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 November 24, 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
35,234,700 shares were outstanding as of January 7, 2002.
BE AEROSPACE, INC.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share data)
November 24, February 24,
2001 2001
----------------- -----------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 135,673 $ 60,271
Accounts receivable - trade, less allowance for doubtful
accounts of $4,504 (November 24, 2001)
and $2,619 (February 24, 2001) 103,868 99,673
Inventories, net 151,960 135,005
Other current assets 77,287 50,150
-------------- -----------
Total current assets 468,788 345,099
-------------- -----------
Property and equipment, net 156,108 157,517
Intangibles and other assets, net 556,387 433,379
-------------- -----------
$ 1,181,283 $ 935,995
============== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 56,023 $ 64,671
Accrued liabilities 119,262 99,685
Current portion of long-term debt 1,297 5,846
-------------- -----------
Total current liabilities 176,582 170,202
-------------- -----------
Long-term debt 853,938 603,812
Other liabilities 10,380 26,707
Stockholders' equity:
Preferred stock, $.01 par value; 1,000,000 shares
authorized; no shares outstanding - -
Common stock, $.01 par value; 100,000,000 shares
authorized; 35,222,075 (November 24, 2001) and
28,460,583 (February 24, 2001) shares issued
and outstanding 352 285
Additional paid-in capital 419,819 311,506
Accumulated deficit (253,482) (154,602)
Accumulated other comprehensive loss (26,306) (21,915)
-------------- -----------
Total stockholders' equity 140,383 135,274
-------------- -----------
$ 1,181,283 $ 935,995
============== ===========
See accompanying notes to condensed consolidated financial statements.
BE AEROSPACE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(Dollars in thousands, except per share data)
Three Months Ended Nine Months Ended
--------------------------------- --------------------------------
November 24, November 25, November 24, November 25,
2001 2000 2001 2000
--------------------------------- --------------------------------
Net sales $ 172,788 $ 167,410 $ 528,714 $ 500,651
Cost of sales (Note 10) 217,464 103,862 438,504 314,792
----------- ---------- ---------- ----------
Gross profit (loss) (44,676) 63,548 90,210 185,859
Operating expenses:
Selling, general and administrative 28,658 23,177 81,437 71,159
Research, development and engineering 10,576 12,054 33,629 37,263
Amortization 6,316 5,820 19,077 17,535
----------- ---------- ---------- ----------
Total operating expenses 45,550 41,051 134,143 125,957
----------- ---------- ---------- ----------
Operating (loss) earnings (90,226) 22,497 (43,933) 59,902
Interest expense, net 15,966 13,698 43,730 40,917
----------- ---------- ---------- ----------
(Loss) earnings before income taxes (106,192) 8,799 (87,663) 18,985
Income taxes 55 880 1,908 1,899
----------- ---------- ---------- ----------
(Loss) earnings before extraordinary item (106,247) 7,919 (89,571) 17,086
Extraordinary item - - 9,309 -
----------- ---------- ---------- ----------
Net (loss) earnings $ (106,247) $ 7,919 $ (98,880) $ 17,086
=========== ========== ========== ==========
Basic net (loss) earnings per common share:
(Loss) earnings before extraordinary item $ (3.08) $ 0.31 $ (2.79) $ 0.68
Extraordinary item - - (0.29) -
----------- ---------- ---------- ----------
Net (loss) earnings $ (3.08) $ 0.31 $ (3.08) $ 0.68
=========== ========== ========== ==========
Diluted net (loss) earnings per common share:
(Loss) earnings before extraordinary item $ (3.08) $ 0.30 $ (2.79) $ 0.67
Extraordinary item - - (0.29) -
----------- ---------- ---------- ---------
Net (loss) earnings $ (3.08) $ 0.30 $ (3.08) $ 0.67
=========== ========== ========== ==========
See accompanying notes to condensed consolidated financial statements.
BE AEROSPACE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Dollars in thousands)
Nine Months Ended
---------------- ------------
November 24, November 25,
2001 2000
---------------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) earnings $ (98,880) $ 17,086
Adjustments to reconcile net (loss) earnings to net cash flows
provided by operating activities:
Extraordinary item 9,309 -
Depreciation and amortization 35,826 32,078
Non-cash employee benefit plan contributions 1,897 1,535
Impairment of property and equipment, inventories and
other assets 62,938 -
Impairment of intangible assets 20,402 -
Changes in operating assets and liabilities, net of
acquisitions:
Accounts receivable 10,746 10,139
Inventories 6,734 615
Other current assets 671 (12,487)
Accounts payable (14,167) 4,469
Accrued liabilities 5,488 (24,677)
----------- ----------
Net cash flows provided by operating activities 40,964 28,758
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions, net of cash acquired (265,177) -
Capital expenditures (11,022) (15,399)
Change in intangible and other assets (19,674) 15,718
------------ ----------
Net cash flows (used in) provided by investing activities (295,873) 319
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) under bank credit facilities 78,247 (23,538)
Proceeds from issuances of stock, net of expenses 106,484 3,210
Principal payments on long-term debt (101,988) -
Proceeds from long-term debt 248,466 -
----------- ----------
Net cash flows provided by (used in) financing activities 331,209 (20,328)
----------- ----------
Effect of exchange rate changes on cash flows (898) (1,882)
----------- ----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 75,402 6,867
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 60,271 37,363
----------- ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 135,673 $ 44,230
=========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during
period for:
Interest, net $ 55,120 $ 49,616
Income taxes, net $ 1,989 $ 1,851
See accompanying notes to condensed consolidated financial statements.
BE AEROSPACE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 24, 2001 AND NOVEMBER 25, 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 November 24, 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 Nine Months Ended
-------------------------------- ------------------------------
November November November November
24, 2001 25, 2000 24, 2001 25, 2000
---------------- --------------- -------------- ---------------
Net earnings (loss) $ (106,247) $ 7,919 $ (98,880) $ 17,086
Other comprehensive earnings (loss):
Foreign exchange translation adjustment (3,713) (7,085) (4,391) (17,826)
----------- -------- ---------- --------
Comprehensive earnings (loss) $ (109,960) $ 834 $(103,271) $ (740)
=========== ======== ========== ========
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 November 25, 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 for the
three and nine months ended November 25, 2000 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.
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 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 the ratio of 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 Nine Months Ended
------------------------------------ -------------------------------------
November November November November
24, 2001 25, 2000 24, 2001 25, 2000
------------------- ---------------- ---------------- --------------------
Commercial Aircraft Products
Net sales $ 138,296 $ 127,646 $ 418,072 $ 386,059
Operating (loss) earnings (77,062) 16,230 (41,801) 41,351
Business Jet Products
Net sales 21,009 22,854 66,378 64,834
Operating (loss) earnings (4,910) 3,179 921 10,118
Engineering Services
Net sales 13,483 16,910 44,264 49,758
Operating (loss) earnings (8,254) 3,088 (3,053) 8,433
Consolidated
Net sales 172,788 167,410 528,714 500,651
Operating (loss) earnings (90,226) 22,497 (43,933) 59,902
BE AEROSPACE, INC.
Note 4. Earnings Per Common Share
Basic net (loss) earnings per common share is computed using the
weighted average common shares outstanding during the period. Diluted net
(loss) 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 Nine Months Ended
------------------------------- -----------------------------
November November November November
24, 2001 25, 2000 24, 2001 25, 2000
---------------- -------------- --------------- -------------
Weighted average common shares outstanding 34,547,878 25,437,246 32,095,914 25,235,793
Dilutive effect of employee stock options - 943,535 - 351,710
---------- ---------- ---------- ----------
Diluted shares outstanding 34,547,878 26,380,781 32,095,914 25,587,503
========== ========== ========== ==========
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 has adopted SFAS 141 and applied
its new purchase accounting requirements to the acquisition of M & M
Aerospace.
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 assessing the impact of SFAS 142 on its
financial position and results of operations and while it has not completed
its assessment, it believes the recurring impact will be to reduce
amortization expense by $10,000 to $15,000 annually, commencing in its
fiscal 2003.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets," which addresses the financial
accounting and reporting for the impairment or disposal of long-lived
assets. This statement supercedes SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of" and
will be effective on April 1, 2002. The Company is assessing the impact, if
any, SFAS No. 144 will have on our consolidated financial statements.
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 its 9 7/8% senior
subordinated notes due 2006. 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.
BE AEROSPACE, INC.
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. On November 24, 2001, indebtedness under the existing bank credit
facility consisted of outstanding borrowings of $145,000 (bearing interest
at LIBOR plus 1.5%) and letters of credit aggregating approximately $4,700
(bearing interest at LIBOR plus 2.0%, as defined). The bank credit facility,
which requires no principal payments until 2006, was amended on December 14,
2001 to provide additional flexibility in its financial covenants, contains
customary affirmative covenants, negative covenants and conditions of
borrowing, all of which were met as of November 24, 2001. The interest rate
margin on the bank credit facility may increase in the event of certain
changes to the Company's financial leverage ratios.
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 November 24, 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 accounted for using purchase accounting.
The assets purchased and liabilities assumed have been reflected in the
accompanying balance sheet as of November 24, 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.
On September 14, 2001, the Company acquired M & M Aerospace Hardware,
Inc. ("M & M") for an initial purchase price of $177,000. M & M was 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 of $200,000 includes, in addition to the initial purchase
price, an additional $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 and has been included in the Company's operations
since the date of acquisition.
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 price
over the fair value of the identifiable net tangible assets acquired
aggregated approximately $118,100.
BE AEROSPACE, INC.
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 and other assets 118,100
Current liabilities (13,800)
---------
$200,000
=========
The following pro forma unaudited financial data is presented to
illustrate the estimated effects of the M & M acquisition as if this
transaction had occurred as of the beginning of each fiscal period
presented. These results include approximately $40,000 of inventory
adjustments recorded by M&M in the period prior to the acquisition.
Three Months Ended Nine Months Ended
---------------------------------- -----------------------------------
November November November November
24, 2001 25, 2000 24, 2001 25, 2000
----------------- ---------------- ---------------- ------------------
Net sales $ 172,788 $ 192,945 $586,846 $ 577,446
Net earnings (loss) (106,247) 10,168 (130,833) 25,677
Diluted earnings (loss) per share $ (3.08) $ 0.35 $ (4.08) $ 0.90
Note 9. Industry Conditions
The September 11 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, parking or retiring approximately 15% of their
fleets. The airlines have further responded by decreasing domestic airfares
by 19% in October 2001 and 16% in November 2001. As a result of the double-
digit decline in both traffic and airfares, airline revenues for domestic
carriers for the fourth quarter of 2001 are expected to be down at least
30%. Industry-wide workforce reductions announced by the airlines,
airframe manufacturers and the related suppliers to these industries have
exceeded 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 taken swift actions to respond to the rapid change in
industry conditions as more fully described in Note 10 below. The Company
has not yet fully determined the impact of these significant changes in
industry conditions on its operations, liquidity, financial condition or
outlook.
Note 10. Facility Consolidation and Acquisition-Related Expenses
During the third quarter of fiscal 2002, the Company adopted and began
to implement a restructuring plan designed to re-align its capacity and cost
structure consistent with changed conditions in the airline industry as a
result of the September 11th terrorist attacks. This plan includes closing
five facilities, reducing the number of principal production facilities from
16 to 11, and reducing the workforce by approximately 1,000 employees. The
estimated cost of this facility consolidation plan is expected to be
approximately $98,943, of which the cash portion of $15,603 is primarily
related to involuntary severance programs, lease termination costs and
preparing facilities for disposal and sale; $62,938 is related to
write-downs of property, plant and equipment, other assets and inventory;
and $20,402 is related to the impairment of certain intangible assets
rendered useless as a result of industry conditions and facility
consolidation. The charge has been included as a component of cost of sales
for the three and nine months ended November 24, 2001.
BE AEROSPACE, INC.
Pretax cash outlays associated with the facility consolidation program
were not significant during the third quarter and are expected to be
approximately $15,000 over the next twelve months. Management expects to
fund cash requirements from operations. The consolidation activities
commenced during the third quarter of fiscal 2002 and are expected to be
substantially complete by the third quarter of fiscal 2003. In connection
with facility consolidation, the Company also incurred approximately $957 in
non-recurring transition expenses. The Company incurred approximately $6,840
of expenses in connection with the acquisition of M & M Aerospace Hardware,
Inc., which has been included as a component of the cost of sales for the
three and nine months ended November 24, 2001. As a result, total facility
consolidation and acquisition-related expenses for the three and nine months
ended November 24, 2001 were $106,740.
The following table summarizes the accrual and utilization of the
facility consolidation costs:
Balance at
Original Utilized November 24,
2001
---------------- ----------------- -----------------
Severance, lease terminations and other costs $15,603 $ (888) $14,715
Impaired property and equipment, inventories
and other assets 62,938 (10,140) 52,798
Impaired intangible assets 20,402 (20,402) -
---------------- ----------------- -----------------
$98,943 $(31,430) $67,513
================ ================= =================
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BE AEROSPACE, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
The following discussion and analysis addresses the results of the
Company's operations for the three months ended November 24, 2001, as
compared to the Company's results of operations for the three months ended
November 25, 2000. The discussion and analysis then addresses the results of
the Company's operations for the nine months ended November 24, 2001, as
compared to the Company's results of operations for the nine months ended
November 25, 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 NOVEMBER 24, 2001, AS COMPARED TO THE RESULTS OF
OPERATIONS FOR THE THREE MONTHS ENDED NOVEMBER 25, 2000
The rapid decline in industry conditions brought about by the terrorist
attacks on September 11, 2001 caused the Company to implement a facility
consolidation plan designed to re-align its capacity and cost structure with
changed conditions in the airline industry. As a result of the change in
industry conditions, the Company now expects revenues to be 20%-30% lower
than its earlier expectations for its fiscal year which ends February 2003.
The facility consolidation plan includes closing five facilities and
reducing workforce by approximately 1,000 employees. The Company recognized
a charge of approximately $98,943, of which the cash portion of $15,603 is
primarily related to involuntary severance programs, lease termination costs
and preparing facilities for disposal and sale; $62,938 is related to
write-downs of inventory, property, plant and equipment; and $20,402 is
related to the impairment of certain intangible assets rendered useless as a
result of industry conditions and facility consolidation. The charge has
been included as a component of cost of sales for the three months ended
November 24, 2001.
Revenues were negatively impacted by the severe change in industry
conditions following the terrorist attacks on September 11, 2001. Net sales
for the three-month period ended November 24, 2001 were $172,788, which is
$5,378 or 3.2% greater than net sales of $167,410 for the comparable period
in the prior year. However, excluding revenues from acquisitions completed
after the third quarter of fiscal 2001, revenues declined by approximately
16%.
Gross profit was $62,064, or 35.9% of net sales for the three months
ended November 24, 2001, excluding facility consolidation and
acquisition-related expenses of $106,740, as compared to $63,548 or 38.0% of
net sales in the comparable period in the prior year. The decline in the
gross margin before such costs was primarily due to the lower revenue levels
and product mix issues within the Commercial Aircraft Products and
Engineering Services segments.
Selling, general and administrative expenses were $28,658 or 16.6% of
net sales for the three months ended November 24, 2001 as compared to
$23,177 or 13.8% of net sales in the comparable period in the prior year.
The $5,481 year over year increase in selling, general and administrative
expenses resulted from $6,746 of such costs related to recent acquisitions,
offset by $2,309 of cost reductions in the Company's operations, exclusive
of the acquisitions. Research, development and engineering expenses were
$10,576 or 6.1% of net sales for the three months ended November 24, 2001,
as compared with $12,054 or 7.2% 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 November 24, 2001 was $6,316
as compared to $5,820 in the comparable period in the prior year. The year
over year increase in amortization expense is due to recent acquisitions.
The Company is assessing the impact of SFAS 142 on its financial position
and results of operations and while it has not completed its assessment, it
believes the recurring impact will be to reduce amortization expense by
$10,000 to $15,000 annually, commencing in its fiscal 2003.
BE AEROSPACE, INC.
The Company generated operating earnings of $16,514 or 9.6% of net
sales for the quarter ended November 24, 2001 excluding facility
consolidation and acquisition-related expenses of $106,740. This was $5,983
or 26.6% lower than operating earnings of $22,497 or 13.4% of net sales
during the comparable period in the prior year. The decrease in operating
earnings in the current period is primarily attributable to the lower level
of revenues from our existing businesses following the terrorist attacks on
September 11, 2001.
Interest expense, net was $15,966 for the three months ended November
24, 2001, or $2,268 greater than interest expense of $13,698 for the
comparable period in the prior year. The increase in interest expense is due
to the larger amount of outstanding debt due to the refinancing of long-term
debt described in Note 6 and the recent acquisitions.
Earnings before facility consolidation and acquisition-related expenses
and income taxes in the current quarter were $548, which was $8,251 or 93.8%
lower than pretax earnings in the prior year of $8,799. Loss before income
taxes was $(106,192) or $114,991 less than pretax earnings in the prior year
of $8,799. Income tax expense for the quarter ended November 24, 2001 was
$55, as compared to $880 in the prior year's comparable period.
Net (loss) earnings were $(106,247) or $(3.08) per share for the three
months ended November 24, 2001, as compared to $7,919 or $0.30 per share
(diluted) for the comparable period in the prior year.
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BE AEROSPACE, INC.
NINE MONTHS ENDED NOVEMBER 24, 2001, AS COMPARED TO THE RESULTS OF
OPERATIONS FOR THE NINE MONTHS ENDED NOVEMBER 25, 2000
The rapid decline in industry conditions brought about by the terrorist
attacks on September 11, 2001 caused the Company to implement a facility
consolidation plan designed to re-align its capacity and cost structure with
changed conditions in the airline industry. As a result of the change in
industry conditions, the Company now expects revenues to be 20%-30% lower
than its earlier expectations for its fiscal year which ends February 2003.
The facility consolidation plan includes closing five facilities and
reducing workforce by approximately 1,000 employees. The Company recognized
a charge of approximately $98,943, of which the cash portion of $15,603 is
primarily related to involuntary severance programs, lease termination costs
and preparing facilities for disposal and sale; $62,938 is related to
write-downs of inventory, property, plant and equipment; and $20,402 is
related to the impairment of certain intangible assets rendered useless as a
result of industry conditions and facility consolidation. The charge has
been included as a component of cost of sales for the nine months ended
November 24, 2001.
Revenues were negatively impacted by the severe change in industry
conditions following the terrorist attacks on September 11. Net sales for
the nine-month period ended November 24, 2001 were $528,714, which is
$28,063 or 5.6% greater than net sales of $500,651 for the comparable period
in the prior year. However, excluding revenues from acquisitions completed
after the third quarter of fiscal 2001, revenues declined by approximately
7% for the nine months ended November 24, 2001 as compared to the prior
year.
Gross profit was $196,950, or 37.3% of net sales for the nine months
ended November 24, 2001, excluding facility consolidation and
acquisition-related expenses of $106,740, as compared to a gross profit of
$185,859 or 37.1% of net sales in the prior year. The year over year
increase in gross margin before such costs resulted from the continued focus
on lean manufacturing initiatives and continuous improvement programs within
the Commercial Aircraft Products segment as well as recent acquisitions.
Selling, general and administrative expenses were $81,437 or 15.4% of
net sales for the nine months ended November 24, 2001, as compared to
$71,159 or 14.2% of net sales in the comparable period in the prior year.
The $10,278 year over year increase in selling, general and administrative
expenses resulted from $14,822 of such costs related to recent acquisitions,
offset by $7,513 of current year cost reductions in the Company's
operations, exclusive of the acquisitions. Research, development and
engineering expenses for the current nine-month period were $33,629 or 6.4%
of net sales or $3,634 lower than the prior year of $37,263 or 7.4% of net
sales. The lower level of spending was primarily due to a reduction in the
number of development programs.
Amortization expense for the nine months ended November 24, 2001 was
$19,077 as compared to $17,535 in the prior year. The year over year
increase in amortization expense is due to recent acquisitions. The Company
is assessing the impact of SFAS 142 on its financial position and results of
operations and while it has not completed its assessment, it believes the
recurring impact will be to reduce amortization expense by $10,000 to
$15,000 annually, commencing in its fiscal 2003.
The Company generated operating earnings of $62,807 or 11.9% of net
sales for the nine months ended November 24, 2001, excluding facility
consolidation and acquisition-related expenses of $106,740. This was $2,905
or 4.9% greater than operating earnings of $59,902, which represented 12.0%
of net sales during the comparable period in the prior year.
Interest expense, net was $43,730 for the nine months ended November 24,
2001, or $2,813 greater than interest expense of $40,917 for the comparable
period in the prior year. The increase in interest expense is due to the
larger amount of outstanding debt due to the refinancing of long-term debt
described in Note 6 and the recent acquisitions.
BE AEROSPACE, INC.
Earnings before facility consolidation and acquisition-related expenses,
income taxes and extraordinary item for the nine months ended November 24,
2001 were $19,077, which was $92 or 0.5% greater than pretax earnings in the
prior year of $18,985. Income tax expense for the nine months ended November
24, 2001 was $1,908, as compared to $1,899 in the prior year's comparable
period.
Earnings before facility consolidation and acquisition-related expenses
and extraordinary item were $17,169, or $0.52 per share (diluted) for the
nine months ended November 24, 2001, as compared to $17,086 or $0.67
(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.
The Company reported net loss and net loss per share of $(98,880) and
$(3.08) per share, respectively, for the nine months ended November 24,
2001, as compared to net earnings and net earnings per share of $17,086 and
$0.67 (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, costs
associated with our facility consolidation program, ongoing capital
expenditures and scheduled payments of interest on indebtedness. Our working
capital was $292,206 as of November 24, 2001, as compared to $174,897 as of
February 24, 2001.
At November 24, 2001, our cash and cash equivalents were $135,673, as
compared to $60,271 at February 24, 2001. Cash provided by operating
activities was $40,964 for the nine months ended November 24, 2001.
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 $31,400 of payments
due to us under the terms of the purchase and sale agreement. 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 nine months ended November 24, 2001, we used $265,177 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 $11,022 and $15,399 during the nine months
ended November 24, 2001 and November 25, 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.
On April 17, 2001 we called for redemption our 9 7/8% senior
subordinated notes due 2006. We redeemed the notes at a redemption price
equal to 104.97% 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, 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 November 24, 2001,
indebtedness under the existing bank credit facility consisted of revolving
credit facility outstanding borrowings of $145,000 (bearing interest at
LIBOR plus 1.5%) and letters of credit aggregating approximately $4,700
(bearing interest at LIBOR plus 2.0%, as defined). The bank credit facility,
which requires no principal payments until 2006, was amended on December 14,
2001, to provide additional flexibility in its financial covenants, contains
customary affirmative covenants, negative covenants and conditions of
borrowing, all of which were met as of November 24, 2001. The interest rate
margin on the bank credit facility may increase in the event of certain
changes to the Company's financial leverage ratios.
We believe that the cash flow from operations and the net proceeds of
our recent debt and equity offerings and aggregate cash will provide
adequate funds for our working capital needs, facility consolidation plan,
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 fully determined the full 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, risks associated with our facility consolidation plan,
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 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. The Company has adopted SFAS 141 and applied
its new purchase accounting requirements to the acquisition of M & M
Aerospace.
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 our 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 nine months from the date
of adoption. We are assessing but have not yet determined the impact of SFAS
142 on our financial position and results of operations and while we have
not completed our assessment, we currently believe the recurring impact will
be to reduce amortization expense by $10,000 to $15,000 annually, commencing
in fiscal 2003.
BE AEROSPACE, INC.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets," which addresses the financial
accounting and reporting for the impairment or disposal of long-lived
assets. This statement supercedes SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of" and
will be effective on April 1, 2002. We are assessing the impact, if any,
SFAS No. 144 will have on our consolidated financial statements.
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
substantially reduced their flight schedules, parking or retiring
approximately 15% of their fleets. The airlines have further responded by
decreasing domestic airfares by 19% in October 2001 and 16% in November
2001. As a result of the double-digit decline in both traffic and airfares,
airline revenues for domestic carriers for the fourth quarter of 2001 are
expected to be down at least 30%. In addition, they have announced workforce
reductions aggregating over 100,000 employees. In addition, 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 fully 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.
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
September 11, 2001 terrorist attack and the resolution of the Company's
arbitration against Thales.
BE AEROSPACE, INC.
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, facility closures,
product transition costs, 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
We are exposed to a variety of risks, including foreign currency
fluctuations and changes in interest rates affecting the cost of our
variable-rate debt.
Foreign currency - We have direct operations in Europe that receive
revenues from customers in various currencies and purchase raw materials
and components parts from foreign vendors in various currencies.
Accordingly, we are exposed to transaction gains and losses that could
result from changes in foreign currency exchange rates relative to the
U.S. dollar. The largest foreign currency exposure results from activity
in British pounds and Euros.
From time to time, the Company and its foreign subsidiaries may enter
into foreign currency exchange contracts to manage risk on transactions
conducted in foreign currencies. At November 24, 2001, we had no
outstanding forward currency exchange contracts. We did not enter into
any other derivative financial instruments.
Interest Rates - At November 24, 2001, we had adjustable rate debt of
$145,000 and fixed rate debt of $708,938. The weighted average interest
rate for the adjustable and fixed rate debt was approximately 4.03% and
8.74%, respectively, at November 24, 2001. If interest rates were to
increase by 10% above current rates, the estimated impact on our
financial statements would be to reduce pretax income annually by
approximately $585. We do not engage in transactions to hedge our
exposure to changes in interest rates.
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BE AEROSPACE, INC.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings None.
Item 2. Changes in Securities
In connection with the acquisition of M & M Aerospace, Inc. on
September 14, 2001, pursuant to an Acquisition Agreement dated as of
August 10, 2001, as amended, among BE Aerospace, Inc., a Delaware
Company and the shareholders of M & M Aerospace, Inc., the Company
issued 2,803,738 shares of its Common Stock to the former
shareholders of M & M. The sale of such shares was made in reliance
upon the exemption from registration set forth in Section 4(2) of the
Securities Act relating to sales by an issuer not involving any
public offering. No underwriters were engaged in connection with the
foregoing issuance of securities, and no commissions or discounts
were paid.
Pursuant to the terms of the acquisition agreement, the Company
agreed to register for resale with the Securities and Exchange
Commission the shares of Common Stock issued to the former
shareholders of M & M. A registration statement related to such
shares was declared effective by the Commission as of September 10,
2001.
Item 3. Defaults Upon Senior Securities None.
Item 4. Submission of Matters to a Vote of Security Holders None.
Item 5. Other Information None.
Item 6. Exhibits and Reports
a. Exhibits
Amendment No. 1 to Employment Agreement dated September 14, 2001
between Registrant and Thomas P. McCaffrey.
Amendment No. 1 dated December 14, 2001 to Credit Agreement dated as
of August 21, 2001.
b. Reports
Form 8-K, dated and filed October 24, 2001; includes press release to
announce Cost Reduction Plans, Comments on Earnings Outlook.
Form 8-K dated December 17, 2001, filed December 19, 2001, includes
press release announcing third quarter results.
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: January 7, 2002 By: /s/ Robert J. Khoury
-----------------------------------------
Robert J. Khoury
President and
Chief Executive Officer
Date: January 7, 2002 By: /s/ Thomas P. McCaffrey
----------------------------------------
Thomas P. McCaffrey
Corporate Senior Vice President of
Administration and Chief
Financial Officer