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| BEAV > SEC Filings for BEAV > Form 10-K on 21-Feb-2013 | All Recent SEC Filings |
21-Feb-2013
Annual Report
OVERVIEW
Based on our experience in the industry, we believe we are the world's largest manufacturer of cabin interior products for commercial aircraft and for business jets and the leading aftermarket distributor and value added service provider of aerospace fasteners and other consumables products and services. We sell our manufactured products 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:
? a broad line of aerospace fasteners and other consumables, consisting of over one million SKUs, primarily serving the commercial aerospace and business jet industries;
? commercial aircraft seats, including an extensive line of super first class, first class, business class, tourist class and regional aircraft seats;
? a full line of aircraft food and beverage preparation and storage equipment, including coffee makers, water boilers, beverage containers, refrigerators, freezers, chillers and a line of ovens that includes microwave, high efficiency convection and steam ovens;
? modular lavatory systems, wastewater management systems and galley systems;
? both chemical and gaseous aircraft oxygen storage, distribution and delivery systems, protective breathing equipment and a broad range of lighting products; and
? business jet and general aviation interior products, including an extensive line of executive aircraft seats, direct and indirect overhead lighting systems, passenger and crew oxygen systems, air valve systems, and high-end furniture and cabinetry.
We provide comprehensive aircraft cabin interior reconfiguration, program management and certification services. In addition, we also design, engineer and manufacture customized fully integrated thermal and power management solutions for participants in the defense industry, aerospace OEMs and the airlines.
We generally derive our revenues from refurbishment or upgrade programs for the existing worldwide fleets of commercial and general aviation aircraft and from the sale of our cabin interior equipment for new aircraft deliveries as well as consumable products for both the new build market and the aftermarket. For the 2012, 2011 and 2010 years, approximately 39%, 40% and 47% of our revenues, respectively, were derived from the aftermarket, with the remaining portions attributable to the sale of cabin interior equipment associated with new aircraft deliveries. We believe our large installed base of commercial and general aviation aircraft cabin interior products for the principal products of the type which we manufacture, valued at replacement prices, of approximately $9.5 billion as of December 31, 2012, gives us a significant advantage over our competitors in obtaining orders both for spare parts and for refurbishment programs, principally due to the tendency of the airlines to purchase equipment for such programs from the incumbent supplier. Approximately 56% of our backlog is expected to be delivered over the next twelve months, and approximately 22% is expected to be delivered over the following twelve month period.
We conduct our operations through strategic business units that have been aggregated under three reportable segments: commercial aircraft, consumables management and business jet.
Revenues by reportable segment for the years ended December 31, 2012, 2011 and 2010 were as follows:
Year Ended December 31,
2012 2011 2010
% of % of % of
Revenues Revenues Revenues Revenues Revenues Revenues
Commercial aircraft $ 1,551.2 50.3 % $ 1,302.0 52.1 % $ 997.5 50.3 %
Consumables management 1,171.0 37.9 % 943.5 37.7 % 772.9 38.9 %
Business jet 363.1 11.8 % 254.3 10.2 % 213.8 10.8 %
Total revenues $ 3,085.3 100.0 % $ 2,499.8 100.0 % $ 1,984.2 100.0 %
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Substantially all of our sales and purchases are denominated in U.S. dollars, which is consistent with the industry. Revenues by domestic and foreign operations for the years ended December 31, 2012, 2011 and 2010 were as follows:
Year Ended December 31,
2012 2011 2010
Domestic $ 2,230.1 $ 1,750.2 $ 1,422.6
Foreign 855.2 749.6 561.6
Total revenues $ 3,085.3 $ 2,499.8 $ 1,984.2
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Revenues by geographic segment (based on destination) for the years ended December 31, 2012, 2011 and 2010 were as follows:
Year Ended December 31,
2012 2011 2010
% of % of % of
Revenues Revenues Revenues Revenues Revenues Revenues
U.S. $ 1,499.5 48.6 % $ 1,296.4 51.9 % $ 1,005.6 50.7 %
Europe 755.9 24.5 % 606.0 24.2 % 495.1 25.0 %
Asia, Pacific Rim,
Middle East and other 829.9 26.9 % 597.4 23.9 % 483.5 24.3 %
Total revenues $ 3,085.3 100.0 % $ 2,499.8 100.0 % $ 1,984.2 100.0 %
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Between 1989 and 2006, we substantially expanded the size, scope and nature of our business through 28 acquisitions for an aggregate purchase price of approximately $1.2 billion. In 2008 we acquired HCS for the aggregate purchase price of approximately $1.0 billion. The HCS business distributed consumables parts and supplies to aviation industry manufacturers, airlines and aircraft repair and overhaul facilities. The combination of HCS with our consumables management segment positioned us as the leading global distributor and value-added provider of aerospace fasteners and other consumable products. The combined business serves as a distributor for every major aerospace fastener manufacturer in the world.
In October 2010, we acquired Satair and TSI for a net purchase price of approximately $162 and $307, respectively. Satair is a distributor of consumables to European and Asia Pacific aerospace manufacturers and their suppliers and is included as a component of our consumables management segment. TSI is a market leader in the design, engineering and manufacturing of customized, fully integrated thermal management and interconnect solutions that address complex power management requirements of a broad range of customers in the aerospace and defense industries and is included as a component of our commercial aircraft segment. During 2011, we completed four smaller acquisitions to bolster key technologies and sold two non-core businesses, resulting in a net investment of approximately $41. In January 2012, we acquired UFC, a leading provider of complex supply chain management and inventory logistics solutions, for a net purchase price of approximately $405. In July 2012, we acquired Interturbine for a net purchase price of approximately $245. Interturbine's product range includes chemicals, lubricants, hydraulic fluids, adhesives, coatings and composites. Interturbine also supplies fasteners, cables and wires, electronic components, electrical and electromechanical materials, tools, hot bonding equipment and ground equipment to its primary customer base of airlines and MROs globally. UFC and Interturbine are included as components of our consumables management segment.
New product development is a strategic initiative for us. Our customers regularly request that we engage in new product development and enhancement activities. We believe that these activities protect and enhance our leadership position. We believe our investments in research and development over the past several years have been the driving force behind our ongoing market share gains. At December 31, 2012 we employed approximately 1,724 engineers and program managers. Research, development and engineering spending was approximately 6.2% of sales during 2012. We expect research and development expenditures to remain at a similar percentage of sales for the next several years.
We also believe in providing our businesses with the tools required to remain competitive. In that regard, we have invested, and will continue to invest, in property and equipment that enhances our productivity. Taking into consideration recent program awards to deliver multi-year programs for various Airbus and Boeing aircraft, our targeted capacity utilization levels, recent acquisitions and current industry conditions, we expect that capital expenditures will be approximately $135 - $145 during 2013.
RESULTS OF OPERATIONS
Year Ended December 31, 2012 Compared to the Year Ended December 31, 2011
Revenues for the year ended December 31, 2012 were $3,085.3, an increase of
23.4% as compared to 2011.
Revenues for each of our segments are set forth in the following table:
Year Ended December 31,
Percent
2012 2011 Change Change
Commercial aircraft $ 1,551.2 $ 1,302.0 $ 249.2 19.1 %
Consumables management 1,171.0 943.5 227.5 24.1 %
Business jet 363.1 254.3 108.8 42.8 %
Total revenues $ 3,085.3 $ 2,499.8 $ 585.5 23.4 %
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For the year ended December 31, 2012, consolidated revenues of $3,085.3 increased $585.5, or 23.4%, as a result of a higher level of new aircraft deliveries, a higher level of aftermarket activity associated with the retrofit of existing aircraft, and ongoing maintenance of the global fleet of aircraft. Commercial aircraft segment ("CAS") 2012 revenues of $1,551.2 increased by $249.2, or 19.1%, as compared with 2011. Consumables management segment ("CMS") 2012 revenues of $1,171.0 increased by $227.5, or 24.1%, as compared with 2011. Business jet segment ("BJS") 2012 revenues of $363.1 increased by $108.8, or 42.8%. Organic revenue growth, excluding the UFC and Interturbine acquisitions completed in 2012, was approximately 14.9%.
Cost of sales for 2012 of $1,921.2 increased by $357.7, as compared with the prior year, primarily due to the higher level of revenues. Cost of sales as a percentage of revenues was 62.3% in 2012 and decreased by 20 basis points as compared with 2011, primarily due to an improved mix of products sold, ongoing manufacturing efficiencies and global supply chain and program management initiatives.
Selling, general and administrative ("SG&A") expenses for 2012 were $432.4, or 14.0% of revenues, as compared with $349.7, or 14.0% of revenues in 2011. The higher level of SG&A expense in the current year is primarily due to costs and expenses associated with a $585.5, or 23.4%, increase in revenues, recent acquisitions ($30.1) and acquisition, integration and transition ("AIT") costs ($17.2).
Research, development and engineering expenses for 2012 were $191.7, or 6.2% of sales, as compared to $158.6, or 6.3%, of sales in 2011 and reflect the higher level of spending associated with customer specific engineering activities. 2012 research, development and engineering expenses include new product development activities and certification efforts related to a number of new products, including our modular lavatory system for the Boeing 737, lightweight vacuum wastewater management systems, trash compactors and LED lighting. The $33.1 increase in research, development and engineering expenses as a percentage of sales is primarily due to the higher level of new product development activities in our commercial aircraft segment associated with our record $8.25 billion booked and unbooked backlog. During 2012, we applied for 184 U.S. and foreign patents as compared with 145 during 2011.
For the year ended December 31, 2012, operating earnings of $540.0 increased 26.2% as compared with the prior year. Operating margin in 2012 of 17.5% expanded 40 basis points as compared with 2011 as a result of operating leverage at the higher level of sales volume and ongoing operational efficiency initiatives.
The following is a summary of operating earnings performance by segment:
Year Ended December 31,
Percent
2012 2011 Change Change
Commercial aircraft $ 271.3 $ 216.0 $ 55.3 25.6 %
Consumables management 216.7 183.1 33.6 18.4 %
Business jet 52.0 28.9 23.1 79.9 %
Total operating earnings $ 540.0 $ 428.0 $ 112.0 26.2 %
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For the year ended December 31, 2012, CAS revenues of $1,551.2 increased 19.1% as compared with 2011. 2012 operating earnings were $271.3, an increase of 25.6% as compared with 2011. 2012 operating margin of 17.5% expanded by 90 basis points. The increase in 2012 operating earnings was primarily due to operating leverage at the higher revenue level and ongoing operational efficiency initiatives.
For the year ended December 31, 2012, CMS revenues of $1,171.0 increased 24.1% as compared with the prior year. CMS 2012 operating earnings were $216.7, an increase of 18.4% as compared with 2011. 2012 operating margin of 18.5% decreased by 90 basis points as compared with 2011 due to AIT costs ($17.2) and the acquisitions of UFC and Interturbine which currently have lower operating margins than the legacy CMS business. Operating margin excluding AIT costs was approximately 20.0%, up 10 basis points as compared with 2011.
For the year ended December 31, 2012, BJS revenues of $363.1 increased 42.8% and operating earnings of $52.0 increased $23.1, or 79.9%, as compared with 2011, primarily as a result of the increase in revenues, an improved mix of revenues and ongoing operational improvements.
Interest expense in 2012 of $124.4 was $19.4, or 18.5% higher than 2011, as a result of the higher debt level due to recent acquisitions and opportunistic financing completed in 2012. During 2012 we issued $1,300.0 of senior unsecured notes due 2022 at a weighted average effective yield of approximately 5.0%. We also redeemed $600.0 of 8.5% senior unsecured notes due July 2018, incurring $82.1 of debt prepayment costs.
2012 earnings before income taxes were $333.5, as compared to earnings before income taxes of $323.0 in 2011 for the reasons set forth above.
Income taxes during 2012 and 2011 were $99.8, or 29.9%, and $95.2, or 29.5% of earnings before income taxes, respectively.
2012 net earnings and net earnings per diluted share were $233.7 and $2.27, respectively, as compared to 2011 net earnings and net earnings per diluted share of $227.8 and $2.24, respectively, for the reasons described above.
Year Ended December 31, 2011 Compared to the Year Ended December 31, 2010
Revenues for the year ended December 31, 2011 were $2,499.8, an increase of
26.0% as compared to 2010.
Revenues for each of our segments are set forth in the following table:
Year Ended December 31,
Percent
2011 2010 Change Change
Commercial aircraft $ 1,302.0 $ 997.5 $ 304.5 30.5 %
Consumables management 943.5 772.9 170.6 22.1 %
Business jet 254.3 213.8 40.5 18.9 %
Total revenues $ 2,499.8 $ 1,984.2 $ 515.6 26.0 %
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For the year ended December 31, 2011, consolidated revenues of $2,499.8 increased $515.6, or 26.0%, as a result of a higher level of new aircraft deliveries, a higher level of aftermarket activity associated with the retrofit of existing aircraft, and ongoing maintenance of the global fleet of aircraft. CAS 2011 revenues of $1,302.0 increased by $304.5, or 30.5%, as compared with 2010. CMS 2011 revenues of $943.5 increased by $170.6, or 22.1%, as compared with 2010. BJS 2011 revenues of $254.3 increased by $40.5, or 18.9%. Organic revenue growth for 2011, excluding acquisitions completed in both 2011 and 2010, was approximately 16.5%.
Cost of sales for 2011 of $1,563.5 increased by $299.8, as compared with the prior year primarily due to the higher level of revenues. Cost of sales as a percentage of revenues was 62.5% in 2011 and decreased by 120 basis points as compared with 2010 primarily due to an improved mix of products sold, ongoing manufacturing efficiencies and global supply chain and program management initiatives.
SG&A expenses for 2011 were $349.7, or 14.0% of revenues, as compared with $291.7, or 14.7% of revenues in 2010. The higher level of SG&A spending was primarily due to the TSI, Satair and LaSalle Electric Supply Company acquisitions ($34.7) and a $19.9 increase in compensation costs to support the aforementioned $515.6 increase in revenues, partially offset by lower acquisition, integration and transition related costs in 2011 ($5.3) as compared with 2010 ($9.2). SG&A expense as a percentage of sales 2011 decreased by 70 basis points as compared with 2010 primarily as a result of stringent cost controls and operating leverage inherent in our business.
Research, development and engineering expenses for 2011 were $158.6, or 6.3% of sales, as compared to $112.8, or 5.7%, of sales in 2010 and reflect the higher level of spending associated with customer specific engineering activities. 2011 research, development and engineering expenses include new product development activities and certification efforts related to a number of new products, including our modular lavatory system for the Boeing 737, lightweight vacuum wastewater management systems, trash compactors and LED lighting systems. The 60 basis point increase in research, development and engineering expenses as a percentage of sales is due primarily to the higher level of new product development activities in our commercial aircraft segment associated with our record $7.9 billion booked and unbooked backlog. During 2011, we applied for 145 U.S. and foreign patents as compared with 97 during 2010.
For the year ended December 31, 2011, operating earnings of $428.0 increased 35.4% as compared with the prior year. Operating margin in 2011 of 17.1% expanded 120 basis points as compared with 2010 as a result of the higher level of sales, improved mix of products sold, manufacturing efficiencies and global supply chain and program management initiatives.
The following is a summary of operating earnings performance by segment:
Year Ended December 31,
Percent
2011 2010 Change Change
Commercial aircraft $ 216.0 $ 148.7 $ 67.3 45.3 %
Consumables management 183.1 153.2 29.9 19.5 %
Business jet 28.9 14.1 14.8 105.0 %
Total operating earnings $ 428.0 $ 316.0 $ 112.0 35.4 %
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For the year ended December 31, 2011, CAS revenues of $1,302.0 increased 30.5% as compared with 2010. 2011 operating earnings were $216.0, an increase of 45.3% as compared with 2010. 2011 operating margin of 16.6% expanded by 170 basis points. The increase in 2011 operating earnings was primarily due to an improved revenue mix and ongoing operational efficiency initiatives.
For the year ended December 31, 2011, CMS revenues of $943.5 increased 22.1% as compared with the prior year. CMS 2011 operating earnings were $183.1, an increase of 19.5% as compared with 2010. 2011 operating margin of 19.4% decreased by 40 basis points as compared with 2010 due to the margin drag from recent acquisitions. Operating margin, excluding acquisitions in both years, was approximately 20.8%, up 30 basis points as compared with 2010.
For the year ended December 31, 2011, BJS revenues of $254.3 increased 18.9% and operating earnings of $28.9 increased $14.8, or 105.0%, as compared with 2010, primarily as a result of both the increase in revenues and an improved mix of revenues.
Interest expense in 2011 of $105.0 was $12.8, or 13.9% higher than 2010, as a result of the acquisitions completed in the fourth quarter of 2010.
2011 earnings before income taxes were $323.0, as compared to earnings before income taxes of $211.4 in 2010 for the reasons set forth above.
Income taxes during 2011 and 2010 were $95.2, or 29.5%, and $68.1, or 32.2% of earnings before income taxes, respectively. Our effective tax rate in 2011 decreased as compared with 2010 primarily due to the reversal of amounts previously reserved for tax uncertainties and a favorable mix of foreign versus U.S. earnings.
2011 net earnings and net earnings per diluted share were $227.8 and $2.24, respectively, as compared to 2010 net earnings and net earnings per diluted share of $143.3 and $1.42, respectively, for the reasons described above.
LIQUIDITY AND CAPITAL RESOURCES
Current Financial Condition
As of December 31, 2012, our net debt-to-net-capital ratio was 39.9%. Net debt was $1,446.8, which represented total debt of $1,960.5 less cash and cash equivalents of $513.7. At December 31, 2012, net capital (total debt plus total stockholders' equity less cash and cash equivalents) was $3,625.7. As of December 31, 2012, long-term debt consisted of $1,300.0 aggregate principal amount ($1,315.0 inclusive of original issue premium) of our 5.25% senior unsecured notes due 2022 (the "5.25% Notes") and $650.0 aggregate principal amount ($645.2 net of original issue discount) of our 6.875% senior unsecured notes due 2020 (the "6.875% Notes"). At December 31, 2012, there were no amounts outstanding under our five-year $950.0 revolving credit facility, as amended and restated as of August 3, 2012 (the "Revolving Credit Facility"). Cash on hand at December 31, 2012 increased by $210.2 as compared with cash on hand at December 31, 2011 primarily as a result of cash flows from operating activities of $355.1, plus $1,316.0 of net proceeds from our 5.25% Notes, less expenditures for acquisitions of $649.7, less $702.5 related to the repurchase of our 8.5% senior unsecured notes (the "8.5% Notes"), including fees and expenses and less capital expenditures of $125.4. Our liquidity requirements consist of working capital needs, ongoing capital expenditures and payments of interest and principal on our indebtedness. Our primary requirements for working capital are directly related to the level of our operations.
Working capital as of December 31, 2012 was $2,005.9, an increase of $401.0 as compared with working capital at December 31, 2011. As of December 31, 2012, total current assets increased by $581.7 and total current liabilities increased by $180.7. The increase in current assets related to the $210.2 increase in cash as described above, a $68.5 increase in accounts receivable, and an increase in inventories of $272.5 to support future revenue growth. Accounts receivable and inventories increased by $58.6 and $120.2, respectively, due to the UFC and Interturbine acquisitions. The increase in total current liabilities was primarily due to an increase in accounts payable of $86.9, an increase in accrued liabilities of $94.0. Accounts payable were higher at December 31, 2012 primarily due to the increase in business activity. Accrued liabilities also increased due to higher levels of accrued compensation expense ($18.4), accrued interest ($6.5), deferred revenues ($4.3) and other accrued liabilities. Accounts payable and accrued liabilities increased by $35.1 and $41.4, respectively, due to the UFC and Interturbine acquisitions, including an adjustment to the allocation of the UFC purchase price to increase accrued liabilities by approximately $30.5 related to certain customer contracts which were priced below market and a portion of which were generating losses.
Cash Flows
As of December 31, 2012, cash and cash equivalents were $513.7 as compared to $303.5 at December 31, 2011. Cash provided by operating activities was $355.1 for the year ended December 31, 2012 as compared to $316.9 for the year ended December 31, 2011. The primary sources of cash provided by operating activities during 2012 were net earnings of $233.7, adjusted by depreciation and amortization of $75.0, non-cash compensation of $24.5, and deferred income taxes of $37.3. The primary use of cash in operating activities during the year ended December 31, 2012 was related to a $169.7 net increase in inventories, a $32.0 increase in accounts receivable and $7.0 of tax benefits realized from the prior exercises of employee stock options and restricted stock. The primary sources of cash provided by operating activities during 2011 were net earnings of $227.8, adjusted by depreciation and amortization of $62.1, non-cash compensation of $26.0, and a deferred income tax provision of $58.4. The primary use of cash in operating activities during the year ended December 31, 2011 was related to a $116.3 net increase in inventories, a $49.4 increase in accounts receivable and $30.8 of tax benefits realized from the prior exercises of employee stock options and restricted stock.
The primary uses of cash in investing activities during the year ended December 31, 2012 were related to capital expenditures of $125.4 and acquisitions of $649.7. The primary uses of cash in investing activities during the year ended December 31, 2011 was related to capital expenditures of $76.0 and acquisitions of $41.2 (net of proceeds from the sale of two non-core businesses of $19.2).
In March 2012, we issued $500.0 aggregate principal amount of 5.25% Notes, in an offering pursuant to the Securities Act of 1933, as amended. The notes are senior unsecured debt obligations. In July 2012, we issued $800.0 additional 5.25% Notes priced to yield 4.9% as an add-on to the existing 5.25% Notes. During 2012, we redeemed $600.0 of our 8.5% Notes. We incurred a loss on debt extinguishment of $82.1 related to unamortized debt issue costs and fees and expenses related to the repurchase of our 8.5% Notes.
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