have experienced extreme volatility and disruption, which, at times, reached unprecedented levels as a result of the financial

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crisis affecting the banking system and participants in the global financial markets. Concerns over the tightening of the corporate credit markets, inflation, energy costs and the dislocation of the residential real estate and mortgage markets have contributed to the volatility in the global financial markets and, together with the global financial crisis, have created uncertainties for global economic conditions in the future. The airline and business jet industries are sensitive to changes in economic conditions. In 2008 and 2009, the airline industry parked aircraft, delayed new aircraft purchases and deliveries of new aircraft, deferred retrofit programs and depleted existing inventories. The business jet industry was also severely impacted by both the recession and by declining corporate profits.

 

Unfavorable economic conditions have also caused reduced spending for both leisure and business travel, which has negatively affected the airline and business jet industries. According to IATA, the economic downturn, combined with the high fuel prices experienced during most of 2009, contributed to the worldwide airline industry’s loss of approximately $4.6 billion in 2009. In addition, as a result of the decline in both traffic and airfares following the September 11, 2001 terrorist attacks and threats of future terrorist attacks, SARS and H1N1 outbreaks, the conflicts in Iraq and Afghanistan, as well as other factors, such as increases in fuel costs and heightened competition from low-cost carriers, the world airline industry lost a total of approximately $52.8 billion during the period from 2001 to 2009, which caused a significant number of airlines worldwide to declare bankruptcy or cease operations during this period.

 

While the global airline industry has experienced a significant rebound, generating profits of approximately $10.6 billion in 2013 and an estimated $19.9 billion in 2014, due to a number of factors beyond our control, the commercial and business jet industries could experience a difficult operating environment. As an example, the operating environment would be negatively impacted by increasing fuel prices, consolidation in the industry, changes in regulation, terrorism, safety, environmental and health concerns and labor issues. Many of these factors could have a negative impact on air travel, which could materially adversely affect our operating results. 

 

We may be materially adversely affected by high fuel prices.

 

Fluctuations in the global supply of crude oil and the possibility of changes in government policy on jet fuel production, transportation and marketing make it impossible to predict the future availability and price of jet fuel. In the event there is an outbreak or escalation of hostilities or other conflicts or significant disruptions in oil production or delivery in oil-producing areas or elsewhere, there could be reductions in the production or importation of crude oil and significant increases in the cost of jet fuel. If there were major reductions in the availability of jet fuel or significant increases in its cost, commercial airlines will face increased operating costs. Due to the competitive nature of the airline industry, airlines are often unable to pass on future increases in fuel prices to customers by increasing fares. As a result, an increase in jet fuel could result in a decrease in net income from either lower margins or, if airlines increase ticket fares, less revenue from reduced airline travel. Decreases in airline profitability could decrease the demand for new commercial aircraft, resulting in delays of or reductions in deliveries of commercial aircraft equipped with our cabin interior products and, as a result, our financial condition, results of operations and cash flows could be materially adversely affected.

 

We operate in cyclical industries and a continued economic downturn could negatively impact our results of operations and financial condition.

 

We operate in cyclical industries. During periods of economic expansion, when capital spending normally increases, the Company generally benefits from greater demand for its products. During periods of economic contraction, when capital spending normally decreases, we generally are adversely affected by declining demand for our products and services. The impact of declining demand can be exacerbated by oversupply built during periods of expansion as there is a lag in suppliers’ reactions to contraction. Industry conditions are impacted by numerous factors over which we have no control, including political, regulatory, economic and military conditions, environmental concerns, weather conditions and fuel pricing. Any prolonged cyclical downturn could have an adverse impact on our operating results.

 

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There are risks inherent in international operations that could have a material adverse effect on our business operations.

 

While the majority of our operations are based domestically, we have significant manufacturing operations based internationally with facilities in the United Kingdom, the Netherlands, Germany and the Philippines. In addition, we sell our products to airlines all over the world. Our customers are located primarily in North America, Europe, Asia, the Pacific Rim, South America and the Middle East. As a result, 67%  and 64% of our revenues for the years ended December 31, 2014 and 2013, respectively, were to customers located outside the United States. Volatile international economic, political and market conditions may have a negative impact on our operating results and our ability to achieve our goals.

 

In addition, we have a number of subsidiaries in foreign countries (primarily in Europe), which have sales outside the United States. As a result, we are exposed to currency exchange rate fluctuations as a portion of our net sales and expenses are denominated in currencies other than the U.S. dollar. Approximately 40%  and 40%  of our sales during the years ended December 31, 2014 and 2013, respectively, came from our foreign operations. Fluctuations in the value of foreign currencies affect the dollar value of our net investment in foreign subsidiaries, with these fluctuations being included in a separate component of stockholders’ equity. At December 31, 2014, we reported a cumulative foreign currency translation adjustment of approximately $105.4 million in stockholders’ equity as a result of foreign currency adjustments, and we may incur additional adjustments in future periods. In addition, operating results of foreign subsidiaries are translated into U.S. dollars for purposes of our statement of operations at average monthly exchange rates. Moreover, to the extent that our revenues are not denominated in the same currency as our expenses, our net earnings could be materially adversely affected. For example, a portion of labor, material and overhead costs for goods produced in our production facilities in the United Kingdom, Germany, the Netherlands and the Philippines are incurred in British pounds, Euros or Philippine pesos, but the related sales revenues are generally denominated in U.S. dollars. Changes in the value of the U.S. dollar or other currencies could result in material fluctuations in foreign currency translation amounts or the U.S. dollar value of transactions and, as a result, our net earnings could be materially adversely affected.

 

Historically we have not engaged in hedging transactions. However, we may engage in hedging transactions in the future to manage or reduce our foreign exchange risk. Our attempts to manage our foreign currency exchange risk may not be successful and, as a result, our results of operations and financial condition could be materially adversely affected.

 

Our foreign operations could also be subject to unexpected changes in regulatory requirements, tariffs and other market barriers and political, economic and social instability in the countries where we operate or sell our products and offer our services. The impact of any such events that may occur in the future could subject us to additional costs or loss of sales, which could materially adversely affect our operating results.

 

We are subject to a variety of risks associated with the sale of our products and services to the U.S. Government, which could negatively affect our revenues and results of operations.

 

As a supplier directly to the defense industry and as a subcontractor to suppliers of the U.S. Government, we face risks that are specific to doing business with the U.S. Government. The U.S. Government has the ability to unilaterally suspend the award of new contracts to us in the event of any violations of procurement laws, or reviews of the same. It could also reduce the value of our existing contracts as well as audit our costs and fees. Many of our U.S. Government contracts may be terminated for convenience by the government. Termination-for-convenience provisions typically provide that we would recover only our incurred or committed costs, settlement expenses and profit on the work that we completed prior to termination. In such an event, we would not earn the revenue that we would have originally anticipated from such a terminated contract.

 

Government reviews can be costly and time consuming, and could divert our management resources away from running our business. As a result of such reviews, we could be required to provide a refund to the

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U.S. Government or we could be asked to enter into an arrangement whereby our prices would be based on cost, or the U.S. Government could seek to pursue alternative sources of supply for our products. These actions could have a negative effect on our management efficiency and could reduce our revenues and results of operations. Additionally, as a U.S. Government contractor or subcontractor, we are subject to federal laws governing suppliers to the U.S. Government, including potential application of the False Claims Act.

 

If we make acquisitions, they may be less successful than we expect, which could have a material adverse effect on our financial condition. 

 

We have made many acquisitions in the past. We may also consider future acquisitions, some of which could be material to us. We explore and conduct discussions with many third parties regarding possible acquisitions. Our ability to continue to achieve our goals may depend upon our ability to effectively identify attractive businesses, access financing sources on acceptable terms, negotiate favorable transaction terms and successfully consummate and integrate any businesses we acquire, achieve cost efficiencies and manage these businesses as part of our Company.

 

Our acquisition activities may involve unanticipated delays, costs and other problems. If we encounter unanticipated problems with one of our acquisitions, our senior management may be required to divert attention away from other aspects of our business. Additionally, we may fail to consummate proposed acquisitions or divestitures, after incurring expenses and devoting substantial resources, including management time, to such transactions. Acquisitions also pose the risk that we may be exposed to successor liability relating to actions by an acquired company and its management before the acquisition. The due diligence we conduct in connection with an acquisition, and any contractual guarantees or indemnities that we receive from the sellers of acquired companies, may not be sufficient to protect us from, or compensate us for, actual liabilities. Additionally, depending upon the acquisition opportunities available, we also may need to raise additional funds through the capital markets or arrange for additional bank financing in order to consummate such acquisitions or to fund capital expenditures necessary to integrate the acquired business. We also may not be able to raise the substantial capital required for acquisitions and integrations on satisfactory terms, if at all.

 

We may be unable to effectively and efficiently manage our inventories as we expand our business, which could have an adverse effect on our financial condition.

 

We have substantially expanded the size, scope and nature of our business through acquisitions and organic means, resulting in an increase in the breadth of our product offerings and an expansion of our business geographically. Business expansion places increasing demands on us to increase the inventories that we carry. We must anticipate demand well out into the future in order to service our extensive customer base. The inability to effectively and efficiently manage our inventories to meet current and future needs of our customers, which may vary widely from what is originally forecast due to a number of factors beyond our control, could have an adverse effect on our business, financial condition and results of operations.

 

Increased leverage could adversely impact our business and results of operations.

 

We may incur additional debt under our current revolving credit facility or through new borrowings to finance our operations or for future growth, including funding acquisitions. A high degree of leverage could have important consequences to us. For example, it could:

 

 

 

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The failure of our suppliers to perform to our requirements could negatively impact our results of operations, including our profit margins.

 

We depend on manufacturing firms to support our operations through the timely supply of products. Our suppliers may experience capacity constraints that may result in their inability to supply us with products in a timely fashion, with adequate quantities or at a desired price. Factors affecting the manufacturing sector can include labor disputes, general economic issues, and changes in raw material and energy costs. Natural disasters such as earthquakes or hurricanes, as well as political instability and terrorist activities, may negatively impact the production or delivery capabilities of our suppliers as well. These factors could lead to increased prices for our inventory, curtailment of supplies and the unfavorable allocation of product by our suppliers, which could reduce our revenues and profit margins and harm our customer relations. Significant disruptions in our supply chain could negatively impact our results of operations.

 

Our total assets include substantial intangible assets. The write-off of a significant portion of intangible assets would negatively affect our reported financial results.

 

Our total assets reflect substantial intangible assets. At December 31, 2014, goodwill and identified intangibles, net, represented approximately 34% of our total assets. Intangible assets consist principally of goodwill and other identified intangible assets associated with our acquisitions. On at least an annual basis, we assess whether there has been an impairment in the value of goodwill and other intangible assets with indefinite lives. If the carrying value of the tested asset exceeds its estimated fair value, impairment is deemed to have occurred. In this event, the amount is written down to fair value. Under generally accepted accounting principles in the United States, this would result in a charge to operating earnings. Any determination requiring the write-off of a significant portion of goodwill or unamortized identified intangible assets would negatively affect our results of operations and total capitalization, which could be material.  We also performed our annual testing of impairment of goodwill for the years ended December 31, 2012, 2013 and 2014. There was no impairment recorded in 2012, 2013 or 2014. As of December 31, 2014, the balances of goodwill and intangible assets were $859.5 million and $218.2 million, respectively.

 

We have a significant backlog that may be deferred or may not be entirely realized.

 

As of December 31, 2014, we had approximately $3.0 billion of booked backlog. Given the nature of our industry and customers, there is a risk that orders forming part of our backlog may be cancelled or deferred due to economic conditions or fluctuations in our customers’ business needs, purchasing budgets or inventory management practices.

 

A significant portion of our backlog includes SFE programs with Boeing and Airbus, which makes us particularly vulnerable to their businesses and continued production of various airplane models.  For example, at December 31, 2008, while no major retrofit programs were cancelled, several large retrofit programs that were scheduled for delivery in 2009 were deferred until 2010 and 2011, which negatively impacted our revenues and profits for 2009. Failure to realize sales from our existing or future backlog would negatively impact our financial results.

 

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We have significant financial and operating restrictions in our debt instruments that may have an adverse effect on our operations.

 

The credit agreement governing our senior secured bank credit facilities (the “Credit Agreement”) contains numerous financial, operating and/or negative covenants that may limit our ability to incur additional or repay existing indebtedness, to create liens or other encumbrances, to make certain payments and investments, including dividend payments, to repurchase shares, to engage in transactions with affiliates, to engage in sale/leaseback transactions, to guarantee indebtedness and to sell or otherwise dispose of assets and merge or consolidate with other entities. Agreements governing future indebtedness could also contain significant financial and operating restrictions. A failure to comply with the obligations contained in any current or future agreement governing our indebtedness could result in an event of default under our current or any future credit facility, or any future indenture or agreements governing our debt securities that we may issue, which could permit acceleration of the related debt and acceleration of debt under other instruments that may contain cross acceleration or cross default provisions. We may not have, or may not be able to obtain, sufficient funds to make any required accelerated payments.

 

Our operations rely on an extensive network of information technology resources and a failure to maintain, upgrade and protect such systems could adversely impact our business, financial condition and results of operations.

 

Information technology plays a crucial role in all of our operations. To remain competitive, our hardware, software and related services must interact with our suppliers and customers efficiently, record and process our financial transactions accurately, and obtain the data and information to enable the analysis of trends and plans and the execution of our strategies.

 

The failure or unavailability of our information technology systems could directly impact our ability to interact with our customers and provide them with products and services when needed. Such failure to properly supply or service our customers could have an adverse effect on our business, financial condition and results of operations. Moreover, our customer relationships could be damaged well beyond the period of the downtime of our information technology systems.

 

We compete with a number of established companies, some of which have significantly greater financial, technological and marketing resources than we do, and we may not be able to compete effectively with these companies.

 

We compete with numerous established companies. Some of these companies have significantly greater financial, technological and marketing resources than we do. Our ability to be a successful competitor depends on our success in causing our products and the new products we may develop to be selected for installation in new aircraft, including next-generation aircraft, and in avoiding product obsolescence. It will also depend on our ability to remain the supplier of retrofit and refurbishment products and spare parts on the commercial fleets on which our products are currently in service. Developing and maintaining a competitive advantage may require continued investment in product development, engineering, supply-chain management and sales and marketing, and we may not have enough resources to make such investments, which could negatively impact our results of operations and financial condition.

 

We incur risks associated with new programs.

 

New programs with new technologies typically carry risks associated with design changes, development of new production tools, increased capital and funding commitments, ability to meet customer specifications, delivery schedules and unique contractual requirements, supplier performance, ability of the customer to meet its contractual obligations to us, and our ability to accurately estimate costs associated with such programs. In addition, any new program may not generate sufficient demand or may experience technological problems or significant delays in regulatory or other certification or manufacturing and delivery schedules. If we were unable to perform our obligations under new programs to the customer’s satisfaction, if we were unable to

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manufacture products at our estimated costs, or if a new program in which we had made a significant investment was terminated or experienced weak demand, certification or other delays or technological problems, our business, financial condition and results of operations could be materially adversely affected. 

 

We may be unable to retain personnel who are key to our operations.

 

Our success, among other things, is dependent on our ability to attract, develop and retain highly qualified senior management and other key personnel. Competition for key personnel is intense, and our ability to attract and retain key personnel is dependent on a number of factors, including prevailing market conditions and compensation packages offered by companies competing for the same talent. The inability to hire, develop and retain these key employees may adversely affect our operations.

 

Provisions in our charter documents may discourage potential acquisitions of our Company, even those which the holders of a majority of our common stock may favor.

 

Our restated certificate of incorporation and amended and restated by-laws contain provisions that may have the effect of discouraging a third party from making an unsolicited acquisition of us by means of a tender offer, proxy contest or otherwise. Our restated certificate of incorporation and amended and restated by-laws:

 

 

 

 

 

 

 

 

There can be no assurance that we will pay cash dividends or that we will repurchase shares.

Our Board of Directors has adopted a dividend policy that contemplates the payment of cash dividends and a share repurchase program. Whether, when and in what amounts we in fact pay such dividends or repurchase our shares remains entirely at the discretion of our Board of Directors and will depend on our future earnings, capital requirements, financial conditions, operating conditions, contractual restrictions, including those restrictions in our Credit Agreement and such other factors as our Board of Directors may deem relevant. All of these factors and their evaluation by our Board of Directors, as well as the dividend policy itself and the share repurchase program, are subject to change. Our ability to repurchase our shares may also be affected by our share price and by blackout periods during which we may refrain from repurchasing our shares. Our dividend payments and/or share repurchases may change from time to time, and we cannot provide assurance that we will pay dividends or repurchase shares in any particular amounts or at all. If we do not pay cash dividends in accordance with the policy or repurchase shares under the program, this could have a negative effect on our share price.

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 If the price of our common stock fluctuates significantly, stockholders could incur substantial losses of any investment in our common stock.

 

The price of our common stock is subject to sudden and material increases and decreases, and decreases could adversely affect investments in our common stock. For example from January 1, 2014 through December 31, 2014, the sale price of our common stock fluctuated between $50.08 and $73.21; adjusted to reflect the spin-off of KLX. The price of our common stock could fluctuate widely in response to:

 

 

 

 

 

 

 

 

 

 

 

In addition, the stock market has experienced extreme price and volume fluctuations in recent years that have significantly affected the quoted prices of the securities of many companies, including companies in our industry. The changes often appear to occur without regard to specific operating performance. The price of our common stock could fluctuate based upon factors that have little or nothing to do with our Company, and these fluctuations could materially reduce our stock price.

 

We have grown, and may continue to grow, at a rapid pace.  Our inability to properly manage or support the growth may have a material adverse effect on our business, financial condition, and results of operations and could cause the market value of our common stock to decline.

 

We have experienced rapid growth in recent periods and intend to continue to grow our business both through acquisitions and internal expansion of products and services. Our growth to date has placed, and could continue to place, significant demands on our management team and our operational, administrative and financial resources. We may not be able to grow effectively or manage our growth successfully, and the failure to do so could have a material adverse effect on our business, financial condition, and results of operations and could cause the market value of our common stock to decline.

 

Risks Relating to our Spin-Off of KLX

 

There could be significant liability if the distribution of KLX common stock to our stockholders is determined to be a taxable transaction.

 

We received an opinion from tax counsel to the effect that, among other things, the separation and distribution of KLX qualifies as a transaction that is tax-free for U.S. federal income tax purposes under Sections

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355 and 368(a)(1)(D) of the Internal Revenue Code of 1986, as amended. The opinion relies on certain facts, assumptions, representations, undertakings and covenants from us and KLX regarding the past and future conduct of ours and KLX’s respective businesses and other matters.  If any of these facts, assumptions, representations, undertakings or covenants is incorrect or not satisfied, the opinion of tax counsel may no longer be valid.

 

In addition, notwithstanding the receipt by us of the opinion of tax counsel, the IRS could determine on audit that the separation and distribution of KLX is taxable if it determines that any of these facts, assumptions, representations, undertakings or covenants is not correct or have been violated or if it disagrees with the conclusions in the opinion, or for other reasons, including as a result of certain significant changes in the stock ownership of us or KLX. If the distribution of KLX common stock is determined to be taxable for U.S. federal income tax purposes, we would be subject to tax as if we had sold the KLX common stock in a taxable sale for its fair market value, and our stockholders that received KLX common stock in the distribution generally would be treated as having received a taxable dividend in an amount equal to the fair market value of the KLX common stock.  The resulting U.S. federal income tax liabilities of us and such stockholders could be significant. 

 

Under the Tax Sharing and Indemnification Agreement between KLX and us, KLX generally is required to indemnify us against (i) any taxes imposed on us with respect to the distribution of KLX common stock to the extent that such taxes result from certain events with respect to KLX, and (ii) a portion, based on the relative trading prices of our common stock and KLX common stock during the period shortly after the distribution, of any taxes imposed on us with respect to the distribution of KLX common stock if the distribution fails to qualify as a tax-free transaction for reasons other than those for which KLX or us would be responsible for pursuant to the Tax Sharing and Indemnification Agreement.

 

The U.S. federal income tax rules applicable to the distribution of the KLX common stock may restrict us from engaging in certain corporate transactions or from raising equity capital beyond certain thresholds for a period of time after the distribution.

 

To preserve the tax-free treatment of the distribution of KLX common stock to us and our stockholders, under the Tax Sharing and Indemnification Agreement, for the two-year period following the separation and distribution of KLX, we are subject to certain restrictions with respect to our activities, including restrictions relating to certain issuances or repurchases of our common stock (except for repurchases in compliance with published IRS guidelines for tax-free spin-offs), acquisitions and mergers, and asset sales.

 

These restrictions may limit our ability during such two-year period to pursue strategic transactions of a certain magnitude that involve the issuance or acquisition of our common stock or engage in other transactions that might increase the value of our business. 

 

A court could require that we assume responsibility for obligations allocated to KLX under the Separation and Distribution Agreement.

 

Under the Separation and Distribution Agreement, from and after the spin-off, the Company and

KLX are responsible for the debts, liabilities and other obligations related to the business or businesses which it owns and operates following the consummation of the spin-off. Although we do not expect to be liable for any obligations that are not allocated to us under the Separation and Distribution Agreement, a court could disregard the allocation agreed to between the parties, and require that we assume responsibility for obligations allocated to KLX (including, for example, environmental liabilities), particularly if KLX were to refuse or were unable to pay or perform the allocated obligations.

 

Certain of our directors may have actual or potential conflicts of interest because of their current positions with KLX or their ownership of KLX equity.

 

Certain of our directors are directors or officers of KLX and thus have professional relationships with KLX’s executive officers and directors. Three of our directors, including our Executive Chairman of the Board of

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Directors, serve on the Board of Directors of KLX. Our Executive Chairman of the Board of Directors also serves as the Chairman of the Board of Directors of KLX and as its Chief Executive Officer. In addition, several of our directors have a financial interest in KLX as a result of their ownership of KLX stock and restricted stock. These relationships and financial interests may create, or may create the appearance of, conflicts of interest when these directors face decisions that could have different implications for KLX than for us.

 

 

ITEM 1B.    UNRESOLVED STAFF COMMENTS

 

None.

 

 

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ITEM 2.    PROPERTIES

 

As of December 31, 2014, we had 28 principal operating facilities, one administrative facility, and one research and development facility, which comprised an aggregate of approximately 3.4 million square feet of space. The following table describes the principal facilities and indicates the location, function, approximate size, and ownership status of each location.

 

 

 

We believe that our facilities are suitable for their present intended purposes and are adequate for our present and anticipated level of operations.

 

ITEM 3.    LEGAL PROCEEDINGS

 

We are a defendant in various legal actions arising in the normal course of business, the outcomes of which, in the opinion of management, neither individually nor in the aggregate are likely to result in a material adverse effect on our business, results of operations or financial condition.

 

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There are no material pending legal proceedings, other than the ordinary routine litigation incidental to the business discussed above, to which we, or any of our subsidiaries, are a party or of which any of our property is the subject.

 

ITEM 4.    MINE SAFETY DISCLOSURES

 

Not applicable.

 

PART II

 

ITEM 5.    MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES

 

Our common stock is quoted on the NASDAQ Global Select Market under the symbol "BEAV.” The following table sets forth, for the periods indicated, the range of high and low per share sales prices for the common stock as reported by NASDAQ and have been adjusted to reflect the spin-off of KLX.

 

 

 

 

On February 23, 2015, the last reported sale price of our common stock as reported by NASDAQ was $63.77 per share. As of such date, based on information provided to us by Computershare, our transfer agent, we had approximately 1,562 registered holders, and because many of these shares are held by brokers and other institutions on behalf of the beneficial holders, we are unable to estimate the number of beneficial stockholders represented by these holders of record. 

 

We have not paid any cash dividends in the past.  Pursuant to our dividend policy that was recently approved by our Board of Directors, we declared a dividend of $0.19 on February 20, 2015, to be paid on April 3, 2015 to the stockholders of record at the close of business on March 9, 2015.  The payments of future dividends are at the discretion of our Board of Directors and will depend on our future earnings, capital requirements, financial conditions, operating conditions, contractual restrictions, including those restrictions in the Credit Agreement, and such other factors as our Board of Directors may deem relevant.

 

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The following line graph compares the annual percentage change in our cumulative total stockholder return on our common stock relative to the cumulative total returns of the S&P 500, the NASDAQ Composite Index and the Dow Jones US Aerospace & Defense Index. An investment of $100 (with reinvestment of all dividends) is assumed to have been made in our common stock and in each of the indexes on 12/31/2009 and its relative performance is tracked through 12/31/2014.

 

During the twelve-month period ended December 31, 2014, we repurchased 99,911 shares of our common stock from employees in connection with the settlement of income tax and related benefit withholding obligations arising from vesting of restricted stock grants. In the first and fourth quarters of 2014, 1,483 and 98,428 of these shares, respectively, were repurchased and deemed cancelled. These shares were not part of a publicly announced program to purchase common shares and have not been adjusted to reflect the spin-off of KLX.

 

 

 

 

 

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ITEM 6.    SELECTED FINANCIAL DATA

(In millions, except per share data)

 

The financial data for each of the years in the five-year period ended December 31, 2014 have been derived from audited financial statements. The following financial information is qualified by reference to, and should be read in conjunction with, “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our historical financial statements, including notes thereto, which are included in Item 15 of this Form 10-K. Our historical results are not necessarily indicative of our future results.

 

 

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ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(In millions, except per share data)

 

OVERVIEW

 

Based on our experience in the industry, we believe we are the world’s largest manufacturer of cabin interior products for commercial aircraft and for business jets. We sell our products and provide our services directly to virtually all of the world’s major airlines and aerospace manufacturers. In addition, based on our experience, we believe that we have achieved leading global market positions in each of our major product categories, which include:

 

 

 

 

 

 

We provide comprehensive aircraft cabin interior reconfiguration, program management and certification services. In addition, we also design, engineer and manufacture customized fully integrated thermal and power management solutions for participants in the defense industry, aerospace OEMs and the airlines.

 

On June 10, 2014, we announced a plan to spin-off our Consumables Management Segment into a separate publicly traded company. To accomplish the spin-off, we formed a new company, KLX Inc. (“KLX”). On December 16, 2014 (the “Distribution Date”), we completed the spin-off of KLX by means of the transfer of our Consumables Management Segment to KLX and the subsequent distribution to our stockholders of all of the outstanding shares of KLX common stock. The historical operating results of the Consumables Management Segment prior to the spin-off are excluded from Earnings from Continuing Operations and are presented as Earnings from Discontinued Operations in our consolidated statements of earnings and comprehensive income. Discontinued Operations include the results of KLX’s business except for certain corporate overhead costs and certain costs associated with transition services that will be provided by us to KLX.  Discontinued Operations also include other costs incurred by us to spin-off KLX.  The assets, liabilities, and cash flows of the Consumables Management Segment are included in our consolidated balance sheet and our consolidated statements of cash flows for periods prior to December 16, 2014.

 

We generally derive our revenues from the sale of our cabin interior equipment for new aircraft deliveries for the new build market and from refurbishment or upgrade programs for the existing worldwide fleets of commercial and general aviation aircraft and the aftermarket. For the 2014, 2013 and 2012 years, approximately 40%, 40% and 42% of our revenues, respectively, were derived from the aftermarket, with the remaining portions attributable to the sale of cabin interior equipment associated with new aircraft deliveries. We believe our large installed base of commercial and general aviation aircraft cabin interior products for the principal products of the type which we manufacture, valued at replacement prices, of approximately $10.9 billion as of December 31, 2014, gives us a significant advantage over our competitors in obtaining orders both for spare parts and for refurbishment programs, principally due to the tendency of

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the airlines to purchase equipment for such programs from the incumbent supplier. Approximately 62% of our backlog is expected to be delivered over the next twelve months, and approximately 26% is expected to be delivered over the following twelve month period.

 

We conduct our operations through strategic business units that have been aggregated under two reportable segments: commercial aircraft and business jet.

 

Revenues by reportable segment for the years ended December 31, 2014, 2013 and 2012 were as follows:

 

 

 

Substantially all of our sales and purchases are denominated in U.S. dollars, which is consistent with the industry. Revenues by domestic and foreign operations for the years ended December 31, 2014, 2013 and 2012 were as follows:

 

 

 

Revenues by geographic segment (based on destination) for the years ended December 31, 2014, 2013 and 2012 were as follows:

 

 

 

New product development is a strategic initiative for us. Our customers regularly request that we engage in new product development and enhancement activities. We believe that these activities protect and enhance our leadership position. We believe our investments in research and development over the past several years have been the driving force behind our ongoing market share gains. As of December 31, 2014 we employed approximately 2,296 engineers and program managers. Research, development and engineering spending was approximately 10.9% of sales during 2014. We expect research and development expenditures to decrease as a percentage of sales over the next several years.

 

We also believe in providing our businesses with the tools required to remain competitive. In that regard, we have invested, and will continue to invest, in property and equipment that enhance our productivity. Taking into consideration recent program awards to deliver multi-year programs for various

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Airbus and Boeing aircraft, our targeted capacity utilization levels, recent acquisitions and current industry conditions, we expect that capital expenditures will be approximately $100 during 2015.

 

RESULTS OF OPERATIONS

 

Year Ended December 31, 2014 Compared to the Year Ended December 31, 2013

 

Revenues for the year ended December 31, 2014 were $2,599.0, an increase of 18.0% as compared to 2013.

 

Revenues for each of our segments are set forth in the following table:

 

 

 

For the year ended December 31, 2014, consolidated revenues of $2,599.0 increased $395.7, or 18.0%. Commercial Aircraft Segment (“CAS”) 2014 revenues of $2,058.9 increased $274.2, or 15.4%, as compared with 2013 as a result of higher volumes of new equipment seating and life support systems. Business Jet Segment (“BJS”) 2014 revenues of $540.1 increased $121.5, or 29.0%, as compared with 2013 as a result of higher sales of super first class products and the acquisitions completed in 2014.

 

    Cost of sales for 2014 of $1,582.8 increased by $286.8, as compared with the prior year. The 210 basis point increase in cost of sales as a percentage of total revenues is primarily due to a higher level of spending within BJS to facilitate expedited development of a new product suite to support a major customer initiative in addition to an unfavorable product mix.

 

    Selling, general and administrative (“SG&A”) expenses for 2014 were $347.9, or 13.4% of revenues, as compared with $323.5, or 14.7% of revenues in 2013. The higher level of SG&A expense in the current year is primarily due to costs and expenses associated with the 18.0% increase in revenues and the 2014 acquisitions which were somewhat offset by lower marketing expenses as a percentage of sales.

 

    Research, development and engineering expense for 2014 was $284.3 or 10.9% of sales as compared with $220.9 or 10.0% of sales in 2013. The $63.4 increase in spending is primarily due to new product development activities in CAS associated with our growing backlog and the impact of the acquisitions completed in 2014. During 2014, we applied for 317 U.S. and foreign patents as compared with 225 during 2013.

 

For the year ended December 31, 2014, operating earnings of $384.0 increased $21.1, or 5.8% as compared with the prior year. Operating margin in 2014 of 14.8% decreased 170 basis points as compared with 2013 primarily as a result of $60.1 of business repositioning and acquisition costs.

 

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The following is a summary of operating earnings performance by segment:

 

 

 

For the year ended December 31, 2014, CAS operating earnings of $356.3 increased 11.2% as compared with the prior year and operating margin of 17.3% decreased by 60 basis points as a result of business repositioning costs of $18.8 in the current year period.

 

For the year ended December 31, 2014, BJS operating earnings of $50.0 decreased 27.6% as compared with the prior year period.  Operating earnings and operating margin were negatively impacted by one-time costs totaling $41.3. The one-time costs reflect higher engineering and product launch costs to support expedited deliveries associated with new business development of a unique new product suite to support a major customer initiative as well as costs associated with the 2014 acquisitions.

 

    Interest expense for the year ended December 31, 2014 of $130.6 increased by $7.2 as a result of higher borrowing levels under the Company’s revolving credit facility during 2014.  As a result of the KLX spin-off during the fourth quarter, we recorded a $243.6 loss on the early extinguishment of debt aggregating $2.6 billion.

 

    2014 income tax benefit of $47.9 was $92.5 lower than the $44.6 income tax expense for 2013.  The change reflects the underlying effective tax rate for 2014 of approximately 22% and the applicable marginal tax related impact of the following specified items:  KLX corporate allocations, business repositioning, acquisition costs and charges related to the early extinguishment of debt. The 2013 effective tax rate of approximately 18.6% is different from the 2014 effective tax rate of approximately 22% mainly due to the inclusion of both the 2012 and 2013 U.S. R&D tax credit in 2013.

 

2014 net earnings from continuing operations and earnings from continuing operations per diluted share were $57.7 and $0.55 per share, reflecting decreases of 70.4% and 70.9%, respectively, as compared with the prior year for the reasons set forth above.

 

2014 net earnings from discontinued operations and earnings from discontinued operations per diluted share were $46.6 and $0.45 per share, reflecting decreases of 72.7% and 72.7%, respectively, as compared with the prior year.

 

2014 net earnings and earnings per diluted share were $104.3 and $1.00 per share, reflecting decreases of 71.5% and 71.8%, respectively.

 

Year Ended December 31, 2013 Compared to the Year Ended December 31, 2012

 

Revenues for the year ended December 31, 2013 were $2,203.3, an increase of 15.1% as compared to 2012.

 

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Revenues for each of our segments are set forth in the following table:

 

 

 

For the year ended December 31, 2013, consolidated revenues of $2,203.3 increased $289.0, or 15.1%, as a result of a higher level of new aircraft deliveries, a higher level of aftermarket activity associated with the retrofit of existing aircraft, and an increase in activity in the second half of 2013 to support the maintenance of the global fleet of aircraft. CAS 2013 revenues of $1,784.7 increased $233.5, or 15.1%, as compared with 2012. BJS 2013 revenues of $418.6 increased $55.5, or 15.3%, as compared to 2012.  

 

Cost of sales for 2013 of $1,296.0 increased by $182.3, as compared with the prior year, primarily due to the higher level of revenues. Cost of sales as a percentage of revenues was 58.8% in 2013 and increased by 60 basis points as compared with 2012, primarily due to an unfavorable mix of products sold, partially offset by ongoing manufacturing efficiencies and global supply chain and program management initiatives.

 

SG&A expenses for 2013 were $323.5, or 14.7% of revenues, as compared with $315.9, or 16.5% of revenues in 2012. The higher level of SG&A expense in the current year is primarily due to costs and expenses associated with the 15.1% increase in revenues.

 

Research, development and engineering expense for 2013 was $220.9, or 10.0% of sales as compared with $191.7 or 10.0% of sales in 2012. The $29.2 increase in spending is primarily due to new product development activities in CAS associated with our growing booked and awarded but unbooked backlog. During 2013, we applied for 225 U.S. and foreign patents as compared with 184 during 2012.

 

For the year ended December 31, 2013, operating earnings of $362.9 increased $69.9, or 23.9% as compared with the prior year. Operating margin in 2013 of 16.5% expanded 120 basis points as compared with 2012 as a result of operating leverage at the higher level of sales volume and ongoing operational efficiency initiatives.

 

The following is a summary of operating earnings performance by segment:

 

 

 

 

For the year ended December 31, 2013, CAS operating earnings of $320.3 increased 18.1% as compared with the prior year and operating margin of 17.9% expanded by 40 basis points due to operating leverage at the higher revenue level and ongoing operational efficiency initiatives.

 

For the year ended December 31, 2013, BJS operating earnings of $69.1 increased 32.9% as compared with the prior year period.  Operating margin of 16.5% expanded 220 basis points, reflecting the increase in revenues, an improved mix of revenues and ongoing operational efficiency initiatives.

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Interest expense for the year ended December 31, 2013 of $123.4 decreased by $0.8 as a result of the financing we completed in 2012, which resulted in debt prepayment costs of $82.1 in 2012.

 

Earnings before income taxes in 2013 were $239.5, as compared to earnings before income taxes of $86.7 in 2012 for the reasons set forth above.

 

Income taxes during 2013 and 2012 were $44.6, or 18.6%, and $7.1, or 8.2% of earnings before income taxes, respectively. Our effective tax rate in 2013 was higher than 2012 primarily due to the tax effect of the debt restructuring charges in 2012.

 

2013 net earnings from continuing operations and earnings from continuing operations per diluted share were $194.9 and $1.88 per share, reflecting increases of 144.8% and 144.2%, respectively, as compared with the prior year for the reasons set forth above.

 

2013 net earnings from discontinued operations and earnings from discontinued operations per diluted share were $170.7 and $1.64 per share, reflecting increases of 10.8% and 9.3%, respectively, as compared with the prior year.

 

2013 net earnings and earnings per diluted share were $365.6 and $3.52 per share, reflecting increases of 56.4% and 55.1%, respectively.

 

Spin-off of KLX

 

On June 10, 2014, we announced a plan to spin-off our Consumables Management Segment into a separate publicly traded company. To accomplish the spin-off, we formed KLX. On the Distribution Date, we completed the spin-off of KLX by means of the transfer of our Consumables Management Segment to KLX and the subsequent distribution to our stockholders of all of the outstanding shares of KLX common stock. 

 

The historical operating results of the Consumables Management Segment prior to the spin-off are excluded from Earnings from Continuing Operations and are presented as Earnings from Discontinued Operations in our consolidated statements of earnings and comprehensive income. Discontinued Operations include the results of KLX’s business except for certain corporate overhead costs and certain costs associated with transition services that will be provided by us to KLX.  Discontinued Operations also include other costs incurred by us to spin-off KLX. The assets and liabilities of the Consumables Management Segment are included in our consolidated balance sheet and our consolidated statements of cash flows for periods prior to the Distribution Date.

 

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The following is a summary of the assets and liabilities transferred to KLX as part of the spin-off on December 16, 2014: (in millions) 

 

 

 

 

 

 

 

 

The operating results of our Discontinued Operations for the period January 1, 2014 through December 16, 2014 (prior to the spin-off) are presented as follows:

 

 

 

We entered into transitional services agreements with KLX prior to the spin-off pursuant to which we and KLX are providing various services to each other on an interim transitional basis. Transition services may be provided for up to 24 months, and for information technology services, KLX has an option for a one-year extension by the recipient. Services being provided by us include certain information technology and back office support.  We record billings under these transition services agreements which are recorded as a reduction of the costs of the respective service in the applicable expense category in the Consolidated Statement of Earnings. This transitional support will enable KLX to establish its stand-alone processes for various activities that were previously provided by us and does not constitute significant continuing support of KLX’s operations.

 

Under the Tax Sharing and Indemnification Agreement between the Company and KLX we generally assume liability for all federal and state income taxes for all tax periods ending on or prior to December 31, 2014. We assume the liability for all federal and state income taxes of KLX’s U.S. operations through the Distribution Date. KLX assumes all other federal taxes, foreign income tax/non-income taxes and state/local non-income taxes related to their business for all periods and we assume all other federal taxes, foreign income tax/non-income taxes and state/local non-income taxes related to our business for all periods. Additional taxes incurred related to the internal restructuring to separate the businesses to complete the spin-

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off shall be shared equally between the Company and KLX. Taxes incurred related to certain international tax initiatives for the KLX business shall be assumed by KLX subject to the calculation provisions of the Tax Sharing and Indemnification Agreement. In addition, we transferred to KLX all of its deferred tax assets and liabilities as of December 16, 2014.   

 

In connection with the spin-off, we have adjusted our employee stock compensation awards and separated our employee medical and dental benefit plans. 

 

LIQUIDITY AND CAPITAL RESOURCES

 

Current Financial Condition

 

As of December 31, 2014, our net debt-to-net-capital ratio was 99.5%. Net debt was $1,896.6, which represented total debt of $2,189.1, less cash and cash equivalents of $292.5. As of December 31, 2014, net capital (total debt plus total stockholders’ equity less cash and cash equivalents) was $1,906.7.

 

In connection with the KLX spin-off, the Company entered into its Credit Agreement, dated as of December 16, 2014 consisting of (a) a five-year, $600.0 revolving credit facility (the “Revolving Credit Facility”) and (b) a seven-year, $2,200.0 term loan facility (the “Term Loan Facility”). At December 31, 2014 and 2013 there were no amounts outstanding under either the Revolving Credit Facility or our prior revolving credit facility, respectively. The Revolving Credit Facility matures in December 2019 unless terminated earlier. $2,200.0 was outstanding ($2,189.1 net of original issue discount) under the Term Loan Facility as of December 31, 2014.

 

Cash on hand at December 31, 2014 decreased by $345.3 as compared with cash on hand at December 31, 2013 primarily as a result of cash flows from operating activities of $250.9, less expenditures for acquisitions of $1,043.1 and less capital expenditures of $255.6. Capital expenditures from our continuing operations were $131.6 in 2014 compared to $114.3 in 2013. Our liquidity requirements consist of working capital needs, ongoing capital expenditures and payments of interest and principal on our indebtedness. Our primary requirements for working capital are directly related to the level of our operations. Our sources of liquidity are from cash on hand, our revolving line of credit, and cash flow from operations. As of December 31, 2014, we had approximately $292.5 of cash and cash equivalents and a $600.0 revolving line of credit with no borrowings outstanding and no maturities in the near term. In addition, the substantial majority of our cash is held within the United States and all of our foreign cash may be brought back into the United States in a tax efficient manner.

 

Working capital as of December 31, 2014 was $874.3, a decrease of $1,406.3 as compared with working capital at December 31, 2013. As of December 31, 2014, total current assets decreased by $1,504.7 and total current liabilities decreased by $98.4. The decrease in current assets resulted from a $345.3 decrease in cash as described above, a $195.1 decrease in accounts receivable, and a decrease in inventories of $1,018.6 primarily due to the KLX spin-off. The decrease in total current liabilities was primarily due to decreases in accounts payable of $82.8 and accrued liabilities of $36.2, the majority of which were a consequence of the KLX spin-off.

 

Cash Flows

 

As of December 31, 2014, cash and cash equivalents were $292.5 as compared to $637.8 as of December 31, 2013. Cash provided by operating activities was $250.9 for the year ended December 31, 2014 as compared to $379.1 for the year ended December 31, 2013. The primary sources of cash provided by operating activities during 2014 were net earnings of $104.3, adjusted by depreciation and amortization of $142.3 and non-cash compensation of $29.7. The primary uses of cash in operating activities during the year ended December 31, 2014 were related to a $284.0 net increase in inventories, a $77.0 increase in accounts receivable, a $220.2 increase in other current and non-current assets primarily related to a $77.0 income tax receivable and $3.5 of tax benefits realized from the prior exercises of employee stock options and restricted stock.

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As of December 31, 2013, cash and cash equivalents were $637.8 as compared to $513.7 at December 31, 2012. The primary sources of cash provided by operating activities during 2013 were net earnings of $365.6, adjusted by depreciation and amortization of $89.6, non-cash compensation of $24.2, and deferred income taxes of $32.9. The primary uses of cash in operating activities during the year ended December 31, 2013 were related to a $181.8 net increase in inventories, a $67.2 increase in accounts receivable and $9.2 of tax benefits realized from the prior exercises of employee stock options and restricted stock.

 

The primary uses of cash in investing activities during the year ended December 31, 2014 were related to capital expenditures of $255.6 and acquisitions of $1,043.1. The primary uses of cash in investing activities during the year ended December 31, 2013 were related to capital expenditures of $154.9 and acquisitions of $118.1.

 

Capital Spending

 

Our capital expenditures were $255.6 and $154.9 during the years ended December 31, 2014 and 2013, respectively. Capital expenditures from our continuing operations were $131.6 in 2014 compared to $114.3 in 2013. Taking into consideration our backlog, including approximately $5,000 of awarded but unbooked backlog, targeted capacity utilization levels, recent capital expenditure investments, recent acquisitions and current industry conditions, we anticipate capital expenditures of approximately $100 during 2015. We have no material commitments for capital expenditures. We have, in the past, generally funded our capital expenditures from cash from operations and funds available to us under bank credit facilities. We expect to fund future capital expenditures from cash on hand, from operations and from funds available to us under the Revolving Credit Facility.

 

Between 1989 and 2014, we completed 31 acquisitions for an aggregate purchase price of approximately $1.8 billion. During this period, we rationalized the businesses, reduced headcount by approximately 5,500 employees and eliminated 26 facilities.

 

All of our acquisitions over the past four years were financed with cash on hand, our then existing credit facilities or new debt issuances.

 

Outstanding Debt and Other Financing Arrangements

 

Long-term debt at December 31, 2014 primarily consisted of a $2,200.0 Term Loan Facility ($2,189.1 net of original issue discount).

 

We also have the Revolving Credit Facility. The Revolving Credit Facility provides an option to request additional incremental revolving credit borrowing capacity and incremental term loans, in each case upon the satisfaction of certain customary terms and conditions. There were no amounts outstanding under either the Revolving Credit Facility or our prior revolving credit facility at December 31, 2014 and December 31, 2013, respectively.  $2,200.0 was outstanding ($2,189.1 net of original issue discount) under the Term Loan Facility as of December 31, 2014.

 

Our obligations under the Credit Agreement are secured by liens on substantially all of our domestic assets, including a pledge of a portion of the capital stock of certain foreign subsidiaries owned directly. Amounts borrowed and outstanding under the Term Loan Facility will, in certain circumstances, be required to be prepaid with the proceeds from certain asset sales, subject to certain thresholds and reinvestment rights. Unless terminated earlier or extended, the Revolving Credit Facility will mature in December 2019.

 

The Revolving Credit Facility contains an interest coverage ratio financial covenant (as defined in the facility) that must be maintained at a level greater than 3.0 to 1. The Revolving Credit Facility also contains a total leverage ratio covenant (as defined in the facility) which limits gross debt to a 5.25 to 1 multiple of

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EBITDA (as defined in the facility). The Credit Agreement contains customary affirmative covenants, negative covenants, restrictions on the payment of dividends and the repurchase of our stock and conditions precedent for borrowing. We were in compliance with all of the covenants, restrictions and conditions precedent in the Credit Agreement as of December 31, 2014.

 

Contractual Obligations

 

The following chart reflects our contractual obligations and commercial commitments as of December 31, 2014. Commercial commitments include lines of credit, guarantees and other potential cash outflows resulting from a contingent event that requires performance by us or our subsidiaries pursuant to a funding commitment.

 

 

 

 

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We believe that our cash flows, together with cash on hand and the availability under the Revolving Credit Facility, provide us with the ability to fund our operations, make planned capital expenditures and make scheduled debt service payments for at least the next twelve months. However, such cash flows are dependent upon our future operating performance, which, in turn, is subject to prevailing economic conditions and to financial, business and other factors, including the conditions of our markets, some of which are beyond our control. If, in the future, we cannot generate sufficient cash from operations to meet our debt service obligations, we will need to refinance such debt obligations, obtain additional financing or sell assets. We cannot assure you that our business will generate cash from operations, or that we will be able to obtain financing from other sources, sufficient to satisfy our debt service or other requirements.

 

Off-Balance Sheet Arrangements

 

Lease Arrangements

 

We finance our use of certain equipment under committed lease arrangements provided by various financial institutions. Since the terms of these arrangements meet the accounting definition of operating

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lease arrangements, the aggregate sum of future minimum lease payments is not reflected in our consolidated balance sheet. Future minimum lease payments under these arrangements aggregated approximately $203.7 at December 31, 2014.

 

Indemnities, Commitments and Guarantees

 

During the normal course of business, we made certain indemnities, commitments and guarantees under which we may be required to make payments in relation to certain transactions. These indemnities include non-infringement of patents and intellectual property indemnities to our customers in connection with the delivery, design, manufacture and sale of our products, indemnities to various lessors in connection with facility leases for certain claims arising from such facility or lease, and indemnities to other parties to certain acquisition agreements. The duration of these indemnities, commitments and guarantees varies, and in certain cases, is indefinite. We believe that many of our indemnities, commitments and guarantees provide for limitations on the maximum potential future payments we could be obligated to make. However, we are unable to estimate the maximum amount of liability related to our indemnities, commitments and guarantees because such liabilities are contingent upon the occurrence of events that are not reasonably determinable. We believe that any liability for these indemnities, commitments and guarantees would not be material to our consolidated financial statements.

 

We record backlog when we enter into a definitive order for the delivery of products to our customers in the future. Within backlog, we differentiate between booked backlog and awarded but unbooked backlog. For manufacturing programs, generally if there are definitive delivery dates then the backlog is considered booked. When we receive the delivery date specificity in writing from our customers on these long-term contracts, we include such amount in booked backlog. If a contract does not provide that level of specificity, the production requirements are generally provided to us through purchase orders issued against the underlying contracts at which point the amount of the purchase orders is classified as booked. The remaining portion of the underlying contract is considered awarded but unbooked. Substantially all of our unbooked backlog relates to CAS programs.

 

Critical Accounting Policies

 

The discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amount of assets and liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities at the date of our financial statements. Actual results may differ from these estimates under different assumptions or conditions.

 

Critical accounting policies are defined as those that are reflective of significant judgments and uncertainties, and potentially result in materially different results under different assumptions and conditions. We believe that our critical accounting policies are limited to those described below. For a detailed discussion on the application of these and other accounting policies, see note 1 to our consolidated financial statements.

 

Revenue Recognition

 

Product revenues are recorded when the earnings process is complete. This generally occurs when the products are shipped to the customer in accordance with the contract or purchase order, risk of loss and title has passed to the customer, collectability is reasonably assured and pricing is fixed and determinable. In instances where title does not pass to the customer upon shipment, we recognize revenue upon delivery or customer acceptance, depending on the terms of the sales contract.

 

Service revenues primarily consist of engineering activities and are recorded when services are performed.

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Revenues and costs under certain long-term contracts are recognized using contract accounting under the percentage-of-completion method in accordance with ASC 605-35, Construction–Type and Production–Type Contracts, with the majority of the contracts accounted for under the cost-to-cost method. Under the cost-to-cost method, the revenues related to the long-term contracts are recognized based on the ratio of actual costs incurred to total estimated costs to be incurred. We also use the units-of-delivery method to account for certain of our contracts. Under the units-of-delivery method, revenues are recognized based on the contract price of units delivered.

 

The percentage-of-completion method requires the use of estimates of costs to complete long-term contracts. Due to the duration of these contracts as well as the technical nature of the products involved, the estimation of these costs requires management judgment in connection with assumptions and projections related to the outcome of future events. Management’s assumptions include future labor performance and rates and projections relative to material and overhead costs, as well as the quantity and timing of product deliveries. We reevaluate our contract estimates periodically and reflect changes in estimates in the current period using the cumulative catch-up method. There were no significant changes in our contract estimates during 2014, 2013 or 2012 that resulted in material cumulative catch-up adjustments to operating earnings other than cost estimate changes resulting from the extraordinary expedited development of a new product suite to support a major customer initiative during 2014. Revenues associated with any contractual claims are recognized when it is probable that the claim will result in additional contract revenue and the amount can be reasonably estimated. Anticipated losses on contracts are recognized in the period in which the losses become evident and determinable. Advance payments and engineering development costs on certain long-term contracts are deferred and included in revenues and research, development and engineering, respectively, when the products are shipped.

 

Accounts Receivable

 

We perform ongoing credit evaluations of our customers and adjust credit limits based upon payment history and the customer's current creditworthiness, as determined by our review of their current credit information. We continuously monitor collections and payments from our customers and maintain an allowance for estimated credit losses based upon our historical experience and any specific customer collection issues that we have identified. If the actual uncollected amounts significantly exceed the estimated allowance, our operating results would be significantly adversely affected. While such credit losses have historically been within our expectations and the provisions established, we cannot guarantee that we will continue to experience the same credit loss rates that we have in the past.

 

Inventories

 

We value our inventories at the lower of cost to purchase, using FIFO or weighted average cost method, or market. The inventory balance, which includes the cost of raw material, purchased parts, labor and production overhead costs, is recorded net of a reserve for excess, obsolete or unmarketable inventories. We regularly review inventory quantities on hand and record a reserve for excess, obsolete and unmarketable inventories based primarily on historical usage and on our estimated forecast of product demand and production requirements. In accordance with industry practice, costs in inventory include amounts relating to long-term contracts with long production cycles and to inventory items with long procurement cycles, some of which are not expected to be realized within one year. Demand for our products can fluctuate significantly. Our estimates of future product demand may prove to be inaccurate, in which case we may have understated or overstated the provision required for excess, obsolete and unmarketable inventories. In the future, if our inventories are determined to be overvalued, we would be required to recognize such costs in our cost of goods sold at the time of such determination. Likewise, if our inventories are determined to be undervalued, we may have over-reported our costs of goods sold in previous periods and would be required to recognize such additional operating income at the time of sale.

 

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Long-Lived Assets and Goodwill

 

Goodwill, identifiable intangible assets, net and property and equipment, net were $859.5, $218.2, and $397.7 and $1,571.0, $472.2 and $425.7 at December 31, 2014 and 2013, respectively. To conduct our global business operations and execute our strategy, we acquire tangible and intangible assets, which affect the amount of future period amortization expense and possible impairment expense that we may incur. The determination of the value of such intangible assets requires management to make estimates and assumptions that affect our consolidated financial statements. In accordance with ASC 350, Intangibles – Goodwill and Other (“ASC 350”), we assess potential impairment to goodwill of a reporting unit and to indefinite-lived intangible assets on an annual basis, or between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit or indefinite-lived intangible asset below its carrying amount. In accordance with ASC 360, Property, Plant, and Equipment, we assess potential impairment to long-lived assets (property and equipment and amortized intangible assets) when there is evidence that events or changes in circumstances indicate that the carrying amount of an asset may not be recovered. Our judgment regarding the existence of impairment indicators and future cash flows related to intangible assets is based on operational performance of our acquired businesses, expected changes in the global economy, aerospace industry projections, discount rates and other judgmental factors. Future events could cause us to conclude that impairment indicators exist and that goodwill or other acquired tangible or intangible assets associated with our acquired businesses are impaired. Any resulting impairment loss could have an adverse impact on our results of operations. As of December 31, 2014 and 2013, management believes the estimated fair value of each of our reporting units with goodwill balances and each of our long-lived assets were substantially in excess of their carrying values. As a result of the spin-off, as of December 31, 2014, we no longer have indefinite lived intangible assets. There were no indicators of goodwill or intangible asset impairment for the period ended December 16, 2014 or at December 31, 2014 or 2013.

 

Accounting for Income Taxes

 

Significant management judgment is required in evaluating our tax positions and in determining our provision for income taxes, our deferred tax assets and liabilities and any valuation allowance recorded against our net deferred tax assets. We have recorded a valuation allowance of $12.9 as of December 31, 2014, due to uncertainties related to our ability to utilize our deferred tax assets, primarily consisting of our state net operating losses and research credits. The valuation allowance is based on our estimates of taxable income by jurisdictions in which we operate and the period over which our deferred tax assets will be recoverable. In the event that actual results differ from these estimates, or we revise these estimates in future periods, we may need to adjust the valuation allowance which could materially impact our financial position and results of operations. We have not provided for any residual U.S. income taxes on approximately $440 of earnings from our foreign subsidiaries because such earnings are intended to be indefinitely reinvested. It is not practicable to determine the amount of U.S. income and foreign withholding tax payable in the event all such foreign earnings are repatriated.

 

ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

We are exposed to a variety of risks, including foreign currency fluctuations and changes in interest rates affecting the cost of our variable-rate debt.

 

Foreign currency –  We have direct operations in Europe that receive revenues from customers primarily in U.S. dollars and we purchase raw materials and component parts from foreign vendors primarily in British pounds or Euros. Accordingly, we are exposed to transaction gains and losses that could result from changes in foreign currency exchange rates relative to the U.S. dollar. Our largest foreign currency exposure results from activity in British pounds and Euros.

 

From time to time, we and our foreign subsidiaries may enter into foreign currency exchange contracts to manage risk on transactions conducted in foreign currencies. At December 31, 2014, we had no

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outstanding foreign currency exchange contracts. In addition, we  have not entered into any other derivative financial instruments.

 

Interest Rates – As of December 31, 2014, we have $2.2 billion of adjustable rate debt outstanding. We do not engage in transactions intended to hedge our exposure to changes in interest rates. If adjustable interest rates were to increase or decrease by 10%, we estimate interest expense would increase or decrease by approximately $8.8.

 

As of December 31, 2014, we maintained a portfolio of cash securities consisting mainly of taxable, interest-bearing deposits with weighted average maturities of less than three months. If short-term interest rates were to increase or decrease by 10%, we estimate interest income would increase or decrease by less than $0.1.

 

ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

The information required by this section is set forth beginning on page F-1 of this Form 10-K.

 

ITEM 9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

 

None.

 

ITEM 9A.    CONTROLS AND PROCEDURES

 

Disclosure Controls and Procedures

 

We carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Vice President and Chief Financial Officer, of the effectiveness, as of December 31, 2014, of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934 (the “Exchange Act”)). Based upon that evaluation, our Chief Executive Officer and Vice President and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of December 31, 2014.

 

Internal Control over Financial Reporting

 

There were no changes in our internal control over financial reporting that occurred during the fourth quarter of 2014 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

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MANAGEMENT’S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

 

The management of B/E Aerospace, Inc. and its subsidiaries (the “Company”) is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. Internal control over financial reporting is a process designed by, or under the supervision of, the Company’s principal executive and principal financial officers, and effected by the Company’s Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company’s financial statements for external purposes in accordance with generally accepted accounting principles.

 

The Company’s internal control over financial reporting includes those policies and procedures that: (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and the receipts and expenditures of the Company are being made only in accordance with authorizations of the management and directors of the Company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.

 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.

 

The Company’s management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2014. Management excluded from its assessment the internal control over financial reporting at the Emteq, Inc. group of companies, the F+E Fischer + Entwicklungen GmbH & Co. KG group of companies and Wessex Advanced Switching Products Ltd, which were acquired on June 2, 2014, June 27, 2014 and April 12, 2014, respectively, and whose financial statements constitute 17.6% of total assets and 3.2% of revenues of the consolidated financial statement amounts as of and for the year ended December 31, 2014. In making the assessment, the Company’s management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control – Integrated Framework (2013). Based on its assessment, management believes that, as of December 31, 2014, the Company’s internal control over financial reporting is effective.

 

The independent registered public accounting firm that audited the financial statements included in this annual report has issued an attestation report on the Company’s internal control over financial reporting.

 

 

 

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and Stockholders of 

B/E Aerospace, Inc.

Wellington, Florida

 

We have audited the internal control over financial reporting of B/E Aerospace, Inc. and subsidiaries (the “Company”) as of December 31, 2014, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. As described in Management’s Annual Report on Internal Control over Financial Reporting, management excluded from its assessment the internal control over financial reporting at the Emteq, Inc. group of companies (“EMTEQ”), the F+E Fischer + Entwicklungen GmbH & Co. KG group of companies (“Fischer”) and Wessex Advanced Switching Products Ltd (“WASP”), which were acquired on June 2, 2014, June 27, 2014 and April 12,  2014, respectively, and whose financial statements constitute 17.6% of total assets and 3.2% of revenues of the consolidated financial statement amounts as of and for the year ended December 31, 2014. Accordingly, our audit did not include the internal control over financial reporting at EMTEQ, Fischer and WASP. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

 

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

 

A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

 

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2014, based on the criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

 

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We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements and financial statement schedule as of and for the year ended December 31, 2014 of the Company and our report dated February 27, 2015 expressed an unqualified opinion on those financial statements and financial statement schedule and included an emphasis of a matter paragraph regarding the Company’s spin-off of its consumables management segment businesses through the distribution of the shares of KLX Inc. to the Company’s stockholders.

 

/s/ Deloitte & Touche LLP

Certified Public Accountants

 

Boca Raton, Florida

February 27, 2015

 

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PART III

 

ITEM 10.    DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

 

The following table sets forth information regarding our directors and executive officers as of February 27, 2015. Officers of the Company are elected annually by the Board of Directors. 

 

 

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Director Classification 

 

Our Restated Certificate of Incorporation provides that the Board of Directors is to be divided into three classes, each nearly as equal in number as possible, so that each director (in certain circumstances after a transitional period) will serve for three years, with one class of directors being elected each year. The Board of Directors is currently comprised of three Class I Directors (John T. Whates, Mary M. VanDeWeghe and James F. Albaugh), two Class II Directors (Amin J. Khoury and Jonathan M. Schofield) and two Class III Directors (Richard G. Hamermesh and David J. Anderson). The terms of the Class I, Class II and Class III Directors expire at the end of each respective three-year term and upon the election and qualification of successor directors at annual meetings of stockholders held each respective year. Our executive officers are elected annually by the Board of Directors following the annual meeting of stockholders and serve at the discretion of the Board of Directors.

 

Current Directors

 

Amin J. Khoury has been the Executive Chairman of the Board of Directors since December 16, 2014, and was previously the Chairman of the Board of Directors from July 1987 when he co-founded the Company.  Mr. Khoury also served as the Company’s Co-Chief Executive Officer from January 1, 2014 through December 15, 2014, and Chief Executive Officer from July 1987 through April 1996 and again from December 31, 2005 through December 31, 2013. Mr. Khoury has been Chairman of the Board of Directors and Chief Executive Officer of KLX Inc. since December 16, 2014. From 1986 until April 2012, Mr. Khoury was a director of Synthes, Inc.  Mr. Khoury was a Trustee of the Scripps Research Institute from 2008 to 2014.  Mr. Khoury holds an Executive Masters Professional Director Certification, the highest level, from the American College of Corporate Directors, which is earned by completing a minimum of 90 hours of public company director education, and an Advanced Director Certification from the Corporate Directors Group. 

 

Richard G. Hamermesh has been a Director since July 1987. Dr. Hamermesh has been a Professor of Management Practice at Harvard Business School since July 1, 2002. From 1987 to 2001, he was a co-founder and a Managing Partner of The Center for Executive Development, an executive education and development consulting firm.  From 1976 to 1987, Dr. Hamermesh was a member of the faculty of Harvard Business School. He is also an active investor and entrepreneur, having participated as a principal, director and investor in the founding and early stages of more than 15 organizations. Dr. Hamermesh is a member of the Board of Directors of b.good, SmartCloud, and KLX Inc. 

 

Jonathan M. Schofield has been a Director since April 2001.  From December 1992 through February 2000, Mr. Schofield served as Chairman and CEO of Airbus North America Holdings, a subsidiary of Airbus Industrie, a manufacturer of large civil aircraft, and served as Chairman from February 2000 until his retirement in March 2001.  Prior to 1989, Mr. Schofield served in various executive positions at Pratt & Whitney, a division of United Technologies Corporation.  From 1989 until he joined Airbus, Mr. Schofield was President of United Technologies International Corporation.  Mr. Schofield is currently a member of the Board of Directors of Nordam Group and is a trustee of LIFT Trust and was formerly a member of the Board of Directors of Aero Sat, Inc. and TurboCombustor Technology, Inc.  Mr. Schofield became a member of the Ordre National De La Legion D’Honneur in 2002.

 

John T. Whates has been a Director since February 2012. Mr. Whates has been an independent tax advisor and involved in venture capital and private investing since 2005. He is a member of the Board of Directors of KLX Inc. and Chairman of the Board of Dynamic Healthcare Systems, Inc. From 1994 to 2011, Mr. Whates was a tax and financial advisor to the Company, providing business and tax advice on essentially all of our significant strategic acquisitions. Previously, Mr. Whates was a tax partner in several of the largest public accounting firms, most recently leading the High Technology Group Tax Practice of Deloitte LLP in Orange County, California. He has extensive experience working with aerospace and other public companies in the fields of tax, equity financing and mergers and acquisitions.

 

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David J. Anderson has been a Director since June 2014.  Mr. Anderson was the Senior Vice President and Chief Financial Officer of Honeywell International Inc. from 2003 until his retirement in April 2014. While at Honeywell, Mr. Anderson was a member of the senior leadership team where he was responsible for the company’s Corporate Finance activities including tax, accounting, treasury, audit, investment, financial planning, acquisitions and real estate. Mr. Anderson was integral to the reshaping of Honeywell’s portfolio including supporting nearly $10 billion of acquisitions in higher growth, global markets. Prior to joining Honeywell, Mr. Anderson had senior financial roles at ITT Industries, Inc., Newport News Shipbuilding and RJR Nabisco Holding Corporation. Mr. Anderson currently serves as a member of the Board of Directors of American Electric Power Company, Inc., Cardinal Health, Inc., and Fifth Street Asset Management Inc. and as chairperson for the University of Chicago’s Booth School of Business CFO Forum.

 

Mary M. (“Meg”) VanDeWeghe has been a Director since September 2014.  Ms. VanDeWeghe is the Chief Executive Officer and President of Forte Consulting Inc., a financial and management consulting firm, and a Professor of the Practice of Finance at Georgetown University's McDonough School of Business. Prior to holding her current positions, Ms. VanDeWeghe served as Senior Vice President of Finance for Lockheed Martin Corporation, and previously held positions in corporate finance, capital markets and general management at J.P. Morgan, where she rose to the rank of Managing Director. Ms. VanDeWeghe currently serves on the Board of Directors of W.P. Carey and Brown Advisory. She previously served on the Board of Directors of Ecolab Inc. and Nalco.

 

James F. Albaugh has been a Director since November 2014.  Mr. Albaugh has been a Senior Advisor to The Blackstone Group since December 2012. From September 2009 until his retirement in June 2012, Mr. Albaugh served as President and Chief Executive Officer of the Commercial Airplanes business unit, and was also a member of the Executive Council, of The Boeing Company. Mr. Albaugh also served as President and Chief Executive Officer of Boeing’s Integrated Defense Systems business unit and in other executive positions at Boeing, including President and Chief Executive Officer of Space and Communications and President of Space Transportation after Boeing’s acquisition in 1997 of Rockwell, where Mr. Albaugh began his career in 1975.  Mr. Albaugh is an elected member of both the National Academy of Engineering and the International Academy of Astronautics, a Fellow and Honorary Fellow of the American Institute of Aeronautics and Astronautics, and an elected Fellow of the Royal Aeronautical Society.  Mr. Albaugh is President of the American Institute of Aeronautics and Astronautics, Chairman of the National Aeronautic Association, a Director of American Airlines Group Inc., a Director of TRW Automotive Holdings Corp., and serves as a member of other nonprofit organization boards and other professional organizations.

 

Executive Officers

 

Werner Lieberherr has been President and Chief Executive Officer of the Company since December 16, 2014.  Prior to this role, Mr. Lieberherr was our President and Co-Chief Executive Officer from January 1, 2014 through December 15, 2014 and President and Chief Operating Officer from December 31, 2010 through December 31, 2013.  From July 2006 through December 2010, Mr. Lieberherr was the Senior Vice President and General Manager for the Commercial Aircraft Segment.  Prior to joining the Company, Mr. Lieberherr spent 15 years with ABB and Alstom in operations in the energy industry, serving in various senior management positions in Europe, Asia and as President of North America operations.  Mr. Lieberherr is also a member of the Board of Directors of the International Transport Aircraft Seating Suppliers’ Association (ITASSA).

 

Joseph T. Lower has been Vice President and Chief Financial Officer since December 16, 2014.  Previously, Mr. Lower served as Vice President – Finance from November 1, 2014.  Prior to joining the Company, Mr. Lower was Vice President of Business Development and Strategy for The Boeing Company from 2002 to 2014.  Prior to joining Boeing in 2002, among other finance positions, Mr. Lower spent six years with Credit Suisse in various investment banking roles including positions in Mergers and Acquisitions, and Corporate Finance.

 

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Sean J. Cromie has been Vice President and General Manager for the Commercial Aircraft Segment since January 2011.  From November 2007 to December 2010, Mr. Cromie served as Vice President and Managing Director of the Seating Facility in Kilkeel, Northern Ireland and previously as Business Unit Director.  Prior to joining the Company, Mr. Cromie spent six years in operational management roles with Sanmina SCI and NACCO MHG. Mr. Cromie also spent seven years with Kerry Group PLC.

 

Wayne R. Exton has been Vice President and General Manager, Business Jet Segment since May 2006.  From November 2005 to April 2006, Mr. Exton served as Vice President and General Manager of the super first class division of the Business Jet Segment.  Prior to joining the Company, Mr. Exton spent nine years at the Automotive and Aerospace Divisions of Britax PLC, serving in a variety of senior management positions including President, Vice President Operations and Director of Global Marketing and Sales.  Before joining Britax, Mr. Exton held several senior management positions at Magneti Marelli (a division of Fiat) and Lucas Electrical.

 

Ryan M. Patch has been Vice President – Law, General Counsel, Secretary and Chief Compliance Officer since July 2009 and was previously Vice President – Law from December 2008 to July 2009.  From 2005 to 2008, Mr. Patch was a shareholder and member of the Board of Directors of Jackson, DeMarco, Tidus & Peckenpaugh LLP in Irvine, California.  Prior to that, Mr. Patch was a partner in a boutique California law firm since 1992.  Mr. Patch is Authorized House Counsel in the State of Florida and has been admitted to practice before the State Bar of California and various U.S. District Courts in California.

 

Stephen R. Swisher has been Vice President – Finance, Controller and Assistant Secretary since August 2001 and Vice President – Finance and Controller since August 1999. Mr. Swisher has been Controller since 1996 and served as Director, Finance from 1994 to 1996. Prior to 1994, Mr. Swisher held various management positions at Burger King Corporation and Deloitte & Touche LLP.

 

Eric J. Wesch has been Vice President – Finance, Treasurer and Assistant Secretary since July 2011 and previously served as Corporate Treasurer from 2008 to 2011, Director, Treasury Services from 2005 to 2008, Manager, Treasury Services from 2003 to 2005, and Manager, Financial Planning & Analysis from 1997 to 2003. Before joining the Company, Mr. Wesch worked for Blockbuster Entertainment Group.

 

Audit Committee

 

We have a separately-designated standing Audit Committee established in accordance with Section 3(a)(58)(A) of the Exchange Act. Messrs. Hamermesh, Schofield and Anderson and Ms. VanDeWeghe currently serve as members of the Audit Committee. Under the current SEC rules and the rules of the NASDAQ, all of the members are independent. All members of the Audit Committee are independent, as that term is used in Item 407 of Regulation S-K of the federal securities laws.    Our Board of Directors has determined that Mr. Hamermesh is an “audit committee financial expert” in accordance with current SEC rules.

 

Section 16(a) Beneficial Ownership Reporting Compliance

 

Section 16(a) of the Exchange Act requires our directors and executive officers, and persons who own more than ten percent of a registered class of our equity securities, to file with the SEC initial reports of ownership and reports of changes in ownership of our common stock and other equity securities. Officers, directors and greater-than-ten-percent stockholders are required by SEC regulations to furnish us with copies of all Section 16(a) forms they file.

 

Code of Ethics

 

We have adopted a code of ethics, or Code of Business Conduct, to comply with the rules of the SEC and NASDAQ. The Code of Business Conduct applies to our directors, officers and employees worldwide, including our principal executive officer, principal financial officer, controller, treasurer and all other employees

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performing a similar function. We maintain a copy of our Code of Business Conduct, including any amendments thereto and any waivers applicable to any of our directors or officers, on our website at www.beaerospace.com.  

 

ITEM 11.    EXECUTIVE COMPENSATION

 

Information set forth under the captions "Compensation Committee Interlocks and Insider Participation,"  “Compensation of Directors” and “Compensation Discussion & Analysis” in the Proxy Statement is incorporated by reference herein.

 

ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

 

Information set forth under the captions "Security Ownership of Certain Beneficial Owners and Management" and “Equity Compensation Plan Information” in the Proxy Statement is incorporated by reference herein.

 

ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

 

Information set forth under the caption "Certain Relationships and Related Transactions" in the Proxy Statement is incorporated by reference herein.

 

ITEM 14.    PRINCIPAL ACCOUNTANT FEES AND SERVICES

 

Information set forth under the caption “Principal Accountant Fees and Services” in the Proxy Statement is incorporated by reference herein.

 

 

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PART IV

 

ITEM 15.    EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

 

(a)Documents filed as part of report on Form 10-K

 

 

Report of Independent Registered Public Accounting Firm

 

Consolidated Balance Sheets, December 31, 2014 and December 31, 2013

 

Consolidated Statements of Earnings and Comprehensive Income for the Years Ended December 31, 2014, 2013, and 2012

 

Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 2014, 2013, and 2012

 

Consolidated Statements of Cash Flows for the Years Ended December 31, 2014, 2013, and 2012

 

Notes to Consolidated Financial Statements for the Years Ended December 31, 2014, 2013, and 2012

 

 

Schedule II – Valuation and Qualifying Accounts

 

All other consolidated financial statement schedules are omitted because such schedules are not required or the information required has been presented in the aforementioned consolidated financial statements.

 

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INDEX TO EXHIBITS

 

 

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*    Filed herewith.

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SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) 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.

Date: February 27, 2015

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.