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 29, 1999
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
24,690,932 shares were outstanding as of July 6, 1999.
Item 1. Financial Statements
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share data)
Unaudited Audited
as of as of
May 29, February 27,
1999 1999
---- ----
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 36,037 $ 39,500
Accounts receivable - trade, less allowance for doubtful
accounts of $2,777 (May 29, 1999)
and $2,633 (February 27, 1999) 128,031 140,782
Inventories, net 131,392 119,247
Other current assets 17,059 14,086
---------- ------------
Total current assets 312,519 313,615
---------- ------------
PROPERTY AND EQUIPMENT, net 148,299 138,730
INTANGIBLES AND OTHER ASSETS, net 445,517 451,954
---------- -------------
$ 906,335 $ 904,299
========== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 66,876 $ 63,211
Accrued liabilities 87,388 97,065
Current portion of long-term debt 7,981 9,916
---------- --------------
Total current liabilities 162,245 170,192
----------- --------------
LONG-TERM DEBT 581,855 583,715
OTHER LIABILITIES 35,661 34,519
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value; 1,000,000 shares
authorized; no shares outstanding - -
Common stock, $.01 par 24,677,437 (May 29, 1999) and
24,602,915 (February 27, 1999) issued and outstanding 247 246
Additional paid-in capital 246,745 245,809
Accumulated deficit (112,662) (124,077)
Accumulated other comprehensive loss (7,756) (6,105)
---------- ---------------
Total stockholders' equity 126,574 115,873
---------- --------------
$ 906,335 $ 904,299
========== ==============
See accompanying notes to condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(Dollars in thousands, except per share data)
Three Months Ended
-------------------------------
May 29, May 30,
1999 1998
---- ----
NET SALES $ 185,032 $ 139,991
COST OF SALES 118,445 88,111
----------- -----------
GROSS PROFIT 66,587 51,880
OPERATING EXPENSES:
Selling, general and administrative 22,028 17,999
Research, development and engineering 11,245 11,972
Amortization 5,696 4,033
Acquisition-related expenses - 32,253
----------- -----------
Total operating expenses 38,969 66,257
----------- -----------
OPERATING EARNINGS (LOSS) 27,618 (14,377)
INTEREST EXPENSE, net 12,622 7,782
EQUITY IN LOSSES OF UNCONSOLIDATED SUBSIDIARY 727 -
------------ ----------
EARNINGS (LOSS) BEFORE INCOME TAXES 14,269 (22,159)
INCOME TAXES 2,854 1,716
------------ -----------
NET EARNINGS (LOSS) $ 11,415 $ (23,875)
============ ===========
BASIC NET EARNINGS (LOSS) PER COMMON SHARE $ .46 $ (1.03)
============ ===========
DILUTED NET EARNINGS(LOSS) PER COMMON SHARE $ .46 $ (1.03)
============ ===========
See accompanying notes to condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Dollars in thousands)
Three Months Ended
-----------------------------
May 29, May 30,
1999 1998
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $ 11,415 $ (23,875)
Adjustments to reconcile net earnings (loss) to net cash flows
provided by operating activities:
Acquisition-related expenses - 32,253
Depreciation and amortization 10,052 8,514
Deferred income taxes (42) (70)
Non-cash employee benefit plan contributions 611 498
Changes in operating assets and liabilities, net
of effects from acquisitions:
Accounts receivable 12,359 7,102
Inventories (12,363) (22,039)
Other current assets (3,000) (1,001)
Accounts and income taxes payable 6,343 (3,833)
Accrued and other liabilities (12,039) 5,003
---------- -----------
Net cash flows provided by operating activities 13,336 2,552
--------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (14,237) (8,811)
Change in intangible and other assets (218) (3,733)
Acquisitions, net of cash acquired - (186,271)
--------- -----------
Net cash flows used in investing activities (14,455) (198,815)
---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (payments) under bank credit facilities (2,634) 80,121
Proceeds from issuances of stock, net of expenses 307 3,652
Principal payments on long-term debt - (27,492)
--------- -----------
Net cash flows provided by (used in) financing activities (2,327) 56,281
---------- -----------
Effect of exchange rate changes on cash flows (17) 118
---------- -----------
Net decrease in cash and cash equivalents (3,463) (139,864)
Cash and cash equivalents, beginning of period 39,500 164,685
--------- -----------
Cash and cash equivalents, end of period $ 36,037 $ 24,821
========= ===========
Supplemental disclosures of cash flow information:
Cash paid during period for:
Interest, net $ 20,107 $ 1,560
Income taxes, net $ 716 $ 537
Schedule of non-cash transactions:
Fair market value of assets acquired in acquisitions $ - $ 205,617
Cash paid for businesses acquired in acquisitions $ - $ 186,986
Liabilities assumed and accrued acquisition costs
incurred in connection with acquisitions $ - $ 22,000
See accompanying notes to condensed consolidated financial statements.
Notes to Condensed Consolidated Financial Statements May 29, 1999 and
May 30, 1998 (Unaudited - Dollars in thousands, except per share data)
Note 1. BASIS OF PRESENTATION
The condensed consolidated financial statements of BE
Aerospace, Inc. and its wholly-owned subsidiaries (the "Company" or
"B/E") have been prepared by the Company and are unaudited pursuant
to the rules and regulations of the Securities and Exchange
Commission. 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. Certain reclassifications have been made to the
February 27, 1999 financial statements to conform to the May 29, 1999
presentation.
Although the Company believes that the disclosures provided
are adequate to make the information presented not misleading, these
unaudited interim condensed consolidated financial statements should
be read in conjunction with the audited consolidated financial
statements and notes thereto included in the Company's Annual Report
on Form 10-K for the fiscal year ended February 27, 1999.
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 approximately $9,200 of liabilities,
including related acquisition costs and certain liabilities arising
from the acquisition. PBASCO is a 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
$117,300 in cash and the assumption of approximately $12,800 of
liabilities, including related acquisition costs and certain
liabilities arising from the acquisition. AMP is a 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.
As a result of the acquisitions of PBASCO and AMP (the "1999
Acquisitions") the Company recorded a charge aggregating $32,253 for
the write-off of acquired in-process research and development and
acquisition-related expenses associated with these and other
transactions.
The Company determined that these projects ranged from 25% -
80% complete at May 29, 199 and estimates that the cost to complete
these projects will aggregate approximately $11,000, and will be
incurred over a five year period.
The 1999 Acquisitions have been accounted for using purchase
accounting.
In February 1999, the Company sold a 51% interest in its
In-Flight Entertainment subsidiary (the "IFE" Sale) to a wholly-owned
subsidiary of Sextant Avionique SA for an initial sale price of
$62,000 (subject to adjustment based on the actual results of
operations during the two years following the IFE Sale). As a result
of the IFE Sale, the Company accounts for its remaining 49% interest
in IFE using the equity method of accounting.
Note 3. COMPREHENSIVE INCOME (LOSS)
Comprehensive income (loss) is defined as all changes in a
company's net assets except changes resulting from transactions with
shareholders. It differs from net income (loss) in that certain items
currently recorded to equity would be a part of comprehensive income
(loss). The following table sets forth the computation of
comprehensive income (loss) for the periods presented:
Three Months Ended
---------------------------
May 29, May 30,
1999 1998
Net earnings (loss) $ 11,415 $ (23,875)
Other comprehensive income:
Foreign exchange translation adjustment (1,651) (528)
----------- -----------
Comprehensive income (loss) $ 9,764 $ (24,403)
=========== ============
Note 4. SEGMENT REPORTING
The Company is currently organized based on customer-focused
operating groups operating in a single segment. Each group reports
its results of operations and makes requests for capital expenditures
and acquisition funding to the Company's chief operation
decision-making group. This group is comprised of the Chairman, the
Vice Chairman and Chief Executive Officer, the President and Chief
Operating Officer, the Corporate Senior Vice President of
Administration and Chief Financial Officer and the Executive Vice
President, Marketing and New Product Development. Under this
organizational structure, the Company's operating groups were
aggregated into two reportable segments. The Aircraft Cabin Interior
Products and Services segment is comprised of four operating groups:
the Seating Products Group, the Interior Systems Group, the Flight
Structures and Integration Group and the Services Group, each of
which have separate management teams and infrastructures dedicated to
providing a full range of products to their commercial and general
aviation operator customers. Each of these groups demonstrate similar
economic performance and utilize similar distribution methods and
manufacturing processes. Customers are supported by a single
worldwide after-sale service organization. As described in Note 2,
the Company sold a 51% interest in IFE on February 25, 1999. IFE was
a separate, reportable segment. The Company evaluates the performance
of its operating segments based primarily on sales, gross profit
before special costs and charges, operating earnings before special
costs and charges, and working capital management.
The following table presents sales and other financial
information by business segment for the three month periods ended:
MAY 29, 1999
Aircraft Cabin Interior
Products and Services
-----------------------
Sales $185,032
Gross profit $ 66,587
Operating earnings $ 27,618
Working Capital $150,274
MAY 30, 1998
------------
Aircraft Cabin
Interior In-Flight
Products and Services Entertainment Total
--------------------- ------------- -----
Sales $ 118,129 $ 21,862 $ 139,991
Gross profit $ 45,322 $ 6,558 $ 51,880
Operating loss as reported $ (5,456) $ (8,921) $ (14,377)
Operating earnings (loss) before
special costs $ 19,257 $ (1,381) $ 17,876
Working capital $ 147,539 $ 28,727 $ 176,266
Note 5. EARNINGS (LOSS) PER SHARE
Basic net earnings (loss) per share is computed using the
weighted average common shares outstanding during the period. Diluted
net earnings (loss) per share is computed by using the average share
price during the period when calculating the dilutive effect of stock
options. Shares outstanding for the periods presented were as follows:
Three Months Ended
----------------------------------
May 29, May 30,
1999 1998
Weighted average shares outstanding 24,631 23,070
Dilutive effect of employee stock options 269 -
------- ------
Diluted shares outstanding 24,900 23,070
====== ======
Note 6. RESTRUCTURING CHARGE
During the ourth quarter of fiscal 1999, the Company began to
implement a restructuring plan designed to lower its cost structure and
improve its long-term competitive position. This plan includes
consolidating seven facilities reducing the total number from 21 to 14,
reducing its employment base by approximately 8% and rationalizing its
product offerings. The restructuring costs and charges are comprised of
$61,089 related to impaired inventories and property, plant
and equipment as a result of the rationalization of its product
offerings; plus severance and related separation costs, lease
termination and other costs of $4,949. The Company anticipates that it
will be substantially complete with this restructuring by the end of the
current fiscal year.
The assets impacted by this program include inventories,
factories, warehouses, assembly operations, administration facilities
and machinery and equipment.
The following table summarizes the restructuring costs:
Balance at Balance at
Feb. 27, 1999 Utilized May 29, 1999
--------------------- --------------------- ------------------
Severance, lease termination and other costs $ 4,298 $ 1,070 $ 3,228
Impaired inventories, property and equipment 19,911 10,969 8,942
--------------------- --------------------- ------------------
$ 24,209 $ 12,039 $ 12,170
===================== ===================== ==================
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Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Dollars in thousands, except per share data)
The following discussion and analysis addresses the results of the
Company's operations for the three months ended May 29, 1999, as compared
to the Company's results of operations for the three months ended May 30,
1998. The discussion and analysis then addresses the liquidity and
financial condition of the Company and other matters.
For comparability purposes, the Company has provided additional pro
forma information giving effect to each of the acquisitions (the "1999
Acquisitions") and dispositions (the "IFE Sale") the Company completed
during fiscal 1999, exclusive of any acquisition-related expenses, as if
they all occurred at the beginning of the year.
Three Months Ended May 29, 1999, as Compared to the Results of Operations for
the Three Months Ended May 30, 1998
Net sales for the fiscal 2000 three-month period were $185,032,
$45,041 and 32.2% greater than sales of $139,991 for the comparable
period in the prior year. The increase in sales is primarily due to the
1999 Acquisitions, offset by the impact of the IFE Sale. On a pro forma
basis, sales increased by $22,672 or 14%.
Gross profit was $66,587 or 36.0% of sales for the three months
ended May 29, 1999. This was $14,707, or 28.3%, greater than the
comparable period in the prior year of $51,880, which represented 37.1%
of sales. The increase in gross profit in the current period is primarily
due to the impact of the 1999 Acquisitions and the IFE Sale, offset by
somewhat lower gross margins on certain of the Company's operations due
to the introduction of a large number of new products during the current
quarter.
Selling, general and administrative expenses were $22,028 or 11.9%
of sales for the three months ended May 29, 1999. This was $4,029, or
22.4% greater than the comparable period in the prior year of $17,999 or
12.9% of sales. While selling, general and administrative spending in the
current period increased as a result of the 1999 Acquisitions; such
expenses as a percentage of sales declined by 100 basis points. Selling,
general and administrative expenses for the three months ended May 29,
1999 was $105 greater than pro forma selling, general and administrative
expenses for the comparable period in the prior year.
Research, development and engineering expenses were $11,245 or
6.1% of sales for the three months ended May 29, 1999, a decrease of $727
over the comparable period in the prior year of $11,972 or 8.6% of sales.
The decrease in research, development and engineering expense in the
current period is primarily attributable to the IFE Sale, offset by an
increase in spending attributable to the 1999 Acquisitions. Importantly,
research, development and engineering as a percentage of sales decreased
by 250 basis points.
Amortization expense for the quarter ended May 29, 1999 of $5,696,
was $1,663 greater than the amount recorded in the first quarter of
fiscal 1999 due to acquisitions completed during fiscal 1999.
The Company generated operating earnings of $27,618, or 14.9% of
sales as compared to an operating loss of $(14,377), or (10.3%) during
the comparable period in the prior year. Operating earnings in the prior
year, exclusive of acquisition-related expenses were $17,876. The
increase in operating earnings in the current period is the result of the
increase in gross profit along with lower operating expenses as a
percentage of sales. Operating earnings for the current quarter of
$27,618, or 14.9% of sales, were $5,410 or 24.4% greater than pro forma
operating earnings of $22,208 or 13.6% of sales, for the comparable
period in the prior year.
Interest expense, net was $12,622 for the three months ended May
29, 1999, or $4,840 greater than interest expense of $7,782 for the
comparable period in the prior year. The increase in interest expense is
due to the increase in the Company's long-term debt as a result of
acquisitions completed during fiscal 1999.
Earnings before income taxes in the current quarter were $14,269,
as compared to earnings before acquisition-related expenses and incomes
taxes of $10,094 in the prior year's comparable period. Income tax
expense for the quarter ended May 29, 1999 was $2,854, as compared to
$1,716 in the prior year's comparable period. On a pro forma basis, net
earnings and net earnings per share increased by $2,912 and $.12,
respectively, over the comparable amounts in the prior year.
[Remainder of page intentionally left blank]
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity requirements consist of working capital
needs, ongoing capital expenditures and scheduled payments of interest
and principal 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 both acquisitions and revenue growth.
B/E's working capital was $150,274 as May 29, 1999, as compared to
$143,423 as of February 27,1999.
At May 29, 1999, the Company's cash and cash equivalents were
$36,037 as compared to $39,500 at February 27, 1999. Cash provided
from operating activities was $13,336 for the three months ended May
29, 1999. The primary source of cash during the three months ended May
29, 1999 was net earnings, depreciation and amortization of $21,467, a
$12,359 decrease in accounts receivable and a $6,343 increase in
accounts and income taxes payable, offset by a use of cash of $12,363,
related to increases in inventories and $12,039 related to a decrease
in accrued and other liabilities.
The Company's capital expenditures were $14,237 and $8,811 during
the three months ended May 29, 1999 and May 30, 1998, respectively. The
increase in capital expenditures was primarily attributable to (1)
acquisitions completed during 1999, (2) the purchase of previously leased
facilities, (3) the development of a new management information system to
replace the Company's existing systems, many of which were inherited in
acquisitions, and (4) expenditures for plant modernization. The Company
anticipates on-going 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.
The Company believes that the cash flow from operations and
availability under the Company's 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.
Deferred Tax Assets
The Company has established a valuation allowance related to the
utilization of its deferred tax assets because of uncertainties that
preclude it from determining that it is more likely than not that it will
be able to generate taxable income to realize such asset during the
operating loss carryforward period, which begins to expire in 201l. Such
uncertainties include recent cumulative losses by the Company, the highly
cyclical nature of the industry in which it operates, economic conditions
in Asia which impact the airframe manufacturers and the airlines, the
Company's high degree of financial leverage, risks associated with the
implementation of its integrated management information system and risks
associated with the integration of acquisitions. The Company monitors
these uncertainties, as well as other positive and negative factors that
may arise in the future, as it assesses the necessity for a valuation
allowance for its deferred tax assets.
Year 2000 Costs
The "Year 2000" ("Y2K") issue is the result of computer programs using
two digits rather than four to define the applicable year. Because of
this programming convention, software, hardware or firmware may recognize
a date using "00" as the year 1900 rather than the year 2000. Use of
non-Y2K compliant programs could result in system failures,
miscalculations or errors causing disruptions of operations or other
business problems, including, among others, a temporary inability to
process transactions and invoices or engage in similar normal business
activities.
B/E Technology Initiatives Program. The Company has experienced
substantial growth as a result of having completed 15 acquisitions since
1989. Essentially all of the acquired businesses were operating on
separate information systems, using different hardware and software
platforms. In fiscal 1997, the Company analyzed its systems, both
pre-existing and acquired, for Y2K compliance with a view to replacing
non-compliant systems and creating an integrated Y2K compliant system. In
addition, the Company has developed a comprehensive program to address
the Y2K issue with respect to the following non-system areas: (1) network
switching, (2) the Company's non-information technology systems (such as
buildings, plant, equipment and other infrastructure systems that may
contain embedded microcontroller technology) and (3) the status of major
vendors, third-party network service providers and other material service
providers (insofar as they relate to the Company's business). As
explained below, the Company's efforts to assess its systems as well as
non-system areas related to Y2K compliance involve: (1) a wide-ranging
assessment of the Y2K problems that may affect the Company, (2) the
development of remedies to address the problems discovered in the
assessment phase and (3) testing of the remedies.
Assessment Phase. The Company has identified substantially all of its
major hardware and software platforms in use as well as the relevant
non-system areas described above. The Company has determined its systems
requirements on a company-wide basis and has begun the implementation of
an enterprise resource planning ("ERP") system, which is intended to be a
single system database onto which all the Company's individual systems
will be migrated. In relation thereto, the Company has signed contracts
with substantially all of its significant hardware, software and other
equipment vendors and third-party network service providers related to
Y2K compliance.
Remediation and Testing Phase. In implementing the ERP system, the
Company undertook and has completed a remediation and testing phase of
all internal systems, LANs, WANs and PBXs. This phase was intended to
address potential Y2K problems of the ERP system in relation to both
information technology and non-information technology systems and then to
demonstrate that the ERP software was Y2K compliant. ERP system software
was selected and applications implemented by a team of internal users,
outside system integrator specialists and ERP application experts. The
ERP system was tested between June 1997 and March 1998 by this team of
experts. To date, eight locations have been fully implemented on the ERP
system. This company-wide solution is being deployed to all other B/E
sites in a manner that is designed to meet full implementation for all
non-Y2K compliant sites by the year 2000.
Program to Assess and Monitor Progress of Third Parties. As noted above,
B/E has also undertaken an action plan to assess and monitor the progress
of third-party vendors in resolving Y2K issues. To date, the Company has
(1) obtained guidance from outside counsel to ensure legal compliance,
(2) generated correspondence to each of its third-party vendors to assess
the Y2K readiness of these vendors and (3) contracted a `Vendor Y2K'
fully automated tracking program to track all correspondence to/from
vendors, to track timely responses via an automatic computer generated
`trigger' to provide an electronic folder for easy reference and
retention and to specifically track internally identified `critical'
vendors. The Company is also currently in the midst of developing an
internal consolidated database of the Company's vendors. To monitor its
third-party vendors, the Company has sent a correspondence mailing to
targeted vendors and is currently following up on non-deliverable letters
and those vendors that indicated material problems in their replies. The
Company believes that the majority of the required compliance and
remediation with respect to these vendors will be completed in the
beginning of the second quarter of fiscal 2000.
Contingency Plans. The Company has begun to analyze contingency plans to
handle the worst-case Y2K scenarios that the Company believes reasonably
could occur and, if necessary, intends to develop a timetable for
completing such contingency plans.
Costs Related to the Y2K Issue. To date, the Company has incurred
approximately $30,000 in costs related to the implementation of the ERP
system. The Company currently estimates the total ERP implementation will
cost approximately $38,000 and a portion of the costs have and will be
capitalized to the extent permitted under generally accepted accounting
principles.
Risks Related to the Y2K Issue. Although the Company's efforts to be Y2K
compliant are intended to minimize the adverse effects of the Y2Kissue on
the Company's business and operations, the actual effects of the issue
will not be known until the year 2000. Difficulties in implementing the
ERP system or failure by the Company to fully implement the ERP system or
the failure of its major vendors, third-party network service providers,
and other material service providers and customers to adequately address
their respective Y2K issues in a timely manner would have a material
adverse effect on the Company's business, results of operations and
financial condition. The Company's capital requirements may differ
materially from the foregoing estimate as a result of regulatory,
technological and competitive developments (including market developments
and new opportunities) in the Company's industry. See "Risk
Factors--Potential Failure of Computer Systems to Recognize Year 2000."
Fiscal 1999 Acquisitions
During fiscal 1999, the Company completed four major acquisitions
and two smaller transactions. In April 1999, the company acquired Puritan
Bennett Aero Systems Co., a manufacturer of commercial aircraft oxygen
systems, and "WEMAC" air valve components, overhead lights and switches,
crew masks and protective breathing devices for both general aviation and
commercial aircraft. Also during April 1999, the Company acquired
Aircraft Modular Products, a manufacturer of business jet seating,
cabinetry, and structures. In August 1999, the Company acquired SMR
Aerospace, Inc. and its affiliates ("SMR"), which is a leading supplier
of design, integration, installation and certification services for the
reconfiguration of aircraft, allowing an airline to modify or upgrade the
seating arrangements, install telecommunications, move galley structures
or modify overhead containers or sidewalls, etc. SMR also manufactures
and installs crew rest compartments, and performs the engineering
required to make structural modifications and supplies the kits necessary
for the conversion of passenger to freighter aircraft. In September 1999,
the Company acquired CF Taylor, a leading manufacturer of galley
equipment for both narrow and wide-body aircraft, including galley
structures, crew rests.
Fiscal 1999 Dispositions
In February 1999, the Company sold a 51% interest in its In-Flight
Entertainment subsidiary (the "IFE Sale") to a wholly owned subsidiary of
Sextant Avionique SA for an initial sale price of $62,000 (subject to
adjustment based on the actual results of operations during the two years
following the IFE Sale).
Dependence upon Conditions in the Airline Industry
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 highly cyclical and competitive commercial airline
industry. In the late 1980s and early 1990s, the world airline industry
suffered a severe downturn, which resulted in record losses and several
air carriers seeking protection under bankruptcy laws. As a consequence,
during such period, airlines sought to conserve cash by reducing or
deferring scheduled cabin interior refurbishment and upgrade programs and
by delaying purchases of new aircraft. This led to a significant
contraction in the commercial aircraft cabin interior products industry
and a decline in our business and profitability. Since early 1994, the
airlines have experienced a turnaround in operating results, leading the
domestic airline industry to record operating earnings during calendar
years 1995 through 1998. This financial turnaround has, in part, been
driven by record load factors, rising fare prices and declining fuel
costs. The airlines have substantially improved their balance sheets
through cash generated from operations and the sale of debt and equity
securities. As a result, the levels of airline spending on refurbishment
and new aircraft purchases have expanded. However, due to the volatility
of the airline industry and the current general economic and financial
turbulence, the current profitability of the airline industry may not
continue and the airlines may not be able to maintain or increase
expenditures on cabin interior products for refurbishments or new
aircraft.
In addition, the airline industry is undergoing a process of
consolidation and significantly increased competition. Such consolidation
could result in a reduction of future aircraft orders as overlapping
routes are eliminated and airlines seek greater economies through higher
aircraft utilization. Increased airline competition may also result in
airlines seeking to reduce costs by promoting greater price competition
from airline cabin interior products manufacturers, thereby adversely
affecting our revenues and margins.
Recently, turbulence in the financial and currency markets of
many Asian countries has led to uncertainty with respect to the economic
outlook for these countries. Although not all carriers have been affected
by the current economic events in the Pacific Rim, certain carriers,
including non-Asian carriers that have substantial Asian routes, could
cancel or defer their existing orders. In addition, Boeing has announced
that in light of the continued severe economic conditions in Asia, it
will be substantially scaling back production of a number of aircraft
types, including particularly wide-body aircraft which require up to
five times the dollar content for B/E's products as compared to
narrow-body aircraft.
This report includes forward-looking statements which involve
risks and uncertainties. Our 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 of the Company's Annual Report on Form
10-K for the fiscal year ended February 27, 1999, as well as future
events that may have the effect of reducing the Company's available
operating income and available cash balances, such as unexpected
operating losses or delays in the integration of our acquired businesses,
conditions in the airline industry, customer delivery requirements, new
or expected refurbishments, cash expenditures related to possible future
acquisitions, delays in the implementation of our integrated management
information system, labor disputes involving the Company, its significant
customers or airframe manufacturers, delays or inefficiencies in the
introduction of new products or fluctuations in currency exchange rates.
Item 1. Legal Proceedings Not applicable.
Item 2. Changes in Securities Not applicable.
Item 3. Defaults Upon Senior Securities Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders Not applicable.
Item 5. Other Information None.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
1. Exhibit 27 Financial Data Schedule for the three months
ended May 29, 1999.
2. Exihbit 10.48 Supplemental Executive Money Purchase Retirement Plan.
3. Exhibit 10.49 First Amendment to the Supplemental Executive Money
Purchase Retirement Plan.
4. Exhibit 10.50 Supplemental Executive Deferred Compensation Plan III.
b. Reports on Form 8-K
1. March 3, 1999 Form 8-K relating to the sale of a 51% interest in
the Company's In-Flight Entertainment ("IFE")
business.
2. March 12, 1999 Form 8-K relating to the sale of a 51% interest in
the Company's IFE business.
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BE AEROSPACE, INC.
Date: July 8, 1999 By: /s/ Robert J. Khoury
--------------------------------
Vice Chairman and
Chief Executive Officer
Date: July 8, 1999 By: /s/ Thomas P. McCaffrey
-----------------------------
Corporate Senior Vice President of
Administration and Chief
Financial Officer