BE AEROSPACE, INC.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For The Quarterly Period Ended August 25, 2001
Commission File No. 0-18348
BE AEROSPACE, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 06-1209796
(State of Incorporation) (I.R.S. Employer Identification No.)
1400 Corporate Center Way
Wellington, Florida 33414
(Address of principal executive offices)
(561) 791-5000
(Registrant's telephone number, including area code)
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[ ]
The registrant has one class of common stock, $0.01 par value, of which
35,122,250 shares were outstanding as of October 5, 2001.
BE AEROSPACE, INC.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share data)
August 25, February 24,
2001 2001
---- ----
(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $ 154,687 $60,271
Accounts receivable - trade, less allowance for doubtful
accounts of $2,848 (August 25, 2001)
and $2,619 (February 24, 2001) 108,341 99,673
Inventories, net 137,452 135,005
Other current assets 54,389 50,150
------- -------
Total current assets 454,869 345,099
------- -------
Property and equipment, net 154,946 157,517
Intangibles and other assets, net 468,168 433,379
------- --------
$1,077,983 $935,995
========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 59,253 $64,671
Accrued liabilities 88,543 99,685
Current portion of long-term debt 919 5,846
------- -------
Total current liabilities 148,715 170,202
------- -------
Long-term debt 701,286 603,812
Other liabilities 27,795 26,707
Stockholders' Equity:
Preferred stock, $0.01 par value; 1,000,000 shares
authorized; no shares outstanding
Common stock, $0.01 par value; 100,000,000 shares authorized; 32,193,744
(August 25, 2001), 28,460,583 (February 24, 2001)
shares issued and outstanding 322 285
Additional paid-in capital 369,693 311,506
Accumulated deficit (147,235) (154,602)
Accumulated other comprehensive loss (22,593) (21,915)
------- -------
Total stockholders' equity 200,187 135,274
------- -------
$1,077,983 $935,995
========== ========
See accompanying notes to condensed consolidated financial statements.
BE AEROSPACE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
(Dollars in thousands, except per share data)
THREE MONTHS ENDED SIX MONTHS ENDED
-------------------------------- -------------------------------
August 25, August 26, August 25, August 26,
2001 2000 2001 2000
---------------- --------------- --------------- ---------------
Net sales $179,093 $164,116 $355,926 $333,241
Cost of sales 110,113 103,358 221,040 210,930
------- ------- ------- -------
Gross profit 68,980 60,758 134,886 122,311
Operating expenses:
Selling, general and administrative 27,896 23,941 52,779 47,982
Research, development and engineering 10,973 12,228 23,053 25,209
Amortization 6,412 5,847 12,761 11,715
----- ----- ------ ------
Total operating expenses 45,281 42,016 88,593 84,906
------ ------ ------ ------
Operating earnings 23,699 18,742 46,293 37,405
Interest expense, net 13,790 13,488 27,764 27,219
------ ------ ------ ------
Earnings before income taxes 9,909 5,254 18,529 10,186
Income taxes 991 525 1,853 1,019
------ ------ ----- -----
Earnings before extraordinary item 8,918 4,729 16,676 9,167
Extraordinary item -- -- 9,309 --
------ ------ ----- ------
Net earnings $8,918 $4,729 $7,367 $9,167
====== ====== ====== ======
Basic earnings per common share:
Earnings before extraordinary item $ 0.28 $ 0.19 $ 0.54 $ 0.36
Extraordinary item -- -- 0.30 --
------ ------ ------ ------
Net earnings $ 0.28 $ 0.19 $ 0.24 $ 0.36
====== ====== ====== ======
Diluted net earnings per common share:
Earnings before extraordinary item $ 0.27 $ 0.19 $ 0.52 $ 0.36
Extraordinary item -- -- 0.29 --
------ ------ ------ ------
Net earnings $ 0.27 $ 0.19 $ 0.23 $ 0.36
====== ====== ====== ======
See accompanying notes to condensed consolidated financial statements.
BE AEROSPACE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Dollars in thousands)
SIX MONTHS ENDED
----------------------------------
----------------- ----------------
August 25, August 26,
2001 2000
----------------- ----------------
----------------- ----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 7,367 $ 9,167
Adjustments to reconcile net earnings to net cash flows
provided by operating activities:
Extraordinary item 9,309 --
Depreciation and amortization 23,984 21,394
Non-cash employee benefit plan contributions 1,049 1,099
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable (7,068) 1,978
Inventories 3,494 5,146
Other current assets (4,356) 6,290
Accounts payable (5,876) (4,471)
Accrued liabilities 3,887 (23,574)
--------- ---------
Net cash flows provided by operating activities 31,790 17,029
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions, net of cash acquired (48,547) --
Capital expenditures (6,507) (10,548)
Change in intangible and other assets (15,954) (2,634)
----------- ---------
Net cash flows used in investing activities (71,008) (13,182)
------------ ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net payments under bank credit facilities (66,734) (1,450)
Proceeds from issuances of stock, net of expenses 57,176 1,168
Principal payments on long-term debt (101,787) --
Proceeds from long-term debt 244,922 --
---------- --------
Net cash flows provided by (used in) financing activities 133,577 (282)
---------- --------
Effect of exchange rate changes on cash flows 57 (729)
---------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS 94,416 2,836
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 60,271 37,363
---------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $154,687 $ 40,199
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during period for:
Interest, net $23,142 $ 28,048
Income taxes, net $1,107 $ 494
See accompanying notes to condensed consolidated financial statements.
BE AEROSPACE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 25, 2001 AND AUGUST 26, 2000
(UNAUDITED - DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
Note 1. Basis of Presentation
The condensed consolidated financial statements of BE Aerospace, Inc. and
its wholly-owned subsidiaries (the "Company" or "B/E") have been prepared by
the Company and are unaudited pursuant to the rules and regulations of the
Securities and Exchange Commission. Under such rules, certain information
related to the Company's organization, significant accounting policies and
footnote disclosures normally included in financial statements prepared in
accordance with accounting principles generally accepted in the United
States of America have been condensed or omitted. In the opinion of
management, these unaudited condensed consolidated financial statements
reflect all material adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of the results of operations
and statements of financial position for the interim periods presented.
These results are not necessarily indicative of a full year's results of
operations. Certain reclassifications have been made to the prior year
financial statements to conform to the August 25, 2001 presentation.
Although the Company believes that the disclosures provided are adequate
to make the information presented not misleading, these unaudited interim
condensed consolidated financial statements should be read in conjunction
with the audited consolidated financial statements and notes thereto
included in the Company's Annual Report on Form 10-K for the fiscal year
ended February 24, 2001.
Note 2. Comprehensive Earnings (Loss)
-----------------------------
Comprehensive earnings (loss) is defined as all changes in a company's
net assets except changes resulting from transactions with shareholders. It
differs from net earnings in that certain items currently recorded to equity
would be a part of comprehensive earnings (loss). The following table sets
forth the computation of comprehensive earnings (loss) for the periods
presented:
THREE MONTHS ENDED SIX MONTHS ENDED
August 25, August 26, August 25, August 26,
2001 2000 2001 2000
-------------- -------------- -------------- ---------
Net earnings $ 8,918 $ 4,729 $ 7,367 9,167
Other comprehensive earnings (loss):
Foreign exchange translation
adjustment 3,145 (2,455) (678) (10,741)
-------- ------- ------- --------
Comprehensive earnings (loss) $ 12,063 $ 2,274 $ 6,689 $ (1,574)
======== ======= ======= ========
BE AEROSPACE, INC.
Note 3. Segment Reporting (As Restated)
-------------------------------
Subsequent to the issuance of the Company's condensed consolidated
financial statements for the quarterly period ended August 26, 2000,
management determined that the Company should disaggregate the disclosures
for its Commercial Aircraft Products, Business Jet Products and Engineering
Services operating segments. Previously, such disclosures had been
aggregated and presented as a single reportable segment. As a result, the
following information pertaining to the Company's operating segments has
been restated to present such disaggregated segment disclosures.
The Company is organized based on the products and services it offers.
Under this organizational structure, the Company has three reportable
segments: Commercial Aircraft Products, Business Jet Products and
Engineering Services. The Company's Commercial Aircraft Products segment
consists of 15 operating units while the Business Jet and Engineering
Services segments consist of three and one operating units, respectively.
Each segment reports its operating earnings and makes requests for
capital expenditures and acquisition funding to the Company's chief
operational decision-making group. This group is presently comprised of the
Chairman, the President and Chief Executive Officer, and the Corporate
Senior Vice President of Administration and Chief Financial Officer. Each
operating segment has separate management teams and infrastructures
dedicated to providing a full range of products and services to their
commercial and general aviation customers. Corporate expenses are allocated
to reportable segments based upon segment revenues to consolidated revenues.
The Company does not allocate interest expense to its segments.
The following table presents net sales and other financial information
by business segment:
THREE MONTHS ENDED SIX MONTHS ENDED
------------------------------------ -------------------------------------
------------------- ---------------- ---------------- --------------------
August 25, August 26, August 25, August 26,
2001 2000 2001 2000
------------------- ---------------- ---------------- --------------------
------------------- ---------------- ---------------- --------------------
Commercial Aircraft Products
Net sales $ 141,528 $ 124,755 $ 281,356 $ 258,413
Operating earnings 16,776 11,741 33,747 25,121
Business Jet Products
Net sales 21,731 21,172 43,789 41,980
Operating earnings 3,816 4,027 7,172 6,939
Engineering Services
Net sales 15,834 18,189 30,781 32,848
Operating earnings 3,107 2,974 5,374 5,345
Consolidated
Net sales 179,093 164,116 355,926 333,241
Operating earnings 23,699 18,742 46,293 37,405
BE AEROSPACE, INC.
Note 4. Earnings Per Common Share
Basic net earnings per common share is computed using the weighted
average common shares outstanding during the period. Diluted net earnings
per common share is computed by using the average share price during the
period when calculating the dilutive effect of stock options. Shares
outstanding for the periods presented were as follows:
THREE MONTHS ENDED SIX MONTHS ENDED
------------------ ----------------
August 25, August 26, August 25, August 26,
2001 2000 2001 2000
---- ---- ---- ----
Weighted average common shares outstanding 32,178 25,179 30,870 25,135
Dilutive effect of employee stock options 1,049 188 1,193 33
------ ------ ------ ------
Diluted shares outstanding 33,227 25,367 32,063 25,168
Note 5. New Accounting Pronouncements
In July 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 141 ("SFAS 141"), "Business
Combinations." SFAS 141 requires the purchase method of accounting for
business combinations initiated after June 30, 2001 and eliminates the
pooling-of-interests method. The Company does not believe that the adoption
of SFAS 141 will have a significant impact on its financial statements.
In July 2001, the FASB issued Statement of Financial Accounting
Standards No. 142 ("SFAS 142"), "Goodwill and Other Intangible Assets." The
Company is required to adopt SFAS 142 for its fiscal year beginning February
24, 2002. SFAS 142 requires, among other things, the discontinuance of
goodwill amortization. In addition, the standard includes provisions for the
reclassification of certain existing recognized intangibles as goodwill,
reassessment of the useful lives of existing recognized intangibles,
reclassification of certain intangibles out of previously reported goodwill
and the identification of reporting units for purposes of assessing
potential future impairments of goodwill. SFAS 142 also requires the Company
to complete a transitional goodwill impairment test six months from the date
of adoption. The Company is currently assessing but has not yet determined
the impact of SFAS 142 on its financial position and results of operations.
Note 6. Long-Term Debt
On April 17, 2001 the Company sold $250,000 of 8 7/8% senior
subordinated notes due 2011. The proceeds from this offering, net of debt
issue costs, were approximately $242,800. Approximately $105,000 of proceeds
were used to redeem the Company's 9 7/8% senior subordinated notes due 2006
and approximately $66,700 of proceeds were used to repay balances
outstanding under the Company's bank credit facility, which was then
terminated.
On April 17, 2001 the Company called for redemption of all its 9 7/8%
senior subordinated notes on May 17, 2001. The senior subordinated notes
were redeemed at a redemption price equal to 104.97% of the principal
amount, together with the accrued interest to the redemption date. The
Company deposited with the trustee on April 17, 2001 funds in an amount
sufficient to redeem the 9 7/8% senior subordinated notes on the redemption
date. Upon deposit of these funds, the indenture governing the 9 7/8% senior
subordinated notes was discharged. The Company incurred an extraordinary
charge of $9,309 (net of tax) for unamortized debt issue costs, redemption
premiums and fees and expenses related to the repurchase of the 9 7/8%
senior subordinated notes.
In August 2001, the Company established a new bank credit facility
consisting of a $150,000 revolving credit facility which expires in August
2006. The bank credit facility is collateralized by the Company's accounts
receivable, inventories and by substantially all of its other personal
property. The bank credit facility contains customary affirmative covenants,
negative covenants and conditions of borrowing. At August 25, 2001,
indebtedness under the existing bank credit facility consisted of letters of
credit aggregating approximately $4,900 (bearing interest at LIBOR plus
2.0%, as defined) and the Company was in compliance with all covenants.
BE AEROSPACE, INC.
Note 7. Equity Offering
On May 16, 2001, the Company completed a 5,750,000 share offering of its
common stock at $19.50 per share. Of the total number of shares,
approximately 2,825,000 shares were sold by the Company and the remainder
were sold by certain selling stockholders. The net proceeds from this
offering were approximately $106,200. Approximately $53,100 was paid to the
former owners of Alson Industries, Inc., T. L. Windust Machine, Inc., DMGI,
Inc. and Maynard Precision, Inc. The Company received approximately $50,300,
net of estimated offering costs, from the sale of 2,825,000 shares of stock
it issued in connection with this offering.
Note 8. Acquisitions
Effective May 8, 2001, the Company acquired the outstanding common stock
of Nelson Aero Space, Inc. for approximately $20,000. This transaction has
been accounted for using purchase accounting. The assets purchased and
liabilities assumed have been reflected in the accompanying balance sheet as
of August 25, 2001. Effective July 18, 2001, the Company acquired the
outstanding common stock of Denton Jet Interiors, Inc. for approximately
$16,000. This transaction has been accounting for using purchase accounting.
The assets purchased and liabilities assumed have been reflected in the
accompanying balance sheet as of August 25, 2001. Had these acquisitions
occurred on February 25, 2001, pro forma statement of operations data would
not have been materially different from that currently being reported.
Note 9. Subsequent Events
On September 14, 2001, the Company acquired M & M Aerospace Hardware,
Inc. ("M & M") for an initial purchase price of $177,000. M & M is the
world's leading independent aftermarket distributor of aerospace fasteners.
The M & M acquisition was completed by issuing to the former shareholders a
total of approximately 1,460,280 shares of B/E stock, paying them $152,000
in cash and assuming current liabilities of approximately $5,800. The
Company financed this acquisition through cash on hand and approximately
$100,000 of borrowings under its bank credit facility. The aggregate
purchase price includes approximately $23,000 of consideration represented
by 1,343,458 shares of B/E common stock that was funded into an escrow
account. The payment of this consideration is contingent upon M & M
achieving certain operating results for calendar 2001. This transaction has
been accounted for using purchase accounting.
The Company has not yet completed the evaluation and allocation of the
purchase price for M & M as the appraisals associated with the
identification and valuation of certain intangible assets are not yet
complete. The Company does not believe the appraisals will materially modify
the preliminary purchase price allocation. The excess of the purchase prices
over the fair value of the identifiable net tangible assets acquired
aggregated approximately $87,100.
The initial purchase price of M & M has been preliminarily allocated
based on management's estimates as follows:
Accounts Receivable $ 13,400
Inventories 53,900
Other current assets 200
Property and equipment 28,200
Intangible assets and other 87,100
Current liabilities (5,800)
---------
$177,000
BE AEROSPACE, INC.
The September 11, 2001 terrorist attack has severely impacted conditions
in the airline industry. For the first time in the history of commercial
aviation, all domestic airlines were grounded for a period of three days.
Since resuming service, most major US carriers have substantially reduced
their flight schedules, parked or retired nearly 20% of their fleets and
have announced workforce reductions aggregating over 100,000 employees. As a
result of the substantial reduction in airline traffic arising from the
September 11 terrorist attack and its aftermath, as well as other factors,
such as the weakening economy, the airline industry is likely to incur the
largest loss in history in calendar 2001, totaling in excess of $10 billion.
Accordingly, the airlines are seeking to conserve cash in part by deferring
or eliminating cabin interior refurbishment programs and canceling or
deferring aircraft purchases. The Company expects that this will cause a
substantial contraction in its business, the extent and duration of which
cannot be determined at this time. The Company has not yet determined the
impact of these significant changes in industry conditions on its
operations, liquidity, financial condition or outlook.
[Remainder of page intentionally left blank]
BE AEROSPACE, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The following discussion and analysis addresses the results of the
Company's operations for the three months ended August 25, 2001, as compared
to the Company's results of operations for the three months ended August 26,
2000. The discussion and analysis then addresses the results of the
Company's operations for the six months ended August 25, 2001, as compared
to the Company's results of operations for the six months ended August 26,
2000. The discussion and analysis also addresses the liquidity and financial
condition of the Company and other matters.
See Note 3 for additional information regarding reportable segments.
THREE MONTHS ENDED AUGUST 25, 2001, AS COMPARED TO THE RESULTS OF
OPERATIONS FOR THE THREE MONTHS ENDED AUGUST 26, 2000
Net sales for the three-month period ended August 25, 2001 were
$179,093, which is $14,977 or 9.1% greater than net sales of $164,116 for
the comparable period in the prior year. The year over year increase in net
sales is attributable to an increase in unit shipments at our commercial
aircraft product segment.
Gross profit was $68,980 or 38.5% of net sales for the three months
ended August 25, 2001 as compared to $60,758 or 37.0% of net sales in the
comparable period in the prior year, a year over year increase of 150 basis
points. This gross margin improvement was due to manufacturing efficiencies
realized in our commercial aircraft operations. Lean manufacturing and
continuous improvement programs are enabling the commercial aircraft
products businesses to reduce costs, improve quality and productivity and
accelerate the order fulfillment cycle.
Selling, general and administrative expenses were $27,896 or 15.6% of
net sales for the three months ended August 25, 2001 as compared to $23,941
or 14.6% of net sales in the comparable period in the prior year. The year
over year increase in selling, general and administrative expenses was
primarily attributable to recent acquisitions, costs associated with the
lean manufacturing initiatives now underway at each operating plant, along
with implementation costs and increased depreciation expense associated with
our new Enterprise Resource Planning system. Research, development and
engineering expenses were $10,973 or 6.1% of net sales for the three months
ended August 25, 2001, as compared with $12,228 or 7.5% of sales for the
comparable period in the prior year. The year over year decrease in
research, development and engineering expenses is primarily attributable to
the timing of customer programs.
Amortization expense for the quarter ended August 25, 2001 of $6,412 was
$565 greater than the amount recorded in the second quarter of fiscal 2001
and is due to recent acquisitions.
The Company generated operating earnings of $23,699 or 13.2% of net
sales for the quarter ended August 25, 2001. This was $4,957 or 26.4%
greater than operating earnings of $18,742 or 11.4% of net sales during the
comparable period in the prior year. The increase in operating earnings in
the current period is primarily the result of higher sales and a 150 basis
point improvement in gross margin, offset by somewhat higher operating
expenses.
Interest expense, net was $13,790 for the three months ended August 25,
2001, or $302 greater than interest expense of $13,488 for the comparable
period in the prior year. The increase in interest expense is due to the
newly issued 8 7/8% senior subordinated notes, net of interest income from
the proceeds from our recent debt and equity offerings.
Earnings before income taxes in the current quarter were $9,909, which
was $4,655 or 88.6% greater than pretax earnings in the prior year of
$5,254. Income tax expense for the quarter ended August 25, 2001 was $991,
as compared to $525 in the prior year's comparable period.
Net earnings were $8,918 or $0.27 per share (diluted) for the three
months ended August 25, 2001, as compared to $4,729 or $0.19 per share
(diluted) for the comparable period in the prior year.
BE AEROSPACE, INC.
SIX MONTHS ENDED AUGUST 25, 2001, AS COMPARED TO THE RESULTS OF
OPERATIONS FOR THE SIX MONTHS ENDED AUGUST 26, 2000
Net sales for the fiscal 2002 six-month period were $355,926, an
increase of $22,685 or 6.8% over net sales of $333,241 for the comparable
period in the prior year. The year over year increase in sales is primarily
attributable to an increase in unit shipments at our commercial aircraft
products segment.
Gross profit was $134,886 or 37.9% of net sales for the six months ended
August 25, 2001, as compared to a gross profit of $122,311 or 36.7% of net
sales in the prior year, a year over year increase of 10.3% or 120 basis
points. This gross margin improvement was due to manufacturing efficiencies
realized in our commercial aircraft operations. Lean manufacturing and
continuous improvement programs enabled the commercial aircraft products
businesses to reduce costs, improve quality and productivity and accelerate
the order fulfillment cycle.
Selling, general and administrative expenses were $52,779 or 14.8% of
net sales for the six months ended August 25, 2001, as compared to $47,982
or 14.4% of net sales in the prior year. The year over year increase in
selling, general and administrative expenses was primarily attributable to
recent acquisitions, costs associated with the lean manufacturing
initiatives now underway at each operating plant, along with the
implementation costs and increased depreciation expense associated with our
Enterprise Resource Planning system. Research, development and engineering
expenses for the current six-month period were $23,053 or 6.5% of net sales
or $2,156 lower than the prior year of $25,209 or 7.6% of net sales. The
year over year decrease in research, development and engineering expenses is
primarily attributable to the timing of customer programs.
Amortization expense for the six months ended August 25, 2001 was
$12,761 as compared to $11,715 in the prior year. The year over year
increase in amortization expense is due to recent acquisitions.
The Company generated operating earnings of $46,293 or 13.0% of net
sales for the six months ended August 25, 2001. This was $8,888 or 23.8%
greater than operating earnings of $37,405, which represented 11.2% of net
sales during the comparable period in the prior year. The increase in
operating earnings is primarily the result of higher sales and a 120 basis
point improvement in gross margin, offset by somewhat higher operating
expenses.
Interest expense, net was $27,764 for the six months ended August 25,
2001, or $545 greater than interest expense of $27,219 for the comparable
period in the prior year. The increase in interest expense is due to the
newly issued 8 7/8% senior subordinated notes, net of interest income from
the proceeds from our recent debt and equity offerings.
Earnings before income taxes and extraordinary item for the six months
ended August 25, 2001 were $18,529, which was $8,343 or 82% greater than
pretax earnings in the prior year of $10,186. Income tax expense for the six
months ended August 25, 2001 was $1,853, as compared to $1,019 in the prior
year's comparable period.
Earnings before extraordinary item were $16,676 or $0.52 per share
(diluted) for the six months ended August 25, 2001, as compared to $9,167 or
$0.36 (diluted) per share for the comparable period in the prior year.
The Company incurred an extraordinary charge of $9,309 (net of tax)
during the quarter ended May 26, 2001 related to the early redemption of its
9 7/8% senior subordinated notes and repayment of its bank credit facility.
As a result, the Company reported net earnings and net earnings per share of
$7,367 and $0.23 (diluted) per share, respectively, for the six months ended
August 25, 2001, as compared to net earnings and net earnings per share of
$9,167 and $0.36 (diluted) per share, respectively, for the comparable
period in the prior year.
BE AEROSPACE, INC.
LIQUIDITY AND CAPITAL RESOURCES
Our liquidity requirements consist of working capital needs, ongoing
capital expenditures and scheduled payments of interest and principal on
indebtedness. Our working capital was $306,154 as of August 25, 2001, as
compared to $174,897 as of February 24, 2001.
At August 25, 2001, our cash and cash equivalents were $154,687, as
compared to $60,271 at February 24, 2001. Cash provided by operating
activities was $31,790 for the six months ended August 25, 2001. Our primary
source of cash during the six months ended August 25, 2001 was cash provided
from earnings (net earnings adjusted for non-cash items) of $41,709. Our
primary requirement for working capital during the six-month period related
to an increase in accounts receivable of $7,068, an increase in other
current assets of $4,356 and a decrease in accounts payable of $5,876.
We hold a promissory note, which was issued in connection with the sale
of a subsidiary to Thomson - CSF Holding Corporation, a subsidiary of The
Thales Group (a publicly traded French company with over $9,000,000 in
annual sales). We are currently involved in a dispute with Thales over
certain terms of the purchase and sales agreement in connection with this
sale. Thomson - CSF Holding Corporation failed to make a $15,700 payment due
to us under the terms of the purchase and sale agreement in October 2000.
These obligations to us are guaranteed by Thomson - CSF Sextant, Inc. We
have initiated arbitration against Thales and Thomson and expect that this
matter will be resolved within the next twelve months.
During the six months ended August 25, 2001, we used $48,547 of cash for
business acquisitions, with the remainder of the acquisition costs being
financed through the issuance of debt and equity securities described below.
Our capital expenditures were $6,507 and $10,548 during the six months ended
August 25, 2001 and August 26, 2000, respectively. The year over year
decrease in capital expenditures is primarily attributable to the timing of
planned expenditures.
On April 17, 2001 we sold $250,000 of 8 7/8% senior subordinated notes
due 2011. The net proceeds less estimated debt issue costs received by us
from the sale of the notes were approximately $242,800. Approximately
$105,000 of proceeds were used to redeem our 9 7/8% senior subordinated
notes due 2006 and approximately $66,700 of proceeds were used to repay
balances outstanding under our bank credit facility, which was then
terminated. The remainder of the net proceeds will be used for general
corporate purposes, including potential future acquisitions. We repaid and
cancelled our bank credit facility on April 17, 2001 upon the settlement of
the sale of $250,000 of 8 7/8% senior subordinated notes in our recent debt
offering.
On April 17, 2001 we called for redemption of all our 9 7/8% senior
subordinated notes on May 17, 2001. We redeemed the notes at a redemption
price equal to 104.97 percent of the principal amount, together with the
accrued interest to the redemption date. We deposited with the trustee on
April 17, 2001 funds in an amount sufficient to redeem the 9 7/8% senior
subordinated notes on the redemption date. Upon deposit of these funds, the
indenture governing the 9 7/8% senior subordinated notes was discharged. We
incurred an extraordinary charge of $9,309 (net of tax) for unamortized debt
issue costs, redemption premiums and fees and expenses related to the
repurchase of the 9 7/8% Senior Subordinated Notes.
On May 16, 2001, we completed a 5,750,000 share offering of our common
stock at $19.50 per share. Of the total number of shares, approximately
2,825,000 shares were sold by us and the remainder were sold by certain
selling stockholders. The net proceeds from this offering were approximately
$106,200. Approximately $53,100 was paid to the former owners of Alson
Industries, Inc., T. L. Windust Machine, Inc., DMGI, Inc. and Maynard
Precision, Inc. The Company received approximately $50,300, net of estimated
offering costs, from the sale of 2,825,000 shares of stock issued in
connection with this offering.
BE AEROSPACE, INC.
In August 2001 we established a $150,000 revolving line of credit which
matures in August 2006, replacing our prior facility. At August 25, 2001,
borrowings under this revolving line of credit aggregated $4,900. Pro forma
for the acquisition of M&M Aerospace, borrowings under this revolving line
of credit aggregated approximately $107,900 at August 25, 2001. Pro forma
for the acquisition of M & M Aerospace and the payment of accrued interest
on our borrowings, our aggregate cash and availability under this revolving
line of credit at August 25, 2001 was approximately $121,000 (see Note 9 of
the Notes to Condensed Consolidated Financial Statements as of August 25,
2001).
We believe that the cash flow from operations, the net proceeds of our
recent debt and equity offerings and aggregate cash and availability under
our bank credit facility will provide adequate funds for our working capital
needs, planned capital expenditures and debt service requirements for the
foreseeable future. Our ability to fund our operations, make planned capital
expenditures, make scheduled payments and refinance our indebtedness, if
necessary, depends on our future operating performance and cash flow, which,
in turn, are subject to prevailing economic conditions and to financial,
business and other factors, some of which are beyond our control. The
September 11, 2001 terrorist attack has severely impacted conditions in the
airline industry. Accordingly, the airlines are seeking to conserve cash in
part by deferring or eliminating cabin interior refurbishment programs and
cancelling or deferring aircraft purchases. The Company expects that this
will cause a substantial contraction in the Company's business, the extent
and duration of which cannot be determined at this time. The Company has not
yet determined the impact of these significant changes in industry
conditions on its operations, liquidity, financial condition or outlook. See
"Dependence on Conditions in the Airline Industry".
DEFERRED TAX ASSETS
We established a valuation allowance related to the utilization of our
deferred tax assets because of uncertainties that preclude us from
determining that it is more likely than not that it will be able to generate
taxable income to realize such assets during the federal operating loss
carryforward period, which begins to expire in 2012. Such uncertainties
include recent cumulative losses, the highly cyclical nature of the industry
in which we operate, our high degree of financial leverage, risks associated
with new product introductions, recent increases in the cost of fuel and its
impact on our airline customers, further remediation of our Seating Products
operating problems and risks associated with the integration of its acquired
businesses. We monitor these uncertainties, as well as other positive and
negative factors that may arise in the future, as we assess the necessity
for a valuation allowance for our deferred tax assets.
NEW ACCOUNTING PRONOUNCEMENTS
In July 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 141 ("SFAS 141"), "Business
Combinations." SFAS 141 requires the purchase method of accounting for
business combinations initiated after June 30, 2001 and eliminates the
pooling-of-interests method. We do not believe that the adoption of SFAS 141
will have a significant impact on our financial statements.
In July 2001, the FASB issued Statement of Financial Accounting
Standards No. 142 ("SFAS 142"), "Goodwill and Other Intangible Assets." We
are required to adopt SFAS 142 for its fiscal year beginning February 24,
2002. SFAS 142 requires, among other things, the discontinuance of goodwill
amortization. In addition, the standard includes provisions for the
reclassification of certain existing recognized intangibles as goodwill,
reassessment of the useful lives of existing recognized intangibles,
reclassification of certain intangibles out of previously reported goodwill
and the identification of reporting units for purposes of assessing
potential future impairments of goodwill. SFAS 142 also requires us to
complete a transitional goodwill impairment test six months from the date of
adoption. We are currently assessing but have not yet determined the impact
of SFAS 142 on its financial position and results of operations.
BE AEROSPACE, INC.
DEPENDENCE UPON CONDITIONS IN THE AIRLINE INDUSTRY
Our principal customers are the world's commercial airlines. As a
result, our business is directly dependent upon the conditions in the highly
cyclical and competitive airline industry. In the late 1980s and early
1990s, the world airline industry suffered a severe downturn, which resulted
in record losses and several air carriers seeking protection under
bankruptcy laws. As a consequence, during such period, airlines sought to
conserve cash by reducing or deferring scheduled cabin interior
refurbishment and upgrade programs and by delaying purchases of new
aircraft. This led to a significant contraction in the commercial aircraft
cabin interior products industry and a major decline in our business and
profitability. Although the world airline industry experienced a turnaround
in operating results in the mid 1990's, since 2000, increases in fuel
prices, the softening of the global economy and labor unrest have negatively
impacted airline profitability. Moreover, as a result of the September 11,
2001 terrorist attacks on the World Trade Center in New York City and the
Pentagon in Northern Virginia, the airline industry has once again been
severely affected. For the first time in the history of commercial aviation,
all domestic airlines were grounded for a period of three days following the
terrorist attack. Since resuming service, most major US carriers have parked
or retired nearly 20% of their fleets and have announced reductions in
workforces aggregating over 100,000 employees, and Boeing has announced
planned layoffs of approximately 30,000, or 30% of their commercial aircraft
workforce. Congress has authorized financial assistance for the airline
industry aggregating $15 billion; $5 billion in direct cash subsidies for
U.S. carriers, and subject to certain conditions, up to $10 billion in
federal loan guarantees. As a result of the substantial reduction in airline
traffic arising from the September 11 terrorist attack and its aftermath, as
well as other factors, such as the weakening economy, the airline industry
is likely to incur the largest loss in history in calendar 2001, totaling in
excess of $10 billion. Accordingly, the airlines are seeking to conserve
cash by deferring or eliminating cabin interior refurbishment programs and
canceling or deferring aircraft purchases. The Company expects that this
will cause a substantial contraction in the Company's business, the extent
and duration of which cannot be determined at this time. The Company has not
yet determined the impact of these significant changes in industry
conditions on its operations, liquidity, financial condition or outlook.
However, given the magnitude of these events and the possible subsequent
effects, the impact could be material.
The airline industry is also undergoing a process of consolidation and
significantly increased competition. Such consolidation could result in a
reduction of future aircraft orders as overlapping routes are eliminated and
airlines seek greater economies through higher aircraft utilization.
Recently, turbulence in the financial and currency markets of many Asian
countries has led to uncertainty with respect to the economic outlook for
these countries. Although not all carriers were affected by the economic
events in the Pacific Rim, certain carriers, including non-Asian carriers
that have substantial Asian routes, did cancel or defer their existing
orders.
FORWARD LOOKING STATEMENTS
This report contains forward-looking statements, including statements
regarding the future benefits of corrective actions in the Company's seating
business, implementation and expected benefits of lean manufacturing and
continuous improvement programs, the Company's dealings with customers and
partners, the consolidation of facilities, integration of acquired
businesses, productivity improvements from recent information technology
investments, the roll-out of the Company's e-commerce system, ongoing
capital expenditures, the adequacy of funds to meet the Company's capital
requirements, the ability to refinance our indebtedness, if necessary, the
reduction of debt, the potential impact of new accounting pronouncements,
the allocation of M & M's purchase price, the impact on our business of the
BE AEROSPACE, INC.
arbitration against Thales. These forward-looking statements include risks
and uncertainties, and the Company's actual experience may differ materially
from that anticipated in such statements. Factors that might cause such a
difference include those discussed in the Company's filings with the
Securities and Exchange Commission, including its most recent proxy
statement and Form 10-K, as well as future events that may have the effect
of reducing the Company's available operating income and cash balances, such
as unexpected operating losses, the impact of rising fuel prices on our
airline customers, delays in, or unexpected costs associated with, the
integration of our acquired businesses, conditions in the airline industry,
problems meeting customer delivery requirements, the Company's success in
winning new or expected refurbishment contracts from customers, capital
expenditures, cash expenditures related to possible future acquisitions,
further remediation of our Seating Products operating problems, labor
disputes involving us, our significant customers or airframe manufacturers,
the possibility of a write-down of intangible assets, delays or
inefficiencies in the introduction of new products or fluctuations in
currency exchange rates.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
During the three months ended August 25, 2001, there were no material
changes to the disclosure about market risk included in the Company's Annual
Report on Form 10-K for the fiscal year ended February 24, 2001.
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BE AEROSPACE, INC.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings Not applicable.
Item 2. Changes in Securities Not applicable.
Item 3. Defaults Upon Senior Securities Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
1. Annual meeting took place on August 14, 2001
2. Directors elected (Class I) - Jim C. Cowart and Brian H. Rowe
3. Directors whose term of office continued after meeting
(Class II and III) - Robert J. Khoury, Jonathan M. Schofield,
Richard G. Hamermesh and Amin J. Khoury
4. Adopted the 2001 Stock Option Plan
5. Adopted the 2001 Non-Employee Directors' Stock Option Plan
6. Amended the 1994 Employee Stock Purchase Plan
7. Increased the number of shares of common stock authorized for issuance
Abstain/
For Against Withheld Unvoted
-------------------- -------------- ------------- ----------------
1. Election of Class I Directors
Jim C. Cowart 26,748,328 -- 3,823,193
Brian H. Rowe 29,648,121 -- 923,400
2. Proposal to adopt the
2001 Stock Option Plan 22,379,915 7,731,216 460,390
3. Proposal to adopt the
2001 Non-Employee Directors'
Stock Option Plan 22,954,382 7,313,488 303,651
4. Proposal to amend the 1994
Employee Stock Purchase Plan 29,674,763 591,128 305,630
5. Proposal to increase the number
of shares of common stock
authorized for issuance 25,974,896 4,561,403 35,222
6. Proposal to adopt the
MacBride Principles 8,041,966 17,504,332 950,462 4,084,761
Item 5. Other Information - None.
BE AEROSPACE, INC.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
Exhibit 1 Amended and Restated Employment Agreements dated as of
September 14, 2001 between the Registrant and Amin J. Khoury
Exhibit 2 Amended and Restated Employment Agreements dated as of
September 14, 2001 between the Registrant and Robert J. Khoury
Exhibit 3 Amended and Restated Employment Agreements dated as of
September 14, 2001 between the Registrant and Thomas P. McCaffrey
Exhibit 4 Credit Agreement dated as of August 21, 2001
b. Reports on Form 8-K
Form 8-K, dated and filed August 13, 2001; includes press
release to announce the Agreement to acquire M & M Aerospace
Hardware, Inc.
Form 8-K, dated and filed August 21, 2001; includes pro
forma financial statements as of February 24, 2001 and the three
months ended May 26, 2001
Form 8-K/A, dated and filed August 23, 2001; includes signed audit
report from Form 8-K, originally dated and filed August 21, 2001.
BE AEROSPACE, INC.
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BE AEROSPACE, INC.
Date: October 9, 2001 By: /s/ Robert J. Khoury
------------------------
Robert J. Khoury
President and
Chief Executive Officer
Date: October 9, 2001 By: /s/ Thomas P. McCaffrey
---------------------------
Thomas P. McCaffrey
Corporate Senior Vice President of
Administration and Chief
Financial Officer