UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended May 30, 1998
Commission File No. 0-18348
BE AEROSPACE, INC.
(Exact name of registrant as specified in its charter)
Delaware 06-1209796
(State of Incorporation) (I.R.S. Employer Identification No.)
1400 Corporate Center Way
Wellington, Florida 33414
(Address of principal executive offices)
(561) 791-5000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES[X] NO[ ]
The registrant has one class of common stock, $ .01 par value, of which
23,198,758 shares were outstanding as of June 30, 1998.
Item 1. Financial Statements
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share data)
May 30, February 28,
1998 1998
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ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 24,821 $ 164,685
Accounts receivable - trade, less allowance for doubtful
accounts of $3,982 (May 30, 1998)
and $2,190 (February 28, 1998) 99,565 87,931
Inventories, net 152,506 121,728
Other current assets 8,867 7,869
--------- -----------
Total current assets 285,759 382,213
PROPERTY AND EQUIPMENT, net 120,543 103,821
INTANGIBLES AND OTHER ASSETS, net 268,232 195,723
--------- -----------
$ 674,534 $ 681,757
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 45,764 $ 47,858
Accrued liabilities 58,795 38,566
Current portion of long-term debt 5,793 33,285
--------- -----------
Total current liabilities 110,352 119,709
LONG-TERM DEBT 430,365 349,557
DEFERRED INCOME TAXES 1,130 1,207
OTHER LIABILITIES 25,528 14,509
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value; 1,000,000 shares
authorized; no shares outstanding - -
Common stock, $.01 par value; 50,000,000 shares
authorized; 23,198,758 (May 30, 1998) and
22,891,918 (February 28, 1998) issued and outstanding 232 229
Additional paid-in capital 240,581 240,289
Accumulated deficit (130,107) (40,724)
Cumulative foreign exchange translation adjustment (3,547) (3,019)
---------- -----------
Total stockholders' equity 107,159 196,775
---------- -----------
$ 674,534 $ 681,757
========== ===========
See accompanying notes to condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share data)
Three Months Ended
--------------------------------
May 30, May 31,
1998 1997
NET SALES $ 139,991 $ 113,846
COST OF SALES 88,111 72,783
---------- ---------
GROSS PROFIT 51,880 41,063
OPERATING EXPENSES:
Selling, general and administrative 17,999 12,903
Research, development and engineering 11,972 11,008
Amortization 3,441 2,853
In-process research and development and acquisition-related expenses 98,253 -
--------- ----------
Total operating expenses 131,665 26,764
--------- ----------
OPERATING EARNINGS (LOSS) (79,785) 14,299
INTEREST EXPENSE, net 7,782 6,130
--------- ---------
EARNINGS (LOSS) BEFORE INCOME TAXES (87,567) 8,169
INCOME TAXES 1,816 1,226
----------- ---------
NET EARNINGS (LOSS) $ (89,383) $ 6,943
============ =========
BASIC NET EARNINGS (LOSS) PER COMMON SHARE $ (3.87) $ .32
============= =========
DILUTED NET EARNINGS (LOSS) PER COMMON SHARE $ (3.87) $ .30
============= =========
See accompanying notes to condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Three Months Ended
----------------------------------
May 30, May 31,
1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $ (89,383) $ 6,943
Adjustments to reconcile net earnings to net cash flows
provided by operating activities:
In-process research and development and acquisition-
related expenses 98,253 -
Depreciation and amortization 7,922 6,381
Deferred income taxes (70) (275)
Non cash employee benefit plan contributions 520 447
Changes in operating assets and liabilities, net of effects from
acquisitions:
Accounts receivable 7,102 6,516
Inventories (22,039) (5,023)
Other current assets (1,001) (2,206)
Accounts payable (3,733) (2,263)
Accrued liabilities 5,003 (5,226)
-------- ----------
Net cash flows provided by operating activities 2,574 5,294
-------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (8,811) (6,159)
Change in intangible and other assets (3,733) (347)
Acquisitions, net of cash acquired (186,271) -
--------- ----------
Net cash flows used in investing activities (198,815) (6,506)
--------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) under bank credit facilities 80,121 (174)
Proceeds from issuances of stock, net of expenses 3,630 1,403
Principal payments on long-term debt (27,492) -
--------- ----------
Net cash flows provided by financing activities 56,259 1,229
--------- ----------
Effect of exchange rate changes on cash flows 118 57
--------- ----------
Net (decrease)increase in cash and cash equivalents (139,864) 74
Cash and cash equivalents, beginning of period 164,685 44,149
-------- ---------
Cash and cash equivalents, end of period $ 24,821 $ 44,223
========= =========
Supplemental disclosures of cash flow information: Cash paid during period for:
Interest $ 1,560 $ 6,327
Income taxes, net $ 537 $ 179
Schedule of noncash transactions:
Fair market value of assets acquired in acquisitions $ 202,253 -
Cash paid for businesses acquired in acquisitions $ 187,027 -
Liabilities assumed and accrued acquisition costs
incurred in connection with business acquisitions $ 15,226 -
See accompanying notes to condensed consolidated financial statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS MAY 30, 1998 AND
MAY 31, 1997
Note 1. Basis of Presentation
The condensed consolidated financial statements of B/E Aerospace,
Inc., its wholly-owned and majority-owned subsidiaries (the "Company"
or "B/E") have been prepared by the Company and are unaudited
pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information related to the Company's
organization, significant accounting policies and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted. In the opinion of management, these unaudited
condensed consolidated financial statements reflect all material
adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation of the results of operations and
statements of financial position for the interim periods presented.
These results are not necessarily indicative of a full year's results
of operations.
Although the Company believes that the disclosures provided are
adequate to make the information presented not misleading, these
unaudited interim condensed consolidated financial statements should
be read in conjunction with the audited consolidated financial
statements and notes thereto included in the Company's Annual Report
on Form 10-K/A for the fiscal year ended February 28, 1998.
Note 2. Fiscal 1999 Acquisitions
On April 13, 1998, the Company completed its acquisition of Puritan
Bennett Aero Systems Co. ("PBASCO") for approximately $69,700 in
cash and the assumption of liabilities aggregating approximately
$2,810. PBASCO is the leading manufacturer of commercial aircraft
oxygen delivery systems and "WEMAC" air valve components and in
addition supplies overhead lights and switches, crew masks and
protective breathing devices for both commercial and general
aviation aircraft. Based upon management's assumptions, a portion
of the purchase price was allocated to purchased research and
development that had not reached technological feasibility and had
no future alternative use. During the first quarter of fiscal 1999,
the Company recorded a charge of $37,000 associated with the PBASCO
transaction, for the acquisition of in-process research and
development and acquisition-related expenses.
On April 21, 1998, the Company acquired substantially all of the
assets of Aircraft Modular Products ("AMP") for approximately
$118,000 in cash and assumed certain liabilities aggregating
approximately $2,840. AMP is a leading manufacturer of cabin interior
products for general aviation (business jet) and commercial - type
VIP aircraft, providing a broad line of products including seating,
sidewalls, bulkheads, credenzas, closets, galley structures,
lavatories, tables and sofas; along with related spare parts. Based
on management's assumptions, a portion of the purchase price was
allocated to purchased research and development that had not reached
technological feasibility and had no future alternative use. During
the first quarter of fiscal 1999, the Company recorded a charge of
$61,253 associated with the AMP transaction, for the acquisition of
in-process research and development and acquisition-related expenses.
These transactions have been accounted for using purchase accounting.
While management is not aware of any specific adjustments that would
currently be required, the allocation of the purchase price for
realization uncertainties related to inventories and receivables and
potential liabilities related to warranties and other accrued
liabilities may be adjusted to the extent that amounts differ from
their estimates in accordance with Statement of Financial Accounting
Standards No. 38, "Accounting for Preacquisition Contingencies of
Purchased Enterprises."
Note 3. Comprehensive Income
In the first quarter of fiscal 1999, the Company adopted Statement of
Financial Accounting Standards ("SFAS" or "Statement") No. 130,
"Reporting Comprehensive Income," which establishes standards for the
reporting and display of comprehensive income. Comprehensive income
is defined as all changes in a company's net assets except changes
resulting from transactions with shareholders. It differs from net
income in that certain items currently recorded to equity would be a
part of comprehensive income. The following table sets forth the
computation of comprehensive income for the periods presented:
Three Months Ended
-------------------------
May 30, May 31,
1998 1997
------- -------
Net earnings (loss) $ (89,383) $ 6,943
Other comprehensive income:
Foreign exchange translation adjustment (528) (368)
---------- --------
Comprehensive income (loss) $ (89,911) $ 6,575
========= ========
Note 4. Segment Information
In June 1997, the Financial Accounting Standards Board issued SFAS
No. 131, "Disclosures about Segments of an Enterprise and Related
Information." SFAS No. 131 redefines how operating segments are
determined and requires disclosure of certain financial and
descriptive information about a company's operating segments. The
Company believes the required segment information disclosure under
SFAS No. 131 will be more comprehensive than previously provided,
including expanded disclosure of income statement and balance sheet
items. The Statement is effective for fiscal years beginning after
December 15, 1997; however, application is not required for interim
periods in the initial year of its application. The Company adopted
the Statement effective March 1, 1998.
Note 5. Long-Term Debt
8% Senior Subordinated Notes - In February 1998, the Company sold
$250,000 of 8% Senior Subordinated Notes, priced to yield 8.02% (the
"8% Notes"). In conjunction with the sale of the 8% Notes, the
Company initiated a tender offer for its 9 3/4% Notes. The net
proceeds from the offering of approximately $240,419 were used for
the tender offer (which expired on February 25, 1998) in which
approximately $101,808 of the 9 3/4% Notes were retired; the
remaining $23,192 of the 9 3/4% Notes were redeemed on March 16,
1998.
Credit Facilities - In April 1998, the Company amended its credit
facilities with The Chase Manhattan Bank by increasing the aggregate
principal amount that may be borrowed thereunder to $200,000 (the
"Bank Credit Facility"). The Bank Credit Facility consists of a
$100,000 revolving credit facility (of which $25 million may be
utilized for acquisitions) along with an acquisition facility of up
to $100,000. The acquisition facility is amortizable over five years
beginning April 1999; the revolving facility expires in April 2004.
The Bank Credit Facility is collateralized by the Company's accounts
receivable, inventories and by substantially all of its other
personal property. The Bank Credit Facility contains customary
affirmative covenants, negative covenants and conditions of
borrowing, all of which were met by the Company as of May 30, 1998.
At May 30, 1998, indebtedness under the existing Bank Credit Facility
consisted of $80,000 outstanding under its acquisition facility and
letters of credit amounting to approximately $4,500.
Note 6. Earnings (Loss) Per Share
The following table sets forth the computation of basic and diluted
earnings (loss) per share for the three months ended May 30, 1998
and May 31, 1997.
Three Months Ended
-----------------------
May 30, May 31,
1998 1997
------- ------
Numerator - Net earnings (loss) $ (89,383) $ 6,943
========= ========
Denominator:
Denominator for basic earnings (loss) per share -
Weighted average shares 23,070 21,949
--------- --------
Effect of dilutive securities -
Employee stock options - 1,118
--------- --------
Denominator for diluted earnings (loss) per share -
Adjusted weighted average shares 23,070 23,067
======== ========
Basic earnings (loss) per share $ (3.87) $ .32
========= ========
Diluted earnings (loss) per share $ (3.87) $ .30
========= ========
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis addresses the results of the
Company's operations for the three months ended May 30, 1998, as compared
to the Company's results of operations for the three months ended May 31,
1997. The discussion and analysis then addresses the liquidity and
financial condition of the Company.
On April 13, 1998, the Company completed its acquisition of Puritan
Bennett Aero Systems Co. ("PBASCO") for approximately $69,700 in cash and
the assumption of liabilities aggregating approximately $2,810. PBASCO is
the leading manufacturer of commercial aircraft oxygen delivery systems
and "WEMAC" air valve components and in addition supplies overhead
lights and switches, crew masks and protective breathing devices for both
commercial and general aviation aircraft. On April 21, 1998, the Company
acquired substantially all of the assets of Aircraft Modular Products
("AMP") for approximately $118,000 in cash and assumed certain
liabilities aggregating approximately $2,840. AMP is a leading
manufacturer of cabin interior products for general aviation (business
jet) and commercial - type VIP aircraft, providing a broad line of
products including seating, sidewalls, bulkheads, credenzas, closets,
galley structures, lavatories, tables and sofas; along with related spare
parts. The acquisition of PBASCO and AMP are collectively referred to as
the "Acquisitions."
THREE MONTHS ENDED MAY 30, 1998, AS COMPARED TO THE RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MAY 31, 1997
Net sales for the fiscal 1999 three-month period were $139,991, or 23
percent higher than sales of $113,846 for the comparable period in the
prior year. Excluding the effect of the Acquisitions, revenues increased
11% over the prior year.
Gross profit was $51,880 (37.1% of sales) for the three months ended May
30, 1998. This was $10,817, or 26%, greater than the comparable period in
the prior year of $41,063, which represented 36.1% of sales. The increase
in gross profit is attributable to the growth in revenues and the
improved gross margins.
Selling, general and administrative expenses were $17,999 (12.9% of
sales) for the three months ended May 30, 1998. This was $5,096, or 39%,
higher than the comparable period in the prior year of $12,903 (11.3% of
sales). The increase in selling, general and administrative expenses was
primarily due to inclusion of the relevant expenses of the acquired
companies along with increases associated with internal growth.
Research, development and engineering expense was $11,972 (8.6% of sales)
for the three months ended May 30, 1998, an increase of $964 over the
comparable period in the prior year. The increase in research,
development and engineering expense in the current period is primarily
attributable to on-going new product development activities.
Amortization expense for the quarter ended May 30, 1998 of $3,441 was
$588 greater than the amount recorded in the first quarter of fiscal
1998.
Based on management's assumptions, a portion of the Acquisition purchase
price was allocated to purchased research and development that had not
reached technological feasibility and had no future alternative use.
During the first quarter of fiscal 1999, the Company recorded a charge of
$98,253 for the acquisition of in-process research and development and
acquisition-related expenses.
Due to the acquisition-related charges of $98,253 during the current
quarter, the Company incurred an operating loss of $(79,785), as
compared to operating earnings of $14,299 in the prior year. Operating
earnings excluding the acquisition-related charges were $18,468.
THREE MONTHS ENDED MAY 30, 1998, AS COMPARED TO THE RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MAY 31, 1997 (Continued)
Interest expense, net was $7,782 for the three months ended May 30, 1998,
or $1,652 greater than interest expense of $6,130 for the comparable
period in the prior year and is due to the increase in the Company's
long-term debt as compared to the prior year's comparable period.
The loss before income taxes in the current quarter was $(87,567), (which
includes in-process research and development and acquisition-related
expenses of $98,253) as compared to earnings before incomes taxes of
$8,169 in the prior year. Earnings before income taxes excluding the
acquisition related charges were $10,686. Income tax expense for the
quarter ended May 30, 1998 was $1,816, as compared to $1,226 in the prior
year's comparable period.
The net loss for the quarter ended May 30, 1998 was $(89,383), or $(3.87)
per share (diluted), as compared to net earnings of $6,943, or $.30 per
share (diluted), for the comparable period in the prior year.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity requirements consist of working capital needs,
ongoing capital expenditures and scheduled payments of interest on its
indebtedness. B/E's primary requirements for working capital have been
directly related to increased accounts receivable and inventory levels as
a result of revenue growth. B/E's working capital was $175,407 as of May
30, 1998, as compared to $262,504 as of February 28,1998.
At May 30, 1998, the Company's cash and cash equivalents were $24,821, as
compared to $164,685 at February 28, 1998. Cash provided from operating
activities was $2,574 for the three months ended May 30, 1998 and $5,294
for the three months ended May 31, 1997. The primary source of cash
during the three months ended May 30, 1998 was net loss of $(89,383),
non-cash charges for in-process research and development, depreciation,
amortization and acquisition-related expenses of $106,175, decreases in
accounts receivable of $7,102 and increases in accrued and other
liabilities of $5,003, offset by a use of cash of $23,040 related to
increases in inventories and other current assets and $3,733 related to
net decreases in accounts payable. The primary use of cash during the
quarter was $187,027 for the acquisition of PBASCO and AMP.
The Company's capital expenditures were $8,811 and $6,159 during the
three months ended May 30, 1998 and May 31, 1997, respectively. The
increase in capital expenditures was primarily attributable to (i) the
development of a new management information system to replace the
Company's existing systems, many of which were inherited in acquisitions,
and (ii) expenditures for plant modernization. The management information
system is expected to be installed over 18 months and will be year
2000 compliant. The Company anticipates ongoing annual capital
expenditures of approximately $30,000 for the next several years to be in
line with the expanded growth in business and the recent acquisitions.
In April 1998, the Company amended its credit facilities with The Chase
Manhattan Bank by increasing the aggregate principal amount that may be
borrowed thereunder to $200,000 (the "Bank Credit Facility"). The Bank
Credit Facility consists of a $100,000 revolving credit facility (of
which $25,000 may be used for acquisitions) along with an acquisition
facility of up to $100,000. The acquisition facility is amortizable over
five years beginning in April 1999; the revolving credit facility expires
in April 2004. The Bank Credit Facility is collateralized by the
Company's accounts receivable and inventories and by substantially all of
its other personal property. The Bank Credit Facility contains customary
affirmative covenants, negative covenants and conditions of borrowing. At
May 30, 1998, indebtedness under the existing Bank Credit Facility
consisted of $80,000 outstanding under its acquisition facility and
letters of credit amounting to approximately $4,500.
Long-term debt also consists of the 9 7/8% Senior Subordinated Notes and
8% Senior Subordinated Notes which mature on February 1, 2006 and March
1, 2008, respectively.
The Company believes that the cash flow from operations and availability
under the Bank Credit Facility will provide adequate funds for its
working capital needs, planned capital expenditures and debt service
requirements 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, make planned
capital expenditures, make scheduled payments and 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.
This report includes forward-looking statements which involve risks and
uncertainties. The Company's actual experience may differ materially from
that anticipated in such statements. Factors that might cause such a
difference include, but are not limited to, those discussed in "Risk
Factors" contained in Exhibit 99.1 of the Company's Annual Report on Form
10-K/A for the fiscal year ended February 28, 1998, as well as future
events that have the effect of reducing the Company's available cash
balances, such as unexpected operating losses, delays in the integration
of the Company's acquired businesses, delivery of the Company's MDDS
interactive video system, customer delivery requirements, new or expected
refurbishments, or cash expenditures related to possible future
acquisitions.
Item 1. Legal Proceedings Not applicable.
Item 2. Changes in Securities
Recent Sales of Unregistered Securities
In March 1998, pursuant to the terms of an Agreement and Plan of
Reorganization and Merger dated March 27, 1998, by and among B/E, BE
Acquisition Corp., Aerospace Interiors, Inc. ("ASI"), Gregory N. Fodell
and the Shareholders of ASI listed therein (the "Merger Agreement"),
B/E issued 201,895 shares of B/E Common Stock in exchange for all of
the outstanding stock of ASI. The shares of Common Stock issued
pursuant to the Merger Agreement were not registered under the
Securities Act on the basis that it was a transaction by an issuer not
involving any public offering, in accordance with Section 4(2) under
the Securities Act.
Item 3. Defaults Upon Senior Securities Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders Not applicable.
Item 5. Other Information
Discretionary authority will be granted to the designated persons in
the Proxy Statement for the Annual Meeting of Stockholders to be held
in 1999 as to all matters which B/E does not have notice on or prior
to May 26, 1999.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
1. Exhibit 27. Financial Data Schedule for the three months
ended May 30, 1998
2. Exhibit 10.1 Amended and Restated Employment Agreement
dated as of May 29, 1998 between the Registrant and
Amin J. Khoury
3. Exhibit 10.2 Amended and Restated Employment Agreement
dated as of May 29, 1998 between the Registrant and
Robert J. Khoury
4. Exhibit 10.3 Amended and Restated Employment Agreement
dated as of May 29, 1998 between the Registrant and
Paul E. Fulchino
5. Exhibit 10.4 Amended and Restated Employment Agreement dated
as of May 29, 1998 between the Registrant and
Thomas P.McCaffrey
(b) Reports on Form 8-K
1. May 8, 1998 Acquisition of Aircraft Modular Products
2. April 27, 1998 Acquisition of Puritan-Bennett
Aero Systems Co.
3. April 13, 1998 Press Release
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
B/E AEROSPACE, INC.
Date: June 30, 1998 By: /s/ Robert J. Khoury
--------------------
Vice Chairman and
Chief Executive Officer
Date: June 30, 1998 By: /s/ Thomas P. McCaffrey
-----------------------
Corporate Senior Vice President
of Administration and Chief
Financial Officer