ITEM
10.
DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The
following table sets forth information regarding our directors and executive
officers as of February 15, 2008. Officers of the Company are elected annually
by the Board of Directors.
Title
|
Age
|
|
Po
sition
|
|
|
|
|
Amin
J. Khoury
|
|
68
|
|
Chairman
of the Board and Chief Executive Officer
|
|
|
|
|
|
Charles
L. Chadwell
|
|
67
|
|
Director
(2),(3)
|
|
|
|
|
|
Jim
C. Cowart
|
|
56
|
|
Director
(1),(3)
|
|
|
|
|
|
Richard
G. Hamermesh
|
|
60
|
|
Director
(1),(3)
|
|
|
|
|
|
Robert
J. Khoury
|
|
65
|
|
Director
|
|
|
|
|
|
Jonathan
M. Schofield
|
|
67
|
|
Director
(2),(3)
|
|
|
|
|
|
Arthur
E. Wegner
|
|
64
|
|
Director
(1),(3)
|
|
|
|
|
|
Michael
B. Baughan
|
|
48
|
|
President
and Chief Operating Officer
|
|
|
|
|
|
Thomas
P. McCaffrey
|
|
53
|
|
Senior
Vice President, Chief Financial Officer and Treasurer
|
|
|
|
|
|
Wayne
Exton
|
|
44
|
|
Vice
President and General Manager, Business Jet Segment
|
|
|
|
|
|
Werner
Lieberherr
|
|
49
|
|
Vice
President and General Manager, Commercial Aircraft Products
Group
|
|
|
|
|
|
Robert
A. Marchetti
|
|
65
|
|
Vice
President and General Manager, Distribution Segment
|
|
|
|
|
|
Edmund
J. Moriarty
|
|
64
|
|
Vice
President-Law, General Counsel and Secretary
|
|
|
|
|
|
Stephen
R. Swisher
|
|
49
|
|
Vice
President-Finance and
Controller
|
________
|
|
(1)
|
Member,
Audit Committee
|
(2)
|
Member,
Compensation Committee
|
(3)
|
Member,
Nominating and Governance Committee
|
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 is currently comprised of two Class I Directors (Jim
C. Cowart and Arthur E. Wegner), two Class II Directors
(Robert J.
Khoury and Jonathan M. Schofield) and three Class III Directors (Amin J. Khoury,
Charles L. Chadwell and Richard G. Hamermesh). 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 at the end of each fiscal 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
Chairman of the Board since July 1987 when he founded the
company. Effective December 31, 2005, Mr. Amin J. Khoury was
appointed Chief Executive Officer. Mr. Amin J. Khoury also served as
the company’s Chief Executive Officer until April 1, 1996. Since
1986, Mr. Khoury has been a director of Synthes, Inc., the world’s leading
manufacturer and marketer of orthopedic trauma implants and a leading global
manufacturer and marketer of cranial-maxillofacial and spine implants. Mr.
Khoury is a member of the board of directors of the Aerospace Industries
Association. Mr. Khoury is the brother of Robert J.
Khoury.
Charles L. Chadwell
has been
a Director since January 2007. He was the Vice President and General
Manager, Commercial Engine Operations for GE Aircraft Engines, from which he
retired in 2002. After joining General Electric in 1965, he held a
variety of management positions, including: Program Manager, CF6-80C
program; Plant Manager, GE Aircraft Engines’ Wilmington, North Carolina plant;
General Manager, GE Aircraft Engines’ Sourcing Operations; General Manager;
Production Operations, GE Aircraft Engines’ Lynn, Massachusetts plant; Vice
President, GE Aircraft Engines Human Resources; and Vice President and General
Manager, Production and Procurement, GE Aircraft Engines.
Jim C. Cowart
has been a
Director since November 1989. Since September 2005, Mr. Cowart has
been a Director of EAG Limited, a company listed on the London Stock Exchange,
which is a provider of microanalytic laboratory services including surface
analysis and materials characterization. Since September 2004, Mr.
Cowart has been Chairman and Chief Executive Officer of Auriga Medical Products
GmbH, a distributor of medical devices. He is a Principal of Cowart
& Co. LLC and Auriga Partners, Inc., private capital firms that provide
strategic planning, competitive analysis, financial relations and other
services. From August 1999 to May 2001, he was Chairman of QualPro
Corporation, an aerospace components manufacturing company. From
January 1993 to November 1997, he was the Chairman and CEO of Aurora Electronics
Inc. Previously, Mr. Cowart was a founding general partner of Capital Resource
Partners, a private investment capital manager, and held various positions in
investment banking and venture capital with Lehman Brothers, Shearson Venture
Capital and Kidder, Peabody & Co.
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.
Robert J. Khoury
has been a
Director since July 1987, when he co-founded the company. On December
31, 2005, Mr. Khoury retired from service as the company’s President and Chief
Executive Officer, a position he held since August 2000. From April
1996 through August 2000, he served as Vice Chairman. Mr. Khoury is
the brother of Amin J. Khoury.
Jonathan M. Schofield
has
been a Director since April 2001. From December 1992 through February 2000, Mr.
Schofield served as Chairman of the Board 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. 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 Aero Sat, Inc., Nordam Group and
TurboCombustor Technology, Inc.; and is a trustee of LIFT Trust.
Arthur E. Wegner
has been a
Director since January 2007. Mr. Wegner retired in 2000 as Executive
Vice President of Raytheon Company and Chairman of Raytheon
Aircraft. He joined Raytheon Company in July 1993 as a Senior Vice
President and was appointed Chairman and CEO of Raytheon’s Beech Aircraft
Corporation. In September 1994, he was appointed Chairman and CEO of
Raytheon Aircraft, which was formed by the merger of Raytheon subsidiaries,
Beech Aircraft and Raytheon Corporate Jets. He became Chairman of
Raytheon Aircraft in 2000. He was elected an Executive Vice President
of Raytheon Company in March of 1995. Mr. Wegner came to Raytheon
Company after 20 years with United Technologies Corporation (UTC), where he was
Executive Vice President and President of UTC’s Aerospace and Defense
Sector. Prior to that he was President of UTC’s Pratt and Whitney
Division. Mr. Wegner is past Chairman of the Board of Directors of
the General Aviation Manufacturers Association and the Aerospace Industries
Association.
Executive
Officers
Michael B. Baughan
has been
President and Chief Operating Officer since December 31, 2005. From
July 2002 to December 31, 2005, Mr. Baughan served as Senior Vice President and
General Manager of Commercial Aircraft Segment. From May 1999 to July 2002, Mr.
Baughan was Vice President and General Manager of Seating Products. From
September 1994 to May 1999, Mr. Baughan was Vice President, Sales and Marketing
for Seating Products. Prior to 1994, Mr. Baughan held various positions
including President of AET Systems, Manager of Strategic Initiatives at The
Boston Company (American Express) and Sales Representative at Dow Chemical
Company.
Thomas P. McCaffrey
has been
Senior Vice President and Chief Financial Officer since May 1993. From August
1989 through May 1993, Mr. McCaffrey was a Director with Deloitte & Touche
LLP, and from 1976 through 1989 served in several capacities, including Audit
Partner, with Coleman & Grant LLP.
Werner Lieberherr
has been
Vice President and General Manager of our Commercial Aircraft Products Group,
which is comprised of our Seating, Interior Products and Engineering Systems
segments; since July 2006. Prior to joining our company, Mr.
Lieberherr spent 20 years with Alstom Power, Inc., where he served in
various senior management positions in Europe, Asia, and North America,
including President, Managing Director, Vice President Project Management
Worldwide, and General Manager-Sales.
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 our company, Mr. Exton spent nine years
at the Britax 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 PLC, Mr. Exton held several senior management positions at Magneti
Marelli (a division of Fiat), and Lucas Electrical.
Robert A. Marchetti
has been
Vice President and General Manager of Fastener Distribution Segment since April
2002. From February 2001 to April 2002, Mr. Marchetti was Vice President of
Machined Products Group. From 1997 to January 2001 Mr. Marchetti was employed by
Fairchild Corporation’s Fasteners Division with his last position being Senior
Vice President and Chief Operating Officer. From 1990 to 1997, Mr. Marchetti
served as a corporate officer of UNC Inc. where he held several senior positions
such as Corporate VP of Marketing, President of Tri-Remanufacturing and Chief
Operating Officer of the Accessory Overhaul Division. From 1989 to 1990, he
served as President of AWA Incorporated. From 1986 through 1989, Mr. Marchetti
was Vice President of Marketing at General Electric Aircraft Engines and General
Manager for a Component Repair Division. From 1965 through 1986 he held several
sales and general management positions with Copperweld Corporation and Carlisle
Corporation.
Edmund J. Moriarty
has been
Vice President-Law, General Counsel and Secretary since November 1995. From 1991
to 1995, Mr. Moriarty served as Vice President and General Counsel to Rollins,
Inc., a national service company. From 1982 through 1991, Mr. Moriarty served as
Vice President and General Counsel to Old Ben Coal Company, a wholly owned coal
subsidiary of The Standard Oil Company.
Stephen R. Swisher
has been
Vice President-Finance and Controller since August 1999. Mr. Swisher has been
Controller since 1996 and served as Director of Finance from 1994 to 1996. Prior
to 1994, Mr. Swisher held various management positions at Burger King
Corporation and Deloitte & Touche LLP.
Audit
Committee
We have a
separately-designated standing Audit Committee established in accordance with
section 3(a)(58)(A) of the Exchange Act. Messrs. Cowart, Hamermesh
and Wegner 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. Our Board of Directors has determined that Mr.
Cowart is an “audit committee financial expert” in accordance with current SEC
rules. Mr. Cowart is also independent, as that term is used in Item
407 of Regulation S-K of the federal securities laws.
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 shareholders are required by SEC
regulations to furnish us with copies of all Section 16(a) forms they
file.
To our
knowledge, based solely on a review of the copies of such reports furnished to
us and, with respect to our officers and directors, written representations that
no other reports were required, during the fiscal year ended December 31, 2007,
all Section 16(a) filing requirements applicable to our officers, directors and
greater-than-ten-percent beneficial owners were complied with.
In making
the above statements, we have relied on the written representations of our
directors and officers and copies of the reports that have been filed with the
SEC.
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 and senior financial officers. A copy of our Code of Business
Conduct is maintained on our website at www.beaerospace.com.
ITEM
11.
EXECUTIVE
COMPENSATION
Information
set forth under the caption "Executive Compensation" in the Proxy Statement is
incorporated by reference herein. The Compensation Committee Report will be
included in the Proxy Statement and is not incorporated 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.
ITE
M
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.
PART
IV
ITEM 15.
EXHIBITS AND FINANCIAL STATEMENT
SCHEDULES
(a)
|
Documents
filed as part of report on Form 10-K
|
|
|
|
1.
Financial Statements
|
|
|
|
Report
of Independent Registered Public Accounting Firm
|
|
|
|
Consolidated
Balance Sheets, December 31, 2007 and December 31, 2006
|
|
|
|
Consolidated
Statements of Earnings and Comprehensive Income for the Fiscal Years Ended
December 31, 2007, 2006, and 2005
|
|
|
|
Consolidated
Statements of Stockholders' Equity for the Fiscal Years Ended December 31,
2007, 2006, and 2005
|
|
|
|
Consolidated
Statements of Cash Flows for the Fiscal Years Ended December 31, 2007,
2006, and 2005
|
|
|
|
Notes
to Consolidated Financial Statements for the Fiscal Years Ended December
31, 2007, 2006, and 2005
|
|
|
|
2.
Financial Statement Schedules
|
|
|
|
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.
|
|
|
|
3.
Exhibits – The exhibits listed in the following "Index to Exhibits" are
filed with this Form 10-K or incorporated by reference as set forth
below.
|
|
|
(b)
|
The
exhibits listed in the "Index to Exhibits" below are filed with this Form
10-K or incorporated by
|
|
reference
as set forth below.
|
|
|
|
|
(c)
|
Additional
Financial Statement Schedules –
None.
|
|
INDEX TO EXHIBITS
|
|
|
Exhibit
|
Description
|
Number
|
|
|
|
|
|
Exhibit
3
|
Articles
of Incorporation and By-Laws
|
|
|
3.1
|
Amended
and Restated Certificate of Incorporation (1)
|
3.2
|
Certificate
of Amendment of the Restated Certificate of Incorporation
(2)
|
3.3
|
Certificate
of Amendment of the Restated Certificate of Incorporation
(4)
|
3.4
|
Certificate
of Amendment of the Restated Certificate of Incorporation
(12)
|
3.5
|
Amended
and Restated By-Laws (13)
|
3.6
|
Certificate
of Amendment of the Restated Certificate of Incorporation
(15)
|
|
|
Exhibit
4
|
Instruments
Defining the Rights of Security Holders, including
debentures
|
|
|
4.1
|
Specimen
Common Stock Certificate (1)
|
4.2
|
Rights
Agreement between the Registrant and BankBoston, N.A., as rights agent,
dated as of November 12, 1998 (5)
|
|
|
Exhibit
10(i)
|
Material
Contracts
|
|
|
10.1
|
Credit
Agreement, dated as of July 26, 2006, among the Registrant, J.P. Morgan
Securities Inc., UBS Securities LLC and Credit Suisse Securities (USA)
LLC, as Joint Lead Arrangers and Joint Bookrunners, and JPMorgan Chase
Bank, N.A., as Administrative Agent (16)
|
10.2
|
Amended
and Restated Credit Agreement, dated as of August 24, 2006, among the
Registrant, J.P. Morgan Securities Inc., UBS Securities LLC and Credit
Suisse Securities (USA) LLC, as Joint Lead Arrangers and Joint
Bookrunners, and JPMorgan Chase Bank, N.A., as Administrative Agent
(17)
|
|
|
Exhibit
10(iii)
|
Management
Contracts and Executive Compensation Plans, Contracts and
Arrangements
|
|
|
10.3
|
Amended
and Restated Employment Agreement for Amin J. Khoury dated as of April 27,
2007 (20)
|
10.4
|
Amended
and Restated Employment Agreement for Thomas P. McCaffrey dated as of
April 27, 2007 (20)
|
10.5
|
Amended
and Restated Employment Agreement for Michael B. Baughan dated as of April
27, 2007 (20)
|
10.6
|
Employment
Agreement dated as of January 15, 2001 between the Registrant and Mark D.
Krosney (11)
|
10.7
|
Employment
Agreement dated as of February 26, 2001 between the Registrant and Robert
A. Marchetti (11)
|
10.8
|
Retirement
Agreement dated as of December 31, 2005 between the Registrant and Robert
J. Khoury (19)
|
10.9
|
Consulting
Agreement dated as of December 31, 2005 between the Registrant and Robert
J. Khoury (19)
|
10.10
|
Amended
and Restated 1989 Stock Option Plan (9)
|
10.11
|
Amendment
No. 1 to Amended and Restated 1989 Stock Option Plan
(7)
|
10.12
|
1991
Directors' Stock Option Plan (3)
|
10.13
|
United
Kingdom 1992 Employee Share Option Scheme (2)
|
10.14
|
1996
Stock Option Plan (9)
|
10.15
|
Amendment
No. 1 to the 1996 Stock Option Plan (7)
|
10.16
|
Amendment
No. 2 to the 1996 Stock Option Plan (8)
|
10.17
|
2001
Stock Option Plan (10)
|
10.18
|
2001
Directors' Stock Option Plan (10)
|
10.19
|
Supplemental
Executive Deferred Compensation Plan III (6)
|
10.20
|
BE
Aerospace, Inc. Management Incentive Plan (100%) - FY
2008*
|
10.21
|
BE
Aerospace, Inc. Management Incentive Plan (80%) - FY
2008*
|
10.22
|
BE
Aerospace, Inc. Management Incentive Plan (60%) - FY
2008*
|
10.23
|
2005
Long-Term Incentive Plan (14)
|
10.24
|
Standard
Form of Restricted Stock Award Agreement (20)
|
10.25
|
Form
of Restricted Stock Award Agreement for Amin J. Khoury
(20)
|
10.26
|
Form
of Restricted Stock Award Agreement for Thomas P. McCaffrey
(20)
|
10.27
|
Form
of Restricted Stock Award Agreement for Michael B. Baughan
(20)
|
10.28
|
Form
of Restricted Stock Award Agreement for Robert A. Marchetti
(20)
|
10.29
|
Amended
and Restated 1994 Employee Stock Purchase Plan (18)
|
|
|
Exhibit
14
|
Code
of Ethics
|
|
|
14.1
|
Code
of Business Conduct (13)
|
|
|
Exhibit
21
|
Subsidiaries
of the Registrant
|
|
|
21.1
|
Subsidiaries*
|
|
|
Exhibit
23
|
Consents
of Experts and Counsel
|
|
|
23.1
|
Consent
of Independent Registered Public Accounting Firm – Deloitte & Touche
LLP*
|
|
|
Exhibit
31
|
Rule
13a-14(a)/15d-14(a) Certifications
|
|
|
31.1
|
Certification
of Chief Executive Officer*
|
|
|
31.2
|
Certification
of Chief Financial Officer*
|
|
|
Exhibit
32
|
Section
1350 Certifications
|
|
|
32.1
|
Certification
of Chief Executive Officer pursuant to 18 U.S.C. Section
1350*
|
|
|
32.2
|
Certification
of Chief Financial Officer pursuant to 18 U.S.C. Section
1350*
|
|
|
|
|
__________________
|
|
*
Filed herewith.
|
|
|
|
(1)
|
Incorporated
by reference to the Company’s Registration Statement on Form S-1, as
amended (No. 33-33689), filed with the Commission on March 7,
1990.
|
(2)
|
Incorporated
by reference to the Company’s Registration Statement on Form S-1, as
amended (No. 333-54146), filed with the Commission on November 3,
1992.
|
(3)
|
Incorporated
by reference to the Company’s Registration Statement on Form S-8 (No.
333-48010), filed with the Commission on May 26, 1992.
|
(4)
|
Incorporated
by reference to the Company’s Registration Statement on Form S-3 (No.
333-60209), filed with the Commission on July 30, 1998.
|
(5)
|
Incorporated
by reference to the Company’s Current Report on Form 8-K dated November
12, 1998, filed with the Commission on November 18,
1998.
|
(6)
|
Incorporated
by reference to the Company’s Quarterly Report on Form 10-Q for the
quarter ended May 29, 1999, filed with the Commission on July 9,
1999.
|
(7)
|
Incorporated
by reference to the Company’s Registration Statement on Form S-8 (No.
333-89145), filed with the Commission on October 15,
1999.
|
(8)
|
Incorporated
by reference to the Company’s Registration Statement on Form S-8 (No.
333-30578), filed with the Commission on February 16,
2000.
|
(9)
|
Incorporated
by reference to the Company's Registration Statement on Form S-8 (No.
333-14037), filed with the Commission on October 15,
1996.
|
(10)
|
Incorporated
by reference to the Company's Registration Statement on Form S-8 (No.
333-71442), filed with the Commission on October 11,
2001.
|
(11)
|
Incorporated
by reference to the Company's Annual Report on Form 10-K/A for the fiscal
year ended February 23, 2002, filed with the Commission on May 29,
2002.
|
(12)
|
Incorporated
by reference to the Company’s Registration Statement on Form S-3 (No.
333-112493), as amended, filed with the Commission on February 5,
2004.
|
(13)
|
Incorporated
by reference to the Company’s Transition Report on Form 10-K for the
ten-month transition period ended December 31, 2002, filed with the
Commission March 26, 2003.
|
(14)
|
Incorporated
by reference to the Company’s Current Report on Form 8-K dated July 26,
2005, filed with the Commission on July 26, 2005.
|
(15)
|
Incorporated
by reference to the Company’s Quarterly Report on Form 10-Q for the
quarter ended June 30, 2006, filed with the Commission on August 7,
2006.
|
(16)
|
Incorporated
by reference to the Company’s Current Report on Form 8-K dated July 26,
2006, filed with the Commission on July 31, 2006.
|
(17)
|
Incorporated
by reference to the Company’s Current Report on Form 8-K dated August 24,
2006, filed with the Commission on August 29, 2006.
|
(18)
|
Incorporated
by reference to the Company’s Quarterly Report on Form 10-Q for the
quarter ended September 30, 2006, filed with the Commission on November 7,
2006.
|
(19)
|
Incorporated
by reference to the Company’s Annual Report on Form 10-K for the fiscal
year ended December 31, 2005 filed with the Commission on March 15,
2006.
|
(20)
|
Incorporated
by reference to the Company’s Quarterly Report on Form 10-Q for the
quarter ended March 31, 2007, filed with the Commission on May 9,
2007
|
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.
|
BE
AEROSPACE, INC.
|
|
|
|
|
|
|
|
|
|
|
By:
|
/s/ Amin J. Khoury
|
|
|
Amin
J. Khoury
|
|
|
Chairman
and Chief Executive Officer
|
Date: February
15, 2008
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.
Signature
|
|
Title
|
Date
|
|
|
|
|
|
|
|
|
/s/
Amin J. Khoury
|
|
Chairman
and Chief Executive Officer
|
February
15, 2008
|
Amin
J. Khoury
|
|
|
|
|
|
|
|
/s/
Thomas P. McCaffrey
|
|
Senior
Vice President, Chief Financial Officer and Treasurer
|
February
15, 2008
|
Thomas
P. McCaffrey
|
|
(principal
financial and accounting officer)
|
|
|
|
|
|
|
|
|
|
/s/
Charles L. Chadwell
|
|
Director
|
February
15, 2008
|
Charles
L. Chadwell
|
|
|
|
|
|
|
|
|
|
|
|
/s/
Jim C. Cowart
|
|
Director
|
February
15, 2008
|
Jim
C. Cowart
|
|
|
|
|
|
|
|
|
|
|
|
/s/
Richard G. Hamermesh
|
|
Director
|
February
15, 2008
|
Richard
G. Hamermesh
|
|
|
|
|
|
|
|
|
|
|
|
/s/
Robert J. Khoury
|
|
Director
|
February
15, 2008
|
Robert
J. Khoury
|
|
|
|
|
|
|
|
|
|
|
|
/s/
Jonathan M. Schofield
|
|
Director
|
February
15, 2008
|
Jonathan
M. Schofield
|
|
|
|
|
|
|
|
|
|
|
|
/s/
Arthur E. Wegner
|
|
Director
|
February
15, 2008
|
Arthur
E. Wegner
|
|
|
|
ITEM 8. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND
SCHEDULE
|
|
Page
|
|
|
|
|
|
|
|
|
|
Consolidated
Financial Statements:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
Financial Statement Schedule:
|
|
|
|
|
|
|
|
|
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
The Board
of Directors and Stockholders
BE
Aerospace, Inc.
Wellington,
Florida
We have
audited the accompanying consolidated balance sheets of BE Aerospace, Inc. and
subsidiaries (the “Company”) as of December 31, 2007 and 2006, and the
related consolidated statements of earnings and comprehensive income,
stockholders’ equity, and cash flows for each of the three years in the period
ended December 31, 2007. Our audits also included the financial statement
schedule listed in item 15(a)(2). These consolidated financial statements
and the financial statement schedule are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these consolidated
financial statements and the financial statement schedule based on our
audits.
We
conducted our audits 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 the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our
opinion, such consolidated financial statements present fairly, in all material
respects, the financial position of BE Aerospace, Inc. and subsidiaries as of
December 31, 2007 and 2006, and the results of their operations and their
cash flows for each of the three years in the period ended December 31,
2007, in conformity with accounting principles generally accepted in the United
States of America. Also, in our opinion, the financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information set forth
therein.
As
discussed in Note 10 to the consolidated financial statements, the Company
adopted the provisions of Financial Accounting Standards Board Interpretation
No. 48,
Accounting for
Uncertainty in Income Taxes
, in 2007.
We have
also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the Company’s internal control over financial
reporting as of December 31, 2007, based on the criteria established in
Internal Control—Integrated
Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission and our report dated February 15, 2008 expressed an
unqualified opinion on the Company's internal control over financial
reporting.
/s/
Deloitte & Touche LLP
Costa
Mesa, California
February
15, 2008
CONSOLIDATED BALANCE SHEETS, DECEMBER 31, 2007 AND
2006
(In
millions, except per share data)
|
|
December
31,
|
|
|
December
31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
81.6
|
|
|
$
|
65.0
|
|
Accounts
receivable trade, net
|
|
|
218.0
|
|
|
|
172.9
|
|
Inventories,
net
|
|
|
636.3
|
|
|
|
420.9
|
|
Deferred
income taxes, net
|
|
|
62.4
|
|
|
|
53.1
|
|
Other
current assets
|
|
|
21.7
|
|
|
|
13.8
|
|
Total
current assets
|
|
|
1,020.0
|
|
|
|
725.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property
and equipment, net
|
|
|
116.4
|
|
|
|
107.9
|
|
Goodwill
|
|
|
467.2
|
|
|
|
457.2
|
|
Identifiable
intangible assets, net
|
|
|
142.2
|
|
|
|
160.6
|
|
Deferred
income taxes, net
|
|
|
--
|
|
|
|
27.9
|
|
Other
assets, net
|
|
|
26.2
|
|
|
|
18.4
|
|
|
|
$
|
1,772.0
|
|
|
$
|
1,497.7
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
192.1
|
|
|
$
|
166.9
|
|
Accrued
liabilities
|
|
|
114.7
|
|
|
|
100.9
|
|
Current
maturities of long-term debt
|
|
|
1.6
|
|
|
|
1.9
|
|
Total
current liabilities
|
|
|
308.4
|
|
|
|
269.7
|
|
|
|
|
|
|
|
|
|
|
Long-term
debt, net of current maturities
|
|
|
150.3
|
|
|
|
502.0
|
|
Deferred
income taxes, net
|
|
|
34.9
|
|
|
|
10.0
|
|
Other
non-current liabilities
|
|
|
20.3
|
|
|
|
10.0
|
|
|
|
|
|
|
|
|
|
|
Commitments,
contingencies and off-balance sheet
|
|
|
|
|
|
|
|
|
arrangements
(Note 8)
|
|
|
|
|
|
|
|
|
Stockholders'
equity:
|
|
|
|
|
|
|
|
|
Preferred
stock, $0.01 par value; 1.0 shares
|
|
|
|
|
|
|
|
|
authorized;
no shares outstanding
|
|
|
--
|
|
|
|
--
|
|
Common
stock, $0.01 par value; 200.0 shares
|
|
|
|
|
|
|
|
|
authorized;
93.1 (December 31, 2007) and
|
|
|
|
|
|
|
|
|
79.5
(December 31, 2006) shares issued
|
|
|
|
|
|
|
|
|
and
outstanding
|
|
|
0.9
|
|
|
|
0.8
|
|
Additional
paid-in capital
|
|
|
1,324.3
|
|
|
|
927.2
|
|
Accumulated
deficit
|
|
|
(89.7
|
)
|
|
|
(234.8
|
)
|
Accumulated
other comprehensive income
|
|
|
22.6
|
|
|
|
12.8
|
|
Total
stockholders' equity
|
|
|
1,258.1
|
|
|
|
706.0
|
|
|
|
$
|
1,772.0
|
|
|
$
|
1,497.7
|
|
|
|
|
|
|
|
|
|
|
See
accompanying notes to consolidated financial statements.
CONSOLIDATED
STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME
FOR THE
FISCAL YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005
(In
millions, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
Years Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$
|
1,677.7
|
|
|
$
|
1,128.2
|
|
|
$
|
844.1
|
|
Cost
of sales
|
|
|
1,107.6
|
|
|
|
731.7
|
|
|
|
548.5
|
|
Selling,
general and administrative
|
|
|
195.2
|
|
|
|
159.6
|
|
|
|
136.4
|
|
Research,
development and engineering
|
|
|
127.9
|
|
|
|
88.6
|
|
|
|
65.6
|
|
Operating
earnings
|
|
|
247.0
|
|
|
|
148.3
|
|
|
|
93.6
|
|
Interest
expense, net
|
|
|
20.9
|
|
|
|
38.9
|
|
|
|
59.3
|
|
Debt
prepayment costs
|
|
|
11.0
|
|
|
|
19.4
|
|
|
|
--
|
|
Earnings
before income taxes
|
|
|
215.1
|
|
|
|
90.0
|
|
|
|
34.3
|
|
Income
tax expense (benefit)
|
|
|
67.8
|
|
|
|
4.4
|
|
|
|
(50.3
|
)
|
Net
earnings
|
|
|
147.3
|
|
|
|
85.6
|
|
|
|
84.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
exchange translation
|
|
|
|
|
|
|
|
|
|
|
|
|
adjustment
and other
|
|
|
9.8
|
|
|
|
17.5
|
|
|
|
(13.7
|
)
|
Comprehensive
income
|
|
$
|
157.1
|
|
|
$
|
103.1
|
|
|
$
|
70.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
earnings per share - basic
|
|
$
|
1.67
|
|
|
$
|
1.11
|
|
|
$
|
1.44
|
|
Net
earnings per share - diluted
|
|
$
|
1.66
|
|
|
$
|
1.10
|
|
|
$
|
1.39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares - basic
|
|
|
88.1
|
|
|
|
77.1
|
|
|
|
58.8
|
|
Weighted
average common shares - diluted
|
|
|
88.8
|
|
|
|
78.0
|
|
|
|
60.8
|
|
See
accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS'
EQUITY
FOR THE FISCAL YEARS ENDED
DECEMBER 31, 2007, 2006, AND 2005
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Other
|
|
|
Total
|
|
|
|
Common Stock
|
|
|
Paid-in
|
|
|
Accumulated
|
|
|
Comprehensive
|
|
|
Stockholders'
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Income (Loss)
|
|
|
Equity
|
|
Balance,
December 31, 2004
|
|
|
56.6
|
|
|
$
|
0.6
|
|
|
$
|
578.2
|
|
|
$
|
(405.0
|
)
|
|
$
|
9.0
|
|
|
$
|
182.8
|
|
Sale
of common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
under
public offering
|
|
|
15.0
|
|
|
|
0.1
|
|
|
|
268.6
|
|
|
|
--
|
|
|
|
--
|
|
|
|
268.7
|
|
Sale
of stock under
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
employee
stock purchase plan
|
|
|
0.2
|
|
|
|
--
|
|
|
|
2.8
|
|
|
|
--
|
|
|
|
--
|
|
|
|
2.8
|
|
Exercise
of stock options
|
|
|
2.3
|
|
|
|
--
|
|
|
|
13.5
|
|
|
|
--
|
|
|
|
--
|
|
|
|
13.5
|
|
Employee
benefit plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
matching
contribution
|
|
|
0.2
|
|
|
|
--
|
|
|
|
2.9
|
|
|
|
--
|
|
|
|
--
|
|
|
|
2.9
|
|
Deferred
income tax benefit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
from
shared based payments
|
|
|
--
|
|
|
|
--
|
|
|
|
28.0
|
|
|
|
--
|
|
|
|
--
|
|
|
|
28.0
|
|
Net
earnings
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
84.6
|
|
|
|
--
|
|
|
|
84.6
|
|
Foreign
currency translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
adjustment
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
(13.7
|
)
|
|
|
(13.7
|
)
|
Balance,
December 31, 2005
|
|
|
74.3
|
|
|
|
0.7
|
|
|
|
894.0
|
|
|
|
(320.4
|
)
|
|
|
(4.7
|
)
|
|
|
569.6
|
|
Sale
of stock under
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
employee
stock purchase plan
|
|
|
0.1
|
|
|
|
--
|
|
|
|
2.6
|
|
|
|
--
|
|
|
|
--
|
|
|
|
2.6
|
|
Exercise
of stock options
|
|
|
3.6
|
|
|
|
0.1
|
|
|
|
28.5
|
|
|
|
--
|
|
|
|
--
|
|
|
|
28.6
|
|
Restricted
stock grants
|
|
|
1.5
|
|
|
|
--
|
|
|
|
2.2
|
|
|
|
--
|
|
|
|
--
|
|
|
|
2.2
|
|
Deferred
income tax benefit (cost)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
from
shared based payments
|
|
|
--
|
|
|
|
--
|
|
|
|
(0.7
|
)
|
|
|
--
|
|
|
|
--
|
|
|
|
(0.7
|
)
|
Net
earnings
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
85.6
|
|
|
|
--
|
|
|
|
85.6
|
|
Foreign
currency translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
adjustment
and other
|
|
|
--
|
|
|
|
--
|
|
|
|
0.6
|
|
|
|
--
|
|
|
|
17.5
|
|
|
|
18.1
|
|
Balance,
December 31, 2006
|
|
|
79.5
|
|
|
|
0.8
|
|
|
|
927.2
|
|
|
|
(234.8
|
)
|
|
|
12.8
|
|
|
|
706.0
|
|
Sale
of common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
under
public offering, net
|
|
|
12.1
|
|
|
|
0.1
|
|
|
|
368.5
|
|
|
|
--
|
|
|
|
--
|
|
|
|
368.6
|
|
Sale
of stock under
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
employee
stock purchase plan
|
|
|
0.1
|
|
|
|
--
|
|
|
|
3.1
|
|
|
|
--
|
|
|
|
--
|
|
|
|
3.1
|
|
Exercise
of stock options
|
|
|
1.0
|
|
|
|
--
|
|
|
|
14.8
|
|
|
|
|
|
|
|
|
|
|
|
14.8
|
|
Restricted
stock grants
|
|
|
0.4
|
|
|
|
--
|
|
|
|
10.7
|
|
|
|
--
|
|
|
|
--
|
|
|
|
10.7
|
|
Net
earnings
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
147.3
|
|
|
|
--
|
|
|
|
147.3
|
|
Foreign
currency translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
adjustment
and other
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
0.1
|
|
|
|
9.8
|
|
|
|
9.9
|
|
Impact
of adoption of FIN48
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
(2.3
|
)
|
|
|
--
|
|
|
|
(2.3
|
)
|
Balance,
December 31, 2007
|
|
|
93.1
|
|
|
$
|
0.9
|
|
|
$
|
1,324.3
|
|
|
$
|
(89.7
|
)
|
|
$
|
22.6
|
|
|
$
|
1,258.1
|
|
See
accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE FISCAL YEARS ENDED
DECEMBER 31, 2007, 2006, AND 2005
(In
millions)
|
|
Fiscal
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Net
earnings
|
|
$
|
147.3
|
|
|
$
|
85.6
|
|
|
$
|
84.6
|
|
Adjustments
to reconcile net earnings to
|
|
|
|
|
|
|
|
|
|
|
|
|
net
cash flows provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
35.0
|
|
|
|
29.4
|
|
|
|
28.6
|
|
Deferred
income taxes
|
|
|
58.5
|
|
|
|
(0.6
|
)
|
|
|
(51.9
|
)
|
Excess
tax benefits (cost) from share-based payments
|
|
|
--
|
|
|
|
(0.7
|
)
|
|
|
28.0
|
|
Non-cash
compensation
|
|
|
11.0
|
|
|
|
2.7
|
|
|
|
4.1
|
|
Provision
for doubtful accounts
|
|
|
0.6
|
|
|
|
1.8
|
|
|
|
0.5
|
|
Loss
on disposal of property and equipment
|
|
|
0.5
|
|
|
|
0.5
|
|
|
|
1.0
|
|
Debt
prepayment costs
|
|
|
11.0
|
|
|
|
19.4
|
|
|
|
--
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(43.2
|
)
|
|
|
(16.2
|
)
|
|
|
(46.7
|
)
|
Inventories
|
|
|
(212.9
|
)
|
|
|
(155.7
|
)
|
|
|
(28.9
|
)
|
Other
current assets and other assets
|
|
|
(19.2
|
)
|
|
|
8.3
|
|
|
|
(30.8
|
)
|
Payables,
accruals and other liabilities
|
|
|
33.4
|
|
|
|
66.5
|
|
|
|
24.1
|
|
Net
cash flows provided by operating activities
|
|
|
22.0
|
|
|
|
41.0
|
|
|
|
12.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
expenditures
|
|
|
(32.1
|
)
|
|
|
(24.1
|
)
|
|
|
(16.9
|
)
|
Acquisitions,
net of cash acquired
|
|
|
(0.4
|
)
|
|
|
(145.3
|
)
|
|
|
--
|
|
Other
|
|
|
(0.1
|
)
|
|
|
--
|
|
|
|
1.6
|
|
Net
cash flows used in investing activities
|
|
|
(32.6
|
)
|
|
|
(169.4
|
)
|
|
|
(15.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from common stock issued, net of expenses
|
|
|
386.1
|
|
|
|
30.0
|
|
|
|
285.1
|
|
Principal
payments on long term debt
|
|
|
(352.8
|
)
|
|
|
(549.5
|
)
|
|
|
(0.9
|
)
|
Debt
facility and prepayment costs
|
|
|
(7.4
|
)
|
|
|
(19.2
|
)
|
|
|
--
|
|
Proceeds
from long-term debt
|
|
|
--
|
|
|
|
373.6
|
|
|
|
--
|
|
Borrowings
on line of credit
|
|
|
93.0
|
|
|
|
150.0
|
|
|
|
--
|
|
Repayments
on line of credit
|
|
|
(93.0
|
)
|
|
|
(150.0
|
)
|
|
|
--
|
|
Net
cash flows provided by (used in) financing activities
|
|
|
25.9
|
|
|
|
(165.1
|
)
|
|
|
284.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect
of foreign exchange rate changes on cash and cash
equivalents
|
|
|
1.3
|
|
|
|
2.5
|
|
|
|
(1.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
16.6
|
|
|
|
(291.0
|
)
|
|
|
279.7
|
|
Cash
and cash equivalents, beginning of year
|
|
|
65.0
|
|
|
|
356.0
|
|
|
|
76.3
|
|
Cash
and cash equivalents, end of year
|
|
$
|
81.6
|
|
|
$
|
65.0
|
|
|
$
|
356.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
paid during period for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
26.6
|
|
|
$
|
49.0
|
|
|
$
|
57.8
|
|
Income
taxes
|
|
|
8.0
|
|
|
|
1.6
|
|
|
|
3.2
|
|
See accompanying
notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FISCAL YEARS ENDED
DECEMBER 31, 2007, 2006 AND 2005
(In
millions, except per share data)
1. SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Basis of
Presentation
–
BE
Aerospace, Inc. and its wholly owned subsidiaries (the "Company") designs,
manufactures, sells and services commercial aircraft and business jet cabin
interior products consisting of a broad range of seating, interior systems,
including structures as well as all food and beverage storage and preparation
equipment and distributes aerospace fasteners. The Company’s
principal customers are the operators of commercial and business jet aircraft
and aircraft manufacturers. As a result, the Company’s business is
directly dependent upon the conditions in the commercial airline, business jet
and aircraft manufacturing industries. The accompanying consolidated
financial statements are prepared in accordance with accounting principles
generally accepted in the United States of America.
Consolidation –
The
accompanying consolidated financial statements include the accounts of BE
Aerospace, Inc. and its wholly owned subsidiaries. All intercompany
transactions and balances have been eliminated in consolidation.
Financial Statement
Preparation
–
The
preparation of the consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts and related disclosures. Actual results could differ from
those estimates.
Revenue Recognition
–
Sales of products 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,
collectibility is reasonably assured and pricing is fixed and
determinable. In instances where title does not pass to the customer
upon shipment, the Company recognizes 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.
Revenues
and costs under certain long-term contracts are recognized using contract
accounting under the percentage-of-completion method, generally using the
cost-to-cost method. The percentage-of-completion method requires the
use of estimates of costs to complete long-term contracts. The
estimation of these costs requires judgment on the part of management due to the
duration of these contracts as well as the technical nature of the products
involved. Adjustments to these estimated costs are made on a
consistent basis. 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. A provision for
contract losses is recorded when such facts are determinable.
Income Taxes
–
The Company provides
deferred income taxes for temporary differences between amounts of assets and
liabilities recognized for financial reporting purposes and such amounts
recognized for income tax purposes. Deferred income taxes are
computed using enacted tax rates that are expected to be in effect when the
temporary differences reverse. A valuation allowance related to a
deferred tax asset is recorded when it is more likely than not that some portion
or the entire deferred tax asset will not be realized.
Cash Equivalents –
The
Company considers all highly liquid debt instruments purchased with an original
maturity of three months or less to be cash equivalents.
Accounts Receivable –
The
Company performs ongoing credit evaluations of its customers and adjusts credit
limits based upon payment history and the customer's current creditworthiness,
as determined by review of their current credit information. The
Company continuously monitors collections and payments from its customers and
maintains a provision for estimated credit losses based upon historical
experience and any specific customer collection issues that have been
identified. Credit losses have historically been within management's
expectations and the provisions established. Our allowance for
doubtful accounts at December 31, 2007 and 2006 was $4.5 and $4.7,
respectively.
Inventories –
The Company
values inventory at the lower of cost (FIFO or weighted average cost method) or
market. The Company regularly reviews inventory quantities on hand
and records a provision for excess and obsolete inventory based primarily on
historical demand, as well as, an estimated forecast of product demand and
production requirements. Demand for the Company’s products can
fluctuate significantly. 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.
Debt Issuance Costs –
Costs
incurred to issue debt are deferred and amortized as interest expense over the
term of the related debt.
Goodwill and Identified Intangible
Assets
–
Under
Statement of Financial Accounting Standards (“SFAS”) No. 142, "Goodwill and
Other Intangible Assets”, goodwill and other intangible assets with indefinite
lives are not amortized, but are reviewed at least annually for
impairment. Acquired intangible assets with definite lives are
amortized over their individual useful lives. In addition to
goodwill, intangible assets with indefinite lives consist of the M & M
trademark. Patents and other intangible assets are amortized using
the straight-line method over periods ranging from one to thirty years (see Note
5). On at least an annual basis, management assesses whether there
has been any impairment in the value of goodwill or intangible assets with
indefinite lives by comparing the fair value to the net carrying value of
reporting units. If the carrying value exceeds its estimated fair
value, an impairment loss would be recognized if the implied fair value of the
asset being tested was less than its carrying value. In this event,
the asset is written down accordingly. In accordance with SFAS No.
142, the Company completed step one of the impairment tests and fair value
analysis for goodwill and other intangible assets, and there were no impairments
or impairment indicators present and no impairment loss was recorded during the
fiscal years ended December 31, 2007, 2006 or 2005.
Long-Lived Assets
– The
Company assesses potential impairments to its long-lived assets when there is
evidence that events or changes in circumstances indicate that the carrying
amount of an asset may not be recovered. An impairment loss is
recognized when the undiscounted cash flows expected to be generated by an asset
(or group of assets) is less than its carrying amount. Any required
impairment loss is measured as the amount by which the asset's carrying value
exceeds its fair value and is recorded as a reduction in the carrying value of
the related asset and a charge to operating results.
Product Warranty Costs
–
Estimated costs related to
product warranties are accrued at the time products are sold. In
estimating its future warranty obligations, the Company considers various
relevant factors, including the Company's stated warranty policies and
practices, the historical frequency of claims and the cost to replace or repair
its products under warranty. The following table provides a
reconciliation of the activity related to the Company's accrued warranty
expense:
|
|
Fiscal
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Balance
at beginning of period
|
|
$
|
18.4
|
|
|
$
|
14.3
|
|
|
$
|
13.2
|
|
Accruals
for warranties issued during the period
|
|
|
24.5
|
|
|
|
12.7
|
|
|
|
13.6
|
|
Settlement
made
|
|
|
(22.3
|
)
|
|
|
(9.2
|
)
|
|
|
(12.5
|
)
|
Acquistions
|
|
|
--
|
|
|
|
0.6
|
|
|
|
--
|
|
Balance
at end of period
|
|
$
|
20.6
|
|
|
$
|
18.4
|
|
|
$
|
14.3
|
|
Accounting for Stock-Based
Compensation
– Prior to January 1, 2006 the Company applied Accounting
Principles Board Opinion No. 25 “Accounting for Stock Issues to Employees”, and
related interpretations in accounting for its stock option and purchase
plans. Effective January 1, 2006, the Company began accounting for
share-based compensation arrangements in accordance with the provisions of SFAS
No. 123(R), “Share Based Payment” (SFAS No. 123(R)) whereby share-based
compensation cost is measured on the date of grant, based on the fair value of
the award, and is recognized over the requisite service period. The Company
elected to use the modified prospective transition method as permitted by SFAS
No. 123(R) and therefore has not restated the financial results for prior
periods.
Commencing
January 1, 2006, compensation cost includes all share-based payments granted
subsequent to January 1, 2006, based on the grant date fair value estimated in
accordance with the provisions of SFAS No. 123(R). No compensation
cost has been recognized during 2006 or 2007 for share-based payments granted
prior to January 1, 2006 as the vesting of all remaining unvested awards were
accelerated in December 2005 and no options were granted during the two year
period ended December 31, 2007. The following table illustrates the
effects of options and employee purchase rights granted prior to January 1, 2006
on net income and earnings per share if the Company had applied the fair value
recognition provisions of SFAS No. 123(R) for the fiscal year ended December
2005. The fair value of each option grant is estimated on the date of
grant using the Black-Scholes options-pricing model with the following weighted
average assumptions used for options granted during the year ended December 31,
2005; risk free rate of 4.1%, dividend yield of 0%, volatility of 65%, and
expected life (years) of 2.2.
As
reported
|
|
|
|
Net
earnings
|
|
$
|
84.6
|
|
Add:
Stock-based compensation expense included in
|
|
|
|
|
reported
net earnings, net of tax effects
|
|
|
0.7
|
|
Deduct:
Expense per SFAS No. 123 (R), fair value
|
|
|
|
|
method,
net of related tax effects
|
|
|
(6.3
|
)
|
Pro
forma net earnings
|
|
$
|
79.0
|
|
Net
earnings per share - basic:
|
|
|
|
|
As
reported
|
|
$
|
1.44
|
|
Proforma
|
|
$
|
1.34
|
|
Net
earnings per share - diluted:
|
|
|
|
|
As
reported
|
|
$
|
1.39
|
|
Proforma
|
|
$
|
1.30
|
|
Prior to
the adoption of SFAS No. 123(R), the Company presented all tax benefits
resulting from the exercise of stock options as operating cash flows in the
Statement of Cash Flows. SFAS No. 123(R) requires the cash flows
resulting from the tax benefits from tax deductions in excess of deferred tax
asset (hypothetical and actual) recorded for stock compensation costs (excess
tax benefits) to be classified as financing cash flows.
The
Company has established a qualified Employee Stock Purchase Plan. The
Plan allows qualified employees (as defined) to participate in the purchase of
designated shares of the Company's common stock at a price equal to 85% of the
closing price at the end of each semi-annual stock purchase
period. The value of employee purchase rights granted pursuant to the
Company’s Employee Stock Purchase Plan during the years ended December 31, 2007,
2006 and 2005 was $0.5, $0.4 and $1.7, respectively. The fair value
of those purchase rights represents the difference between the closing price of
the Company’s shares on the date of purchase and the purchase price of the
shares.
Research and Development –
Research and development expenditures are expensed as incurred.
Foreign Currency
Translation
–
The
assets and liabilities of subsidiaries located outside the United States are
translated into U.S. dollars at the rates of exchange in effect at the balance
sheet dates. Revenue and expense items are translated at the average
exchange rates prevailing during the period. Gains and losses
resulting from foreign currency transactions are recognized currently in income,
and those resulting from translation of financial statements are accumulated as
a separate component of stockholders’ equity. The Company's European
subsidiaries utilize the British pound or the Euro as their local functional
currency.
Recent
Accounting Pronouncements
In
September 2006, the FASB issued SFAS No. 157 “Fair Value Measurements” (SFAS
157) which provides guidance for measuring assets and liabilities at fair
value. SFAS 157 is effective for financial statements issued for
fiscal years beginning after November 15, 2007. The adoption of SFAS
157 is not expected to have a material impact on the Company’s consolidated
financial statements.
In
February 2007, the FASB issued SFAS No. 159 “The Fair Value Option for Financial
Assets and Financial Liabilities, Including an Amendment of FASB Statement No.
115” (SFAS 159). SFAS 159 allows companies to measure at fair value
most financial assets and liabilities that are currently required to be measured
in a different manner, such as based on their carrying amount. SFAS
159 is effective for fiscal years beginning after November 15,
2007. The adoption of SFAS 159 is not expected to have a material
impact on the Company’s consolidated financial statements.
In
December 2007, the FASB issued Statement of Financial Accounting Standards No.
141 (revised 2007), “Business Combinations” (FAS 141 (R)) and No. 160,
“Noncontrolling Interests in Consolidated Financial Statements, an amendment of
ARB No. 51 (FAS 160)”. FAS 141(R) will change how business
acquisitions are accounted for and FAS 160 will change the accounting and
reporting for minority interests, which will be recharacterized as
noncontrolling interests and classified as a component of equity. FAS
141(R) and FAS 160 are effective for fiscal years beginning on or after December
15, 2008 (January 1, 2009 for the Company).
The adoption of FAS
141(R) and FAS 160 will not have a material impact on the Company’s consolidated
financial statements.
2.
BUSINESS
COMBINATIONS
During
2006, the Company completed two acquisitions which were accounted for as
purchases under SFAS No. 141, “Business Combinations”. The assets
purchased and liabilities assumed for these acquisitions have been reflected in
the accompanying consolidated balance sheet as of December 31, 2006 and the
results of operations for the acquisitions are included in the accompanying
consolidated statement of earnings from the respective dates of
acquisition.
Draeger
Aerospace GmbH
On July
26, 2006, the Company acquired Draeger Aerospace GmbH (Draeger), from Cobham PLC
of Dorset, England for $79.4 in cash.
Draeger
manufactures components and integrated systems to supply chemical and gaseous
oxygen systems for both civil and military aircraft. The integration
of Draeger with the Company’s existing oxygen systems business will provide for
a broadening of the Company’s oxygen systems product line and an expansion of
its customer base.
The excess
of the purchase price over the fair value of the identifiable net tangible
assets acquired approximated $57.7 of which $13.7 has been allocated to
intangible assets and $44.0 is included in goodwill. Adjustments to
identified assets and goodwill relate to changes to deferred tax balances
resulting in part from the finalization of the acquisition appraisal during
2007.
New
York Fasteners Corp.
On
September 1, 2006, the Company acquired New York Fasteners Corp. (New York
Fasteners), a privately-held company, for $67.3 in cash.
New York
Fasteners is a distributor of aerospace fasteners and hardware primarily to the
military sector. The integration of New York Fasteners into the
Company’s distribution segment is expected to create procurement and operations
synergies and significantly expand the Company’s overall penetration into the
military sector.
The
estimated excess of the purchase price over the fair value of identifiable net
tangible assets acquired was $48.3 of which $5.5 has been allocated to
intangible assets and $42.8 is included in goodwill.
The
following table summarizes the fair values of assets acquired and liabilities
assumed:
Cash
and cash equivalents
|
|
$
|
1.0
|
|
Accounts
receivable-trade
|
|
|
19.9
|
|
Inventories
|
|
|
35.3
|
|
Other
current assets
|
|
|
0.1
|
|
Property
and equipment
|
|
|
4.4
|
|
Goodwill
|
|
|
86.8
|
|
Identified
intangibles
|
|
|
19.2
|
|
Long
term deferred tax asset
|
|
|
1.8
|
|
Other
assets
|
|
|
1.4
|
|
Accounts
payable and accrued liabilities
|
|
|
(23.1
|
)
|
Other
liabilities
|
|
|
(0.1
|
)
|
Total
purchase price
|
|
$
|
146.7
|
|
Goodwill
of $42.8 and other intangibles of $5.5 related to the New York Fasteners
acquisition are expected to be deductible for U.S. tax
purposes.
Consolidated
pro forma revenues for fiscal years 2006 and 2005, giving effect to the New York
Fasteners and Draeger acquisitions as if they had occurred on January 1, 2006
and 2005 were $1,190.0 and $919.6, respectively. Consolidated pro
forma net earnings, and diluted net earnings per share giving effect to the New
York Fasteners and Draeger acquisitions as if they had occurred on January 1,
2006 and 2005 were $82.8 and $82.5, and $1.06 and $1.36,
respectively.
3. INVENTORIES
Inventories
are stated at the lower of cost or market. Cost is determined using
FIFO or the weighted average cost method. Finished goods and
work-in-process inventories include material, labor and manufacturing overhead
costs. Inventories consist of the following:
|
|
December
31,
|
|
|
December
31,
|
|
|
|
2007
|
|
|
2006
|
|
Purchased
materials and component parts
|
|
$
|
132.2
|
|
|
$
|
96.8
|
|
Work-in-process
|
|
|
37.7
|
|
|
|
21.7
|
|
Finished
goods (primarily aftermarket fasteners)
|
|
|
466.4
|
|
|
|
302.4
|
|
|
|
$
|
636.3
|
|
|
$
|
420.9
|
|
4.
|
PROPERTY
AND EQUIPMENT
|
Property
and equipment are stated at cost and depreciated and amortized generally on the
straight-line method over their estimated useful lives of three to fifty years
(or the lesser of the term of the lease for leasehold improvements, as
appropriate). Property and equipment consist of the
following:
|
|
Useful
Life
|
|
|
December
31,
|
|
|
December
31,
|
|
|
|
(Years)
|
|
|
2007
|
|
|
2006
|
|
Land,
buildings and improvements
|
|
|
5 - 50
|
|
|
$
|
48.2
|
|
|
$
|
42.4
|
|
Machinery
|
|
|
5 - 20
|
|
|
|
69.0
|
|
|
|
68.0
|
|
Tooling
|
|
|
3 - 20
|
|
|
|
30.2
|
|
|
|
22.6
|
|
Computer
equipment and software
|
|
|
3 - 15
|
|
|
|
113.1
|
|
|
|
103.7
|
|
Furniture
and equipment
|
|
|
3 - 15
|
|
|
|
14.5
|
|
|
|
13.3
|
|
|
|
|
|
|
|
|
275.0
|
|
|
|
250.0
|
|
Less
accumulated depreciation
|
|
|
|
|
|
|
(158.6
|
)
|
|
|
(142.1
|
)
|
|
|
|
|
|
|
$
|
116.4
|
|
|
$
|
107.9
|
|
Aggregate
depreciation expense was $23.9, $19.1 and $18.8 for the fiscal years ended
December 31, 2007, 2006 and 2005 respectively.
5. GOODWILL
AND INTANGIBLE ASSETS
In
accordance with SFAS No. 142, the Company’s goodwill and indefinite life
intangible assets are not amortized, but are subject to an annual impairment
test. The following sets forth the intangible assets by major asset
class, all of which were acquired through business acquisition
transactions:
|
|
|
|
|
December
31, 2007
|
|
|
December
31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
|
|
|
|
|
|
|
|
|
Net
|
|
|
|
Useful
Life
|
|
|
Original
|
|
|
Accumulated
|
|
|
Book
|
|
|
Original
|
|
|
Accumulated
|
|
|
Book
|
|
|
|
(Years)
|
|
|
Cost
|
|
|
Amortization
|
|
|
Value
|
|
|
Cost
|
|
|
Amortization
|
|
|
Value
|
|
Acquired
technologies
|
|
|
10-40
|
|
|
$
|
100.2
|
|
|
$
|
29.7
|
|
|
$
|
70.5
|
|
|
$
|
99.5
|
|
|
$
|
26.4
|
|
|
$
|
73.1
|
|
Trademarks
and patents
|
|
|
1-20
|
|
|
|
28.8
|
|
|
|
17.0
|
|
|
|
11.8
|
|
|
|
28.1
|
|
|
|
15.2
|
|
|
|
12.9
|
|
Trademarks
and tradenames (nonamortizing)
|
|
|
--
|
|
|
|
20.7
|
|
|
|
--
|
|
|
|
20.7
|
|
|
|
20.6
|
|
|
|
--
|
|
|
|
20.6
|
|
Technical
qualifications, plans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
drawings
|
|
|
18-30
|
|
|
|
31.7
|
|
|
|
20.3
|
|
|
|
11.4
|
|
|
|
31.5
|
|
|
|
18.7
|
|
|
|
12.8
|
|
Replacement
parts annuity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
product approvals
|
|
|
18-30
|
|
|
|
42.9
|
|
|
|
30.9
|
|
|
|
12.0
|
|
|
|
42.4
|
|
|
|
28.3
|
|
|
|
14.1
|
|
Covenant
not to compete and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
other
identified intangibles
|
|
|
3-14
|
|
|
|
27.6
|
|
|
|
11.8
|
|
|
|
15.8
|
|
|
|
43.1
|
|
|
|
16.0
|
|
|
|
27.1
|
|
|
|
|
|
|
|
$
|
251.9
|
|
|
$
|
109.7
|
|
|
$
|
142.2
|
|
|
$
|
265.2
|
|
|
$
|
104.6
|
|
|
$
|
160.6
|
|
Aggregate
amortization expense of intangible assets was $11.1, $10.2 and $9.8 for the
fiscal years ended December 31, 2007, 2006 and 2005,
respectively. Amortization expense associated with identified
intangible assets is expected to be approximately $12 to $13 in each of the next
five years.
Changes to
the original cost basis of goodwill during the calendar year ended December 31,
2007 were due to completing acquisition appraisals and foreign currency
fluctuations. The changes in the carrying amount of goodwill for the
fiscal years ended December 31, 2007 and 2006 are as follows:
|
|
|
|
|
Interior
|
|
|
|
|
|
Business
|
|
|
Engineering
|
|
|
|
|
|
|
Seating
|
|
|
Systems
|
|
|
Distribution
|
|
|
Jet
|
|
|
Services
|
|
|
Total
|
|
Balance
as of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2005
|
|
$
|
10.1
|
|
|
$
|
116.1
|
|
|
$
|
108.0
|
|
|
$
|
88.1
|
|
|
$
|
40.6
|
|
|
$
|
362.9
|
|
Acquisitions
|
|
|
--
|
|
|
|
42.4
|
|
|
|
42.4
|
|
|
|
--
|
|
|
|
--
|
|
|
|
84.8
|
|
Effect
of foreign
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
currency
translation and other
|
|
|
2.7
|
|
|
|
3.6
|
|
|
|
0.2
|
|
|
|
0.5
|
|
|
|
2.5
|
|
|
|
9.5
|
|
Balance
as of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2006
|
|
|
12.8
|
|
|
|
162.1
|
|
|
|
150.6
|
|
|
|
88.6
|
|
|
|
43.1
|
|
|
|
457.2
|
|
Transfers
|
|
|
--
|
|
|
|
18.0
|
|
|
|
(18.0
|
)
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
Effect
of foreign
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
currency
translation and other
|
|
|
0.1
|
|
|
|
7.3
|
|
|
|
0.2
|
|
|
|
0.2
|
|
|
|
0.2
|
|
|
|
8.0
|
|
Finalization
of purchase accounting
|
|
|
--
|
|
|
|
1.6
|
|
|
|
0.4
|
|
|
|
--
|
|
|
|
--
|
|
|
|
2.0
|
|
Balance
as of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2007
|
|
$
|
12.9
|
|
|
$
|
189.0
|
|
|
$
|
133.2
|
|
|
$
|
88.8
|
|
|
$
|
43.3
|
|
|
$
|
467.2
|
|
Accrued
liabilities consist of the following:
|
|
December
31,
|
|
|
December
31,
|
|
|
|
2007
|
|
|
2006
|
|
Accrued
salaries, vacation and related benefits
|
|
$
|
34.2
|
|
|
$
|
25.5
|
|
Accrued
product warranties
|
|
|
20.6
|
|
|
|
18.4
|
|
Deferred
revenue
|
|
|
12.7
|
|
|
|
5.0
|
|
Other
accrued liabilities
|
|
|
47.2
|
|
|
|
52.0
|
|
|
|
$
|
114.7
|
|
|
$
|
100.9
|
|
Long-term
debt consists of the following:
|
|
December
31,
|
|
|
December
31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
Bank
Credit Facilities
|
|
$
|
150.0
|
|
|
$
|
250.0
|
|
8
7/8% Senior Subordinated Notes
|
|
|
--
|
|
|
|
250.0
|
|
Other
long-term debt
|
|
|
1.9
|
|
|
|
3.9
|
|
|
|
|
151.9
|
|
|
|
503.9
|
|
Less
current portion of long-term debt
|
|
|
(1.6
|
)
|
|
|
(1.9
|
)
|
|
|
$
|
150.3
|
|
|
$
|
502.0
|
|
8
7/8% Senior Subordinated Notes
The 8-7/8%
senior subordinated notes were redeemed in full on May 1, 2007.
Bank
Credit Facilities
On July
26, 2006 and, as amended and restated, on August 24, 2006, the Company entered
into a senior secured credit facility (the “Senior Secured Credit Facility”),
consisting of a $200.0 revolving credit facility and a $300.0 term
loan. The revolving credit facility terminates on August 24, 2011 and
the term loan terminates on August 24, 2012. The Senior Secured
Credit Facility provides for the ability of the Company to add additional term
loans in the amount of up to $75.0 upon satisfaction of certain customary
conditions, including commitments from lenders.
Revolving
credit borrowings under the Senior Secured Credit Facility bear interest at an
annual rate equal to the London interbank offered rate (LIBOR) plus 125 basis
points. Term loan borrowings under the Senior Secured Credit Facility
bear interest at an annual rate equal to LIBOR plus 175 basis points (6.73% at
December 31, 2007).
The Senior
Secured Credit Facility contains an interest coverage ratio (as defined in the
Credit Agreement) maintenance financial covenant that currently must be
maintained at a level greater than 2.25 to 1 through December 31, 2007 and 2.50
to 1 thereafter. The Senior Secured Credit Facility also contains a
total leverage ratio covenant (as defined in the Credit Agreement) which limits
net debt to a 4.25 to 1 multiple of EBITDA (as defined in the Credit Agreement)
through December 31, 2007 and 4.00 to 1 thereafter. The Senior
Secured Credit Facility is collateralized by substantially all of the Company’s
assets and contains customary affirmative covenants, negative covenants and
conditions precedent for borrowings, all of which were met as of December 31,
2007.
There are
no borrowings outstanding on the revolving credit facility portion of the Senior
Secured Credit Facility at December 31, 2007. Term loan borrowings at December
31, 2007 were $150.0. Letters of credit outstanding under the Senior
Secured Credit Facility aggregated approximately $24.0 at December 31,
2007.
Royal
Inventum B.V., one of the Company’s subsidiaries, has a revolving credit
agreement aggregating $0.7 that renews annually. This credit
agreement is collateralized by accounts receivable and
inventories. There were no borrowings outstanding under Royal
Invention B.V.’s credit agreement as of December 31, 2007.
Maturities
of long-term debt are as follows:
Fiscal
Year Ending December 31,
|
|
|
|
2008
|
|
$
|
1.6
|
|
2009
|
|
|
0.6
|
|
2010
|
|
|
1.6
|
|
2011
|
|
|
1.6
|
|
2012
|
|
|
146.5
|
|
Thereafter
|
|
|
--
|
|
Total
|
|
$
|
151.9
|
|
During the
second quarter of 2007, the Company prepaid $100.0 of bank debt. Interest
expense amounted to $23.5 for the year ended December 31, 2007, $42.8 for the
year ended December 31, 2006 and $60.8 for the year ended December 31,
2005.
8.
|
COMMITMENTS,
CONTINGENCIES AND OFF-BALANCE-SHEET
ARRANGEMENTS
|
Lease Commitments –
The
Company finances its use of certain facilities and equipment under committed
lease arrangements provided by various institutions. Since the terms
of these arrangements meet the accounting definition of operating lease
arrangements, the aggregate sum of future minimum lease payments is not
reflected on the consolidated balance sheet. At December 31, 2007,
future minimum lease payments under these arrangements approximated $136.8, of
which $124.8 is related to long-term real estate leases.
Rent
expense for the years ended December 31, 2007, 2006 and 2005 was $20.4, $16.8
and $15.1, respectively. Future payments under operating leases with
terms currently greater than one year are as follows:
Fiscal
Year Ending December 31,
|
|
|
|
2008
|
|
$
|
20.1
|
|
2009
|
|
|
14.2
|
|
2010
|
|
|
11.4
|
|
2011
|
|
|
10.4
|
|
2012
|
|
|
9.4
|
|
Thereafter
|
|
|
71.3
|
|
Total
|
|
$
|
136.8
|
|
Litigation –
The Company is 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 the Company's
consolidated financial statements.
Indemnities, Commitments and
Guarantees –
During its normal course of business, the Company has made
certain indemnities, commitments and guarantees under which it may be required
to make payments in relation to certain transactions. These
indemnities include non-infringement of patents and intellectual property
indemnities to the Company's customers in connection with the delivery, design,
manufacture and sale of its 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. Substantially
all of these indemnities, commitments and guarantees provide for limitations on
the maximum potential future payments the Company could be obligated to make.
However, the company is unable to estimate the maximum amount of liability
related to its indemnities, commitments and guarantees because such liabilities
are contingent upon the occurrence of events which are not reasonably
determinable. Management believes that any liability for these
indemnities, commitments and guarantees would not be material to the
accompanying condensed consolidated financial
statements. Accordingly, no significant amounts have been accrued for
indemnities, commitments and guarantees.
Employment Agreements –
The
Company has employment and compensation agreements with three key officers of
the Company. Agreements for one of the officers provides for the
officer to earn a minimum of $1.0 per year through a three-year period ending
from any date after which it is measured, adjusted annually for changes in the
consumer price index (as defined) or as determined by the Company's Board of
Directors, as well as a retirement compensation equal to 150% of base
salary.
Two other
agreements provide for the officers to each receive annual minimum compensation
of $0.5 per year through a three-year period ending from any date after which it
is measured, adjusted annually for changes in the consumer price index (as
defined) or as determined by the Company's Board of Directors, as well as a
retirement compensation equal to the product of the number of years worked times
one-half of each officer’s average three years' annual salary (as
defined).
Retirement
compensation has been accrued as provided for under the above-mentioned
employment agreements. Through December 31, 2007, the Company fully
funded these and other retirement compensation obligations, all of which were
maintained in grantor trusts on behalf of the individuals. In
addition, the Company has employment agreements with certain other key members
of management expiring on various dates through the year 2008. The
Company's employment agreements generally provide for certain protections in the
event of a change of control. These protections generally include the
payment of severance and related benefits under certain circumstances in the
event of a change of control, and for the Company to reimburse such officers for
the amount of any excise taxes associated with such benefits.
The
components of earnings before incomes taxes were:
|
|
Fiscal
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Earnings
before
|
|
|
|
|
|
|
|
|
|
income
taxes
|
|
|
|
|
|
|
|
|
|
United
States
|
|
$
|
127.3
|
|
|
$
|
43.0
|
|
|
$
|
23.5
|
|
Foreign
|
|
|
87.8
|
|
|
|
47.0
|
|
|
|
10.8
|
|
Earnings
before
|
|
|
|
|
|
|
|
|
|
|
|
|
income
taxes
|
|
$
|
215.1
|
|
|
$
|
90.0
|
|
|
$
|
34.3
|
|
Income tax
expense (benefit) consists of the following:
|
|
Fiscal
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Current:
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
2.1
|
|
|
$
|
--
|
|
|
$
|
--
|
|
State
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
Foreign
|
|
|
7.2
|
|
|
|
5.6
|
|
|
|
1.6
|
|
|
|
|
9.3
|
|
|
|
5.6
|
|
|
|
1.6
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
34.7
|
|
|
|
16.4
|
|
|
|
(48.7
|
)
|
State
|
|
|
5.1
|
|
|
|
2.9
|
|
|
|
(3.2
|
)
|
Foreign
|
|
|
18.7
|
|
|
|
(20.5
|
)
|
|
|
--
|
|
|
|
|
58.5
|
|
|
|
(1.2
|
)
|
|
|
(51.9
|
)
|
Total
tax expense (benefit)
|
|
$
|
67.8
|
|
|
$
|
4.4
|
|
|
$
|
(50.3
|
)
|
The
difference between income tax expense and the amount computed by applying the
statutory U.S. federal income tax rate (35%) to the pretax earnings consists of
the following:
|
|
Fiscal
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Statutory
federal income tax expense
|
|
$
|
75.3
|
|
|
$
|
31.5
|
|
|
$
|
12.0
|
|
U.S.
state income taxes
|
|
|
5.9
|
|
|
|
2.9
|
|
|
|
(2.1
|
)
|
Dividend
income from foreign affiliate
|
|
|
2.5
|
|
|
|
0.4
|
|
|
|
3.0
|
|
Foreign
tax rate differential
|
|
|
(6.3
|
)
|
|
|
(1.2
|
)
|
|
|
(2.2
|
)
|
Non-deductible
charges and other
|
|
|
3.9
|
|
|
|
2.4
|
|
|
|
1.3
|
|
Research
and development credit
|
|
|
(5.3
|
)
|
|
|
(4.2
|
)
|
|
|
--
|
|
Extraterritorial
income exclusion
|
|
|
(8.2
|
)
|
|
|
--
|
|
|
|
--
|
|
Change
in valuation allowance
|
|
|
--
|
|
|
|
(27.4
|
)
|
|
|
(62.3
|
)
|
|
|
$
|
67.8
|
|
|
$
|
4.4
|
|
|
$
|
(50.3
|
)
|
Through
December 31, 2004, the Company had maintained a valuation allowance to fully
reserve its net deferred tax assets based on the Company’s assessment that the
realization of the net deferred tax assets did not meet the “more likely than
not” criterion under SFAS No. 109, “Accounting for Income
Taxes”. During 2006 and 2005, the Company reversed its valuation
allowance on its U.S. and U.K. deferred tax assets as a result of improved
performance and outlook for its operations and expected reductions in interest
costs resulting from note redemptions.
The tax
effects of temporary differences and carryforwards that give rise to deferred
income tax assets and liabilities consist of the following:
|
|
December
31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Deferred
tax assets:
|
|
|
|
|
|
|
|
|
|
Inventory
reserves
|
|
$
|
10.2
|
|
|
$
|
9.6
|
|
|
$
|
9.4
|
|
Warranty
reserves
|
|
|
5.0
|
|
|
|
4.9
|
|
|
|
4.1
|
|
Accrued
liabilities
|
|
|
7.9
|
|
|
|
4.2
|
|
|
|
6.5
|
|
Net
operating loss carryforward
|
|
|
58.6
|
|
|
|
121.8
|
|
|
|
139.1
|
|
Federal
capital loss carryforward
|
|
|
7.3
|
|
|
|
13.0
|
|
|
|
13.0
|
|
Research
and development
credit
carryforward
|
|
|
19.2
|
|
|
|
7.9
|
|
|
|
3.7
|
|
Alternative
minimum
|
|
|
|
|
|
|
|
|
|
|
|
|
tax
credit carryforward
|
|
|
2.0
|
|
|
|
--
|
|
|
|
--
|
|
Depreciation
|
|
|
1.3
|
|
|
|
--
|
|
|
|
--
|
|
Other
|
|
|
6.2
|
|
|
|
4.1
|
|
|
|
6.0
|
|
|
|
$
|
117.7
|
|
|
$
|
165.5
|
|
|
|
181.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
tax liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition
accruals
|
|
$
|
(13.4
|
)
|
|
$
|
(12.8
|
)
|
|
$
|
(11.7
|
)
|
Intangible
assets
|
|
|
(61.5
|
)
|
|
|
(58.3
|
)
|
|
|
(39.1
|
)
|
Depreciation
|
|
|
--
|
|
|
|
(1.5
|
)
|
|
|
(5.8
|
)
|
Software
development costs
|
|
|
(5.7
|
)
|
|
|
(6.4
|
)
|
|
|
(7.0
|
)
|
|
|
|
(80.6
|
)
|
|
|
(79.0
|
)
|
|
|
(63.6
|
)
|
Net
deferred tax asset before valuation
|
|
|
|
|
|
|
|
|
|
|
|
|
allowance
|
|
|
37.1
|
|
|
|
86.5
|
|
|
|
118.2
|
|
Valuation
allowance
|
|
|
(9.8
|
)
|
|
|
(15.5
|
)
|
|
|
(40.5
|
)
|
Net
deferred tax asset
|
|
$
|
27.3
|
|
|
$
|
71.0
|
|
|
$
|
77.7
|
|
The
Company maintained a valuation allowance of $9.8 as of December 31, 2007
primarily related to the Company’s domestic capital loss carryforwards because
of uncertainties that preclude the Company from determining that it is more
likely than not that we will be able to generate sufficient capital gain income
and realize this tax benefit during the applicable carryforward
period. During 2007, both our valuation allowance and deferred tax
assets decreased by $5.7 as a result of tax planning initiatives which utilized
a portion of our capital loss carryforward.
As of
December 31, 2007, the Company had federal, state and foreign net operating loss
carryforwards of approximately $215, $103 and $24, respectively. The
federal and state net operating loss carryforwards begin to expire in 2012 and
2008, respectively. In addition, the Company has a federal capital
loss carryover of approximately $16 which is scheduled to expire in
2008.
As of
December 31, 2007, the Company had a federal research and development tax credit
carryforward of $19.2 which begins to expire in 2008.
The
Company has not provided for any residual U.S. income taxes on the approximately
$74.0 of earnings from its foreign subsidiaries because such earnings are
intended to be indefinitely reinvested. Such residual U.S. income
taxes, if provided for, would not be material.
Through
2007, the Company recognized cumulative tax deductions of $81.8 related to stock
option exercises and $3.3 related to the vesting of restricted
shares. In accordance with the Company’s methodology for determining
when these deductions are deemed realized under SFAS No. 123(R), the Company
will assume that it utilizes its net operating loss carryforwards to reduce its
taxes payable during 2007 rather than these deductions. Pursuant to
the principles of SFAS No. 123(R), these deductions are not deemed realized
until they provide an incremental benefit by reducing taxes
payable. To the extent deductions of $85.1 are treated as reducing
taxes payable in the future, the Company expects to record a credit to
additional paid-in capital of $33.1.
10.
|
ACCOUNTING
FOR UNCERTAINTY IN INCOME TAXES
|
The
Company adopted the provisions of FASB Interpretation No. 48, “Accounting for
Uncertainty in Income Taxes”, on January 1, 2007. Upon the adoption,
the liability for unrecognized tax benefits at January 1, 2007 was $4.9, which
was accounted for as a $2.3 increase to accumulated deficit, a $2.3 increase in
long term deferred tax assets, and a $0.3 reduction in income taxes
payable. During the year ended December 31, 2007, mainly as a result
of the finalization of a tax credit study related to prior periods and other tax
planning initiatives, the Company’s liability for unrecognized tax benefits
increased by $4.3 to $9.2. This liability, if recognized, would
affect the Company’s effective tax rate. It is reasonably possible
that the amount of liability for unrecognized tax benefits will change in the
next twelve months; however, the Company does not expect the change to have a
material impact on the Company’s consolidated financial statements.
A
reconciliation of the beginning and ending amounts of gross unrecognized tax
benefit are as follows:
Balance
at January 1, 2007
|
|
$
|
7.4
|
|
Additions
based on tax positions related to the current year
|
|
|
1.6
|
|
Additions
for tax positions of prior years
|
|
|
2.5
|
|
Currency
fluctuations
|
|
|
0.3
|
|
Balance
at December 31, 2007
|
|
$
|
11.8
|
|
|
|
|
|
|
The
difference between the gross uncertain tax position of $11.8 and the liability
for unrecognized tax benefits of $9.2 is due to the netting of certain items
when calculating the liability for unrecognized tax benefits.
The
Company is not currently undergoing any income tax examinations in the U.S.
federal, state or non-U.S. jurisdictions in which the Company
operates. With minor exceptions, the Company is currently open to
audit by the tax authorities for the tax years ending December 31, 2004 through
December 31, 2007.
The
Company classifies interest and penalties related to income tax as income tax
expense. The amount included in the Company’s liability for
unrecognized tax benefits for interest and penalties as of the date of adoption
was under $1.0 and this amount did not materially change as of December 31,
2007.
11.
|
EMPLOYEE
RETIREMENT PLANS
|
The
Company sponsors and contributes to a qualified, defined contribution Savings
and Investment Plan covering substantially all U.S. employees. In
addition, the Company and its subsidiaries participate in government-sponsored
programs in certain European countries. In general, the Company’s
policy is to fund these plans based on legal requirements, tax considerations,
local practices and investment opportunities.
The BE
Aerospace Savings and Investment Plan was established pursuant to Section 401(k)
of the Internal Revenue Code. Under the terms of the plan, covered
employees may contribute up to 100% of their pay, limited to certain statutory
maximum contributions for 2007. Effective July 1, 2006, participants
are vested in matching contributions immediately and the matching percentage was
revised to 100% of the first 3% of employee contributions and 50% on the next 2%
of employee contributions. Total expense for the plan was $5.6, $3.9
and $3.0 for the calendar years ended December 31, 2007, 2006 and 2005,
respectively.
The BE
Aerospace, Inc. Hourly Tax-Sheltered Retirement Plan was established pursuant to
Section 401(k) of the Internal Revenue Code. Under terms of the plan,
covered employees may contribute from 1% to 20% of their compensation, limited
to certain statutory maximum contributions for 2007. The Company
matches 50% of employee contributions, up to 8% of a participant’s
compensation. Participants become fully vested in the Company’s
contributions after six years of service with the Company. Total
expense for the plan was $0.2, $0.3 and $0.2 for the calendar years ended
December 31, 2007, 2006 and 2005, respectively.
The
Company also has two defined benefit plans, The SMR Technologies, Inc. Defined
Benefit Pension Plan for Union Employees and The Draeger Aerospace GmbH Defined
Benefit Plan. These plans were adopted by the Company when the
related subsidiary companies were acquired. Under terms of these
plans participants are entitled to certain defined benefits upon
retirement. The number of employees covered by these plans as of
December 31, 2007 totaled 275. The Company’s funding contribution to
these plans was $0.5, $0.2 and $0.0 for the calendar years ended December 31,
2007, 2006 and 2005, respectively.
12
.
|
STOCKHOLDERS'
EQUITY
|
Earnings Per
Share.
Basic earnings per common share is computed using the
weighted average of common shares outstanding during the
year. Diluted earnings per common share is computed by using the
average share price during the year when calculating the dilutive effect of
stock options, shares issued under the Employee Stock Purchase Plan and
restricted shares.
The
following table sets forth the computation of basic and diluted net earnings per
share for the fiscal years ended December 31, 2007, 2006 and 2005:
|
|
Fiscal
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Numerator
- Net earnings
|
|
$
|
147.3
|
|
|
$
|
85.6
|
|
|
$
|
84.6
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator
for basic earnings per share -
|
|
|
88.1
|
|
|
|
77.1
|
|
|
|
58.8
|
|
Weighted
average shares
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect
of dilutive securities -
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive
securities
|
|
|
0.7
|
|
|
|
0.9
|
|
|
|
2.0
|
|
Denominator
for diluted earnings per share -
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted
weighted average shares
|
|
|
88.8
|
|
|
|
78.0
|
|
|
|
60.8
|
|
Basic
net earnings per share
|
|
$
|
1.67
|
|
|
$
|
1.11
|
|
|
$
|
1.44
|
|
Diluted
net earnings per share
|
|
$
|
1.66
|
|
|
$
|
1.10
|
|
|
$
|
1.39
|
|
Long Term Incentive
Plan.
The Company has a Long Term Incentive Plan (“LTIP”)
under which the Company’s Stock Option and Compensation Committee may grant
stock options, stock appreciation rights, restricted stock, restricted stock
units or other forms of equity based or equity related awards. The
LTIP replaced the Company’s 2001 Stock Option Plan, the 1996 Stock Option Plan,
the United Kingdom 1992 Employee Share Option Scheme and the Company’s Amended
and Restated 1989 Stock Option Plan (collectively, the “Prior
Plans”). As further described below, as of December 31, 2007 stock
options and restricted stock have been granted in accordance with the terms of
the LTIP and the Prior Plans. The number of shares available for
grant under the LTIP as of December 31, 2007 were 1,722,319.
Restricted Stock Grants –
During 2006 and 2007, the Company granted restricted stock to certain
members of the Company’s Board of Directors and
management. Restricted stock grants vest over two or four year terms
and are granted at the discretion of the Compensation Committee of the Board of
Directors. Compensation cost is recorded on a straight-line basis
over the vesting term of the shares based on the grant date value using the
closing trading price. Share based compensation of $10.3 and $2.0 was
recorded during 2007 and 2006, respectively. Unrecognized
compensation cost related to these grants was $41.0 at December 31,
2007. The following table summarizes shares granted, forfeited and
outstanding:
|
|
December 31,
2007
|
|
|
December 31,
2006
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
|
Shares
|
|
|
Grant Date
|
|
|
Vesting
Period
|
|
|
Shares
|
|
|
Grant Date
|
|
|
Vesting
Period
|
|
|
|
(in
thousands)
|
|
|
Fair Value
|
|
|
( in years)
|
|
|
(in
thousands)
|
|
|
Fair Value
|
|
|
( in years)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, beginning
of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
period
|
|
|
1,423
|
|
|
$
|
26.13
|
|
|
|
3.7
|
|
|
|
--
|
|
|
$
|
--
|
|
|
|
--
|
|
Shares
granted
|
|
|
454
|
|
|
|
42.43
|
|
|
|
--
|
|
|
|
1,425
|
|
|
|
26.15
|
|
|
|
--
|
|
Shares
vested
|
|
|
(355
|
)
|
|
|
26.14
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
Shares
forfeited
|
|
|
(64
|
)
|
|
|
27.30
|
|
|
|
--
|
|
|
|
(2
|
)
|
|
|
26.99
|
|
|
|
--
|
|
Outstanding, end of
period
|
|
|
1,458
|
|
|
|
31.18
|
|
|
|
3.1
|
|
|
|
1,423
|
|
|
|
26.15
|
|
|
|
3.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Option
Grants.
In December 2005, the Compensation Committee of the
Board of Directors approved the acceleration of the vesting of 1.9 million stock
options, which represented all remaining unvested stock options at that
time. The Company recorded a charge of $1.2 during the fourth quarter
of 2005 as a result of the acceleration of the vesting of such stock
options. The estimated per share fair value of options granted during
the year ended December 31, 2005 was $4.52. No stock options were
granted during the years ended December 31, 2006 and 2007.
The
following table summarizes options granted, canceled, forfeited and
outstanding:
|
|
December 31,
2007
|
|
|
December 31,
2006
|
|
|
December 31,
2005
|
|
|
|
Options
(in
thousands)
|
|
|
Weighted
Price per
Share
|
|
|
Options
(in
thousands)
|
|
|
|
|
|
Options
(in
thousands)
|
|
|
|
|
Outstanding, beginning of
period
|
|
|
1,170
|
|
|
$
|
13.53
|
|
|
|
4,806
|
|
|
$
|
8.83
|
|
|
|
7,071
|
|
|
$
|
7.99
|
|
Options
granted
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
160
|
|
|
|
18.45
|
|
Options
exercised
|
|
|
(910
|
)
|
|
|
14.99
|
|
|
|
(3,626
|
)
|
|
|
7.44
|
|
|
|
(2,362
|
)
|
|
|
5.73
|
|
Options
forfeited
|
|
|
(15
|
)
|
|
|
29.41
|
|
|
|
(10
|
)
|
|
|
14.55
|
|
|
|
(63
|
)
|
|
|
11.06
|
|
Outstanding, end of
period
|
|
|
245
|
|
|
|
11.16
|
|
|
|
1,170
|
|
|
|
13.53
|
|
|
|
4,806
|
|
|
|
8.83
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Excercisable at end of
period
|
|
|
245
|
|
|
$
|
11.16
|
|
|
|
1,170
|
|
|
$
|
13.53
|
|
|
|
4,806
|
|
|
$
|
8.83
|
|
Options Outstanding at December
31, 2007
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
Weighted
|
|
Average
|
|
|
Options
|
|
Average
|
|
Remaining
|
Range of
|
|
Outstanding
|
|
Exercise
Price
|
|
Contractual
Life
|
Exercise
Price
|
|
(in
thousands)
|
|
Outstanding
|
|
(years)
|
$4.08 -
$5.59
|
|
85
|
|
$4.97
|
|
5.29
|
6.59 - 9.70
|
|
13
|
|
7.49
|
|
5.08
|
10.42 -
10.42
|
|
67
|
|
10.42
|
|
6.90
|
10.70 -
28.13
|
|
80
|
|
18.88
|
|
2.04
|
The
Company issues new shares of common stock upon exercise of stock
options. During the year ended December 31, 2007, 0.9 million stock
options were exercised with an aggregate intrinsic value of $20.8 determined as
of the date of option exercise. The aggregate intrinsic value of
outstanding options as of December 31, 2007 was $10.2.
13.
|
EMPLOYEE
STOCK PURCHASE PLAN
|
The
Company has established a qualified Employee Stock Purchase Plan, the terms of
which allow for qualified employees (as defined in the Plan) to participate in
the purchase of designated shares of the Company's common stock at a price equal
to 85% of the closing price at the end of each semi-annual stock purchase
period. The Company issued approximately 67,000, 110,000 and 241,000
shares of common stock during the fiscal years ended December 31, 2007, 2006 and
2005, respectively, pursuant to this plan at a weighted average price per share
of $39.46, $20.51, and $11.45, respectively.
The
Company is organized based on the products and services it
offers. Under this organizational structure, the Company has five
reportable segments: Seating, Interior Systems, Distribution, Business Jet and
Engineering Services. The Seating, Interior Systems and Distribution
segments consist of three, five and four principal operating facilities,
respectively. Business Jet and Engineering Services segments consist
of three and one principal operating facilities, respectively.
Each
segment reports its results of operations and makes requests for capital
expenditures and acquisition funding to the Company’s chief operational
decision-making group. This group is presently comprised of the
Chairman and Chief Executive Officer, the President and Chief Operating Officer,
and the Senior Vice President and Chief Financial Officer. Each
operating segment has separate management teams and infrastructures dedicated to
providing a full range of products and services to their commercial, business
jet and aircraft-manufacturing customers.
The
following table presents net sales and other financial information by business
segment:
|
|
Fiscal Year Ended December 31,
2007
|
|
|
|
|
|
|
Interior
|
|
|
|
|
|
Business
|
|
|
Engineering
|
|
|
|
|
|
|
Seating
|
|
|
Systems
|
|
|
Distribution
|
|
|
Jet
|
|
|
Serivces
|
|
|
Consolidated
|
|
Net sales
|
|
$
|
632.6
|
|
|
$
|
348.0
|
|
|
$
|
386.5
|
|
|
$
|
193.1
|
|
|
$
|
117.5
|
|
|
$
|
1,677.7
|
|
Operating earnings
(1)
|
|
|
72.8
|
|
|
|
64.8
|
|
|
|
85.5
|
|
|
|
19.7
|
|
|
|
4.2
|
|
|
|
247.0
|
|
Total assets
(2)
|
|
|
357.9
|
|
|
|
415.3
|
|
|
|
575.2
|
|
|
|
256.4
|
|
|
|
167.2
|
|
|
|
1,772.0
|
|
Goodwill
|
|
|
12.9
|
|
|
|
189.0
|
|
|
|
133.2
|
|
|
|
88.8
|
|
|
|
43.3
|
|
|
|
467.2
|
|
Capital
expenditures
|
|
|
9.1
|
|
|
|
8.8
|
|
|
|
4.4
|
|
|
|
5.0
|
|
|
|
4.8
|
|
|
|
32.1
|
|
Depreciation and
amortization
|
|
|
11.2
|
|
|
|
10.5
|
|
|
|
4.3
|
|
|
|
5.5
|
|
|
|
3.5
|
|
|
|
35.0
|
|
|
|
Fiscal Year Ended December 31,
2006
|
|
|
|
|
|
|
Interior
|
|
|
|
|
|
Business
|
|
|
Engineering
|
|
|
|
|
|
|
Seating
|
|
|
Systems
|
|
|
Distribution
|
|
|
Jet
|
|
|
Serivces
|
|
|
Consolidated
|
|
Net sales
|
|
$
|
388.5
|
|
|
$
|
273.9
|
|
|
$
|
251.5
|
|
|
$
|
147.5
|
|
|
$
|
66.8
|
|
|
$
|
1,128.2
|
|
Operating earnings
(loss)
(1)
|
|
|
37.6
|
|
|
|
51.2
|
|
|
|
50.4
|
|
|
|
9.4
|
|
|
|
(0.3
|
)
|
|
|
148.3
|
|
Total assets
(2)
|
|
|
266.1
|
|
|
|
374.7
|
|
|
|
492.9
|
|
|
|
251.6
|
|
|
|
112.4
|
|
|
|
1,497.7
|
|
Goodwill
|
|
|
12.8
|
|
|
|
162.1
|
|
|
|
150.6
|
|
|
|
88.6
|
|
|
|
43.1
|
|
|
|
457.2
|
|
Capital
expenditures
|
|
|
8.2
|
|
|
|
6.1
|
|
|
|
3.3
|
|
|
|
5.1
|
|
|
|
1.4
|
|
|
|
24.1
|
|
Depreciation and
amortization
|
|
|
10.2
|
|
|
|
8.8
|
|
|
|
3.5
|
|
|
|
4.2
|
|
|
|
2.7
|
|
|
|
29.4
|
|
|
|
Year Ended December 31,
2005
|
|
|
|
|
|
|
Interior
|
|
|
|
|
|
Business
|
|
|
Engineering
|
|
|
|
|
|
|
Seating
|
|
|
Systems
|
|
|
Distribution
|
|
|
Jet
|
|
|
Serivces
|
|
|
Consolidated
|
|
Net sales
|
|
$
|
281.8
|
|
|
$
|
205.5
|
|
|
$
|
173.9
|
|
|
$
|
120.2
|
|
|
$
|
62.7
|
|
|
$
|
844.1
|
|
Operating earnings
(loss)
(1)
|
|
|
25.5
|
|
|
|
32.3
|
|
|
|
34.9
|
|
|
|
7.8
|
|
|
|
(6.9
|
)
|
|
|
93.6
|
|
Total assets
(2)
|
|
|
223.0
|
|
|
|
326.7
|
|
|
|
421.0
|
|
|
|
286.7
|
|
|
|
169.1
|
|
|
|
1,426.5
|
|
Goodwill
|
|
|
10.1
|
|
|
|
116.1
|
|
|
|
108.0
|
|
|
|
88.1
|
|
|
|
40.6
|
|
|
|
362.9
|
|
Capital
expenditures
|
|
|
6.1
|
|
|
|
3.3
|
|
|
|
2.4
|
|
|
|
4.0
|
|
|
|
1.1
|
|
|
|
16.9
|
|
Depreciation and
amortization
|
|
|
9.0
|
|
|
|
8.7
|
|
|
|
3.7
|
|
|
|
4.2
|
|
|
|
3.0
|
|
|
|
28.6
|
|
(1) Operating
earnings (loss) includes an allocation of corporate IT costs, employee benefits
and general and administrative costs based on the proportion of each segments’
systems users, number of employees and sales, respectively.
(2) Corporate
assets (including cash and cash equivalents) of $139.2, $117.7 and $462.1 at
December 31, 2007, 2006 and 2005, respectively, have been allocated to the above
segments based on each segments respective percentage of total
assets. During 2007 certain operations with total assets of
approximately $31.5 were transferred from Distribution to Interior
Systems.
Net sales
for these business segments for the fiscal years ended December 31, 2007, 2006
and 2005 are presented below:
|
|
Fiscal Year Ended December
31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
Net
|
|
|
% of
|
|
|
Net
|
|
|
% of
|
|
|
Net
|
|
|
% of
|
|
|
|
Sales
|
|
|
Net Sales
|
|
|
Sales
|
|
|
Net Sales
|
|
|
Sales
|
|
|
Net Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Seating
|
|
$
|
632.6
|
|
|
|
37.8
|
%
|
|
$
|
388.5
|
|
|
|
34.4
|
%
|
|
$
|
281.8
|
|
|
|
33.4
|
%
|
Interior
Systems
|
|
|
348.0
|
|
|
|
20.7
|
%
|
|
|
273.9
|
|
|
|
24.3
|
%
|
|
|
205.5
|
|
|
|
24.4
|
%
|
Distribution
|
|
|
386.5
|
|
|
|
23.0
|
%
|
|
|
251.5
|
|
|
|
22.3
|
%
|
|
|
173.9
|
|
|
|
20.6
|
%
|
Business
Jet
|
|
|
193.1
|
|
|
|
11.5
|
%
|
|
|
147.5
|
|
|
|
13.1
|
%
|
|
|
120.2
|
|
|
|
14.2
|
%
|
Engineering
Services
|
|
|
117.5
|
|
|
|
7.0
|
%
|
|
|
66.8
|
|
|
|
5.9
|
%
|
|
|
62.7
|
|
|
|
7.4
|
%
|
Net
sales
|
|
$
|
1,677.7
|
|
|
|
100.0
|
%
|
|
$
|
1,128.2
|
|
|
|
100.0
|
%
|
|
$
|
844.1
|
|
|
|
100.0
|
%
|
Geographic
Origination
The Company operated principally in
three geographic areas, the United States, Europe (primarily the United Kingdom)
and emerging markets, i.e., Asia, Pacific Rim, Middle East, etc. during the
fiscal years ended December 31, 2007, 2006 and 2005. There were no
significant transfers between geographic areas during these periods.
Identifiable assets are those assets of the Company that are identified with the
operations in each geographic area.
The
following table presents net sales and operating earnings for the fiscal years
ended December 31, 2007, 2006 and 2005 and identifiable assets as of December
31, 2007, 2006 and 2005 by geographic area:
|
|
Fiscal Year Ended December
31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Net sales:
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
$
|
1,036.6
|
|
|
$
|
732.9
|
|
|
$
|
588.4
|
|
Foreign
|
|
|
641.1
|
|
|
|
395.3
|
|
|
|
255.7
|
|
|
|
$
|
1,677.7
|
|
|
$
|
1,128.2
|
|
|
$
|
844.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
$
|
159.1
|
|
|
$
|
100.7
|
|
|
$
|
72.1
|
|
Foreign
|
|
|
87.9
|
|
|
|
47.6
|
|
|
|
21.5
|
|
|
|
$
|
247.0
|
|
|
$
|
148.3
|
|
|
$
|
93.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Identifiable
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
$
|
1,306.6
|
|
|
$
|
1,068.6
|
|
|
$
|
1,214.2
|
|
Foreign
|
|
|
465.4
|
|
|
|
429.1
|
|
|
|
212.3
|
|
|
|
$
|
1,772.0
|
|
|
$
|
1,497.7
|
|
|
$
|
1,426.5
|
|
Geographic
Destination
Export
sales from the United States to customers in foreign countries amounted to
approximately $437.1, $307.6 and $241.9 in the fiscal years ended December 31,
2007, 2006 and 2005, respectively.
Net sales
by geographic area (based on destination) for the fiscal years ended December
31, 2007, December 31, 2006, and 2005 were as follows:
|
|
Fiscal Year Ended December
31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
Net
|
|
|
% of
|
|
|
Net
|
|
|
% of
|
|
|
Net
|
|
|
% of
|
|
|
|
Sales
|
|
|
Net Sales
|
|
|
Sales
|
|
|
Net Sales
|
|
|
Sales
|
|
|
Net Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
$
|
749.5
|
|
|
|
44.7
|
%
|
|
$
|
483.0
|
|
|
|
42.8
|
%
|
|
$
|
399.4
|
|
|
|
47.3
|
%
|
Europe
|
|
|
468.0
|
|
|
|
27.9
|
%
|
|
|
331.5
|
|
|
|
29.4
|
%
|
|
|
202.2
|
|
|
|
24.0
|
%
|
Asia, Pacific
Rim,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Middle East and
other
|
|
|
460.2
|
|
|
|
27.4
|
%
|
|
|
313.7
|
|
|
|
27.8
|
%
|
|
|
242.5
|
|
|
|
28.7
|
%
|
|
|
$
|
1,677.7
|
|
|
|
100.0
|
%
|
|
$
|
1,128.2
|
|
|
|
100.0
|
%
|
|
$
|
844.1
|
|
|
|
100.0
|
%
|
Major
customers (i.e., customers representing more than 10% of net sales) change from
year to year depending on the level of refurbishment activity and/or the level
of new aircraft purchases by such customers. During the fiscal years ended
December 31, 2007, 2006 and 2005 no single customer accounted for more than 10%
of our consolidated sales.
15.
|
FAIR
VALUE INFORMATION
|
The
following disclosure of the estimated fair value of financial instruments at
December 31, 2007 and 2006 is made in accordance with the requirements of SFAS
No. 107
,
"Disclosures
about Fair Value of Financial Instruments”. The estimated fair value
amounts have been determined by the Company using available market information
and appropriate valuation methodologies; however, considerable judgment is
required in interpreting market data to develop the estimates of fair value.
Accordingly, the estimates presented herein are not necessarily indicative of
the amounts that the Company could realize in a current market exchange. The use
of different market assumptions and/or estimation methodologies may have a
material effect on the estimated fair value amounts.
The carrying amounts of cash and cash
equivalents, accounts receivable-trade, and accounts payable and term debt are a
reasonable estimate of their fair values as interest is based upon floating
market rates. The fair value of the Company’s 8-7/8% Notes as of
December 31, 2006 was $260.0.
The fair
value information presented herein is based on pertinent information available
to management at December 31, 2007 and December 31, 2006, respectively. Although
management is not aware of any factors that would significantly affect the
estimated fair value amounts, such amounts have not been comprehensively
revalued for purposes of these consolidated financial statements since those
dates, and current estimates of fair value may differ significantly from the
amounts presented herein.
16.
SELECTED QUARTERLY DATA
(Unaudited)
Summarized quarterly financial data
for the fiscal years ended December 31, 2007 and December 31, 2006 are as
follows:
|
|
Fiscal Year Ended December 31,
2007
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
Net sales
|
|
$
|
387.8
|
|
|
$
|
398.2
|
|
|
$
|
428.2
|
|
|
$
|
463.5
|
|
Gross
profit
|
|
|
134.3
|
|
|
|
140.6
|
|
|
|
146.7
|
|
|
|
148.5
|
|
Net
earnings
|
|
|
32.1
|
|
|
|
28.4
|
|
|
|
44.5
|
|
|
|
42.3
|
|
Basic net earnings per
share
(1)
|
|
|
0.41
|
|
|
|
0.31
|
|
|
|
0.49
|
|
|
|
0.46
|
|
Diluted net earnings per share
(1)
|
|
|
0.40
|
|
|
|
0.31
|
|
|
|
0.48
|
|
|
|
0.46
|
|
|
|
Fiscal Year Ended December 31,
2006
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
Net sales
|
|
$
|
247.2
|
|
|
$
|
271.5
|
|
|
$
|
287.9
|
|
|
$
|
321.6
|
|
Gross
profit
|
|
|
86.5
|
|
|
|
96.4
|
|
|
|
100.8
|
|
|
|
112.8
|
|
Net
earnings
|
|
|
13.8
|
|
|
|
18.7
|
|
|
|
31.4
|
|
|
|
21.7
|
|
Basic net earnings per
share
(1)
|
|
|
0.18
|
|
|
|
0.24
|
|
|
|
0.40
|
|
|
|
0.28
|
|
Diluted net earnings per share
(1)
|
|
|
0.18
|
|
|
|
0.24
|
|
|
|
0.40
|
|
|
|
0.28
|
|
(1)
|
Net
earnings per share are computed individually for each quarter
presented. Therefore, the sum of the quarterly net earnings per
share may not necessarily equal the total for the
year.
|
SCHEDULE
II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE FISCAL YEARS ENDED
DECEMBER 31, 2007, 2006, AND 2005
(In
millions)
|
|
Balance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
|
|
|
|
|
|
|
|
|
|
|
|
Balance
|
|
|
|
Beginning
|
|
|
|
|
|
|
|
|
Write-
|
|
|
At End
|
|
|
|
Of
|
|
|
|
|
|
|
|
|
Offs/
|
|
|
Of
|
|
|
|
Period
|
|
|
Expenses
|
|
|
Other
|
|
|
Disposals
|
|
|
Period
|
|
Deducted
From Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for doubtful accounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal year ended December 31,
2007
|
|
$
|
4.7
|
|
|
$
|
0.6
|
|
|
$
|
--
|
|
|
$
|
0.8
|
|
|
$
|
4.5
|
|
Fiscal year ended December 31,
2006
|
|
|
2.9
|
|
|
|
1.4
|
|
|
|
1.6
|
|
|
|
1.2
|
|
|
|
4.7
|
|
Fiscal year ended December 31,
2005
|
|
|
2.8
|
|
|
|
0.5
|
|
|
|
(0.1
|
)
|
|
|
0.3
|
|
|
|
2.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserve
for obsolete inventories:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal year ended December 31,
2007
|
|
|
29.1
|
|
|
|
8.1
|
|
|
|
--
|
|
|
|
5.0
|
|
|
|
32.2
|
|
Fiscal year ended December 31,
2006
|
|
|
27.1
|
|
|
|
3.3
|
|
|
|
2.6
|
|
|
|
3.9
|
|
|
|
29.1
|
|
Fiscal year ended December 31,
2005
|
|
|
26.9
|
|
|
|
16.0
|
|
|
|
(0.7
|
)
|
|
|
15.1
|
|
|
|
27.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
tax asset valuation allowance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal year ended December 31,
2007
|
|
|
15.5
|
|
|
|
--
|
|
|
|
(5.7
|
)
|
|
|
--
|
|
|
|
9.8
|
|
Fiscal year ended December 31,
2006
|
|
|
40.5
|
|
|
|
(27.4
|
)
|
|
|
2.4
|
|
|
|
--
|
|
|
|
15.5
|
|
Fiscal year ended December 31,
2005
|
|
|
129.3
|
|
|
|
(62.3
|
)
|
|
|
(26.5
|
)
|
|
|
--
|
|
|
|
40.5
|
|
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