FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended February 24, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission File No. 0-18348
BE AEROSPACE, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
06-1209796
(I.R.S. Employer Identification No.)
1400 Corporate Center Way, Wellington, Florida
(Address of principal executive offices) 33414
(Zip Code)
(407) 791-5000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g)of the Act:
Common Stock, $.01 Par Value
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Act 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 if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of the registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K.[ ]
The aggregate market value of the registrant's voting stock held by
non-affiliates was approximately $258,539,424 on May 17, 1996 based on the
closing sales price of the registrant's Common Stock as reported on the
Nasdaq National Market as of such date.
The number of shares of the registrant's Common Stock, $.01 par value,
outstanding as of May 17, 1996 was 16,518,714 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Those sections of the Registrant's Proxy Statement to be filed with the
Commission in connection with its 1996 Annual Meeting of Stockholders to be
held on July 23, 1996, described in Part III hereof, are incorporated by
reference in this report.
INDEX
PART I
Item 1. Business...........................................................3
Item 2. Properties........................................................13
Item 3. Legal Proceedings.................................................16
Item 4. Submission of Matters to a Vote of Security Holders...............16
Executive Officers of the Registrant..............................17
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters...........................................................20
Item 6. Selected Financial Data...........................................21
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.............................................23
Item 8. Financial Statements and Supplementary Data.......................29
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure..............................................29
PART III
Item. 10 Directors and Executive Officers of the Registrant................30
Item 11. Executive Compensation............................................30
Item 12. Security Ownership of Certain Beneficial Owners and Management....30
Item 13. Certain Relationships and Related Transactions....................30
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K..30
Index to Consolidated Financial Statements and Schedule..........F-1
PART I
ITEM 1. BUSINESS.
Introduction
BE Aerospace is the world's largest supplier of commercial aircraft
cabin interior products, serving virtually all major airlines with a broad
line of products including aircraft seats, galley products and structures and
individual passenger inflight entertainment systems. In addition, BEA
provides upgrade, maintenance and repair services for the interior products
it supplies, as well as for those supplied by other manufacturers. The
Company was incorporated in 1987 and has acquired nine businesses since that
time, including Burns Aerospace Corporation ("Burns") which was acquired in
January 1996. (See Note 3 to BEA's Consolidated Financial Statements).
BEA is the largest supplier of airline seats in the world, offering an
extensive line of first class, business class, tourist class and commuter
seats, with a market share of approximately 50% of the worldwide seating
market based on fiscal 1996 unit sales. The Company is also the world's
largest supplier of galley products, offering complete galley systems for
both narrow and wide body aircraft. In addition, the Company is a leading
supplier of passenger entertainment and service systems (PESS) . Recently,
the Company has introduced a state-of-the-art, fully interactive individual
passenger inflight entertainment system which has the capacity to offer
numerous movies on demand, telecommunications, gaming, Nintendo, Sega and
PC-based games, inflight shopping and, in the future, live television, among
other services.
BEA's substantial installed base provides significant ongoing revenues
from replacements, repairs and spare parts. These revenues, along with its
position as a low cost producer, enabled BEA to maintain its operating
profitability during the several-year period prior to 1994, despite one of
the most serious economic downturns ever suffered by the airline industry.
During this period, airlines sought to conserve cash by reducing or deferring
scheduled cabin interior refurbishment and upgrade programs and purchases of
new aircraft. Since early 1994, the airlines have experienced a significant
turnaround in operating results, with the domestic airline industry achieving
record operating earnings during calendar 1995. The airline cabin interior
products industry business cycle, however, generally lags that of the
commercial airlines because of the airlines' practice of gradually
implementing refurbishment and replacement programs. Consequently, only
during the past year has BEA begun to experience growth in its backlog of
seating and galley products, representing the first time in over two years
that BEA has seen growth of new seating orders in excess of shipments. The
Company believes that it is well positioned to benefit from the growth in
airline profitability.
During fiscal year 1996, the Company derived approximately 51% of its
revenues from retrofit, refurbishment and spare parts sales and services,
with the balance derived from products for installation on newly delivered
aircraft as well as a complete line of food and beverage preparation and
storage equipment including constant pressure steamer ovens, conventional
ovens, beverage makers, water boilers, ovens, liquid containers,
refrigeration equipment and other galley components. In addition, the Company
has become an active participant in the upgrade, maintenance, inspection and
repair services market, providing these services to the airlines for cabin
interior products supplied both by the Company and by other manufacturers.
The Company provides these services either at the airport on an overnight or
between scheduled flights basis or at six service centers currently
maintained by the Company.
The Company has become the world's leading manufacturer of commercial
aircraft cabin interior products through the strategic acquisitions of
seating, PESS and galley products businesses. The Company was incorporated in
July 1987 to acquire the assets of Bach Engineering, Inc., which was engaged
exclusively in the assembly and sale of PESS. In August 1989, the Company
acquired the assets of EECO Avionics, a division of EECO Incorporated, which
was also engaged exclusively in the assembly and sale of PESS. In February
1992, the Company acquired from The Pullman Company certain assets and
liabilities of PTC Aerospace, Inc. ("PTC"), a leading manufacturer of
commercial aircraft seating products, and Aircraft Products Company ("APC"),
a significant manufacturer of galley structures and beverage makers. In April
1992, the Company acquired the stock of Flight Equipment and Engineering
Limited ("FEEL"), the largest manufacturer of commercial aircraft seating
products in the United Kingdom. (The acquisitions of PTC, APC and FEEL are
collectively referred to as the "1993 Acquisitions.") In April 1993, through
a Dutch holding company, the Company acquired all of the capital stock of
Royal Inventum B.V. ("Inventum"), a manufacturer of ovens, beverage
makers and water boilers, selling to airlines located primarily in Europe and
the Pacific Rim. In August 1993, the Company acquired Acurex Corporation
("Acurex"), the leading supplier of commercial aircraft mechanical
refrigeration products, and Nordskog Industries, Inc. ("Nordskog"), an
industry pioneer in the galley structures and equipment business. In October
1993, the Company acquired substantially all of the assets and certain
liabilities of Philips Airvision ("Airvision"), a division of Philips
Electronics North America Corporation, which manufactures audio/video
in-flight entertainment equipment. (The acquisitions of Inventum, Acurex,
Nordskog and Airvision are collectively referred to as the "1994
Acquisitions"). In January 1996, the Company acquired Burns, a wholly owned
subsidiary of Eagle Industries, Inc. ("the 1996 Acquisition").
INDUSTRY OVERVIEW
The commercial aircraft cabin interior products industry encompasses a
broad range of products and services, including not only aircraft seating
products, passenger entertainment and service systems, and food and beverage
preparation and storage systems, but also lavatories, lighting systems,
evacuation equipment and overhead bins. Management estimates that the
industry had annual sales in excess of one billion dollars during fiscal
1996.
Historically, revenues in the cabin interior products industry have been
derived from five sources: (i) new installation programs in which airlines
purchase new equipment to outfit a newly delivered aircraft; (ii) retrofit
programs in which airlines purchase new components to overhaul the interiors
of aircraft already in service; (iii) refurbishment programs in which
airlines purchase components and services to improve the appearance and
functionality of certain cabin interior equipment; (iv) spare parts; and (v)
technology upgrades. The retrofit and refurbishment cycles for commercial
aircraft cabin interior products differ by product category. Aircraft seating
typically has a refurbishment cycle of one to two years and a retrofit cycle
of seven to eight years, although in recent years these periods have tended
to be extended. See "--Recent Industry Conditions." Galley structures and
products are periodically upgraded or repaired, and require a continual flow
of spare parts, but may be retrofitted only once or twice during the life of
the aircraft.
The various product categories currently manufactured by the Company
include:
AIRCRAFT SEATS. This is the largest single product category in the
industry and includes first class, business class, tourist class and
commuter seats. Prices range from $1,200 to $10,000 per seat. Management
estimates that the aggregate size of the worldwide aircraft seat market
(including spare parts) during fiscal 1996, which still reflected
depressed economic conditions stemming from the recent airline industry
downturn, was in excess of $410 million, and has ranged as high as
approximately $510 million in the past five years. Approximately 14
companies worldwide, including the Company,supply aircraft seats,
although the Company and two other competitors share approximately 90%
of the market.
PASSENGER ENTERTAINMENT AND SERVICE SYSTEMS. This product category
includes individual seat video systems, overhead video projection systems,
audio distribution systems, passenger control units ("PCUs") and related
wiring and harness assemblies and sophisticated interactive
telecommunications and entertainment systems. Individual passenger inflight
entertainment systems currently range in price from approximately $2,500
to $7,000 per seat. Prices for PCUs range from $18,000 to $115,000 per
aircraft. Management estimates that the aggregate size of the worldwide
PESS market was approximately $265 million during fiscal 1996. Industry
sources expect the PESS market to increase substantially in the near term
as individual passenger entertainment systems become common inflight
entertainment equipment in first, business and tourist classes on wide
body, and with the advent of live broadcast inflight television, many
narrow body aircraft. PESS products are currently supplied by
approximately five companies worldwide, including the Company.
GALLEY PRODUCTS. This product category includes complete galley systems
for both narrow and wide body aircraft, including a wide selection of
coffee and beverage makers, water boilers, ovens, liquid containers, air
chillers, wine coolers and other refrigeration equipment and other galley
components. Prices for coffee makers and ovens range from $3,000 to
$10,000. Prices for aircraft refrigeration products range from $13,000 to
$28,000. Prices for complete aircraft galley systems range from $120,000
for narrow body aircraft to $1,000,000 for wide body aircraft. Management
estimates that the aggregate size of the worldwide galley products market
during fiscal 1996 was $259 million and has ranged as high as
approximately $300 million during the past five years. Sales of galley
products tend to correlate closely with deliveries of new aircraft to the
airlines. Approximately 38 companies worldwide, including BEA, supply
galley equipment to the airline industry.
The Company operates in the commercial aircraft cabin interior products
segment of the commercial airlines supplier industry. Revenues for similar
classes of products or services within this business segment for the three
most recent years are presented below:
Fiscal Year
1996 1995 1994
---- ---- ----
(Dollars in Millions)
Seating Products $ 97 $100 $ 99
Galley Products 79 81 59
Passenger Entertainment and Service Systems 33 34 36
Services 23 14 9
Recent Industry Conditions
The Company's principal customers are the world's commercial airlines.
As a result, the Company's business is directly dependent upon the conditions
in the comercial airline industry. The airlines, particularly the U.S.
carriers, incurred record losses during the three-year period ended December
31, 1993. The losses incurred during the downturn seriously impaired airline
balance sheets and negatively influenced airline purchasing decisions with
respect to both new aircraft and refurbishment programs. The domestic
airlines in large part returned to profitable operations during calendar 1994
and recorded record profits of $5.5 billion in calendar 1995 and have
restored their balance sheets through cash generated from operations and debt
and equity placements. Further, in the first calendar quarter of 1995 the
airframe manufacturers began receiving a significant increase in new aircraft
orders. Among those factors expected to affect the cabin interior products
industry are the following:
LARGE EXISTING INSTALLED BASE. According to the Current Market Outlook
published by the Boeing Commercial Airplane Group in 1996 (the "Boeing
Report"), the world commercial passenger aircraft fleet, as of the end of
calendar 1995, consisted of 11,066 aircraft, including 3,281 aircraft with
fewer than 120 seats, 4,930 aircraft with between 120 and 240 seats and
2,855 aircraft with more than 240 seats. Based on such fleet numbers,
management estimates that the total worldwide installed base of commercial
aircraft cabin interior products, valued at replacement prices, was
approximately $2.4 billion at the end of 1995. This existing installed
base will generate continued retrofit, refurbishment and spare parts
revenue, particularly in light of the deterioration of existing interior
cabin functionality and aesthetics resulting from the airlines' deferral
of refurbishment programs in recent years.
EXPANDING WORLDWIDE FLEET. Worldwide air traffic has grown in every year
since 1946 (except in 1990) and, according to the Boeing Report, is
projected to grow at a compounded average rate of approximately five
percent per year through 2015, increasing annual revenue passenger miles
from approximately 1.6 trillion in calendar 1995 to approximately 4.3
trillion by 2015. The Company believes, that the airlines are already
experiencing extremely high load factors, and that a significant number of
new aircraft will need to be purchased to meet this projected growth in
air travel. According to the Boeing Report, the worldwide fleet of
commercial passenger aircraft is consequently projected to expand from
approximately 11,000 at the end of 1995 to approximately 16,300 by the
end of 2005. According to Airbus Industrie Global Market Forecast
published in March 1995 (the "Airbus Industrie Report"), the worldwide
installed seat base is expected to increase from 1.6 million passenger
seats at the end of calendar 1994 to approximately 4.0 million passenger
seats at the end of 2014. The expanding worldwide fleet will generate
additional revenues from new installation programs, and the increase in
the size of the installed base will generate additional and continual
retrofit, refurbishment and spare parts revenue.
WIDE BODY AIRCRAFT ORDERS. Orders for wide body, long-haul aircraft
constitute an increasing share of total new airframe orders. The Airbus
Industrie Report estimates that approximately 7,300 new wide body aircraft
will be introduced into the world commercial aircraft fleet between
1994 and 2014, increasing the wide body portion of the worldwide
aircraft fleet from 28% in 1995 to an estimated 46% by 2014. Wide body
aircraft currently carry up to three times the number of seats as narrow
body aircraft, and because of multiple classes of service, including large
first class and business class configurations, the Company's average
revenue per seat on wide body aircraft is also higher. Aircraft crews on
wide body aircraft may make and serve between 300 and 900 meals and may
brew and serve more than 2,000 cups of coffee on a single flight. As a
result, wide body aircraft may require as much as seven times the dollar
value of cabin interior products as narrow body aircraft, as well as
products which are technically more sophisticated and typically more
expensive. Further, individual passsenger inflight entertainment systems
are installed principally on wide body aircraft. Airlines are
increasingly demanding such systems for long-haul flights to attract and
retain customers, especially as the quality of inflight entertainment has
become a differentiating factor in passengers' airline selection
decisions. Such systems also provide the airlines with the opportunity to
increase revenues per passenger mile, without raising ticket prices, by
charging individually for services used. For these reasons, Management
believes that in the future, interactive entertainment systems will be
installed on essentially all wide body, and, with the advent of live
broadcast in-flight television, many narrow body planes covering all
classes of service (first, business and tourist).
NEW PRODUCT DEVELOPMENT. The commercial aircraft cabin interior products
industry is engaged in intensive development and marketing efforts for a
number of new products, including convertible seats, interactive individual
passenger entertainment systems, advanced telecommunications equipment and
new galley equipment. Interactive video technology provides a passenger
with a wide range of computer capabilities, which are designed to accept
information generated by the passenger and communicate such information to
the cabin crew for assisting passengers and crew with food service
selection, the purchase of duty-free goods, information in connection with
the arrival time, connecting flights, gate and other passenger information,
as well as facilitate effective on-board inventory control and provide
individual entertainment. New cabin interior products will generate new
installation and retrofit revenues as well as service revenues from
equipment maintenance, inspection and repair.
GROWING UPGRADE, MAINTENANCE, INSPECTION AND REPAIR SERVICE MARKETS.
Historically, the airlines have relied on their airframe and engine
mechanics to repair or replace cabin interior products that have become
damaged or otherwise non-functional. As cabin interior product
configurations have become increasingly sophisticated and the airline
industry increasingly competitive, the airlines have begun to outsource
such services in order to increase productivity and reduce costs and
overhead. Outsourced services include product upgrades (such as the
installation of a telecommunications module or individual passenger
entertainment unit in an aircraft seat not originally designed to
accommodate such equipment), cabin interior product maintenance and
inspection, as well as other repair services.
Competitive Strengths and Business Strategy
The Company believes that it has a strong competitive position
attributable to a number of factors, including the following:
LEADING MARKET SHARE AND SIGNIFICANT INSTALLED BASE. Management believes
that the Company has achieved the leading global market positions in each
of its major product categories, with market shares, based on industry
sources of approximately 50% in aircraft seats, 90% in coffeemakers, 90%
in refrigeration equipment and 50% in ovens, in each case determined on
the basis of fiscal 1996 sales and 35% in individual passenger in-flight
entertainment systems, determined on the basis of installed base.
The Company believes that its leading market shares enable it to
maintain significant competitive advantages in serving its customers,
including manufacturing efficiencies and greater product development and
marketing resources. The Company also believes that the small size of the
total potential market in each product category, together with its large
shares of such markets serve as a deterrent to new market entrants.
Furthermore, because of economies of scale, in part attributable to such
large market shares and its approximate $2.4 billion installed base of
cabin interior equipment (valued at replacement prices), the Company
believes it is among the lowest cost producers in the cabin interior
products industry. The Company believes that its large installed base
gives it a significant advantage over competitors in obtaining orders for
retrofit and refurbishment programs, principally because of the tendency
of the airlines to purchase equipment for such programs from the original
supplier. In addition, because of the need for compatible spare parts at
airline maintenance depots and the desire of airlines to maximize fleet
commonality, a single vendor is typically used for all aircraft of the
same type operated by a particular airline.
BROADEST PRODUCT LINE IN THE INDUSTRY. Management believes the Company
offers more products for the cabin interiors of commercial aircraft than
any other manufacturer. With an established reputation for quality,
service and product innovation, the Company enjoys broad recognition among
the world's commercial airlines. The Company maintains a constant dialogue
with a wide array of existing and potential customers, enabling it to
become aware of emerging industry trends and needs and thereby to play a
major role in product development. The Company has continued to expand its
product line, believing that the airline industry increasingly will seek
an integrated approach to the development, testing and sourcing of the
aircraft's cabin interior. The Company believes that it is the only
supplier in the industry with the technology, manufacturing capability and
capacity and breadth of products and services to meet these industry
demands.
TECHNOLOGICAL LEADERSHIP/NEW PRODUCT DEVELOPMENT. Management believes
that the Company is a technological leader in its industry, which
contributes to its market leadership. The Company has state-of-the-art
facilities and what it believes to be the largest R&D organization in the
industry, with BEA employing approximately 361 engineers. The Company
staffs on-site customer engineers at major airlines and airframe
manufacturers to represent its entire product line and work closely with
the customers to develop specifications for each successive generation of
products required by the airlines. Through its on-site customer engineers,
the Company expects to be able more efficiently to design and integrate
products which address the requirements of its customers. The Company
believes that the introduction of innovative products enables it to gain
early entrant advantages and substantial market shares. An example of
such a product introduction is the Company's original individual passenger
inflight entertainment system, introduced in 1992, which offers a
selection of preprogrammed movies. The Company believes that, in terms of
shipments, it is the market leader, having sold more individual passenger
inflight entertainment systems than any of its competitors. The next
generation of this product is the Company's recently introduced
interactive individual passenger inflight entertainment system, the MDDS,
which it believes is superior to existing operational systems in terms of
performance, reliability, weight, heat generation, and flexibility to
adapt to changing technology. Other recent new product developments
include a cappuccino/espresso maker, a refrigerated quick chill wine
cooling system and a constant pressure cooking oven which the Company
believes substantially improves the appearance, aroma and taste of airline
food.
HIGH GROWTH NEW BUSINESS OPPORTUNITY. Airlines are increasingly
demanding individual passenger inflight entertainment systems for long-
haul flights to attract and retain customers, especially as the quality of
inflight entertainment has become a differentiating factor in passengers'
airline selection decisions. Such systems also provide the airlines with
the opportunity to increase revenues per passenger mile, without raising
ticket prices, by charging individually for the services used. For these
reasons, the Company believes that in the future, interactive
entertainment systems will be installed on essentially all wide body, and
with the advent of live broadcast inflight television, many narrow body
planes. The Company's sophisticated MDDS has the capability to offer
numerous movies on demand, telecommunications, gaming, Nintendo (R),
Sega (R) and PC-based games, inflight shopping and, in the future, live
television, among other services, although each airline will select the
package of features it considers most attractive to offer. This system has
been tested for British Air in flight simulations in excess of a thousand
hours, and was first installed on a limited basis on a British Air Boeing
747-400 in November 1995. The Company expects that, upon the successful
completion of a commercial testing period, British Air will install the
MDDS in all classes of service in approximately 80 wide body British Air
planes over the next several years. The Company expects sales of this
system to account for a significant percentage of revenues in the future.
Based on an estimated current average sale price per seat of $2,500 to
$7,000 for individual passenger inflight entertainment systems, and the
world's current wide body fleet of approximately 2,500 planes that
management believes are appropriate for installation of such systems, the
total market potential for all such systems is estimated to be between
$2 billion and $6 billion.
PROVEN TRACK RECORD OF INTEGRATION. The Company has as one of its key
corporate objectives the continual expansion of its product lines and
market shares through strategic acquisitions within the aircraft cabin
interior products industry. BEA has purchased nine businesses over the
last eight years, for an aggregate purchase price of approximately $250
million. The Company maintains a highly disciplined approach in evaluating
acquisitions, looking for opportunities to consolidate engineering,
manufacturing and marketing activities, as well as rationalizing product
lines. Since 1989, BEA has integrated each of the additional businesses by
reducing the number of operating facilities acquired from 14 to six and
consolidating personnel at the acquired businesses, resulting in headcount
reductions of approximately 800 employees. The Company is implementing a
similar integration plan at Burns consisting of, among other things, the
reduction of headcount by approximately 300 employees. The integration
plan, for the Burns acquisition when fully implemented, is expected to
reduce costs by an estimated $17 million per annum.
The Company's business strategy is to maintain its leadership position
and best serve its airline customers by (i) offering the broadest and most
integrated product line in the industry for both new product sales and
follow-on products and services; (ii) pursuing a worldwide marketing approach
focused by airline and encompassing the Company's entire product line; (iii)
remaining the technological leader, as well as significantly growing its
installed base of products in the developing inflight individual passenger
entertainment market; (iv) enhancing its position in the growing upgrade,
maintenance, inspection and repair services market; and (v) pursuing
selective strategic acquisitions in the commercial aircraft cabin interior
products industry.
Products and Services
BE Aerospace is the largest supplier of commercial aircraft cabin
interior products in the world, serving virtually all major airlines with a
broad line of products including aircraft seats, galley products and
structures and individual passenger inflight entertainment systems. In
addition, BEA provides upgrade, maintenance and repair services for the
interior products it supplies, as well as for those supplied by other
manufacturers. Over half of BEA's revenues in fiscal 1996 were derived from
repair and refurbishment and sales of spare parts largely relating to its
approximate $2.4 billion installed base of currently in-service products
(valued at replacement prices), and the balance from sales of products to be
installed on newly delivered aircraft.
Seating Products
The Company is the world's leading supplier of aircraft seats, offering
a wide selection of first class, business class, tourist class and commuter
seats. A typical seat sold by the Company includes the seat frame, cushions,
armrests and tray table, together with a variety of optional features such as
inflight entertainment systems, oxygen masks and telephones. Management
estimates that the Company has an aggregate installed base of aircraft seats,
valued at replacement prices, of approximately $1.1 billion comprised of
more than 670,000 seats.
Tourist Class. The Company is the leading supplier of tourist class
seats in both the U.S. and worldwide markets. BEA has designed tourist
class seats which incorporate features not previously utilized in that
class, such as top-mounted passenger control units, adjustable head rests
and lumbar supports, and fully integrated in-seat video systems, footrests
and improved oxygen systems.
First and Business Classes. First class and business class seats are
generally larger, heavier and more complicated in design, and are
substantially more expensive than other types of aircraft seats. The
Company's first class seats and certain of its business class seats are
equipped with an articulating bottom cushion suspension system,
sophisticated hydraulic leg-rests and large tables. Additionally, some
models are available with personal in-seat lighting, as well as
electrically operated legrest and lumbar systems.
Convertible Seats. The Company has developed two types of seats which
can be converted from a tourist class triple-row seat to a business class
double-row seat with minimal conversion complexity. Convertible seats
allow airline customers to optimize the ratio of business class to tourist
class seats for a given aircraft configuration.
Commuter Seats. The Company is the leading supplier of commuter seats in
both the U.S. and worldwide markets. The Company's SilhouetteTM Composite
commuter seats are similar to commercial jet seats in comfort and
performance but are lightweight and require minimal maintenance.
Spares. Aircraft seats are exposed to significant stress in the course
of normal passenger activity, and certain seat parts are particularly
susceptible to damage from continued use. As a result, a significant
market exists for spare parts.
Passenger Entertainment and Service Systems
The Company is a significant supplier of PESS products, having the
leading share of the market for PCUs and related wiring and harness
assemblies. In addition, it has developed products aimed at other portions of
the PESS market, including individual seat video systems, advanced
multiplexer and hard-wired distribution systems and other products.
Management estimates that the Company has the largest installed base of PESS
products in the world, which, valued at replacement prices, is approximately
$275 million.
INDIVIDUAL PASSENGER ENTERTAINMENT. The Company offers both its
sophisticated MDDS and its original BE 2000 video system. Management
believes that its MDDS has significant advantages over competitive systems
in terms of performance, reliability, weight, heat generation and
flexibility to adapt to changing technology. This system was first
installed on a limited basis on a British Air Boeing 747-400 in November
1995.
PCUS, WIRING AND HARNESS ASSEMBLIES. The Company's PCU product line is
the broadest in the industry, including over 300 different designs which
are functionally similar but differ widely due to the style preferences
and technical requirements of the various airlines. Wiring and harness
assemblies (which stabilize installed wiring) are sold as a package with
PCUS and vary as widely as PCU types.
DISTRIBUTION SYSTEMS. The Company has manufactured hard-wired audio
(since 1963) and video distribution systems (since 1992) and is currently
the principal supplier of such systems to the airline industry. The
Company also offers frequency division multiplex distribution systems
which deliver substantially improved audio performance compared to
competitors' multiplex systems.
Galley Structures and Inserts
The Company is a leading supplier of galley products, offering complete
galley systems for both narrow and wide body aircraft, as well as a wide
selection of coffee and beverage makers, water boilers, ovens, liquid
containers, refrigeration equipment and other galley components. Management
estimates that the Company has an aggregate installed base of galley
structures and inserts, valued at replacement prices, of approximately $1.0
billion.
GALLEY STRUCTURES. Galley structures are generally custom designed to
accommodate the unique product specifications and features required by a
particular carrier. Galley structures require intensive design and
engineering work and are among the most sophisticated and expensive of the
aircraft's cabin interior products. The Company provides a variety of
galley structures, closets and class dividers, emphasizing sophisticated
and higher value-added galleys for wide body aircraft.
COFFEE MAKERS. The Company is the leading supplier of aircraft coffee
makers, with equipment currently installed in virtually every type of
aircraft for almost every major airline. The Company manufactures a broad
line of coffee makers, coffee warmers and water boilers including the Flash
Brew Coffee Maker, with the capability to brew 54 ounces of coffee in one
minute, a CombiTM unit which will brew coffee or boil water for tea while
utilizing 25% less electrical power than traditional 5,000-watt water
boilers, and a newly introduced cappuccino/espresso maker.
OVENS. The Company is a significant supplier of a broad line of
specialized ovens, including high-heat efficiency ovens, high-heat
convection ovens, and warming ovens. The Company's newest offering, the
DS-2000 Steam Oven represents a new method of preparing food inflight by
maintaining constant temperature and moisture in the food. It addresses
the airlines' needs to provide a wider range of foods than can be prepared
by convection ovens.
REFRIGERATION EQUIPMENT. The Company is the worldwide industry leader in
the design, manufacture, and supply of commercial aircraft refrigeration
equipment. The Company recently introduced a self-contained wine and
beverage chiller, the first unit specifically designed to rapidly chill
wine and beverages on board an aircraft.
Upgrade, Maintenance, Inspection and Repair Services
The Company is an active participant in the growing upgrade, maintenance,
inspection and repair services market. Management believes that the Company's
broad and integrated product line and close relationships with its airline
customers position the Company to become a leading service provider in this
market. The Company believes that this market offers a significant
opportunity for growth. Most participants in this market are small, and
management believes that the Company is the only major product manufacturer
in the industry currently participating in this market.
UPGRADE. The Company provides a variety of upgrade services for cabin
interior products. For example, the Company has begun to install individual
passenger video and telecommunications modules in seat backs and center
consoles which were otherwise not originally designed for such products.
The Company has this capability regardless of whether it manufactures the
product or whether the product is produced by others.
MAINTENANCE, INSPECTION AND REPAIR. These services are provided at
selected airports on an overnight or between scheduled flights basis, or
at seven service centers maintained by the Company. The Company has been
engaged by several airlines to remove entire sets of aircraft seats, wash
and repair them and reinstall the seats within a one-week period. In
addition, the Company offers maintenance and repair services which may be
provided on an overnight basis when an aircraft is not flying or at the
airport gate in the period between an aircraft's scheduled flights. During
this process, cabin interior products are checked by Company employees
for damage and functionality and are repaired or replaced with available
spares. Frequently, the spare part is a Company product, even if the
original part was supplied by another manufacturer.
Research and Development
The Company works closely with commercial airlines to improve existing
products and identify customers' emerging needs. BEA's expenditures in
research, development and engineering totaled $58,327,000 $12,860,000 and
$9,876,000 for the fiscal years ended February 24, 1996, February 25, 1995
and February 26, 1994, respectively.
As described in Note 2 to the Consolidated Financial Statements, the
Company changed its method of accounting for pre-contract engineering
expenditures effective as of the beginning of the year ended February
24, 1996. BEA employs approximately 361 professionals in the engineering and
product development areas. The Company believes that it has the largest
engineering organization in the cabin interior products industry, with not
only electrical and mechanical design skills but also substantial expertise
in materials composition and custom cabin interior layout design.
Marketing and Customers
The Company markets and sells its products directly to virtually all of
the world's major airlines. BEA has a sales and marketing organization of 99
persons, along with 28 independent sales representatives, BEA sales to non-US
airlines were $115,567,000 $114,511,000, $85,239,000 for the fiscal years ended
February 24, 1996, February 25, 1995, February 26, 1994 or approximately 50%,
50%, and 42% respectively, of net sales during such periods. See Notes 14 and
16 of Notes to BEA's Consolidated Financial Statements for further
information with respect to exports and foreign operations.
Airlines select suppliers of cabin interior products primarily on the
basis of custom design capabilities, product quality and performance, prompt
delivery, after-sales service and price. BEA believes that its large
installed base, its timely responsiveness in connection with the custom
design, manufacture, delivery and after-sales service of its products and its
broad product line and stringent customer and regulatory requirements all
present barriers to entry for potential new competitors in the cabin interior
products market.
The Company believes that its integrated worldwide marketing approach,
focused by airline and encompassing the Company's entire product line, is
preferred by airlines. Led by a BEA senior executive, teams representing each
product line serve designated airlines which together account for
approximately 60% of the purchases of products manufactured by BEA. These
airline customer teams have developed customer specific strategies to meet
each airlines' product and service needs. The Company also staffs "on-site"
customer engineers at major airlines and airframe manufacturers to represent
its entire product line and work closely with the customers to develop
specifications for each successive generation of products required by the
airlines. These engineers help customers integrate the wide range of cabin
interior products and assist in obtaining the applicable regulatory
certification for each particular product or cabin configuration. Through its
on-site customer engineers, the Company expects to be able more efficiently
to design and integrate products which address the requirements of its
customers, and thereby gain market share. The Company provides program
management services, integrating all on-board cabin interior equipment and
systems, including installation and FAA certification, allowing airlines to
substantially reduce costs. The Company believes that it is one of the only
suppliers in the commercial aircraft cabin interior products industry with
the size, resources, breadth of product line and global product support
capability to operate in this manner.
No customer accounted for more than 10% of BEA's revenues during the
fiscal years ended February 24, 1996, February 25, 1995 or February 26, 1994.
Because of differing schedules of various airlines for purchases of new
aircraft and for retrofit and refurbishment of existing aircraft, that
portion of the Company's revenues attributable to particular airlines varies
from year to year.
Backlog
Management estimates that BEA's backlog at February 24, 1996 was
approximately $450 million, approximately 59% of which management believes to
be deliverable in fiscal 1997, compared with a backlog of $331 million on
February 25, 1995 (at December 31, 1994 Burns had $72 million of backlog).
Customer Service
The Company believes that it provides the highest level of customer
service available in the commercial aircraft cabin interior products industry
and that such service is a critical factor in the Company's success. The key
elements of such service include (i) rapid response to requests for
engineering designs, price quotes and technical specifications; (ii)
flexibility with respect to customized features; (iii) on-time delivery; (iv)
immediate availability of spare parts for a broad range of products; and (v)
prompt attention to customer problems, including on-site customer training.
Customer service is particularly important to airlines due to the high cost
to the airlines of late delivery, malfunctions and other problems.
Warranty and Product Liability
The Company warrants its products, or specific components thereof, for
periods ranging from one to seven years, depending upon product type and
component. The Company generally establishes reserves for product warranty
expense on the basis of the ratio of warranty costs incurred by the product
over the warranty period to sales of the product over the warranty period.
Actual warranty costs reduce the warranty reserve as they are incurred.
Management periodically reviews the adequacy of accrued product warranty
reserves. Revisions of accrued product warranty reserves are recognized in
the period in which such revisions are determined.
In addition, due to the nature of the Company's products, the Company
currently carries product liability insurance. The Company believes that its
insurance is generally sufficient to cover product liability claims.
Competition
The commercial aircraft cabin interior products market is relatively
fragmented with a number of competitors in each of the individual product
categories. Due to the global nature of the commercial airline industry,
competition in product categories comes from both US and foreign
manufacturers. However, as aircraft cabin interiors have become increasingly
sophisticated and technically complex, airlines have demanded higher levels
of engineering support and customer service than many smaller cabin interior
products suppliers can provide. At the same time, airlines have recognized
that cabin interior product suppliers must be able to integrate a wide range
of products, including sophisticated electronic components, particularly in
wide body aircraft. Management believes that these increasing demands of
airlines upon their suppliers will result in a number of suppliers leaving
the cabin interior products industry and a consolidation of those suppliers
which remain. The Company has participated in this consolidation through
strategic acquisitions and internal growth and intends to continue to
participate in the consolidation.
The Company's principal competitors for seating products include Group
Zodiac S.A., Keiper Recaro GmbH, and a number of other producers in the
European community and Japan. The Company's principal competitors for PESS
products are Matsushita Electronics ("MAS") and Hughes Avicom ("Hughes") as
to PCUs, and MAS, Hughes and GEC Marconi Limited as to individual seat video
systems. The Company's primary competitors for galley systems are JAMCO
Limited, and Buderus Sell GmbH (a subsidiary of Metallgesellschaft A.G.).
Manufacturing and Raw Materials
The Company's manufacturing operations consist of both the in-house
manufacturing of component parts and subassemblies and the assembly of
Company specified and designed component parts which are purchased from
outside vendors. The Company maintains state-of-the-art facilities, and
management has an on-going strategic manufacturing improvement plan utilizing
focused factories and cellular production technologies in which each of the
product lines is manufactured in a dedicated factory. Management expects that
continuous improvement from implementation of this plan for each of its
product lines will occur over the next several years and should lower
production costs, cycle times and inventory requirements and at the same time
improve product quality and customer response.
Government Regulation
The FAA prescribes standards and licensing requirements for aircraft
components, and licenses component repair stations within the United States.
Comparable agencies regulate such matters in other countries. The Company
holds several FAA component certificates and performs component repairs at a
number of its US facilities under FAA repair station licenses. The Company
also holds an approval issued by the UK Civil Aviation Authority to design,
manufacture, inspect and test aircraft seating products in Leighton Buzzard,
England and in Kilkeel, Northern Ireland and the necessary approvals to design,
manufacture, inspect, test and repair its galley products in Nieuwegein,
The Netherlands and to inspect test and repair products at its six service
centers throughout the world.
In March 1992, the FAA adopted Technical Standard Order C127 which
requires that all seats on certain new generation commercial aircraft
installed after such date be certified to meet a number of new safety
requirements, including an ability to withstand a 16G force. Management
understands that the FAA plans to adopt in the near future additional
regulations which will require that within the next five years all seats,
including those on existing older commercial aircraft which are subject to
the FAA's jurisdiction, will have to comply with similar seat safety
requirements. The Company has developed a number of seat models which meet
these new seat safety regulations.
Patents
BEA currently holds 55 United States patents and 89 foreign patents
covering a variety of products. However, the Company believes that the
termination, expiration or infringement of one or more of such patents would
not have a material adverse effect on the business or prospects of the
Company.
Employees
As of February 24, 1996, BEA had approximately 2,714 employees.
Approximately 73% of BEA employees, are engaged in manufacturing, 13% in
engineering, research and development, and 14% in sales, marketing, product
support and general administration. None of the Company's employees is
represented by a union with the exception of 60 employees at its Netherlands
facility and approximately 68% of the employees at its Winston-Salem facility.
BEA considers its employee relations to be good.
ITEM 2. PROPERTIES
As of February 24, 1996, BEA had seventeen principal facilities, where
it leased or owned an aggregate of approximately 1,152,800 square feet of
space. The following table describes the principal facilities and indicates
the location, function and approximate size of each:
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Facility
Location Products and Function Size Ownership
Corporate
Wellington, Florida Corporate headquarters, finance, marketing sales,
17,700 Owned
SEATING PRODUCTS
Litchfield, Connecticut Manufacturing, service, and warehouseing 147,000 Owned
Winston-Salem, NC Seating products divison headquarters, research
and development, finance marketing, sales 264,800 Owned
and manufacturing
Leighton Buzzard, England Manufacturing, service, research and development,
sales support, finance and warehousing 114,000 Owned(a)
Kilkeel, Northern Ireland Manufacturing, sales support, finance and
warehousing 64,500 (b)
GALLEY PRODUCTS
Anaheim, California Manufacturing, service, research and development,
sales support, finance and warehousing 57,100 Leased
Delray Beach, Florida Manufacturing, service, research and development,
sales support, finance and warehousing; galley
products division headquarters 52,000 Owned
Jacksonville, Florida Manufacturing, service, engineering, and
warehousing 75,000 Owned
Nieuwegein, The Netherlands Manufacturing, service, research and development,
sales support, finance and warehousing 39,000 Leased
PESS PRODUCTS
Irvine, California Manufacturing, service, research and development,
sales support, finance and warehousing; In-flight
entertainment division headquarters 106,700 Leased
Longwood, Florida Manufacturing and service 30,000 Leased
SERVICES
Garden Grove, California Service division headquarters, finance, sales
support, warehousing, Upgrade, maintenance,
inspection and repair 46,300 Leased
Burnsville, Minnesota Upgrade, maintenance, inspection and repair 7,200 Leased
Facility
Location Products and Function Size Ownership
(Sq. Feet)
Linden, New Jersey Upgrade, maintenance, inspection and repair 5,800 Leased
Redmond, Washington Upgrade, maintenance, inspection and repair 2,100 Leased
Chesham, England Upgrade, maintenance, inspection and repair 34,000 Owned(a)
Inglewood, California Manufacturing and service, sales support, finance,
and warehousing 88,900 Leased
(a) BEA's owned properties in England were mortgaged to Barclays Bank
PLC to collateralize credit facilities of FEEL in an aggregate amount of up
to approximately (pound)7.2 million.
(b) Approximately 38,500 square feet of the Kilkeel, Northern Ireland
facilities are owned with the balance leased.
The Company believes that its facilities are suitable for their present
intended purposes and adequate for the Company's present and anticipated
level of operations. As a result of recent conditions in the airline industry
as described above under "Recent Industry Conditions", BEA's facilities have
been substantially underutilized for the past several years. The Company
believes that its ongoing facility integration program, together with
anticipated continued growth in airline profitability, should result in a
significant improvement in the degree of utilization in the Company's
facilities.
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ITEM 3. LEGAL PROCEEDINGS.
BEA has been advised that the U.S. Attorney's Office for the District of
Connecticut, in conjunction with the Department of Commerce and the U.S.
Customs Service, is conducting a grand jury investigation focused on possible
non-compliance by BEA with certain statutory and regulatory provisions
relating to export licensing and controls. The investigation relates
primarily to the sale of passenger seats and related spare parts for civilian
commercial passenger aircraft to Iran Air from 1992 through mid-1995. BEA has
been advised that it is a target of the investigation; however, neither it
nor any current or former directors, officers, or employees have been charged
in connection with the investigation. The investigation is at an early stage
and, while the Company intends to defend itself vigorously, the ultimate
outcome of the investigation cannot presently be determined. An adverse
outcome could have a material adverse effect upon the operations and/or
financial condition of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
During the last quarter of the fiscal year covered by this report, the
Company did not submit any matters to a vote of security holders, through the
solicitation of proxies or otherwise.
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EXECUTIVE OFFICERS OF THE REGISTRANT.
The following table sets forth information regarding the directors and
executive officers of the Company. Officers of the Company are elected
annually by the Board of Directors.
Name Age Position
Amin J. Khoury 57 Chairman of the Board
Robert J. Khoury 54 Vice Chairman of the Board, Chief Executive Officer and Director
Paul E. Fulchino 49 President, Chief Operating Officer and Director
Marco C. Lanza 39 Executive Vice President, Marketing and Product Development
Thomas P. McCaffrey 42 Vice President, Chief Financial Officer and Assistant Secretary
Edmund J. Moriarty 51 Vice President, General Counsel and Secretary
Jeffrey P. Holtzman 40 Treasurer and Assistant Secretary
G. Bernard Jewell 53 President, Seating Products Division
E. Ernest Schwartz 59 President, Galley Products Division
Arthur H. Lipton 57 President, Inflight Entertainment Division
Jim C. Cowart 43 Director^
Richard G. Hamermesh 47 Director*^
Brian H. Rowe 64 Director
Hansjoerg Wyss 60 Director*
* Member, Audit Committee.
^ Member, Stock Option and Compensation Committee.
The Company's Restated Certificate of Incorporation provides that the
Board of Directors is classified into three classes, as nearly as equal in
number as possible, so that each director (after a transitional period) will
serve for three years, with one class of directors being elected each year.
The Board is currently comprised of three Class I Directors (Brian H. Rowe,
Jim C. Cowart and Paul E. Fulchino), two Class II Directors (Robert J. Khoury
and Hansjoerg Wyss) and two Class III Directors (Amin J. Khoury and Richard
G. Hamermesh). The terms of the Class I, Class II and Class III Directors
expire upon the election and qualification of successor directors at annual
meetings of stockholders held following the end of fiscal years 1998, 1996
and 1997, respectively. The non-management directors receive compensation of
$2,500 per calendar quarter. The executive officers of the Company are
elected annually by the Board of Directors following the annual meeting of
stockholders and serve at the discretion of the Board of Directors.
Amin J. Khoury has been Chairman of the Board of the Company since July
1987 and was Chief Executive Officer until April 1, 1996. Since 1986, Mr.
Khoury has also been the Managing Director of The K.A.D. Companies, Inc., an
investment, venture capital and consulting firm ("K.A.D."). Mr. Khoury is
currently the Chairman of the Board of Directors of Applied Extrusion
Technologies, Inc., a manufacturer of oriented polypropylene films used in
consumer products labeling and packaging applications, and a member of the
Board of Directors of Brooks Automation, Inc., the leading manufacturer in
the U.S. of vacuum central wafer handling systems for semiconductor
manufacturing and Aurora, Inc., a leading provider of components and service
to computer service organizations. Mr. Khoury is employed by the Company
pursuant to an Employment Agreement which expires in 2002. Mr. Khoury is the
brother of Robert J. Khoury.
Robert J. Khoury has been a Director of the Company since July 1987. Mr.
Khoury was elected Vice Chairman and Chief Executive Officer effective April
1, 1996; from July 1987 until that date Mr. Khoury served as the Company's
President and Chief Operating Officer. From 1986 to 1987, Mr. Khoury was Vice
President of The K.A.D. Companies, Inc. The Company has entered into an
Employment Agreement with Mr. Khoury which expires in 2001. Mr. Khoury is the
brother of Amin J. Khoury.
Paul E. Fulchino was elected a Director and President and Chief
Operating Officer of the Company effective April 1, 1996. From 1990 to 1996
Mr. Fulchino served as President and Vice Chairman of Mercer Management
Consulting, Inc. ("Mercer"), a general management consulting firm with over
1,100 employees. In addition to his management responsibilities as President
of Mercer, Mr. Fulchino also had responsibility for advising clients
throughout the world, particularly with respect to the transportation
industry, including a number of major airlines. The Company has entered
into a three-year employment agreement dated as of April 1, 1996 with
Mr. Fulchino.
Marco C. Lanza has been the Executive Vice President, Marketing and
Product Development since January 1994. From March 1992 through January 1994,
Mr. Lanza was President of the Inflight Entertainment Division of the
Company. From 1987 through February 1992, Mr. Lanza was Vice President,
Marketing and Product Development, of the Company. The Company has entered
into an Employment Agreement with Mr. Lanza extending through
December 31, 1999.
Thomas P. McCaffrey has been Vice President and Chief Financial Officer
since May 1993. From August 1989 through May 1993, Mr. McCaffrey was an Audit
Director with Deloitte & Touche LLP, and from 1976 through 1989 served in
several capacities, including Audit Partner, with Coleman & Grant. The
Company has entered into an Employment Agreement with Mr. McCaffrey
extending through December 31, 1999 in which he agrees to serve as Chief
Financial Officer of the Company.
Edmund J. Moriarty has been Vice President, General Counsel and
Secretary since November 16, 1995. From 1991 to 1995, Mr. Moriarty served as
Vice President and General Counsel to Rollins, Inc., a national service
company. From 1982 through 1991, Mr. Moriarty served as Vice President and
General Counsel to Old Ben Coal Company, a wholly owned coal subsidiary of
The Standard Oil Company.
Jeffrey P. Holtzman has been Treasurer since September 1993. From June
1986 to July 1993, Mr. Holtzman served in several capacities at FPL Group,
Inc., including Assistant Treasurer and Manager of Financial Planning. Mr.
Holtzman previously worked for Mellon Bank, Gulf Oil and Arthur Young &
Company.
G. Bernard Jewell has been President of the Company's Seating Products
Division since March 6, 1996. From February 1994 through February 1996, Mr.
Jewell was President, Services Division. From April 1992 through January
1994, Mr. Jewell was Group Vice President, Marketing and Product Development
of the Company. From 1988 to 1992, Mr. Jewell was President of Burns
Aerospace, Inc., a manufacturer of commercial aircraft cabin interior
products.
E. Ernest Schwartz has been President of the Galley Products Division of
the Company since March 1992. From 1986 through February 1992, Mr. Schwartz
was President of Aircraft Products Company, which was acquired by the Company
in 1992.
Arthur H. Lipton has been the President of the Inflight Entertainment
Division since July, 1995. From 1990-1995 Mr. Lipton was the Senior Vice
President and General Manager of the Wyse Technology Display Division. Prior
to that he was with the Xerox Corporation for 20 years with his last position
being Vice President and General Manager of their Imaging Business Unit.
Jim C. Cowart has been a Director of the Company since November 1989.
Since January 1993, Mr. Cowart has been the Chairman of the Board of
Directors and Chief Executive Officer of Aurora Electronics, Inc. Since
January 1992, Mr. Cowart has also been a Director of Aurora Management, Inc.,
a private capital firm retained by the Company for strategic planning,
competitive analysis, financial relations and other services. From 1987 until
1991, Mr. Cowart was a general partner of Capital Resource Partners, a
private capital investment manager. From 1982 to 1987, Mr. Cowart was a
Senior Vice President of Investment Banking at Shearson Lehman Brothers and
was the President of Shearson Venture Capital, Inc.
Richard G. Hamermesh has been a Director of the Company since July 1987.
Since August 1987, Dr. Hamermesh has been the Managing Partner of the Center
for Executive Development, an independent management consulting company, and
from December 1986 to August 1987, Dr. Hamermesh was an independent
consultant. Prior to such time, Dr. Hamermesh was on the faculty at the
Harvard Business School. Dr. Hamermesh is also a Director of Applied
Extrusion Technologies, Inc. manufacturer of military and civil aircraft
Since March, 1995, Mr. Rowe has also been a Director of Atlas Air Inc.,
an air cargo carrier. Since January, 1980 Mr. Rowe has been a Director of
Fifth Third Bank, an Ohio banking corporation. Since December, 1995, Mr. Rowe
has also been a Director of Steward & Stevenson Services, Inc., a custom
packager of engine systems, and Textron Inc., a manufacturer of mechanical
devices for aircraft and other applications.
Hansjoerg Wyss has been a Director of the Company since October 1989.
Since 1977, Mr. Wyss has been a Director and the President and Chief
Executive Officer of Synthes (U.S.A.) and Synthes (Canada), Ltd.,
manufacturers and distributors of orthopedic implants and instruments. Mr.
Wyss is also a Director of Applied Extrusion Technologies, Inc.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock is quoted on the Nasdaq National Market under
the symbol "BEAV." The following table sets forth, for the periods indicated,
the range of high and low per share closing prices for the Common Stock as
reported by Nasdaq.
High Low
Fiscal Year Ended February 26, 1994
First Quarter 12 1/2 8 3/4
Second Quarter 15 1/4 12 1/4
Third Quarter 15 10
Fourth Quarter 12 8 3/4
Fiscal Year Ended February 25, 1995
First Quarter 11 1/2 7 7/8
Second Quarter 9 1/2 7 3/8
Third Quarter 9 1/4 7 1/2
Fourth Quarter 8 1/2 5 3/8
Fiscal Year Ended February 24, 1996
First Quarter 8 5/8 5 1/4
Second Quarter 9 1/4 7 1/4
Third Quarter 9 9/16 7 1/2
Fourth Quarter 13 5/8 8 7/8
On May 17, 1996, the closing price of the Common Stock as reported by
Nasdaq was $16.00 per share. As of such date, the Company had 268
shareholders of record, and management estimates that there are approximately
4,300 beneficial owners of the Company's Common Stock. The Company has not
paid any cash dividends in the past, and management has no present intention
of doing so in the immediate future. The Company's Board of Directors
intends, for the foreseeable future, to retain any earnings to finance the
future growth of the Company, but expects to review its dividend policy
regularly. The Indentures pursuant to which the Company's 9 3/4% Senior Notes
and 9 7/8% Senior Subordinated Notes were issued and the terms of the
Company's credit facilities permit the declaration or payment of cash
dividends only in certain circumstances described therein.
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ITEM 6. SELECTED FINANCIAL DATA.
(In thousands, except per share and ratio data)
On February 28, 1992, BEA acquired from The Pullman Company certain
assets and liabilities of PTC Aerospace, Inc. ("PTC") and Aircraft Products
Company ("APC") and changed its fiscal year-end to the last Saturday in
February. On April 2, 1992, BEA acquired the stock of Flight Equipment
Engineering Limited ("FEEL"). During fiscal year 1994, BEA completed the
following acquisitions: On April 29, 1993, BEA acquired all of the stock of
Royal Inventum, B.V. ("Inventum"); on August 23, 1993, BEA acquired all of
the stock of Nordskog Industries ("Nordskog"); on August 26, 1993, BEA
acquired all of the stock of Acurex Corporation ("Acurex"); and on October
13, 1993, BEA acquired substantially all of the assets of Philips Airvision
("Airvision"). On January 24, 1996, BEA acquired all of the stock of Burns
Aerospace Corporation ("Burns"). Each of BEA's acquisitions has been
accounted for as a purchase, and the results of the acquired businesses are
included in BEA's historical financial data from the date of acquisition.
The financial data for the fiscal years ended February 24, 1996,
February 25, 1995, February 26, 1994 and February 27, 1993, the seven months
ended February 29, 1992 and the year ended July 28, 1991 have been derived
from financial statements which have been audited by BEA's independent
auditors. The following financial information is qualified by reference to,
and should be read in conjunction with, the financial statements, including
notes thereto, and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included elsewhere in this Prospectus.
Seven
Months Year
Year Ended Ended Ended
Feb. 24, Feb. 25, Feb, 26, Feb. 27, Feb. 29 July 28,
1996 (1) 1995 1994 1993 1992 1991
Statement of Operations:
Net sales ..................................... $ 232,582 $ 229,347 $ 203,364 $ 198,019 $ 12,192 $ 24,278
Cost of sales ................................. 160,031 154,863 136,307 137,690 5,626 10,645
------- ------- ------- ------- ----- ------
Gross profit .................................. 72,551 74,484 67,057 60,329 6,566 13,633
Operating expenses:
Selling, general and administrative ......... 42,000 31,787 28,164 21,698 4,871 4,855
Research, development and engineering ....... 58,327 (1) 12,860 9,876 11,299 1,324 1,809
Amortization expense ........................ 9,499 9,954 7,599 4,551 3,707 (3) --
Other expenses .............................. 4,170 (2) 23,736 (2) -- -- -- --
----- ------ ------ ------ ------- ------
Operating earnings (loss) .................... (41,445) (3,853) 21,418 22,781 (3,336) 6,969
Interest (income) expense, net ............... 18,636 15,019 12,581 3,955 (743) (211)
------ ------ ------ ----- ---- -----
Earnings (loss) before income taxes (benefit),
cumulative effect of accounting
change and extraordinary item .............. (60,081) (18,872) 8,837 18,826 (2,593) 7,180
Income taxes (benefit) ........................ -- (6,806) 3,481 6,676 (860) 2,478
--------- -------- ------- ------- ------- ------
Earnings (loss)
before cumulative effect of
accounting change extraordinary item ........ (60,061) (12,066) 5,356 12,150 (1,733) 4,702
Cumulative effect of accounting change ........ (23,332) (1)
Extraordinary item, net of tax effect ......... -- -- -- (522)(4) -- --
------- ------- ----- ------ ------ -----
Net earnings (loss) ........................... $ (83,413) $ (12,066) $ 5,356 $ 11,628 $ (1,733) $ 4,702
========= ========= ========= ========= ========= ========
Net earnings (loss) per common share:
Continuing operations ..................... $ (3.71) $ ( 0.75) $ 0.35 $ 1.03 $ (0.18) $ 0.65
Cumulative effect of accounting change ........
Extraordinary item, net of tax effect ..... -- -- -- (0.05)(4) -- --
--------- --------- --------- --------- -------- ---------
Net earnings (loss) per common share .......... $ (5.15) $ (0.75) $ 0.35 $ 0.98 $ (0.18) $ 0.65
========= ========= ========= ========= ========= =========
Common and common equivalent shares ........... 16,158 16,021 15,438 11,847 9,604 7,248
(1) In fiscal 1996, the Company's changed its method of accounting
relating to the capitalization of pre-contract engineering costs that were
previously included as a component of inventories. Effective January
26, 1995, such costs have been charged to research, development and
engineering, and as a result, periods prior to January 24, 1996 are not
comparable.
(2) In fiscal 1996, BEA recorded a charge to earnings of $4.2 million
related to costs associated with the integration and consolidation of the
Company's European seating operations. In fiscal 1995, the Company charged
to earnings $23.7 million of expenses primarily related to intangible
assets and inventories associated with the Company's earlier generations
of passenger entertainment systems.
(3) During the seven months February 29, 1992, approximately $3.1
million of nonrecurring expenses related to a writedown of intangible
assets and $2.1 million of costs associated with the Company's
acquisitions were charged to amortization expense and selling, general and
administrative expenses, respectively.
(4) As a result of the sale of Senior Notes in 1993, the Company wrote
off the unamortized portion of certain debt issuance costs related to its
prior credit agreement.
Feb. 24, Feb. 25, Feb. 26, Feb. 27, Feb. 27, July 28,
Balance Sheet Data 1996 1995 1994 1993 1992 1991
(end of period):
Working capital ..... $ 41,824 $ 76,563 $ 76,874 $133,661 $ 27,367 $ 13,500
Total assets ........ 433,586 379,954 375,009 314,055 135,330 26,034
Long-term debt ...... 273,192 172,693 159,170 127,743 40,500 --
Stockholders' equity 44,157 125,331 133,993 107,974 57,057 22,467
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
(In thousands, except share and per share data)
Introduction
BEA has become the world's leading supplier of commercial aircraft
interior products through the strategic acquisitions of seating, inflight
passenger entertainment and services systems ("PESS") and galley products
businesses. BEA's products include an extensive line of first, business,
tourist class and commuter seats, complete galley systems including coffee
and beverage makers, ovens, liquid containers and refrigeration equipment,
well as a line of inflight entertainment products including the recently
introduced MDDS. BEA markets and sells its products to its customers, the
airlines, through an integrated worldwide approach, focused by airline and
encompassing BEA's entire product line.
BEA's revenues are generally derived from two primary sources: new
aircraft deliveries and refurbishment or upgrade programs for the airlines'
existing worldwide fleets. BEA believes its large installed base of products,
estimated to be approximately $2.4 billion as of February 24, 1996 (valued at
replacement prices), gives it a significant advantage over competitors in
obtaining orders for refurbishment programs, principally due to the tendency
of the airlines to purchase equipment for such programs from the original
supplier. With the exception of spare parts sales, BEA's revenues are
generated from programs initiated by the airlines which may vary
significantly from year to year in terms of size, mix of products and length
of delivery. As a result, BEA's revenues and margins may fluctuate from
period to period based upon the size and timing of the program and the type
of products sold. Historically, BEA experienced certain trends in its two
revenue drivers: as the airlines took deliveries of large numbers of new
aircraft, refurbishment programs as a percentage of revenues declined and
similarly, when new aircraft deliveries declined, refurbishment programs
tended to increase in number and size. Changes in revenues by classes of
product are the result of acquisitions and volume demand in the industry, as
more fully described in the Discussion and Analysis that follows. During the
most recent airline industry recession, which ended in 1994, the airlines
significantly depleted their cash reserves and incurred record losses. In an
effort to improve their liquidity, the airlines conserved cash by reducing or
deferring cabin interior refurbishment and upgrade programs and purchases of
new aircraft. As a result, in contrast with historical experience, BEA
experienced declines in the number of both new orders and refurbishments.
Since early 1994, the airlines have experienced a significant turnaround
in operating results, with the domestic airline industry achieving record
operating earnings during calendar 1995. The airline cabin interior products
industry business cycle, however, generally lags that of the commercial
airlines because of the airlines' practice of gradually implementing
refurbishment and replacement programs. Consequently, only in the past fiscal
year has BEA begun to experience growth in its backlog of seating and galley
products, representing the first time in over two years BEA has seen growth
of new seating orders in excess of shipments. Management believes that the
growth in backlog, which has historically preceded growth in BEA's revenues,
is an early reflection of the airlines' need to begin refurbishing worn
fleets and their ability to do so as a result of the strengthening of the
airlines' balance sheets. The Company expects the recent backlog growth to
begin to be reflected in its operations beginning in its fiscal year
commencing February 25, 1996 as the products are delivered.
Notwithstanding the industry declines in recent years, BEA has
substantially expanded the size, scope and nature of its business as a result
of a number of acquisitions. During the fiscal year ended February 26, 1994,
BEA completed the following acquisitions: On April 29, 1993, the Company
acquired, through a Dutch holding company, all of the capital stock of
Inventum, a supplier of galley inserts including ovens, beverage makers and
water boilers to airlines located primarily in Europe and the Pacific Rim. On
August 23, 1993, the Company acquired all of the capital stock of Nordskog,
an industry pioneer in galley structures and inserts. On August 26, 1993, the
Company acquired all of the capital stock of Acurex, the leading worldwide
supplier of commercial aircraft refrigeration products. On October 13, 1993,
the Company acquired substantially all of the assets and certain of the
liabilities of Airvision, a manufacturer of inflight entertainment equipment.
On January 24, 1996 the Company acquired all of the stock of Burns, an
industry leader in commercial aircraft seating. While the Company will
continue to be susceptible to industry-wide conditions, management believes
that the Company's significantly more diversified product line and revenue
base achieved through acquisitions has reduced its exposure to demand
fluctuations in any one product area.
The Burns acquisition will significantly impact BEA's results of
operations. Management believes the incremental cash flow arising from Burns'
existing operations and further supplemented by the cost savings expected to
be realized upon the business combination will be substantial. BEA believes
there are significant opportunities and synergies in acquiring Burns. Burns
was one of the three leading North American suppliers of commercial aircraft
passenger seats, with a base of airline customers that is largely
complementary to that of BEA. Prior to the acquisition, BEA's and Burns'
approximate share of the worldwide seating products market were 30% and 20%,
respectively, based on fiscal 1996 unit sales. Seat manufacturing capacity
utilization at the Company's seating products division is approximately 50%.
By consolidating engineering, marketing, administration and manufacturing
operations of the two companies, BEA will be able to reduce fixed costs,
thereby enhancing its low cost position. Management believes that the
combined company also will have among the most advanced manufacturing
facilities in the commercial airline seating products industry. Following the
acquisition, the Company will have a substantial base of prestigious airline
customers, including British Air, Cathay Pacific, Lufthansa, Singapore,
United, JAL, Southwest, KLM, Northwest, Delta and others.
The Company has specifically identified cost reductions resulting from
the Burns business integration plan which is being implemented. The business
integration plan contemplates (i) the elimination of duplicate executive,
sales and marketing, research and engineering and administrative functions at
Burns, (ii) shifting Burns' seat assembly operations to BEA's facilities and
(iii) shifting certain of BEA's seating fabrication operations to Burns. The
cost reductions for cost of sales, selling, general and administrative
expense and research and development expense are comprised of labor and
overhead expenses that are expected to be eliminated in conjunction with the
implementation of the Burns business integration plan. This business
integration plan provides for the events generating the cost reductions to
occur in phases, beginning in the initial year.
In conjunction with the implementation of the Burns business integration
plan, as of May 1, 1996 the Company had implemented the following initiatives
and actions: (i) provided notice to employees and the applicable union of a
plant closure (ii) met with employees in other affected locations to describe
the pending reductions in force as a result of the shifting of certain
processes between the two plants and (iii) eliminated certain redundant
executive, sales & marketing, research and engineering and administration
personnel. Management believes that costs will be reduced substantially as a
result of the Burns integration plan.
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RESULTS OF OPERATIONS - YEAR ENDED FEBRUARY 24, 1996 COMPARED WITH YEAR
ENDED FEBRUARY 25, 1995
Sales for the year ended February 24, 1996 were $232,582,000 or 1%
greater than sales of $229,347,000 in the prior year. This increase in sales
is primarily related to the inclusion of results of operations of Burns,
which was acquired during the fourth quarter of fiscal 1996. Offsetting this
increase in revenues was the negative impact of the ten week strike at
Boeing, which ended December 14, 1995.
At February 24, 1996, the Company's backlog stood at approximately $450
million, up from $331 million at February 25, 1995. The increase in backlog
is attributable to the acquisition of Burns, along with solid growth from
orders placed by the airlines. During the year ended February 24, 1996, and
for the first time in over two years, the airlines placed orders for the
Company's seating and galley products in excess of its shipment levels,
resulting in an increase in its seating and galley products backlog.
Management estimates that approximately 59% of its backlog is deliverable in
fiscal 1997.
Gross profit was $72,551,000 or 31.3% of sales for the year ended
February 24, 1996 and was $1,933,000 less than gross profit for the prior
year of $74,484,000 which represented 32.5% of sales. The decrease in gross
profit during the year ended February 24, 1996 is primarily the result of the
mix of products sold.
Selling, general and administrative expenses were $42,000,000 (18.1% of
sales) for the year ended February 24, 1996. This was $10,213,000 higher than
the comparable period in the prior year of $31,787,000 (13.9% of sales),
principally due to costs associated with the Burns acquisition and related
organizational changes brought about by this acquisition, higher promotional
and selling costs associated with BEA's participation in annual industry
trade shows, and higher medical benefits and legal costs during fiscal 1996.
Effective as of the beginning of fiscal 1996 the Company changed its
method of accounting for pre-contract engineering expenditures associated
with customer orders. These expenditures, which previously were carried in
inventory for amortization over future deliveries, are now expensed as
incurred. As a result of this change in accounting method, research,
development and engineering for the year ended February 24, 1996 increased by
$42,726,000 to $58,327,000, as compared to $12,860,000 in the prior year.
Amortization expense for the year ended February 24, 1996 of $9,499,000
was $455,000 less than the amount recorded in the prior year and is due to
the lower level of intangible assets being amortized during fiscal 1996.
Other expenses were $4,170,000 for the year ended February 24, 1996 and
relate to costs associated with the integration and consolidation of the
Company's European seating business. Other expenses for the year ended
February 25, 1995 were $23,736,000 and related primarily to a charge
associated with BEA's earlier generations of passenger entertainment systems.
Interest expense, net was $18,636,000 for the year ended February 24,
1996 or $2,617,000 higher than the prior year. This increase is the result of
an increase in the amount of the Company's long-term debt outstanding, as
well as higher interest rates.
No income tax benefit was provided for the year ended February 24, 1996
as compared to a tax benefit of $6,806,000 (36%) for the prior year.
The Company recorded the cumulative effect of an accounting change of
$23,332,000 during the year ended February 24, 1996. Such amount represents
the total amount of capitalized pre-contract engineering costs which were
included in inventories as of February 25, 1995.
The net loss for fiscal 1996 was ($83,413,000) or $(5.15) per share as
compared to a net loss of ($12,066,000) or $(.75) per share in the prior year.
RESULTS OF OPERATIONS--YEAR ENDED FEBRUARY 25, 1995 (FISCAL 1995)
COMPARED WITH YEAR ENDED FEBRUARY 26, 1994 (FISCAL 1994)
Sales for the year ended February 25, 1995 were $229,347,000 or 13%
higher than sales of $203,364,000 in the prior year. The increase in sales
was primarily related to the results of operations of businesses acquired at
the end of the second quarter of fiscal 1994. The level of activity in the
cabin interior products industry continued to reflect the depressed
conditions within the airline industry.
At February 25, 1995, BEA's backlog stood at $331 million, up from $241
million at February 26, 1994. Substantially all of the growth in backlog was
attributable to BEA's inflight entertainment products; backlog for BEA's
seating and galley products continued to decline through fiscal 1995 as a
result of the depressed conditions present in the airline industry.
Gross profit was $74,484,000, or 32% of sales, for the year ended
February 25, 1995 and was $7,427,000, or 11%, greater than the prior year's
gross profit of $67,057,000, which represented 33% of sales. The increase in
gross profit during the fiscal year ended February 25, 1995 was in large part
the result of higher revenues associated with the businesses acquired at the
end of the second quarter of fiscal 1994.
Selling, general and administrative expenses were $31,787,000, or 14% of
sales, for the year ended February 25, 1995. This was $3,623,000, or 13%,
higher than the selling, general and administrative expenses for the
comparable period in the prior year of $28,164,000 (14% of sales),
principally due to the acquisitions completed during fiscal 1995.
Research and development expenses were $12,860,000, or 6% of sales, for
the fiscal year ended February 25, 1995. For the prior year, research and
development expenses were $9,876,000, or 5% of sales. The increase in
research and development was attributable to BEA's ongoing new product
development programs.
Amortization expense for the fiscal year ended February 25, 1995 of
$9,954,000 was $2,355,000, or 31%, higher than the amount recorded in the
prior year, and was due to the acquisitions completed during fiscal 1995.
Other expenses consisted of a charge of $23,736,000 related primarily to
intangible assets and inventories associated with BEA's earlier generations
of passenger entertainment systems. The introduction of BEA's MDDS, which BEA
expects to become the industry's standard for inflight passenger and service
entertainment, has captured the dominant market share with it receiving
contract awards from major airlines totaling more than $150 million during
the fiscal year ended February 25, 1995. The MDDS also caused major carriers
to convert programs for earlier products of BEA to the MDDS and has resulted
in two of BEA's principal competitors offering to develop for the airlines
systems similar to BEA's MDDS. These events caused the inflight entertainment
industry to re-evaluate its product offerings and, in the process, have
impaired the value of certain of its assets. As a result, BEA has written
down certain of its assets principally related to its earlier systems.
Principally due to the other expenses described above, BEA recorded a
net operating loss of ($3,853,000) for the fiscal year ended February 25,
1995, as compared to operating earnings of $21,418,000 in the prior year.
Operating earnings for the period before the special charge mentioned above
were $19,883,000.
Net interest expense of $15,019,000 for the fiscal year ended February
25, 1995 was $2,438,000, or 19%, higher than the prior year. This increase
was the result of an increase in the amount of BEA's long-term debt
outstanding, as well as higher interest rates.
An income tax benefit of ($6,806,000) (36% of the loss before income
taxes) was recognized principally as the result of the charge described
above. Income tax expense for the fiscal year ended February 26, 1994 was
$3,481,000 or 39% of earnings before income taxes.
The net loss for fiscal 1995 was $(12,066,000) or $(.75) per share as
compared to net earnings of $5,356,000 or $.35 per share in the prior year,
principally due to the charge.
RESULTS OF OPERATIONS--YEAR ENDED FEBRUARY 26, 1994 (FISCAL 1994)
COMPARED WITH YEAR ENDED FEBRUARY 27, 1993 (FISCAL 1993)
Sales for the fiscal year ended February 26, 1994 were $203,364,000 or
3% higher than sales of $198,019,000 for the prior year. Decreases in sales
of seating and galley products were more than offset by revenues from the
acquisitions completed during fiscal 1994. The sales performance during
fiscal 1994 reflected the steep decline in new aircraft shipments to the
airlines generally, the delays by the airlines in placing orders associated
with BEA's refurbishment, retrofit and spares programs and the timing of
scheduled shipments within its backlog.
At February 26, 1994, BEA's backlog stood at $241 million, which was up
from $191 million at February 27, 1993, but reflects a decline of
approximately $11 million from the prior quarter. This reversal in backlog
growth and actual decrease versus the backlog level at November 27, 1993
reflected the airline environment in which programs were deferred by the
airlines due to their financial status.
Gross profit was $67,057,000, or 33% of sales, for fiscal 1994 and was
$6,728,000, or 11%, higher than the prior year's gross profit of $60,329,000,
which represented 30% of sales. The increase in gross profit during fiscal
1994 was due principally to revenue mix and lower manufacturing costs
associated with certain products.
Selling, general and administrative expenses were $28,164,000, or 14% of
sales, for fiscal 1994. This was $6,466,000, or 30%, higher than selling,
general and administrative expenses for the prior year of $21,698,000 (11% of
sales), principally due to the acquisitions completed during fiscal 1994.
Research and development expenses were $9,876,000, or 5% of sales, for
fiscal 1994. Research and development expenses were $11,299,000, or 6% of
sales, for the prior year. The change in spending between the years is
reflective of the status of BEA's various research and development programs.
Amortization expense for fiscal 1994 of $7,599,000 was $3,048,000, or
67%, higher than the amount recorded in fiscal 1993. The increase in
amortization expense was due to higher levels of intangible assets resulting
from the acquisitions completed during fiscal 1994.
Operating earnings for the fiscal year ended February 24, 1994 were
$21,418,000 or $1,363,000 less than the prior year.
Net interest expense of $12,581,000 for fiscal 1994 was $8,626,000, or
218%, higher than net interest expense of $3,955,000 recorded for the prior
year, and was due to the increase in BEA's long-term debt outstanding during
fiscal 1994, principally related to the issuance of the Senior Notes. The
proceeds from the sale of BEA's Senior Notes that had not been deployed in
its business were invested in interest-bearing cash equivalents during fiscal
1994 at an average rate of approximately 3%. Interest income related to these
cash equivalents during fiscal 1994 was $1,506,000.
Income tax expense for fiscal 1994 was $3,481,000, or 39% of earnings
before income taxes, as compared to a tax rate of 35% for fiscal 1993. The
increase in the effective tax rate during 1994 increase was due principally
to the nondeductible portion of amortization expense associated with the
acquisitions completed by BEA during fiscal 1994.
Net earnings were $5,356,000 or $.35 per share for fiscal 1994 as
compared to $11,628,000 or $.98 per share in the prior year. The decrease in
earnings per share reflects the impact of lower net earnings, as well as a
30% increase in the number of common and common equivalent shares from year
to year.
Liquidity and Capital Resources
BEA's primary requirements for working capital have been directly
related to its accounts receivable and inventory levels, costs associated
with the design and development of the MDDS and other products and scheduled
interest payments on its indebtedness. BEA's working capital was $41,824,000
as of February 24, 1996 compared to $76,563,000 as of February 25, 1995.
In January 1996 the Company amended its existing credit facilities by
increasing the aggregate principal amount that may be borrowed thereunder to
$100,000,000 (the "Bank Credit Facility"). The Bank Credit Facility consists
of a $25,000,000 Reducing Revolver and a $75,000,000 Revolving Facility.
The amount of the Reducing Revolver will be reduced automatically by 12.5% on
April 19, 1999 and on each of the seven succeeding quarterly anniversaries of
such date. The Reducing Revolver is collateralized by all of the issued and
outstanding capital stock of Acurex and has a five year maturity, with the
commitments of the lenders thereunder reducing during such five year period,
and the Revolving Facility is collateralized by all of the Company's accounts
receivable, all of its inventory and substantially all of its other personal
property and has a five year maturity. The Bank Credit Facility contains
customary affirmative covenants, negative covenants and conditions of
borrowing. At February 24, 1996 indebtedness in an aggregate principal amount
of approximately $38,000,000, plus letters of credit amounting to
approximately $6,000,000, were outstanding under the Bank Credit Facility.
The Company's liquidity requirements consist primarily of working
capital needs and scheduled payments of interest on its indebtedness and
costs associated with integrating Burns. As a result of the Burns
acquisition, the Company will have significantly increased cash requirements
for the payment of interest on its outstanding borrowings. Based on interest
rates in effect, assuming no changes in borrowings under the Bank Credit
Facility, cash requirements for debt service would be approximately $27.9
million, $27.8 million, $27.7 million, $27.5 million and $63.4 million for
fiscal years 1997 through 2001, respectively. No principal payments are
required for any of the borrowings under the bank credit facility until
February, 2001 at which time any unpaid principal under the Bank Credit
Facility will be due and payable.
At February 24, 1996, the Company's cash and cash equivalents were
$15,376,000 compared to $8,319,000 at February 25, 1995. Cash used in
operating activities in the year ended February 24, 1996 was $34,562,000, and
cash provided by operating activities in 1995 was $2,056,000 compared to
$5,791,000 in 1994. The primary source of cash during the year ended February
24, 1996 was non-cash charges for depreciation and amortization of
$18,435,000 and the cumulative effect of the accounting change of $23,332,000
which was offset by a use of cash for research, development and engineering
of $58,327,000 and for inventory of $11,929,000. The primary sources of cash
from operations in fiscal 1995 were non-cash charges for depreciation and
amortization and changes in intangible assets. Significant changes in
operating assets during 1995 were the increase in inventories of $16,863,000
offset by a decrease in accounts receivable of $6,226,000 and an increase in
accounts payable of $7,295,000. Significant changes in operating assets
during 1994 were the increase in inventories and accounts receivable of
$4,153,000 and $3,188,000, respectively and the decrease in other liabilities
of $9,071,000 offset by an increase in accounts payable of $6,056,000.
The Company's capital expenditures were $13,656,000, $12,172,000,
$11,002,000 in 1996, 1995, and 1994 respectively. Also, the Company used cash
in certain acquisitions amounting to $42,500,000 and $107,506,000 in 1996 and
1994, respectively.
The Company expects that its capital expenditures for 1997 will be
approximately $15,000,000. These capital expenditures will relate principally
to maintenance of operations and development of new product applications.
The Company believes that cash flow from operations and availability
under the Bank Credit Facility provide adequate funds for its working capital
needs, planned capital expenditures and debt service obligations through the
term of the Bank Credit Facility. The Company believes that it will be able
to refinance the Bank Credit Facility prior to its termination, although
there can be no assurance that it will be able to do so. The Company's
ability to fund its operations and make planned capital expenditures, to make
scheduled payments and to refinance its indebtedness depends on its 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 its control.
Industry Conditions
The Company's customers are the world's commercial airlines. As a
result, the Company's business is directly dependent upon the conditions in
the commercial airline industry. In the late 1980's and early 1990's 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 delaying purchases of new aircraft. This led to a significant
contraction in the commercial aircraft cabin interior products industry, and
a decline in the Company's business and profitability. The airline industry
is currently experiencing an economic turnaround, with significantly improved
results, although the levels of airline spending on refurbishment and new
aircraft purchases continue to be below the levels experienced in the mid
1980's. A number of world's airlines have placed significant orders for new
aircraft over the past 12 months, and some industry sources are now
predicting that new aircraft deliveries will increase by 10-15% per year over
the next several years. The Company stands to benefit from this trend to the
extent that it maintains its market shares and the airlines in fact continue
to take deliveries of a greater number of new aircraft. Due to the volatility
of the airline industry, there can be no assurance that the recent
profitability of the airline industry will continue or that the airlines will
maintain or increase expenditures on cabin interior products for
refurbishments or new aircraft.
The foregoing statements include forward-looking statements which
involve risks and uncertainties. The Company's actual experience may differ
materially from that discussed above. Factors that might cause such a
difference include, but are not limited to, those discussed in "Risk Factors"
in the Company's Registration Statement on Form S-4 dated April 3, 1996 as
well as future events that have the effect of reducing the Company's
available cash balances, such as unexpected operating losses or delays in the
integration of the Company's seating business or the delivery of the MDDS
interactive video system or capital expenditures or cash expenditures related
to possible future acquisitions.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
This information required by this section is set forth on pages F-1
through F-23 of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information set forth under the caption "Election of Directors" in the
proxy statement to be filed with the Commission in connection with Company's
1996 Annual Meeting of Stockholders (the "Proxy Statement") is incorporated
by reference herein.
Information relating to the executive officers of the Company is set
forth in Part I of this report under the caption "Executive Officers of the
Registrant."
ITEM 11. EXECUTIVE COMPENSATION.
Information set forth under the caption "Executive Compensation" in the
Proxy Statement is incorporated by reference herein. The Compensation
Committee Report and the Performance Graph included in the Proxy Statement
are not incorporated herein.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Information set forth under the caption "Beneficial Ownership of Shares"
in the Proxy Statement is incorporated by reference herein.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information set forth under the caption "Certain Transactions" in the
Proxy Statement is incorporated by reference herein.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) The following documents are filed as part of this report:
1. Financial Statements (See page F-1).
Consolidated Balance Sheets, February 24, 1996 and February 25, 1995.
Consolidated Statements of Operations for the Years Ended February 24,
1996, February 25, 1995, February 26, 1994.
Consolidated Statements of Stockholders' Equity for the Years Ended
February 24, 1996, February 25, 1995, February 26, 1994.
Consolidated Statements of Cash Flows for the Years Ended February 24,
1996, February 25, 1995, February 26, 1994.
Notes to Consolidated Financial Statements for the Years Ended
February 24, 1996, February 25, 1995, and February 26, 1994.
2. Financial Statement Schedules.
Schedule II - Valuation and Qualifying Accounts for the Years Ended
February 24, 1996, February 25, 1995 and February 26, 1994.
3. Exhibits.
The following exhibits are filed herewith:
Page number in sequential
numbering system where
Exhibits may be located
----------------------------
Exhibit 10 (iii) Executive Compensation Plans and Arrangements
10.1 Amendment No. 3 dated as of April 2, 1996 to the Employment
Agreement dated as of January 1, 1992 between the Registrant and
Amin J. Khoury (the "A. Khoury Agreement")
10.2 Amendment No. 1 dated as of January 1, 1996 to the Employment
Agreement dated as of April 1, 1992 between the Registrant and
G. Bernard Jewell (the "Jewell Agreement")
10.3 Employment Agreement dated as of September 18, 1995 between the
Registrant and Edmund J. Moriarty
Exhibt 18 Letter re: Change in Accounting Principles
Exhibit 23 Consent of Deloitte & Touche LLP
Exhibit 27 Financial Data Schedule for the Fiscal Year Ended February 24,
1996
Exhibit 99 BE Aerospace, Inc. 1994 Employee Stock Purchase Plan--Financial
Statements as of February 29, 1996 and February 28, 1995; and
for the Year Ended February 29, 1996 and the period from May 15,
1994 (inception) to February 28, 1995 and Independent Auditors'
Report
BE Aerospace, Inc. Savings and Profit Sharing Plan and
Trust--Financial Statements for the Ten Months Ended December
31, 1995 and the Year Ended February 28, 1995, Supplemental
Schedules and Independent Auditors' Report
The following exhibits previously have been filed with the Commission
under the Securities Act of 1933 and/or the Securities Exchange Act of 1934
and are incorporated by reference herein. (i) the Registrant's Registration
Statement on Form S-1, as amended (No. 33-33689), filed with the Commission on
March 7, 1990 (referred to below as "33-33689"); (ii) the Registrant's
Registration Statement on Form S-1, as amended (No. 33-43147), filed with the
Commission on October 3, 1991 (referred to below as "33-43147"); (iii) the
Registrant's Registration Statement on Form S-1, as amended (No. 33-54146),
filed with the Commission on November 3, 1992 (referred to below as
"33-54146"); (iv) the Registrant's Registration Statement on Form S-3, as
amended (No. 33-57798) filed with the Commission on February 2, 1993 (referred
to below as "33-57798"); (v) the Registrant's Registration Statement on Form
S-2 (No. 33-66490) filed with the Commission on July 23, 1993 (referred to
below as "33-66490"); (vi) the Registrant's Registration Statement on Form S-8
(No. 33-48119), filed with the Commission on May 26, 1992 (referred to below
as "33-48119"); (vii) the Registrant's Registration Statement on Form S-8 (No.
33-72194), filed with the Commission on November 29, 1993 (referred to below
as "33-72194"); (viii) the Registrant's Registration Statement on Form S-8
(No. 33-82894), filed with the Commission on August 16, 1994 (referred to
below as "33-82894"); (ix) the Registrant's Registration Statement on Form S-4
(No. 333-00433, filed with the Commission on January 26, 1996 (referred to
below as "33-00433");(x) the Registrant's Current Report on Form 8-K dated
March 5, 1992, filed with the Commission on March 6, 1992 (referred to below
as "March 1992 8-K"); (xi) the Registrant's Current Report on Form 8-K dated
April 16, 1992, filed with the Commission on April 17, 1992 (referred to below
as "April 8-K"); (xii) the Registrants' Current Report on Form 8-K dated
August 23, 1993, filed with the Commission on September 7, 1994 (referred to
below as "August 8-K"); (xiii) the Registant's Current Report on Form 8-K
dated December 14, 1995 filed with the Commission on December 28, 1995
(referred to below as "December 8-K"); (xiv) the Registrant's Current Report
on Form 8-K dated March 26, 1996, filed with the Commission on April 5, 1996
(referred to below as "March 1996 8-K");(xv);the Registrant's Annual Report on
Form 10-K for the seven-month transition period ended February 29, 1992, filed
with the Commission on May 27, 1992 (referred to below as "1992 10-K"); (xvi)
the Registrant's Report on Form 10-K, as amended, for the fiscal year ended
February 27, 1993, filed with the Commission on May 13, 1993 (referred to
below as "1993 10-K"); (xvii) the Registrant's Annual Report on Form 10-K, as
amended, for the fiscal year ended February 26, 1994, filed with the
Commission on May 23, 1994 (referred to below as "1994 10-K"); and (xviii) the
Registrant's Annual Report on Form 10-K, for the fiscal year ended February
25, 1995, filed with the Commission on May 24, 1995 (referred to below as
"1995 10-K").
Exhibit number and filing
reference from which Exhibits
are incorporated by reference
Exhibit 3. Articles of Incorporation and By-laws
3.1 Amended and Restated Certificate of Incorporation 3.1 33-33689
3.2 Certificate of Amendment of the Restated Certificate 3 33-54146
of Incorporation
3.3 Amended and Restated by-laws 3.2 March 8-K
Exhibit 4. Instruments defining the rights of security holders,
including debentures
4.1 Specimen Common Stock Certificate 4 33-33689
4.2 Form of Note for the Registrant's issue of 9 3/4% Senior Notes 4.1 33-57798
4.3 Indenture dated March 3, 1993 between U.S. Trust 4.2 33-57798
Company of New York, as trustee, and the Registrant
relating to the Registrant's 9 3/4% Senior Notes
4.4 First Supplemental Indenture to Indenture dated March 3, 1993 for 4.2 333-00433
the Registrant's 9 3/4% Senior Notes
4.5 Form of Note for the Registrant's 9 7/8% Senior Subordinated Notes 4.3 333-00433
4.6 Form of Note for the Registrant's Series B 9 7/8% Senior 4.3 333-00433
Subordinated Notes
4.7 Indenture dated January 24, 1996 between Fleet National Bank, as 4.1 333-00433
trustee, and the Registrant relating to the Registrant's 9 7/8%
Senior Subordinated Notes and Series B 9 7/8% Senior Subordinated
Notes
4.8 Form of Stockholders' Agreement by and among the 4.4 33-66490
Registrant, Summit Ventures II, L.P., Summit Investors II,
L.P. and Wedbush Capital Partners
Exhibit number and filing
reference from which Exhibits
are incorporated by reference
Exhibit 10(i) Material Contracts
10.4 Supply Agreement dated as of April 17, 1990 between 10.7 33-33689
the Registrant and Applied Extrusion Technologies, Inc.
10.5 Amended and Restated Credit Agreement the "Chase Credit 10.33 1994 10-K
Agreement"), dated as of May 18, 1994 among the Registrant, the
banks named therein and The Chase Manhattan Bank, N.A. as agent
10.6 Amendment No. 1 dated May 18, 1994 to the Chase Credit Agreement 10.33 1995 10-K
10.7 Amendment No. 2 dated January 19, 1996 to the Chase Credit Agreement 10.3 333-00433
10.8 Receivables Sales Agreement dated January 24, 1996 among the 10.1 333-00433
Registrant, First Trust of Illinois, N.A. and Centrally Held Eagle
Receivables Program, Inc.
0.9 Escrow Agreement dated January 24, 1996 among the Registrant, Eagle 10.2 333-00433
Industrial Products Corporation and First Trust of Illinois, NA, as
Escrow Agent
10.10 Acquisition Agreement dated as of December 14, 1995 by and among 1 December 8-K
the Registrant, Eagle Industrial Products Corporation, Eagle
Industries, Inc., and Great American Management and Investment, Inc.
10.11 Flight Equipment and Engineering Limited ("FEEL") Stock 2.1 April 8-K
Purchase Agreement among FEEL Holdings Limited,
Dr. Ling Kai K'ung, Mr. John Frederick Branham
("Mr. Branham"), Mr. John Tcheng and the Registrant dated
April 2, 1992
10.12 Agreement among Boustead Industries Limited, FEEL, 10.26 1993 10-K
Boustead PLC and the Registrant relating to the sale
and purchase of the entire issued share capital of
Fort Hill Aircraft Holdings Limited dated February 8, 1993
10.13 Acquisition Agreement among the Registrant, 10.28 1993 10-K
Inventum and B.V. Industrieele Maatschappij dated
as of April 29, 1993
Exhibit 10(ii) Leases
10.14 Lease dated May 15, 1992 between McDonnell Douglas Realty 10.1 33-54148
Company, as lessor, and the Registrant, as lessee, relating
to the Irvine, California property
Exhibit number and filing
reference from which Exhibits
are incorporated by reference
10.15 Lease dated September 1, 1992 relating to the Wellington, 10.2 33-54146
Florida property
10.16 Chesham, England Lease dated October 1, 1973 10.13(a) 1992 10-K
between Drawheath Limited and The Peninsular and Oriental Steam
Navigation Company (assigned in February 1985)
10.17 Kilkeel, Northern Ireland Lease dated April, 1984 10.27 1993 10-K
between The Department of Economic Development
and Aircraft Furnishing International Limited.
10.18 Utrecht, The Netherlands Lease dated December 15, 1988 10.29 1993 10-K
between the Pension Fund Foundation for Food Supply Commodity Boards
and Inventum
10.19 Utrecht, The Netherlands Lease dated January 31, 1992 10.30 1993 10-K
between G.W. van de Grift Onroerend Goed B.V.
and Inventum
10.20 Lease dated October 25, 1993 relating to the property 10.32 1994 10-K
in Longwood, Florida.
Exhibit 10(iii) Executive Compensation Plans and Arrangements
10.21 Amended and Restated 1989 Stock Option Plan 28.1 33-48119
10.22 Directors' 1991 Stock Option Plan 28.2 33-48119
10.23 1990 Stock Option Agreement with Richard G. Hamermesh 28.3 33-48119
10.24 1990 Stock Option Agreement with B. Martha Cassidy 28.4 33-48119
10.25 1990 Stock Option Agreement with Jim C. Cowart 28.5 33-48119
10.26 1990 Stock Option Agreement with Petros A. Palandjian 28.7 33-48119
10.27 1990 Stock Option Agreement with Hansjoerg Wyss 28.8 33-48119
10.28 1991 Stock Option Agreement with Amin J. Khoury 28.9 33-48119
10.29 1991 Stock Option Agreement with Jim C. Cowart 28.10 33-48119
10.30 1992 Stock Option Agreement with Amin J. Khoury 28.11 33-48119
10.31 1992 Stock Option Agreement with Jim C. Cowart 28.12 33-48119
10.32 1992 Stock Option Agreement with Paul W. Marshall 28.13 33-48119
10.33 1992 Stock Option Agreement with David Lahar
Exhibit number and filing
reference from which Exhibits
are incorporated by reference
10.34 United Kingdom 1992 Employee Share Option Scheme 10.4 33-54146
10.35 1994 Employee Stock Purchase Plan 99 33-82894
10.36 Employment Agreement dated as of January 1, 1992 10.12(a) 1992 10-K
between the Registrant and Amin J. Khoury (the "A. Khoury
Agreement")
10.37 Amendment No. 2 dated as of April 1, 1996 to the A. Khoury 10.2 March 1996 8-K
Agreement
10.38 Employment Agreement dated as of March 1, 1992 10.12(b) 1992 10-K
between the Registrant and Robert J. Khoury (the "R. Khoury
Agreement")
10.39 Amendment No. 2 dated as of January 1, 1996 to the R. Khoury 10.3 March 1996 8-K
Agreement
10.40 Employment Agreement dated as of March 1, 1992 10.12(c) 1992 10-K
between the Registrant and Marco Lanza (the "Lanza Agreement")
10.41 Amendment No. 1 dated as of January 1, 1996 to the Lanza Agreement 10.5 March 1996 8-K
10.42 Employment Agreement dated as of April 1, 1992 10.12(e) 1992 10-K
between the Registrant and G. Bernard Jewell
10.43 Employment Agreement dated as of May 1, 1994 between 10.34 1994 10-K
the Registrant and Thomas P. McCaffrey (the "McCaffrey Agreement")
10.44 Amendment No 1. dated as of January 1, 1996 to the McCaffrey 10.4 March 1996 8-K
Agreement
10.45 Employment Agreement dated as of April 1, 1996 by and between the 10.1 March 1996 8-K
Registrant and Paul E. Fulchino
Exhibit 21 Subsidiaries of the registrant 21 1993 10-K
(b) Reports on Form 8-K:
The Company filed two reports on Form 8-K during the last quarter of the
fiscal year:
1. February 7, 1996 Acquisition of Burns
2. April 5, 1996 Amendments to Employment Agreements with Amin J.
Khoury, Robert J. Khoury, Thomas P. McCaffrey and
Marco Lanza. New Employment Agreement with
Paul E. Fulchino.
[Remainder of page intentionally left blank]
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
om its behalf by the undersigned, thereunto duly authorized.
BE AEROSPACE, INC.
By /s/ Robert J. Khoury
Vice Chairman and
Chief Executive Officer
Dated: May 17, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed on May 17, 1996 by the following persons on behalf of
the registrant in the capacities indicated.
Signature Title
/s/ Amin J. Khoury Chairman
/s/ Robert J. Khoury Vice Chairman, Chief Executive Officer
and Director
/s/ Paul E. Fulchino President, Chief Operating Officer
and Director
/s/ Thomas P. McCaffrey Vice President, Chief Financial Officer
and Assistant Secretary (principal financial
and accounting officer)
/s/ Jim C. Cowart Director
/s/ Richard G. Hamermesh Director
/s/ Brian H. Rowe Director
/s/ Hansjorg Wyss Director
ITEM 8. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE.
Independent Auditors' Report F-2
Financial Statements:
Consolidated Balance Sheets, February 24, 1996 and February 25, 1995. F-3
Consolidated Statements of Operations for the Years Ended February 24, F-4
1996, F-4 February 25, 1995 and February 26, 1994.
Consolidated Statements of Stockholders' Equity for the Years Ended F-5
February 24, 1996, February 25, 1995, and February 26, 1994.
Consolidated Statements of Cash Flows for the Years Ended February 24, F-6
1996, February 25, 1995 and February 26, 1994.
Notes to Consolidated Financial Statements for the Years Ended February F-8
24, 1996, February 25, 1995, and February 26, 1994.
Financial Statement Schedule:
Schedule II - Valuation and Qualifying Accounts for the Years Ended F-22
February 24, 1996, February 25, 1995, and February 26, 1994.
[Remainder of page intentionally left blank]
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
BE Aerospace, Inc.
Wellington, Florida
We have audited the accompanying consolidated balance sheets of BE
Aerospace, Inc. and subsidiaries as of February 24, 1996 and February 25,
1995, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended
February 24, 1996. Our audits also included the financial statement schedule
on page F-22. These financial statements and financial statement schedule are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly,
in all material respects, the financial position of BE Aerospace, Inc. and
subsidiaries as of February 24, 1996 and February 25, 1995, and the results
of their operations and their cash flows for each of the three years in the
period ended February 24, 1996, in conformity with generally accepted
accounting principles. Also, in our opinion, such financial statement
schedule, when considered in relation to the basic financial statements taken
as a whole, presents fairly in all material respects the information set
forth therein.
As discussed in Note 2 to the consolidated financial statements, in the
year ended February 24, 1996 the Company changed its method of accounting for
engineering expenditures.
DELOITTE & TOUCHE LLP
Costa Mesa, California
April 19, 1996
CONSOLIDATED BALANCE SHEETS, FEBRUARY 24, 1996 AND FEBRUARY 25, 1995
(Dollars in thousands, except share data)
ASSETS 1996 1995
- ------ ---- ----
CURRENT ASSETS:
Cash and cash equivalents $ 15,376 $ 8,319
Accounts receivable - trade, less
allowance for doubtful accounts
of $4,973 (1996) and $4,034 (1995) 54,242 48,915
Inventories, net 72,569 71,347
Deferred income taxes -- 6,502
Income tax refund receivable -- 1,019
Other current assets 7,621 6,415
----- -----
Total current assets 149,808 142,517
------- -------
PROPERTY AND EQUIPMENT, net 86,357 60,304
INTANGIBLES AND OTHER ASSETS, net 197,421 177,133
------- -------
$ 433,586 $ 379,954
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 45,102 $ 35,164
Accrued liabilities 56,400 26,123
Current portion of long-term debt 6,482 4,667
----- -----
Total current liabilities 107,984 65,954
------- ------
LONG-TERM DEBT 273,192 172,693
DEFERRED INCOME TAXES 1,257 11,212
OTHER LIABILITIES 6,996 4,764
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value;
1,000,000 shares authorized; no
no shares outstanding; Common
stock, $.01 par value;
30,000,000 shares authorized
16,392,994 (1996) and
16,095,790 (1995) shares issued
and outstanding 164 160
Additional paid-in capital 121,366 119,209
Retained earnings (deficit) (75,995) 7,418
Cumulative foreign exchange translation
adjustment (1,378) (1,456)
------ ------
Total stockholders' equity 44,157 125,331
------ -------
$ 433,586 $ 379,954
========= =========
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED FEBRUARY 24, 1996, FEBRUARY 25, 1995
AND FEBRUARY 26, 1994
(Dollars in thousands, except per share data)
Year ended
Feb. 24, Feb. 25, Feb. 26,
1996 1995 1994
NET SALES $ 232,582 $ 229,347 $ 203,364
COST OF SALES 160,031 154,863 136,307
------- ------- -------
GROSS PROFIT 72,551 74,484 67,057
OPERATING EXPENSES:
Selling, general and administrative 42,000 31,787 28,164
Research, development and engineering 58,327 12,860 9,876
Amortization of intangible assets 9,499 9,954 7,599
Other expenses 4,170 23,736 --
----- ------ ------
Total operating expenses 113,996 78,337 45,639
------- ------ ------
OPERATING EARNINGS (LOSS) (41,445) (3,853) 21,418
INTEREST EXPENSE, net 18,636 15,019 12,581
------ ------ ------
EARNINGS (LOSS) BEFORE INCOME TAXES
(BENEFIT) AND CUMULATIVE EFFECT
OF CHANGE IN ACCOUNTING PRINCIPLE (60,081) (18,872) 8,837
INCOME TAXES (BENEFIT) -- (6,806) 3,481
------- ------ -----
EARNINGS (LOSS) BEFORE CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING (60,081) (12,066) 5,356
PRINCIPLE
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE (23,332) -- --
------- ------ -----
NET EARNINGS (LOSS) $ (83,413) $ (12,066) $ 5,356
========= ========= =========
EARNINGS (LOSS) PER COMMON SHARE:
Earnings (loss) before cumulative effect
of change in accounting principle $ (3.71) $ (0.75) $ 0.35
Cumulative effect of change in
accounting principle (1.44) -- --
----- ----- ------
Net earnings (loss) $ (5.15) $ (0.75) $ 0.35
========= ========= =========
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED FEBRUARY 24, 1996, FEBRUARY 25, 1995 AND FEBRUARY 26, 1994
(in thousands)
Additional Retained Currency Total
Common Stock Paid-in Earnings Translation Stockholders'
Shares Amount Capital (Deficit) Adjustment Equity
Balance, February 27, 1993 14,606 $ 146 $ 98,156 $ 14,128 $ (4,456) $ 107,974
Issuance of common stock 1,272 12 19,080 - - 19,092
Exercise of stock options 107 1 963 - - 964
Tax benefit from
exercise of non
statutory stock options - - 158 - - 158
Net earnings - - - 5,356 - 5,356
Foreign currency translation
adjustment - - - - 449 449
Balance, February 26, 1994 15,985 159 118,357 19,484 (4,007) 133,993
Sale of stock under
employee stock purchase plan 15 - 132 - - 132
Employee benefit plan
matching contribution 96 1 720 - - 721
Net loss - - - (12,066) - (12,066)
Foreign currency translation
adjustment - - - - 2,551 2,551
Balance, February 25, 1995 16,096 160 119,209 7,418 (1,456) 125,331
Sale of stock under
employee stock purchase plan 74 1 403 - - 404
Exercise of stock options 121 2 896 - - 898
Employee benefit plan
matching contribution 102 1 858 - - 859
Net loss - - - (83,413) - (83,413)
Foreign currency translation
adjustment - - - - 78 78
---- ---- ---- --------- --------- ---------
Balance, February 24, 1996 16,393 $ 164 $ 121,366 $ (75,995) $ (1,378) $ 44,157
======== ===== ========= ========= ========= =========
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED FEBRUARY 24, 1996, FEBRUARY 25, 1995 AND FEBRUARY 26, 1994
(Dollars in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES: 1996 1995 1994
---- ---- ----
Net earnings (loss) $ (83,413) $ (12,066) $ 5,356
Adjustments to reconcile net earnings (loss) to
net cash flows (used in) provided by operating activities:
Cumulative effect of accounting change 23,332 -- --
Depreciation and amortization 18,435 16,146 13,115
Change in intangible assets 8,588
Deferred income taxes (3,453) (6,764) 1,657
Non cash employee benefit plan contributions 859 721
Changes in operating assets and liabilities, net of effects
from acquisitions:
Accounts receivable 6,068 6,226 (3,188)
Inventories (11,929) (16,863) (4,153)
Income tax refunds receivable 1,019 915 (1,934)
Other current assets (1,657) (1,500) (2,047)
Accounts payable 3,008 7,295 6,056
Other liabilities 13,169 (642) (9,071)
----- ---- ------
Net cash flows (used in) provided by operating activities (34,562) 2,056 5,791
------- ----- -----
CASH FLOWS FROM INVESTING ACTIVITIES
Payments for purchase of property and equipment (13,656) (12,172) (11,002)
Change in other assets (5,914) (8,610) (5,077)
Acquisitions (42,500) (107,506)
------- -------- --------
Net cash flows used in investing activities (62,070) (20,782) (123,585)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under revolving lines of credit 2,000 9,080 -
Proceeds from issuance of stock, net of
repurchases 1,302 132 964
Principal payments on long-term debt (942) (13,514)
Proceeds from long-term debt 101,252 3,873 130,010
------- ----- -------
Net cash flow provided by financing activities 103,612 13,085 117,460
------- ------ -------
Effect of exchange rate changes on cash flows 77 222 (198)
------- ------ ------
Net increase (decrease) in cash and
cash equivalents 7,057 (5,419) (532)
Cash and cash equivalents, beginning of year 8,319 13,738 14,270
----- ------ ------
Cash and cash equivalents, end
of year $ 15,376 $ 8,319 $ 13,738
========= ========= =========
See notes to consolidated financial statements.
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
1996 1995 1994
---- ---- ----
Cash paid (received) during year for:
Interest $ 16,967 $ 16,664 $ 7,524
Income taxes - net (3,292) (1,096) 2,918
SCHEDULE OF NONCASH TRANSACTIONS:
Tax benefit upon exercise of nonstatutory
stock options - - 158
Liabilities assumed and accrued acquisition
costs incurred in connection with the
acquisitions 27,532 - 19,954
Liabilities incurred in connection with purchase
of land and buildings - 4,000 4,932
Common stock issued in connection with the
acquisitions - - 19,100
See notes to consolidated financial statements.
[Remainder of page intentionally left blank]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED FEBRUARY 24, 1996 FEBRUARY 25, 1995 AND FEBRUARY 26, 1994
(Dollars in thousands, except share and per share data)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Basis of Presentation--
BE Aerospace, Inc. (the "Company") operates in a single business segment
and designs, manufactures, sells and services a broad line of commercial
aircraft cabin interior products consisting of a broad range of aircraft
seating products, passenger entertainment and service systems, and galley
products, including structures as well as all food and beverage storage and
preparation equipment. The Company's customers are the world's commercial
airlines. As a result, the Company's business is directly dependent upon the
conditions in the commercial airline industry.
As described in Note 3, the Company has completed several business
combinations, all accounted for using purchase accounting. On February 28,
1992, the Company acquired from the Pullman Company all of the assets and
certain of the liabilities of PTC Aerospace, Inc. (PTC) and Aircraft Products
Company (APC) (collectively, the Business Unit). Following the acquisition of
the Business Unit, the Company changed its name to BE Aerospace, Inc. On
April 2, 1992, the Company, through its Dutch holding company, acquired all
of the outstanding stock of Flight Engineering and Equipment Limited (FEEL)
and substantially all of the operating assets of JFB Engineering Limited
(JFB), both English corporations. On April 30, 1993, the Company acquired all
of the outstanding stock of Royal Inventum B.V., a Dutch corporation
(Inventum). On August 26, 1993, the Company acquired all of the outstanding
stock of Acurex Corporation, a California corporation (Acurex) and, on August
23, 1993, the Company acquired all of the outstanding stock of Nordskog
Industries, Inc., a California corporation (Nordskog). On October 13, 1993,
the Company acquired substantially all of the assets and certain of the
liabilities of Philips Airvision of Valencia, California (Airvision), a
division of Philips Electronics Corporation, North America Corporation. On
January 24, 1996, the Company acquired all of the outstanding stock of Burns
Aerospace Corporation, a Delaware corporation.
Consolidation--
The accompanying financial statements consolidate the accounts of BE
Aerospace, Inc. and its wholly-owned subsidiaries. All intercompany
transactions and balances have been eliminated in consolidation.
Use of Estimates--
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Income Taxes--
In accordance with Statement of Financial Accounting Standards (SFAS)
No. 109, the Company provides deferred income taxes for temporary differences
between amounts of assets and liabilities recognized for financial reporting
purposes and such amounts recognized for income tax purposes.
Warranty Costs--
Estimated costs related to product warranties are accrued at the time
products are sold.
Revenue Recognition--
Sales of assembled products, equipment or services are recorded on the
date of shipment or, if required, upon acceptance by the customer. The
Company sells its products primarily to airlines worldwide, including
occasional sales collateralized by letters of credit in countries where
customary payment terms exceed one year. The Company performs ongoing credit
evaluations of its customers and maintains reserves for potential credit
losses. Actual losses have been within management's expectations.
Cash Equivalents--
The Company considers all highly liquid debt instruments purchased with
an original maturity of three months or less to be cash equivalents.
Intangible Assets--
The Company amortizes intangible assets using the straight-line method
based on the estimated economic lives of the assets, which range from 7-30
years. The Company annually evaluates the carrying value of the intangible
assets versus the cash benefit expected to be realized and adjusts for any
impairment of value. As discussed in Note 16, the Company introduced a new
product to the inflight entertainment industry, causing the industry in
general to re-evaluate its product offerings and, in the process, impairing
the value of certain assets, including certain earlier Company technology.
Accordingly, certain intangible assets related to these product offerings
were written down to their estimated realizable value during the year ended
February 25, 1995.
Research and Development--
Research and development expenditures are expensed as incurred.
Stock-Based Compensation--
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123 (SFAS 123), Accounting
for Stock-Based Compensation, which will be effective for the Company
beginning February 25, 1995. SFAS 123 requires extended disclosures of
stock-based compensation arrangements with employees and encourages (but does
not require) compensation cost to be measured based on the fair value of the
equity instrument awarded. Companies are permitted, however, to continue to
apply Accounting Principle Board Opinion No. 25 (APB 25), which recognizes
compensation cost based on the intrinsic value of the equity instrument
awarded. The Company will continue to apply APB 25 to its stock-based
compensation awards to employees and will disclose the required pro forma
effect on net income and earnings per share beginning in fiscal 1997.
Earnings (Loss) per Common Share--
Earnings (loss) per common share amounts are computed using the
weighted--average number of common and common equivalent (where not
antidilutive) shares outstanding during each period. The number of weighted
average shares of common stock outstanding amounted to 16,185,000,
16,021,000, and 15,438,000 for the years ended February 24, 1996, February
25, 1995, and February 26, 1994.
Foreign Currency Translation--
In accordance with the provisions of SFAS No. 52, "Foreign Currency
Translation," the assets and liabilities located outside the United States
are translated into U.S. dollars at the rates of exchange in effect at the
balance sheet dates. Income and expense items are translated at the average
exchange rates prevailing during the period. Gains and losses resulting from
foreign currency transactions are recognized currently in income, and those
resulting from translation of financial statements are accumulated as a
separate component of stockholders' equity.
2. ACCOUNTING CHANGE
The Company undertook a comprehensive review of the engineering
capitalization policies followed by its competitors and others in its
industry peer group. The results of this study and an evaluation of the
Company's policy led the Company to conclude that it should adopt the
accounting method that it believes is followed by most of its competitors
and certain members of its industry peer group. Previously, the Company
had capitalized pre-contract engineering costs as a component of inventories,
which were then amortized to earnings as the product was shipped. The Company
now expenses such costs as they are incurred. While the accounting policy for
pre-contract engineering expenditures previously followed by the Company was
in accordance with generally accepted accounting principles, the changed
policy is preferable.
The effect of this change in accounting for periods through February 25,
1995 was a charge of $23,332 ($1.44 per share); the effect of expensing
engineering costs for the year ended February 24, 1996 was a charge of
$42,114 ($2.60). The following table summarizes the pro forma net earnings
(loss) and per share amounts for each period presented. Primarily as a result
of this accounting change, inventories decreased by approximately $65,446 as
of February 24, 1996.
Pro forma amounts assuming the change in application of accounting
principle applied retroactively (unaudited):
Year Ended
February 24, 1996 February 25, 1995 February 26, 1994
Net (loss) earnings $ (60,081) $ (35,398) $ 688
Net (loss)earnings per share $ (3.71) $ (2.20) $ .04
3. ACQUISITIONS
The Company completed a number of acquisitions during the years ended
February 24, 1996 (1996 Acquisition) and February 26, 1994 (1994
Acquisitions) which are described below. Funds for the 1996 and 1994
Acquisitions were obtained from proceeds of the long-term debt issuance
described in Note 8.
1996 Acquisition
Burns--On January 24, 1996 the Company acquired all of the outstanding
capital stock of Burns Aerospace Corporation which designs, manufactures,
sells and services aircraft seating products to commercial airlines
worldwide. The aggregate acquisition cost of $70,032 includes the payment of
$42,500 to the seller, the assumption of approximately $27,532 of
liabilities, including related acquisition costs, and certain purchase
accounting reserves.
The aggregate purchase price for the Burns acquisition has been
allocated to the net assets acquired based on appraisals and management's
estimates as follows:
Receivables $ 11,396
Inventories 12,624
Other current assets 806
Property and equipment 21,695
Intangible and other assets 23,511
-------
$ 70,032
========
[Remainder of page intentionally left blank]
The following table presents unaudited proforma operating results for
the fiscal years ended February 1996 and 1995, respectively, as if the 1996
acquisition had occurred on February 27, 1994:
1996 1995
---- ----
Net sales $ 327,073 $ 322,841
Net loss $ (88,113) $ (15,061)
=========== ==========
Net loss per share $ (5.44) $ (.94)
=========== ==========
None of the above proforma amounts reflect the anticipated cost savings
associated with the Burns business integration plan, as described in
Management's Discussion and Analysis of Operations.
1994 Acquisitions
Inventum--On April 30, 1993, the Company acquired all of the capital
stock of Inventum which designs, manufactures, sells and services galley
inserts such as ovens, beverage makers, and water boilers to commercial
airlines located primarily in Europe and the Pacific Rim. The aggregate
acquisition cost of $39,964 includes the payment of $33,095 to the seller,
the assumption of approximately $3,614 of liabilities, plus related
acquisition costs, and certain purchase accounting reserves.
Acurex--On August 26, 1993, the Company acquired all of the outstanding
capital stock of Acurex which designs, manufactures, sells and services
aircraft refrigeration appliances such as chillers, refrigeration units and
wine chillers to commercial airlines worldwide. The aggregate acquisition
cost of $70,454 includes the payment of $45,000 to the seller, the assumption
of approximately $2,507 of liabilities, the issuance of 1,272,728 shares of
the Company's common stock to the sellers, valued at $15.00 per share, plus
related acquisition costs, and certain purchase accounting reserves.
Nordskog--On August 23, 1993, the Company acquired all of the
outstanding capital stock of Nordskog which designs, manufactures, sells and
services aircraft galley structures and inserts to commercial airlines
worldwide. The aggregate acquisition cost of $25,402 includes a cash payment
of $17,158 to the seller, the assumption of approximately $2,374 of
liabilities, plus related acquisition costs, and certain purchase accounting
reserves.
Airvision--On October 13, 1993, the Company acquired substantially all
of the assets and certain of the liabilities of Airvision which designs,
manufactures, sells and services in-seat video products, including
interactive video for commercial airlines worldwide. The aggregate
acquisition cost of $16,601 includes the payment of $12,253 to the seller,
the assumption of approximately $1,640 of liabilities, plus related
acquisition costs, and certain purchase accounting reserves.
The aggregate purchase price for the 1994 Acquisitions has been
allocated to the net assets acquired based on appraisals and management's
estimates as follows:
Cash and cash equivalents $ 4,403
Receivables 14,403
Inventories 21,392
Property and equipment 5,424
Intangible and other assets 106,799
--------
$ 152,421
========
4. INVENTORIES
Inventories are valued at the lower of cost or market using the weighted
average cost method. Inventories consist of the following:
1996 1995
---- ----
Raw materials $ 28,252 $ 23,675
Work-in-process 39,045 39,131
Finished goods 5,272 8,541
-------- --------
$ 72,569 $ 71,347
======== ========
Inventories at February 25, 1995 included $23,332 of capitalized
pre-contract engineering costs. As described in Note 2, during fiscal 1996,
the Company changed its method of accounting for such costs.
5. PROPERTY AND EQUIPMENT
Property and equipment are carried at cost, and depreciated and
amortized generally on the straight-line method over their estimated useful
lives of three to 20 years (term of lease as to leasehold improvements).
Property and equipment consist of the following:
Years 1996 1995
----- ---- ----
Land, buildings and improvements 15-20 $ 39,979 $ 31,920
Machinery 5-12 46,374 29,743
Tooling 3-5 14,819 10,324
Furniture and equipment 3-5 12,758 7,075
-------- --------
113,930 79,062
Less accumulated depreciation
and amortization (27,573) (18,758)
--------- ---------
$ 86,357 $ 60,304
========== =========
6. INTANGIBLES AND OTHER ASSETS
Intangibles and other assets consist of the following:
Straight-line
Amortization
Period (Years) 1996 1995
-------------- ---- ----
Covenants not-to-compete 14 $ 10,198 $ 9,198
Product technology, production plans and drawings 7-20 60,201 56,774
Replacement parts annuity 20 29,416 26,042
Product approvals and technical manuals 20 18,529 13,909
Goodwill 30 77,256 68,651
Debt issue costs 10 12,592 5,662
Trademarks and patents 20 10,470 9,114
Other 11,761 9,482
-------- -------- -------
230,423 198,832
Less accumulated amortization (33,002) (21,699)
--------- --------
$ 197,421 $177,133
========= ========
7. ACCRUED LIABILITIES
Accrued liabilities consist of the following:
1996 1995
---- ----
Accrued product warranties $ 3,455 $ 2,969
Accrued salaries, vacation and related benefits 10,479 5,502
Accrued acquisition expenses 11,105 2,507
Accrued interest 7,449 6,694
Customer advances 5,940 --
Accrued income taxes 7,315 1,642
Other accrued liabilities 10,657 6,809
------- -------
$ 56,400 $ 26,123
======== ========
8. LONG-TERM DEBT
Long-term debt consists of the following:
1996 1995
---- ----
Senior notes $ 124,313 $ 124,215
Senior subordinated notes 100,000 -
Revolving lines of credit 38,000 36,000
Term loan 16,665 16,577
Other long-term debt 696 568
------ -------
279,674 177,360
Less current portion of long-term debt (6,482) (4,667)
-------- --------
$ 273,192 $ 172,693
========= =========
In January 1996, the Company amended its existing credit facilities by
increasing the aggregate principal amount that may be borrowed thereunder to
$100,000 (the "Bank Credit Facility"). The Bank Credit Facility consists of a
$25,000 Reducing Revolver and a $75,000 Revolving Facility. The amount of the
Reducing Revolver will be reduced automatically by 12.5% on April 19, 1999
and on each of the seven succeeding quarterly anniversaries of such date. The
Reducing Revolver is collateralized by all of the issued and outstanding
capital stock of Acurex and has a five-year maturity, with the commitments of
the lenders thereunder reducing during such five-year period. The Revolving
Facility is collateralized by all of the Company's accounts receivable, all
of its inventory and substantially all of its other personal property and has
a five-year maturity. The Bank Credit Facility contains customary affirmative
covenants, negative covenants and conditions of borrowing, all of which were
met by the Company as of February 24, 1996. Borrowings under the Bank Credit
Facility were used to refinance the remaining borrowings under BEA's then
outstanding credit facility.
Borrowings under the Bank Credit Facility currently bear interest at
LIBOR plus 1.75% or prime (as defined) plus 1/2%. The interest to be charged
on the Bank Credit Facility can increase or decrease based upon specified
operating performance criteria set forth in the Bank Credit Facility
Agreement. Amounts may be borrowed or repaid in $1,000 increments. At February
24, 1996, approximately $5,800 of letters of credit were outstanding,
reducing the aggregate Bank Credit Facility availability to approximately
$56,200.
On January 24, 1996, the Company sold $100,000 of 9 7/8% Senior
Subordinated Notes (the "Senior Subordinated Notes"). The proceeds from the
Senior Subordinated Notes were utilized to acquire Burns and refinance the
Company's then outstanding Bank credit facilities.
The Senior Subordinated Notes are unsecured senior subordinated
obligations of the Company and are subordinated to all senior indebtedness of
the Company and mature on February 1, 2006. Interest on the Senior
Subordinated Notes is payable semi-annually in arrears February 1 and August
1 of each year. The Senior Subordinated Notes are redeemable at the option of
the Company, in whole or in part, at any time after February 1, 2001 at
predetermined redemption prices together with accrued and unpaid interest
through the date of redemption. Upon a change of control (as defined), each
holder of the Senior Subordinated Notes may require the Company to repurchase
such holder's Senior Subordinated Notes at 101% of the principal amount
thereof, plus accrued and unpaid interest to the date of such purchase. The
Senior Subordinated Notes contain certain restrictive covenants, all of which
were met by the Company as of February 24, 1996, including limitations on
future indebtedness, restricted payments, transactions with affiliates,
liens, dividends, mergers and transfers of assets.
On February 24, 1993, the Company sold $125,000 of 9 3/4% Senior Notes
(the "Senior Notes"), which were priced to yield 9 7/8%. The Company received
the proceeds from the Senior Notes on March 3, 1993 and utilized $32,545
thereof to repay the outstanding balance of the Company's then outstanding
bank obligations. The Senior Notes are senior unsecured obligations of the
Company, ranking equally with any future senior obligations of the Company
and mature on March 1, 2003. Interest on the Senior Notes is payable
semi-annually in arrears on March 1 and September 1 of each year. The Senior
Notes are redeemable at the option of the Company, in whole or in part, at
any time on or after March 1, 1998 at predetermined redemption prices,
together with accrued and unpaid interest through the date of redemption.
Upon a change of control (as defined), each holder of the Senior Notes may
require the Company to repurchase such holder's Senior Notes at 101% of the
principal amount thereof, plus accrued and unpaid interest to the date of
such purchase. The Senior Notes contain certain restrictive covenants, all of
which were met by the Company as of February 24, 1996, including limitations
on future indebtedness, restricted payments, transactions with affiliates,
liens, dividends, mergers and transfers of assets.
Terms of the Senior Notes provide that, among other things, the payment
of cash dividends on Common Stock is limited to a cumulative amount that
equals fifty percent of the Company's consolidated adjusted net income since
the date of the Senior Notes' issuance, plus the sum of $10,000 and other
equity adjustments (as defined therein). The payment of cash dividends may
only be made if the Company is not in default under the terms of the
Senior Notes. The Bank Credit Facility also contains restrictions on the
cumulative amount of dividends that may be paid. As of February 24, 1996, no
cash dividends could have been declared by the Company.
The Company has a U.K. revolving line of credit and term loan facility
aggregating $13,300 (the FEEL Credit Agreement). The FEEL Credit Agreement is
collateralized by substantially all of the assets of FEEL. Borrowings may be
made under the line of credit provided FEEL is in compliance with certain
covenants, all of which were met or waived as of February 24, 1996.
Aggregate borrowings outstanding under the FEEL Credit Agreement were
approximately $12,815 as of February 24, 1996. Such borrowings will be repaid
in pounds sterling.
The Company also has a Netherlands revolving line of credit agreement
for approximately $1,000 (the Inventum Credit Agreement). The Inventum Credit
Agreement is collateralized by substantially all of the assets of Inventum.
Borrowings may be made under the line of credit provided Inventum is in
compliance with certain covenants, all of which were met by Inventum as of
February 24, 1996. There were no borrowings outstanding under the Inventum
Credit Agreement as of February 24, 1996.
During fiscal 1995, the Company entered into term loan agreements
aggregating $4,000 which are collateralized by two of the Company's recently
constructed properties. These term loans bear interest at prime (as defined)
plus 1/2% or LIBOR plus 1 3/4%, at the option of the Company and contain
certain restrictive covenants, all of which were met by the Company as of
February 24, 1996.
Maturities of long-term debt are as follows:
Fiscal year ending February:
1997 $ 6,482
1998 1,591
1999 1,424
2000 1,357
2001 39,358
Thereafter 229,462
-------
$ 279,674
=========
9. INCOME TAXES
Income tax expense (benefit) consists of the following:
Current:
1996 1995 1994
---- ---- ----
Current:
Federal $ 1,972 $ (786) $ 1,408
State 818 105 139
Foreign 663 639 277
------- ------- -------
3,453 (42) 1,824
------- ------- -------
Deferred:
Federal (2,634) (5,146) 155
State (818) (904) 266
Foreign - (714) 1,236
------ ---- -----
(3,453) (6,764) 1,657
------ ------ -----
$ - 0 - $ (6,806) $ 3,481
======== ======== =======
The difference between income tax expense (benefit) and the amount
computed by applying the statutory U.S. federal income tax rate (35%) to the
pretax earnings before change in accounting principle consists of the
following:
1996 1995 1994
---- ---- ----
Statutory U.S. federal income tax expense (benefit) $(21,028) $ (6,605) $ 3,093
Operating loss without tax benefit 14,569 - -
Foreign tax rate differential 3,324 - -
State income taxes, net - (519) 264
Goodwill amortization 558 708 290
Research and development credit - (600) --
Foreign Sales Corporation tax benefit - (353) (281)
Other, net 2,577 563 115
-------- -------- --------
$ - 0 - $ (6,806) $ 3,481
========= ======== ========
[Remainder of page intentionally left blank]
The tax effects of temporary differences and carryforwards that give
rise to the Company's deferred income tax assets and liabilities consist of
the following:
1996 1995
---- ----
Engineering costs $ 22,182 $ -
Inventory reserves 5,164 2,396
Acquisition reserves 991 855
Inventory costs capitalized for tax purposes 815 815
Bad debt reserves 658 1,415
Other 1,611 1,021
-------- --------
Net current deferred income tax assets $ 31,421 $ 6,502
======== ========
Intangible assets (14,701) (16,421)
Depreciation (1,556) (1,904)
Net operating loss carryforward 9,254 3,708
Research credit carryforward 600 600
Other 1,137 2,805
------- -------
Net noncurrent deferred income tax liabilities (5,266) (11,212)
-------- --------
Valuation allowance (27,412) -
-------- --------
Net deferred tax liabilities $ (1,257) $ (4,710)
======== ========
Due to uncertainty surrounding the realization of the benefits of its
net deferred tax asset, the Company has established a valuation allowance of
$27,412 against its otherwise recognizable net deferred tax asset.
As of February 24, 1996, the Company had approximately $22,816 of
federal operating loss carryforwards which expire at various dates through
2011, federal research credit carryforwards of $600 which expire at various
dates through 2011, and alternative minimum tax credit carryforwards of $269
which have no expiration date.
The Company has not provided for any residual U.S. income taxes on the
approximately $2,855 of earnings from its foreign subsidiaries because such
earnings are intended to be indefinitely reinvested. Such residual U.S.
income taxes, if provided for, would be immaterial.
The Company's federal tax returns for the years ended February 26, 1994
and February 27, 1993 are currently under examination by the Internal Revenue
Service. Management believes that the resolution of this examination will not
have a material adverse effect on the Company's results of operations or its
financial condition.
10. COMMITMENTS AND CONTINGENCIES
Leases--
The Company leases certain of its office, manufacturing and service
facilities under operating leases which expire at various times through
August 2003. Rent expense for fiscal 1996, 1995, and 1994 was approximately
$2,943, $2,276 and $2,091, respectively. Future payments under leases with
terms currently greater than one year are as follows:
Year ending February:
1997 $ 5,308
1998 4,318
1999 2,567
2000 1,460
2001 1,257
Thereafter 3,063
-------
$17,973
=======
Contingencies--
BEA has been advised that the U.S. Attorney's Office for the District of
Connecticut, in conjunction with the Department of Commerce and the U.S.
Customs Service, is conducting a grand jury investigation focused on possible
non-compliance by BEA with certain statutory and regulatory provisions
relating to export licensing and controls. The investigation relates
primarily to the sale of passenger seats and related spare parts for civilian
commercial passenger aircraft to Iran Air from 1992 through mid-1995. BEA has
been advised that it is a target of the investigation; however, neither it
nor any current or former directors, officers, or employees have been charged
in connection with the investigation. The investigation is at an early stage
and, while the Company intends to defend itself vigorously, the ultimate
outcome of the investigation cannot presently be determined. An adverse
outcome could have a material adverse effect upon the operations and/or
financial condition of the Company.
The Company is also a defendant in various other legal actions arising
in the normal course of business, the outcome of which, in the opinion of
management, neither individually nor in the aggregate are likely to result in
a material adverse effect to the Company's financial statements.
Employment Agreements--
The Company has employment and compensation agreements with two key
officers of the Company. One of the agreements provides for an officer to
earn a minimum of $450 adjusted annually for changes in the consumer price
index (as defined) per year through 2001, as well as a deferred compensation
benefit equal to the aggregate annual compensation earned through termination
and payable thereafter. Such deferred compensation will be payable in equal
monthly installments over the same number of years it was earned. The other
agreement provides for an officer to receive annual minimum compensation of
$450, and an incentive bonus not to exceed 100% of the officer's then-current
salary through 1998. In addition, if the officer terminates his employment on
or after April 28, 1996, the Company is obligated to pay the officer
annually, as deferred compensation, an amount equal to 100% of the officer's
annual salary (as defined) for a period of ten years from the date of
termination. Such deferred compensation has been accrued at the present value
of the obligation at February 24, 1996.
The Company has other employment agreements with certain key members of
management that provide for aggregate minimum annual base compensation of
$1,660, expiring on various dates through 1999.
Supply Agreement--
The Company has entered into a supply agreement with Applied Extrusion
Technologies, Inc. ("AET"), a related party by way of common management.
Under this agreement, the Company has agreed to purchase its requirements for
certain component parts through April 1998 at a price that results in a
33-1/3% gross margin to AET. The Company's purchases under this contract for
the years ended February 24, 1996, February 25, 1995, and February 26, 1994,
were $1,301, $984, $1,040 respectively.
11. PROFIT-SHARING PLAN
In August 1988, the Company established a non-qualified contributory
profit-sharing plan. Effective August 1, 1989, this plan was amended to
incorporate a 401(k) Plan which permits the Company to match a portion of
employee contributions and to make profit-sharing contributions to all
participants (as defined). Commencing in 1995, the Company's 401(k) Plan was
amended to permit the Company's matching contribution to be made in common
stock of the Company. The Company recognized expenses of $859, $757, and $585
related to this plan for the years ended February 24, 1996, February 25, 1995
and February 26, 1994, respectively.
12. STOCKHOLDERS' EQUITY
Stock Option Plans--
The Company has various stock option plans, including the 1989 Stock
Option Plan, the 1991 Directors Stock Option Plan and the 1992 Share Option
Scheme (collectively the "Option Plans"), under which shares of the Company's
common stock may be granted to key employees and directors of the Company
The Option Plans provide for granting key employees options to purchase the
Company's common stock. Options are granted at the discretion of the
compensation and stock option committee of the Board of Directors, and the
option term cannot exceed ten years. Options granted generally vest at the
rate of 25% per year from the date of grant and are exercisable to the extent
vested.
In August 1995, the compensation and stock option committee of the Board
of Directors reviewed the exercise prices of the options then outstanding,
current market conditions, as well as other factors, and deemed it
appropriate to re-price 540,800 options with exercise prices ranging from
$9.25 to $11.75 per share to $7.625 per share, which was the fair market
value as of that date.
The following table sets forth options granted, cancelled, forfeited and
outstanding:
February 26, 1996 February 25, 1995 February 26, 1994
------------------------------- ----------------------- --------------------
Option price Option price Option price
Options per share Options per share Options per share
Outstanding,
beginning of period 2,871,287 $ .81 - $ 13.00 2,493,162 $ .81 - $ 13.00 2,215,112 $ .81 - $ 14.00
Options granted 731,925 $ 7.37 - $ 10.37 484,500 $ 7.44 - $ 8.75 404,500 $ 8.75 - $ 11.75
Options exercised (139,750) $ .81 - $ 8.75 (375) $ - .81 (106,450) $ 8.75 - $ 9.50
Options forfeited (743,112) $ 7.00 - $ 13.00 (106,000) $ 8.25 - $ 11.75 (20,000) $ 8.75 - $ 12.25
--------- --------- ---------
Outstanding, end
of period 2,720,350 $ .81 - $ 13.00 2,871,287 $ .81 - $ 13.00 2,493,162 $ .81 - $ 13.00
========= ========= =========
13. EMPLOYEE STOCK PURCHASE PLAN
The Company has established a qualified Employee Stock Purchase Plan,
the terms of which allow for qualified employees (as defined) to participate
in the purchase of designated shares of the Company's common stock at a price
equal to the lower of 85% of the closing price at the beginning or end of
each semi-annual stock purchase period. The Company issued 73,544 and 15,065
shares of stock during fiscal 1996 and 1995 (none in fiscal 1994) pursuant to
this plan at a price per share of $5.50 and $7.01, respectively.
14. RELATED PARTY TRANSACTIONS
Aurora, a private capital firm, has provided assistance to the Company
in developing its acquisition program, the acquisitions of the Business Unit,
FEEL and AFL, Inventum, Nordskog and Acurex as well as in its 1992 equity
offering, strategic planning, competitive analysis and financial relations.
During fiscal 1994, the Company had an arrangement with Aurora under which
Aurora was entitled to receive reimbursement for its reasonable expenses and
to receive a monthly retainer of $20 which was credited against any fees
earned for services rendered related to certain transactions, including $100
for each acquisition consummated in fiscal 1994. This arrangement was
terminated effective July 1993. Aurora earned approximately $300 during the
year ended February 26, 1994 related to the 1994 Acquisitions. A member of
the Company's Board of Directors is a part owner of Aurora.
15. EXPORT SALES AND MAJOR CUSTOMERS
Export sales from the United States to customers in foreign countries
amounted to approximately $61,717 $61,645, and $44,058 in fiscal 1996, 1995,
and 1994, respectively. Total sales to all customers in foreign countries
amounted to approximately $124,469, $114,511 and $85,239 in fiscal 1996, 1995
and 1994, respectively. Total sales to Europe amounted to 18%, 22% and
28% in fiscal 1996, 1995 and 1994, respectively. Total sales to Asia
amounted to 20%, 19% and 21% in fiscal 1995, 1994 and 1993,
respectively. Major customers (i.e., customers representing more than 10% of
total sales) change from year to year depending on the level of refurbishment
activity and/or the level of new aircraft purchases by such customers. There
were no major customers in fiscal 1996, 1995 or 1994.
[Remainder of page intentionally left blank]
16. OTHER EXPENSES
Other expenses for the year ended February 24, 1996 relate to costs
associated with the integration and consolidation of the Company's European
seating business. Other expenses for the year ended February 25, 1995
consisted of a charge related primarily to intangible assets ($10,835) and
inventories ($11,216) associated with the Company's passenger entertainment
systems. The introduction of the Company's MDDS interactive video system,
which the Company expects to become the industry's standard for inflight
passenger and service entertainment, has captured the dominant market share
with contract awards from the major airlines totaling more than $150,000
during the year ended February 24, 1996. The MDDS system also has recently
caused major carriers to convert programs for earlier products to the
Company's MDDS system and has caused two of the Company's principal
competitors to offer to develop for the airlines systems similar to the
Company's MDDS system. These events have caused the inflight entertainment
industry to re-evaluate its product offerings and, in the process, have
impaired the value of certain of its assets. As a result, the Company has
written down certain of its assets, including certain customer-specific
inventories and other assets.
17. FOREIGN OPERATIONS
Geographic Area--
The Company operated principally in two geographic areas, the United
States and Europe during the years ended February 24, 1996, February 25,
1995, and February 26, 1994. There were no significant transfers between
geographic areas during the period. Identifiable assets are those assets of
the Company that are identified with the operations in each geographic area.
The following table presents operating results for the years ended
February 24, 1996, February 25, 1995, and February 26, 1994 and identifiable
assets as of February 24, 1996 February 25, 1995, and February 26, 1994 by
geographic area.
1996 United
States Europe Consolidated
Sales to unaffiliated customers $ 169,830 $ 62,752 $ 232,582
Gross profit 53,772 18,779 72,551
Selling, general and administrative
and amortization expenses 39,833 11,666 51,499
Research, development and engineering 49,574 8,753 58,327
Other expenses 187 3,983 4,170
Interest expense, net 17,600 1,036 18,636
Loss before income taxes and
cumulative effect of accounting change (53,422) (6,659) (60,081)
Identifiable assets 332,832 100,754 433,586
1995 United
States Europe Consolidated
Sales to unaffiliated customers $ 170,542 $58,805 $229,347
Gross profit 56,296 18,188 74,484
Selling, general and administrative
and amortization expenses 32,183 9,558 41,741
Research and development 9,834 3,026 12,860
Other expenses 23,736 23,736
Interest expense, net 11,835 3,184 15,019
Loss before income taxes (18,578) (294) (18,872)
Identifiable assets 279,402 100,552 379,954
1994 United
States Europe Consolidated
Sales to unaffiliated customers $ 156,638 $ 46,726 $ 203,364
Gross profit 51,401 15,656 67,057
Selling, general and administrative
and amortization expenses 27,288 8,475 35,763
Research and development 7,783 2,093 9,876
Interest expense, net 11,424 1,157 12,581
Earnings before income taxes 4,814 4,023 8,837
Identifiable assets 280,827 94,182 375,009
18. FAIR VALUE INFORMATION
The following disclosure of the estimated fair value of financial
instruments at February 24, 1996 and February 25, 1995 is made in accordance
with the requirements of SFAS No. 107, "Disclosures about Fair Value of
Financial Instruments." The estimated fair value amounts have been determined
by the Company using available market information and appropriate valuation
methodologies. However, considerable judgment is required in interpreting
market data to develop the estimates of fair value. Accordingly, the
estimates presented herein are not necessarily indicative of the amounts that
the Company could realize in a current market exchange. The use of different
market assumptions and/or estimation methodologies may have a material effect
on the estimated fair value amounts.
The carrying amounts of cash and cash equivalents, accounts
receivable--trade, and accounts payable are a reasonable estimate of their
fair values. Except for the Company's Senior Notes and Senior Subordinated
Notes at February 24, 1996, the Company's Senior Notes have a carrying value
of $124,313 and fair value of $130,625, while the Company's Senior
Subordinated Notes have a carrying value of $100,000 and fair value of
$102,750. The carrying amount of other long-term debt approximates fair value
because the obligations either bear interest at floating rates or compare
favorably with fixed rate obligations that would be available to the Company.
The fair value information presented herein is based on pertinent
information available to management as of February 24, 1996. Although
management is not aware of any factors that would significantly affect the
estimated fair value amounts, such amounts have not been comprehensively
revalued for purposes of these consolidated financial statements since that
date, and current estimates of fair value may differ significantly from the
amounts presented herein.
19. SELECTED QUARTERLY DATA (Unaudited)
Summarized quarterly financial data for fiscal 1996 is as follows:
Year Ended February 24, 1996
----------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
As previously reported:
Sales $ 55,594 $ 57,451 $ 55,188 $ 64,349
Gross profit 18,401 17,573 17,519 17,664
Selling, general & administrative 8,300 8,443 8,504 16,692
Research and development 3,547 4,433 3,611 21,071
Operating earnings (loss) 4,221 3,337 (1,113) (22,617)
Net earnings (loss) 33 (375) (3,368) (28,864)
Net earnings (loss) per share 0.00 (0.02) (0.21) (1.92)
As restated due to accounting change:
Sales $ 55,594 $ 57,451 $ 55,188 $ 64,349
Gross profit 18,401 18,719 17,726 17,664
Selling, general & administrative 8,300 8,443 8,504 16,692
Research, development & engineering 13,303 11,471 12,483 21,071
Operating (loss) (5,494) (3,553) (9,782) (22,617)
Net (loss) before cumulative
effect of accounting change (9,682) (7,514) (14,021) (28,864)
Cumulative effect of accounting change (23,332) - - -
Net loss (32,014) (7,514) (14,021) (28,864)
Loss per common share:
Net loss per share:
Before cumulative effect of accounting
change $ (0.60) $ (0.45) $ (0.74) $ (1.92)
Cumulative effect of accounting change (1.44) - - -
-------- -------- -------- -------
Net loss per share $ (2.04) $ (0.45) $ (0.74) $ (1.92)
======== ======== ======== ========
Summarized quarterly financial data for fiscal 1995 is as follows:
Year Ended February 25, 1995
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
Net sales $ 57,567 $ 55,197 $ 57,281 $ 59,302
Gross profit 18,887 18,408 18,668 18,521
Net earnings (loss) 1,074 964 (14,569) 465
Net earnings (loss) per common share .07 .06 (.90) .03
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED
FEBRUARY 24, 1996, FEBRUARY 25, 1995 AND FEBRUARY 26, 1994
(Dollars in thousands)
BALANCE BALANCE
AT BEGINNING AT END
OF YEAR EXPENSES OTHER DEDUCTIONS OF YEAR
DEDUCTED FROM ASSETS:
Allowance for doubtful
accounts:
1996 $ 4,034 $ 162 $1,449 (1) $ 672 $ 4,973
1995 2,208 3,119 1,293 4,034
1994 1,304 774 650 (2) 520 2,208
Reserve for obsolete
inventories:
1996 $ 10,664 $6,022 $5,840 (1) $ 2,741 $ 19,785
1995 7,557 2,787 2,754 (2) 2,434 10,664
1994 2,885 1,880 4,452 (2) 1,660 7,557
INCLUDED IN LIABILITIES:
Accrued product
warranties:
1996 $ 2,969 $ 2,758 $ 936 (1) $ 3,208 $ 3,455
1995 2,388 2,544 666 (2) 2,629 2,969
1994 1,856 1,926 (184) 1,210 2,388
(1) Burns acquisition
(2) 1994 acquisitions
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