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BE AEROSPACE, INC.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
FOR THE QUARTERLY PERIOD ENDED MAY 27, 2000
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 33414-2105
(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, $0.01 par value, of which
25,172,613 shares were outstanding as of July 3, 2000.
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BE AEROSPACE, INC.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share data)
May 27, February 26,
2000 2000
---- ----
(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $ 32,441 $ 37,363
Accounts receivable - trade, less allowance for doubtful
accounts of $3,659 (May 27, 2000)
and $3,883 (February 26, 2000) 100,067 103,719
Inventories, net 120,499 127,230
Other current assets 35,053 35,291
--------- ---------
Total current assets 288,060 303,603
--------- ---------
Property and equipment, net 150,372 152,350
Intangibles and other assets, net 419,877 425,836
--------- ---------
$ 858,309 $ 881,789
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 56,741 $ 60,824
Accrued liabilities 92,058 109,143
Current portion of long-term debt 3,697 3,723
--------- ---------
Total current liabilities 152,496 173,690
--------- ---------
Long-term debt 617,317 618,202
Other liabilities 26,242 25,400
Stockholders' Equity:
Preferred stock, $0.01 par value; 1,000,000 shares
authorized; no shares outstanding -- --
Common stock, $0.01 par value; 25,150,459 (May 27, 2000) and
24,931,307 (February 26, 2000) issued and outstanding 252 249
Additional paid-in capital 251,282 249,682
Accumulated deficit (170,436) (174,874)
Accumulated other comprehensive loss (18,844) (10,560)
--------- ---------
Total stockholders' equity 62,254 64,497
--------- ---------
$ 858,309 $ 881,789
========= =========
See accompanying notes to condensed consolidated financial statements.
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BE AEROSPACE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
(Dollars in thousands, except per share data)
THREE MONTHS ENDED
-----------------------
May 27, May 29,
2000 1999
-------- --------
Net sales $169,125 $185,032
Cost of sales 107,572 118,445
-------- --------
Gross profit 61,553 66,587
Operating Expenses:
Selling, general and administrative 24,041 22,028
Research, development and engineering 12,981 11,245
Amortization 5,868 5,696
-------- --------
Total operating expenses 42,890 38,969
-------- --------
Operating earnings 18,663 27,618
-------- --------
Equity in losses of unconsolidated subsidiary -- 727
Interest expense, net 13,731 12,622
-------- --------
Earnings before income taxes 4,932 14,269
Income taxes 494 2,854
-------- --------
Net earnings $ 4,438 $ 11,415
======== ========
Basic net earnings per common share $ 0.18 $ 0.46
======== ========
Diluted net earnings per common share $ 0.18 $ 0.46
======== ========
See accompanying notes to condensed consolidated financial statements.
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BE AEROSPACE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Dollars in thousands)
THREE MONTHS ENDED
------------------------
May 27, May 29,
2000 1999
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 4,438 $ 11,415
Adjustments to reconcile net earnings to net cash flows
provided by operating activities:
Depreciation and amortization 10,819 10,052
Deferred income taxes -- (42)
Non-cash employee benefit plan contributions 581 611
Changes in operating assets and liabilities:
Accounts receivable 2,001 12,359
Inventories 3,333 (12,363)
Other current assets 840 (3,000)
Accounts payable (4,195) (1,023)
Accrued liabilities (14,470) (4,673)
-------- --------
Net cash flows provided by operating activities 3,347 13,336
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (4,994) (14,237)
Change in intangible and other assets (2,870) (218)
-------- --------
Net cash flows used in investing activities (7,864) (14,455)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net payments under bank credit facilities (885) (2,634)
Proceeds from issuances of stock 1,020 307
-------- --------
Net cash flows provided by (used in) financing activities 135 (2,327)
-------- --------
Effect of exchange rate changes on cash flows (540) (17)
-------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS (4,922) (3,463)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 37,363 39,500
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 32,441 $ 36,037
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during period for:
Interest, net $ 20,451 $ 20,107
Income taxes, net $ 476 $ 716
See accompanying notes to condensed consolidated financial statements.
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BE AEROSPACE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS MAY 27, 2000 AND MAY 29,
1999
(UNAUDITED - DOLLARS IN THOUSANDS, EXCEPT 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 accounting principles generally accepted in the
United States of America 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 prior year financial
statements to conform to the May 27, 2000 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 26, 2000.
Note 2. Comprehensive Earnings (Loss)
Comprehensive earnings (loss) is defined as all changes in a
company's net assets except changes resulting from transactions with
shareholders. It differs from net earnings (loss) in that certain
items currently recorded to equity would be a part of comprehensive
earnings (loss). The following table sets forth the computation of
comprehensive earnings (loss) for the periods presented:
Three Months Ended
-----------------------
May 27, May 29,
2000 1999
------- --------
Net earnings $ 4,438 $ 11,415
Other comprehensive earnings:
Foreign exchange translation
Adjustment (8,284) (1,651)
------- --------
Comprehensive earnings (loss) $(3,846) $ 9,764
======= ========
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BE AEROSPACE, INC.
Note 3. Segment Reporting (As Restated)
Subsequent to the issuance of the Company's condensed
consolidated financial statements for the quarterly period ended May
27, 2000, management determined that the Company should disaggregate
the disclosures for its Commercial Aircraft Products, Business Jet
Products and Engineering Services operating segments. Previously,
such disclosures had been aggregated and presented as a single
reportable segment. As a result, the following information pertaining
to the Company's operating segments has been restated to present such
disaggregated segment disclosures.
The Company is organized based on the products and services it
offers. Under this organizational structure, the Company has three
reportable segments: Commercial Aircraft Products, Business Jet
Products and Engineering Services. The Company's Commercial Aircraft
Products segment consists of 15 operating units while the Business
Jet and Engineering Services segments consist of three and one
operating units, respectively.
Each segment reports its operating earnings and makes requests
for capital expenditures and acquisition funding to the Company's
chief operational decision-making group. This group is presently
comprised of the Chairman, the Vice-Chairman and the Chief Executive
Officer, and the Corporate Senior Vice President of Administration
and Chief Financial Officer. Each operating segment has separate
management teams and infrastructures dedicated to providing a full
range of products and services to their commercial and general
aviation customers. Corporate expenses are allocated to reportable
segments based upon segment revenues to consolidated revenues. The
Company does not allocate interest expense to its segments.
The following table presents net sales and other financial
information by business segment:
THREE MONTHS ENDED
----------------------------------
May 27, 2000 May 29, 1999
------------ ------------
Commercial Aircraft Products
Net sales $135,746 $149,972
Operating earnings 13,461 19,398
Business Jet Products
Net sales 18,720 20,963
Operating earnings 2,831 3,711
Engineering Services
Net sales 14,659 14,097
Operating earnings 2,371 4,509
Consolidated
Net sales 169,125 185,032
Operating earnings 18,663 27,618
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Note 4. Earnings Per Common Share
Basic net earnings per common share is computed using the
weighted average common shares outstanding during the period. Diluted
net earnings per common 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 27, May 29,
2000 1999
------- -------
Weighted average common shares outstanding 25,091 24,631
Dilutive effect of employee stock options 4 269
------ ------
Diluted shares outstanding 25,095 24,900
====== ======
Note 5. Recently Issued Accounting Pronouncements
In March 2000, the Financial Accounting Standards Board ("FASB")
issued Interpretation No. 44, "Accounting for Certain Transactions
Involving Stock Compensation -- an interpretation of APB Opinion No.
25" ("FIN 44"). FIN 44 clarifies the application of Accounting
Principles Board ("APB") Opinion No. 25 and among other issues
clarifies the following: the definition of an employee for purposes
of applying APB Opinion No. 25; the criteria for determining whether
a plan qualifies as a noncompensatory plan; the accounting
consequence of various modifications to the terms of previously fixed
stock options or awards; and the accounting for an exchange of stock
compensation awards in a business combination. FIN 44 is effective
July 1, 2000, but certain conclusions in FIN 44 cover specific events
that occurred after either December 15, 1998 or January 12, 2000. FIN
44 did not have a material impact on the Company's financial position
or results of operations.
In December 1999, the SEC staff issued Staff Accounting Bulletin
("SAB") No. 101, Revenue Recognition in Financial Statements. SAB 101
summarizes the SEC staff's views in applying generally accepted
accounting principles to revenue recognition in financial statements.
SAB 101 will be effective for the Company's fourth quarter beginning
November 26, 2000. The Company does not expect its implementation
will have an effect on its revenue recognition policy.
In September 1998, the FASB issued Statement No. 133,
"Accounting for Derivative Instruments and Hedging Activities", which
is required to be adopted in years beginning after June 15, 2000.
Because of the Company's minimal use of derivatives, management does
not anticipate that the adoption of the new Statement will have a
significant effect on the Company's financial position or results of
operations.
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BE AEROSPACE, INC.
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 27, 2000, as compared
to the Company's results of operations for the three months ended May 29,
1999. The discussion and analysis then addresses the liquidity and
financial condition of the Company and other matters. See Note 3 for
additional information regarding reportable segments.
THREE MONTHS ENDED MAY 27, 2000, AS COMPARED TO THE RESULTS OF OPERATIONS FOR
THE THREE MONTHS ENDED MAY 29, 1999
Net sales for the fiscal 2001 three-month period were $169,125, or
8.6% lower than net sales of $185,032 for the comparable period in the
prior year. The year over year decrease in net sales is attributable to a
lower volume of seating and galley structures revenues during the first
quarter of fiscal 2001 and our previously announced decision to
discontinue certain low-margin products and services. Seating revenues
declined year over year as a result of last year's seat manufacturing
problems that adversely impacted new orders for seating products last year
whereas the decline in galley structures revenues is consistent with the
year over year decline in new aircraft deliveries to our customers.
Gross profit was $61,553 or 36.4% of net sales for the three
months ended May 27, 2000 as compared to $66,587 or 36.0% of net sales in
the comparable period in the prior year. The Company's gross margin
improved by 1,180 basis points compared to the immediately preceding
quarter, from 24.6% to 36.4%. This gross margin improvement was due to a
return to on-plan performance in the seating business. Lean manufacturing
and continuous improvement programs are enabling the seating business to
reduce costs, improve quality and productivity and accelerate the order
fulfillment cycle. The year over year decrease in gross profit was
directly related to the lower level of revenues as compared to the prior
year.
Selling, general and administrative expenses were $24,041 or 14.2%
of net sales for the three months ended May 27, 2000 as compared to
$22,028 or 11.9% of net sales in the comparable period in the prior year
and as compared to $24,315 in the Company's fourth quarter in fiscal 2000,
which represented 13.4% of net sales. The year over year increase in
selling, general and administrative expenses was primarily attributable to
costs associated with the lean manufacturing initiatives now underway at
each operating plant, along with the costs associated with the
implementation of shared platforms for information management and
increased depreciation expense associated with the Company's new
Enterprise Resource Planning system which was placed into service during
fiscal 2000.
Research, development and engineering expenses were $12,981 or
7.7% of net sales for the three months ended May 27, 2000, as compared
with $11,245 in the comparable period in the prior year and as compared
with $13,739 in the preceding quarter. The year over year increase in
research, development and engineering expenses is primarily attributable
to costs incurred for new product development activity for two of the
world's leading airlines and increased depreciation expense resulting from
our shared engineering design platforms recently placed into service.
Amortization expense for the quarter ended May 27, 2000 of $5,868
was $172 greater than the amount recorded in the first quarter of fiscal
2000.
The Company generated operating earnings of $18,663 or 11.0% of
net sales as compared to operating earnings of $27,618 or 14.9% of net
sales during the comparable period in the prior year. The decrease in
operating earnings in the current period is primarily the result of a
lower sales volume.
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Interest expense, net was $13,731 for the three months ended May
27, 2000, or $1,109 greater than interest expense of $12,622 for the
comparable period in the prior year. The increase in interest expense is
due to the impact of higher interest rates during the current quarter on
the Company's bank borrowings.
Earnings before income taxes in the current quarter were $4,932,
as compared to $14,269 in the prior year's comparable period. Income tax
expense for the quarter ended May 27, 2000 was $494, as compared to
$2,854 in the prior year's comparable period.
Net earnings were $4,438 or $0.18 per share for the three months
ended May 27, 2000, as compared to $11,415 or $0.46 per share for the
comparable period in the prior year.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity requirements consist of working capital
needs, on-going capital expenditures and scheduled payments of interest
and principal on indebtedness. B/E's primary requirements for working
capital have been related to the reduction of accrued liabilities,
including interest, accrued penalties incurred in connection with the
fiscal 2000 seating manufacturing problems, incentive compensation,
warranty obligations and accrued severance. B/E's working capital was
$135,564 as of May 27, 2000, as compared to $129,913 as of February 26,
2000.
At May 27, 2000, the Company's cash and cash equivalents were
$32,441, as compared to $37,363 at February 26, 2000. Cash provided from
operating activities was $3,347 for the three months ended May 27, 2000.
The primary source of cash during the three months ended May 27, 2000 was
net earnings, depreciation and amortization of $15,257, a $6,174 decrease
in accounts receivable, inventories and other current assets offset by a
use of cash of $4,195 related to a decrease in accounts payable and
$14,470 related to a decrease in accrued liabilities.
The Company's capital expenditures were $4,994 and $14,237 during
the three months ended May 27, 2000 and May 29, 1999, respectively. The
year over year decrease in capital expenditures is primarily attributable
to significant expenditures in the prior year for management information
system enhancements and expenditures for plant modernization. The Company
anticipates on-going annual capital expenditures of approximately $20,000
for the next several years.
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 assets during the
federal operating loss carryforward period, which begins to expire in
2012. Such uncertainties include recent cumulative losses by the Company,
the highly cyclical nature of the industry in which it operates, economic
conditions in Asia that are impacting the airframe manufacturers and the
airlines, the Company's high degree of financial leverage, risks
associated with new product introductions, recent increases in the cost
of fuel and its impact on our airline customers, further remediation of
our Seating Products operating problems and risks associated with the
integration of its acquired
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businesses. 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.
DEPENDENCE UPON CONDITIONS IN THE AIRLINE INDUSTRY
The Company's principal customers are the world's commercial
airlines. As a result, our 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 was, in part, driven
by record load factors, rising fare prices and declining fuel costs.
Airline company balance sheets have been substantially strengthened and
their liquidity enhanced as a result of their record profitability, debt
and equity financings and a closely managed fleet expansion. Recent
increases in fuel prices have not had a material impact on the airline
industry to-date. However, should fuel prices continue at or above the
current level for a prolonged period, we would expect to see the airline
industry's profitability impacted and discretionary airline spending may
be more closely monitored or even reduced.
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, in December 1998,
Boeing announced that in light of continued economic conditions in Asia,
it would be reducing production of a number of aircraft types, including
particularly wide-body aircraft that require almost five times the dollar
content for our products as compared to narrow-body aircraft.
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BE AEROSPACE, INC.
FORWARD LOOKING STATEMENTS
This report includes forward-looking statements based on our
current expectations, assumptions, estimates and projections about our
company and our industry. These forward-looking statements involve risks
and uncertainties, including, but not limited to, the future benefits of
corrective actions in our seating business, implementation and expected
benefits of lean manufacturing and continuous improvement programs, our
dealings with customers and partners, the consolidation of facilities,
productivity improvements from recent information technology investments,
the reduction of debt and other risks detailed in our Securities and
Exchange Commission filings. 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 the Company's Annual Report on Form 10-K for the
fiscal year ended February 26, 2000, as well as future events that may
have the effect of reducing our available operating income and cash
balances, such as unexpected operating losses, the impact of rising fuel
prices on our airline customers, delays in, or unexpected costs
associated with, the integration of our acquired businesses, conditions
in the airline industry, problems meeting customer delivery requirements,
new or expected refurbishments, capital expenditures, cash expenditures
related to possible future acquisitions, further remediation of our
Seating Products operating problems, labor disputes involving us, our
significant customers or airframe manufacturers, the possibility of a
write-down of intangible assets, delays or inefficiencies in the
introduction of new products or fluctuations in currency exchange rates.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
During the three months ended May 27, 2000, there were no material
changes to the disclosure about market risk included in the Company's
Annual Report on Form 10-K-A for the fiscal year ended February 26, 2000.
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BE AEROSPACE, INC.
PART II - OTHER INFORMATION
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. Reports on Form 8-K None.
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BE AEROSPACE, INC.
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: June 28, 2000 By: /s/ Robert J. Khoury
--------------------------------
Robert J. Khoury
Vice Chairman and
Chief Executive Officer
Date: June 28, 2000 By: /s/ Thomas P. McCaffrey
-----------------------------
Thomas P. McCaffrey
Corporate Senior Vice President of
Administration and Chief
Financial Officer
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