1
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 NOVEMBER 25, 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, $.01 par value, of which
25,516,017 shares were outstanding as of January 3, 2001.
1
2
BE AEROSPACE, INC.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share data)
November 25, February 26,
2000 2000
---- ----
ASSETS (Unaudited)
- ------
Current assets:
Cash and cash equivalents $ 44,230 $ 37,363
Accounts receivable - trade, less allowance for doubtful
accounts of $3,240 (November 25, 2000)
and $3,883 (February 26, 2000) 90,152 103,719
Inventories, net 120,833 127,230
Other current assets 47,772 35,291
--------- ---------
Total current assets 302,987 303,603
--------- ---------
Property and equipment, net 149,366 152,350
Intangibles and other assets, net 384,668 425,836
--------- ---------
$ 837,021 $ 881,789
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 63,943 $ 60,824
Accrued liabilities 71,884 109,143
Current portion of long-term debt 4,771 3,723
--------- ---------
Total current liabilities 140,598 173,690
--------- ---------
Long-term debt 602,469 618,202
Other liabilities 25,452 25,400
Stockholders' equity:
Preferred stock, $.01 par value; 1,000,000 shares
authorized; no shares outstanding -- --
Common stock, $.01 par value; 50,000,000 shares authorized;
25,480,441 (November 25, 2000) and 24,931,307
(February 25, 2000) shares issued and outstanding 255 249
Additional paid-in capital 254,421 249,682
Accumulated deficit (157,788) (174,874)
Accumulated other comprehensive loss (28,386) (10,560)
--------- ---------
Total stockholders' equity 68,502 64,497
--------- ---------
$ 837,021 $ 881,789
========= =========
See accompanying notes to condensed consolidated financial statements.
2
3
BE AEROSPACE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(Dollars in thousands, except per share data)
THREE MONTHS ENDED NINE MONTHS ENDED
------------------------------- ------------------------------
November 25, November 27, November 25, November 27,
2000 1999 2000 1999
---- ---- ---- ----
Net sales $ 167,410 $ 164,578 $ 500,651 $ 541,505
Cost of sales 103,862 166,586 314,792 406,589
--------- --------- --------- ---------
Gross profit (loss) 63,548 (2,008) 185,859 134,916
Operating expenses:
Selling, general and administrative 23,177 27,253 71,159 70,576
Research, development and engineering 12,054 16,740 37,263 40,265
Amortization 5,820 6,147 17,535 17,699
--------- --------- --------- ---------
Total operating expenses 41,051 50,140 125,957 128,540
--------- --------- --------- ---------
Operating earnings (loss) 22,497 (52,148) 59,902 6,376
Equity in losses of unconsolidated subsidiary -- -- -- 1,289
Interest expense, net 13,698 13,890 40,917 39,707
--------- --------- --------- ---------
Earnings (loss) before income taxes 8,799 (66,038) 18,985 (34,620)
Income taxes 880 -- 1,899 6,283
--------- --------- --------- ---------
Net earnings (loss) $ 7,919 $ (66,038) $ 17,086 $ (40,903)
========= ========= ========= =========
Basic net earnings (loss) per common share $ 0.31 $ (2.66) $ 0.68 $ (1.65)
========= ========= ========= =========
Diluted net earnings (loss) per common share
$ 0.30 $ (2.66) $ 0.67 $ (1.65)
========= ========= ========= =========
See accompanying notes to condensed consolidated financial statements.
3
4
BE AEROSPACE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Dollars in thousands)
NINE MONTHS ENDED
-------------------------------
November 25, November 27,
2000 1999
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $ 17,086 $(40,903)
Adjustments to reconcile net earnings (loss) to net cash flows
provided by operating activities:
Depreciation and amortization 32,078 31,863
Deferred income taxes -- (172)
Non-cash employee benefit plan contributions 1,535 1,586
Changes in operating working capital, net of dispositions:
Accounts receivable 10,139 19,041
Inventories 615 (17,307)
Other current assets (12,487) (3,547)
Accounts payable 4,469 5,481
Accrued liabilities (24,677) 9,097
-------- --------
Net cash flows provided by operating activities 28,758 5,139
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (15,399) (27,457)
Change in intangible and other assets 15,718 (6,622)
-------- --------
Net cash flows provided by (used in) investing activities 319 (34,079)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (repayments) borrowings under bank credit facilities (23,538) 20,341
Proceeds from issuances of stock, net of expenses 3,210 1,759
-------- --------
Net cash flows (used in) provided by financing activities (20,328) 22,100
-------- --------
Effect of exchange rate changes on cash flows (1,882) (231)
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 6,867 (7,071)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 37,363 39,500
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 44,230 $ 32,429
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during period for:
Interest, net $ 49,616 $ 46,078
Income taxes, net $ 1,851 $ 2,163
See accompanying notes to condensed consolidated financial statements.
4
5
BE AEROSPACE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 25, 2000 AND NOVEMBER 27, 1999
(UNAUDITED - DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Note 1. Basis of Presentation
The condensed consolidated financial statements of BE
Aerospace, Inc. and its wholly-owned subsidiaries (the "Company" or
"B/E") have been prepared by the Company and are unaudited pursuant
to the rules and regulations of the Securities and Exchange
Commission. Certain information related to the Company's
organization, significant accounting policies and footnote
disclosures normally included in financial statements prepared in
accordance with 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 November 25, 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-A 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 Nine Months Ended
------------------------------- -------------------------------
November 25, November 27, November 25, November 27,
2000 1999 2000 1999
---- ---- ---- ----
Net earnings (loss) $ 7,919 $(66,038) $ 17,086 $(40,903)
Other comprehensive earnings:
Foreign exchange translation adjustment (7,085) 385 (17,826) (2,069)
-------- -------- -------- --------
Comprehensive earnings (loss) $ 834 $(65,653) $ (740) $(42,972)
======== ======== ======== ========
Note 3. Segment Reporting (As Restated)
Subsequent to the issuance of the Company's condensed
consolidated financial statements for the quarterly period ended
November 25, 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.
5
6
BE AEROSPACE, INC.
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 SIX MONTHS ENDED
------------------------------- -----------------------------
NOVEMBER 25, NOVEMBER 27, NOVEMBER 25, NOVEMBER 27,
2000 1999 2000 1999
------------ ------------ ------------ ------------
Commercial Aircraft Products
Net sales $127,646 $131,332 $388,147 $431,210
Operating earnings (loss) 16,230 (54,123) 41,558 (16,796)
Business Jet Products
Net sales 22,854 19,874 62,746 65,130
Operating earnings (loss) 3,179 1,948 9,911 12,434
Engineering Services
Net sales 16,910 13,372 49,758 45,165
Operating earnings (loss) 3,088 27 8,433 10,738
Consolidated
Net sales 167,410 164,578 500,651 541,505
Operating earnings (loss) 22,497 (52,148) 59,902 6,376
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 Nine Months Ended
----------------------------- ----------------------------
November 25, November 27, November 25, November 27,
2000 1999 2000 1999
---- ---- ---- ----
Weighted average common shares outstanding 25,437 24,835 25,236 24,757
Dilutive effect of employee stock options 944 -- 352 --
------ ------ ------ ------
Diluted shares outstanding 26,381 24,835 25,588 24,757
====== ====== ====== ======
Note 5. New 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
6
7
BE AEROSPACE, INC.
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.
[Remainder of page intentionally left blank]
7
8
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 November 25, 2000,
as compared to the Company's results of operations for the three months
ended November 27, 1999. The discussion and analysis then addresses the
results of the Company's operations for the nine months ended November
25, 2000, as compared to the Company's results of operations for the
nine months ended November 27, 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 NOVEMBER 25, 2000, AS COMPARED TO THE RESULTS OF
OPERATIONS FOR THE THREE MONTHS ENDED NOVEMBER 27, 1999
Net sales for the three-month period ended November 25, 2000 of
$167,410 were 1.7% higher than net sales of $164,578 for the comparable
period in the prior year. The year over year increase in net sales is
primarily attributable to an increase in revenues attributable to
retrofit programs and new product introductions, offset by lower
shipments of seating products and galley structures. The year over year
reduction in seating and galley revenues is a result of both a reduction
in new aircraft deliveries and last year's seat manufacturing problems,
which have since been resolved.
Gross profit was $63,548 or 38.0% of net sales for the three
months ended November 25, 2000 as compared to $(2,008) or (1.2)% of net
sales in the comparable period in the prior year. Our prior year's
results were adversely impacted by the significant manufacturing
problems we encountered in our seating business. The Company's gross
margin improved to 38.0% in the third quarter, up from 36.4% in the
first quarter and 37.0% in the second quarter of this fiscal year. This
gross margin improvement was due to the turnaround in the seating
business together with the positive impact of the Company's lean
manufacturing and continuous improvement programs, which have been
substantially aided by information technology investments. Lean
manufacturing and continuous improvement programs are enabling the
Company to reduce costs, improve quality and productivity and accelerate
the order fulfillment cycle.
Selling, general and administrative expenses were $23,177 or
13.8% of net sales for the three months ended November 25, 2000 as
compared to $27,253 or 16.6% of net sales in the comparable period in
the prior year. The year over year decrease in selling, general and
administrative expenses was primarily attributable to substantial
headcount reductions, elimination of expenses associated with last
year's problems in the seating business and a continued focus on cost
management.
Research, development and engineering expenses were $12,054 or
7.2% of net sales for the three months ended November 25, 2000, as
compared with $16,740 or 10.2% of sales for the comparable period in the
prior year. The year over year decrease in research, development and
engineering expenses was primarily the result of substantial headcount
reductions, particularly in the seating and galley structures
businesses. Research, development and engineering expenses, on a quarter
over quarter basis, declined primarily as a result of cost controls and
a lower level of controllable spending.
Amortization expense for the quarter ended November 25, 2000 was
$5,820 as compared to $6,147 in the comparable period in the prior year.
The Company generated operating earnings of $22,497 or 13.4% of
net sales as compared to operating loss of $(52,148) or (31.7)% of net
sales during the comparable period in the prior year. The prior year's
operating loss was the result of seat manufacturing problems, which have
since been resolved.
8
9
BE AEROSPACE, INC.
THREE MONTHS ENDED NOVEMBER 25, 2000, AS COMPARED TO THE RESULTS OF
OPERATIONS FOR THE THREE MONTHS ENDED NOVEMBER 27, 1999 (CONTINUED)
Interest expense, net was $13,698 for the three months ended
November 25, 2000, or $192 lower than interest expense of $13,890 for
the comparable period in the prior year. The decrease in interest
expense is due to the year over year decrease in bank borrowings offset
by the impact of higher interest rates on the Company's bank borrowings.
Earnings before income taxes in the current quarter were $8,799,
as compared to the loss before income taxes of $(66,038) in the prior
year's comparable period. Income tax expense for the quarter ended
November 25, 2000 was $880.
Net earnings were $7,919 or $.30 per share (diluted) for the
three months ended November 25, 2000, as compared to $(66,038) or
$(2.66) per share (diluted) for the comparable period in the prior year.
NINE MONTHS ENDED NOVEMBER 25, 2000, AS COMPARED TO THE RESULTS OF
OPERATIONS FOR THE NINE MONTHS ENDED NOVEMBER 27, 1999
Net sales for the fiscal 2001 nine-month period were $500,651, a
decrease of $40,854 or 7.5% over the comparable period in the prior
year. The year over year decrease in sales is primarily attributable to
lower shipments of seating products, galley structures and discontinued
product service revenues. The lower level of seating and galley
structures revenues is due to both a lower level of new aircraft
deliveries this year vs. last year and last year's problems in our
seating business, which have since been resolved.
Gross profit was $185,859 or 37.1% of net sales for the nine
months ended November 25, 2000, which was $50,943 or 37.8%, higher than
the comparable period in the prior year of $134,916 or 24.9% of net
sales. The Company's gross margin increased by 1,220 basis points over
the gross margin the Company recorded in the prior nine month period
which was negatively impacted by manufacturing problems in its seating
operations. The current period gross margin improvement was due to the
turnaround in the seating business together with the positive impact of
the Company's lean manufacturing and continuous improvement programs,
which have been substantially aided by information technology
investments. Lean manufacturing and continuous improvement programs are
enabling the Company to reduce costs, improve quality and productivity
and accelerate the order fulfillment cycle.
Selling, general and administrative expenses were $71,159 or
14.2% of net sales for the nine months ended November 25, 2000, as
compared to $70,576 or 13.0% of net sales in the prior year. The year
over year increase in selling, general and administrative expenses was
primarily attributable to costs associated with the implementation of
lean manufacturing at the Company's principal manufacturing facilities
and increased costs, including depreciation expense, associated with the
Company's new Enterprise Resource Planning system offset by substantial
headcount reductions and elimination of expenses associated with last
year's problems in the seating business.
Research, development and engineering expenses for the current
nine month period were $37,263 or 7.4% of net sales or $3,002 lower than
the prior year of $40,265 or 7.4% of net sales. The year over year
decrease is primarily due to substantial headcount reductions in our
seating and galley operations.
9
10
BE AEROSPACE, INC.
NINE MONTHS ENDED NOVEMBER 25, 2000, AS COMPARED TO THE RESULTS OF
OPERATIONS FOR THE NINE MONTHS ENDED NOVEMBER 27, 1999 (CONTINUED)
Amortization expense for the nine months ended November 25, 2000 was
$17,535 as compared to $17,699 in the prior year.
The Company generated operating earnings of $59,902 or 12% of net sales in
the current period, as compared to operating earnings of $6,376 or 1.2% of net
sales in the prior year.
Interest expense for the nine months ended November 25, 2000 was $40,917 or
$1,210 greater than interest expense of $39,707 in the prior year. The increase
is primarily due to higher interest rates on the Company's bank borrowings.
Earnings before income taxes in the current nine month period were $18,985,
as compared to $(34,620) in the comparable period in the prior year. Income tax
expense in the current period was $1,899 as compared to $6,283 in the prior
year.
Net earnings were $17,086 or $.67 per share (diluted) for the nine months
ended November 25, 2000, as compared to a net loss of $(40,903) or $(1.65)
(diluted) for the comparable period in the prior year.
[Remainder of page intentionally left blank]
10
11
BE AEROSPACE, INC.
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 $162,389 as of November 25, 2000, as compared to
$129,913 as of February 26, 2000.
At November 2000, the Company's cash and cash equivalents were $44,230, as
compared to $37,363 at February 26, 2000. Cash provided from operating
activities was $28,758 for the nine months ended November 25, 2000. The primary
source of cash during the nine months ended November 25, 2000 was net earnings,
depreciation and amortization of $49,164, a $10,754 decrease in accounts
receivable and inventories, a $4,469 increase in accounts payable offset by a
$12,487 increase in other current assets and a $24,677 decrease in accrued
liabilities.
The Company's capital expenditures were $15,399 and $27,457 during the nine
months ended November 25, 2000 and November 27, 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 in August 2004, 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.
In August, the Company announced that its wholly-owned subsidiary Advanced
Thermal Sciences, Inc. ("ATS") filed a registration statement to effect an
initial public offering of 4 million newly-issued shares at an estimated price
range of $9-$11 per share. Following this offering, the Company will own the
remaining 10 million shares of ATS stock, assuming no exercise of the
underwriters' over-allotment option, and expects to receive a $15 million
payment from ATS. These proceeds will be used to reduce the Company's debt.
There can be no assurance as to the completion of the proposed public offering
or the benefits derived from the expected initial public offering of ATS, and
the reduction in debt.
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 operating loss
carryforward period, which begins to expire in 2011. Such uncertainties include
recent cumulative losses by the Company, the highly cyclical nature of the
industry in which it operates, economic conditions in Asia which is impacting
the airframe manufacturers and the airlines, the impact of rising fuel prices on
the Company's airline customers, the impact of labor disputes involving our
airline customers, the Company's high degree of financial leverage, risks
associated with the implementation of its integrated management information
system, risks associated with its seat manufacturing operations and risks
associated with the integration of acquisitions. The Company monitors these
uncertainties, as well as other positive and negative factors that may arise in
the future, as it assesses the necessity for a valuation allowance for its
deferred tax assets.
11
12
BE AEROSPACE, INC.
NEW ACCOUNTING PRONOUNCEMENTS
See footnote 5 of the related financial statements.
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.
[Remainder of page intentionally left blank]
12
13
BE AEROSPACE, INC.
FORWARD LOOKING STATEMENTS
This report contains forward-looking statements, including statements
regarding the future benefits of corrective actions in the Company's seating
business, implementation and expected benefits of lean manufacturing and
continuous improvement programs, the Company's dealings with customers and
partners, the consolidation of facilities, productivity improvements from recent
information technology investments, the roll-out of the Company's e-commerce
system, ongoing capital expenditures, the adequacy of funds to meet the
Company's capital requirements, the ability to refinance the Bank Credit
Facility if necessary, completion of and benefits derived from the expected
initial public offering of Advanced Thermal Sciences, Inc., and the reduction of
debt. These forward-looking statements include risks and uncertainties, and the
Company's actual experience may differ materially from that anticipated in such
statements. Factors that might cause such a difference include those discussed
in the Company's filings with the Securities and Exchange Commission, including
its most recent proxy statement and Form 10-K, as well as future events that may
have the effect of reducing the Company's 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, the Company's success in
winning new or expected refurbishment contracts from customers, 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
The Company is exposed to a variety of risks, including foreign currency
fluctuations and changes in interest rates affecting the cost of its debt.
FOREIGN CURRENCY
The Company has subsidiary operations primarily in the United Kingdom and
Holland and accordingly, the Company is exposed to transaction gains and losses
that could result from changes in foreign currency exchange rates. The Company
uses the local currency (Pound Sterling and Dutch Guilder, respectively) as the
functional currency for its subsidiaries. Translation adjustments resulting from
the process of translating foreign currency financial statements into U.S.
dollars have grown primarily due to the strengthening of the U.S. Dollar.
Translation adjustments were $(17,826) for the nine months ending November 25,
2000 and $(4,455) for the year ending February 26, 2000 and are recorded as
adjustments to accumulated other comprehensive loss in the Company's financial
statements. The Company actively monitors its foreign exchange exposure and,
should circumstances change, intends to implement strategies to reduce its risk
at such time that it determines that the benefits of such strategies outweigh
the associated costs. There can be no assurance that management's efforts to
reduce foreign exchange exposure will be successful.
13
14
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 None.
14
15
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: May 3, 2001 By: /s/ Robert J. Khoury
--------------------------------
Robert J. Khoury
Vice Chairman and
Chief Executive Officer
Date: May 3, 2001 By: /s/ Thomas P. McCaffrey
-----------------------------
Thomas P. McCaffrey
Corporate Senior Vice President of
Administration and Chief
Financial Officer
15