B/E AEROSPACE REPORTS SECOND QUARTER;
FINANCIAL RESULTS EXCEED EXPECTATIONS;
SALES UP 22 PERCENT; RECORD BOOKINGS OF $285 MILLION
WELLINGTON, FL, July 22, 2004 - B/E Aerospace, Inc. (Nasdaq: BEAV), the
world's leading manufacturer of aircraft cabin interior products and a leading
aftermarket distributor of aerospace fasteners, today announced results for the
quarter ended June 30, 2004.
HIGHLIGHTS
o Reported second quarter sales of $185.3 million, representing year over
year growth of 22 percent.
o Second quarter operating earnings of $17.9 million were
nearly four times higher than the prior year, despite a $2.1
million negative impact from foreign exchange. Operating earnings
growth was driven by the continuing turnaround at B/E's commercial
aircraft segment, a broad-based increase in revenues and earnings at
the company's distribution segment and a significantly lower cost
structure resulting from B/E's recently completed consolidation
program.
o Net loss for the quarter narrowed to $2.4 million or $0.06 per share as
compared to a net loss of $14.1 million or $0.39 per share in the prior
year. The quarter's financial results were affected by a $2.1 million
negative impact of foreign exchange and a year over year increase of
approximately $2.7 million in interest expense.
o Bookings for the quarter of approximately $285 million were a record
for any quarter in the company's history and were about $70 million or
33 percent greater than the same quarter of the prior year. Backlog at
June 30, 2004 of approximately $615 million, was up 23 percent from the
June 30, 2003 backlog of $500 million, despite the 22 percent increase
in revenues.
2
o Important customer wins for the quarter include Emirates Airline and
Qantas Airways, where B/E has been awarded contracts to design,
manufacture and install luxurious first class cabin interiors on
Emirates and Qantas A380 wide body long-haul aircraft. These awards, in
addition to the previously announced Thai and Malaysia Airlines
programs, demonstrate a growing demand for high-end, premium cabin
interiors for international super first class travel. The combined
initial value of these four awards aggregate over $225 million,
exclusive of option aircraft. Product deliveries are scheduled to begin
in the second half of 2005.
"Our performance during the second quarter confirms that the recovery
in our business, which began in the fourth quarter of 2003, is continuing and
gaining momentum," said Robert Khoury, President and Chief Executive Officer of
B/E. "Each of our businesses is delivering planned operational improvements, our
investments in product line extensions and in new product development are
expanding our market shares, and our bookings and backlog continue a very
positive trend. We believe we are on track to achieve our 2004 financial goals
and are well positioned to deliver strong growth in revenues and profitability
in 2005 and 2006," Mr. Khoury concluded.
SECOND QUARTER CONSOLIDATED RESULTS
For the second quarter, consolidated sales were $185.3 million, a 22
percent increase over the second quarter of 2003.
Net sales by segment were as follows:
NET SALES
----------------------------------------------------------
$ Millions, Three Months Ended
------------------- --------------------- ----------------
June 30, June 30, Percent
2004 2003 Change
------------------- --------------------- ----------------
Commercial aircraft $128.4 $107.9 19.0 %
Distribution 37.1 25.8 43.8 %
Business jet 19.8 18.1 9.4 %
------------------- --------------------- ----------------
Total $185.3 $151.8 22.1 %
Gross profit for the quarter of $61.8 million increased by $22.0
million or 55 percent, as compared to $39.8 million in the second quarter of
2003. Foreign exchange negatively impacted financial comparisons, on a year over
year basis, by $2.1 million. B/E is subject to fluctuations in foreign exchange
rates due to significant sales from its European facilities, substantially all
of which are denominated in U.S. dollars, while the corresponding labor,
overhead and certain material costs are denominated in British pounds or euros.
Even after considering the negative effects of foreign exchange, B/E's gross
margin for the quarter of 33.4 percent improved by 280 basis points
sequentially, reflecting the significant cost savings from B/E's cost reduction
programs and an improvement in product mix.
3
Despite the impact of a weakened dollar on B/E's financial results for
the quarter, operating earnings were $17.9 million or 9.7 percent of sales
versus $3.8 million or 2.5 percent of sales for the same quarter last year. The
substantial increase in operating earnings was driven by the continuing
turnaround at B/E's commercial aircraft segment combined with a broad-based
increase in sales and earnings at the distribution segment and, importantly,
significant cost reductions resulting from B/E's consolidation program, which
was completed during 2003. As previously reported, management believes the
consolidation program is generating annual cash savings of about $60 million.
The net loss for the quarter narrowed to $2.4 million or $0.06 per
share, notwithstanding the $2.1 million negative effect of foreign exchange and
a $2.7 million increase in interest expense, as compared with a loss of $14.1
million or $0.39 per share in the prior year period.
The following is a summary of operating earnings by segment:
OPERATING EARNINGS
------------------------------------------
$ Millions, Three Months Ended
-------------------- ---------------------
June 30, June 30,
2004 2003
-------------------- ---------------------
Commercial aircraft $10.5 ($6.6)
Distribution 7.0 4.4
Business jet 0.4 (0.3)
Divestiture settlement, -- 6.3
net of charges -------------------- ---------------------
Total $17.9 $3.8
SECOND QUARTER RESULTS BY SEGMENT
The commercial aircraft segment continued its turnaround during the
second quarter. The improved operating results at commercial aircraft were
primarily driven by a strong increase in seating and refrigeration product
revenues and lower costs resulting from B/E's recently completed consolidation
program. Operating earnings for this segment of $10.5 million increased by $17.1
million on a $20.5 million increase in sales. The operating margin improved to
8.2 percent of sales, up from an operating loss of $6.6 million in the prior
year period.
B/E's distribution segment delivered record sales of $37.1 million,
approximately 44 percent better than the second quarter of the prior year. The
growth in sales was driven by market share increases and a broad-based increase
in demand for aftermarket aircraft fasteners. Operating earnings for this
segment of $7.0 million were $2.6 million or 59 percent greater than the same
period in the prior year.
4
For the quarter, the business jet segment reported sales of $19.8
million, a 31 percent increase over the sales level in the first quarter of 2004
and 9 percent above the prior year period. Operating earnings for this segment
of $0.4 million were $2.4 million greater than the first quarter of 2004,
reflecting the 31 percent increase in sales volume and successful cost reduction
initiatives; operating earnings increased by $0.7 million as compared to the
same period in the prior year. The business jet segment will be the largest
beneficiary of the four recently awarded international super first class
programs. These four programs, which are initially valued at over $225 million,
exclusive of option aircraft, are expected to begin deliveries in the second
half of 2005 and to substantially improve the outlook for the business jet
segment beginning in 2005 and accelerating thereafter.
SIX-MONTH CONSOLIDATED RESULTS
For the six months ended June 30, 2004, B/E reported consolidated sales
of $360.4 million, an 18 percent increase over the same period last year.
Operating earnings were $30.6 million for the six months just ended, up 183
percent compared to last year. The net loss for the current six month period was
$10.0 million or $0.27 per share, reflecting a $4.4 million negative impact of
foreign exchange and a $5.7 million increase in interest expense arising from
the October 2003 sale of $175 million of senior notes. For the same period last
year, the net loss was $24.9 million or $0.70 per share.
LIQUIDITY, BALANCE SHEET AND CASH FLOW
At quarter end, B/E's liquidity remained very solid with cash balances
of $132.5 million and no debt maturities until 2008. The $15 million reduction
in B/E's cash balance from the December 31, 2003 level was due primarily to two
minor acquisitions to expand the company's product offerings ($13 million). Net
debt at quarter end was $748.5 million, which represents total debt of $881
million, less cash and cash equivalents of $132.5 million.
Earnings before interest, taxes, depreciation and amortization (EBITDA)
for the three month period ending June 30, 2004 was $24.8 million, a $13.9
million or 128 percent increase as compared to EBITDA of $10.9 million in the
same period in the prior year. EBITDA for the twelve months ended June 30, 2004
was $67.8 million, an increase of $56.2 million as compared to EBITDA of $11.6
million for the comparable twelve month period in the prior year. Depreciation
and amortization for the three month and twelve month periods ending June 30,
2004 was $6.9 million and $27.7 million, respectively.
5
FINANCIAL GUIDANCE AND OUTLOOK FOR 2004 AND 2005
Financial guidance for 2004 and 2005 is as follows:
o The outlook for the company has significantly improved. Management now
expects continued strong quarterly revenue comparisons with significant
additional margin expansion expected over the next several quarters.
Management also expects to be at a near-breakeven level of earnings by
the fourth quarter of 2004.
o Full year 2005 operating earnings should increase by about 40 - 50
percent over the 2004 results driven by significant additional margin
expansion and a 5 - 10 percent increase in revenues. Backlog should
continue to grow at double-digit rates through 2005.
o Revenues should grow at a double-digit rate in 2006, based on the
recent $225 million of international super first class program awards,
expected follow-on orders for the company's international super first
class product offerings and the current high level of RFQ's,
essentially all of which are from foreign carriers.
o The business jet segment, which returned to profitability in the
current quarter, will be the largest beneficiary of the international
super first class program awards, and should be solidly profitable in
2005 with accelerating revenue and earnings growth beginning in 2006 as
these programs begin to deliver in volume.
"The outlook for the company is rapidly improving. We continue to
experience significant RFQ activity and we expect further backlog expansion
during 2004 and 2005. RFQ's from major international carriers currently total
about $1 billion. Our recent market share gains in the emerging international
super first class market and expected follow-on orders coupled with anticipated
orders for our market leading cabin interior products should grow our backlog by
double-digit rates through 2005. Backlog from international super first class
programs, initially valued at over $225 million, exclusive of option aircraft,
will begin to convert into top-line revenues during 2005, improving the growth
outlook for both our commercial aircraft and business jet segments," commented
Mr. Khoury. "We expect our revenues to grow solidly during 2005 with an
acceleration of revenue and profit growth in 2006, driven in large part by the
recent international super first class awards, expected follow-on orders and the
current large volume of RFQ's. These programs should allow us to leverage our
product and service offerings across the entire enterprise, increase our
capacity utilization and further expand our margins. Combined with our
distribution segment's successful performance, recent market share gains and the
lower cost structure resulting from our consolidation program, B/E is poised to
deliver to our shareholders strong growth in profitability through 2007," said
Mr. Khoury.
6
This news release contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. Such forward-looking statements involve risks
and uncertainties. B/E's actual experience may differ materially from that
anticipated in such statements. Factors that might cause such a difference
include those discussed in B/E's filings with the Securities and Exchange
Commission, including but not limited to its most recent proxy statement, Form
10-K and Form 10-Q. For more information, see the section entitled
"Forward-Looking Statements" contained in B/E's Form 10-K and in other filings.
B/E Aerospace, Inc. is the world's leading manufacturer of aircraft
cabin interior products, and a leading aftermarket distributor of aerospace
fasteners. B/E designs, develops and manufactures a broad product line for both
commercial aircraft and business jets and provides cabin interior design,
reconfiguration and conversion services. Products for the existing aircraft
fleet -- the aftermarket -- provide about 60 percent of sales. B/E sells its
products through its own global direct sales organization. For more information,
visit B/E's website at www.beaerospace.com.
7
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B/E Aerospace, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
THREE MONTHS ENDED
-----------------------------------
June 30, June 30,
(In millions, except per share data) 2004 2003
- --------------------------------------------------------------------------------
Net sales $ 185.3 $ 151.8
Cost of sales 123.5 112.0
------- ------
Gross profit 61.8 39.8
Gross margin 33.4% 26.2%
Operating expenses:
Selling, general and administrative 29.9 26.1
Research, development and engineering 14.0 9.9
------- ------
Total operating expenses 43.9 36.0
------- ------
Operating earnings 17.9 3.8
Operating margin 9.7% 2.5%
Interest expense, net 19.9 17.2
------- ------
Loss before income taxes (2.0) (13.4)
Income taxes 0.4 0.7
------- ------
NET LOSS $ (2.4) $ (14.1)
======= ======
NET LOSS PER COMMON SHARE $ (0.06) $ (0.39)
======= ======
Common shares:
Weighted average 37.0 35.8
End of period 37.3 36.0
8
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B/E Aerospace, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
SIX MONTHS ENDED
---------------------------------
June 30, June 30,
(In millions, except per share data) 2004 2003
- ------------------------------------------------------------------------------
Net sales $ 360.4 $ 306.5
Cost of sales 245.0 220.3
------- ------
Gross profit 115.4 86.2
Gross margin 32.0% 28.1%
Operating expenses:
Selling, general and administrative 58.6 54.6
Research, development and engineering 26.2 20.8
------- ------
Total operating expenses 84.8 75.4
------- ------
Operating earnings 30.6 10.8
Operating margin 8.5% 3.5%
Interest expense, net 39.7 34.0
------- ------
Loss before income taxes (9.1) (23.2)
Income taxes 0.9 1.7
------- ------
NET LOSS $ (10.0) $ (24.9)
======= ======
NET LOSS PER COMMON SHARE $ (0.27) $ (0.70)
======= ======
Common shares:
Weighted average 37.0 35.6
End of period 37.3 36.0
9
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B/E Aerospace, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited; in millions)
June 30, December 31,
2004 2003
------------------- ----------------
ASSETS
Current assets:
Cash and cash equivalents $ 132.5 $ 147.6
Accounts receivable, net 91.1 80.3
Inventories, net 179.9 168.7
Other current assets 14.9 10.6
------- -------
Total current assets 418.4 407.2
Long-term assets 649.9 645.3
------- -------
$ 1,068.3 $ 1,052.5
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Total current liabilities $ 156.1 $ 132.9
Long-term liabilities 887.5 887.7
------- -------
1,043.6 1,020.6
Total stockholders' equity 24.7 31.9
------- -------
$ 1,068.3 $ 1,052.5
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10
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B/E Aerospace, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited; in millions)
SIX MONTHS ENDED
------------------------------------------
June 30, June 30,
2004 2003
------------------- ----------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (10.0) $ (24.9)
Adjustments to reconcile net loss to net cash flows
provided by (used in) operating activities:
Depreciation and amortization 13.8 14.4
Non-cash employee benefit plan contributions 1.1 1.2
Loss on disposal of property and equipment -- 1.4
Changes in operating assets and liabilities, net of
acquisitions (1.7) (6.4)
------- -------
Net cash flows provided by (used in) operating activities 3.2 (14.3)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (7.1) (7.3)
Proceeds from sale of property and equipment 0.2 2.3
Acquisitions, net of cash acquired (12.5) --
Other, net 0.1 (3.9)
------- -------
Net cash flows used in investing activities (19.3) (8.9)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES: 1.1 (65.1)
------- -------
Effect of exchange rate changes on cash flows (0.1) 1.3
------- -------
Net decrease in cash and cash equivalents (15.1) (87.0)
Cash and cash equivalents at beginning of period 147.6 156.9
------- -------
Cash and cash equivalents at end of period $ 132.5 $ 69.9
======= =======
11
B/E Aerospace, Inc.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
This news release includes EBITDA, a non-GAAP financial measure as defined
in the Securities and Exchange Commission's Regulation G. We include this
measure primarily because investors have expressed an interest in this
information, and because it is an additional measure of our operating
performance and our ability to service our debt. We use EBITDA, among other
things, to evaluate our operating performance, to value prospective acquisitions
and as one of several components of incentive compensation targets for certain
management personnel. This measure is among the primary indicators used by
management as a basis of its planning and forecasting of future periods. We
believe this measure is an important indicator of our operational strength and
the performance of our business because it provides a link between profitability
and operating cash flow. We believe the presentation of this measure is relevant
and useful for investors because it allows investors to view performance in a
manner similar to the method used by our management, helps improve their ability
to understand our operating performance and makes it easier to compare our
results with other companies that have different financing and capital
structures or tax rates. In addition, we believe this measure is among the
primary measures used externally by our investors, analysts and peers in our
industry for purposes of valuation and comparing the operating performance of
our company to other companies in our industry.
EBITDA should not be viewed as a substitute for or superior to net loss,
cash flow from operations or other data prepared in accordance with GAAP as a
measure of our profitability or liquidity. EBITDA is not determined using GAAP.
Therefore, it is not necessarily comparable to similarly titled measures
provided by other companies.
Pursuant to the requirements of Regulation G, we provide the following
table that reconciles EBITDA as presented in this release to net loss, the most
directly comparable GAAP measure. For the reader's convenience we also reconcile
EBITDA to cash flows from operations.
12
*T*
B/E Aerospace, Inc.
PERIODS ENDED JUNE 30, 2004
(unaudited; in millions)
---------------- --------------------
THREE TWELVE
MONTHS MONTHS
---------------- --------------------
Net loss $ (2.4) $ (38.6)
Interest expense, net 19.9 76.3
Loss on debt extinguishment -- 1.2
Taxes 0.4 1.2
Depreciation and amortization 6.9 27.7
---------------- --------------------
EBITDA $ 24.8 $ 67.8
======= =======
Cash flows used in operations $ (2.4) $ (8.1)
Interest expense, net 19.9 76.3
Taxes 0.4 1.2
Changes in operating assets and liabilities 7.5 9.1
Other non-cash adjustments (0.6) (10.7)
---------------- --------------------
EBITDA $ 24.8 $ 67.8
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