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Consumables Solutions Business
Combined statement of income
(dollars in thousands)
(unaudited)
| Three months ended March 31, | ||||||
---|---|---|---|---|---|---|---|
| 2008 | 2007 | |||||
Revenue | $ | 144,092 | $ | 127,952 | |||
Costs, expenses and other | |||||||
Cost of sales | 121,145 | 104,742 | |||||
Selling, general and administrative expenses | 5,071 | 4,966 | |||||
Other (income)/expense | (128 | ) | 36 | ||||
Interest and other financial charges | 170 | 96 | |||||
126,258 | 109,840 | ||||||
Income before taxes | 17,834 | 18,112 | |||||
Income taxes | 6,422 | 6,596 | |||||
Net Income | $ | 11,412 | $ | 11,516 | |||
The Notes to the Combined Financial Statements are an integral part of this statement.
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Consumables Solutions Business
Combined balance sheet
(dollars in thousands)
(unaudited)
| March 31, 2008 | December 31, 2007 | ||||||||
---|---|---|---|---|---|---|---|---|---|---|
Assets | ||||||||||
Current assets | ||||||||||
Cash and cash equivalents | $ | 35,056 | $ | 30,355 | ||||||
Accounts, notes and other receivables—net | 64,537 | 51,761 | ||||||||
Due from Honeywell | 2,808 | 3,332 | ||||||||
Inventories—net | 332,273 | 322,751 | ||||||||
Deferred income taxes | 14,184 | 14,207 | ||||||||
Note due from Honeywell | 1,034 | 1,021 | ||||||||
Other current assets | 2,265 | 1,589 | ||||||||
Total current assets | 452,157 | 425,016 | ||||||||
Property, plant, equipment and internal use software-net | 1,636 | 1,762 | ||||||||
Goodwill | 288,886 | 288,886 | ||||||||
Other assets | 1,902 | 2,144 | ||||||||
Total assets | $ | 744,581 | $ | 717,808 | ||||||
Liabilities | ||||||||||
Current Liabilities | ||||||||||
Accounts payable | $ | 78,896 | $ | 69,240 | ||||||
Due to Honeywell | 420 | 666 | ||||||||
Note due to Honeywell | 13,021 | 13,773 | ||||||||
Accrued liabilities | 6,790 | 11,292 | ||||||||
Total current liabilities | 99,127 | 94,971 | ||||||||
Deferred income taxes | 5,626 | 5,479 | ||||||||
Other liabilities | 58 | 58 | ||||||||
Contingencies | ||||||||||
Equity | ||||||||||
Invested equity | 642,377 | 621,058 | ||||||||
Accumulated other comprehensive (loss) | (2,607 | ) | (3,758 | ) | ||||||
Total equity | 639,770 | 617,300 | ||||||||
Total liabilities and equity | $ | 744,581 | $ | 717,808 | ||||||
The Notes to the Combined Financial Statements are an integral part of this statement.
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Consumables Solutions Business
Combined statement of cash flows
(dollars in thousands)
(unaudited)
| Three months ended March 31, | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
| 2008 | 2007 | ||||||||
Cash flows from operating activities: | ||||||||||
Net Income | $ | 11,412 | $ | 11,516 | ||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||
Depreciation | 149 | 326 | ||||||||
Loss on disposal of property, plant, equipment and internal use software | — | 6 | ||||||||
Deferred income taxes | 170 | 814 | ||||||||
Other | (13 | ) | — | |||||||
Changes in assets and liabilities: | ||||||||||
Accounts, notes and other receivables | (12,776 | ) | (4,176 | ) | ||||||
Due from Honeywell | 524 | (161 | ) | |||||||
Inventories | (9,522 | ) | (8,761 | ) | ||||||
Accounts payables | 9,656 | 14,719 | ||||||||
Due to Honeywell | (246 | ) | (313 | ) | ||||||
Accrued liabilities | (4,502 | ) | 445 | |||||||
Other assets and liabilities | 717 | 115 | ||||||||
Net cash provided by (used for) operating activities | (4,431 | ) | 14,530 | |||||||
Cash flows from investing activities: | ||||||||||
Expenditures for property, plant, equipment and internal use software | (23 | ) | (12 | ) | ||||||
Net cash (used for) investing activities | (23 | ) | (12 | ) | ||||||
Cash flow from financing activities: | ||||||||||
Net increase/(decrease) in invested equity | 9,907 | (10,123 | ) | |||||||
Net increase/(decrease) in note due to Honeywell | (752 | ) | 1,381 | |||||||
Net cash provided by (used for) financing activities | 9,155 | (8,742 | ) | |||||||
Net increase in cash and cash equivalents | 4,701 | 5,776 | ||||||||
Cash and cash equivalents at beginning of period | 30,355 | 14,288 | ||||||||
Cash and cash equivalents at the end of the period | $ | 35,056 | $ | 20,064 | ||||||
The Notes to the Combined Financial Statements are an integral part of this statement.
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Consumables Solutions Business
Combined statement of equity
(dollars in thousands)
(unaudited)
| Invested equity | Accumulated other comprehensive income (loss) | Total equity | |||||||
---|---|---|---|---|---|---|---|---|---|---|
Balance at December 31, 2006 | $ | 617,082 | $ | (3,750 | ) | $ | 613,332 | |||
Net income | 11,516 | 11,516 | ||||||||
Change in fair value of effective cash flow hedges | (1 | ) | (1 | ) | ||||||
Comprehensive income | 11,515 | |||||||||
Change in invested equity | (10,123 | ) | (10,123 | ) | ||||||
Balance at March 31, 2007 | $ | 618,475 | $ | (3,751 | ) | $ | 614,724 | |||
Balance at December 31, 2007 | $ | 621,058 | $ | (3,758 | ) | $ | 617,300 | |||
Net income | 11,412 | 11,412 | ||||||||
Change in fair value of effective cash flow hedges | 1,151 | 1,151 | ||||||||
Comprehensive income | 12,563 | |||||||||
Change in invested equity | 9,907 | 9,907 | ||||||||
Balance at March 31, 2008 | $ | 642,377 | $ | (2,607 | ) | $ | 639,770 | |||
The Notes to the Combined Financial Statements are an integral part of this statement.
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Consumables Solutions Business
Notes to combined financial statements
(dollars in thousands, except as otherwise noted)
(unaudited)
1. Organization and operations
The Consumables Solutions Business (the "Business") consists of operating units of Honeywell International Inc. ("Honeywell") in the United States and Honeywell UK Limited, a direct wholly owned subsidiary of Honeywell, as well as wholly owned indirect subsidiaries of Honeywell in France and Germany. The Business distributes consumable parts and supplies to aircraft manufacturers, airlines and aircraft repair and overhaul facilities.
The Business was not a separate stand-alone entity from Honeywell during the periods presented. The accompanying financial statements have been derived from Honeywell's accounting records using the historical basis of the Business' assets and liabilities. Additionally, Honeywell performs certain services, such as legal, accounting and infrastructure, on behalf of the Business. The cost of these services has been allocated to the Business on a basis that the Business and Honeywell consider a reasonable reflection of the benefits received by the Business. However the financial position information presented in these financial statements may not reflect the combined position, operating results and cash flows of the Business had the Business been a separate stand-alone entity during the periods presented.
In the opinion of management, the accompanying unaudited consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments, necessary to present fairly the financial position of the Business at March 31, 2008 and the results of operations for the three months ended March 31, 2008 and 2007 and cash flows for the three months ended March 31, 2008 and 2007. The results of operations for the three month period ended March 31, 2008 should not necessarily be taken as indicative of the results of operations that may be expected for the entire year.
The Business reports quarterly financial information using a calendar convention; that is, the first, second and third quarters are consistently reported as ending on March 31, June 30 and September 30, respectively. The Business' practice has been to establish actual quarterly closing dates using a predetermined "fiscal" calendar, which requires the closing of the books on a Saturday in order to minimize the potentially disruptive effects of quarterly closing on business processes. The effects of this practice are generally not significant to reported results for any quarter and only exist within a reporting year. In the event that differences in actual closing dates are material to year-over-year comparisons of quarterly year-to-date results, the Business will provide appropriate disclosures. The actual closing dates for the three month periods ended March 31, 2008 and 2007 were March 29, 2008 and March 31, 2007, respectively.
The financial information as of March 31, 2008 should be read in conjunction with the financial statements for the year ended December 31, 2007.
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2. Related party transactions with Honeywell
The Business, in the ordinary course of operations, sells products to Honeywell at prices agreed to between the parties. Additionally, the Business receives from Honeywell interest on the note due from Honeywell. Certain costs incurred by Honeywell on behalf of the Business have been charged or allocated to the Business. Additionally, the Business pays Honeywell interest on the note due to Honeywell. The following tables summarize the related party transactions:
| Three months ended March 31, | |||||
---|---|---|---|---|---|---|
| 2008 | 2007 | ||||
Revenue on sales to Honeywell | $ | 17,886 | $ | 16,408 | ||
Interest income | 13 | — | ||||
$ | 17,899 | $ | 16,408 | |||
Legal, accounting, and infrastructure costs | $ | 3,022 | $ | 3,274 | ||
Insurance | 408 | 387 | ||||
Interest expense, before capitalized interest | 171 | 100 | ||||
Rent | 328 | 255 | ||||
Stock based compensation | 61 | 63 | ||||
Pension and other postretirement cost | 253 | 245 | ||||
$ | 4,243 | $ | 4,324 | |||
Unpaid interest income and expense have been added to the note due from Honeywell and the note to Honeywell, respectively. All other unpaid amounts due from Honeywell and due to Honeywell for the above are reflected on the Combined Balance Sheet in current assets and current liabilities, respectively. The change in invested equity represents the effect of the allocations and cash transfers between the Business and Honeywell.
3. Other (income) expense
| Three months ended March 31, | ||||||
---|---|---|---|---|---|---|---|
| 2008 | 2007 | |||||
Interest income | $ | (188 | ) | $ | (150 | ) | |
Foreign exchange | 46 | 185 | |||||
Other | 14 | 1 | |||||
$ | (128 | ) | $ | 36 | |||
4. Interest and other financial charges
| Three months ended March 31, | ||||||
---|---|---|---|---|---|---|---|
| 2008 | 2007 | |||||
Total interest and other financial charges | $ | 171 | $ | 100 | |||
Less: capitalized interest | (1 | ) | (4 | ) | |||
$ | 170 | $ | 96 | ||||
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5. Inventories
Inventories, consisting entirely of finished products ready for sale, are valued at the lower of cost or market using the specific identification method. Inventory cost includes the cost of the purchasing function, in-bound freight and receiving/inspection. Provision for Inactive, Obsolete and Surplus items has been made based on the projected demand for the inventory.
6. Commitments and contingencies
In the normal course of operations the Business issues product warranties. The estimated cost of product warranties is accrued based on contract terms and historical experience at the time of sale. Adjustments to initial obligations for warranties are made as changes in the obligations become reasonably estimable.
7. Subsequent event
On June 9, 2008 B/E Aerospace ("B/E") and Honeywell entered into a stock and asset purchase agreement in which B/E agreed to purchase the Business for $1.05 billion in cash and B/E stock.
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Consumables Solutions Business Combined statement of income (dollars in thousands) (unaudited)
Consumables Solutions Business Combined balance sheet (dollars in thousands) (unaudited)
Consumables Solutions Business Combined statement of cash flows (dollars in thousands) (unaudited)
Consumables Solutions Business Combined statement of equity (dollars in thousands) (unaudited)
Consumables Solutions Business Notes to combined financial statements (dollars in thousands, except as otherwise noted) (unaudited)