News Column

B/E AEROSPACE INC - 10-Q - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

July 30, 2014

AND RESULTS OF OPERATIONS

(In Millions, Except Per Share Data) OVERVIEW The following discussion and analysis addresses the results of our operations for the three and six month periods ended June 30, 2014, as compared to our results of operations for the three and six month periods ended June 30, 2013. In addition, the discussion and analysis addresses our liquidity, financial condition and other matters for these periods. Based on our experience in the industry, we believe we are the world's largest manufacturer of cabin interior equipment for commercial aircraft and for business jets and the leading aerospace aftermarket distributor and value added service provider of aerospace fasteners and other consumable products and logistics 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:



? 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 and espresso 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; ? 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; and

? a broad line of aerospace fasteners and other consumables, consisting of

over one million Stock

Keeping Units primarily serving the commercial aerospace and business

jet industries. 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 and the airlines. We conduct our operations through strategic business units that have been aggregated under three reportable segments: commercial aircraft, consumables management and business jet. The Company is currently evaluating the appropriate structure and reporting classification of its business segments in light of the Company's announcement of its intention to spin-off its consumables management segment, and depending on the results of the evaluation, our reportable segments and reporting units may change in the future.



Revenues by reportable segment for the three and six month periods ended June 30, 2014 and June 30, 2013, respectively, were as follows:

THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, 2014 2013 2014 2013 % of % of % of % of Revenues Revenues Revenues



Revenues Revenues Revenues Revenues Revenues Commercial aircraft $ 541.1 49.7 % $ 431.2 50.7 % $ 1,064.5 50.7 % $ 851.2

50.3 % Consumables management 426.7 39.1 % 312.7 36.8 % 793.3 37.7 % 639.4 37.8 % Business jet 121.7 11.2 % 106.4 12.5 % 242.9 11.6 % 201.9 11.9 % Total revenues $ 1,089.5 100.0 % $ 850.3 100.0 % $ 2,100.7 100.0 % $ 1,692.5 100.0 % 14

-------------------------------------------------------------------------------- Revenues by geographic area (based on destination) for the three and six month periods ended June 30, 2014 and June 30, 2013, respectively, were as follows: THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, 2014 2013 2014 2013 % of % of % of % of Revenues Revenues Revenues Revenues Revenues Revenues Revenues Revenues United States $ 473.8 43.5 % $ 367.4 43.2 % $ 921.8 43.9 % $ 765.1 45.2 % Europe 276.1 25.3 % 208.1 24.5 % 532.7 25.4 % 416.2 24.6 % Asia, Pacific Rim, Middle East and Other 339.6 31.2 % 274.8 32.3 % 646.2 30.7 % 511.2 30.2 % Total revenues $ 1,089.5 100.0 % $ 850.3 100.0 % $ 2,100.7 100.0 % $ 1,692.5 100.0 % Revenues from our domestic and foreign operations for the three and six month periods ended June 30, 2014 and June 30, 2013, respectively, were as follows: THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, 2014 2013 2014 2013 Domestic $ 791.2 $ 590.8$ 1,510.3$ 1,177.0 Foreign 298.3 259.5 590.4 515.5 Total revenues $ 1,089.5$ 850.3$ 2,100.7$ 1,692.5 Our consumables management segment ("CMS") entered the business of providing technical services and associated rental equipment and logistics services to the energy sector in late 2013 through two acquisitions for approximately $114.0 in cash, and also entered into agreements to acquire two additional businesses. Revenues from the two transactions consummated in 2013 were not significant. In 2014, CMS acquired three additional technical services and associated rental equipment and logistics businesses. The aggregate purchase price for the 2014 Acquisitions (including the two transactions which were entered into in 2013 but closed in 2014) was $511.6, with potential additional consideration of up to $102.0 in 2015 if certain 2014 financial results are achieved. In doing so, CMS has established a technical services, rental equipment and logistics services business in the northeast (Utica and Marcellus shales), southwest (Eagle Ford, Barnett, Haynesville - Bossier shales and Permian basin), in the mid-continent (Fayetteville shale, Mississippi line and Anadarko basin) and in the northwest (Bakken and Niobrara shales and Piceance basin) regions of the United States. Assuming these acquisitions were completed as of January 1, 2013, pro forma aggregate revenue from the aforementioned acquisitions would have comprised approximately 8.1% of our pro forma consolidated 2013 revenues. 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 these activities protect and enhance our leadership position. We believe our investments in research and development over the past several years have been a driving force behind our ongoing market share gains and the growth of our record backlog. Research, development and engineering spending was approximately 6.5% of sales during the second quarter of 2014. We expect research and development expenditures of approximately 6.0% of revenues 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 Boeing and Airbus aircraft, our targeted capacity utilization levels, recent acquisitions and current industry conditions, we expect that our capital expenditures will be approximately $225 during 2014. The underlying market for our products and services remains quite robust. May year-to-date global traffic has increased a very strong 6.2% and over the same period capacity is up 5.8%, resulting in near record global load factors. Strong traffic growth, record load factors and record yields are continuing to drive record profitability for the global airline industry. 15 -------------------------------------------------------------------------------- The aerospace cycle is being driven by continued growth in global passenger travel, attendant increases in capacity and an unprecedented period of profitability for the global airline industry. Boeing and Airbus continue to increase their production rates supported by record backlogs in excess of 10,500 aircraft. These extraordinarily strong industry conditions, along with our own multiple, company-specific growth drivers, are enabling the Company to grow revenues and earnings at a strong rate. Specifically, our record backlog, which is resulting in steady market share gains, our leverage to wide-body aircraft deliveries which are expected to grow at an approximate 12% compound annual growth rate over the next four years and our $5 billion of awarded but unbooked supplier furnished equipment programs are the additional specific drivers of growth for our Company, in addition to the robust industry conditions. On June 10, 2014, the Company announced that its management and Board of Directors has commenced a process to separate its business into two independent, publicly traded companies - one focused on aircraft interior equipment - design, development, manufacturing, certification and direct sales on a global basis, and the other focused on distribution, logistics and technical services for the aerospace and energy markets. The separation is expected to be completed by the end of the first calendar quarter of 2015 through a tax-free distribution to stockholders. Completion of the proposed separation is subject to certain conditions, including final approval by the Board of Directors, receipt of an appropriate tax opinion and effectiveness of a registration statement with the SEC. The Company expects to incur transaction expenses, which will likely be material. These expenses are expected to be comprised of a number of different costs such as debt refinancing costs, investment banking fees, legal fees, consulting fees, audit fees, restructuring costs, moving expenses, branding expenses, severance expense and other similar costs. We are currently not able to reasonably determine an estimate for the aforementioned costs given the preliminary stage of the initiative. 16 --------------------------------------------------------------------------------

RESULTS OF OPERATIONS THREE MONTHS ENDED JUNE 30, 2014, COMPARED TO THREE MONTHS ENDED JUNE 30, 2013 ($ in Millions, Except Backlog and Per Share Data) REVENUES Three Months Ended June 30, Percent 2014 2013 Change Commercial aircraft $ 541.1 $ 431.2 25.5% Consumables management 426.7 312.7 36.5% Business jet 121.7 106.4 14.4% Total revenues $ 1,089.5$ 850.3 28.1%



Revenues for the second quarter of 2014 of $1,089.5 increased $239.2, or 28.1%, as compared with the same period of the prior year.

Cost of sales for the second quarter of 2014 was $682.9, or 62.7% of sales, as compared with cost of sales of $523.5, or 61.6% of sales in the same period of the prior year. The 110 basis point increase in cost of sales as a percentage of total revenues is primarily due to lower gross margins in our Consumables Management Segment ("CMS"). The lower gross margins are a result of a number of recently awarded long-term customer contracts which typically carry lower margins in the early stages of the contracts until we are able to procure the parts in a more cost-effective manner and in quantities which result in more customary margins. We expect these new programs will negatively impact our operating margins over approximately the next twelve months. Selling, general and administrative ("SG&A") expense for the second quarter of 2014 was $150.3, or 13.8% of sales, as compared with SG&A expense of $117.3 or 13.8% of sales in the same period of the prior year, and as a percentage of sales remained flat. The higher level of SG&A expense in the current period is primarily due to the 28.1% increase in revenues and $12.8 of acquisition and strategic review related costs. Research, development and engineering ("R&D") expense for the second quarter of 2014 was $71.0, or 6.5% of sales, as compared with $50.8, or 6.0% of sales in the same period of the prior year. The $20.2, or 39.8%, increase in R&D spending is primarily due to new product development initiatives in our Commercial Aircraft Segment ("CAS") which have since been completed. We expect R&D expenditures to decrease significantly in the second half of 2014. Second quarter 2014 operating earnings were a record $185.3, or 17.0% of revenues, and increased 16.8% on the aforementioned 28.1% increase in revenues. Operating margin declined 170 basis points primarily as a result of the aforementioned CMS newly awarded long-term agreements which negatively impact earnings while the programs ramp up as well as the higher level of R&D spending at CAS.



Interest expense in the second quarter 2014 of $31.7 increased by $1.2, or 3.9% as compared to the same period of the prior year as a result of recent borrowings to fund the acquisitions during the second quarter of 2014.

Second quarter 2014 earnings before income taxes of $153.6 increased $25.4, or 19.8%, as compared with the prior year period, as a result of the above mentioned 16.8% increase in operating earnings, offset by the $1.2 increase in interest expense. Income tax expense in the second quarter of 2014 of $45.0, or 29.3% of earnings before income taxes, increased by $9.2 as compared with income tax expense for the same period of the prior year of $35.8, which represented 27.9% of earnings before income taxes. Our effective tax rate in 2014 is expected to be approximately 29.0% as compared with an effective tax rate of 28.0% in 2013. 17 -------------------------------------------------------------------------------- Second quarter 2014 net earnings and earnings per diluted share were $108.6 and $1.04 per share, increases of 17.5% and 16.9%, respectively, as compared with the prior year period. Bookings during the second quarter of 2014 were approximately $1,060, representing a book-to-bill ratio of approximately 1.0 to 1. Booked backlog at June 30, 2014 stood at approximately $3.9 billion as compared with $3.8 billion at June 30, 2013 and December 31, 2013.



Segment Results

The following is a summary of operating earnings by segment:

OPERATING EARNINGS Three Months Ended June 30, Percent 2014 2013 Change Commercial aircraft $ 98.3 $ 79.7 23.3% Consumables management 71.1 61.3



16.0%

Business jet 15.9 17.7



-10.2%

Total operating earnings $ 185.3 $ 158.7 16.8%

Second quarter 2014 CAS revenues of $541.1 increased 25.5% as compared with the prior year period. CAS second quarter 2014 operating earnings of $98.3 increased 23.3% and operating margin of 18.2% decreased by 30 basis points primarily due to a $19.0 increase in R&D expenditures related to new product development initiatives which have since been completed. We expect R&D expenditures to decrease significantly in the second half of 2014. Second quarter 2014 CMS revenues of $426.7 increased 36.5%. Both the consumables distribution business and the energy services business delivered strong revenue growth. The consumables distribution business delivered high single-digit organic growth. On a pro-forma basis as though all acquisitions were completed on January 1, 2013, revenue growth was 12.0%. Operating earnings were $71.1, an increase of 16.0% and operating margin was 16.7%. Operating earnings in the current three-month period were negatively impacted by the aforementioned new recently awarded long-term customer agreements, as well as $7.2 of acquisition and strategic review related costs (none in 2013). Second quarter 2014 business jet segment ("BJS") revenues of $121.7 increased 14.4%. Operating earnings were $15.9, a decrease of 10.2%, and operating margin was 13.1%, a decrease of 350 basis points. Operating earnings and operating margin were negatively impacted by $4.7 of acquisition and strategic review related costs for the three-month period ended June 30, 2014 (none in 2013). 18 --------------------------------------------------------------------------------

SIX MONTHS ENDED JUNE 30, 2014, AS COMPARED TO SIX MONTHS ENDED JUNE 30, 2013 REVENUES Six Months Ended June 30, Percent 2014 2013 Change Commercial aircraft $ 1,064.5$ 851.2 25.1% Consumables management 793.3 639.4 24.1% Business jet 242.9 201.9 20.3% Total operating earnings $ 2,100.7$ 1,692.5 24.1%



For the six months ended June 30, 2014, revenues of $2,100.7 increased 24.1%, as compared with the prior year period.

Cost of sales for the current six month period was $1,317.4, or 62.7% of sales, as compared with cost of sales of $1,046.6, or 61.8% of sales in the prior year period. The 90 basis point increase in cost of sales as a percent of total revenues is primarily related to a number of recently awarded long-term customer contracts which typically carry lower margins in the early stages of the contracts until we are able to procure the parts in a more cost effective manner and in quantities which result in more customary margins. We expect these new programs will negatively impact our operating margins over approximately the next twelve months. SG&A expenses for the first six months of 2014 were $273.3, or 13.0% of sales as compared with SG&A of $229.5, or 13.6% of sales in the same period in 2013. The higher level of SG&A in the current period is primarily due to our 24.1% increase in revenues and $15.0 of acquisition and strategic review related costs. Research, development and engineering expense for the first six months of 2014 was $141.7, or 6.7% of sales as compared with $104.1 or 6.2% of sales in the same period in 2013. The $37.6 increase in spending is primarily due to new product development initiatives in CAS which have since been completed. We expect R&D expenditures to decrease significantly in the second half of 2014. For the six months ended June 30, 2014, operating earnings were $368.3, an increase of 17.9% and operating margin was 17.5%, a decline of 100 basis points, primarily as a result of the aforementioned CMS newly awarded long-term agreements which negatively impact earnings while the programs ramp up as well as the $37.6 increase in new product development initiatives in CAS which have since been completed.



Interest expense in the first half of 2014 of $62.3 increased by $1.2 as a result of recent borrowings to fund the acquisitions during the second quarter of 2014.

Earnings before income taxes in the current six month period of $306.0 increased by $54.8, or 21.8%, as compared with the prior year period, primarily as a result of the 17.9% increase in operating earnings.

Income tax expense for the six months ended June 30, 2014 of $88.4 or 28.9% of earnings before income taxes, increased by $19.5 as compared with the prior year period income tax expense of $68.9, which represented a 27.4% effective tax rate. The lower effective tax rate in the first half of 2013 was due to the timing of the tax legislation which delayed the recognition of R&D credits generated in 2012 until 2013.



For the six months ended June 30, 2014, net earnings and earnings per diluted share were $217.6 and $2.08 per share, representing increases of 19.4% and 18.2%, respectively, as compared with the prior year period.

Net earnings for the first half of 2014 of $217.6 and earnings per diluted share of $2.08 increased $35.3 and $0.32, or 19.4% and 18.2%, respectively, as compared with the same period of the prior year for the reasons described above.

19 --------------------------------------------------------------------------------



Bookings for the six months ended June 30, 2014 were approximately $2.2 billion, representing a book-to-bill ratio of approximately 1.05 to 1.

Segment Results

The following is a summary of operating earnings by segment:

OPERATING EARNINGS Six Months Ended June 30, Percent 2014 2013 Change Commercial aircraft $ 191.4$ 153.9 24.4% Consumables management 139.9 126.1 10.9% Business jet 37.0 32.3 14.6% Total operating earnings $ 368.3$ 312.3 17.9% For the six months ended June 30, 2014, CAS revenues increased 25.1% while operating earnings of $191.4 increased 24.4% and operating margin of 18.0% was flat as compared to the same prior year period. Operating earnings and operating margin were negatively impacted in the current six month period due to a $33.6 increase in R&D expenditures related to new product development initiatives which have since been completed. We expect R&D to decrease significantly in the second half of 2014.



For the six months ended June 30, 2014, CMS revenues increased 24.1%. On a pro forma basis as though all acquisitions were completed on January 1, 2013, revenue growth was 8.3%. Operating earnings were $139.9, an increase of 10.9% and operating margin was 17.6%. Operating earnings in the current six month period were negatively impacted by the aforementioned newly awarded long-term customer agreements, as well as $9.4 of acquisition and strategic review costs (none in 2013).

For the six months ended June 30, 2014, BJS revenues increased 20.3%. Operating earnings were $37.0 and increased 14.6%. Operating margin was 15.2% and decreased by 80 basis points. Operating earnings and operating margin were negatively impacted by $4.7 of acquisition and strategic review related costs for the six-month period ended June 30, 2014 (none in 2013). 20 --------------------------------------------------------------------------------



LIQUIDITY AND CAPITAL RESOURCES

Current Financial Condition

As of June 30, 2014, our net debt-to-net capital ratio was 45.7%. Net debt was $2,410.5, which represented total debt of $2,627.0, less cash and cash equivalents of $216.5. At June 30, 2014, net capital (total debt plus total stockholders' equity less cash and cash equivalents) was $5,269.1. As of June 30, 2014, long-term debt primarily consisted of $1,300.0 aggregate principal amount ($1,313.1 inclusive of original issue premium) of our 5.25% Senior Unsecured Notes due 2022 (the "5.25% Notes") and $650.0 aggregate principal amount ($645.9 net of original issue discount) of our 6.875% Senior Unsecured Notes due 2020 (the "6.875% Notes"). We also have a five-year $1.4 billion Revolving Credit Facility (the "Revolving Credit Facility") pursuant to Amendment No. 1 to the Second Amended and Restated Credit Agreement dated as of June 26, 2014 (the "Revolving Credit Facility Agreement"). At June 30, 2014 there was $668.0 outstanding under the Revolving Credit Facility. Cash on hand and availability under our Revolving Credit Facility at June 30, 2014 was $940.3. Cash on hand at June 30, 2014 decreased by $421.3 as compared with cash on hand at December 31, 2013 primarily as a result of cash flows from operating activities of $67.7 less capital expenditures of $122.7, net expenditures for acquisitions of $1,042.7 and recent financing activities. The substantial majority of our cash is held within the United States, and all of our foreign cash may be brought back into the United States in a tax efficient manner. 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 June 30, 2014 was $2,054.6, a decrease of $226.0 as compared with working capital at December 31, 2013. As of June 30, 2014, total current assets decreased by $10.6 and total current liabilities increased by $215.4. Total current assets decreased primarily as a result of cash used to fund the 2014 Acquisitions, offset by a $192.1 increase in accounts receivable and a $189.3 increase in inventories to support future revenue growth. The increase in total current liabilities was primarily due to an $86.0 increase in accounts payable due to the higher level of business activity.



Cash Flows

As of June 30, 2014, our cash and cash equivalents were $216.5 as compared to $637.8 at December 31, 2013. Cash generated from operating activities was $67.7 for the six months ended June 30, 2014, as compared to $129.4 in the same period in the prior year, reflecting the 24.1% increase in revenues and a corresponding 17.3% increase in working capital, (net of cash and exclusive of the impact of acquisitions). The primary sources of cash from operations during the six months ended June 30, 2014 were net earnings of $217.6, plus depreciation and amortization of $63.0, non-cash compensation of $14.2, a net increase in our deferred tax liability of $7.3 and an increase in accounts payable and accrued liabilities of $86.7. Offsetting these sources of cash were an increase in accounts receivable of $128.1 as a result of the 24.1% increase in revenues and a $158.6 increase in inventories to support our record backlog.



Capital Spending

Our capital expenditures were $122.7 and $67.8 during the six months ended June 30, 2014 and 2013, respectively. We expect capital expenditures of approximately $225 during 2014. These capital expenditures are needed to support our record total backlog of approximately $8,900 ($3,900 booked and $5,000 awarded but unbooked), and to support the 2013 Acquisitions and 2014 Acquisitions, which are experiencing double digit increases in demand. Our capital spending also takes into consideration our targeted capacity utilization levels, and current industry conditions. We have, in the past, generally funded our capital expenditures with cash from operations and funds available to us under revolving bank credit facilities. We expect to fund future capital expenditures from cash on hand, from operations and from funds available to us under the Revolving Credit Facility. 21 --------------------------------------------------------------------------------



Outstanding Debt and Other Financing Arrangements

Long-term debt at June 30, 2014 totaled $2,627.0 and consisted of our 5.25% Notes, our 6.875% Notes and our Revolving Credit Facility.

We have a five-year, $1,400.0 Revolving Credit Facility, which provides an option to request additional incremental revolving credit borrowing capacity and incremental term loans, in each case upon the satisfaction of certain customary terms and conditions. The Revolving Credit Facility was amended as of June 26, 2014 to increase the size from $950.0 to $1,400.0; all other material terms under the agreement remained unchanged. At June 30, 2014, there was $668.0 outstanding under the Revolving Credit Facility. Our obligations under the Revolving Credit Facility are secured by liens on substantially all of our domestic assets, including a pledge of a portion of the capital stock of certain foreign subsidiaries owned directly by us. Amounts borrowed and outstanding under the Revolving Credit Facility will, in certain circumstances, be required to be prepaid with the proceeds from certain asset sales, subject to certain thresholds and reinvestment rights. The Revolving Credit Facility matures in August 2017 unless terminated earlier. The Revolving Credit Facility Agreement contains an interest coverage ratio financial covenant (as defined therein) that must be maintained at a level greater than 2.0 to 1. The Revolving Credit Facility Agreement also contains a total leverage ratio covenant (as defined therein) which limits net debt to a 4.25 to 1 multiple of EBITDA (as defined therein). The Revolving Credit Facility Agreement contains customary affirmative covenants, negative covenants, and conditions precedent for borrowings, all of which were met as of June 30, 2014.



Contractual Obligations

The following table reflects our contractual obligations and commercial commitments as of June 30, 2014. Commercial commitments include lines of credit, guarantees and other potential cash outflows resulting from a contingent event that requires performance by us or our subsidiaries pursuant to a funding commitment.



Contractual

Obligations 2014 2015 2016 2017 2018 Thereafter Total Long-term debt and other non-current liabilities (1) $ - $ 3.6$ 3.8$ 672.1$ 3.2$ 1,989.1$ 2,671.8

Operating leases 26.5 47.2 43.9 38.8 34.0 141.2 331.6 Purchase obligations (2) 2.7 1.8 1.8 -- -- -- 6.3 Future interest payments on outstanding debt (3) 64.8 128.3 128.3 128.3 128.3 344.1 922.1 Total $ 94.0$ 180.9$ 177.8$ 839.2$ 165.5$ 2,474.4$ 3,931.8 Commercial Commitments Letters of credit $ 8.2 -- -- -- -- -- $ 8.2



(1) Our liability for unrecognized tax benefits of $46.8 at June 30, 2014 has

been omitted from the above table because we cannot determine with certainty

when this liability will be settled. It is reasonably possible that the amount of liability for unrecognized tax benefits will change in the next



twelve months; however, we do not expect the change to have a significant

impact on our consolidated financial statements.



(2) We enter into purchase commitments for production materials and other items.

We also enter into unconditional purchase obligations with various vendors

and suppliers of goods and services in the normal course of operations

through purchase orders, other documentation or with an invoice. Such

obligations are generally outstanding for periods less than a year and are

settled by cash payments upon delivery of goods and services and are not

reflected as purchase obligations in this table.



(3) Interest payments include interest payments due on the 5.25% Notes and the

6.875% Notes based on the stated rates of 5.25% and 6.875%, respectively. To

the extent we incur interest on the Revolving Credit Facility, interest

payments would fluctuate based on LIBOR or the prime rate pursuant to the terms of the Revolving Credit Facility. We believe that our cash flows, together with cash on hand and the availability under the Revolving Credit Facility, provide us with the ability to fund our operations, make planned capital expenditures and make scheduled debt service payments for at least the next twelve months. However, such cash flows are dependent upon our future operating performance, which, in turn, is subject to prevailing economic conditions and to financial, business and other factors, including the conditions of our markets, some of which are beyond our control. If, in the future, we cannot generate sufficient cash from operations to meet our debt service obligations, we will need to refinance such debt obligations, obtain additional financing or sell assets. We cannot assure you that our business will generate cash from operations or that we will be able to obtain financing from other sources sufficient to satisfy our debt service or other requirements. 22

--------------------------------------------------------------------------------



Off-Balance Sheet Arrangements

Lease Arrangements

We finance our use of certain equipment under committed lease arrangements provided by various financial institutions. Since the terms of these arrangements meet the accounting definition of operating lease arrangements, the aggregate sum of future minimum lease payments is not reflected in our condensed consolidated balance sheets. Our aggregate future minimum lease payments under these arrangements total approximately $331.6 at June 30, 2014.



Indemnities, Commitments and Guarantees

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



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, management includes such amount in booked backlog. If a contract does not provide that level of specificity, the production requirements are generally provided to us through periodic 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. For consumables contracts, we include in booked backlog, open but unfulfilled purchase orders plus an amount that we believe necessary to support our customers' production activities under long-term contracts. In addition, purchase orders for end items and spares are generally received and recorded as backlog when we accept their terms.



Critical Accounting Policies

Critical accounting policies are defined as those that are reflective of significant judgments and uncertainties, and potentially result in materially different results under different assumptions and conditions. We believe that our critical accounting policies are limited to those described in the Critical Accounting Policies section of Management's Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2013. There have been no changes to our critical accounting policies since December 31, 2013. 23 --------------------------------------------------------------------------------



FORWARD-LOOKING STATEMENTS

This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, (the "Exchange Act"). Forward-looking statements can be identified by the use of words such as "believe," "expect," "expectations," "plans," "strategy," "prospects," "estimate," "project," "target," "anticipate," "will," "should," "see," "guidance," "confident" and other words of similar meaning in connection with a discussion of future operating or financial performance. Forward-looking statements include, but are not limited to, all statements that do not relate solely to historical or current facts, including statements regarding acquisitions, the expected benefits derived from acquisitions, implementation and expected benefits of lean manufacturing and continuous improvement plans, our dealings with customers and partners, the consolidation of facilities, reduction of our workforce, integration of acquired businesses, ongoing capital expenditures, our ability to grow our business, the impact of the large number of grounded aircraft on demand for our products and our underlying assets, the adequacy of funds to meet our capital requirements, the ability to refinance our indebtedness, if necessary, the reduction of debt, the potential impact of new accounting pronouncements, and the impact on our business of the decreases in passenger traffic and the size of the airline fleet. Such forward-looking statements include risks and uncertainties and our actual experience and results may differ materially from the experience and results anticipated in such statements. Factors that might cause such a difference include those discussed in our filings with the SEC, under the heading "Risk Factors" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2013 as well as 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 which 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, regulatory developments, litigation costs, 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 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. Except as required under the federal securities laws and rules and regulations of the 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. 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 the risk factors and the other information in our Annual Report on Form 10-K for the fiscal year ended December 31, 2013 and this entire quarterly report on Form 10-Q.


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Source: Edgar Glimpses


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