BE Aerospace 10-K 2016
Documents found in this filing:
Washington, D.C. 20549
[ X ]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2015
[ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission File No. 0-18348
B/E AEROSPACE, INC.
(Exact name of registrant as specified in its charter)
1400 Corporate Center Way
Wellington, Florida 33414
(Address of principal executive offices)
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes [X] No [ ]
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes [ ] No [X]
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer [X] Accelerated filer [ ] Non-accelerated filer (do not check if a smaller reporting company) [ ]
Smaller reporting company [ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes [ ] No [X]
The aggregate market value of the registrant's voting stock held by non-affiliates was approximately $5,873 million on June 30, 2015 based on the closing sales price of the registrant's common stock as reported on the NASDAQ Global Select Market as of such date, which is the last business day of the registrant's most recently completed second fiscal quarter. Shares of common stock held by executive officers and directors have been excluded since such persons may be deemed affiliates. This determination of affiliate status is not a determination for any other purpose. The number of shares of the registrant's common stock, $.01 par value, outstanding as of February 23, 2016 was 102,110,278 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Certain sections of the registrant's Proxy Statement to be filed with the Commission in connection with the 2016 Annual Meeting of Stockholders are incorporated by reference in Part III of this Form 10-K. With the exception of those sections that are specifically incorporated by reference in this Annual Report on Form 10-K, such Proxy Statement shall not be deemed filed as part of this Report or incorporated by reference herein.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking statements to encourage companies to provide prospective information to investors. This Annual Report on Form 10-K (Form “10-K”) includes forward-looking statements that reflect our current expectations and projections about our future results, performance, prospects, liquidity, expenditures, payment of dividends and repurchase of shares. Forward-looking statements include all statements that are not historical in nature or are not current facts. We have tried to identify these forward-looking statements by using words including “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “should,” “will” and similar expressions. These forward-looking statements are subject to a number of risks, uncertainties, assumptions and other factors that could cause our actual results, performance, prospects and ability to pay dividends or repurchase stock to differ materially from those expressed in, or implied by, these forward-looking statements. These factors include the risks, uncertainties, assumptions and other factors discussed under the headings “Item 1A. Risk Factors,” as well as “Item 1. Business,” “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this Form 10-K, including: future events that may have the effect of reducing our available operating income and cash balances, such as unexpected operating losses, the impact of rising fuel prices on our airline customers, outbreaks in national or international hostilities, terrorist attacks, prolonged health and environmental issues that reduce air travel demand, delays in, or unexpected costs associated with, the integration of our acquired businesses, conditions in the airline industry, conditions in the business jet industry, problems meeting customer delivery requirements, our success in winning new or expected refurbishment contracts from customers, capital expenditures, increased leverage, possible future acquisitions, facility closures, product transition costs, labor disputes involving us, our significant customers’ suppliers or airframe manufacturers, the impact of a prolonged global recession, the possibility of a write-down of intangible assets, delays or inefficiencies in the introduction of new products, fluctuations in currency exchange rates or our inability to properly manage our rapid growth.
In light of these risks and uncertainties, you are cautioned not to unduly rely on such forward-looking statements when evaluating the information presented herein. These statements should be considered only after carefully reading this entire Form 10-K. Except as required under the federal securities laws and rules and regulations of the Securities and Exchange Commission (“SEC”), we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Additional risks that we may currently deem immaterial or that are not presently known to us could also cause the forward-looking events discussed in this Form 10-K not to occur.
Unless otherwise indicated, the industry data contained in this Form 10-K is from the January/February 2016 issue of the Airline Monitor, December 2015 reports of the International Air Transport Association (“IATA”), FlightGlobal Fleets Analyzer or the Airbus and The Boeing Company (“Boeing”) corporate websites.
Based on our experience in the industry, we believe we are the world’s largest manufacturer of cabin interior products for commercial aircraft and for business jets. We sell our products and provide our services directly to virtually all of the world’s major airlines and aerospace manufacturers. Also, based on our experience, we believe that we have achieved leading global market positions in each of our major product categories, which include:
We provide comprehensive aircraft cabin interior reconfiguration, program management and certification services. In addition, we also design, engineer and manufacture customized fully integrated thermal and power management solutions for participants in the defense industry, aerospace original equipment manufacturers (“OEMs”) and the airlines.
Since our organization as a corporation in Delaware in 1987, we have substantially expanded the size, scope and nature of our business as a result of a number of acquisitions. Between 1989 and 2011, we completed 28 acquisitions associated with our continuing operations, for an aggregate purchase price of approximately $1.2 billion. We believe these acquisitions enabled us to position ourselves as a preferred global supplier to our customers. During this period we consolidated facilities and product lines, implemented lean manufacturing and continuous improvement programs and invested in our information technology. All of these efforts allowed us to continually improve our productivity and expand our operating margins.
Our principal executive offices and corporate headquarters are located at 1400 Corporate Center Way, Wellington, Florida 33414-2105 and our telephone number is 561-791-5000.
The commercial and business jet aircraft cabin interior products industries encompass a broad range of products and services, including aircraft seating, food and beverage preparation and storage systems, galley and interior monument systems, passenger and crew oxygen storage, oxygen distribution and delivery systems, lavatory systems, wastewater management systems, lighting systems, overhead bins, as well as interior reconfigurations and a variety of other engineering, design, integration, installation, retrofit and certification services.
Historically, the aircraft cabin interior products industry has derived revenues from five sources:
The retrofit and refurbishment cycles for commercial aircraft cabin interior products differ by product category. Aircraft seating typically has a refurbishment cycle of one to two years and a retrofit cycle of four to eight years. Food and beverage preparation and storage equipment is periodically upgraded or repaired, and requires a continual flow of spare parts, but may be retrofitted only once or twice during the useful life of an aircraft.
Based on industry sources and studies, we estimate that during 2015, the global commercial and business jet cabin interior products industry, for the principal products of the type which we manufacture, exclusive of service revenues, had annual sales of approximately $4.4 billion. We estimate that the total worldwide installed base of commercial and general aviation aircraft cabin interior products for the principal products of the type which we manufacture, valued at replacement prices, was approximately $29.2 billion as of December 31, 2015.
During 2015, global air traffic increased by 6.5% as compared with global traffic increases of 6.0% in 2014 and 5.7% in 2013. The increases in global traffic demand from 2013 through 2015 reflect the global macroeconomic environment. The Airline Monitor 2016 forecast projects global passenger traffic to increase approximately 6.0% and capacity growth of approximately 6.0%.
IATA expects the global airline industry to generate a profit of approximately $33.0 billion in 2015, an increase of over 90% compared to 2014. Overall performance in 2015 has been positively impacted by strong passenger traffic growth of approximately 6.5%, near record load factors of approximately 80.3% reflecting disciplined capacity management and declining costs of aviation fuel. The record industry profits were delivered despite modest reduction in yields as compared with 2014. For 2016, IATA expects global profits to improve to $36.3 billion, or 10.0% higher than 2015.
The airlines have substantially strengthened their balance sheets over the past several years through operating profits and by accessing capital markets. As a result, we believe airline balance sheets are much stronger than in any time in the past ten years.
Approximately 647 business jets were delivered in 2015 versus 710 business jets in 2014 and 678 business jets in 2013.
Other factors relevant to the industries we serve include the following:
Long-Term Growth in Worldwide Fleet. According to the Airline Monitor, new deliveries of large commercial aircraft increased to 1,397 aircraft in 2015 driven by increased production of Boeing’s 737 and 787 aircraft, Airbus’ A320 and the first deliveries of Airbus’ A350 aircraft. This compares to 1,352 aircraft in 2014 and 1,274 in 2013. According to the Airline Monitor, new aircraft deliveries are expected to total 1,440 in 2016 and 1,380 in 2017. Worldwide air traffic is expected to grow by approximately 6.0% in 2016 and the Airline Monitor has forecasted revenue passenger miles to increase at a compounded annual growth rate of approximately 5.3% during the 2015-2030 period, increasing from 4.1 trillion miles in 2015 to approximately 8.9 trillion miles by 2030. As a result, the Airline Monitor expects the worldwide fleet of commercial jet aircraft to increase by approximately 75% from approximately 24,960 regional, single-aisle and twin-aisle aircraft at December 31, 2015 to approximately 43,720 aircraft at December 31, 2030.
Wide-Body Aircraft Deliveries. Deliveries of wide-body, long-haul aircraft constitute an increasing share of total new aircraft deliveries and are an increasing percentage of the worldwide fleet. Wide-body aircraft represented approximately 28% of all new commercial aircraft (excluding regional jets) delivered over the four-year period ended December 31, 2015. According to the Airline Monitor, 411 new wide-body aircraft were delivered in 2015 and approximately 420 are expected to be delivered in 2016. The Airline Monitor also predicts that nearly 5,225 twin-aisle aircraft will be delivered over the 2016-2026 timeframe or approximately 475 wide-body and super wide-body aircraft per year, which is 16% higher, on average, as compared to 2015 deliveries. The foundations of this growth are the Boeing 787 and Airbus A350 two engine aircraft which replace older and less fuel efficient wide-body aircraft. These aircraft also support new demand by opening smaller markets to long range nonstop flights.
Existing Installed Base. According to industry sources, the world's active commercial passenger aircraft fleet consisted of approximately 24,960 aircraft as of December 31, 2015. Additionally, based on industry sources, there are approximately 18,399 business jets currently in service. Based on such fleet numbers, we estimate that the total worldwide installed base of commercial and general aviation aircraft cabin interior products for the principal products of the type which we manufacture, valued at replacement prices, was approximately $29.2 billion as of December 31, 2015. The size of the installed base is expected to increase as a result of the growth in the world wide fleet and is expected to generate additional and continued demand for retrofit, refurbishment and spare parts.
Engineering Services Markets. Historically, the airlines have relied primarily on their own in-house engineering resources to provide engineering, design, integration and installation services, as well as services related to repairing or replacing cabin interior products that have become damaged or otherwise non-functional. Cabin interior product configurations have become increasingly more sophisticated and the airline industry more globally competitive. The airlines have increasingly outsourced certain of these services in order to introduce highly branded, optimized density and contemporary interiors in sync with market cycles. As noted above, the interiors retrofit cycle runs in four to eight year cycles. The ability of an airline to source
expert engineering services is an increasingly essential factor in their ability to offer a competitive interior product in their markets.
Outsourced services include:
We believe that we have a strong competitive position attributable to a number of factors, including the following:
Focus on Innovation and New Product Development. Our aircraft cabin interior products businesses are engaged in extensive product development and marketing efforts for both new and existing products. We believe, based on our experience in the industry, that we are a technological and systems integration leader in the cabin interior products industry. The success of these and other new product development efforts are expected to increase demand for our products in both newly purchased aircraft and in aftermarket retrofits. Our focus on continuous development has allowed us to grow our backlog and improve the product mix of our current backlog. Newly introduced products include a broad range of amenities such as luxurious first class cabins (offering high privacy and high density seats) with appointments such as mini-bars, closets, flat screen TVs, digital light-emitting diode (“LED”) mood lighting, electric lie-flat seating, Pulse Oxygen™ gaseous passenger oxygen systems for the Boeing 787, 777X and Airbus A350, next-generation galley systems for the Airbus A350, the new award winning and market leading Essence™ suite of food and beverage equipment, electric fully berthing business jet seating, lightweight, lower maintenance wastewater systems for business and commercial jets and a full range of business and executive jet seating. We recently introduced our new Meridian® main cabin seating platform, which we believe is the industry’s lightest full-featured seat that significantly reduces cost of ownership, simplifies maintenance and increases overall passenger living space. We also recently introduced an update to our digital LED lighting system for the Boeing 737 Sky Interior aircraft. This innovative, lightweight LED system features adjustable lighting with full spectrum color capabilities, providing superior cabin ambiance and unprecedented lighting control. Market acceptance of our LED lighting systems has continued to gain strength, and since 2012 we have been receiving orders from various airlines to retrofit their Boeing 737, 757, 767 and 777 aircraft with our LED lighting systems.
As of December 31, 2015, we had 2,236 employees in engineering, research and development and program management. We believe our engineering, research and development efforts and our on-site technicians at both the airlines and airframe manufacturers enable us to play a leading role in developing and introducing innovative products to meet emerging industry trends, and thereby gain early entrant advantages.
Diverse Product Offering and Broad Domestic and International Customer Base. We provide a comprehensive line of products and services to a broad customer base. During the year ended December 31, 2015, Boeing accounted for 10% of our consolidated revenues (no other customer represented more than 10% of consolidated revenues). Our commercial aircraft and business jet segments have a broad range of over 300 principal customers, including all of the world’s major airlines, commercial aircraft and business jet manufacturers and completion centers. We believe that our broad product offering and large customer base make us less vulnerable to the loss of any one customer or program. We have continued to expand our available products and services based on our belief that the airline industry increasingly will seek an integrated approach to the design, development, integration, installation, testing and sourcing of aircraft cabin interior equipment.
Large Installed Base. We have a large installed base of commercial and general aviation aircraft cabin interior products for the principal products of the type which we manufacture, valued at replacement prices, of approximately $12.3 billion as of December 31, 2015. Based on our experience in the industry, we believe our installed base is substantially larger than that of each of our competitors. We believe that our large installed base is a strategic advantage, as airlines tend to purchase aftermarket products and services, including spare parts, retrofit and refurbishment programs, from the original supplier. As a result, we expect our large installed base to generate continued aftermarket revenue as airlines continue to maintain, evolve and reconfigure their aircraft cabin interiors.
Increased Airframe Content and Diversified Backlog. Approximately ten years ago we began to leverage our deep understanding of aircraft interior systems to develop a range of new aircraft interior products that deliver differentiated value for Airbus and Boeing at point of sale, and the airlines in service. During 2011, Boeing selected our modular lavatory systems as standard eqipment for Boeing’s 737 NG family of airplanes, as well as the Boeing 737 MAX. The award was initially valued in excess of $800 million, exclusive of retrofit orders. This innovative system has become standard equipment on these aircraft and will be the sole source equipment on the 737 MAX when it enters service in 2017. Our proprietary lavatory systems create the opportunity to add up to six incremental passenger seats on each new 737 NG / MAX airplane.
We have also been selected by Boeing to manufacture our LED cabin lighting systems for the Boeing 737 Sky Interior aircraft. This has facilitated our growth on lighting retrofits for both narrow-body and wide-body aircraft where we have won several awards as we continue to offer all-LED lighting throughout the cabin into the existing worldwide fleet of aircraft. To date, we have been selected by Boeing to manufacture our patented Pulse OxygenTM system and passenger service units for the 787, 777X and 747-8, and we have been selected by Airbus to manufacture our next generation galley systems and our patented passenger oxygen delivery system for the A350. Additionally, we have been selected by major business jet manufacturers to provide vacuum wastewater systems. As of December 31, 2015, the programs we have won are currently expected to generate approximately $5.6 billion in revenues over time, and are expected to significantly increase our content per aircraft type; however, only a small portion of these programs are included in our reported booked backlog as of December 31, 2015. This effort to develop and market new interior systems directly to the OEMs is important to us as it represents a significant potential increase in the dollar value of our products on each such aircraft type.
Proven Certification Capabilities and Experience with a Complex Regulatory Environment. The airline industry is heavily regulated and we have a long history and extensive experience with the complex regulatory environments in which we operate and believe this enables us to efficiently obtain the required approvals for new products and services. The Federal Aviation Administration (the “FAA”) prescribes standards and licensing requirements for manufacturers and sellers of many aircraft components, including virtually all commercial airline and general aviation cabin interior products, and licenses component repair stations within the United States. Comparable agencies, such as the European Aviation Safety Agency (the “EASA”), the Japanese Civil Aviation Board (the “JCAB”), and the Civil Aviation Administration of China (the “CAAC”), prescribe standards, establish licensing requirements and regulate these matters in other countries. In
addition, designing new products to meet existing regulatory requirements and retrofitting products to comply with new regulatory and airframe requirements can be both expensive and time consuming. Our proven ability to consistently conceptualize, design, manufacture and certify highly complex interiors for new and retrofit aircraft applications in compressed lead times to regulatory and airframe requirements is a key competitive strength in our market.
We believe that we will benefit from the following industry trends:
Growth of Wide-Body Aircraft Fleet. New aircraft deliveries of wide-body aircraft are expected to continue to grow over the long term, reflecting the expected growth in revenue passenger miles over the 2016-2030 period and retirements of older, less fuel efficient aircraft. The growth in the wide-body aircraft global fleet is significant to us because wide-body aircraft require up to six-to-ten times the dollar value content of the principal products of the type which we manufacture as compared to narrow-body aircraft. For example, wide-body aircraft carry up to three or four times the number of seats as narrow-body aircraft and have multiple classes of service, including super first class compartments and first class and business class configurations. In addition, aircraft cabin crews on wide-body aircraft flights may make and serve between 300 and 900 meals, brew and serve more than 2,000 cups of coffee and serve more than 200 glasses of wine on a single flight, thereby generating substantial demand for seating products and food and beverage preparation and storage equipment, as well as extensive oxygen storage, distribution and delivery systems and lighting systems.
Growth of Boeing and Airbus Narrow-Body Aircraft Fleet. New aircraft deliveries of Boeing’s 737 NG and Airbus’s A320neo are expected to continue to grow over the long term, reflecting the expected growth in revenue passenger miles over the 2016-2030 period and retirements of older, less fuel efficient aircraft. For example, both Boeing and Airbus have increased their narrow body production outputs from over 34 aircraft per month in 2011 to over 40 aircraft per month in 2015 and have production schedules and backlog to deliver in excess of 56 aircraft per month in 2019. This growth is significant to us as we have market leading installed base shares on both the Boeing 737 and Airbus A320 platforms.
Worldwide Aircraft Fleet Creates Demand for Aftermarket Products. The size of the worldwide aircraft fleet is important to us as the proper maintenance of the fleet generates ongoing demand for spare parts and refurbishment retrofits. Our substantial existing installed base of products typically generates continued retrofit, replacement, upgrade, refurbishment, repair and spare parts revenue as airlines maintain their aircraft interiors. For the years ended December 31, 2015 and 2014, approximately 40% of our revenues were derived from the aftermarket. In addition, aftermarket revenues are generally driven by aircraft usage, and as such, have historically tended to recover more quickly than revenues from OEMs. As used in this Form 10-K, aftermarket sales include sales to support existing commercial and business jet fleets. We believe that there are substantial growth opportunities for retrofit programs for the wide-body aircraft that service international routes and that the major global airlines will need to invest in cabin interiors for their international fleets or face the prospect of losing market share on their international routes. Additionally, the expected growth in the worldwide fleet will serve to increase the size of our installed base.
Backlog Aided by Aftermarket Demand from International Airlines Retrofitting Existing Fleets. We believe that many major international airlines are in the process of planning cabin interior upgrade programs. This activity is expected to continue to be driven by the age of the existing cabin interiors, commonality with new aircraft type interiors, as well as the desire by many of the leading international carriers to achieve a competitive advantage by investing in cabin interior products that incorporate leading comfort amenities, thereby improving passenger loads and yields, or that reduce airline operating costs by reducing maintenance costs and/or providing lower weight and fuel burn. We believe that as international traffic continues to grow, the life cycle of premium products, such as lie-flat international business class seats and the products comprising our super first class suites, will continue to compress as airlines seek greater competitive advantage through state-of-the-art cabin interior products. We believe our ability to develop unique interior
concepts, design, manufacture and certify these concepts in a compressed lead time to comply with international regulatory requirements supports expansion of these activities.
Growth in New Aircraft Introductions Leads to New Cabin Interior Product Introductions and Major Retrofit Opportunities. According to Airbus, 41 customers have placed 777 orders for new A350 aircraft. According to Boeing, 62 customers have placed orders for 1,142 of its new B787 wide-body aircraft and seven customers have placed 306 orders for new B777X aircraft. We believe the airlines often use the introduction into service of a new aircraft fleet type to introduce next generation cabin interior products. In such cases, we believe airlines will also invest in programs to retrofit their existing fleets to incorporate these new interior products and configurations in order to enhance their revenue and/or cost advantages realized on the new fleets and to maintain product and service commonality.
Long-Term Growth in Business Jet and VIP Aircraft Markets. Business jet deliveries totaled 647 aircraft in 2015 and were down 8.9% in 2015 as compared to 2014; business jet deliveries in 2014 totaled 710 aircraft and increased 4.7% as compared to 2013. According to industry sources, new business jet deliveries in 2016 through 2018 are expected to decline slightly before a new up cycle begins in 2019 driven by the introduction of new large aircraft from Dassault and Bombardier and new mid-size platforms from Cessna. The growth of the very large aircraft segment is important to us as the ship set content for seating, divans and accent lighting is three times that of a smaller business jet.
Our business strategy is to maintain a leadership position and to best serve our customers by:
Products and Services
We conduct our operations through strategic business units that have been aggregated under two reportable segments: commercial aircraft (“CAS”) and business jet (“BJS”).
The following is a summary of revenues for our reportable segments:
Commercial Aircraft Segment
Seating Products. We believe, based on our experience in the industry, that we are the world's leading manufacturer of aircraft seats, offering a wide selection of first class, business class, tourist class and regional aircraft seats. A typical seat manufactured and sold by us includes the seat frame, cushions, armrests, tray table and a variety of optional features such as adjustable lumbar supports, electrical actuation systems, footrests, reading lights, head/neck supports, and other comfort amenities. We also integrate a wide variety of in-flight entertainment equipment into our seats, which is supplied to us by our customers or third-party suppliers.
First and Business Class Seats. Based upon major airlines' program selection and our backlog, we believe we are the leading worldwide manufacturer of first and business class seats. Our line of first class lie-flat seats incorporates full electric actuation, an electric ottoman, privacy panels and sidewall-mounted tables. We leverage our differentiated expertise in executive seating, divans, cabinetry, lighting, environmental controls and reliable use of exotic materials to develop these exclusive environments. Our business class seats incorporate features developed over 25 years of seating design. We have led this sector of the industry since the development and delivery of the industry’s first mass produced lie flat seat in 2001. We offer the widest array of business class platforms in the industry to support airlines’ differing requirements for business class zone density. The business class seats include electrical or mechanical actuation, PC power ports, personal entertainment device connectivity, gaming headsets, individual video monitors, leg rests, adjustable lumbar cushions, four and six-way adjustable headrests and fiber optic reading and accent lights. The first and business class products are substantially more expensive than tourist class seats due to these luxury accoutrements. Our deep understanding of airframe and system interfaces and ability to certify these suites and cabins within required lead-times, supports our market design and manufacturing capabilities.
Tourist Class and Regional Jet Seats. We believe, based on our installed base, that we are a leading worldwide manufacturer of tourist class seats and regional aircraft seats. We believe our Pinnacle® coach class seat has become the industry's most popular seat platform for single-aisle aircraft since its launch in late 2009. We believe the seat improves comfort and offers significantly improved passenger living space as well as benefiting the airlines with simplified maintenance and spare parts purchasing. Pinnacle® was engineered for use across the entire single-aisle aircraft fleet. In 2015, we introduced our new patented Meridian® main cabin seating platform, which we believe is the industry’s lightest full-featured seat. The Meridian® seat platform utilizes advanced proprietary technologies that we believe significantly reduce cost of ownership, simplify maintenance and increase overall passenger living space and comfort. Since its launch, the Meridian® has received launch orders in excess of 550 aircraft.
Spares. Aircraft seats require regularly scheduled maintenance in the course of normal passenger use. Airlines depend on seat manufacturers and secondary suppliers to provide spare parts and kit upgrade programs. As a result, a significant market exists for spare parts and kit upgrades. We believe we offer unique engineering, planning and logistics services to our industry via our Integrated Materials Management aftermarket support platform. This service is enabled by the industry’s only manufacturing sites and supply chains dedicated to seat aftermarket support. The ability to deliver best in class logistics and material services lowers cost for the airlines and raises customer satisfaction.
Food and Beverage and Preparation and Storage Equipment. We believe, based on our experience in the industry, that we are the leading manufacturer of aircraft coffee and beverage makers. We manufacture a broad line of coffee makers, including the Essence® line of beverage makers, coffee warmers and water boilers. We also manufacture a cappuccino/espresso maker. We believe, based on our experience in the industry, that we are the leading manufacturer of a broad line of specialized ovens, including high efficiency convection ovens, steam ovens and warming ovens.
Our DS Steam OvenTM uses a method of preparing in-flight food by maintaining constant temperature and moisture in the food. Our DS Steam OvenTM addresses the airlines' need to provide a wider range of food offerings than can be prepared by convection ovens. We believe, based on our experience in the industry, that we are the worldwide industry leader in the design, manufacture and supply of commercial aircraft refrigeration equipment. We manufacture self-contained wine and beverage chillers, refrigerators/freezers and galley air chilling systems.
Oxygen Delivery Systems. We believe, based on our experience in the industry, that we are the leading manufacturer of oxygen storage, distribution and delivery systems for both commercial and business jet aircraft. We have the capability to both produce all required components and to fully integrate overhead passenger service units with either chemical or gaseous oxygen equipment. Our oxygen equipment has been approved for use on all Boeing and Airbus aircraft and is also found on essentially all general aviation and VIP aircraft. The Boeing 787 was the first aircraft equipped with a passenger oxygen system using our advanced Pulse OxygenTM and passenger service unit technology. Boeing has awarded us a sole source contract for the installation of the Pulse Oxygen™ system on its new 777X platform. We also provide similar technology for passenger and crew oxygen systems for the A350. We have also been selected by both Boeing and Airbus to provide installed lavatory oxygen as their preferred line-fit solution for all platforms.
Interior Structures. Our modular lavatory system utilizes our patented Spacewall® technology, which frees up floor space in the cabin, creating the opportunity to add up to six incremental passenger seats on each airplane. The modular lavatory systems integrate our technologically advanced Aircraft Ecosystems® vacuum toilet, long-life LED lighting and tamper proof state-of-the-art lavatory oxygen system. We believe our Aircraft Ecosystems® vacuum toilets have 25% greater reliability than existing systems and allow components to be replaced in a few minutes, as compared to up to an hour for existing systems. Our innovative modular lavatory system has become standard equipment on all Boeing 737s, as well as the 737 MAX which enters service in 2017. We believe that retrofit demand for our lavatory systems could be substantial. We have also entered the vacuum wastewater system market. Our vacuum wastewater system incorporates a proprietary design which we believe eliminates the primary cause of failure which plagues other vacuum systems. In addition, our systems include advanced proprietary components and systems that we believe will significantly lower the overall cost of ownership, simplify maintenance and improve lavatory hygiene. Our innovative, modular approach to the design of galley systems allows the airlines to select galley positions and configurations for their specific operational needs, while minimizing total aircraft system weight. We also provide next generation galley systems for the Airbus A350 aircraft, which is designed to accommodate the aircraft’s “flex zones” allowing airlines to select from a wide range of galley configurations.
Engineering, Design, Integration, Installation and Certification Services. We believe, based on our experience in the industry, that we are a leading supplier of engineering, design, integration, installation and certification services for commercial aircraft passenger cabin interiors. We also offer our customers’ in-house capabilities to design, manage, integrate, test and certify reconfigurations and modifications for commercial aircraft and to manufacture related products, including engineering kits and interface components. We provide a broad range of interior reconfiguration services which enable airlines to modify the cabin layout, install telecommunications and entertainment equipment, and relocate galleys, lavatories, overhead bins, and crew rest compartments. The expertise and resources of our engineering and certifications unit is embedded in our major interiors densification campaigns, new cabin systems and product developments. The ability to leverage our unique knowledge of the aircraft electrical, environmental and stress environments allow us to optimize platform development to comply with challenging manufacturing and certification requirements.
We estimate that, as of December 31, 2015, we had an aggregate installed base of products produced by our commercial aircraft segment, valued at replacement prices, of approximately $10.4 billion.
Business Jet Segment
We believe, based on our experience in the industry, that we are a leading manufacturer of a broad product line of furnishings for business jets. We believe we originated what is today’s market for “Super First Class” suites and cabins twelve years ago. Our products include a complete line of business jet seating and sofa products, including electric fully berthing lie-flat seats, both fluorescent and LED direct and indirect lighting, air valves and oxygen delivery systems as well as sidewalls, bulkheads, credenzas, closets, galley structures, lavatories, wastewater systems, de-icing systems, cabin management systems and tables. We have the capability to provide complete interior packages for business jets and executive VIP or head-of-state aircraft interiors, including design services, interior components and program management services. Our product portfolio also includes premium lightweight helicopter seats for double engine helicopter airframes for civil and military applications.
Our business jet segment, which has had decades of experience in equipping executive, VIP and head-of-state aircraft, is the leading manufacturer of super first class cabin interior products for commercial wide-body aircraft. Super first class products incorporate a broad range of amenities such as luxurious first class cabins with appointments such as lie-flat seating, mini-bars, closets, flat screen televisions and mood lighting, which, until recently, were found only in VIP and head-of-state aircraft.
We estimate that, as of December 31, 2015, we had an aggregate installed base of business jet and super first class equipment, valued at replacement prices, of approximately $1.9 billion.
Research, Development and Engineering
We work closely with commercial airlines, business jet and aerospace manufacturers and global leasing companies to improve existing products and identify customers' emerging needs. Our expenditures in research, development and engineering totaled $274.4 million, $284.3 million and $220.9 million for the years ended December 31, 2015, 2014 and 2013, respectively, representing 10.1%, 10.9% and 10.0% of revenues, respectively, for each of those years. We employed 2,236 professionals in engineering, research and development and program management as of December 31, 2015. We believe, based on our experience in the industry, that we have the largest engineering organization in the cabin interior products industry, with mechanical, electrical, human machine interface and software design skills, as well as substantial expertise in program management, materials composition and custom cabin interior layout design and certification.
Customers, Marketing and Competition
The commercial aircraft cabin interior products market is relatively fragmented, with a number of competitors in each of the individual product categories. Due to the global nature of the commercial aerospace industry, competition comes from both U.S. and foreign manufacturers. However, as aircraft cabin interiors have become increasingly sophisticated and technically complex, airlines have demanded higher levels of engineering support and customer service than many smaller cabin interior products suppliers can provide. At the same time, airlines have recognized that cabin interior product suppliers must be able to integrate a wide range of products, including sophisticated electronic components, such as video and live broadcast TV, particularly in wide-body aircraft.
We market and sell our commercial aircraft products directly to virtually all of the world's major airlines, aircraft leasing companies and airframe manufacturers. Airlines select manufacturers of cabin interior products primarily on the basis of custom design capabilities, product quality and performance, on-time delivery, after-sales customer service, product support and price. We market our thermal and power management products and services directly to first tier defense manufacturers, aerospace OEMs, their suppliers and the airlines.
We believe that airlines prefer our integrated worldwide marketing approach, which is focused by airline and encompasses our entire product line. Led by senior executives, teams representing each product line
serve designated airlines that together account for the vast majority of the purchases of products manufactured by our commercial aircraft segment, including our super first class products. Our teams have developed customer-specific strategies to meet each airline's product and service needs. We also staff "on-site" customer engineers at major airlines and airframe manufacturers to represent our entire product line and to work closely with customers to develop specifications for each successive generation of products required by the airlines. These engineers help customers integrate our wide range of cabin interior products and assist in obtaining the applicable regulatory certification for each particular product or cabin configuration. Through our on-site customer engineers, we expect to be able to more efficiently design and integrate products that address the requirements of our customers. We provide integrated program management services, integrating all on-board cabin interior equipment and systems, including installation and FAA certification, allowing airlines to substantially reduce costs. We believe that we are the only supplier in the commercial aircraft cabin interior products industry with the size, resources, expertise, breadth of product line and global product support capability to operate in this manner.
Our integrated program management approach assigns a program management team to each significant contract. The program management team leader is responsible for all aspects of the specific contract and profitability, including managing change orders, negotiating related upfront engineering charges and monitoring the progress of the contract through its delivery dates. We believe that our customers benefit substantially from our program management approach, including better on-time delivery and higher service levels. We also believe our program management approach results in higher customer satisfaction.
We market our business jet products directly to all of the world's general aviation airframe manufacturers, completion centers and operators. Business jet owners typically rely upon the airframe manufacturers and completion centers to coordinate the procurement and installation of their interiors. Business jet owners select manufacturers of business jet products on a basis similar to commercial aircraft interior products: custom design capabilities, product quality and performance, on-time delivery, after-sales customer service, product support and price. Barriers to entry include regulatory requirements, our large installed product base, our custom design capability, manufacturing capability, delivery, after-sales customer service, product support and our broad product line.
As of December 31, 2015, our direct sales, marketing and product support organizations consisted of 450 employees. In addition, we currently retain 54 independent sales representatives. Our sales to non-U.S. customers were approximately $1.8 billion and $1.7 billion during the years ended December 31, 2015 and 2014, respectively, which represents approximately 65% and 67% of revenues, respectively. Approximately 64% of our total revenues were derived from airlines, aircraft leasing companies, maintenance, repair and overhaul providers, and other commercial aircraft operators during each of the two years ended December 31, 2015. Approximately 40% of our revenues during each of the years ended December 31, 2015 and 2014 were from the aftermarket.
We believe that our large installed base, our timely responsiveness in connection with custom design, manufacture, delivery and after-sales customer service and product support, our broad product line and stringent customer and regulatory requirements, all present barriers to entry for potential new competitors in the aircraft cabin interior products market. Our principal competitors for our commercial aircraft segment are Groupe Zodiac Aerospace S.A., Thompson Aero Seating Ltd., Recaro Aircraft Seating GmbH & Co. KG, Diehl Aerosystems Holding GmBH and Jamco America, Inc. The market for business jet products is highly fragmented, consisting of numerous competitors including a wholly-owned subsidiary of United Technologies Corporation.
Our booked backlog at December 31, 2015 was $3.2 billion, as compared with booked backlog of $3.0 billion as of December 31, 2014 and $2.8 billion as of December 31, 2013. The charts below reflect information related to booked backlog by geographic region and the expected roll-out of booked backlog.
We record backlog when we enter into a definitive order for the delivery of products to our customers in the future. Within backlog, we differentiate between booked backlog and awarded but unbooked backlog. For manufacturing programs, generally if there are definitive delivery dates then the backlog is considered booked. When we receive the delivery date specificity in writing from our customers on these long-term contracts, we include such amount in booked backlog. If a contract does not provide that level of specificity, the production requirements are generally provided to us through purchase orders issued against the underlying contracts at which point the amount of the purchase orders is classified as booked. The remaining portion of the underlying contract is considered awarded but unbooked.
As of December 31, 2015, we had a record booked backlog of $3.2 billion. While the expected delivery dates of our backlog varies from year to year, generally about 60% of the backlog is deliverable in the following 12 months, with the balance generally deliverable over approximately the next two years. As an example, we believe approximately 62% of our December 31, 2015 booked backlog will be delivered during 2016. As of December 31, 2015, approximately 77% of booked backlog is related to CAS and 23% is related to BJS. The quality of our backlog has continued to improve as a result of partnering with key long-term customers, outstanding engineering, global sourcing and program management capabilities resulting in superior products which we believe are the most innovative cabin interior products solutions for our customers. While we do operate in a cyclical industry, program cancellations are the exception, not the norm; historically, backlog cancellations have not been significant due to the fact that airlines seek fleet commonality once they begin to outfit their fleets with a particular cabin interior product or configuration. This is important to an airline due to customer expectations for a consistent level of service, particularly on international routes as well as complexities that arise from maintaining multiple layouts and products with spare parts on a global basis, and other similar considerations. As a result, these programs tend to be deferred to later periods, rather than being cancelled. As an example in 2008 following the global credit crisis, our airline customers experienced a significant contraction in demand, which resulted in the deferral of a number of programs from delivery in the 2008-2009 period to 2009-2011. Despite the negative impacts on our customers from this severe global recession, no significant retrofit programs were cancelled. For a more detailed discussion on risks associated with our backlog, see Item 1A. Risk Factors – We have a significant backlog that may be deferred or may not be entirely realized.
Program awards will be added to booked backlog when we receive purchase orders or otherwise are provided with specificity regarding delivery dates. At December 31, 2015, we estimate the value of these unbooked program awards at $5.6 billion.
Total backlog, both booked and awarded but unbooked, expanded to a record $8.8 billion, an increase of 10.0% from December 31, 2014.
We believe that our customers place a high value on customer service and product support and that this
service level is a critical differentiating factor in our industry. The key elements of such service include:
Customer service is particularly important to the airlines due to the high costs associated with late delivery, malfunctions and other problems.
Warranty and Product Liability
We warrant our products, or specific components thereof, for periods ranging from one to ten years, depending on product and component type. We establish reserves for product warranty expense after considering relevant factors such as our stated warranty policies and practices, historical frequencies of claims to replace or repair products under warranty and recent sales and claims trends. Actual warranty costs reduce the warranty reserve as they are incurred. We periodically review the adequacy of accrued product warranty reserves and revisions of such reserves are recognized in the period in which such revisions are determined.
We also carry product liability insurance. We believe that our insurance is sufficient to cover product liability claims.
Manufacturing and Raw Materials
Our manufacturing operations consist of both the in-house manufacturing of component parts and sub-assemblies and the assembly of our designed component parts that are purchased from outside vendors. We maintain up-to-date facilities, and we have an ongoing strategic manufacturing improvement plan utilizing lean manufacturing processes. We constantly strive for continuous improvement from implementation of these plans for each of our product lines. We have implemented common information technology platforms company-wide, as appropriate. These activities should lower our production costs, shorten cycle times and reduce inventory requirements and at the same time improve product quality, customer response and profitability. We do not believe we are materially dependent on any single supplier or assembler for any of our raw materials or specified and designed component parts and, based upon the existing arrangements with vendors, our current and anticipated requirements and market conditions, we believe that we have made adequate provisions for acquiring raw materials.
The FAA prescribes standards and licensing requirements for aircraft components, and licenses component repair stations within the United States. Comparable agencies regulate such matters in other countries. We hold several FAA component certificates and perform component repairs at a number of our U.S. facilities under FAA repair station licenses. We also hold an approval issued by the EASA to design, manufacture, inspect and test aircraft seating products in Leighton Buzzard, United Kingdom and to manufacture and ship from our Kilkeel, Northern Ireland facility. We also have the necessary approvals to design, manufacture, inspect, test and repair our interior systems products in Nieuwegein, the Netherlands. Additionally we hold EASA/LBA (Luftfahrtbundesamt, the National German Aviation Authority) approval to manufacture, inspect, test and repair our commercial life support systems equipment and the approval of
the German Federal Office of Defense and Procurement (BWB) to design, manufacture and repair military aviation equipment in Lübeck, Germany.
In May 2009, our Structures and Integration Group in Marysville, Washington was granted FAA Organization Designation Authorization (“ODA”) that includes delegated authority to issue Supplemental Type Certificates (“STC”) and produce parts under a FAA Production Certificate (“PC”). Our ODA STC allows us to reconfigure the interior of airplanes, install crew rests, install satellite communications and perform passenger-to-freighter conversions on all major transport category aircraft types. Under our ODA STC we can approve the design of an aircraft modification and the parts that go into it, and issue the STC in support of the return to service of the modified airplane. This authorization allows us to install new and prototype parts on the aircraft and upon STC issuance add these parts to our PC and designate them as airworthy approved production parts.
Our operations are subject to extensive and changing federal, state and foreign laws and regulations establishing health and environmental quality standards, including those governing discharges of pollutants into the air and water and the management and disposal of hazardous substances and waste. We may be subject to liabilities or penalties for violations of those standards. We are also subject to laws and regulations, such as the Federal Superfund Law and similar state statutes, governing remediation of contamination at facilities that we currently or formerly owned or operated or to which we send hazardous substances or waste for treatment, recycling or disposal. We believe that we are currently compliant, in all material respects, with applicable environmental laws and regulations. However, we could become subject to future liabilities or obligations as a result of new or more stringent interpretations of existing laws and regulations. In addition, we may have liabilities or obligations in the future if we discover any environmental contamination or liability relating to our facilities or operations.
Patents and Other Intellectual Property
We rely upon patent, copyright, trademark, trade secret and other intellectual property laws in the United States, similar laws in other countries, and agreements with our employees, customers, suppliers and other parties to establish and maintain intellectual property rights in the products we sell and otherwise use in our operations. We currently hold 409 U.S. patents and 640 foreign patents, as well as 184 U.S. patent applications and 623 foreign patent applications covering a variety of products. We do not believe that we are dependent on one or a group of patents, and as such we believe the termination, expiration or infringement of one or more of such patents would not have a material adverse effect on us.
As of December 31, 2015, we had approximately 10,057 employees. Approximately 66% of our employees are engaged in manufacturing/distribution operations, quality and purchasing, 22% in engineering, research and development and program management, 5% in sales, marketing and product support and 7% in finance, human resources, information technology, legal and general administration. Unions represent approximately 15% of our worldwide employees. One domestic labor contract, representing approximately 5% of our employees, expires in May 2018. The labor contract with the only other domestic union, which represents 1% of our employees, expires in October 2017. The remaining portion of our unionized employees are located in the United Kingdom and the Netherlands, which tend to have government mandated union organizations. We consider our employee relations to be good and we have not experienced a business disruption due to labor relations.
Financial Information About Segments and Foreign and Domestic Operations
Financial and other information by segment and relating to foreign and domestic operations for the years ended December 31, 2015, 2014 and 2013, is set forth in note 13 to our consolidated financial statements.
Our filings with the SEC, including this Form 10-K, our Quarterly Reports on Form 10-Q, our Proxy Statement, Current Reports on Form 8-K and amendments to any of those reports are available free of charge on our website, http://www.beaerospace.com, as soon as reasonably practicable after they are filed with, or furnished to, the SEC. These reports may also be obtained at the SEC’s public reference room at 100F Street, N.E., Washington, DC 20549. The SEC also maintains a website at www.sec.gov that contains reports, proxy statements, information statements, and other information regarding SEC registrants, including B/E Aerospace, Inc. Information included in or connected to our website is not incorporated by reference in this annual report.
You should carefully consider the following risks and uncertainties, along with the other information contained in or incorporated by reference in this Form 10-K. If any of the following events actually occur, our business, results of operation, financial condition and cash flows could be materially adversely affected. Any of these risks could also cause the market value of our common stock to decline. Additional risks and uncertainties that we do not presently know about or currently believe are not material may also adversely affect our business, results of operations, financial condition and cash flows.
See "Cautionary Statement Regarding Forward-Looking Statements."
Risks Relating to Our Industry
We are directly dependent upon the conditions in the airline and business jet industries, which are, among other things, correlated to global economic conditions and an economic downturn could negatively impact our results of operations and financial condition.
We are directly dependent upon the airline and business jet industries, which are sensitive to changes in global economic conditions. The airline industry is highly cyclical and the level of demand for air travel is correlated to the strength of the U.S. and global economies. Stagnant or weakening global economic conditions either in the United States or in other geographic regions, as we are currently experiencing, may have a material adverse effect on our business. Past periods of unfavorable economic conditions caused a reduction in spending for both leisure and business travel, resulting in the airline industry parking aircraft, delaying new aircraft purchases and deliveries, deferring retrofit programs and depleting existing inventories. The business jet industry is also severely impacted by both a weaker economy and by declining corporate profits. According to IATA, the economic downturn in 2008 and 2009, combined with the high fuel prices experienced during most of 2009, contributed to the worldwide airline industry’s loss of approximately $4.6 billion in 2009. Global financial markets are experiencing volatility and disruption, in part due to the collapse in oil prices and the subsequent impact on emerging markets. Concerns over the tightening of the corporate credit markets, inflation, energy costs and other factors may continue to contribute to volatility in the global financial markets and may create further uncertainties for global economic conditions in the future. Furthermore, the environment in which the airline and business jet industries operate could continue to be affected by adverse foreign exchange impacts, fluctuating fuel prices, consolidation in the industry, changes in regulation, terrorism, safety, environmental, health concerns such as the Zika virus and labor issues. Many of these factors have, and could continue to have, a negative impact on air travel, which could materially adversely affect our business, results of operations, financial condition and cash flows.
Our business is also affected by risks that uniquely impact the airline and business jet industries. For instance, potential terrorist attacks, geopolitical conflict or security breaches, or fear of such events, even if not made directly on or involving the airline industry have, and could continue to have, a negative effect on the airline industry and as a result, our business as well. The global airline industry lost a total of approximately $52.8 billion during the period from 2001 to 2009 as a result of the decline in traffic and airfares caused by, among other things, the September 11, 2001 terrorist attacks, the SARS and H1N1 outbreaks, the conflicts in Iraq and Afghanistan, increases in fuel costs and heightened competition from low-cost carriers. During this period, a significant number of airlines worldwide declared bankruptcy or ceased operations. Any of these factors could potentially impact the airline and business jet industries in the future, and subsequently, materially adversely affect our business, results of operations, financial condition and cash flows.
We operate in cyclical industries and a continued economic downturn could negatively impact our results of operations and financial condition.
We operate in cyclical industries. During periods of economic expansion, when capital spending normally increases, we generally benefit from greater demand for our products. During periods of economic contraction, when capital spending normally decreases, we generally are adversely affected by declining
demand for our products and services. The impact of declining demand can be exacerbated by oversupply built during periods of expansion as there is a lag in suppliers’ reactions to contraction. Industry conditions are impacted by numerous factors over which we have no control, including political, regulatory, economic and military conditions, environmental concerns, weather conditions and fuel pricing. Any prolonged cyclical downturn could have a material adverse effect on our business, results of operations, financial condition and cash flows.
The airline industry is heavily regulated and failure to comply with applicable laws could reduce our sales, or require us to incur additional costs to achieve compliance, which could negatively impact our results of operations, financial condition and cash flows.
The FAA prescribes standards and licensing requirements for aircraft components, including virtually all commercial airline and general aviation cabin interior products and licenses component repair stations within the United States. Comparable agencies, such as the EASA, the CAAC and the JCAB, regulate these matters in other countries. If we fail to obtain a required license for one of our products or services or lose a license previously granted, the sale of the subject product or service would be prohibited by law until such license is obtained, reinstated or renewed. In addition, designing new products to meet existing regulatory requirements and retrofitting installed products to comply with new regulatory requirements can be both expensive and time consuming.
From time to time, these regulatory agencies propose new regulations. These new regulations generally cause an increase in costs to comply with these regulations. For example, the FAA dynamic testing requirements originally established in 1988 under 14 CFR 25.562 are currently required for certain new generation aircraft types. The enactment of 14 CFR 121.311(j) will require dynamic testing of all seats installed in all new aircraft produced after October 27, 2009. The EASA is expected to establish a similar rule. Compliance with this rule may require industry participants to expand engineering, plant and equipment to ensure that all products meet this rule. To the extent the FAA implements rule changes in the future, we may incur additional costs to achieve compliance.
The airline industry is subject to extensive health, safety and environmental regulations, any violation of which could subject us to significant liabilities and penalties.
We are subject to extensive and changing federal, state and foreign laws and regulations establishing health, safety and environmental quality standards, and may be subject to liabilities or penalties for violations of those standards. We are also subject to laws and regulations governing remediation of contamination at facilities currently or formerly owned or operated by us or to which we have sent hazardous substances or waste for treatment, recycling or disposal. We may be subject to future liabilities or obligations as a result of new or more stringent interpretations of existing laws and regulations. In addition, we may have liabilities or obligations in the future if we discover any environmental contamination or liability at any of our facilities, or at facilities we may acquire.
Risks Relating to Our Business
There are risks inherent in international operations that could have a material adverse effect on our business operations.
While the majority of our operations are based domestically, we have significant manufacturing operations based internationally with facilities in the United Kingdom, the Netherlands, Germany and the Philippines. In addition, we sell our products to airlines all over the world. Our customers are located primarily in North America, Europe, Asia, the Pacific Rim, South America and the Middle East. As a result, 65% and 67% of our revenues for the years ended December 31, 2015 and 2014, respectively, were to customers located outside the United States. Volatile international economic, political and market conditions may have a material adverse effect on our business, results of operations, financial condition and cash flows.
In addition, we have a number of subsidiaries in foreign countries (primarily in Europe), which have sales outside the United States. As a result, we are exposed to currency exchange rate fluctuations as a portion of our net sales and expenses are denominated in currencies other than the U.S. dollar. Approximately 41% and 40% of our sales during the years ended December 31, 2015 and 2014, respectively, came from our foreign operations. Fluctuations in the value of foreign currencies affect the dollar value of our net investment in foreign subsidiaries, with these fluctuations being included in a separate component of stockholders’ equity. At December 31, 2015, we reported a cumulative foreign currency translation adjustment of approximately $146.8 million in stockholders’ equity as a result of foreign currency adjustments, and we may incur additional adjustments in future periods. In addition, operating results of foreign subsidiaries are translated into U.S. dollars for purposes of our statement of operations at average monthly exchange rates. Moreover, to the extent that our revenues are not denominated in the same currency as our expenses, our net earnings could be materially adversely affected. For example, a portion of labor, material and overhead costs for goods produced in our production facilities in the United Kingdom, Germany, the Netherlands and the Philippines are incurred in British pounds, Euros or Philippine pesos, but the related sales revenues are generally denominated in U.S. dollars. Changes in the value of the U.S. dollar or other currencies could result in material fluctuations in foreign currency translation amounts or the U.S. dollar value of transactions and, as a result, our net earnings could be materially adversely affected.
Historically we have not engaged in hedging transactions. However, we may engage in hedging transactions in the future to manage or reduce our foreign exchange risk. Our attempts to manage our foreign currency exchange risk may not be successful and, as a result, our results of operations and financial condition could be materially adversely affected.
Our foreign operations could also be subject to unexpected changes in regulatory requirements, tariffs and other market barriers and political, economic and social instability in the countries where we operate or sell our products and offer our services. The impact of any such events that may occur in the future could subject us to additional costs or loss of sales, which could materially adversely affect our business, results of operations, financial condition and cash flows.
We may be materially adversely affected by fluctuating fuel prices.
Fluctuations in the global supply of crude oil and the possibility of changes in government policy on jet fuel production, transportation and marketing make it impossible to predict the future availability and price volatility and cost of jet fuel. In the event of a natural disaster, changes in fuel-related governmental policy, changes in access to petroleum product pipelines and terminals, speculation in energy futures markets, changes in aircraft fuel production capacity, environmental concerns, political disruptions, outbreaks or escalation of hostilities or other conflicts or significant disruptions in oil production or delivery in oil-producing areas or elsewhere, there could be reductions in the production or importation of crude oil and significant increases in the cost of jet fuel. If there were major reductions in the availability of jet fuel or significant increases in its cost, commercial airlines will face increased operating costs. Due to the competitive nature of the airline industry, airlines are often unable to pass on future increases in fuel prices to customers by increasing fares. As a result, an increase in jet fuel could result in a decrease in net income from either lower margins or, if airlines increase ticket fares, less revenue from reduced airline travel. Decreases in airline profitability could decrease the demand for new commercial aircraft, resulting in delays of or reductions in deliveries of commercial aircraft equipped with our cabin interior products and, as a result, our business, results of operations, financial condition and cash flows could be materially adversely affected. On the other hand, significant decreases in oil and fuel prices could have an adverse impact on certain of our customers that generate, benefit from or are dependent on the production of oil or other fuels.
We incur risks associated with new programs.
New programs with new technologies and requirements typically carry risks associated with design changes, development of new production tools, increased capital and funding commitments, ability to meet
customer specifications, delivery schedules and unique contractual requirements, supplier performance, ability of the customer to meet its contractual obligations to us, and our ability to accurately estimate costs associated with such programs. In addition, any new program may not generate sufficient demand or may experience technological problems or significant delays in regulatory or other certification or manufacturing and delivery schedules. If we were unable to perform our obligations under new programs to the customer’s satisfaction, if we were unable to manufacture products at our estimated costs, or if a new program in which we had made a significant investment was terminated or experienced weak demand, certification or other delays or technological problems, our business, results of operations, financial condition and cash flows could be materially adversely affected.
We have substantially expanded the size, scope and nature of our business through acquisitions and organic means, resulting in an increase in the breadth of our product offerings and an expansion of our business geographically. Business expansion places increasing demands on us to increase the inventories that we carry. We must anticipate demand well out into the future in order to service our extensive customer base. The inability to effectively and efficiently manage our inventories to meet current and future needs of our customers, which may vary widely from what is originally forecast due to a number of factors beyond our control, could have a material adverse effect on our business, results of operations, financial condition and cash flows.
We have a significant backlog that may be deferred or may not be entirely realized.
As of December 31, 2015, we had approximately $3.2 billion of booked backlog. Given the nature of our industry and customers, there is a risk that orders forming part of our backlog may be cancelled or deferred due to economic conditions or fluctuations in our customers’ business needs, purchasing budgets or inventory management practices. We also could be impacted if entry into service for any new aircraft platform is delayed or if the rate of delivery is lower than expected or deferred as a result of production or other manufacturing difficulties.
A significant portion of our backlog includes programs with Boeing and Airbus, which makes us particularly vulnerable to their businesses and continued production of various airplane models. For example, at December 31, 2008, while no major retrofit programs were cancelled, several large retrofit programs that were scheduled for delivery in 2009 were deferred until 2010 and 2011, which negatively impacted our revenues and profits for 2009. Failure to realize sales from our existing or future backlog could have a material adverse effect on our business, results of operations, financial condition and cash flows.
We depend on manufacturing firms to support our operations through the timely supply of products. Our suppliers may experience capacity constraints that may result in their inability to supply us with products in a timely fashion, with adequate quantities or at a desired price. Factors affecting the manufacturing sector can include labor disputes, general economic issues, and changes in raw material and energy costs. Natural disasters such as earthquakes or hurricanes, as well as political instability and terrorist activities, may negatively impact the production or delivery capabilities of our suppliers as well. These factors could lead to increased prices for our inventory, curtailment of supplies and the unfavorable allocation of product by our suppliers, which could reduce our revenues and profit margins and harm our customer relations. Significant disruptions in our supply chain could have a material adverse effect on our business, results of operations, financial condition and cash flows.
We have grown, and may continue to grow, at a rapid pace. Our inability to properly manage or support the growth may have a material adverse effect on our business, results of operations, financial condition and cash flows.
We have experienced rapid growth in recent periods and intend to continue to grow our business both through acquisitions and internal expansion of products and services. Our growth to date has placed, and could continue to place, significant demands on our management team and our operational, administrative and financial resources. We may not be able to grow effectively or manage our growth successfully, and the failure to do so could have a material adverse effect on our business, results of operations, financial condition and cash flows.
As a supplier directly to the defense industry and as a subcontractor to suppliers of the U.S. Government, we face risks that are specific to doing business with the U.S. Government. The U.S. Government has the ability to unilaterally suspend the award of new contracts to us in the event of any violations of procurement laws, or reviews of the same. It could also reduce the value of our existing contracts as well as audit our costs and fees. Many of our U.S. Government contracts may be terminated for convenience by the government. Termination-for-convenience provisions typically provide that we would recover only our incurred or committed costs, settlement expenses and profit on the work that we completed prior to termination. In such an event, we would not earn the revenue that we would have originally anticipated from such a terminated contract.
Government reviews can be costly and time consuming, and could divert our management resources away from running our business. As a result of such reviews, we could be required to provide a refund to the U.S. Government or we could be asked to enter into an arrangement whereby our prices would be based on cost, or the U.S. Government could seek to pursue alternative sources of supply for our products. These actions could have a negative effect on our management efficiency and could reduce our revenues and results of operations. Additionally, as a U.S. Government contractor or subcontractor, we are subject to federal laws governing suppliers to the U.S. Government, including potential application of the False Claims Act.
Our total assets include substantial intangible assets. The write-off of a significant portion of intangible assets would negatively affect our reported financial results.
Our total assets reflect substantial intangible assets. At December 31, 2015, goodwill and identifiable intangibles together represented approximately 33% of our total assets. Intangible assets consist principally of goodwill and other identified intangible assets associated with our acquisitions. On at least an annual basis, we assess whether there has been an impairment in the value of goodwill and other intangible assets with indefinite lives. If the carrying value of the tested asset exceeds its estimated fair value, impairment is deemed to have occurred. In this event, the amount is written down to fair value. Under generally accepted accounting principles in the United States, this would result in a charge to operating earnings. Any determination requiring the write-off of a significant portion of goodwill or unamortized identified intangible assets would negatively affect our results of operations and total capitalization, which could be material. We performed our annual testing of impairment of goodwill for the years ended December 31, 2013, 2014 and 2015. There were no impairment charges recorded in 2013, 2014 or 2015. As of December 31, 2015, the balances of goodwill and identifiable intangible assets were $813.2 million and $231.3 million, respectively.
If we make acquisitions, they may be less successful than we expect, which could have a material adverse effect on our business, results of operations, financial condition and cash flows.
We have made many acquisitions in the past. We may also consider future acquisitions, some of which could be material to us. We explore and conduct discussions with many third parties regarding possible
acquisitions. Our ability to continue to achieve our goals may depend upon our ability to effectively identify attractive businesses, access financing sources on acceptable terms, negotiate favorable transaction terms and successfully consummate and integrate any businesses we acquire, achieve cost efficiencies and manage these businesses as part of our Company.
Our acquisition activities may involve unanticipated delays, costs and other problems. If we encounter unanticipated problems with one of our acquisitions, our senior management may be required to divert attention away from other aspects of our business. Additionally, we may fail to consummate proposed acquisitions or divestitures, after incurring expenses and devoting substantial resources, including management time, to such transactions. Acquisitions also pose the risk that we may be exposed to successor liability relating to actions by an acquired company and its management before the acquisition. The due diligence we conduct in connection with an acquisition, and any contractual guarantees or indemnities that we receive from the sellers of acquired companies, may not be sufficient to protect us from, or compensate us for, actual liabilities. Additionally, depending upon the acquisition opportunities available, we also may need to raise additional funds through the capital markets or arrange for additional bank financing in order to consummate such acquisitions or to fund capital expenditures necessary to integrate the acquired business. We also may not be able to raise the substantial capital required for acquisitions and integrations on satisfactory terms, if at all. If any of the above situations were to occur, they could have a material adverse effect on our business, results of operations, financial condition and cash flows.
Information technology plays a crucial role in all of our operations. To remain competitive, our hardware, software and related services must interact with our suppliers and customers efficiently, record and process our financial transactions accurately, and obtain the data and information to enable the analysis of trends and plans and the execution of our strategies.
The failure or unavailability of our information technology systems could directly impact our ability to interact with our customers and provide them with products and services when needed. Cybersecurity threats, in particular, are evolving and include, but are not limited to, both attacks to our information technology infrastructure and attacks to the information technology infrastructure of third parties in attempts to gain unauthorized access to confidential, classified or otherwise proprietary information of us and/or our employees, customers and other third parties. Despite our efforts to mitigate potential risks to our technology and our operations from these information technology-related and other potential disruptions, cybersecurity incidents, depending on their nature and scope, could potentially result in the misappropriation, destruction, corruption or unavailability of critical data and confidential or proprietary information (our own or that of third parties) and the disruption of business operations. Such failure to properly supply or service our customers could have a material adverse effect on our business, results of operations, financial condition and cash flows. Moreover, our customer relationships could be damaged well beyond the period of the downtime of our information technology systems.
We may be unable to retain personnel who are key to our operations.
Our success, among other things, is dependent on our ability to attract, develop and retain highly qualified senior management and other key personnel. Competition for key personnel is intense, and our ability to attract and retain key personnel is dependent on a number of factors, including prevailing market conditions and compensation packages offered by companies competing for the same talent. The inability to hire, develop and retain these key employees may adversely affect our business.
We compete with a number of established companies, some of which have significantly greater financial, technological and marketing resources than we do, and we may not be able to compete effectively with these companies.
We compete with numerous established companies. Some of these companies have significantly greater financial, technological and marketing resources than we do. Our ability to be a successful competitor depends on our success in causing our products and the new products we may develop to be selected for installation in new aircraft, including next-generation aircraft, and in avoiding product obsolescence. It will also depend on our ability to remain the supplier of retrofit and refurbishment products and spare parts on the commercial fleets on which our products are currently in service. Developing and maintaining a competitive advantage may require continued investment in product development, engineering, supply-chain management and sales and marketing, and we may not have enough resources to make such investments, which could negatively impact our results of operations and financial condition.
Increased leverage could adversely impact our business and results of operations.
We may incur additional debt under our current revolving credit facility or through new borrowings to finance our operations, capital deployment plans, or for future growth, including funding acquisitions. A high degree of leverage could have important consequences to us. For example, it could:
We have significant financial and operating restrictions in our debt instruments that may have an adverse effect on our operations.
The credit agreement governing our senior secured bank credit facilities (the “Credit Agreement”) contains numerous financial, operating and/or negative covenants that may limit our ability to incur additional or repay existing indebtedness, to create liens or other encumbrances, to make certain payments and investments, including dividend payments, to repurchase shares, to engage in transactions with affiliates, to engage in sale/leaseback transactions, to guarantee indebtedness and to sell or otherwise dispose of assets and merge or consolidate with other entities. Agreements governing future indebtedness could also contain significant financial and operating restrictions. A failure to comply with the obligations contained in any current or future agreement governing our indebtedness could result in an event of default under our current or any future credit facility, or any future indenture or agreements governing our debt securities that we may issue, which could permit acceleration of the related debt and acceleration of debt under other instruments that may contain cross acceleration or cross default provisions. We may not have, or may not be able to obtain, sufficient funds to make any required accelerated payments.
Additional tax expense or additional tax exposures could affect our future profitability.
We are subject to income taxes in the United States and various international jurisdictions. Significant judgment is required in determining our worldwide provision for income taxes. In the ordinary course of business, there are many transactions and calculations where the ultimate tax determination is uncertain.
Furthermore, changes in tax laws and regulations, as well as changes and conflicts in related interpretations and other tax guidance could materially impact our accounting for tax assets and liabilities and related items. Additionally, in the ordinary course of business we are subject to examinations by various tax authorities. In addition to ongoing examinations, there could be additional examinations launched in the future by governmental tax authorities in various jurisdictions, and existing examinations could be expanded. The final determinations of these tax examinations could have a material adverse effect on our financial condition and could be materially different from our historical income tax provisions and accruals. The global and diverse nature of our operations means that these risks will continue to exist and additional examinations, proceedings and contingencies may arise from time to time.
We cannot predict with certainty the outcome of litigation matters, government proceedings and other contingencies and uncertainties.
We are subject to a variety of litigation and legal compliance risks. These risks include, among other things, possible liability relating to commercial transactions, government contracts, prior acquisitions and divestitures, taxes, anti-bribery and corruption laws, employment, employee benefits plans, intellectual property, antitrust, import and export matters and environmental, health and safety matters. Additionally, our operations expose us to potential liabilities for damages, personal injury or death as a result of the failure of an aircraft component that we designed, manufactured or serviced. Accordingly, we may become subject to or be required to pay damage awards or settlements that could have a material adverse effect on our results of operations, cash flows and financial condition. Furthermore, negative publicity about an accident, catastrophe or incident involving aircraft containing our critical components could damage our reputation for quality products regardless of fault and cause a material adverse effect on our ability to retain and attract customers, which could materially adversely affect our business, results of operations, financial condition and cash flows. Due to the global nature of our business, we are subject to complex laws and regulations in the United States and other countries in which we operate. Those laws and regulations may be interpreted in different ways, and such laws and their related interpretations may change from time to time. Changes in laws or regulations could result in higher expenses and payments, and uncertainty relating to such laws or regulations may also affect how we conduct our operations and structure our investments and could limit our ability to enforce our rights.
While we maintain insurance for certain risks, including product liability claims, our insurers may attempt to deny coverage or the amount of our insurance coverage may not be adequate to cover the total amount of all insured claims and liabilities. We also may not be able to maintain insurance coverage in the future at a cost acceptable to us. The incurrence of significant liabilities for which there is no or insufficient insurance coverage could materially adversely affect our business, results of operations, financial condition and cash flows.
Our financial performance may suffer if we cannot continue to develop, license or enforce the intellectual property rights on which our businesses depend.
We rely upon patent, copyright, trademark, trade secret and other intellectual property laws in the United States, similar laws in other countries, and agreements with our employees, customers, suppliers and other parties to establish and maintain intellectual property rights in the products we sell and otherwise use in our operations. Any of our intellectual property rights could be challenged, invalidated, infringed or circumvented. The theft or unauthorized use or publication of our trade secrets and other confidential information as a result of such an incident could adversely affect our competitive position and the value of our research and development. Litigation to defend and enforce our intellectual property rights may be expensive, time-consuming, disruptive to our operations and distracting to management. Additionally, the laws of certain countries do not protect proprietary rights to the same extent as the laws of the United States. Therefore, in certain jurisdictions, we may be unable to protect our intellectual property adequately against unauthorized third-party copying or use, which could materially adversely affect our business, results of operations, financial condition and competitive position.
Third parties may also claim that we or customers indemnified by us are infringing upon their intellectual property rights. Even if we believe that such intellectual property claims are without merit, they can be time-consuming and costly to defend against, and may divert management’s attention and resources away from our
business. Claims of intellectual property infringement also might require us to redesign affected products, enter into costly settlement or license agreements, pay costly damage awards or face a temporary or permanent injunction preventing us from importing, marketing or selling certain of our products. Such outcomes could materially adversely affect our business, results of operations, financial condition and cash flows.
Provisions in our charter documents may discourage potential acquisitions of our Company, even those which the holders of a majority of our common stock may favor.
Our restated certificate of incorporation, as amended, and amended and restated by-laws contain provisions that may have the effect of discouraging a third party from making an unsolicited acquisition of us by means of a tender offer, proxy contest or otherwise. Our restated certificate of incorporation, as amended, and amended and restated by-laws:
There can be no assurance that we will pay cash dividends or that we will repurchase shares.
Our Board of Directors has adopted a dividend policy that contemplates the payment of cash dividends and a share repurchase program. Whether, when and in what amounts we in fact pay such dividends or repurchase our shares remains entirely at the discretion of our Board of Directors and will depend on our future earnings, capital requirements, financial conditions, operating conditions, contractual restrictions, including those restrictions in our Credit Agreement and such other factors as our Board of Directors may deem relevant. All of these factors and their evaluation by our Board of Directors, as well as the dividend policy itself and the share repurchase program, are subject to change. Our ability to repurchase our shares may also be affected by our share price and by blackout periods during which we must refrain from repurchasing our shares. Our dividend payments and/or share repurchases may change from time to time, and we cannot provide assurance that we will pay dividends or repurchase shares in any particular amounts or at all. If we do not pay cash dividends in accordance with the policy or repurchase shares under the program, this could have a negative effect on our share price.
If the price of our common stock fluctuates significantly, stockholders could incur substantial losses of any investment in our common stock.
The price of our common stock is subject to sudden and material increases and decreases, and decreases could adversely affect investments in our common stock. For example from January 1, 2015 through December
31, 2015, the sale price of our common stock fluctuated between $64.58 and $40.39. The price of our common stock could fluctuate widely in response to:
In addition, the stock market has experienced extreme price and volume fluctuations in recent years that have significantly affected the quoted prices of the securities of many companies, including companies in our industry. The changes often appear to occur without regard to specific operating performance. The price of our common stock could fluctuate based upon factors that have little or nothing to do with our Company, and these fluctuations could materially reduce our stock price.
Risks Relating to our Spin-Off of KLX
There could be significant liability if the distribution of KLX common stock to our stockholders is determined to be a taxable transaction.
We received an opinion from tax counsel to the effect that, among other things, the separation and distribution of KLX qualified as a transaction that is tax-free for U.S. federal income tax purposes under Sections 355 and 368(a)(1)(D) of the Internal Revenue Code of 1986, as amended. The opinion relied on certain facts, assumptions, representations, undertakings and covenants from us and KLX regarding the past and future conduct of ours and KLX’s respective businesses and other matters. If any of these facts, assumptions, representations, undertakings or covenants is incorrect or not satisfied, the opinion of tax counsel may no longer be valid.
In addition, notwithstanding the receipt by us of the opinion of tax counsel, the Internal Revenue Service (the “IRS”) could determine on audit that the separation and distribution of KLX is taxable if it determines that any of these facts, assumptions, representations, undertakings or covenants is not correct or have been violated or if it disagrees with the conclusions in the opinion, or for other reasons, including as a result of certain significant changes in the stock ownership of us or KLX. If the distribution of KLX common stock is determined to be taxable for U.S. federal income tax purposes, we would be subject to tax as if we had sold the KLX common stock in a taxable sale for its fair market value, and our stockholders that received KLX common stock in the distribution generally would be treated as having received a taxable dividend in an amount equal to the fair market value of the KLX common stock. The resulting U.S. federal income tax liabilities of us and such stockholders could be significant.
Under the Tax Sharing and Indemnification Agreement between KLX and us, KLX generally is required to indemnify us against (i) any taxes imposed on us with respect to the distribution of KLX common stock to the extent that such taxes result from certain events with respect to KLX, and (ii) a portion, based on the relative trading prices of our common stock and KLX common stock during the period shortly after the distribution, of any taxes imposed on us with respect to the distribution of KLX common stock if the distribution fails to qualify as a tax-free transaction for reasons other than those for which KLX or us would be responsible for pursuant to the Tax Sharing and Indemnification Agreement.
The U.S. federal income tax rules applicable to the distribution of the KLX common stock may restrict us from engaging in certain corporate transactions or from raising equity capital beyond certain thresholds for a period of time after the distribution.
To preserve the tax-free treatment of the distribution of KLX common stock to us and our stockholders, under the Tax Sharing and Indemnification Agreement, for the two-year period following the separation and distribution of KLX, we are subject to certain restrictions with respect to our activities, including restrictions relating to certain issuances or repurchases of our common stock (except for repurchases in compliance with published IRS guidelines for tax-free spin-offs), acquisitions and mergers, and asset sales.
These restrictions may limit our ability during such two-year period to pursue strategic transactions of a certain magnitude that involve the issuance or acquisition of our common stock or engage in other transactions that might increase the value of our business.
A court could require that we assume responsibility for obligations allocated to KLX under the Separation and Distribution Agreement.
Under the Separation and Distribution Agreement, from and after the Spin-Off, the Company and KLX are responsible for the debts, liabilities and other obligations related to the business or businesses which it owns and operates following the consummation of the Spin-Off. Although we do not expect to be liable for any obligations that are not allocated to us under the Separation and Distribution Agreement, a court could disregard the allocation agreed to between the parties, and require that we assume responsibility for obligations allocated to KLX (including, for example, environmental liabilities), particularly if KLX were to refuse or were unable to pay or perform the allocated obligations.
Certain of our directors may have actual or potential conflicts of interest because of their current positions with KLX or their ownership of KLX equity.
Certain of our directors are directors or officers of KLX and thus have professional relationships with KLX’s executive officers and directors. Three of our directors, including our Executive Chairman of the Board of Directors, serve on the Board of Directors of KLX. Our Executive Chairman of the Board of Directors also serves as the Chairman of the Board of Directors of KLX and as its Chief Executive Officer. In addition, several of our directors have a financial interest in KLX as a result of their ownership of KLX stock and restricted stock. These relationships and financial interests may create, or may create the appearance of, conflicts of interest when these directors face decisions that could have different implications for KLX than for us.
As of December 31, 2015, we had 25 principal operating facilities, one administrative facility, and one research and development facility, which comprised an aggregate of approximately 3.2 million square feet of space. The following table describes the principal facilities and indicates the location, function, approximate size, and ownership status of each location.
We believe that our facilities are suitable for their present intended purposes and are adequate for our present and anticipated level of operations.
We are a defendant in various legal actions arising in the normal course of business, the outcomes of which, in the opinion of management, neither individually nor in the aggregate are likely to result in a material adverse effect on our business, results of operations or financial condition.
There are no material pending legal proceedings, other than the ordinary routine litigation incidental to the business discussed above, to which we, or any of our subsidiaries, are a party or of which any of our property is the subject.
Our common stock is quoted on the NASDAQ Global Select Market under the symbol "BEAV.” The following table sets forth, for the periods indicated, the range of high and low per share sales prices for the common stock as reported by NASDAQ (2014 adjusted to reflect the Spin-Off) as well as the amount of cash dividends paid per share during such periods.
On February 23, 2016, the last reported sale price of our common stock as reported by NASDAQ was $42.84 per share. As of such date, based on information provided to us by Computershare, our transfer agent, we had approximately 1,616 registered holders, and because many of these shares are held by brokers and other institutions on behalf of the beneficial holders, we are unable to estimate the number of beneficial stockholders represented by these holders of record.
We have not paid any cash dividends prior to 2015. The Board of Directors authorized a $0.76 per share annual dividend beginning in 2015. The payments of future dividends are at the discretion of our Board of Directors and will depend on our future earnings, capital requirements, financial conditions, operating conditions, contractual restrictions, including those restrictions in the Credit Agreement (which are described under the heading “Outstanding Debt and Other Financing Arrangements” in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations”) and such other factors as our Board of Directors may deem relevant.
The following line graph compares the annual percentage change in our cumulative total stockholder return on our common stock relative to the cumulative total returns of the S&P 500 Index, the NASDAQ Composite Index, the Dow Jones US Aerospace & Defense Index and a Peer Group Index that is used in the Compensation Discussion & Analysis section of our Proxy Statement. The Peer Group Index was calculated by Zacks Investment Research, Inc. and includes AAR Corp., Crane Co., Curtis-Wright Corp., Esterline Technologies Corporation, Harris Corporation, Hexel Corporation, Huntington Ingalls Industries Inc., Moog Inc., Orbital ATK, Inc., Rockwell-Collins Inc., Spirit AeroSystems Holdings, Teledyne Technologies, Inc., Terex Corp., Transdigm Group, Inc., Triumph Group, Inc. and Wesco Aircraft Holdings, Inc. An investment of $100 (with reinvestment of all dividends) is assumed to have been made in our common stock and in each of
the indexes on December 31, 2010 and its relative performance is tracked through December 31, 2015 and extended through February 23, 2016.
*$100 invested on 12/31/10 in stock or index, including reinvestment of dividends.
Fiscal year ending December 31. Data complete through last fiscal year and extended through February 23, 2016.
Peer group index uses beginning of period market capitalization weighting.
Prepared by Zacks Investment Research, Inc. Used with permission. All rights reserved. Copyright 1980-2016.
Index Data: Copyright NASDAQ OMX, Inc. Used with permission. All rights reserved.
Copyright© 2016 S&P, a division of The McGraw-Hill Companies Inc. All rights reserved.
Copyright© 2016 Dow Jones & Co. All rights reserved.
During the twelve-month period ended December 31, 2015, we repurchased 117,349 shares of our common stock from employees in connection with the settlement of income tax and related benefit withholding obligations arising from vesting of restricted stock grants. In the first, second, third and fourth quarters of 2015, 6,982, 101, 6,475 and 103,791 of these shares, respectively, were repurchased and held as treasury stock.
Issuer Purchases of Equity Securities
The following table provides information on the Company’s repurchases of our common stock during the fourth quarter of 2015:
(In millions, except per share data)
The financial data for each of the years in the five-year period ended December 31, 2015 have been derived from audited financial statements. The following financial information is qualified by reference to, and should be read in conjunction with, “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our historical financial statements, including notes thereto, which are included in Item 15 of this Form 10-K. Our historical results are not necessarily indicative of our future results.
(In millions, except per share data)
Based on our experience in the industry, we believe we are the world’s largest manufacturer of cabin interior products for commercial aircraft and for business jets. We sell our products and provide our services directly to virtually all of the world’s major airlines and aerospace manufacturers. In addition, based on our experience, we believe that we have achieved leading global market positions in each of our major product categories, which include: