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 March 31, 2005
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[ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). YES[X] NO[ ]
The registrant has one class of common stock, $0.01 par value, of which
57,003,957 shares were outstanding as of May 4, 2005.
1
BE AEROSPACE, INC.
Form 10-Q for the Quarter Ended March 31, 2005
Table of Contents
Page
Part I Financial Information
Item 1. Condensed Consolidated Financial Statements (Unaudited)
a) Condensed Consolidated Balance Sheets
as of March 31, 2005 and December 31, 2004.........................3
b) Condensed Consolidated Statements of Operations for the
Three Months ended March 31, 2005 and March 31, 2004...............4
c) Condensed Consolidated Statements of Cash Flows for the
Three Months ended March 31, 2005 and March 31, 2004...............5
d) Notes to Condensed Consolidated Financial Statements...............6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations............................................11
Item 3. Quantitative and Qualitative Disclosures About Market Risk...........20
Item 4. Controls and Procedures..............................................20
Part II Other Information
Item 1. Legal Proceedings....................................................21
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds..........21
Item 3. Defaults Upon Senior Securities......................................21
Item 4. Submission of Matters to a Vote of Security Holders..................21
Item 5. Other Information....................................................21
Item 6. Exhibits.............................................................21
Signatures...........................................................22
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BE AEROSPACE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Dollars in millions, except share data)
March 31, 2005 December 31, 2004
-------------- -----------------
ASSETS
Current assets:
Cash and cash equivalents $ 63.4 $ 76.3
Accounts receivable - trade, less allowance for doubtful
accounts ($3.0 at March 31, 2005 and $2.8 at December 31, 2004) 107.2 91.6
Inventories, net 215.1 197.8
Other current assets 14.5 13.4
-------- -------
Total current assets 400.2 379.1
Property and equipment, net 98.1 100.2
Goodwill 368.8 370.4
Identifiable intangible assets, net 148.4 151.4
Other assets, net 21.1 23.7
-------- --------
$1,036.6 $1,024.8
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 162.3 $ 152.6
Current maturities of long-term debt 1.5 1.5
-------- --------
Total current liabilities 163.8 154.1
Long-term debt, net of current maturities 678.4 678.6
Other non-current liabilities 8.4 9.3
Commitments, contingencies and off-balance sheet arrangements (Note 4)
Stockholders' equity:
Preferred stock, $0.01 par value; 1.0 million shares
authorized; no shares outstanding -- --
Common stock, $0.01 par value; 100 million shares
authorized; 57.0 million (March 31, 2005) and
56.6 million (December 31, 2004) shares issued
and outstanding 0.6 0.6
Additional paid-in capital 580.7 578.2
Accumulated deficit (400.9) (405.0)
Accumulated other comprehensive income 5.6 9.0
-------- --------
Total stockholders' equity 186.0 182.8
-------- --------
$1,036.6 $1,024.8
======== ========
See accompanying notes to condensed consolidated financial statements.
3
BE AEROSPACE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(Dollars in millions, except per share data)
THREE MONTHS ENDED
------------------------------
March 31, March 31,
2005 2004
--------------- --------------
Net sales $196.5 $175.1
Cost of sales 128.5 121.5
------ ------
Gross profit 68.0 53.6
Operating expenses:
Selling, general and administrative 31.7 28.7
Research, development and engineering 16.4 12.2
------ ------
Total operating expenses 48.1 40.9
------ ------
Operating earnings 19.9 12.7
Interest expense, net 15.1 19.8
------ ------
Earnings (loss) before income taxes 4.8 (7.1)
Income taxes 0.7 0.5
------ ------
Net earnings (loss) $ 4.1 $ (7.6)
====== ======
Net earnings (loss) per common share:
Basic $ 0.07 $(0.21)
====== ======
Diluted $ 0.07 $(0.21)
====== ======
See accompanying notes to condensed consolidated financial statements.
4
BE AEROSPACE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Dollars in millions)
THREE MONTHS ENDED
---------------------------------------------
March 31, March 31,
2005 2004
-------------------- ----------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $ 4.1 $ (7.6)
Adjustments to reconcile net earnings (loss) to net cash flows
(used in) provided by operating activities:
Depreciation and amortization 7.2 6.9
Provision for doubtful accounts 0.2 0.2
Non-cash employee benefit plan contributions 0.7 0.5
Changes in operating assets and liabilities:
Accounts receivable (17.6) (3.0)
Inventories (17.9) (7.1)
Other current assets and other assets 1.2 (3.7)
Payables, accruals and other liabilities 11.1 19.4
------ ------
Net cash flows (used in) provided by operating activities (11.0) 5.6
------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (3.2) (2.7)
Proceeds from sale of property and equipment 0.2 0.2
Other, net -- 0.6
------ ------
Net cash flows used in investing activities (3.0) (1.9)
------ ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuances of common stock 1.8 0.9
Repayment of long-term debt (0.1) --
Proceeds from long-term debt -- 0.1
------ ------
Net cash flows provided by financing activities 1.7 1.0
------ ------
Effect of foreign exchange rate changes on cash and cash equivalents (0.6) 0.2
------ ------
Net (decrease) increase in cash and cash equivalents (12.9) 4.9
Cash and cash equivalents, beginning of period 76.3 147.6
------ ------
Cash and cash equivalents, end of period $ 63.4 $152.5
====== ======
Supplemental disclosures of cash flow information:
Cash paid during period for:
Interest, net $ 10.2 $ 10.3
Income taxes, net $ 0.3 $ --
See accompanying notes to condensed consolidated financial statements.
5
BE AEROSPACE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited - Dollars In Millions, Except Per Share Data)
Note 1. Basis of Presentation
The accompanying condensed consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States of America for interim financial information and are unaudited
pursuant to the rules and regulations of the Securities and Exchange
Commission. Accordingly, they do not include all of the information and
footnotes required by accounting principles generally accepted in the United
States of America for complete financial statements. All adjustments which,
in the opinion of management, are considered necessary for a fair
presentation of the results of operations for the periods shown, are of a
normal recurring nature and have been reflected in the condensed
consolidated financial statements. The results of operations for the periods
presented are not necessarily indicative of the results expected for the
full fiscal year or for any future period. The information included in these
condensed consolidated financial statements should be read in conjunction
with the consolidated financial statements and accompanying notes included
in the BE Aerospace, Inc. (the "Company" or "B/E") Annual Report on Form
10-K for the fiscal year ended December 31, 2004.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts and related disclosures. Actual results could differ from those
estimates. Certain reclassifications have been made for consistent
presentation.
Accounting for Stock-Based Compensation - The Company applies Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees",
and related interpretations in accounting for its stock option and stock
purchase plans. Accordingly, no compensation cost has been recognized for
its stock option and stock purchase plans. If the compensation cost for the
Company's stock option and stock purchase plans had been determined
consistent with Statement of Financial Accounting Standards ("SFAS")
No. 123, "Accounting for Stock-Based Compensation," the Company's net
earnings (loss) and net earnings (loss) per share for the three months ended
March 31, 2005 and 2004, respectively, would have been the pro forma amounts
indicated in the following table:
THREE MONTHS ENDED
-------------------------------
March 31, March 31,
2005 2004
--------------- ---------------
Net earnings (loss) as reported $ 4.1 $ (7.6)
Less: Expense per SFAS No. 123,
fair value method, net of
related tax effects 1.4 2.4
----- ------
Pro forma net earnings (loss) $ 2.7 $(10.0)
===== ======
Basic net earnings (loss) per share:
As reported $0.07 $(0.21)
===== ======
Pro forma $0.05 $(0.27)
===== ======
Diluted net earnings (loss) per share:
As reported $0.07 $(0.21)
===== ======
Pro forma $0.05 $(0.27)
===== ======
6
BE AEROSPACE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited - Dollars In Millions, Except Per Share Data)
Note 2. Goodwill and Intangible Assets
In accordance with SFAS No. 142, "Goodwill and Other Intangible Assets,"
the Company has completed the fair value analysis for goodwill and other
intangible assets as of December 31, 2004, and concluded that no impairment
existed. As of March 31, 2005, the Company believed that no indicators of
impairment existed. Aggregate amortization expense on identifiable
intangible assets was approximately $2.4 and $2.3 for the three months ended
March 31, 2005 and 2004, respectively. Amortization expense is expected to
be approximately $10.0 in each of the next five fiscal years.
Changes to the original cost basis of goodwill during the three months
ended March 31, 2005 were due to foreign currency fluctuations.
Commercial Business
Aircraft Distribution Jet Total
------------------- -------------------- -------------------- --------------------
Balance as of December 31, 2004 $174.1 $108.2 $88.1 $370.4
Effect of foreign currency translation (1.5) (0.1) -- (1.6)
------ ------ ----- ------
Balance as of March 31, 2005 $172.6 $108.1 $88.1 $368.8
====== ====== ===== ======
The following sets forth the intangible assets by major asset class, all
of which were acquired during acquisition transactions:
March 31, 2005 December 31, 2004
--------------------------------------- --------------------------------------
Net Net
Useful Life Original Accumulated Book Original Accumulated Book
(Years) Cost Amortization Value Cost Amortization Value
------------- ---------- --------------- ------------ ------------ -------------- ----------
Acquired technologies 4-30 $ 93.8 $21.3 $ 72.5 $ 94.1 $20.6 $ 73.5
Trademarks and patents 7-30 27.3 12.5 14.8 27.7 12.3 15.4
Trademarks (nonamortizing) -- 20.6 -- 20.6 20.6 -- 20.6
Technical qualifications,
plans and drawings 3-30 31.3 15.9 15.4 31.4 15.7 15.7
Replacement parts annuity
and product approvals 3-30 41.9 24.2 17.7 42.2 23.9 18.3
Covenants not to compete and
other identified intangibles 3-10 20.8 13.4 7.4 20.9 13.0 7.9
------ ----- ------ ------ ----- ------
$235.7 $87.3 $148.4 $236.9 $85.5 $151.4
====== ===== ====== ====== ===== ======
Note 3. Long-Term Debt
The Company's $50.0 credit facility with JPMorgan Chase Bank (the "Amended
Bank Credit Facility") has no maintenance financial covenants other than an
Interest Coverage Ratio (as defined in the Amended Bank Credit Facility) that
must be maintained at levels equal to or greater than 1.15:1 for the trailing
12-month period. The Amended Bank Credit Facility, which expires in February
2007, is collateralized by substantially all of the Company's assets and
contains customary affirmative covenants, negative covenants and conditions
precedent for borrowings, all of which were met as of March 31, 2005.
At March 31, 2005, indebtedness under the Amended Bank Credit Facility
consisted of letters of credit aggregating approximately $11.6. The Amended Bank
Credit Facility bears interest ranging from 250 to 400 basis points over the
Eurodollar rate (which, as of March 31, 2005, was approximately 7.2%). The
amount available for borrowing under the Amended Bank Credit Facility was $38.4
as of March 31, 2005.
7
BE AEROSPACE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited - Dollars In Millions, Except Per Share Data)
Long-term debt consists principally of the 8 1/2% senior notes, 8 7/8%
senior subordinated notes and 8% senior subordinated notes. The $175 8 1/2%
senior notes mature on October 1, 2010, the $250 8% notes mature on March 1,
2008, and the $250 8 7/8% notes mature on May 1, 2011. The senior
subordinated notes are unsecured senior subordinated obligations and are
subordinated to all senior indebtedness. The senior notes are unsecured
obligations and are senior to all subordinated indebtedness, but subordinate
to the Amended Bank Credit Facility. Each of the 8 1/2% senior notes, 8%
senior subordinated notes and 8 7/8% senior subordinated notes contains
restrictive covenants, including limitations on future indebtedness,
restricted payments, transactions with affiliates, liens, dividends, mergers
and transfers of assets, all of which were met as of March 31, 2005. A
breach of these covenants, or the covenants under the Company's current
Amended Bank Credit Facility or any future bank credit facility, that
continues beyond any grace period can constitute a default, which can limit
the ability to borrow and can give rise to a right of the lenders to
terminate the applicable facility and/or require immediate repayment of any
outstanding debt.
Note 4. Commitments, Contingencies and Off-Balance Sheet Arrangements
Lease Commitments -- The Company finances its use of certain facilities
and equipment under committed lease arrangements provided by various
institutions. Since the terms of these arrangements meet the accounting
definition of operating lease arrangements, the aggregate sum of future
minimum lease payments is not reflected on the consolidated balance sheet.
At March 31, 2005, future minimum lease payments under these arrangements,
the majority of which related to the long-term real estate leases, totaled
approximately $87.5.
Indemnities, Commitments and Guarantees -- During its normal course of
business, the Company has made certain indemnities, commitments and
guarantees under which it may be required to make payments in relation to
certain transactions. These indemnities include non-infringement of patents
and intellectual property indemnities to the Company's customers in
connection with the delivery, design, manufacture and sale of its products,
indemnities to various lessors in connection with facility leases for
certain claims arising from such facility or lease, and indemnities to other
parties to certain acquisition agreements. The duration of these
indemnities, commitments and guarantees varies, and in certain cases is
indefinite. The Company believes that substantially all of these
indemnities, commitments and guarantees provide for limitations on the
maximum potential future payments the Company could be obligated to make.
However, the Company is unable to estimate the maximum amount of liability
related to its indemnities, commitments and guarantees because such
liabilities are contingent upon the occurrence of events which are not
reasonably determinable. Management believes that any liability for these
indemnities, commitments and guarantees would not be material to the
accompanying condensed consolidated financial statements. Accordingly, no
expenses have been accrued for indemnities, commitments and guarantees.
Product Warranty Costs - Estimated costs related to product warranties
are accrued at the time products are sold. In estimating its future warranty
obligations, the Company considers various relevant factors, including the
Company's stated warranty policies and practices, the historical frequency
of claims and the cost to replace or repair its products under warranty. The
following table provides a reconciliation of the activity related to the
Company's accrued warranty expense:
THREE MONTHS ENDED
-----------------------------
March 31, March 31,
2005 2004
------------ ------------
Beginning balance $13.2 $11.9
Charges to costs and expenses 1.9 2.2
Costs incurred (3.2) (2.1)
------------ ------------
Ending balance $11.9 $12.0
============ ============
8
BE AEROSPACE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited - Dollars In Millions, Except Per Share Data)
Note 5. Segment Reporting
The Company is organized based on the products and services it offers.
Under this organizational structure, the Company has three reportable
segments: Commercial Aircraft, Distribution and Business Jet. The Company's
Commercial Aircraft segment consists of eight principal operating units
while the Distribution and Business Jet segments consist of one and two
principal operating units, respectively. Such operating units have been
aggregated for segment reporting purposes due to their similar nature. The
Company evaluates segment performance based on segment operating earnings or
loss.
Each segment reports its results of operations 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 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 customers.
The following table presents net sales and other financial information
by business segment:
THREE MONTHS ENDED
---------------------------------
March 31, March 31,
2005 2004
-------------- --------------
Net sales
Commercial Aircraft $127.6 $126.2
Distribution 43.0 33.8
Business Jet 25.9 15.1
-------------- --------------
$196.5 $175.1
============== ==============
Operating earnings (loss)
Commercial Aircraft $ 9.0 $ 8.4
Distribution 8.8 6.3
Business Jet 2.1 (2.0)
-------------- --------------
$ 19.9 $ 12.7
============== ==============
Note 6. Net Earnings (Loss) Per Common Share
Basic net earnings (loss) per common share is computed using the
weighted average common shares outstanding during the period. Diluted net
earnings (loss) 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
-------------------------------
March 31, March 31,
2005 2004
--------------- ---------------
Net earnings (loss) $ 4.1 $(7.6)
Basic weighted average common shares 56.8 36.9
Effect of dilutive stock options and stock purchases
under the employee stock purchase plan 2.6 --
----- -----
Diluted weighted average common shares 59.4 36.9
===== =====
Basic and diluted net earnings (loss) per share $0.07 $(0.21)
===== ======
The Company excluded potentially dilutive securities of 0.8 shares from
the calculation of loss per share for the three months ended March 31, 2004
as the effect of including these securities would be anti-dilutive.
9
BE AEROSPACE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited - Dollars In Millions, Except Per Share Data)
Note 7. 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 (loss) 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
----------------------------------
March 31, March 31,
2005 2004
----------------- ----------------
Net earnings (loss) $ 4.1 $(7.6)
Other comprehensive earnings (loss):
Foreign exchange translation adjustment (3.4) 1.2
----- -----
Comprehensive earnings (loss) $ 0.7 $(6.4)
===== =====
Note 8. Recent Accounting Pronouncements
In December 2004, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 123 (Revised 2004) "Share-Based Payment" ("SFAS 123R"). The Securities
and Exchange Commission has ruled that SFAS No. 123R is now effective for
publicly-traded companies for annual, rather than interim, periods that begin
after June 15, 2005. SFAS 123R sets accounting requirements for share-based
compensation to employees, requires companies to recognize in the income
statement the grant-date fair value of stock options and other equity-based
compensation issued to employees and disallows the use of the intrinsic value
method of accounting for stock compensation. The Company is currently evaluating
the impact that this statement will have on its results of operations.
In November 2004, the FASB issued SFAS No. 151, "Inventory Costs" ("SFAS
151"), which requires abnormal amounts of inventory costs related to idle
facility, freight handling and wasted material expenses to be recognized as
current period charges. Additionally, SFAS 151 requires that allocation of fixed
production overheads to the costs of conversion be based on the normal capacity
of the production facilities. The standard is effective for fiscal years
beginning after June 15, 2005. The Company believes the adoption of SFAS 151
will not have a material impact on its consolidated financial statements.
[Remainder of page intentionally left blank]
10
BE AEROSPACE, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Dollars In Millions, Except Per Share Data)
OVERVIEW
The following discussion and analysis addresses the results of our
operations for the three months ended March 31, 2005, as compared to our
results of operations for the three months ended March 31, 2004. In
addition, the discussion and analysis addresses our liquidity, financial
condition and other matters for these periods.
Based on our experience in the industry, we believe we are the world's
largest manufacturer of cabin interior products for commercial aircraft and
for business jets and a leading aftermarket distributor of aerospace
fasteners. We sell our manufactured products directly to virtually all of
the world's major airlines and airframe manufacturers and a wide variety of
business jet customers. In addition, based on our experience, we believe
that we have achieved leading global market positions in each of our major
product categories, which include:
o commercial aircraft seats, including an extensive line of first class,
business class, tourist class and regional aircraft seats;
o a full line of aircraft food and beverage preparation and storage
equipment, including coffeemakers, water boilers, beverage containers,
refrigerators, freezers, chillers and microwave, high heat convection
and steam ovens;
o both chemical and gaseous aircraft oxygen delivery systems;
o business jet and general aviation interior products, including an
extensive line of executive aircraft seats, direct and indirect
overhead lighting systems, oxygen delivery systems, air valve systems,
high-end furniture and cabinetry; and
o a broad line of aftermarket fasteners, covering over 100,000 stock
keeping units (SKUs).
We also design, develop and manufacture a broad range of cabin interior
structures and provide comprehensive aircraft cabin interior reconfiguration
and passenger-to-freighter conversion engineering services and component
kits.
We conduct our operations through strategic business units that have been
aggregated under three reportable segments: Commercial Aircraft,
Distribution and Business Jet.
Net sales by line of business for the three-month periods ended March 31,
2005 and March 31, 2004 were as follows:
Three Months Ended Three Months Ended
March 31, 2005 March 31, 2004
------------------------------- ---------------------------
Net % of Net % of
Sales Net Sales Sales Net Sales
---------------- -------------- ----------- ---------------
Commercial aircraft $127.6 64.9% $126.2 72.1%
Distribution 43.0 21.9% 33.8 19.3%
Business jet 25.9 13.2% 15.1 8.6%
---------------- -------------- ----------- ---------------
Net sales $196.5 100.0% $175.1 100.0%
================ ============== =========== ===============
11
Net sales by domestic and foreign operations for the three-month periods
ended March 31, 2005 and March 31, 2004 were as follows:
Three Months Ended Three Months Ended
March 31, 2005 March 31, 2004
--------------------- ---------------------
United States $140.3 $117.0
Europe 56.2 58.1
--------------------- ---------------------
Total $196.5 $175.1
===================== =====================
Net sales by geographic segment (based on destination) for the
three-month periods ended March 31, 2005 and March 31, 2004 were as follows:
Three Months Ended Three Months Ended
March 31, 2005 March 31, 2004
--------------------- -------------------
Net % of Net % of
Sales Net Sales Sales Net Sales
--------- ----------- -------- ----------
United States $102.1 52.0% $ 93.4 53.3%
Europe 44.6 22.7% 46.3 26.5%
Asia 40.3 20.5% 28.7 16.4%
Rest of World 9.5 4.8% 6.7 3.8%
-------- ---------- -------- ----------
$196.5 100.0% $ 175.1 100.0%
======== ========== ======== ==========
We have substantially expanded the size, scope and nature of our business
through a number of acquisitions. Since 1989, we have completed 26
acquisitions, including two acquisitions during fiscal 2004, one acquisition
during fiscal 2003 and one acquisition during the transition period ended
December 31, 2002, for an aggregate purchase price of approximately $1
billion, in order to position ourselves as the preferred global supplier to
our customers.
During the period from 1989 to 2000, we integrated the acquired
businesses, closing 17 facilities, reducing our workforce by 3,000 positions
and implementing common information technology platforms and lean
manufacturing initiatives company-wide. This integration effort resulted in
costs and charges totaling approximately $125.
The rapid decline in industry conditions brought about by the terrorist
attacks on September 11, 2001 caused us to implement a facility
consolidation and integration plan designed to re-align our capacity and
cost structure with changed conditions in the airline industry. The facility
consolidation and integration plan included closing five facilities and
reducing workforce by approximately 1,500 employees. We believe these
initiatives will enable us to continue to expand profit margins as industry
conditions and demand continue to improve, strengthen the global business
management focus on our core product categories and more effectively
leverage our resources. The total cost of this program was approximately
$175, including approximately $74 of cash charges.
New product development is a strategic initiative for our company. Our
customers regularly request that we engage in new product development and
enhancement activities. We believe that these activities, if properly
focused and managed, will protect and enhance our leadership position.
Research, development and engineering spending have been approximately 6%-8%
of sales for the past several years, and is expected to remain at
approximately that level for the foreseeable future.
We also believe in providing our businesses with the tools required to
remain competitive. In that regard, we have invested, and will continue to
invest, in property and equipment that enhances our productivity. Over the
past three years, annual capital expenditures ranged from $11-$17. Taking
into consideration our recent capital expenditure investments, current
industry conditions and the recent acquisitions, we expect that annual
capital expenditures will be approximately $17-$20 for the next few years.
12
BE AEROSPACE, INC.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2005, AS COMPARED TO
THE RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2004
(Dollars In Millions, Except Per Share Data)
Sales for each of our segments are set forth in the following table:
NET SALES
------------------------------------------------------------------------------------
Three Months Ended March 31,
------------------------------------------------------------------------------------
Percent
2005 2004 Change Change
------------------- ------------------- -------------------- -----------------------
Commercial aircraft $127.6 $126.2 $ 1.4 1.1%
Distribution 43.0 33.8 9.2 27.2%
Business jet 25.9 15.1 10.8 71.5%
------------------- ------------------- -------------------- -----------------------
Total $196.5 $175.1 $21.4 12.2%
Net sales for the three months ended March 31, 2005 were $196.5, an
increase of $21.4 or 12% as compared to the same period in the prior year.
Sales during the quarter at the commercial aircraft segment of $127.6
were up slightly versus revenues of $126.2 in the same period in the prior
year. The distribution segment delivered strong revenue growth of 27%. The
higher revenues reflect increased levels of products shipped, driven by a
broad based increase in demand for aftermarket fasteners and continued
market share gains. In the business jet segment, revenues increased by 72%.
The higher revenues reflect increased levels of products shipped arising
from the continuing recovery within the business jet industry and initial
shipments of super first class products.
Selling, general and administrative expenses of $31.7, or 16.1% of sales,
were up $3.0 versus the same period in the prior year, reflecting the
substantial year over year revenue increases of the business jet (72%) and
the distribution (27%) segments, acquisitions completed during the second
quarter of 2004 and increased commissions paid.
Research, development and engineering expenses of $16.4, or 8.3% of
sales, were up $4.2 versus the same period in the prior year due to a higher
level of spending associated with customer funded engineering, spending
associated with super first class product offerings, new product development
activities associated with the A380 aircraft, and several new product
initiatives particularly in the commercial aircraft and business jet
segments.
Operating earnings of $19.9, or 10.1% of sales, increased by $7.2, or
57%, on a $21.4, or 12%, increase in revenues. The substantial increase in
operating earnings was driven primarily by significant revenue growth and
margin expansion at the business jet and distribution segments and stronger
margins at the commercial aircraft segment.
The following is a summary of the change in operating earnings by
segment:
OPERATING EARNINGS
---------------------------------------------------------------------------------------
Three Months Ended March 31,
---------------------------------------------------------------------------------------
Percent
2005 2004 Change Change
---------------------- ------------------- ---------------------- ---------------------
Commercial aircraft $ 9.0 $ 8.4 $0.6 7.1%
Distribution 8.8 6.3 2.5 39.7%
Business jet 2.1 (2.0) 4.1 NM
---------------------- ------------------- ---------------------- ---------------------
Total $19.9 $12.7 $7.2 56.7%
The commercial aircraft segment's ("CAS") operating results and order
book continued to improve during the first quarter of 2005. Operating
earnings at CAS for the current quarter were $9.0, or 7.1% of sales,
reflecting a 40 basis point improvement in segment operating margin as
compared to the same quarter of the prior year as a result of an improved
mix of products sold and ongoing manufacturing efficiencies. CAS also
recorded strong orders and a significant increase in backlog during the
quarter.
13
The distribution segment generated record revenues of $43.0, which were
$9.2 or 27% greater than the same period in the prior year based on the
broad based increase in demand for aftermarket fasteners. Operating earnings
at the distribution segment in the current quarter were $8.8, or 20.5% of
sales, an increase of 40% above the same period in the prior year on a 27%
increase in revenues. The operating margin increased by 190 basis points
versus the same period in the prior year due to continuing improvements in
operating efficiency at the higher level of revenues resulting from
increased demand and market share growth.
The business jet segment generated first quarter revenues of $25.9, up
72% over depressed sales of $15.1 in the first quarter of 2004. Operating
earnings at the business jet segment during the quarter of $2.1 were $4.1
greater than the $2.0 operating loss reflected in the same period last year.
The substantial increase in operating earnings reflects both an improving
business jet industry and the initial deliveries of the segment's super
first class products.
Interest expense for the quarter of $15.1 was $4.7 lower than the same
period in the prior year due to the early retirement of $200.0 of senior
subordinated notes during the fourth quarter of 2004.
Income tax expense of $0.7 during the first quarter increased from income
tax expense of $0.5 in the same period in the prior year. Income taxes arise
from earnings of foreign subsidiaries for which no net operating loss
carryforwards are available.
Net earnings for the first quarter were $4.1 or $0.07 per share
(diluted), an $11.7 improvement over the net loss of $(7.6) or ($0.21) per
share in the same period in the prior year.
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14
BE AEROSPACE, INC.
LIQUIDITY AND CAPITAL RESOURCES
Current Financial Condition
Our liquidity requirements consist of working capital needs, ongoing capital
expenditures and payments of interest and principal on our indebtedness. Our
primary requirements for working capital are directly related to the level of
our operations. Working capital primarily consists of accounts receivable and
inventories, which fluctuate with the sales of our products. Our working capital
was $236.4 as of March 31, 2005, as compared to $225.0 as of December 31, 2004.
The increase in working capital from December 31, 2004 to March 31, 2005 was
primarily due to an increased level of accounts receivable related to our recent
revenue growth, a higher level of inventories to support expected further
increases in revenues, offset somewhat by a higher level of accounts payable and
accrued liabilities arising from the higher revenue volume and the timing of
interest payments. We currently have no bank borrowings outstanding and no debt
principal payments due until 2008.
At March 31, 2005, our cash and cash equivalents were $63.4, as compared to
$76.3 at December 31, 2004. The decrease in cash and cash equivalents from
December 31, 2004 to March 31, 2005 was primarily due to an increased level of
accounts receivable related to our recent revenue growth, a higher level of
inventories to support expected further increases in revenues, offset somewhat
by a higher level of accounts payable and accrued liabilities arising from the
higher revenue volume and the timing of interest payments.
Cash Flows
At March 31, 2005, our cash and bank credit available under our Amended Bank
Credit Facility was $101.8 compared to $114.7 at December 31, 2004. Cash used by
operating activities was $11.0 for the three months ended March 31, 2005, as
compared to cash provided by operating activities of $5.6 in the same period in
the prior year. The primary use of cash during the three months ended March 31,
2005 was due to an increased level of accounts receivable related to our recent
revenue growth and a higher level of inventories to support expected further
increases in revenues. This use of cash was offset somewhat by net earnings of
$4.1, non-cash charges of $8.1 primarily related to amortization and
depreciation and a higher level of accounts payable and accrued liabilities
arising from the higher revenue volume and the timing of interest payments.
Capital Spending
Our capital expenditures were $3.2 and $2.7 during the three months ended
March 31, 2005 and 2004, respectively. We anticipate ongoing annual capital
expenditures of approximately $17-$20 for the next several years. We have no
material commitments for capital expenditures. We have, in the past, generally
funded our capital expenditures from cash from operations and funds available to
us under bank credit facilities. We expect to fund future capital expenditures
from cash on hand, from operations and from funds available to us under our
current or any future bank credit facility. In addition, since 1989, we have
completed 26 acquisitions for an aggregate purchase price of approximately $1
billion. Following these acquisitions, we rationalized the businesses, reduced
headcount by approximately 4,500 employees and eliminated 22 facilities. We have
financed these acquisitions primarily through issuances of debt and equity
securities, including our outstanding 8 1/2% senior notes, 8% senior
subordinated notes and 8 7/8% senior subordinated notes and bank credit
facilities.
Outstanding Debt and Other Financing Arrangements
Our $50.0 bank credit facility with JPMorgan Chase Bank ("Amended Bank
Credit Facility") has no maintenance financial covenants, other than maintaining
an Interest Coverage Ratio (as defined) of at least 1.15:1 for the trailing
12-month period. The Amended Bank Credit Facility expires in February 2007, is
collateralized by substantially all of our assets and bears interest at rates
ranging from 250 to 400 basis points over the Eurodollar rate as defined in the
bank credit facility. At March 31, 2005, indebtedness under the Amended Bank
Credit Facility consisted of letters of credit aggregating approximately $11.6.
The amount available under the Amended Bank Credit Facility was $38.4 as of
March 31, 2005. The Amended Bank Credit Facility contains customary affirmative
covenants, negative covenants and conditions of borrowings, all of which were
met as of March 31, 2005.
15
Long-term debt consists principally of our 8 1/2% senior notes, 8 7/8%
senior subordinated notes and 8% senior subordinated notes. The $175 8 1/2%
senior notes mature on October 1, 2010, $250 8% notes mature on March 1, 2008,
and the $250 8 7/8% notes mature on May 1, 2011. The senior subordinated notes
are unsecured senior subordinated obligations and are subordinated to all of our
senior indebtedness. The senior notes are unsecured obligations and are senior
to all of our subordinated indebtedness, but subordinate to our Amended Bank
Credit Facility. Each of the 8 1/2% senior notes, 8% senior subordinated notes
and 8 7/8% senior subordinated notes contains restrictive covenants, including
limitations on future indebtedness, restricted payments, transactions with
affiliates, liens, dividends, mergers and transfers of assets, all of which we
met as of March 31, 2005. A breach of these covenants, or the covenants under
our current or any future bank credit facility, that continues beyond any grace
period can constitute a default, which can limit the ability to borrow and can
give rise to a right of the lenders to terminate the applicable facility and/or
require immediate repayment of any outstanding debt.
Contractual Obligations
During the three month period ended March 31, 2005, there were no material
changes in the contractual obligations specified in our Annual Report on Form
10-K for the fiscal year ended December 31, 2004.
We believe that our cash flows, together with cash on hand and availability
under our Amended Bank Credit Facility, provide us with the ability to fund our
operations, make planned capital expenditures and make scheduled debt service
payments for the foreseeable future. However, such cash flows are dependent upon
our future operating performance, which, in turn, is subject to prevailing
economic conditions and to financial, business and other factors, including the
conditions of our markets, some of which are beyond our control. If, in the
future, we cannot generate sufficient cash from operations to meet our debt
service obligations, we will need to refinance such debt obligations, obtain
additional financing or sell assets. We cannot assure you that our business will
generate cash from operations, or that we will be able to obtain financing from
other sources, sufficient to satisfy our debt service or other requirements.
Off-Balance Sheet Arrangements
Lease Arrangements
We finance our use of certain facilities and equipment under committed lease
arrangements provided by various institutions. Since the terms of these
arrangements meet the accounting definition of operating lease arrangements, the
aggregate sum of future minimum lease payments is not reflected on our
consolidated balance sheet. At March 31, 2005, future minimum lease payments
under these arrangements, the majority of which related to the long-term real
estate leases, was approximately $87.5.
Indemnities, Commitments and Guarantees
During the normal course of business, we made certain indemnities,
commitments and guarantees under which we may be required to make payments in
relation to certain transactions. These indemnities include non-infringement of
patents and intellectual property indemnities to our customers in connection
with the delivery, design, manufacture and sale of our products, indemnities to
various lessors in connection with facility leases for certain claims arising
from such facility or lease, and indemnities to other parties to certain
acquisition agreements. The duration of these indemnities, commitments and
guarantees varies, and in certain cases is indefinite. We believe that
substantially all of our indemnities, commitments and guarantees provide for
limitations on the maximum potential future payments we could be obligated to
make. However, we are unable to estimate the maximum amount of liability related
to our indemnities, commitments and guarantees because such liabilities are
contingent upon the occurrence of events which are not reasonably determinable.
Management believes that any liability for these indemnities, commitments and
guarantees would not be material to our accompanying condensed consolidated
financial statements. Accordingly, no expenses have been accrued for
indemnities, commitments and guarantees.
16
Product Warranty Costs
For discussion of Product Warranty Costs, refer to Note 4 of Part 1, Item 1,
of this report.
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 we 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, 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.
RECENT ACCOUNTING PRONOUNCEMENTS
For discussion of Recent Accounting Pronouncements, refer to Note 8 of
Part 1, Item 1, of this report.
CRITICAL ACCOUNTING POLICIES
The discussion and analysis of our financial condition and results of
operations is based upon our consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States of America. The preparation of these financial statements requires
us to make estimates and judgments that affect the reported amount of assets and
liabilities, revenues and expenses, and related disclosure of contingent assets
and liabilities at the date of our financial statements. Actual results may
differ from these estimates under different assumptions or conditions.
Critical accounting policies are defined as those that are reflective of
significant judgments and uncertainties, and potentially result in materially
different results under different assumptions and conditions. We believe that
our critical accounting policies are limited to those described below. For a
detailed discussion on the application of these and other accounting policies,
see Note 1 in the Notes to the Consolidated Financial Statements included in our
Annual Report on Form 10-K for the fiscal year ended December 31, 2004.
Revenue Recognition
Sales of products are recorded when the earnings process is complete. This
generally occurs when the products are shipped to the customer in accordance
with the contract or purchase order, risk of loss and title has passed to the
customer, collectibility is reasonably assured and pricing is fixed and
determinable. In instances where title does not pass to the customer upon
shipment, we recognize revenue upon delivery or customer acceptance, depending
on the terms of the sales contract.
Service revenues primarily consist of engineering activities and are
recorded when services are performed.
Historically, revenues and costs under certain long-term contracts are
recognized using contract accounting under the percentage-of-completion method.
The percentage-of-completion method requires the use of estimates of costs to
complete long-term contracts. The estimation of these costs requires judgment on
the part of management due to the duration of these contracts as well as the
technical nature of the products involved. Adjustments to these estimated costs
are made on a consistent basis. A provision for contract losses is recorded when
such facts are determinable. Revenues recognized under contract accounting
during the three months ended March 31, 2005 and 2004 were not significant to
our financial statements.
We sell our products primarily to airlines and aircraft manufacturers
worldwide, including occasional sales collateralized by letters of credit. We
apply judgment to ensure that the criteria for recognizing sales are
consistently applied and achieved for all recognized sales transactions.
17
Accounts Receivable
We perform ongoing credit evaluations of our customers and adjust credit
limits based upon payment history and the customer's current creditworthiness,
as determined by our review of their current credit information. We continuously
monitor collections and payments from our customers and maintain an allowance
for estimated credit losses based upon our historical experience and any
specific customer collection issues that we have identified. If the actual
uncollected amounts significantly exceed the estimated allowance, our operating
results would be significantly adversely affected. While such credit losses have
historically been within our expectations and the provisions established, we
cannot guarantee that we will continue to experience the same credit loss rates
that we have in the past.
Inventories
We value our inventories at the lower of cost to purchase or manufacture the
inventory or the current estimated market value of the inventory. Cost is
determined using the standard cost method for our manufacturing businesses and
the weighted average cost method for our distribution businesses. The inventory
balance, which includes the cost of raw material, purchased parts, manufactured
parts, labor and production overhead costs, is recorded net of a reserve for
excess, obsolete or unmarketable inventories. We regularly review inventory
quantities on hand and record a reserve for excess and obsolete inventories
based primarily on historical usage and on our estimated forecast of product
demand and production requirements. As demonstrated since the events of
September 11, 2001, demand for our products can fluctuate significantly. Our
estimates of future product demand may prove to be inaccurate, in which case we
may have understated or overstated the provision required for excess and
obsolete inventories. In the future, if our inventories are determined to be
overvalued, we would be required to recognize such costs in our cost of goods
sold at the time of such determination. Likewise, if our inventories are
determined to be undervalued, we may have over-reported our costs of goods sold
in previous periods and would be required to recognize such additional operating
income at the time of sale.
Long-Lived Assets (including Tangible and Intangible Assets and Goodwill)
To conduct our global business operations and execute our strategy, we
acquire tangible and intangible assets, which affect the amount of future period
amortization expense and possible impairment expense that we may incur. The
determination of the value of such intangible assets requires management to make
estimates and assumptions that affect our consolidated financial statements. We
assess potential impairment to goodwill of a reporting unit and other intangible
assets on an annual basis or when there is evidence that events or changes in
circumstances indicate that the carrying amount of an asset may not be
recovered. Our judgment regarding the existence of impairment indicators and
future cash flows related to intangible assets are based on operational
performance of our acquired businesses, expected changes in the global economy,
aerospace industry projections, discount rates and other factors. Future events
could cause us to conclude that impairment indicators exist and that goodwill or
other acquired tangible or intangible assets associated with our acquired
businesses is impaired. Any resulting impairment loss could have an adverse
impact on our results of operations.
Accounting for Income Taxes
As part of the process of preparing our consolidated financial statements we
are required to estimate our income taxes in each of the jurisdictions in which
we operate. This process involves us estimating our actual current tax exposure
together with assessing temporary differences resulting from differing treatment
of items, such as deferred revenue, for tax and accounting purposes. These
differences result in deferred tax assets and liabilities, which are included
within our consolidated balance sheets. We must then assess the likelihood that
our deferred tax assets will be recovered from future taxable income, and to the
extent we believe that recovery is not likely, we must establish a valuation
allowance. To the extent we establish a valuation allowance or increase this
allowance in a period, we must include an expense within the tax provision in
the consolidated statements of operations.
18
Significant management judgment is required in determining our provision for
income taxes, our deferred tax assets and liabilities and any valuation
allowance recorded against our net deferred tax assets. We have recorded a full
valuation allowance of $129.3 as of March 31, 2005, due to uncertainties related
to our ability to utilize some of our deferred tax assets, primarily consisting
of certain net operating income losses carried forward, before they expire. The
valuation allowance is based on our estimates of taxable income by jurisdictions
in which we operate and the period over which our deferred tax assets will be
recoverable. In the event that actual results differ from these estimates or we
revise these estimates in future periods we may need to adjust the valuation
allowance which could materially impact our financial position and results of
operations.
DEPENDENCE UPON CONDITIONS IN THE AIRLINE INDUSTRY
The September 11, 2001 terrorist attacks severely impacted conditions in the
airline industry. According to industry sources, in the aftermath of the attacks
most major U.S. carriers and a number of international carriers substantially
reduced their flight schedules, parked or retired portions of their fleets,
reduced their workforces and implemented other cost reduction initiatives. U.S.
airlines further responded by decreasing domestic airfares. As a result of the
decline in both traffic and airfares following the September 11, 2001 terrorist
attacks, and their aftermath, as well as other factors, such as increases in
fuel costs and heightened competition from low-cost carriers, the world airline
industry lost a total of $35 billion in calendar years 2002 - 2004, including $5
billion in 2004. The airline industry crisis also caused 17 airlines worldwide
to declare bankruptcy or cease operations in the past three years.
The business jet industry has also been experiencing a severe downturn,
driven by weak economic conditions and poor corporate profits. During 2003,
three business jet manufacturers reduced or temporarily halted production of a
number of aircraft types. While deliveries of new business jets increased in
2004 as compared to 2003, deliveries were down 33% during 2003, as compared to
2001. Business jet deliveries are expected to slowly increase over the next
several years, reaching 712 by 2007. The rate at which the business jet industry
recovers is dependent on corporate profits, the number of used jets on the
market and other factors which could slow the rate of recovery.
As a result of the foregoing factors, the airlines have been seeking to
conserve cash in part by deferring or eliminating cabin interior refurbishment
programs and deferring or canceling aircraft purchases. This, together with the
reduction of new business jet production, caused a substantial contraction in
our business during the period from 2001 through 2003. Although the global
airline industry began to recover in late 2003 and our industry continues to be
in the early stages of a recovery, additional events similar to those above
could delay any sustained recovery in the industry. While management has
developed and implemented what it believes is an aggressive cost reduction plan
to counter these difficult conditions, it cannot guarantee that the plans are
adequate or will be successful.
FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934, including statements regarding implementation and expected
benefits of lean manufacturing and continuous improvement programs, our dealings
with customers and partners, the consolidation of facilities, reduction of our
workforce, integration of acquired businesses, ongoing capital expenditures, the
impact of the large number of indefinitely grounded aircraft on demand for our
products and our underlying assets, the adequacy of funds to meet our capital
requirements, the ability to refinance our indebtedness, if necessary, the
reduction of debt, the potential impact of new accounting pronouncements and the
impact on our business from the September 11, 2001 terrorist attacks, the SARS
outbreak and war in Iraq. These forward-looking statements include risks and
uncertainties, and our actual experience may differ materially from that
anticipated in such statements. Factors that might cause such a difference
include those discussed in our filings with the Securities and Exchange
Commission, including our most recent proxy statement and Form 10-K, as well as
future events that may have the effect of reducing our available operating
income and cash balances, such as unexpected operating losses, the impact of
rising fuel prices on our airline customers, outbreaks or escalations of
national or international hostilities, terrorist attacks, prolonged health
issues which reduce air travel demand (e.g. SARS), delays in, or unexpected
costs associated with, the integration of our acquired or recently consolidated
businesses, conditions in the airline industry, changing conditions in the
business jet industry, problems meeting customer delivery requirements, our
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.
19
BE AEROSPACE, INC.
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 primarily in U.S. dollars and purchase raw
materials and component parts from foreign vendors primarily in British
pounds or euros. Accordingly, we are exposed to transaction gains and
losses that could result from fluctuations 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, we and our foreign subsidiaries may enter into foreign
currency exchange contracts to manage risk on transactions conducted in
foreign currencies. At March 31, 2005, we had no outstanding forward
currency exchange contracts. We did not enter into any other derivative
financial instruments.
Interest rates - At March 31, 2005, we had no adjustable rate debt and
fixed rate debt of $679.9. The weighted average interest rate for the
fixed rate debt was approximately 8.5% at March 31, 2005. If interest
rates were to increase by 10% above current rates, there would be no
impact on our financial statements due to the absence of variable rate
debt. We do not engage in transactions to hedge our exposure to changes
in interest rates.
As of March 31, 2005, we maintained a portfolio of securities
consisting mainly of taxable, interest-bearing deposits with weighted
average maturities of less than three months. If short-term interest
rates were to increase or decrease by 10%, we estimate interest income
would increase or decrease by approximately $0.2.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Our principal executive officer and our principal financial officer,
after evaluating, together with management, the effectiveness of the
design and operation of our disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of March 31,
2005, the end of the period covered by this report, have concluded that,
as of such date, our disclosure controls and procedures were adequate and
effective to ensure that material information relating to our company and
our consolidated subsidiaries would be made known to them by others
within those entities.
Internal Control over Financial Reporting
There were no changes in our company's internal control over financial
reporting that occurred during the first quarter of 2005 that have
materially affected, or are reasonably likely to materially affect, our
company's internal control over financial reporting.
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20
BE AEROSPACE, INC.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings Not applicable.
Item 2. Unregistered Sales of Equity Securities and
Use of Proceeds Not applicable.
Item 3. Defaults Upon Senior Securities Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders Not applicable.
Item 5. Other Information Not applicable.
Item 6. Exhibits
Exhibit 31 Rule 13a-14(a)/15d-14(a) Certifications
31.1 Certification of Chief Executive Officer*
31.2 Certification of Chief Financial Officer*
Exhibit 32 Section 1350 Certifications
32.1 Certification of Chief Executive Officer pursuant
to 18 U.S.C. Section 1350*
32.2 Certification of Chief Financial Officer pursuant
to 18 U.S.C. Section 1350*
- ---------------
*Filed herewith.
21
BE AEROSPACE, INC.
SIGNATURES
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: May 5, 2005 By: /s/ Robert J. Khoury
--------------------
Robert J. Khoury
President and
Chief Executive Officer
Date: May 5, 2005 By: /s/ Thomas P. McCaffrey
-----------------------
Thomas P. McCaffrey
Senior Vice President of
Administration and Chief Financial Officer
22