SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Use of Estimates

The preparation of the financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

Revenue Recognition

Revenues are generally recognized in accordance with the contract terms when products are shipped, delivery has occurred or services have been rendered, pricing is fixed and determinable, and collection is reasonably assured. A significant portion of the Company’s contracts are within the scope of the Revenue Recognition - Construction-Type and Production-Type Contracts topic of the ASC and revenue and costs on contracts are recognized using the percentage-of-completion method of accounting. Accounting for the revenue and profit on a contract requires estimates of (1) the contract value or total contract revenue, (2) the total costs at completion, which is equal to the sum of the actual incurred costs to date on the contract and the estimated costs to complete the contract’s scope of work, and (3) the measurement of progress towards completion. Depending on the contract, the Company measures progress toward completion using either the cost-to-cost method or the units-of-delivery method of accounting, with the great majority measured under the units-of-delivery method of accounting.


•	Under the cost-to-cost method of accounting, progress toward completion is measured as the ratio of total costs incurred to estimated total costs at completion. Costs are recognized as incurred. Profit is determined based on estimated profit margin on the contract multiplied by the progress toward completion. Revenue represents the sum of costs and profit on the contract for the period.

•

Under the units-of-delivery method of accounting, revenue on a contract is recorded as the units are delivered and accepted during the period at an amount equal to the contractual selling price of those units. The costs recorded on a contract under the units-of-delivery method of accounting are equal to the total costs at completion divided by the total units to be delivered. As contracts can span multiple years, the Company often segments the contracts into production lots for the purposes of accumulating and allocating cost. Profit is recognized as the difference between revenue for the units delivered and the estimated costs for the units delivered.

Adjustments to original estimates for a contract’s revenues, estimated costs at completion and estimated total profit are often required as work progresses under a contract, as experience is gained and as more information is obtained, even though the scope of work required under the contract may not change, or if contract modifications occur. These estimates are also sensitive to the assumed rate of production. Generally, the longer it takes to complete the contract quantity, the more relative overhead that contract will absorb. The impact of revisions in cost estimates is recognized on a cumulative catch-up basis in the period in which the revisions are made. Provisions for anticipated losses on contracts are recorded in the period in which they become evident (‘‘forward losses’’) and are first offset against costs that are included in inventory, with any remaining amount reflected in accrued contract liabilities in accordance with the Revenue Recognition - Construction-Type and Production-Type Contracts topic. Revisions in contract estimates, if significant, can materially affect results of operations and cash flows, as well as valuation of inventory. Furthermore, certain contracts are combined or segmented for revenue recognition in accordance with the Revenue Recognition - Construction-Type and Production-Type Contracts topic.

For the three months ended September 30, 2014, cumulative catch-up adjustments from changes in estimates decreased operating income, net income and earnings per share by approximately $(6,164), $(4,186) and $(0.08) net of tax, respectively. The cumulative catch-up adjustments to operating income for the three months ended September 30, 2014 included gross favorable adjustments of approximately $2,337 and gross unfavorable adjustments of approximately $(8,501). For the six months ended September 30, 2014, cumulative catch-up adjustments from changes in estimates decreased operating income, net income and earnings per share by approximately $(4,450), $(2,927) and $(0.06) net of tax, respectively. The cumulative catch-up adjustments to operating income for the six months ended September 30, 2014 included gross favorable adjustments of approximately $3,822 and gross unfavorable adjustments of approximately $(8,272). For the three months ended September 30, 2013, cumulative catch-up adjustments from changes in estimates decreased operating income, net income and earnings per share by approximately $(25,364), $(17,287) and $(0.33) net of tax, respectively. For the six months ended September 30, 2013, cumulative catch-up adjustments from changes in estimates decreased operating income, net income and earnings per share by approximately $(23,005), $(15,222) and $(0.29) net of tax, respectively.

Amounts representing contract change orders or claims are only included in revenue when such change orders or claims have been settled with the customer and to the extent that units have been delivered. Additionally, some contracts may contain provisions for revenue sharing, price re-determination, requests for equitable adjustments, change orders or cost and/or performance incentives. Such amounts or incentives are included in contract value when the amounts can be reliably estimated and their realization is reasonably assured.

Although fixed-price contracts, which extend several years into the future, generally permit the Company to keep unexpected profits if costs are less than projected, the Company also bears the risk that increased or unexpected costs may reduce profit or cause the Company to sustain losses on the contract. In a fixed-price contract, the Company must fully absorb cost overruns, notwithstanding the difficulty of estimating all of the costs the Company will incur in performing these contracts and in projecting the ultimate level of revenue that may otherwise be achieved.

Failure to anticipate technical problems, estimate delivery reductions, estimate costs accurately or control costs during performance of a fixed-price contract may reduce the profitability of a fixed-price contract or cause a loss. The Company believes that it has recognized adequate provisions in the financial statements for losses on fixed-price contracts, but cannot be certain that the contract loss provisions will be adequate to cover all actual future losses.

While the Company is currently projecting its recurring production contracts to be profitable, there is still a substantial amount of risk similar to what the Company has experienced on certain programs. In particular, the Company's ability to manage risks related to supplier performance, execution of cost reduction strategies, hiring and retaining skilled production and management personnel, quality and manufacturing execution, program schedule delays and many other risks, will determine the ultimate performance of these programs.

For example, significant cost growth experienced on the 747-8 program during prior fiscal year resulted in lower-than-expected margins, but the deliveries are still profitable. We have assessed the profitability of future production related to the 747-8 program and currently projected that the program will continue to be profitable. However, if significant cost growth is experienced, cost reduction strategies are not successfully implemented and/or production rates are further reduced by our customers, profit margin on the 747-8 program could continue to deteriorate or a loss might be incurred on future recurring production blocks.

Included in net sales of the Aerostructures and Aerospace Systems group is the non-cash amortization of acquired contract liabilities recognized as fair value adjustments through purchase accounting from various acquisitions. For the three months ended September 30, 2014 and 2013, the Company recognized $14,865 and $8,965, respectively, into net sales in the accompanying Condensed Consolidated Statements of Income. For the six months ended September 30, 2014 and 2013, the Company recognized $23,832 and $20,115, respectively, into net sales in the accompanying Condensed Consolidated Statements of Income.

The Aftermarket Services Group provides repair and overhaul services, a small portion of which services are provided under long-term power-by-the-hour contracts. The Company applies the proportional performance method of accounting to recognize revenue under these contracts. Revenue is recognized over the contract period as units are delivered based on the relative value in proportion to the total estimated contract consideration. In estimating the total contract consideration, management evaluates the projected utilization of its customers’ fleet over the term of the contract, in connection with the related estimated repair and overhaul servicing requirements to the fleet based on such utilization. Changes in utilization of the fleet by customers, among other factors, may have an impact on these estimates and require adjustments to estimates of revenue to be realized.

Concentration of Credit Risk

The Company’s trade accounts receivable are exposed to credit risk. However, the risk is limited due to the diversity of the customer base and the customer base’s wide geographical area. Trade accounts receivable from The Boeing Company (“Boeing”) (representing commercial, military and space) represented approximately 30% and 32% of total trade accounts receivable as of September 30, 2014 and March 31, 2014, respectively. The Company had no other concentrations of credit risk of more than 10%. Sales to Boeing for the six months ended September 30, 2014 were $826,698, or 44% of net sales, of which $747,762, $66,092 and $12,844 were from the Aerostructures segment, the Aerospace Systems segment and Aftermarket Services segment, respectively. Sales to Boeing for the six months ended September 30, 2013 were $880,078, or 46% of net sales, of which $827,116, $41,561 and $11,401 were from the Aerostructures segment, the Aerospace Systems segment and Aftermarket Services segment, respectively. No other single customer accounted for more than 10% of the Company’s net sales. However, the loss of any significant customer, including Boeing, could have a material adverse effect on the Company and its operating subsidiaries.

Stock-Based Compensation

The Company recognizes compensation expense for share-based awards based on the fair value of those awards at the date of grant. Stock-based compensation expense for the three months ended September 30, 2014 and 2013 was $1,060 and $935, respectively. Stock-based compensation expense for the six months ended September 30, 2014 and 2013 was $2,056 and $2,263, respectively. The Company has classified share-based compensation within selling, general and administrative expenses to correspond with the same line item as the majority of the cash compensation paid to employees. Upon the exercise of stock options or vesting of restricted stock, the Company first transfers treasury stock, then issues new shares.

Intangible Assets

The components of intangible assets, net, are as follows:



	September 30, 2014
	Weighted- Average Life	Gross Carrying Amount		Accumulated Amortization			Net

Customer relationships	16.5	$	663,085	$	(157,653	)	$	505,432
Product rights, technology and licenses	11.7	52,405		(30,824		)	21,581
Non-compete agreements and other	15.9	2,929		(456		)	2,473
Tradenames	Indefinite-lived	438,400		—			438,400
Total intangibles, net		$	1,156,819	$	(188,933	)	$	967,886



	March 31, 2014
	Weighted- Average Life	Gross Carrying Amount		Accumulated Amortization			Net

Customer relationships	16.7	$	650,199	$	(136,970	)	$	513,229
Product rights, technology and licenses	11.7	52,405		(28,437		)	23,968
Non-compete agreements and other	13.6	3,679		(1,105		)	2,574
Tradenames	Indefinite-lived	438,400		—			438,400
Total intangibles, net		$	1,144,683	$	(166,512	)	$	978,171

Amortization expense for the three months ended September 30, 2014 and 2013 was $11,848 and $10,617, respectively. Amortization expense for the six months ended September 30, 2014 and 2013 was $23,479 and $22,150, respectively.

Fair Value Measurements

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. When determining fair value measurements for assets and liabilities required to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and also considers assumptions that market participants would use when pricing an asset or liability. The fair value hierarchy has three levels of inputs that may be used to measure fair value: Level 1—Unadjusted quoted prices in active markets for identical assets or liabilities; Level 2—Unadjusted quoted prices in active markets for similar assets or liabilities, or unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are observable for the asset or liability; and Level 3—Unobservable inputs for the asset or liability. The Company has applied fair value measurements to its interest rate swap (see Note 6).

Warranty Reserves

A reserve has been established to provide for the estimated future cost of warranties on our delivered products. The Company periodically reviews the reserves and adjustments are made accordingly. A provision for warranty on products delivered is made on the basis of historical experience and identified warranty issues. Warranties cover such factors as non-conformance to specifications and defects in material and workmanship. The majority of the Company's agreements include a three-year warranty, although certain programs have warranties up to 20 years. The warranty reserves as of September 30, 2014 and March 31, 2014, were $34,352 and $25,651, respectively.

Supplemental Cash Flow Information

The Company received $24,246 for income tax refunds, net of payments, for the six months ended September 30, 2014. The Company paid $1,370 for income taxes, net of refunds received, for the six months ended September 30, 2013. The Company made interest payments of $52,250 and $30,110 for the six months ended September 30, 2014 and 2013, respectively.

During the six months ended September 30, 2013, the Company financed $36 of property and equipment additions through capital leases. During the six months ended September 30, 2013, the Company issued 1,849,596 shares, in connection with certain conversions of convertible senior subordinated notes (see Note 6).

During the six months ended September 30, 2014, under the existing stock repurchase program, the Company repurchased 1,386,740 shares for $93,018. As a result, as of September 30, 2014, the Company remains able to purchase an additional 3,814,060 shares under the existing stock repurchase program.