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News Release
#04-28 CONTACT:
FOR IMMEDIATE RELEASE Ed Harper
Director of Investor Relations
B/E Aerospace, Inc.
(561) 791-5000
B/E AEROSPACE REPORTS THIRD QUARTER FINANCIAL RESULTS;
SALES UP 19 PERCENT - OPERATING EARNINGS DOUBLE
WELLINGTON, FL, October 27, 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 September 30, 2004.
HIGHLIGHTS
o Reported third quarter sales of $183.5 million, representing year over year
growth of 19 percent.
o Third quarter operating earnings of $17.5 million were more than double the
level of the prior year. 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,
improved operating results at the company's business jet segment and a
significantly lower cost structure resulting from the company's recently
completed consolidation program.
o Net loss for the quarter narrowed to $2.7 million or $0.07 per share as
compared to a net loss of $9.1 million or $0.25 per share in the prior
year. The quarter's financial results were affected by a $1.3 million
negative impact of foreign exchange and a year over year increase of $2.8
million in interest expense.
o In October 2004, the company announced that it had sold 18.4 million shares
of common stock at $9.00 per share, generating net proceeds to the company
of approximately $156 million. The company intends to use the net proceeds
from this offering, along with approximately $50 million of its cash
balances to redeem all $200 million of its 9 1/2 percent senior
subordinated notes due 2008 at a price equal to 103.167 percent of par.
Upon completion of this debt retirement, the company's net debt to capital
will be reduced to approximately 78 percent and annual cash interest
expense will decrease by $19 million.
2
o Bookings for the quarter of approximately $185 million were about $26
million or 16 percent greater than bookings for the same quarter in the
prior year. Backlog at September 30, 2004 stood at approximately $615
million, up 23 percent from the September 30, 2003 backlog of approximately
$500 million, despite the 19 percent increase in revenues.
"Our performance in the third quarter reflects the continuation of the
recovery in our business which began at the end of 2003," said Robert Khoury,
President and Chief Executive Officer of B/E Aerospace. "Each of our business
segments is performing substantially better than the prior year. Our continued
investments in new product development are expanding our market shares as well
as our bookings and backlog. We are pleased with our progress to date and
believe we are on target to deliver an increase in revenues and strong growth in
profitability in 2005, with an acceleration of revenue and earnings growth in
2006 and beyond."
THIRD QUARTER CONSOLIDATED RESULTS
For the third quarter, consolidated sales were $183.5 million, a 19 percent
increase over the third quarter of 2003.
Net sales by segment were as follows:
NET SALES
----------------------------------------
$ Millions, Three Months Ended
----------------------------------------
September 30, September 30, Percent
2004 2003 Change
----------------------------------------
Commercial aircraft $126.0 $113.7 10.8%
Distribution 36.6 26.3 39.2%
Business jet 20.9 14.5 44.1%
----------------------------------------
Total $183.5 $154.5 18.8%
========================================
Gross profit for the quarter of $60.1 million increased by $15.0 million or
33.3 percent, as compared to $45.1 million in the third quarter of 2003. Foreign
exchange negatively impacted financial comparisons, on a year over year basis,
by $1.2 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. Despite the negative
effect of foreign exchange, B/E's gross margin for the quarter of 32.8 percent
improved by 360 basis points over the prior year, reflecting the improved cost
structure resulting from B/E's cost reduction programs, an improvement in
product mix, and manufacturing efficiencies realized at the higher volume of
sales.
3
Despite the impact of a weakened dollar on B/E's financial results for the
quarter, operating earnings were $17.5 million or 9.5 percent of sales versus
$8.3 million or 5.4 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, a broad-based increase in sales
and earnings at the distribution segment, a higher level of sales of business
jet products and, importantly, significant cost reductions resulting from B/E's
consolidation program, which was completed during late 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 $2.7 million or $0.07 per share,
notwithstanding the $1.3 million negative effect of foreign exchange and a $2.8
million increase in interest expense, as compared with a loss of $9.1 million or
$0.25 per share in the prior year period.
The following is a summary of operating earnings by segment:
OPERATING EARNINGS
---------------------------------------------
$ Millions, Three Months Ended
---------------------------------------------
September 30, September 30, Percent
2004 2003 Change
---------------------------------------------
Commercial aircraft $11.3 $5.8 94.8 %
Distribution 6.2 3.9 59.0 %
Business jet -- (1.4) NM
---------------------------------------------
Total $17.5 $8.3 110.8 %
=============================================
THIRD QUARTER SEGMENT COMMENTS
- ------------------------------
The commercial aircraft segment continued its turnaround in the third
quarter. Operating results at commercial aircraft were driven by solid increases
in sales of seating products and food and beverage preparation and refrigeration
equipment and lower costs arising from B/E's recently completed consolidation
program. Operating earnings for this segment of $11.3 million increased by $5.5
million or 95 percent, on a $12.3 million or 11 percent increase in revenues.
The operating margin improved by 390 basis points to 9.0 percent of sales.
B/E's distribution segment generated revenues of $36.6 million, an increase
of 39 percent over the third quarter of the prior year. Revenue growth was
driven by market share gains and a broad-based increase in demand for
aftermarket fasteners, driven in large part by increases in airline passenger
traffic and attendant increases in capacity. Operating earnings for this segment
of $6.2 million were $2.3 million or 59 percent greater than operating earnings
of $3.9 million in the third quarter of 2003.
4
The business jet segment generated revenues of $20.9 million, up 44 percent
over severely depressed sales of $14.5 million in the third quarter of 2003. The
higher level of revenues reflects an increase in aftermarket services, the
initial recovery in the business jet industry as well as the unusually low level
of new business jet deliveries in the prior year. The business jet segment
operated at an approximate break-even level of operations during the current
quarter or $1.4 million better than the third quarter of 2003. As previously
announced, the outlook for the business jet segment has improved as a result of
strong backlog growth, which begins to roll out in 2005.
NINE MONTH CONSOLIDATED RESULTS
- -------------------------------
For the nine months ended September 30, 2004, B/E reported consolidated
sales of $543.9 million, an 18 percent increase over the same period last year.
Operating earnings were $48.1 million for the current nine month period, up 152
percent compared to last year. The net loss for the nine months ended September
30, 2004 was $12.7 million or $0.34 per share, reflecting a $5.7 million
negative impact of foreign exchange and an $8.5 million increase in interest
expense arising from the October 2003 sale of $175 million of senior notes. For
the same period last year, B/E's net loss was $34.0 million or $0.95 per share.
RECENT EQUITY OFFERING
- ----------------------
In October 2004, the company completed an equity offering in which it sold
18.4 million shares of common stock and generated net proceeds of approximately
$156 million. The company intends to use the net proceeds from this offering,
along with approximately $50 million of cash, to redeem its $200 million issue
of 9 1/2 percent senior subordinated notes due 2008 at a price equal to 103.167
percent of par. As a result of the completion of the equity offering and the use
of proceeds, the $200 million of 9 1/2 percent senior subordinated notes due
2008 has been reclassified on the company's balance sheet to current liabilities
from long-term liabilities.
The company has given notice to redeem, on November 8, 2004, all of its
outstanding 9 1/2 percent senior subordinated notes due 2008. Upon completion of
this debt retirement, the company's net debt to capital will be reduced to
approximately 78 percent and annual cash interest expense will decrease by $19
million. As a result of the reclassification, as of September 30, 2004, the
company's total long-term debt was approximately $679 million with no maturities
of long-term debt until 2008. The company will record a charge of approximately
$9 million in the fourth quarter associated with this early retirement of debt,
which consists of a call premium of approximately $6.5 million and unamortized
debt issue costs of approximately $2.5 million. Mr. Khoury commented, "While we
have no maturities of any long-term debt until 2008 and no borrowings
outstanding on our bank line of credit, we are focused on generating cash from
operations and intend to use the lion's share of free cash flow for the
foreseeable future to further reduce our outstanding debt."
5
LIQUIDITY, BALANCE SHEET AND CASH FLOW
- --------------------------------------
At quarter end, B/E's liquidity remained very solid with cash balances of
$126.2 million and no debt maturities until 2008. Total cash and availability
under the company's revolving credit facility at September 30, 2004 was
approximately $165 million. The $21.4 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) and normal fluctuations in
working capital. Net debt at quarter end was $754.1 million, which represents
total debt of $880.3 million, less cash and cash equivalents of $126.2 million.
As adjusted to show the affect of the receipt of the equity proceeds and
repayment of the $200 million of 9 1/2 percent senior subordinated notes, the
company's cash and availability under its revolving credit facility, as of
September 30, 2004, would have been approximately $115 million.
Earnings before interest, taxes, depreciation and amortization (EBITDA) for
the three-month period ending September 30, 2004 was $24.7 million, a $9.4
million or 61 percent increase as compared to EBITDA of $15.3 million in the
same period of the prior year. EBITDA for the twelve months ended September 30,
2004 was $76.0 million, an increase of $65.4 million as compared to EBITDA of
$10.6 million for the comparable twelve-month period of the prior year.
Depreciation and amortization for the three-month and twelve-month periods
ending September 30, 2004 was $7.2 million and $27.9 million, respectively.
FINANCIAL GUIDANCE AND OUTLOOK FOR 2004 AND 2005
- ------------------------------------------------
Financial guidance for 2004 and 2005 is as follows:
o Management expects to return to profitability in the fourth quarter of
2004, exclusive of debt extinguishment costs.
o For full year 2005, management expects 5 - 10 percent revenue growth,
significant additional margin expansion and to report full year EPS of
approximately $0.50 per share on the higher number of shares outstanding.
o For 2006, management expects an acceleration of both revenue and earnings
growth and to report EPS of approximately $1.00 per share for the full
year.
6
Commenting on the company's outlook, Mr. Khoury said, "Our continued
investments in new product development are expanding our market shares, and our
bookings and backlog continue to demonstrate significant positive trends. We are
very pleased with our progress and we have significantly better visibility
concerning the expected demand for our products, as about half of our current
backlog is deliverable within the next twelve months, with a large majority of
the remaining balance expected over the following twelve-month period. We
believe we are on target to achieve growth in revenues and strong growth in
profitability in 2005, with an acceleration of both revenue and earnings growth
in 2006 and beyond. Revenues should grow at double-digit rates in 2006, based on
recent program awards and the over $1.5 billion of requests for quotation (RFQs)
that the company is evaluating."
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 passenger-to-freighter 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
*T*
B/E Aerospace, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
THREE MONTHS ENDED
--------------------------------
September 30, September 30,
(In millions, except per share data) 2004 2003
- -------------------------------------------------------------------------------
Net sales $ 183.5 $ 154.5
Cost of sales 123.4 109.4
-------- -------
Gross profit 60.1 45.1
Gross margin 32.8% 29.2%
Operating expenses:
Selling, general and administrative 29.8 25.1
Research, development and engineering 12.8 11.7
-------- -------
Total operating expenses 42.6 36.8
-------- -------
Operating earnings 17.5 8.3
Operating margin 9.5% 5.4%
Interest expense, net 19.7 16.9
-------- -------
Loss before income taxes (2.2) (8.6)
Income taxes 0.5 0.5
-------- -------
NET LOSS $ (2.7) $ (9.1)
-------- -------
NET LOSS PER COMMON SHARE $ (0.07) $ (0.25)
======== =======
Common shares:
Weighted average 37.5 36.2
End of period 37.8 36.6
8
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B/E Aerospace, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
NINE MONTHS ENDED
--------------------------
September 30, September 30,
(In millions, except per share data) 2004 2003
- -------------------------------------------------------------------------------
Net sales $ 543.9 $ 461.0
Cost of sales 368.4 329.7
-------- -------
Gross profit 175.5 131.3
Gross margin 32.3% 28.5%
Operating expenses:
Selling, general and administrative 88.4 79.7
Research, development and engineering 39.0 32.5
-------- -------
Total operating expenses 127.4 112.2
-------- -------
Operating earnings 48.1 19.1
Operating margin 8.8% 4.1%
Interest expense, net 59.4 50.9
-------- -------
Loss before income taxes (11.3) (31.8)
Income taxes 1.4 2.2
-------- -------
NET LOSS $ (12.7) $ (34.0)
NET LOSS PER COMMON SHARE $ (0.34) $ (0.95)
======== =======
Common shares:
Weighted average 37.1 35.8
End of period 37.8 36.6
9
*T*
B/E Aerospace, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited; in millions)
September 30, December 31,
2004 2003
-------------- -------------
ASSETS
Current assets:
Cash and cash equivalents $ 126.2 $ 147.6
Accounts receivable, net 93.8 80.3
Inventories, net 190.7 168.7
Other current assets 15.0 10.6
---------- -----------
Total current assets 425.7 407.2
Long-term assets 647.4 645.3
---------- -----------
$ 1,073.1 $ 1,052.5
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Total current liabilities (including $ 361.4 $ 132.9
$200.0 of senior subordinated notes to
be redeemed in November 2004)
Long-term liabilities 687.7 887.7
---------- -----------
1,049.1 1,020.6
Total stockholders' equity 24.0 31.9
---------- -----------
$ 1,073.1 $ 1,052.5
========== ===========
10
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B/E Aerospace, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited; in millions)
NINE MONTHS ENDED
------------------------------------------
September 30, September 30,
2004 2003
------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (12.7) $ (34.0)
Adjustments to reconcile net loss to net cash flows
used in operating activities:
Depreciation and amortization 21.0 21.4
Non-cash employee benefit plan contributions 1.7 1.7
Loss on disposal of property and equipment -- 1.4
Changes in operating assets and liabilities, net of
acquisitions (10.9) (11.7)
--------- ---------
Net cash flows used in operating activities (0.9) (21.2)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (10.7) (8.8)
Proceeds from sale of property and equipment 0.5 2.3
Acquisitions, net of cash acquired (12.5) (2.7)
Other, net 0.8 (3.3)
--------- ---------
Net cash flows used in investing activities (21.9) (12.5)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES: 1.4 (64.2)
--------- ---------
Effect of exchange rate changes on cash flows -- 1.4
--------- ---------
Net decrease in cash and cash equivalents (21.4) (96.5)
Cash and cash equivalents at beginning of period 147.6 156.9
--------- ---------
Cash and cash equivalents at end of period $ 126.2 $ 60.4
========= =========
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.
Financial data for the twelve months ended September 30, 2004 was derived
by adding our audited consolidated financial data for the year ended December
31, 2003 to our unaudited consolidated financial data for the nine month period
ended September 30, 2004 and subtracting our unaudited financial data for the
nine month period ended September 30, 2003.
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 SEPTEMBER 30, 2004
(unaudited; in millions)
---------------------------
THREE TWELVE
MONTHS MONTHS
---------------------------
Net loss $ (2.7) $ (32.2)
Interest expense, net 19.7 79.1
Taxes 0.5 1.2
Depreciation and amortization 7.2 27.9
---------------------------
EBITDA $ 24.7 $ 76.0
=========== ==========
Cash flows used in operations $ (4.1) $ (5.2)
Interest expense, net 19.7 79.1
Taxes 0.5 1.2
Changes in operating assets and liabilities 9.2 12.9
Other non-cash adjustments (0.6) (12.0)
---------------------------
EBITDA $ 24.7 $ 76.0
=========== ==========
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