FORM 10-K/A
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended February 25, 1995
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission File No. 0-18348
BE AEROSPACE, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
06-1209796
(I.R.S. Employer Identification No.)
1400 Corporate Center Way, Wellington, Florida 33414
(Address of principal executive offices) (Zip Code)
(407) 791-5000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 Par Value
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Act 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[ ].
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of the registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K.[ ]
The aggregate market value of the registrant's voting stock held by
non-affiliates was approximately $114,952,000 on May 16, 1995 based on the
closing sales price of the registrant's Common Stock as reported on the
Nasdaq National Market as of such date.
The number of shares of the registrant's Common Stock, $.01 par value,
outstanding as of May 16, 1995 was 16,133,614 shares.
DOCUMENTS INCORPORATED BY REFERENCE
None.
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EXPLANATORY NOTE
This Form 10-K/A dated July 11, 1995 amends the registrant's Annual Report
on Form 10-K for the fiscal year ended February 25, 1995 (the "1995 10-K")
(filed with the Commission on May 25, 1995) as follows:
1. Item 6 (Selected Financial Data) is amended to report working capital of
$76,563 as of February 25, 1995. Due to a typographical error, working
capital was incorrectly reported to be $76,379 as of such date.
2. That portion of Item 7 (Management's Discussion and Analysis of Financial
Condition and Results of Operations) captioned "Introduction" is amended
to delete the words "and the effects of inflation" which appear in the
second sentence of the fifth paragraph thereof.
3. Item 8 (Financial Statements and Supplementary Data) is amended as follows:
(a) That portion of Item 8 captioned "Consolidated Statements of Cash
Flows For The Year Ended February 25, 1995, February 26, 1994, and
February 27, 1993" is amended to report that the effect of exchange rate
changes on cash flows for the year ended February 25, 1995 was $222. Due
to a typographical error, the effect of exchange rate changes on cash
flows for such year was incorrectly reported to be $(263);
(b) The stock option table which appears in Footnote 11 to the financial
statements has been amended to correct typographical errors in the column
captioned "Option price per share" for the fiscal years ended February 25,
1995 and February 26, 1994; and
(c) The column captioned "Consolidated" of the table for 1995 which
appears in Footnote 16 to the financial statements has been amended to
report other expenses of $23,736.
4. The registrant initially intended to incorporate into its 1995 10-K,
by reference to its definitive proxy statement to be filed with the
Commission in connection with its 1995 Annual Meeting of Stockholders
(which proxy statement was ultimately filed with the Commission on
June 29, 1995), the information required by Item 10 (Directors and
Executive Officers of the Registrant), Item 11 (Executive Compensation),
Item 12 (Security Ownership of Certain Beneficial Owners and Management)
and Item 13 (Certain Relationships and Related Transactions). Each
such item is amended to set forth in this Form 10-K/A the information
required by such items.
5. Item 14 (Exhibits, Financial Statement Schedules, and Reports on
Form 8-K) is amended as follows:
(a) to substitute a revised Exhibit 23 (Independent Auditors' Consent);
and
(b) to add a new Exhibit 99 (1994 Employee Stock Purchase Plan Audited
Financial Statements).
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On February 28, 1992, the Company acquired from The Pullman Company
certain assets and liabilities of PTC and APC and changed its Fiscal
year-end to the last Saturday in February. On April 2, 1992, the Company
acquired the stock of FEEL. During Fiscal year 1994, the Company completed
the following acquisitions: On April 29, 1993 the Company acquired all
of the stock of Inventum; on August 23, 1993 the Company acquired all of
the stock of Nordskog; on August 26, 1993 the Company acquired all of the
stock of Acurex; and on October 13, 1993 the Company acquired substantially
all of the assets of Airvision. Each of the 1993 and 1994 Acquisitions
has been accounted for as a purchase, and the results of the acquired
businesses are included in the Company's historical financial data from
the date of acquisition. The pro forma financial information for the
year ended February 29, 1992 gives effect to the 1993 Acquisitions as if
each had occurred on the same date in the prior year. The pro forma
operating results for all such periods reflect adjustments to depreciation,
amortization, interest and other costs associated with the 1993 Acquisitions.
The historical results of operations of PTC and APC include expense
allocations and reimbursements from The Pullman Company which are
material in amount. The financial data for the years ended February 25,
1995, February 26, 1994, February 27, 1993, February 29, 1992 and the
seven months ended February 29, 1992 have been derived from financial
statements which have been audited by the Company's independent auditors.
The financial data for the seven months ended February 24, 1991 have
been derived from financial statements which are unaudited, but, in the
opinion of management, include all adjustments, consisting of normal
recurring adjustments, necessary for a fair presentation of the financial
position and results of operations for such periods. The following
financial information is qualified by reference to, and should be read in
conjunction with, the financial statements, including notes thereto, and
"Management's Discussion and Analysis of Financial Condition and Results
of Operations" include elsewhere in this report.
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ITEM 6. SELECTED FINANCIAL DATA
(In thousands, except per share and ratio data)
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YEAR
YEAR ENDED SEVEN MONTHS ENDED ENDED
Feb. 25, Feb. 26, Feb. 27, Feb. 29, Feb. 29, Feb. 24, July 28,
1995 1994 1993 1992 1992 1991 1991
(Unaudited (Unaudited)
pro forma)
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STATEMENT OF OPERATIONS:
Net sales................................ $229,347 $203,364 $198,019 $174,636 $12,192 $14,399 $24,278
Cost of sales............................ 154,863 136,307 137,690 122,709 5,626 6,419 10,645
Gross Profit ............................ 74,484 67,057 60,329 51,927 6,566 7,980 13,633
Operating expenses:
Selling, general and administrative...... 31,787 28,164 21,698 19,575 4,871 3,119 4,855
Research and development................. 12,860 9,876 11,299 10,105 1,324 993 1,809
Amortization expense..................... 9,954 7,599 4,551 8,043 (2) 3,707 -- --
Other expenses........................... 23,736 (1) -- -- -- -- -- --
Operating earnings (loss)................ (3,853) 21,418 22,781 14,204 (3,336) 3,868 6,969
Earnings (loss) before income taxes
(benefit) and extraordinary item........ (18,872) 8,837 18,826 9,624 (2,593) 3,961 7,180
Earnings (loss) before extraordinary
item.................................... (12,066) 5,356 12,150 5,774 (1,733) 2,433 4,702
Extraordinary item, net of tax effect.... -- -- (522) -- -- -- --
Net earnings (loss)...................... $(12,066) $(5,356) $(11,628) $(5,774) $(1,733) $2,433 $4,702
Net earnings (loss) per common share:....
Continuing operations.................. $ (0.75) $ 0.35 1.03 $ 0.52 $ (0.18) $ 0.34 $ 0.65
Extraordinary item, net of tax effect.. -- -- (0.05) -- -- -- --
Net earnings (loss) per common share..... $ (0.75) $ 0.35 $ (0.98) $ 0.52 $ (0.18) $ 0.34 $ 0.65
Common and common equivalent shares...... 16,021 15,438 11,847 11,084 9,604 7,104 7,248
___________________
(1) In fiscal 1995, the Company charged to earnings approximately $23.7
million of expenses primarily related to intangible assets and inventories
associated with the Company's passenger entertainment systems.
(2) In fiscal 1992, approximately $3.1 million of non recurring expenses
related to a writedown of intangible assets and $2.1 million of costs
associated with the Company's acquisitions were charged to expense.
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<CAPTION>
As of
Feb. 25, Feb. 26, Feb. 27, Feb. 29, July 28, July 29,
1995 1994 1993 1992 1991 1990
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BALANCE SHEET DATA:
Working capital............ $ 76,563 $ 76,874 $ 133,661 $ 27,367 $ 13,500 $ 7,361
Total assets............... 379,954 375,009 314,055 135,330 26,034 21,348
Long-term debt............. 172,693 159,170 127,743 40,500 -- 1,627
Stockholders' equity....... 125,331 133,993 107,974 57,057 22,469 16,194
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
(In thousands, except share and per share data)
INTRODUCTION
The Company has become the world's leading manufacturer of commercial
aircraft cabin interior products through the strategic acquisitions of
seating, in-flight passenger entertainment and service systems (PESS),
and galley products businesses. The Company was incorporated in July 1987
to acquire the assets of Bach Engineering, Inc., which was engaged
exclusively in the assembly and sale of PESS products. On August 1, 1989,
the Company acquired the assets of EECO Avionics, a division of EECO
Incorporated, which also was engaged exclusively in the assembly and sale
of PESS products. On February 28, 1992, the Company acquired from The
Pullman Company certain assets and liabilities of PTC, a leading
manufacturer of commercial aircraft seating products,and APC, a significant
manufacturer of galley structures and inserts, and adopted a Fiscal year
that ends on the last Saturday in February. On April 2, 1992, the Company
acquired the stock of FEEL, the largest manufacturer of commercial aircraft
seating products in the United Kingdom (collectively, the "Fiscal 1993
Acquisitions").
During fiscal year 1994, the Company continued its acquisitions and
consolidation programs and completed the following transactions
(collectively, the "Fiscal 1994 Acquisitions"): On April 30, 1993,
the Company acquired, through a Dutch holding company, all of the capital
stock of Inventum, a supplier of galley inserts including ovens,
beverage makers and water boilers to airlines located primarily in Europe
and the Pacific Rim. On August 23, 1993, the Company acquired all of the
capital stock of Nordskog Industries, an industry founder of galley
structures and inserts. On August 26, 1993, the Company acquired
all of the capital stock of Acurex Corporation, the leading worldwide
supplier of commercial aircraft refrigeration products. On October 13, 1993,
the Company acquired substantially all of the assets and certain of the
liabilities of Airvision, a manufacturer of audio/video in-flight
entertainment equipment.
As a result of the Fiscal 1993 and Fiscal 1994 Acquisitions, BEA has
substantially changed the size, scope and nature of its business. Prior
to Fiscal 1992, the Company operated in the cabin interior products
industry solely through its participation in the PESS market. At that time,
the Company was characterized by a relatively small revenue base, high
margins and strong cash flow. As a result of the Fiscal 1993 and Fiscal
1994 Acquisitions, the Company is now a leader in a number of the industry's
product areas and its evenue base has increased approximately ten-fold.
While the Company continues to be susceptible to industry-wide deferrals,
management believes that the Company's significantly more diversified
product line and revenue base has reduced its exposure to demand fluctuations
in any one product area.
The Company has integrated the separate sales and marketing forces of the
businesses acquired during fiscal 1993 and 1994 into a single organization.
<PAGE>
The Company believes that its integrated worldwide marketing organization,
focused by airline customer and encompassing the entire Company product line
is preferred by its customers. In addition, the Company expects that its
participation in the upgrade, maintenance, inspection and repair services
market will facilitate further sales growth, both in the aggregate and by
individual airline customer. The Company has also embarked on a strategic
manufacturing cost improvement program, the goal of which is to reduce BEA's
manufacturing costs, increase productivity and improve quality.
The following discussion and analysis of results of operations compares the
results of operations for the year ended February 25, 1995 to the results of
operations for the years ended February 26, 1994 and February 27, 1993.
The discussion and analysis then addresses the liquidity and capital
resources of the Company and industry conditions as of February 25, 1995.
The discussion and analysis is qualified by reference to, and should be
read in conjunction with, the financial statements, including the notes
thereto.
RESULTS OF OPERATIONS - YEAR ENDED FEBRUARY 25, 1995 COMPARED WITH THE YEAR
ENDED FEBRUARY 26, 1994
Sales for the year ended February 25, 1995 were $229,347 or 13% greater than
sales of $203,364 in the prior year. This increase in sales is primarily
related to the results of operations of businesses acquired at the end of
the second quarter of fiscal 1994. The level of activity in the cabin
interior products industry continues to reflect the depressed conditions
within the airline industry.
At February 25, 1995, the Company's backlog stood at $331 million, up from
$241 million at February 26, 1994. Substantially all of the growth in
backlog is attributable to the Company's in-flight entertainment products;
backlog for the Company's seating and galley products has continued to
decline through Fiscal 1995 as a result of the depressed conditions present
in the airline industry. The Company's revenues are not expected to increase
appreciably until new aircraft deliveries increase, the refurbishment,
retrofit, and upgrade level of spending by the airline increases, or the
Company begins substantial deliveries of its MDDS interactive entertainment
systems.
Gross profit was $74,484 or 32% of sales for the year ended February 25,
1995 and was $7,427 greater than the prior year of $67,057, which represented
33% of sales. The increase in gross profit during the year ended
February 25, 1995 is the result of higher revenues.
Selling, general and administrative expenses were $31,787, (14% of sales)
for the year ended February 25, 1995. This was $3,623 higher than the
comparable period in the prior year of $28,164 (14% of sales), principally
due to the acquisitions completed during fiscal 1994.
Research and development expenses were $12,860 or 6% of sales for the year
ended February 25, 1995. For the prior year, research and development
expenses were $9,876 or 5% of sales.
<PAGE>
Amortization expense for the year ended February 25, 1995 of $9,954 was
$2,355 higher than the amount recorded in the prior year, and is due to
the acquisitions completed during fiscal 1994. Management expects
amortization expense to decrease by approximately $1,000 annually as a
result of the charge described below.
Other expenses consisted of a charge related primarily to intangible assets
and inventories associated with the Company's passenger entertainment
systems. The introduction of the Company's MDDS interactive video system,
which the Company expects to become the industry's standard for in-flight
passenger and service entertainment, has captured the dominant market share
with contract awards from the major airlines totaling more than $150 million
during the past nine months. The MDDS system also has recently caused two
of the Company's principal competitors to offer to develop for the airlines
systems similar to the Company's MDDS system. These events have caused the
in-flight entertainment industry to re-evaluate its product offerings and,
in the process, have impaired the value of certain of its assets. As a
result, the Company has written down certain of its assets, including
certain customer-specific inventories and other assets.
Net interest expense was $15,019 for the year ended February 25, 1995 or
$2,438 higher than the prior year. This increase is the result of an
increase in the amount of the Company's long-term debt outstanding, as well
as higher interest rates.
An income tax benefit of $6,806 (36% of earnings before income taxes) was
recognized principally as the result of the charge described above. Income
tax expense for the year ended February 26, 1994 was $3,481 or 39% of
earnings before income taxes.
The net loss for fiscal 1995 was $(12,066) or $(.75) per share as compared
to net earnings of $5,356 or $.35 per share in the prior year.
RESULTS OF OPERATIONS - YEAR ENDED FEBRUARY 26, 1994 COMPARED WITH YEAR
ENDED FEBRUARY 27, 1993
Sales for the year ended February 26, 1994 were $203,364 or 3% higher than
sales of $198,019 for the prior year. Decreases in sales of seating and
galley products were more than offset by revenues from the acquisitions
completed during fiscal 1994. The sales performance during fiscal 1994
reflects the steep decline in new aircraft shipments to the airlines
generally, the delays by the airlines in placing orders associated with the
Company's refurbishment, retrofit and spares programs and the timing of
scheduled shipments within the Company's backlog. At February 26, 1994
the Company's backlog stood at $241 million, which was up from $191
million at February 27, 1993 but reflects a decline of approximately $11
million from the prior quarter. This reversal in backlog growth and
actual decrease versus the backlog level at November 27, 1993 reflects
the recent airline environment in which programs have been deferred by
the airlines due to their financial status.
Gross profit was $67,057 or 33% of sales for fiscal 1994 and was $6,728
higher than the prior year of $60,329 which represented 30% of sales.
The increase in gross profit during Fiscal 1994 is due principally to
revenue mix and lower manufacturing costs associated with certain products.
<PAGE>
Selling, general and administrative expenses were $28,164 or 14% of sales
for fiscal 1994. This was $6,466 higher than the prior year of $21,698
(11% of sales), principally due to the acquisitions completed during
Fiscal 1994.
Research and development expenses were $9,876 or 5% of sales for fiscal 1994.
Research and development expenses were $11,299 or 6% of sales for the prior
year. The change in spending between the years is reflective of the status
of the Company's various research and development programs.
Amortization expense for fiscal 1994 of $7,599 was $3,048 higher than the
amount recorded in fiscal 1993. The increase in amortization expense is
due to higher levels of intangible assets resulting from the acquisitions
completed during Fiscal 1994.
Net interest expense was $12,581 for fiscal 1994 or $8,626 higher than net
interest expense of $3,955 recorded for the prior year, and is due to the
increase in the Company's long-term debt outstanding during Fiscal 1994.
The proceeds from the sale of the Company's Senior Notes that had not been
deployed in the Company's business were invested in interest-bearing cash
equivalents during fiscal 1994 at an average rate of approximately 3%.
Interest income related to these cash equivalents during fiscal 1994 was
$1,506 ($162 in 1993).
Income tax expense for fiscal 1994 was $3,481 or 39% of earnings before
income taxes, as compared to a tax rate of 35% for Fiscal 1993. The
increase in the effective tax rate during 1994 increase was due principally
to the nondeductible portion of amortization expense associated with the
Fiscal 1994 Acquisitions.
Net earnings were $5,356 or $.35 per share for fiscal 1994 as compared to
$11,628 or $.98 per share in the prior year. The decrease in earnings per
share reflects the impact of lower net earnings, as well as a 30% increase
in the number of common and common equivalent shares from year to year.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary requirements for capital are directly related to its
accounts receivable and inventory levels, as well as costs associated with
the design and development of its MDDS interactive video system, improvements
to its property and equipment, and costs resulting from the consolidation of
its businesses. The Company's working capital was $76,563 as of
February 25, 1995, compared to $76,874 as of February 26, 1994.
In October 1993, the Company obtained new credit facilities aggregating
$85,000. The credit facilities are comprised of two revolving lines of
credit,initially aggregating $40,000 and $45,000. The $40,000 revolving
<PAGE>
line of credit is collateralized by the stock of Acurex and may be borrowed
and repaid in $1,000 increments and has decreasing availability through
November 1998. The $45,000 revolving line of credit may be borrowed in
$1,000 increments, is subject to borrowing base calculations set forth in
the credit facility agreement, is collateralized by substantially all the
Company's assets and is all due and payable in full in November 1998.
The credit facilities bear interest at prime plus .50% or, at the Company's
option, LIBOR plus 1.75%. As of February 25, 1995, the availability under the
$40,000 revolving line of credit had been reduced to $32,500, resulting in
a total credit facility aggregating $77,500, of which $36,000 was
outstanding. In December 1994, the Company obtained real estate
mortgage-based financing for two of its recently constructed properties
in the aggregate amount of $4,000.
The Company believes that cash on hand, cash flow from operations and funds
available under its credit facilities, as amended to provide for certain
financial covenants to remain at the same levels for the current fiscal year,
will be sufficient to meet its working capital requirements for the
foreseeable future.
INDUSTRY CONDITIONS
The Company's principal customers are the world's commercial airlines. The
airlines, particularly the U.S. carriers, incurred record losses during the
three year period ended December 31, 1993. While the domestic airlines
in large part returned to profitable operations during calendar 1994, the
amount of losses previously incurred and the duration of the airline industry
decline have seriously impaired airline balance sheets and negatively
influenced airline purchasing decisions. In addition, the airline industry
is going through a process of consolidation with several carriers, having
ceased operations and with several other carriers only recently emerging from
the protection of the federal bankruptcy laws. Airframe manufacturers have
effected reductions in their work forces in each of the last four years,
(including fiscal 1995), and have recently announced further personnel
cutbacks stemming from the continued decline of new aircraft deliveries. The
industry losses and this consolidation process have led to numerous
reductions in aircraft orders and deliveries. New aircraft deliveries from
airframe manufacturers to their airline customers are expected to remain at
the current depressed level at least through the balance of calendar year
1995. Because the Company's business is, in part, dependent on the sale of
products for installation on newly delivered aircraft, to the extent such
aircraft deliveries remain at current levels, that portion of the Company's
business dependent on such sales will be adversely affected. In addition,
the cumulative impact of the industry losses and consolidation have adversely
affected and are expected to continue to adversely affect the airline
industry's purchasing decisions, resulting in deferrals of orders for the
Company's retrofit, refurbishment and spare parts businesses.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this Item is set forth on Pages F-1 through F-20
of this report.
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ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information relating to the executive officer's of the registrant is set
forth in Part 1 of this report under the caption "Executive Officers of the
Registrant".
Pursuant to the registrant's Restated Certificate of Incorporation, the Board
of Directors is divided into three classes, as nearly equal in number as
possible, so that each director (in certain circumstances after a
transitional period) will serve for three years, with one class of directors
being elected each year.
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Name, Age (as of June 14, 1995), Director Term
Business Experience and Current Directorships of Each Director Since Expires
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JIM C. COWART, 43 -- Since January 1993, Chairman of the Board of 1989 1995
Directors and Chief Executive Officer of Aurora Electronics, Inc., a supplier
of environmental recycling and recovery services to the electronics industry;
since January 1992, Director of Aurora Management, Inc., a private capital
firm from time to time retained by the registrant for consulting services;
from 1987 until 1991, General Partner of Capital Resource Partners, a
private capital investment manager.
BRIAN H. ROWE, 64 -- Since February, 1995, Chairman Emeritus of GE 1995 1995
Aircraft Engines ("GEAE"), a principal business unit of the General
Electric Company ("GE"); Chairman of GEAE from 1993 to 1995 and
President from 1990 to 1993; held various senior management positions
with GEAE from 1979 to 1990; joined GE in 1957; currently a director of
Aerostructures Hamble Limited, a manufacturer of military and civil
aircraft components, Atlas Air, Inc., an air cargo carrier, the Fifth Third
Bank, an Ohio banking corporation, and Stewart & Stevenson Services,
Inc., a custom packager of engine systems for the generation of electrical
and mechanical power.
RICHARD G. HAMERMESH, 47 -- Since August 1987, Managing 1987 1997
Partner, Center for Executive Development, an independent executive
education and training firm; currently a director of Applied Extrusion
Technologies, Inc., a manufacturer of oriented polypropylene films for
labeling and packaging applications for the food, beverage, confectionary
and other consumer products industries.
AMIN J. KHOURY, 56 -- Since 1987, Chairman of the Board of Directors and 1987 1997
Chief Executive Officer of the Company; since 1986, Managing Director of
The K.A.D. Companies, Inc., an investment, venture capital and
consulting firm; currently Chairman of the Board of Directors of Applied
Extrusion Technologies, Inc.; and a director of Aurora Electronics,
Inc., Brooks Automation, Inc., a manufacturer of vacuum central wafer
handling systems for the semiconductor process industry, and MedChem
Products, Inc., a manufacturer of medical products. Mr. Khoury is the
brother of Robert J. Khoury.
ROBERT J. KHOURY, 53 -- Since 1987, President and Chief Operating Officer 1987 1996
of the Company. Mr. Khoury is the brother of Amin J. Khoury.
PAUL W. MARSHALL, 52 -- Since December 1991, Chairman of the Board of 1991 1995
Directors and Chief Executive Officer of Rochester Shoe Tree Co., Inc.,
a manufacturer and distributor of cedar shoe trees and other cedar and
shoe care products; from 1989 to November 1991, Chairman of Industrial
Economics Co., a management consulting firm; from 1989 to 1992, Adjunct
Professor, Harvard Business School; currently a director of Doskocil
Incorporated, a meat products manufacturer, Applied Extrusion
Technologies, Inc. and Raymond James Financial Corporation, a regional
brokerage firm.
HANSJORG WYSS, 59 -- Since 1977, Director, President and Chief Executive 1989 1996
Officer of Synthes (U.S.A.), Ltd. and Synthes (Canada), Ltd.,
manufacturers and distributors of orthopedic implants and instruments;
currently a director of Applied Extrusion Technologies, Inc.
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Board of Directors and Committees
The Board of Directors held five meetings during the fiscal year ended
February 25, 1995 ("Fiscal 1995"). All directors attended at least 75% of
Board meetings during Fiscal 1995, except Mr. Wyss who attended 60% of the
meetings. The Board of Directors currently has two standing committees, the
Audit Committee and the Stock Option and Compensation Committee.
The Audit Committee, composed of Messrs. Richard G. Hamermesh and Hansjorg
Wyss, held one meeting during Fiscal 1995. The Audit Committee recommends to
the Board of Directors the independent auditors to be engaged by the Company,
reviews with management and with the independent auditors the registrant's
internal accounting procedures and controls and reviews with the independent
auditors the scope and results of their audit.
The Stock Option and Compensation Committee, composed of Messrs. Cowart and
Hamermesh, held no meetings during Fiscal 1995 but acted pursuant to
unanimous written consent on five occasions. The Committee provides
recommendations to the Board regarding compensation matters and administers
the registrant's stock option and compensation plans.
ITEM 11. EXECUTIVE COMPENSATION.
Report of the Compensation Committee of the Board of Directors
The Compensation Committee, which is responsible for making recommendations
to the Board of Directors on compensation relating to officers of the
registrant and administering the registrant's stock option plans, makes the
following report on executive compensation for Fiscal 1995:
The registrant's executive compensation program is designed to reward and
retain executives who are capable of leading the registrant in achieving its
strategic and financial objectives in the competitive and rapidly changing
commercial aircraft cabin interior products industry.
The registrant relies on three compensation components to motivate executive
performance: annual salary, incentive cash bonuses and stock-based incentive
compensation. Except for Mr. Schwartz, whose employment agreement expired on
February 28 of this year, each of Messrs. Amin J. Khoury, Robert J. Khoury,
Marco C. Lanza and Thomas P. McCaffrey (collectively with Mr. Schwartz "the
Named Executive Officers") has an employment agreement that establishes an
annual base salary at a level the registrant believes is very modest for
companies in the aerospace and airline industries and in the mid-range
for growth companies traded on the Nasdaq National Market. In addition to
base salary, each Named Executive Officer may receive an incentive cash bonus
at the end of each fiscal year based upon corporate performance and that
officer's individual performance. Corporate performance is measured by the
registrant's strategic and financial performance in that fiscal year, with
particular reference to net revenues and operating earnings for the year,
together with gains in market share for the registrant's products. Because
the Compensation Committe believes that short-term fluctations in stock
price do not necessarily reflect the underlying strength or future prospects
of the registrant, the Compensation Committee does not emphasize
year-to-year changes in stock price in its evaluation of corporate
performance. Individual performance is measured by the strategic and
financial performance of the particular officer's operational
responsibility in comparison to targeted performance criteria.
<PAGE>
While skeptical about the significance of short-term fluctuations in stock
price, the Compensation Committee believes that long-term stock price
appreciation will reflect the registrant's achievement of its strategic
goals and objectives. Accordingly, the registrant seeks to create long-term
performance incentives for its key employees through the registrant's
stock-based incentive compensation program. Stock options are granted to key
employees at a price equal to the fair market value on the date of grant,
and awards are based on the performance of such employees and anticipated
contributions by such employees in helping the registrant achieve its
strategic goals and objectives. Stock option grants are also made by
reference to the number of stock options an employee already holds.
For the last two fiscal years, despite the achievement of essentially all of
the strategic objectives associated with the creation of long-term
shareholder value, including gains in market share for all of the
registrant's products, revenues and operating earnings did not meet the
registrant's projections due to the continued recession in the airline
industry and, therefore, the registrant did not pay any cash bonuses to any
of its Named Executive Officers, other than Mr. Schwartz in connection with
three acquisitions made during the fiscal year ended February 26, 1994.
The registrant did grant stock options to key employees, including the
Named Executive Officers other than Mr. Amin J. Khoury, upon recommendation
of management and approval of the Compensation Committee.
The base salary for Mr. Amin J. Khoury, Chairman of the Board and Chief
Executive Officer of the registrant, for Fiscal 1995 was $382,653, which
included a cost-of-living increase calculated by reference to the Consumer
Price Index as provided in his employment agreement with the registrant.
Mr. Khoury was not granted any bonus or stock options for Fiscal 1995.
With respect to the above matters, the Compensation Committee submits
this report.
The following tables set forth information with respect to the compensation
of the Named Executive Officers in Fiscal 1995:
[Remainder of page intentionally left blank]
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long-Term
------------------------------------ Compensation All Other
Name and Principal Position Year(1) Salary($) Bonus($) Options(#) Compensation
- ------------------------------ ------- --------- ------------ --------------- ---------------
<S> <C> <C> <C> <C> <C>
Amin J. Khoury................ 1995 382,653 0 0 3,764 (2)
Chairman and Chief 1994 370,440 0 0 5,514 (2)
Executive Officer 1993 360,000 360,000 775,000 127,200 (3)
Robert J. Khoury.............. 1995 200,000 0 60,000 4,551 (2)
President and Chief 1994 200,000 0 50,000 4,497 (2)
Operating Officer 1993 200,000 200,000 0 4,300 (2)
Marco C. Lanza................ 1995 150,010 0 90,000 4,432 (2)
Executive Vice President, 1994 150,000 0 10,000 4,497 (2)
Marketing and Product 1993 150,000 40,000 0 4,400 (2)
Development
Thomas P. McCaffrey.......... 1995 155,192 0 20,000 4,201 (2)
Vice President, Chief Financial
Officer and Secretary (4) 1994 123,384 0 50,000 0
E. Ernest Schwartz............ 1995 137,500 0 5,000 18,859 (2)
President, Galley 1994 135,000 20,000 20,000 4,497 (2)
Products Group 1993 135,000 54,100 25,000 3,900 (2)
- ---------------
(1) The periods covered by this table are the fiscal years ended in February
1995, 1994 and 1993.
(2) Defined contribution plan contribution paid by the registrant.
(3) Includes reimbursement by the registrant for relocation expenses of
$125,300 and a defined contribution plan contribution paid by the registrant
of $1,900.
(4) Mr. McCaffrey commenced his employment with the registrant as of May 1, 1993.
</TABLE>
<PAGE>
<TABLE>
OPTION GRANTS IN LAST FISCAL YEAR
Individual Grants
% of Total
Options
Granted to Grant Date
Options Employees in Exercise Expiration Present
Name Granted(#) Fiscal Year(2) Price($/Sh) Date Value($)(1)
- ----------------------------------
<S> <C> <C> <C> <C> <C>
Amin J. Khoury.................... 0 N/A N/A N/A N/A
Robert J. Khoury(3).............. 60,000 14.1 $8.25 5/17/04 $ 328,560
Marco C. Lanza(3)................ 90,000 21.2 $8.25 5/17/04 $ 492,840
Thomas P. McCaffrey(3)...... 20,000 4.7 $8.25 5/17/04 $ 109,520
E. Ernest Schwartz(3)........... 5,000 1.2 $8.25 5/17/04 $ 27,380
- ---------------
(1) The Black-Scholes method of option valuation, one of the alternative
methods of option valuation permitted by the Securities and Exchange
Commission, has been used to determine hypothetical values as of the grant
date of the stock options granted in Fiscal 1995 and does not reflect the
actual value of the option awards at any given time. The hypothetical values
are based on assumptions that 45.14% is the expected volatility, 6.15% is
the risk-free rate of return for the option grants to Messrs. Khoury, Lanza,
McCaffrey and Schwartz, the registrant will pay no dividends over the ten-year
period and the options will be exercised on their expiration date.
The registrant does not advocate or necessarily agree that the Black-Scholes
method, or any method permitted by the Securities and Exchange Commission,
can properly determine the value of an option. If the hypothetical valuation
produced by the Black-Scholes method was realized in May 2004, the present
value as of May 1994 of the registrant's stock appreciation for all
stockholders during the period from May 1994 to May 2004 would have been
$88.5 million or $5.48 of apprecation per share. However, there can be no
assurance that the registrant's stock price will appreciate in the amount
the Black-Scholes method suggests.
(2) During Fiscal 1995, the registrant granted to its employees options
covering 424,500 shares of Common Stock.
(3) The options granted to Messrs. Khoury, Lanza, McCaffrey and Schwartz
are exercisable 25% on May 17, 1994, the date of grant, and an additional
25% on each anniversary thereof.
</TABLE>
[Remainder of page intentionally left blank]
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Value of
Number of Unexercised
Unexercised In-the-Money
Options at Options at
Shares FY-End(#) FY-End($)
Acquired
on Value Exercisable/ Exercisable/
Exercisable/Name Exercise(#) Realized($) Unexercisable Unexercisable(1)
- ---------------------------------
<S> <C> <C> <C> <C>
Amin J. Khoury................... 0 N.A. 782,800/0 0/N.A.
Robert J. Khoury................. 0 N.A. 145,000/55,000 0/0
Marco C. Lanza................... 0 N.A. 150,000/50,000 0/0
Thomas P. McCaffrey............. 0 N.A. 47,500/22,500 0/0
E. Ernest Schwartz.............. 0 N.A. 37,500/12,500 0/0
- ---------------
(1) The closing price for the registrant's Common Stock on the Nasdaq
National Market on February 24, 1995, the last trading day of the fiscal
year, was $5.50 per share.
</TABLE>
Defined Benefit Arrangement
Pursuant to the employment agreement between the registrant and Mr.
Amin J. Khoury, upon the occurrence of the earlier of December 31, 2001
(the employment agreement's termination date) or the termination of the
employment agreement by reason of Mr. Khoury's death or incapacity, Mr.
Khoury or his estate, as the case may be, shall be entitled to receive a
retirement compensation payment (the "Retirement Compensation") equal to
Mr. Khoury's base salary, as adjusted for inflation, in effect immediately
prior to the termination of his employment, which amount is payable for
each successive year following termination for the number of years Mr.
Khoury has served the registrant. Mr. Khoury's base salary is currently
$382,653, and his service to the registrant began on August 1, 1987, the
date he became Chairman and Chief Executive Officer of the registrant.
The Retirement Compensation may be paid in monthly installments, or
Mr. Khoury or his personal representative, as the case may be, may elect to
receive the present value of the aggregate Retirement Compensation in a
lump sum.
Compensation of Directors
Directors who are employees of the registrant receive no additional
compensation for serving on the registrant's Board of Directors. Directors
who are not employees of the registrant (the "Eligible Directors") receive
compensation of $2,500 per calendar quarter and are entitled to participate
in the registrant's 1991 Directors' Stock Option Plan, as from time to time
<PAGE>
in effect (the "Directors' Plan"). Under the Directors' Plan, each Eligible
Director is awarded an option for 5,000 shares of Common Stock on December
15 of each year the plan is in effect, provided he or she is an Eligible
Director on that date. In addition, each Eligible Director, excluding those
individuals who are currently directors of the registrant, is awarded an
initial grant of 35,000 shares of Common Stock as of the date of his or
her first election as a director.
The exercise price of all options granted under the Directors' Plan may not
be less than 100% of the fair market value of the Common Stock on the date
of the grant. Options expire 10 years after the date of grant and become
exercisable, subject to certain conditions which accelerate vesting, as
follows: 25% on the first anniversary of the date of grant and an additional
25% each calendar year thereafter. On December 15, 1994, each of the
following directors was awarded an option to purchase 5,000 shares of Common
Stock at a price of $7.44 per share: Jim C. Cowart, Richard G. Hamermesh,
Paul W. Marshall and Hansjorg Wyss.
Employment Contracts
Amin J. Khoury. Mr. Khoury and the registrant have entered into an
employment agreement dated as of January 1, 1992 which extends through
December 31, 2001. Under the employment agreement, Mr. Khoury receives an
initial base salary of $360,000 per year, subject to increases as determined
from time to time by the Board of Directors and subject to cost of living
increases calculated by reference to the Consumer Price Index. Mr. Khoury's
base salary for Fiscal 1995 was $382,653. Mr. Khoury is also entitled to
receive bonuses from the registrant when, as and if determined from time
to time by the Board of Directors. Mr. Khoury is also entitled to retirement
compensation upon the expiration of his employment term. See "Defined
Benefit Arrangement" above.
Robert J. Khoury. Mr. Khoury and the registrant have entered into an
employment agreement dated as of March 1, 1992 which extends through
February 28, 1998, unless otherwise terminated. Under the employment
agreement, Mr. Khoury receives a base salary of $200,000, subject to
increases from time to time as determined by the Board of Directors. Mr.
Khoury is entitled to receive an annual incentive bonus when, as and if
determined by the Board of Directors, which shall not exceed 100% of his
then current salary. If Mr. Khoury dies, his estate becomes entitled to
receive his base salary for the remainder of the term of the agreement. If
he becomes disabled, he is entitled to receive his base salary, plus all
benefits owing under the agreement, for the remainder of its term, except
that the registrant's obligation to pay such salary and benefits terminates
if he subsequently takes other employment, to the extent of the salary and
benefits from such other employment. If the registrant terminates his
employment agreement for cause, the registrant haas no further obligations
to him, except for unpaid salary and benefits accrued through the date of
termination. In addition, if Mr. Khoury terminates his employment under the
agreement on or after August 1, 1997, the registrant will pay him (or in
the event of his death after such date, his estate) for ten successive
years after such termination an annual sum equal to 50% of his average
annual salary for the three years then most recently completed immediately
preceding such termination.
<PAGE>
Marco C. Lanza. Mr. Lanza and the registrant have entered into an employment
agreement dated as of March 1, 1992 which extends through February 28, 1997,
unless sooner terminated. Under the employment agreement, Mr. Lanza receives
a base salary of $150,000 and is entitled to receive an annual incentive
bonus when, as and if determined by the Board of Directors. Mr. Lanza does
not have provision in his employment agreement for a retirement benefit.
In all other respects, Mr. Lanza's employment agreement is the same as Mr.
Robert Khoury's employment agreement described above.
Thomas P. McCaffrey. Mr. McCaffrey and the registrant have entered into an
employment agreement dated as of May 1, 1993 which extends through
May 1, 1996, unless sooner terminated. Under the employment agreement,
Mr. McCaffrey receives a base salary of $150,000 and is entitled to receive
an annual incentive bonus when, as and if determined by the Board of
Directors but not to exceed 100% of salary. Mr. McCaffrey does not have
provision in his employment agreement for a retirement benefit. However,
Mr. McCaffrey will receive his salary and benefits under the agreement
through May 1, 1997 if a change of control of the registrant during the
term of his agreement results in the termination of his employment or a
material reduction in his salary and/or benefits. In addition, if Mr.
McCaffrey dies, his estate becomes entitled to receive a lump sum equal to
the salary Mr. McCaffrey would have otherwise received during the immediately
following 180-day period had he not died. In all other respects, Mr.
McCaffrey's employment agreement is the same as Mr. Robert Khoury's
employment agreement described above.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table and notes thereto set forth certain information with
respect to the beneficial ownership of the registrant's Common Stock as of
June 14, 1995 by (i) each person who is known to the registrant to
beneficially own more than 5% of the outstanding shares of Common Stock of
the registrant; (ii) each of the chief executive officer and the four other
most highly paid executive officers of the registrant in Fiscal 1995
(collectively, the "Named Executive Officers") and each director of the
registrant; and (iii) all Named Executive Officers and directors of the
registrant as a group. Except as otherwise indicated, each of the
stockholders named below has sole voting and investment power with
respect to the shares of Common Stock beneficially owned:
[Remainder of page intentionally left blank]
<PAGE>
<TABLE>
<CAPTION>
Common Stock
Beneficially Owned
------------------------
Number
of Percent of
Names Shares Outstanding Shares(1)
- ------------------------------------------------------------------
<S> <C> <C>
Wellington Management Company................................ 1,924,900 11.9
75 State Street
Boston, MA 02109
State of Wisconsin Investment Board.............................. 1,585,000 9.8
P.O. Box 7842
Madison, WI 53707
Forstmann-Leff Associates Inc..................................... 1,089,600 6.7
55 East 52nd Street
New York, NY 10055
Jurika & Voyles, Inc.............................................. 942,591 5.8
1999 Harrison St., Suite 700
Oakland, CA 94612
Reams Asset Management Company LLC....................... 855,300 5.3
227 Washington Street
Columbus, IN 47201
Oppenheimer Group, Inc............................................ 833,800 5.2
Oppenheimer Tower
World Financial Tower
New York, NY 10281
Amin J. Khoury+*.................................................. 782,800 (2) 4.6
Marco C. Lanza+................................................... 194,586 (3) 1.2
Hansjorg Wyss*.................................................... 183,609 (4) 1.1
Jim C. Cowart*.................................................... 156,750 (5) **
Robert J. Khoury+*................................................ 145,584 (6) **
Paul W. Marshall*................................................. 133,750 (7) **
Richard G. Hamermesh*............................................. 56,001 (8) **
Thomas P. McCaffrey+.............................................. 50,085 (9) **
E. Ernest Schwartz+............................................... 37,500 (10) **
Brian H. Rowe..................................................... -0- --
All Directors and Named Executive Officers as a group
(10 persons)........................................................ 1,740,665 (11) 9.9
- ---------------
+ Named Executive Officer
* Director of the Company
** Less than 1 percent
</TABLE>
<PAGE>
(1) The number of shares of Common Stock deemed outstanding includes:
(I) 16,154,235 shares of Common Stock outstanding as of June 14, 1995;
and (ii) shares of Common Stock subject to outstanding stock options which
are exercisable by the named individual or group in the next sixty days
(commencing June 14, 1995).
(2) Represents shares issuable upon the exercise of stock options exercisable
in the next sixty days.
(3) Includes 150,000 shares issuable upon the exercise of stock options
exercisable in the next sixty days. Excludes options to purchase 50,000
shares of Common Stock which are not exercisable in the next sixty days.
(4) Includes 42,500 shares issuable upon the exercise of stock options
exercisable in the next sixty days. Excludes options to purchase 12,500
shares of Common Stock which are not exercisable in the next sixty days.
(5) Includes 20,000 shares acquired by a profit sharing plan in which
Mr. Cowart has a fifty percent interest and 133,750 shares issuable upon
the exercise of stock options exercisable in the next sixty days. Excludes
options to purchase 21,250 shares of Common Stock which are not exercisable
in the next sixty days.
(6) Includes 145,000 shares issuable upon the exercise of stock options
exercisable in the next sixty days. Excludes options to purchase 55,000
shares of Common Stock which are not exercisable in the next sixty days.
(7) Represents shares issuable upon the exercise of stock options exercisable
in the next sixty days. Excludes options to purchase 21,250 shares of Common
Stock which are not exercisable in the next sixty days.
(8) Includes 2,000 shares held in trusts for the benefit of Mr. Hamermesh's
two children, of which trust Mr. Hamermesh and his wife are trustees and
in which shares Mr. Hamermesh disclaims all beneficial interest. Also
includes 42,500 shares issuable upon the exercise of stock options
exercisable in the next sixty days. Excludes options to purchase 12,500
shares of Common Stock which are not exercisable in the next sixty days.
(9) Includes 47,500 shares issuable upon the exercise of stock options
exercisable in the next sixty days. Excludes options to purchase 22,500
shares of Common Stock which are not exercisable in the next sixty days.
(10) Represents shares issuable upon the exercise of stock options
exercisable in the next sixty days. Excludes options to purchase 12,500
shares of Common Stock which are not exercisable in the next sixty days.
(11) Includes 1,515,300 shares issuable upon the exercise of stock options
exercisable in the next sixty days. Excludes options to purchase 207,500
shares of Common Stock which are not exercisable in the next sixty days.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
In 1990, the registrant adopted a formal policy whereby all transactions
between the registrant and its officers, directors, principal stockholders
or other affiliates must be on terms no less favorable to the registrant
<PAGE>
than could be obtained from unaffiliated third parties on an arm's-length
basis, and such transactions will be approved by a majority of the
registrant's independent and disinterested directors.
Under a Supply Agreement dated April 17, 1990 with Applied Extrusion
Technologies, Inc., a Delaware corporation ("AET"), the registrant purchases
from AET its requirements of injection-molded plastic parts for use in the
manufacture of passenger control units and other products for installation
in commercial aircraft for the period ending March 31, 1998. Under that
agreement, AET has agreed to use its best efforts at all times to maintain
available and in good working order a sufficient number and variety of
injections modling machines to satisfy the registrant's orders as
received and to use its best efforts to initiate production within
three days of receipt of an order or, in emergency situations, on
the day on which the order is received. The price to be paid by the
registrant to AET for products purchased under the Supply Agreement is an
amount which results in a 331/3% gross margin to AET, after including in
AET's standard cost for such products, all direct and indirect costs of
labor, materials, equipment and overhead. Purchases by the registrant under
this agreement for Fiscal 1995 were approximately $984,000. Mr. Amin
J. Khoury is a director and significant stockholder of AET and serves as
Chairman of its Board of Directors. Messrs. Hamermesh, Marshall and Wyss,
directors of the registrant, also are directors of AET.
During the fifteen month period commencing February 27, 1994, Boston
FilmCompany, Inc., a multimedia film and video production house ("BFC"), was
paid an aggregate of $247,236 in fees and expenses for extensive support
services performed for a number of the Registrant's Divisions, including
the production of CD ROM and other marketing and training materials,
preparation of corporate video and slide presentations, and providing
technical support for the management information systems group. Amin C.
Khoury, President of BFC, is the son of Amin J. Khoury, Chairman and Chief
Executive Officer of the Company and a minority stockholder of BFC.
During the eight month period commencing September 15, 1994, Dr. Paul W.
Marshall, a director of the registrant, was paid an aggregate of $159,806
in fees and expenses for consulting services performed on behalf of
the registrant.
<PAGE>
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) The following documents are filed as part of this report:
1. Financial Statements (See page F-1).
Consolidated Balance Sheets, February 25, 1995 and February 26, 1994.
Consolidated Statements of Operations for the Years Ended February 25,
1995, February 26, 1994 and February 27, 1993.
Consolidated Statements of Stockholders' Equity for the Years Ended
February 25, 1995, February 26, 1994 and February 27, 1993.
Consolidated Statements of Cash Flows for the Years Ended February 25,
1995, February 26, 1994 and February 27, 1993.
Notes to Consolidated Financial Statements for the Years Ended February
25, 1995, February 26, 1994 and February 27, 1993.
2. Financial Statement Schedules.
Schedule VIII - Valuation and Qualifying Accounts for the Years Ended
February 25, 1995, February 26, 1994 and February 27, 1993.
3. Exhibits. The following exhibits are filed herewith:
Exhibit 23. Independent Auditors' Consent
Exhibit 99. 1994 Employee Stock Purchase Plan Audited Financial Statements
(b) Reports on Form 8-K.
The Company has not filed any reports on Form 8-K during the last
quarter of the fiscal year covered by this report.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
BE AEROSPACE, INC.
Date: July 11, 1995 By: /s/ Thomas P. McCaffrey
Thomas P. McCaffrey
Vice President & Chief Financial Officer
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE.
Page
Independent Auditors' Report F-2
Financial Statements:
Consolidated Balance Sheets, February 25, 1995 and
February 26, 1994. F-3
Consolidated Statements of Operations for the Years
Ended February 25, 1995, February 26, 1995 and
February 27, 1993. F-4
Consolidated Statements of Stockholders' Equity for the
Years Ended February 25, 1995, February 26, 1994 and
February 27, 1993. F-5
Consolidated Statements of Cash Flows for the Years Ended F-6
February 25, 1995, February 26, 1994 and February 27, 1993.
Notes to Consolidated Financial Statements for the Years Ended F-8
February 25, 1995, February 26, 1994 and February 27, 1993.
Financial Statement Schedule:
Schedule VIII - Valuation and Qualifying Accounts for the
Years Ended February 25, 1995, February 26, 1994 and
February 27, 1993. F-20
[Remainder of page intentionally left blank]
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
BE Aerospace, Inc.
Wellington, Florida
We have audited the accompanying consolidated balance sheets of BE Aerospace,
Inc. and subsidiaries as of February 25, 1995 and February 26, 1994, and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended February 25, 1995.
Our audits also included the financial statement schedule listed in the Index
at Item 8. These financial statements and financial statement schedule are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and financial statement
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly,
in all material respects, the financial position of BE Aerospace, Inc. and
subsidiaries as of February 25, 1995 and February 26, 1994, and the results
of their operations and their cash flows for each of the three years in the
period ended February 25, 1995, in conformity with generally accepted
accounting principles. Also, in our opinion, such financial statement
schedule, when considered in relation to the basic financial statements taken
as a whole, presents fairly in all material respets the information set
forth therein.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Costa Mesa, California
April 21, 1995
<PAGE>
<TABLE>
CONSOLIDATED BALANCE SHEETS, FEBRUARY 25, 1995 AND FEBRUARY 26, 1994
(Dollars in thousands, except share data)
<CAPTION>
ASSETS 1995 1994
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 8,319 $ 13,738
Accounts receivable - trade, less allowance for doubtful
accounts of $4,034 (1995) and $2,208 (1994) 48,915 57,090
Inventories, net 71,347 53,390
Deferred income taxes 6,502 5,462
Income tax refund receivable 1,019 1,934
Other current assets 6,415 4,746
Total current assets 142,517 136,360
PROPERTY AND EQUIPMENT, net 60,304 52,684
INTANGIBLES AND OTHER ASSETS, net 177,133 185,965
$ 379,954 $ 375,009
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 35,164 $ 27,999
Accrued liabilities 26,123 27,677
Current portion of long-term debt 4,667 3,810
Total current liabilities 65,954 59,486
LONG-TERM DEBT 172,693 159,170
DEFERRED INCOME TAXES 11,212 17,773
OTHER LIABILITIES 4,764 4,587
COMMITMENTS AND CONTINGENCIES (Note 9)
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value; 1,000,000 shares
authorized; no shares outstanding
Common stock, $.01 par value; 30,000,000 shares
authorized; 16,095,790 (1995) and 15,985,454 (1994) shares
issued 160 159
Additional paid-in capital 119,209 118,357
Retained earnings 7,418 19,484
Cumulative foreign exchange translation adjustment (1,456) (4,007)
Total stockholders' equity 125,331 133,993
$ 379,954 $ 375,009
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share data)
<CAPTION>
February 25, February 26, February 27,
1995 1994 1993
NET SALES $ 229,347 $ 203,364 $ 198,019
<S> <C> <C> <C>
COST OF SALES 154,863 136,307 137,690
GROSS PROFIT 74,484 67,057 60,329
OPERATING EXPENSES:
Selling, general and administrative 31,787 28,164 21,698
Research and development 12,860 9,876 11,299
Amortization of intangible assets 9,954 7,599 4,551
Other expenses 23,736 ______ ______
Total operating expenses 78,337 45,639 37,548
OPERATING EARNINGS (LOSS) (3,853) 21,418 22,781
INTEREST EXPENSE, net 15,019 12,581 3,955
EARNINGS (LOSS) BEFORE INCOME TAXES
(BENEFIT) AND EXTRAORDINARY ITEM (18,872) 8,837 18,826
INCOME TAXES (BENEFIT) (6,806) 3,481 6,676
EARNINGS (LOSS) BEFORE
EXTRAORDINARY ITEM (12,066) 5,356 12,150
EXTRAORDINARY ITEM - Loss on
extinguishment of debt, net of tax benefit _______ _______ (522)
of $282
NET EARNINGS (LOSS) $ (12,066) $ 5,356 $ 11,628
EARNINGS (LOSS) PER COMMON SHARE:
Earnings (loss) before extraordinary item $ (0.75) $ 0.35 $ 1.03
Extraordinary item __________ _________ (0.05)
Net earnings (loss) $ (0.75) $ 0.35 $ 0.98
See notes to consolidated financial statements.
</TABLE>
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED FEBRUARY 25, 1995, FEBRUARY 26, 1994 AND FEBRUARY 27, 1993
(in thousands)
<TABLE>
<CAPTION>
Additional Currency Total
Common Stock Paid-in Retained Translation Stockholders'
Shares Amount Capital Earnings Adjustment Equity
<S> <C> <C> <C> <C> <C> <C>
BALANCE, FEBRUARY 29, 1992 10,535 $ 105 $ 54,452 $ 2,500 $ -- $ 57,057
Issuance of common stock 3,631 36 40,321 40,357
Exercise of stock options 473 5 2,438 2,443
Tax benefit from exercise of
nonstatutory stock options 1,244 1,244
Common stock repurchased (33) (299) (299)
Net earnings 11,628 11,628
Foreign currency translation
adjustment _____ _____ ______ _____ (4,456) (4,456)
BALANCE, FEBRUARY 27, 1993 14,606 146 98,156 14,128 (4,456) 107,974
Issuance of common stock 1,272 12 19,080 19,092
Exercise of stock options 107 1 963 964
Tax benefit from
exercise of non-
statutory stock options 158 158
Net earnings 5,356 5,356
Foreign currency translation
adjustment ______ _____ ________ _______ 449 449
BALANCE, FEBRUARY 26, 1994 15,985 159 118,357 19,484 (4,007) 133,993
Sale of stock under
employee stock purchase plan 15 132 132
Employee benefit plan
matching contribution 96 1 720 721
Net loss (12,066) (12,066)
Foreign currency translation
adjustment _____ ____ _____ _____ 2,551 2,551
BALANCE, FEBRUARY 25, 1995 16,096 $ 160 $119,209 $7,418 $(1,456) $125,331
See notes to consolidated financial statements.
</TABLE>
[Remainder of page intentionally left blank]
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED FEBRUARY 25, 1995, FEBRUARY 26, 1994 AND FEBRUARY 27, 1993
(Dollars in thousands)
<TABLE>
<CAPTION>
CASH FLOWS FROM OPERATING ACTIVITIES 1995 1994 1993
<S> <C> <C> <C>
Net earnings (loss) $ (12,066) $ 5,356 $ 11,628
Adjustments to reconcile net earnings (loss) to
net cash flows provided by operating activities:
Depreciation and amortization 16,146 13,115 7,986
Change in intangible assets 8,588
Deferred income taxes (6,764) 1,657 1,499
Non cash employee benefit plan contributions 721
Loss on extinguishment of debt 804
Changes in operating assets and liabilities, net of
effects from acquisitions:
Accounts receivable 6,226 (3,188) (11,655)
Inventories (16,863) (4,153) 1,981
Income tax refunds receivable 915 (1,934) 797
Other current assets (1,500) (2,047) (100)
Accounts payable 7,295 6,056 (333)
Other liabilities (642) (9,071) (7,202)
Net cash flows provided by operating activities 2,056 5,791 5,405
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for purchase of property and equipment (12,172) (11,002) (7,343)
Change in other assets (8,610) (5,077) (5,839)
Acquisitions ______ (107,506) (18,300)
Net cash flows used for investing activities (20,782) (123,585) (31,482)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under revolving lines of credit 9,080 15,505
Proceeds from issuance of stock, net of
repurchases 132 964 40,061
Principal payments on long-term debt (13,514) (32,001)
Proceeds from long-term debt 3,873 130,010 10,000
Net cash flow provided by financing activities 13,085 117,460 33,565
Effect of exchange rate changes on cash flows 222 (198) (373)
Net (decrease) increase in cash and
cash equivalents (5,419) (532) 7,115
Cash and cash equivalents, beginning
of year 13,738 14,270 7,155
Cash and cash equivalents, end
of year $ 8,319 $ 13,738 $ 14,270
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
<CAPTION>
<S> <C> <C> <C>
Cash paid (received) during year for:
Interest $ 16,664 $ 7,524 $ 3,819
Income taxes - net (1,096) 2,918 4,879
SCHEDULE OF NONCASH TRANSACTIONS:
Tax benefit upon exercise of nonstatutory
stock options 158 1,244
Liabilities assumed and accrued acquisition
costs incurred in connection with the
acquisitions 19,954 20,18
Liabilities incurred in connection with purchase
of land and buildings 4,000 4,932
Common stock issued in connection with the
acquisitions 19,100 2,440
Issuance of Senior Notes (Note 7) 124,019
Debt issue costs 1,409 4,125
See notes to consolidated financial statements.
</TABLE>
[Remainder of page intentionally left blank]
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED FEBRUARY 25, 1995, FEBRUARY 26, 1994 AND FEBRUARY 27, 1993
(Dollars in thousands, except share and per share data)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Basis of Presentation - BE Aerospace, Inc. (the "Company")
designs, manufactures, sells and services a broad line of commercial aircraft
cabin interior products consisting of a broad range of aircraft seating
products, passenger entertainment and service systems, and galley products,
including structures as well as all food and beverage storage and preparation
equipment.
As described in Note 2, the Company has completed several business
combinations, all accounted for using purchase accounting. On February 28,
1992, the Company acquired from the Pullman Company all of the assets and
certain of the liabilities of PTC Aerospace, Inc. (PTC) and Aircraft Products
Company (APC) (collectively, the Business Unit). Following the acquisition
of the Business Unit, the Company changed its name to BE Aerospace, Inc. On
April 2, 1992, the Company, through its Dutch holding company, acquired all
of the outstanding stock of Flight Engineering and Equipment Limited (FEEL)
and substantially all of the operating assets of JFB Engineering Limited
(JFB), both English corporations. On April 30, 1993, the Company acquired
all of the outstanding stock of Royal Inventum B.V., a Dutch corporation
(Inventum). On August 26, 1993, the Company acquired all of the outstanding
stock of Acurex Corporation, a California corporation (Acurex) and, on
August 23, 1993, the Company acquired all of the outstanding stock of
Nordskog Industries, Inc., a California corporation (Nordskog). On October
13, 1993, the Company acquired substantially all of the assets and certain
of the liabilities of Philips Airvision of Valencia, California (Airvision)
a division of Philips Electronics Corporation, North America Corporation.
Consolidation - The accompanying financial statements consolidate the
accounts of BE Aerospace, Inc. and its wholly-owned subsidiaries. All
intercompany transactions and balances have been eliminated in consolidation.
Income Taxes - In accordance with Statement of Financial Accounting Standards
No. 109, the Company provides deferred income taxes for temporary differences
between amounts of assets and liabilities recognized for financial reporting
purposes and such amounts recognized for income tax purposes.
Warranty Costs - Estimated costs related to product warranties are accrued
at the time products are sold.
Revenue Recognition - Sales of assembled products, equipment or services are
recorded on the date of shipment or, if required, upon acceptance by the
customer. The Company sells its products primarily to airlines worldwide,
including occasional sales collateralized by letters of credit in countries
where customary payment terms exceed one year. The Company performs ongoing
credit evaluations of its customers and maintains reserves for potential
credit losses. Actual losses have been within management's expectations.
Cash Equivalents - The Company considers all highly liquid debt instruments
purchased with an original maturity of three months or less to be cash
equivalents.
<PAGE>
Intangible Assets - The Company amortizes intangible assets using the
straight-line method based on the estimated economic lives of the assets,
which range from 7-30 years. The Company periodically evaluates the
carrying value of the intangible assets versus the cash benefit expected to
be realized and adjusts for any impairment of value. As discussed in Note
15, the Company introduced a new product to the in-flight entertainment
industry, causing the industry in general to re-evaluate its product
offerings and, in the process, impairing the value of certain assets,
including earlier Company technology. Accordingly, certain intangible assets
related to these product offerings were written down to their estimated
realizable value.
Research and Development - Research and development expenditures are expensed
as incurred.
Earnings (Loss) per Common Share - Earnings (loss) per common share amounts
are computed using the weighted - average number of common and common
equivalent (where not antidilutive) shares outstanding during each period.
The number of weighted average shares of common stock outstanding amounted
to 16,021,000, 15,438,000 and 11,847,000, for the years ended February 25,
1995, February 26, 1994 and February 27, 1993 respectively.
Foreign Currency Translation - In accordance with the provisions of SFAS No.
52, "Foreign Currency Translation," the assets and liabilities located
outside the United States are generally translated into U.S. dollars at
the rates of exchange in effect at the balance sheet dates. Income and
expense items are translated at the average exchange rates prevailing during
the period. Gains and losses resulting from foreign currency transactions
are recognized currently in income, and those resulting from translation of
financial statements are accumulated as a separate component of stockholders'
equity.
2. ACQUISITIONS
The Company completed a number of acquisitions during the year ended
February 26, 1994 (1994 Acquisitions) and the year ended February 27, 1993
(1993 Acquisitions) which are described below. Funds for the 1994
Acquisitions were obtained from proceeds of the long-term debt issuance
described in Note 7. Funds for the 1993 Acquisitions were obtained from the
proceeds from the issuance of additional common stock and long-term debt.
1994 ACQUISITIONS
Inventum - On April 30, 1993, the Company acquired all of the capital stock
of Inventum which designs, manufactures, sells and services galley inserts
such as ovens, beverage makers, and water boilers to commercial airlines
located primarily in Europe and the Pacific Rim. The aggregate acquisition
cost of $39,964 includes the payment of $33,095 to the seller, the assumption
of approximately $3,614 of liabilities, plus related acquisition costs and
certain purchase accounting reserves.
Acurex - On August 26, 1993, the Company acquired all of the outstanding
capital stock of Acurex which designs, manufactures, sells and services
aircraft refrigeration appliances such as chillers, refrigeration units
<PAGE>
and wine chillers to commercial airlines worldwide. The aggregate
acquisition cost of $70,454 includes the payment of $45,000 to the seller,
the assumption of approximately $2,507 of liabilities, the issuance of
1,272,728 shares of the Company's common stock to the sellers, valued at
$15.00 per share, plus related acquisition costs and certain purchase
accounting reserves.
Nordskog - On August 23, 1993, the Company acquired all of the outstanding
capital stock of Nordskog which designs, manufactures, sells and services
aircraft galley structures and inserts to commercial airlines worldwide.
The aggregate acquisition cost of $25,402 includes a cash payment of $17,158
to the seller, the assumption of approximately $2,374 of liabilities, plus
related acquisition costs and certain purchase accounting reserves.
Airvision - On October 13, 1993, the Company acquired substantially all of
the assets and certain of the liabilities of Airvision which designs,
manufactures, sells and services in-seat video products, including
interactive video for commercial airlines worldwide. The aggregate
acquisition cost of $16,601 includes the payment of $12,253 to the seller,
the assumption of approximately $1,640 of liabilities, plus related
acquisition costs and certain purchase accounting reserves.
The aggregate purchase price for the 1994 Acquisitions has been allocated
to the net assets acquired based on appraisals and management's estimates
as follows:
<TABLE>
<S> <C>
Cash and cash equivalents $ 4,403
Receivables 14,403
Inventories 21,392
Property and equipment 5,424
Intangible and other assets 106,799
$ 152,421
</TABLE>
1993 ACQUISITIONS
In April 1992, the Company acquired all of the outstanding capital stock of
FEEL for approximately $12,600 cash, 100,000 shares of the Company's common
stock at a per share price of $13.50 and the assumption of approximately
$18,086 of liabilities. FEEL designs, manufactures, sells and services
custom-designed seating for commercial aircraft. In addition, in April
1992, through FEEL, the Company acquired substantially all of the operating
assets of JFB for approximately $5,700 cash, 64,000 shares of the Company's
common stock at a per share price of $13.50 and the assumption of
approximately $2,100 of certain liabilities. JFB's principal line of
business is the manufacture of custom-engineered components for FEEL.
The Company also acquired an option to purchase the land and buildings used
by FEEL and JFB for approximately $10,000. This option was exercised on
March 2, 1993.
3. INVENTORIES
Inventories are valued at the lower of cost or market using the weighted
average cost method. Inventories consist of the following:
<PAGE>
<TABLE>
1995 1994
<S> <C> <C>
Raw materials $ 23,675 $ 34,973
Work-in-process 39,131 13,365
Finished goods 8,541 5,052
$ 71,347 $ 53,390
</TABLE>
4. PROPERTY AND EQUIPMENT
Property and equipment are carried at cost, and depreciated and amortized
generally on the straight-line method over their estimated useful lives of
three to 20 years (term of lease as to leasehold improvements). Property
and equipment consist of the following:
<TABLE>
1995 1994
<S> <C> <C>
Land, buildings and improvements $ 31,920 $ 22,902
Machinery 29,743 18,850
Tooling 10,324 9,349
Furniture and equipment 7,075 6,656
Construction in progress 4,880
79,062 62,637
Less accumulated depreciation and amortization (18,758) (9,953)
$ 60,304 $ 52,684
</TABLE>
5. INTANGIBLES AND OTHER ASSETS
Intangibles and other assets consist of the following:
<TABLE>
Straight-line
Amortization
Period (Years) 1995 1994
<S> <C> <C>
Covenants not-to-compete 14 $ 9,198 $ 10,174
Product technology, production plans and drawings 7-20 56,774 58,897
Replacement parts annuity 20 26,042 24,075
Product approvals and technical manuals 20 13,909 19,218
Goodwill 30 68,651 68,382
Debt issue costs 10 5,662 5,535
Trademarks and patents 20 9,114 8,387
Other 9,482 4,692
198,832 199,360
Less accumulated amortization (21,699) (13,395)
$ 177,133 $ 185,965
6. ACCRUED LIABILITIES
Accrued liabilities consist of the following:
1995 1994
<S> <C> <C>
Accrued product warranties $ 2,969 $ 2,578
Accrued salaries, vacation and related benefits 5,502 2,667
Accrued acquisition expenses 2,507 6,647
Accrued interest 6,694 6,368
Accrued income taxes 1,642
Other accrued liabilities 6,809 9,417
$ 26,123 $ 27,677
</TABLE>
[Remainder of page intentionally left blank]
<PAGE>
7. LONG-TERM DEBT
<TABLE>
Long-term debt consists of the following:
1995 1994
<S> <C> <C>
Senior notes $ 124,215 $ 124,117
Revolving lines of credit 36,000 15,000
Term loan 16,577 12,000
Other long-term debt 568 11,863
177,360 162,980
Less current portion of long-term debt (4,667) (3,810)
$ 172,693 $ 159,170
</TABLE>
In October 1993, the Company obtained new credit facilities with a group of
banks, initially aggregating $85,000, consisting of a $40,000 term loan and
a $45,000 revolving line of credit (the "1993 Credit Facilities"). In April
1994, the term loan was converted to a revolving line of credit. As of
February 25, 1995, the 1993 Credit Facilities consist of two revolving lines
of credit (the "Series A Revolver" and "Series B Revolver"). The Series B
Revolver may be borrowed and repaid in $1,000 increments and has decreasing
availability with the remaining balances due November 1998. At February
25, 1995 the maximum borrowings available under the Series B Revolver
were $32,500. The Series A Revolver may be borrowed in $1,000 increments
and is subject to borrowing base calculations set forth in the credit
facilities agreement. At February 25, 1995, the maximum borrowings available
under the Series A revolver were $45,000. The 1993 Credit Facilities bear
interest at prime (as defined) plus 1/2% or LIBOR plus 1-3/4%, at the option
of the Company. This rate is subject to change in the event of a change in
the Company's credit rating by Moody's Investor Services or Standard & Poor's.
The Series B Revolver is collateralized by the stock of Acurex. The Series
A Revolver is collateralized by substantially all of the Company's assets
and is all due and payable in November 1998. The terms of the 1993 Credit
Facilities include a number of financial and other restrictive covenants.
The Company was in compliance with all loan covenants as of February 25,
1995. The 1993 Credit Facilities also collateralized outstanding letters of
credit aggregating $2,969 as of February 25, 1995.
On February 24, 1993, the Company sold $125,000 of 9-3/4% Senior Notes
(the "Senior Notes"), which were priced to yield 9-7/8%. The Company
received the proceeds from the Senior Notes on March 3, 1993 and utilized
$32,545 thereof to repay the outstanding balance of the Company's then
outstanding bank obligations. The unamortized portion of the associated
debt issue costs of approximately $804 was written off and reflected as
an extraordinary item, net of tax effects of $282, in the accompanying
statement of operations for the year ended February 25, 1995.
The Senior Notes are senior unsecured obligations of the Company, ranking
equally with any future senior obligations of the Company and mature on
March 1, 2003. Interest on the Senior Notes is payable semi-annually in
arrears on March 1 and September 1 of each year. The Senior Notes are
redeemable at the option of the Company, in whole or in part, at any time
<PAGE>
on or after March 1, 1998 at predetermined redemption prices, together with
accrued and unpaid interest through the date of redemption. Upon a change
of control (as defined), each older of the Senior Notes may require the
the Company to repurchase such holder's Senior Notes at 101% of the
principal amount thereof, plus accrued and unpaid interest to the date of
such purchase. The Senior Notes contain certain restrictive covenants, all
of which were met by the Company as of February 25, 1995, including
limitations on future indebtedness, restricted payments, transactions with
affiliates, liens, dividends, mergers and transfers of assets.
Terms of the Senior Notes provide that, among other things, the payment of
cash dividends on Common Stock is limited to a cumulative amount that equals
fifty percent of the Company's consolidated adjusted net income since the
date of the Senior Notes' issuance, plus the sum of $10,000 and other equity
adjustments (as defined therein). The payment of cash dividends may only
be made if the Company is not in default under the terms of the Indenture.
The 1993 Credit Facilities also contain restrictions on the cumulative
amount of dividends that may be paid. As of February 25, 1995, cash dividends
of $1,339 could have been declared by the Company.
During fiscal 1994, the Company entered into revolving line of credit and
term loan agreements aggregating $13,300 (the FEEL Credit Agreement). The
FEEL Credit Agreement is collateralized by substantially all of the assets
of FEEL. Borrowings may be made under the line of credit provided FEEL is
in compliance with certain covenants, all of which were met by FEEL as of
February 25, 1995. Aggregate borrowings outstanding under the FEEL Credit
Agreement were approximately $12,041 as of February 25, 1995. Such
borrowings will be repaid in pounds sterling.
During fiscal 1994, the Company also entered into a revolving line of credit
agreement for approximately $1,000 (the Inventum Credit Agreement). The
Inventum Credit Agreement is collateralized by substantially all of the
assets of Inventum. Borrowings may be made under the line of credit provided
Inventum is in compliance with certain covenants, all of which were met by
Inventum as of February 25, 1995. There were no borrowings outstanding
under the Inventum Credit Agreement as of February 25, 1995.
During fiscal 1995, the Company entered into term loan agreements aggregating
$4,000 which are collateralized by two of the Company's recently constructed
properties. These term loans bear interest at prime (as defined) plus 1/2%
or LIBOR plus 1 3/4%, at the option of the Company and contain certain
restrictive covenants, all of which were met by the Company as of February
25, 1995.
<TABLE>
Maturities of long-term debt are as follows:
<S> <C>
Fiscal year ending February:
1996 $4,667
1997 2,083
1998 37,508
1999 1,508
2000 1,508
Thereafter 130,086
$ 177,360
</TABLE>
[Remainder of page intentionally left blank]
<PAGE>
8. INCOME TAXES
Income tax expense (benefit) consists of the following:
<TABLE>
1995 1994 1993
<S> <C> <C> <C>
Current:
Federal $ (786) $ 1,408 $ 2,856
State 105 139 948
Foreign 639 277 1,373
(42) 1,824 5,177
Deferred:
Federal (5,146) 155 1,145
State (904) 266 67
Foreign (714) 1,236 287
(6,764) 1,657 1,499
$ (6,806) $ 3,481 $ 6,676
</TABLE>
The difference between income tax expense (benefit) and the amount computed
by applying the statutory U.S. federal income tax rate then in effect
consists of the following:
<TABLE>
1995 1994 1993
<S> <C> <C>
Statutory U.S. federal income tax expense (benefit) $ (6,605) $ 3,093 $6,400
State income taxes, net (519) 264 670
Goodwill amortization 708 290 10
Research and development credit (600) (100)
Foreign Sales Corporation tax benefit (353) (281) (715)
Other, net 563 115 411
$ (6,806) $ 3,481 $ 6,676
</TABLE>
[Remainder of page intentionally left blank]
<PAGE>
The tax effects of temporary differences and carryforwards that give rise to
the Company's deferred income tax assets and liabilities consist of the
following:
<TABLE>
1995 1994
<S> <C> <C>
Bad debt reserves $ 1,415 $ 538
Inventory reserves 2,396 1,027
Inventory costs capitalized for tax purposes 815 794
Warranty reserves 663 918
Acquisition reserves 855 1,731
Accrued vacation 699 578
Other (341) (124)
Net current deferred income tax assets $ 6,502 $ 5,462
Depreciation (1,904) (1,841)
Intangible assets (15,164) (16,906)
Net operating loss carryforward 3,708
Research credit carryforward 600
Other 1,548 974
Net noncurrent deferred income tax liabilities $ (11,212) $ (17,773)
</TABLE>
As of February 25, 1995, the Company had $9,135 of federal operating loss
carryforwards which expire in 2010, federal research credit carryforwards of
$600 which expire in 2010, and alternative minimum tax credit carryforwards
of $269 which have no expiration date.
The Company has not provided for any residual U.S. income taxes on the
approximately $5,406 of earnings from its foreign subsidiaries because such
earnings are intended to be indefinitely reinvested. Such residual U.S.
income taxes, if provided for, would be immaterial.
9. COMMITMENTS AND CONTINGENCIES
Leases - The Company leases certain of its office, manufacturing and service
facilities under operating leases which expire at various times through
August 2003. Rent expense for fiscal 1995, 1994 and 1993 was approximately
$2,276, $2,091 and $2,372, respectively. Future payments under leases with
terms currently greater than one year are as follows:
<TABLE>
<S> <C>
Year ending February:
1996 $ 3,697
1997 2,694
1998 1,499
1999 643
2000 485
Thereafter 1,797
$ 10,815
</TABLE>
<PAGE>
Contingencies - The Company is a defendant in various legal actions arising
in the normal course of business, the outcome of which, in the opinion of
management, neither individually nor in the aggregate are likely to result
in a material adverse effect to the Company's financial position.
Employment Agreements - The Company has employment and compensation
agreements with two key officers of the Company. One of the agreements
provides for an officer to earn a minimum of $360, adjusted annually for
changes in the consumer price index (as defined) per year through 2001,
as well as a deferred compensation benefit equal to the aggregate annual
compensation earned through termination and payable thereafter. Such
deferred compensation will be payable in equal monthly installments over
the same number of years it was earned.
The other agreement provides for an officer to receive annual minimum
compensation of $200, and an incentive bonus not to exceed 100% of the
officer's then-current salary through 1998. In addition, if the officer
terminates his employment on or after August 1997, the Company is obligated
to pay the officer annually, as deferred compensation, an amount equal to
50% of the officer's annual salary (as defined) for a period of ten years
from the date of termination.
The Company has other employment agreements with certain key members of
management that provide for aggregate minimum annual base compensation of
$540, expiring on various dates through 1998.
Supply Agreement - The Company has entered into a supply agreement with
Applied Extrusion Technologies, Inc. ("AET"), a related party by way of
common management. Under this agreement, the Company has agreed to purchase
its requirements for certain component parts through April 1998 at a price
that results in a 33-1/3% gross margin to AET. The Company's purchases
under this contract for the years ended February 25, 1995, February 26, 1994
and February 27, 1993, were $984, $1,040 and $1,245, respectively.
10. PROFIT-SHARING PLAN
In August 1988, the Company established a non-qualified contributory
profit-sharing plan. Effective August 1, 1989, this plan was amended to
incorporate a 401(k) Plan which permits the Company to match a portion of
employee contributions and to make profit-sharing contributions to all
participants (as defined). Commencing in 1995, the Company's 401(k) Plan
was amended to permit the Company's matching contribution to be made in
common stock of the Company. The Company recognized expenses of $757, $585,
and $1,216 related to this plan for the years ended February 25, 1995, February
26, 1994 and February 27, 1993, respectively.
11. STOCKHOLDERS' EQUITY
In December 1992, the Company successfully completed a public offering of
3,000,000 shares of its common stock at $12.00 per share and, in January
1993, the underwriters for that offering exercised their overallotment
option by purchasing an additional 450,000 shares of the Company's common
stock. The net proceeds to the Company, after deducting various offering
expenses, were $38,116. The Company used $26,650 of these proceeds to
prepay a portion of its long-term debt (Note 7). Had the sale of stock and
<PAGE>
repayment of long-term debt occurred at the beginning of fiscal 1993,
weighted average shares outstanding, net earnings per share before
extraordinary item and net earnings per share would have been 13,671,000,
$0.95 and $0.91, respectively.
Stock Option Plans - The Company has various stock option plans, including
the 1989 Stock Option Plan, the 1991 Directors Stock Option Plan and the
1992 Share Option Scheme (collectively the "Option Plans"), under which
shares of the Company's common stock may be granted to key employees and
directors of the Company. The Option Plans provide for granting key
employees options to purchase the Company's common stock. Options are
granted at the discretion of the compensation and stock option committee
of the Board of Directors, and the option term cannot exceed ten years.
Options granted generally vest at the rate of 25% per year from the date of
grant and are exercisable to the extent vested.
During fiscal 1993, the Board approved the granting of options outside of
the qualified stock option plans to the Company's chairman and chief
executive officer, principals of Aurora Management, Inc. (Aurora) (Note 13),
one of the members of the Board, and a former board member, covering 775,000,
200,000, 100,000 and 110,000 shares, respectively. These options were
granted at an exercise price of $12.25, $12.25, $12.25 and $12.50 per share,
respectively, which were the fair market values as of the grant date.
In April 1993, the compensation and stock option committee of the Board of
Directors reviewed the exercise prices of the options then outstanding,
current market conditions, as well as other factors, and deemed it
appropriate to re-price 1,365,500 options with exercise prices ranging
from $12.00 to $14.00 per share to $8.75 per share, which was the fair
market value as of that date.
The following table sets forth options granted, cancelled, forfeited and
outstanding:
<TABLE>
<CAPTION>
February 25, 1995 February 26, 1994 February 27, 1993
Option price Option price Option price
Options per share Options per share Options per share
<S> <C> <C> <C> <C> <C> <C>
Outstanding,
beginning of period 2,493,162 $ .81 - $13.00 2,215,112 $ .81 - $14.00 1,116,612 $ .81 - $13.00
Options granted 484,500 $7.44 - $ 8.75 404,500 $ 8.75 - $11.75 1,594,000 $ 11.75 - $14.00
Options exercised (375) $ .81 (106,450) $ 8.75 - $ 9.50 (473,250) $ .81 - $ 9.50
Options forfeited (106,000) $8.25 - $11.75 (20,000 $ 8.75 - $12.25 (22,250) $ 9.50 - $12.25
Outstanding, end
of period 2,871,287 $ .81 - $13.00 2,493,162 $ .81 - $13.00 2,215,112 $ .81 - $14.00
</TABLE>
<PAGE>
12. EMPLOYEE STOCK PURCHASE PLAN
The Company established a qualified Employee Stock Purchase Plan during
fiscal 1995, the terms of which allow for qualified employees (as defined)
to participate in the purchase of designated shares of the Company's common
stock at a price equal to the lower of 85% of the closing price at the
beginning or end of each semi-annual stock purchase period. The Company
issued 15,065 shares of stock during fiscal 1995 pursuant to this plan at an
average price per share of $7.01.
13. RELATED PARTY TRANSACTIONS
Aurora, a private capital firm, has provided assistance to the Company in
developing its acquisition program, the acquisitions of the Business Unit,
FEEL and AFL, Inventum, Nordskog and Acurex as well as in its 1992 equity
offering, strategic planning, competitive analysis and financial relations.
During fiscal 1993 and 1994, the Company had an arrangement with Aurora
under which Aurora was entitled to receive reimbursement for its reasonable
expenses and to receive a monthly retainer of $20 which was credited against
any fees earned for services rendered related to certain transactions,
including $100 for each acquisition consummated in fiscal 1994. This
arrangement was terminated effective July 1993. Aurora earned approximately
$300 during the year ended February 26, 1994 related to the 1994 Acquisitions
as well as approximately $400 for other services during the year ended
February 27, 1993 related to the FEEL and AFL acquisitions, the 1992 equity
offering and 1993 debenture offering. The Company also granted to Aurora's
principals, as consideration for services to the Company in connection with
certain financngs, options to purchase an aggregate 200,000 shares of the
Company's common stock at a price equal to fair market value at the date of
grant. A member of the Company's Board of Directors is a part owner of
Aurora.
Chemical Venture Partners (CVP) also provided assistance to the Company in
identifying and negotiating the acquisition of the Business Unit. As
compensation, during fiscal 1993, the Company issued 17,138 shares of its
common stock to CVP. A former member of the Company's Board of Directors
was a principal in CVP.
14. EXPORT SALES AND MAJOR CUSTOMERS
Export sales from the United States to customers in foreign countries
amounted to approximately $61,645 $44,058, and $65,680 in fiscal 1995, 1994,
and 1993, respectively. Total sales to all customers in foreign countries
amounted to approximately $114,511, $85,239 and $91,541 in fiscal 1995,
1994 and 1993, respectively. Major customers (i.e., customers representing
more than 10% of total sales) change from year to year depending on the
level of refurbishment activity and/or the level of new aircraft purchases
by such customers. Sales to one major customer were approximately $21,185
in fiscal 1993 (there were no major customers in fiscal 1995 and 1994).
15. OTHER EXPENSES
Other expenses consisted of a charge related primarily to intangible assets
and inventories associated with the Company's passenger entertainment
systems. The introduction of the Company's MDDS interactive video system,
<PAGE>
which the Company expects to become the industry's standard for in-flight
passenger and service entertainment, has captured the dominant market share
with contract awards from the major airlines totaling more than $150,000
during the past nine months. The MDDS system also has recently caused major
carriers to convert programs for earlier products to the Company's MDDS
system and has caused two of the Company's principal competitors to offer
to develop for the airlines systems similar to the Company's MDDS system.
These events have caused the in-flight entertainment industry to re-evaluate
its product offerings and, in the process, have impaired the value of certain
of its assets. As a result, the Company has written down certain of its
assets, including certain customer-specific inventories and other assets.
16. FOREIGN OPERATIONS
Geographic Area - The Company operated principally in two geographic areas,
the United States and Europe during the years ended February 25, 1995,
February 26, 1994 and February 27, 1993. There were no significant transfers
between geographic areas during the period. Identifiable assets are those
assets of the Company that are identified with the operations in each
geographic area.
The following table presents operating results for the years ended February
25, 1995, February 26, 1994 and February 27, 1993 and identifiable assets
as of February 25, 1995, February 26, 1994 and February 27, 1993 by
geographic area.
[Remainder of page intentionally left blank]
<PAGE>
<TABLE>
<CAPTION>
1995 United
States Europe Consolidated
<S> <C> <C> <C>
Sales to unaffiliated customers $ 170,542 $ 58,805 $ 229,347
Gross profit 56,296 18,188 74,484
Selling, general and administrative
and amortization expenses 32,183 9,558 41,741
Research and development 9,834 3,026 12,860
Other expenses 23,736 23,736
Interest expense, net 11,835 3,184 15,019
Loss before income taxes (18,578) (294) (18,872)
Identifiable assets 279,402 100,552 379,954
1994 United
States Europe Consolidated
Sales to unaffiliated customers $ 156,638 $ 46,726 $ 203,364
Gross profit 51,401 15,656 67,057
Selling, general and administrative
and amortization expenses 27,288 8,475 35,763
Research and development 7,783 2,093 9,876
Interest expense, net 11,424 1,157 12,581
Earnings before income taxes 4,814 4,023 8,837
Identifiable assets 280,827 94,182 375,009
1993 United
States Europe Consolidated
Sales to unaffiliated customers $ 159,865 $ 38,154 $ 198,019
Gross profit 50,365 9,964 60,329
Selling, general and administrative
and amortization expenses 23,446 2,803 26,249
Research and development 9,381 1,918 11,299
Interest expense, net 3,662 293 3,955
Earnings before income taxes and
extraordinary item 13,876 4,950 18,826
Identifiable assets 269,051 45,004 314,055
</TABLE>
17. FAIR VALUE INFORMATION
The following disclosure of the estimated fair value of financial instruments
at February 25, 1995 and February 26, 1994 is made in accordance with the
requirements of SFAS No. 107, "Disclosures about Fair Value of Financial
Instruments." The estimated fair value amounts have been determined by the
Company using available market information and appropriate valuation
methodologies. However, considerable judgment is required in interpreting
market data to develop the estimates of fair value. Accordingly, the estimates
presented herein are not necessarily indicative of the amounts that the
Company could realize in a current market exchange. The use of different
market assumptions and/or estimation methodologies may have a material
effect on the estimated fair value amounts.
<PAGE>
The carrying amounts of cash and cash equivalents, accounts receivable -
trade, and accounts payable are a reasonable estimate of their fair values.
Except for the Company's Senior Notes, which have a carrying value and fair
value of $124,215 and $120,938, respectively, at February 25, 1995, the
carrying amount of long-term debt approximates fair value because the
obligations either bear interest at floating rates or compare favorably with
fixed rate obligations that would be available to the Company.
The fair value information presented herein is based on pertinent information
available to management as of February 25, 1995. Although management is not
aware of any factors that would significantly affect the estimated fair value
amounts, such amounts have not been comprehensively revalued for purposes of
these consolidated financial statements since that date, and current
estimates of fair value may differ significantly from the amounts presented
herein.
18. SELECTED QUARTERLY DATA (Unaudited)
Summarized quarterly financial data for fiscal 1995 is as follows:
<TABLE>
<CAPTION>
Year Ended February 25, 1995
First Second Third Fourth
Quarter Quarter Quarter Quarter
<S> <C> <C> <C> <C>
Net sales $ 57,567 $ 55,197 $ 57,281 $ 59,302
Gross profit 18,887 18,408 18,668 18,521
Net earnings (loss) 1,074 964 (14,569) 465
Net earnings (loss) per common share .07 .06 (.90) .03
Summarized quarterly financial data for fiscal 1994 is as follows:
Year Ended February 26, 1994
First Second Third Fourth
Quarter Quarter Quarter Quarter
Net sales $ 47,803 $ 45,103 $ 50,696 $ 59,762
Gross profit 14,795 14,787 17,445 20,030
Net earnings 1,569 1,689 565 1,533
Net earnings per common share .11 .11 .03 .10
</TABLE>
<PAGE>
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED FEBRUARY 25, 1995, FEBRUARY 26, 1994
AND FEBRUARY 27, 1993
(Dollars in thousands)
<TABLE>
<CAPTION>
BALANCE BALANCE
AT BEGINNING AT END
OF YEAR EXPENSES OTHER DEDUCTIONS OF YEAR
<S> <C> <C> <C> <C> <C>
DEDUCTED FROM ASSETS:
Allowance for doubtful
accounts:
1995 $ 2,208 $ 3,119 $ 1,293 $ 4,034
1994 1,304 774 $ 650 (1) 520 2,208
1993 879 296 364 (2) 235 1,304
Reserve for obsolete
inventories:
1995 $ 7,557 $ 2,787 $ 2,754 (1) $ 2,434 $ 10,664
1994 2,885 1,880 4,452 (1) 1,660 7,557
1993 3,100 3,108 257 (2) 3,580 2,885
INCLUDED IN LIABILITIES:
Accrued product
warranties:
1995 $ 2,388 $ 2,544 $ 666 (1) $ 2,629 $ 2,969
1994 1,856 1,926 (184) 1,210 2,388
1993 2,297 1,147 203 (2) 1,791 1,856
(1) 1994 acquisitions
(2) FEEL acquisition
</TABLE>
[Remainder of page intentionally left blank]
<PAGE> EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Nos. 33-48199,
33-72194 and 33-82894 on Form S-8 of BE Aerospace, Inc. of our reports dated
April 21, 1995 and June 30, 1995, appearing in this Annual Report on Form
10-KA of BE Aerospace, Inc. for the year ended February 25, 1995 and of the
BE Aerospace 1994 Employee Stock Purchase Plan for the period from May 15,
1995 (inception) to February 28, 1995, respectively.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Costa Mesa, California
July 7, 1995
<PAGE> EXHIBIT 99
BE AEROSPACE, INC.
1994 EMPLOYEE STOCK PURCHASE PLAN
FINANCIAL STATEMENTS AS OF
FEBRUARY 28, 1995 AND MAY 15, 1994 AND
FOR THE PERIOD FROM MAY 15, 1994 (INCEPTION) TO
FEBRUARY 28, 1995 AND INDEPENDENT AUDITORS' REPORT
<PAGE>
BE AEROSPACE, INC.
1994 EMPLOYEE STOCK PURCHASE PLAN
TABLE OF CONTENTS
Page
INDEPENDENT AUDITORS' REPORT 1
FINANCIAL STATEMENTS:
Statements of net assets available for plan benefits as
of February 28, 1995 and May 15, 1994 2
Statement of changes in net assets available for plan benefits
for the period from May 15, 1994 (inception) to February 28, 1995 3
Notes to financial statements 4
All other schedules pursuant to the Department of Labor's rules and
regulations are omitted because of the absence of the conditions under
which they are required.
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Administrative Committee
BE Aerospace, Inc.
1994 Employee Stock Purchase Plan
Wellington, Florida
We have audited the accompanying statements of net assets available for plan
benefits of the BE Aerospace, Inc. 1994 Employee Stock Purchase Plan
(the Plan) as of February 28, 1995 and May 15, 1994, and the related
statement of changes in net assets available for plan benefits for the
period from May 15, 1994 (inception) to February 28, 1995. These financial
statements are the responsibility of the Plan's Administrative Committee.
Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by the Plan's Administrative Committee, as well
as evaluating the overall financial statement presentation. We believe that
our audit provides a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the net assets available for plan benefits of the BE Aerospace,
Inc. 1994 Employee Stock Purchase Plan as of February 28, 1995 and May 15,
1994, and the changes in net assets available for plan benefits for the
period from May 15, 1994 (inception) to February 28, 1995, in conformity
with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
June 30, 1995
<PAGE>
<TABLE>
BE AEROSPACE, INC.
1994 EMPLOYEE STOCK PURCHASE PLAN
STATEMENTS OF NET ASSETS AVAILABLE FOR PLAN BENEFITS
AS OF FEBRUARY 28, 1995 AND MAY 15, 1994
- ----------------------------------------------------------------------------
<CAPTION>
May 15, February 28,
1994 1995
<S> <C> <C>
ASSETS - Cash and cash equivalents $ - $ 173,607
LIABILITIES - Stock subscribed ____ 173,321
NET ASSETS AVAILABLE FOR PLAN BENEFITS $ - $ 286
</TABLE>
<PAGE>
<TABLE>
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR PLAN BENEFITS
FOR THE PERIOD FROM MAY 15, 1994 (INCEPTION) TO FEBRUARY 28, 1995
- -----------------------------------------------------------------------------
<S>
NET ASSETS AVAILABLE FOR PLAN BENEFITS, <C>
beginning of period $ ---
ADDITIONS TO NET ASSETS ATTRIBUTED TO -
Participant payroll deductions 279,250
DEDUCTIONS FROM NET ASSETS ATTRIBUTED TO -
Purchase of BE Aerospace common stock 278,964
NET ASSETS AVAILABLE FOR PLAN BENEFITS,
end of period $ 286
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD THE PERIOD FROM MAY 15, 1994 (INCEPTION) TO FEBRUARY 28, 1995
- -----------------------------------------------------------------------------
1. GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Plan - Effective April 1, 1994, BE Aerospace, Inc. (the
Company) adopted the BE Aerospace, Inc. 1994 Employee Stock Purchase Plan
(the Plan).
The Company is the plan sponsor. All employees (participants) with a
minimum of 90 days service, who generally complete a minimum of 20 hours of
service per week, are eligible to participate. Under the Plan, contributions
are made on behalf of participants who choose to contribute from 2% to 15%
of their total net pay.
Common stock of the Company is purchased every six months on February 28 and
August 31 (Option Period). The purchase price is 85% of the lesser of the
fair market value of either the first day or last day of each Option Period.
Participants are allocated a pro-rata share of stock consistent with the
balance of the participant account. The stock is then issued by the Plan
administrator, Bank of Boston, directly to the participant.
Stock Subscribed - The Plan issues the stock to participants subsequent to
the end of each Option Period but dated the last day of the Option Period.
Therefore, a liability for stock purchased by the Plan but not yet
distributed to the participants has been reflected as Stock subscribed in
the accompanying Statements of Net Assets Available for Plan Benefits as of
February 28, 1995.
Termination Benefits and Vesting - Upon termination of employment with the
Company, a participant is entitled to receive all contributions not yet used
to acquire stock of the Company.
Cash and Cash Equivalents - Cash and cash equivalents consist of highly-
liquid investments with initial maturities of 90 days or less.
Income Tax - The Plan administrator believes that the Plan is currently
designed and being operated in compliance with the applicable requirements
of the Internal Revenue Code. Therefore they believe that the Plan was
qualified and the related trust was tax exempt as of financial statement
date. Consequently, they believe that no determination letter is needed
and have not requested one.
Administrative Expenses - Administrative expenses have been paid directly
by the Company and, accordingly, are not reflected in the Plan's financial
statements. There is no written agreement requiring the Company to pay
these expenses, and the Company may elect to stop paying Plan expenses at
any time.
2. PLAN TERMINATION
Although it has not expressed any intent to do so, the Company has the right
under the Plan to terminate the Plan.
