Exhibit 99.1
[LOGO OF B/E AEROSPACE INC.]
#07-06
News Release
CONTACT:
Greg Powell
Director of Investor Relations
B/E Aerospace, Inc.
(561) 791-5000 ext. 1450
B/E AEROSPACE RECORD FOURTH QUARTER 2006 FINANCIAL RESULTS EXCEED EXPECTATIONS;
RECORD FOURTH QUARTER 2006 REVENUES OF $322 MILLION UP 44 PERCENT;
RECORD FOURTH QUARTER 2006 OPERATING PROFITS OF $43 MILLION UP 78 PERCENT;
RECORD BACKLOG OF $1.7 BILLION
WELLINGTON, FL, February 5, 2007 - 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 financial
results for the fourth quarter of 2006 and for the full year 2006.
HIGHLIGHTS
- ----------
o Record fourth quarter revenues of $321.6 million reflect 44.3 percent
year-over-year growth; organic revenue growth exclusive of
acquisitions was 28.0 percent.
o Fourth quarter operating earnings of $43.0 million were 77.7 percent
higher than the same period in the prior year. Fourth quarter
operating margin of 13.4 percent expanded by 250 basis points versus
the same period in the prior year.
o Earnings before income taxes were $31.4 million, which was more than
triple pre-tax earnings in the same period in the prior year.
o Net earnings for the current quarter were $21.7 million, or $0.28 per
diluted share; $0.02 better than consensus estimates and $0.05 greater
than B/E's financial guidance.
o Bookings for the quarter ended December 31, 2006 totaled over $400
million, and represent a book-to-bill ratio of 1.3:1. Bookings for the
full year 2006 were approximately $1.7 billion, which is a record for
any twelve-month period and represent a book-to-bill ratio of
approximately 1.5:1. Backlog at December 31, 2006 stood at over $1.7
billion, an increase of approximately 60 percent as compared to
backlog at December 31, 2005.
6
o Full year 2006 revenues and diluted earnings per share were $1.1
billion and $1.10 per share, respectively, and include one-time debt
prepayment costs of $19.4 million and a one-time tax benefit of $22.9
million associated with the recognition of the company's U.K. deferred
tax asset.
o B/E raises 2007 earnings guidance to approximately $1.40 - $1.42 per
share representing an increase in earnings per share of over 55
percent as compared to full year 2006 results, (excluding one-time
items and based on a 35 percent tax rate in both periods). In
addition, B/E establishes initial 2008 earnings per share guidance at
approximately $2.00 per share, with an estimate of an additional 25
percent increase in earnings per share in 2009.
FOURTH QUARTER PERFORMANCE
- --------------------------
For the fourth quarter of 2006 consolidated sales of $321.6 million
increased $98.7 million, or 44.3 percent, over the fourth quarter of 2005.
Operating earnings for the fourth quarter of 2006 of $43.0 million
increased by $18.8 million, or 77.7 percent, as compared to the same period last
year. The fourth quarter operating margin of 13.4 percent expanded by 250 basis
points as compared to the same period last year. Operating earnings growth,
exclusive of recent acquisitions, was 58.8 percent.
Interest expense for the fourth quarter of 2006 was $11.0 million and was
$3.4 million lower than interest expense recorded in the same period in the
prior year. The company prepaid $50 million of its bank term debt during the
fourth quarter. Debt prepayments in the current period resulted in $0.6 million
of debt prepayment costs. Total full year 2006 debt prepayments were $475
million and debt prepayment costs were $19.4 million.
Net earnings for the fourth quarter of 2005 of $62.1 million, or $0.96 per
diluted share included a one-time tax benefit of $51.9 million, or $0.80 per
diluted share. Exclusive of the tax benefit in the fourth quarter of 2005 net
earnings were $10.2 million or $0.16 per share versus net earnings of $21.7
million or $0.28 per share in 2006, representing more than a doubling in net
income and an increase in earnings per share of 75.0 percent in the fourth
quarter of 2006 versus the same period in the prior year. Earnings per share
during the fourth quarter of 2006 was based upon 78.5 million diluted shares
outstanding versus 64.9 million diluted shares outstanding during the fourth
quarter of 2005.
7
FOURTH QUARTER SEGMENT DISCUSSION
- ---------------------------------
Net sales by segment were as follows:
NET SALES
-----------------------------------------------
Fourth Quarter Ended December 31,
($ in millions)
-----------------------------------------------
Percent
2006 2005 Change Change
-----------------------------------------------
Seating $ 105.5 $ 74.3 $ 31.2 42.0%
Interior systems 81.7 51.6 30.1 58.3%
Distribution 78.5 42.9 35.6 83.0%
Business jet 38.6 34.6 4.0 11.6%
Engineering services 17.3 19.5 (2.2) NM
-----------------------------------------------
Total $ 321.6 $ 222.9 $ 98.7 44.3%
The increase in sales volume for the seating and interior systems segments
was driven by a higher level of retrofit activity, demand created by new
aircraft deliveries, and market share gains. Interior systems segment's organic
revenue growth rate, exclusive of the impact of the acquisition of Draeger
Aerospace GmBH ("Draeger") in July 2006, was 25.5 percent. The distribution
segment delivered revenue growth of 83.0 percent in the fourth quarter of 2006,
reflecting a broad-based increase in aftermarket demand for aerospace fasteners,
continued market share gains and the acquisition of New York Fasteners, Corp.
("NYF") in August 2006. Distribution segment organic revenue growth rate,
exclusive of the impact of the NYF acquisition, was 37.8 percent. Business jet
segment revenues increased by 11.6 percent in the fourth quarter of 2006,
reflecting strong business jet deliveries, offset by lower revenues from super
first class products. The recent acquisitions of Draeger (interior systems) and
NYF (distribution) accounted for approximately $36 million of consolidated
revenue growth in the fourth quarter of 2006. Therefore the organic revenue
growth rate in the fourth quarter of 2006 was 28.0 percent.
8
The following is a summary of operating earnings performance by segment:
OPERATING EARNINGS
-------------------------------------------------
Fourth Quarter Ended December 31,
($ in millions)
-------------------------------------------------
Percent
2006 2005 Change Change
-------------------------------------------------
Seating $ 10.8 $ 9.2 $ 1.6 17.4%
Interior systems 15.1 6.3 8.8 139.7%
Distribution 13.9 8.4 5.5 65.5%
Business jet 3.6 2.1 1.5 71.4%
Engineering services (0.4) (1.8) 1.4 NM
-------------------------------------------------
Total $ 43.0 $ 24.2 $ 18.8 77.7%
Operating earnings at the seating segment of $10.8 million in the fourth
quarter of 2006 increased by $1.6 million or 17.4 percent versus the same period
in the prior year. The seating segment operating margin for full year 2006
improved by 60 basis points to 9.7 percent. The company expects the seating
segment to generate significant margin expansion in 2007 and beyond due
primarily to the quality of its backlog and also to the operating leverage
inherent in the business. Operating earnings at the interior systems segment of
$15.1 million increased $8.8 million, or 139.7 percent, versus the same period
in the prior year. The full year operating margin for the interior systems
segment was 18.7 percent, a 300 basis point improvement over the prior year.
Margin expansion in the interior systems segment was primarily the result of
ongoing manufacturing efficiencies, product mix and operating leverage generated
at the higher level of sales.
The distribution segment generated record revenues of $78.5 million in the
fourth quarter of 2006, an increase of $35.6 million, or 83.0 percent versus the
same period in the prior year. Distribution segment operating earnings in the
fourth quarter of 2006 were $13.9 million, which was 65.5 percent greater than
the same period last year and represented a 17.7 percent operating margin. The
distribution segment operating margin, although quite healthy at 17.7 percent,
was as expected, negatively impacted by the NYF acquisition and related
integration costs and expenses. The distribution segment operating margin is
expected to gradually recover during the course of the year as the integration
of NYF is completed.
The business jet segment generated fourth quarter revenues of $38.6
million, an increase of 11.6 percent as compared to the fourth quarter of 2005.
Operating earnings at the business jet segment during the fourth quarter of $3.6
million were $1.5 million or 71.4 percent greater than operating earnings in the
same period last year, and increased by $3.4 million on a sequential quarterly
basis. This strong operating earnings growth reflects the solid operating
performance from the company's core business jet operations, offset by the
improving, but still unsatisfactory, super first class operating results.
9
FULL YEAR 2006 RESULTS
- ----------------------
For the full year 2006, B/E reported consolidated sales of $1.1 billion, a
33.7 percent increase over the prior year. Organic revenue growth in 2006
exclusive of recent acquisitions was 27.5 percent. Operating earnings of $148.3
million for 2006, were $54.7 million, or 58.4 percent, greater than the prior
year, due to both the 33.7 percent increase in revenue and a 200 basis point
expansion in operating margin to 13.1 percent of sales in full year 2006.
Operating earnings growth, exclusive of recent acquisitions, was 51.2 percent.
Interest expense of $38.9 million for 2006 decreased by $20.4 million as
compared to 2005. B/E prepaid $475 million of long term debt during 2006,
resulting in debt prepayment costs of $19.4 million. During 2006, B/E recognized
a $22.9 million U.K. deferred tax asset, which reduced income tax expense to
$4.4 million in 2006. During 2005, B/E recognized an income tax benefit of $51.9
million associated with the recognition of its U.S. deferred tax asset. Net
earnings in 2006 were $85.6 million, or $1.10 per diluted share. Exclusive of
both tax benefits and debt prepayment costs in both years, full year 2006
earnings per share was $0.98 versus full year 2005 earnings per share of $0.54,
an 81.5 percent increase in 2006. Bookings for the current year were
approximately $1.7 billion, a record for any year, and drove backlog to over
$1.7 billion, also a record.
NET SALES
----------------------------------------------------
Year Ended December 31,
($ in millions)
----------------------------------------------------
Percent
2006 2005 Change Change
----------------------------------------------------
Seating $ 388.5 $ 281.8 $ 106.7 37.9%
Interior systems 273.9 205.5 68.4 33.3%
Distribution 251.5 173.9 77.6 44.6%
Business jet 147.5 120.2 27.3 22.7%
Engineering services 66.8 62.7 4.1 6.5%
----------------------------------------------------
Total $ 1,128.2 $ 844.1 $ 284.1 33.7%
OPERATING EARNINGS
----------------------------------------------------
Year Ended December 31,
($ in millions)
----------------------------------------------------
Percent
2006 2005 Change Change
----------------------------------------------------
Seating $ 37.6 $ 25.5 $ 12.1 47.5%
Interior systems 51.2 32.3 18.9 58.5%
Distribution 50.4 34.9 15.5 44.4%
Business jet 9.4 7.8 1.6 20.5%
Engineering services (0.3) (6.9) 6.6 NM
----------------------------------------------------
Total $ 148.3 $ 93.6 $ 54.7 58.4%
10
For 2006, seating segment operating earnings of $37.6 million increased by
47.5 percent, due to both a 37.9 percent increase in revenue, and a 60 basis
point expansion in operating margin to 9.7 percent of sales. Operating earnings
at the interior systems segment of $51.2 million increased by $18.9 million or
58.5 percent as compared to 2005, due to both a 33.3 percent increase in revenue
and a 300 basis point expansion in operating margin to 18.7 percent of sales.
The margin expansion at the seating and interior systems segments was primarily
due to ongoing continuous improvement initiatives, product mix, and operating
leverage generated at the higher sales volume.
The distribution segment's operating earnings of $50.4 million during 2006
increased by $15.5 million, or 44.4 percent, on a 44.6 percent increase in
sales, reflecting further operating efficiencies at the higher sales level,
despite the temporary drag on margins caused by the NYF acquisition. The
business jet segment's operating earnings were $9.4 million in 2006, up 20.5
percent versus the prior year, reflecting the solid operating performance from
B/E's core business jet operations, offset by the improving, but still
unsatisfactory super first class operating results.
Operating profit at the engineering services segment improved by $6.6
million as compared to the prior year due to a substantially improved mix of
products and services, higher sales volume, and operational efficiencies.
LIQUIDITY AND BALANCE SHEET METRICS
- -----------------------------------
At December 31, 2006, B/E's net debt-to-net capital ratio was 38.3 percent.
Net debt at December 31, 2006 was $439 million, which represents total debt of
$504 million less cash and cash equivalents of $65 million.
B/E prepaid $50 million of its bank term loan during the fourth quarter of
2006. Working capital at December 31, 2006 was approximately $462 million, as
compared with working capital of approximately $323 million at December 31, 2005
(as adjusted for the redemption of $250 million of senior subordinated notes in
January 2006). The higher level of working capital reflects higher levels of
accounts receivable and inventories arising from substantially higher revenues
in 2006 and the expectation for continued strong revenue growth in 2007, as well
as the increase in working capital resulting from recent acquisitions.
At December 31, 2006, B/E had approximately $65 million of cash and cash
equivalents and no borrowings outstanding under its $200 million revolving
credit facility.
11
"Inventories, as compared to December 31, 2005, have increased by nearly
$200 million. About $100 million of this growth is in our distribution segment
(including the New York Fasteners acquisition) and is consistent with the
expansion in our product line breadth to support our rapidly expanding customer
base. Our distribution business, which grew by 45 percent during 2006, is
operating on all cylinders and is expected to generate a 100 percent growth in
earnings within three years. We expect to continue to expand our product line in
this important business during 2007. The balance of inventory growth is due to
our 34 percent revenue growth, the outlook for 25 percent revenue growth during
2007, and the recent Draeger acquisition," commented Mr. Amin J. Khoury,
Chairman and Chief Executive Officer for B/E Aerospace, Inc.
Net earnings and net earnings per diluted share adjusted are non-GAAP
financial measures. See "Reconciliation of Non-GAAP Financial Measures".
STRONG FOURTH QUARTER BOOKINGS PUSH BACKLOG TO ANOTHER RECORD LEVEL
- -------------------------------------------------------------------
Backlog at the end of the quarter was approximately $1.7 billion,
representing an increase of over $600 million, or about 60 percent, as compared
to B/E's backlog at December 31, 2005. The book-to-bill ratio for the quarter
was strong at 1.3:1, resulting in the company's ninth successive record
quarterly backlog.
B/E achieved some notable awards during the quarter that contributed
significantly to the record backlog. These awards included:
o Initial Boeing 787 related orders from nine major global airlines for
seating and/ or a broad array of food and beverage preparation and storage
equipment, and oxygen systems.
o Retrofit awards from two North American carriers to begin re-equipping
certain of their aircraft types.
o Awards from two major Asian carriers to outfit both their new-buy and
existing B777 aircraft.
o Awards from four major Chinese airlines to outfit over 130 of their new-buy
Boeing and Airbus narrow-body aircraft with B/E's first class and coach
class seating, food and beverage preparation and storage equipment and
oxygen systems.
RECENT BUSINESS STRENGTH EXPECTED TO CONTINUE
- ---------------------------------------------
Commenting on the recent performance of B/E, Mr. Khoury said, "We are
pleased to announce another record year for B/E Aerospace. Both revenue and
earnings growth exceeded our financial guidance, which was raised three times
during 2006. In each of the past two years, our operating margin has increased
by over 200 basis points per year, and considering the strength of our order
book, our high in quality, record backlog and our continuous improvement
programs, we expect to generate significant additional margin expansion over the
next several years."
Mr. Khoury, continued, "We are encouraged by the continued strength in
retrofit activity, primarily from carriers in the emerging markets, and now that
strength is being augmented by both domestic retrofit orders and initial order
activity related to airlines' purchases of new wide-body aircraft. 2007
represents the beginning of an expected ramp up in wide-body deliveries that
will total in excess of 1,000 wide-body and super wide-body aircraft over the
next four years. This protracted new aircraft delivery cycle, particularly with
respect to wide-body aircraft, coupled with our high quality record backlog,
together with continued expected margin expansion should allow B/E to continue
to deliver superior financial results for the next three years, " concluded Mr.
Khoury.
12
Financial guidance for 2007 and beyond is now as follows:
- Full year 2007 revenues are expected to be approximately $1.4 billion,
an increase of approximately 25 percent in 2007 versus 2006. The
organic revenue growth rate, exclusive of 2006 acquisitions, is
expected to be approximately 20 percent. The revenue guidance for 2007
assumes no revenue contribution from Airbus A380-related programs.
Revenues are expected to grow at a healthy double-digit rate during
2008 and 2009, driven primarily by current backlog and associated
follow-on orders.
- The 2007 growth rate for operating earnings is expected to be
approximately 40 to 45 percent.
- Operating margins are expected to expand significantly over the next
three years.
o Operating margins in the seating segment should expand
significantly throughout 2007 and beyond due to both the quality
of our seating backlog and the operating leverage in the
business.
o Operating margins at the distribution segment will be somewhat
lower than 2006 operating margins reflecting costs and
inefficiencies associated with the integration of NYF.
- Earnings per diluted share should be approximately $1.40 - $1.42 in
2007, which represents an earnings per share growth rate of about 55
percent as compared to 2006 earnings per share (before debt prepayment
costs), assuming a comparable tax rate in both years.
- The expected strong double-digit revenue growth rate in 2008 and 2009
is expected to generate earnings per share of approximately $2.00 per
share in 2008 with an additional increase of approximately 25 percent
in 2009.
- Free cash flow (cash flow from operations, less capital expenditures)
in 2007 is expected to be approximately $90 million. Free cash flow in
the first half of 2007, particularly in the first quarter will be
substantially lower than the second half of the year, reflecting the
planned product line expansion at the distribution segment.
13
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 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. The
forward-looking statements included in this news release are made only as of the
date of this news release and, except as required by federal securities laws, we
do not intend to publicly update or revise any forward-looking statements to
reflect subsequent events or circumstances.
About B/E Aerospace, Inc.
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 range of products for both
commercial aircraft and business jets. B/E manufactured products include
aircraft cabin seating, lighting, oxygen, and food and beverage preparation and
storage equipment. The company also provides cabin interior design,
reconfiguration and passenger-to-freighter conversion services. Products for the
existing aircraft fleet - the aftermarket - generate about 60 percent of sales.
B/E sells and supports its products through its own global direct sales and
product support organization. For more information, visit B/E's website at
www.beaerospace.com.
14
*T*
B/E Aerospace, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(unaudited)
THREE MONTHS ENDED
-----------------------------
December 31, December 31,
(In millions, except per share data) 2006 2005
- ----------------------------------------------------------------------------
Net sales $ 321.6 $ 222.9
Cost of sales 208.8 144.7
--------- ---------
Gross profit 112.8 78.2
Gross margin 35.1% 35.1%
Operating expenses:
Selling, general and administrative 43.5 38.6
Research, development and engineering 26.3 15.4
--------- ---------
Total operating expenses 69.8 54.0
--------- ---------
Operating earnings 43.0 24.2
Operating margin 13.4% 10.9%
Interest expense, net 11.0 14.4
Debt prepayment costs 0.6 -
--------- ---------
Earnings before income taxes 31.4 9.8
Income tax provision (benefit) 9.7 (52.3)
--------- ---------
NET EARNINGS $ 21.7 $ 62.1
========== ==========
NET EARNINGS PER COMMON SHARE
Basic $ 0.28 $ 0.99
========== ==========
Diluted $ 0.28 $ 0.96
========== ==========
Common shares:
Basic
Weighted average 77.9 63.0
End of period 78.1 74.3
Diluted
Weighted average 78.5 64.9
End of period 78.7 76.2
15
*T*
B/E Aerospace, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(unaudited)
YEAR ENDED
-----------------------------
December 31, December 31,
(In millions, except per share data) 2006 2005
- -----------------------------------------------------------------------------
Net sales $1,128.2 $ 844.1
Cost of sales 731.7 548.5
--------- ----------
Gross profit 396.5 295.6
Gross margin 35.1% 35.0%
Operating expenses:
Selling, general and administrative 159.6 136.4
Research, development and engineering 88.6 65.6
--------- ----------
Total operating expenses 248.2 202.0
--------- ----------
Operating earnings 148.3 93.6
Operating margin 13.1% 11.1%
Interest expense, net 38.9 59.3
Debt prepayment costs 19.4 --
--------- ----------
Earnings before income taxes 90.0 34.3
Income tax provision (benefit) 4.4 (50.3)
--------- ----------
NET EARNINGS $ 85.6 $ 84.6
========= ==========
NET EARNINGS PER COMMON SHARE
Basic $ 1.11 $ 1.44
========= ==========
Diluted $ 1.10 $ 1.39
========= ==========
Common shares:
Basic
Weighted average 77.1 58.8
End of period 78.1 74.3
Diluted
Weighted average 78.0 60.8
End of period 78.7 76.2
16
*T*
B/E Aerospace, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited; in millions)
YEAR ENDED
-----------------------------
December 31, December 31,
2006 2005
-----------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 65.0 $ 356.0
Accounts receivable, net 172.9 131.9
Inventories, net 420.9 223.7
Deferred income taxes 59.2 17.5
Other current assets 13.8 15.1
---------- ----------
Total current assets 731.8 744.2
Long-term assets 765.9 682.3
---------- ----------
$ 1,497.7 $ 1,426.5
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Total current liabilities $ 269.6 $ 170.8
Long-term liabilities 522.1 686.1
---------- ----------
791.7 856.9
Total stockholders' equity 706.0 569.6
---------- ----------
$ 1,497.7 $ 1,426.5
========== ==========
17
*T*
B/E Aerospace, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited; in millions)
YEAR ENDED
------------------------------
December 31, December 31,
2006 2005
------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 85.6 $ 84.6
Adjustments to reconcile net earnings to net cash flows
provided by operating activities:
Depreciation and amortization 29.4 28.6
Provision for doubtful accounts 1.8 0.5
Non-cash compensation 2.7 4.1
Debt prepayment costs 19.4 --
Deferred income taxes (0.6) (51.9)
Excess tax benefits from share-based payments (0.7) 28.0
Loss on disposal of property and equipment 0.5 1.0
Changes in operating assets and liabilities, net of acquisitions (97.1) (82.3)
--------- ---------
Net cash flows provided by operating activities 41.0 12.6
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (24.8) (16.9)
Acquisitions, net of cash acquired (144.6) --
Other, net -- 1.6
--------- ---------
Net cash flows used in investing activities (169.4) (15.3)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of stock, net of expenses 29.9 285.1
Payment on debt origination costs and prepayment costs (19.1) --
Proceeds from long-term debt 373.6 --
Principal payments on long-term debt (549.5) (0.9)
Borrowings on bank credit facility 150.0 --
Repayments on bank credit facility (150.0) --
--------- ---------
Net cash flows (used in) provided by financing activities (165.1) 284.2
--------- ---------
Effect of exchange rate changes on cash flows 2.5 (1.8)
--------- ---------
Net (decrease) increase in cash and cash equivalents (291.0) 279.7
Cash and cash equivalents at beginning of period 356.0 76.3
--------- ---------
Cash and cash equivalents at end of period $ 65.0 $ 356.0
========= =========
18
B/E Aerospace, Inc.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
Debt prepayments in the fourth quarter of 2006 resulted in $0.6 million of debt
prepayment costs; debt prepayment costs for the full year were $19.4 million.
During the third quarter of 2006, as a result of the improving financial
performance and outlook for the company's U.K. subsidiary, B/E recognized its
U.K. deferred tax asset, resulting in a tax benefit of approximately $22.9
million (the "tax benefit").
This release includes the financial measures net earnings and net earnings per
diluted share adjusted, which, in each case, excludes debt prepayment costs and
the income tax benefit due to the recognition of a deferred tax asset and
includes free cash flow, which is cash flow from operations less capital
expenditures. These three financial measures are "non-GAAP financial measures"
as defined in Regulation G of the Securities and Exchange Act of 1934. We use
earnings, net and net earnings per diluted share adjusted for debt prepayment
costs and income tax benefit to evaluate our operating earnings, operating
margin, net earnings, and net earnings per diluted share as compared to prior
periods and to assess trends in the operational strength and performance of our
business. We believe these financial measures are relevant and useful for
investors because they allow investors to have a better understanding of our
operating performance and makes it easier to compare our operating performance
to our operating performance in prior periods that were not affected by the debt
prepayment costs and the tax benefit. These financial measures should not be
viewed as a substitute for or superior to net earnings and net earnings per
diluted share, the most comparable GAAP measures, as a measure of our operating
performance. We use free cash flow to provide supplemental information regarding
our operating performance by excluding capital expenditures from our cash flow
from operations that may not be indicative of our core operating results. We
believe that free cash flow is useful to assess our operational strength and
performance over time. Free cash flow is not a measurement of operating
performance under GAAP and should not be viewed as a substitute to cash flow
from operations, operating earnings or net income.
Pursuant to the requirements of Regulation G, we provide the following table
which reconciles net earnings and net earnings per diluted share, the most
directly comparable GAAP measures, to net earnings as adjusted for debt
prepayment costs and tax benefit and net earnings per fully diluted share as
adjusted for debt prepayment costs and tax benefit and which measures cash flow
from operations, the most directly comparable GAAP measure, to free cash flow.
19
($ in millions except per share data)
Three Months Ended Year ended
-----------------------------------------------------------
December 31, December 31, December 31, December 31
2006 2005 2006 2005
-----------------------------------------------------------
Net earnings as reported $ 21.7 $ 62.1 $ 85.6 $ 84.6
Debt prepayment costs 0.6 -- 19.4 --
Income taxes on debt prepayment costs (0.2) -- (5.8) --
(assuming a 30% effective tax rate)
Less tax benefit associated with recognition
of U.K. and U.S. deferred tax asset -- (51.9) (22.9) (51.9)
--------- --------- --------- ---------
Net earnings adjusted for debt prepayment costs and tax benefit $ 22.1 $ 10.2 $ $76.3 $ 32.7
========= ========= ========= =========
Net earnings per fully diluted share as adjusted for debt
prepayment costs and tax benefit $ 0.28 $ 0.16 $ 0.98 $ 0.54
========= ========= ========= ========
Weighted average diluted shares 78.5 64.9 78.0 60.8
Cash flow operations $21.9 $1.3 $41.0 $12.6
Less capital expenditures (6.6) (6.0) (24.8) (16.9)
------ ------ ------ ------
Free cash flow $15.3 $(4.7) $16.2 $(4.3)
====== ====== ====== ======
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