UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934 for
quarterly period ended August 30, 1997
Commission File No. 0-18348
BE AEROSPACE, INC.
(Exact name of registrant as specified in its charter)
Delaware 06-1209796
(State of Incorporation) (I.R.S. Employer Identification No.)
1400 Corporate Center Way
Wellington, Florida 33414
(Address of principal executive offices)
(561) 791-5000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. YES[X] NO[ ]
The registrant has one class of common stock, $ .01 par value, of which
22,753,649 shares were outstanding as of September 12, 1997.
<PAGE>
BE AEROSPACE, INC.
Item 1. Financial Statements
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share data)
<TABLE>
<CAPTION>
August 30, February 22,
1997 1997
ASSETS
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 56,876 $ 44,149
Accounts receivable - trade, less allowance for doubtful
accounts of $3,479 (August 30, 1997)
and $4,864 (February 22, 1997) 73,518 73,489
Inventories, net 97,986 92,900
Other current assets 5,722 2,781
------- -------
Total current assets 234,102 213,319
PROPERTY AND EQUIPMENT, net 91,938 87,888
INTANGIBLES AND OTHER ASSETS, net 184,481 189,882
--------- ---------
$ 510,521 $ 491,089
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 44,327 $ 42,889
Accrued expenses 41,834 43,837
Current portion of long-term debt 3,255 4,419
-------- --------
Total current liabilities 89,416 91,145
LONG-TERM DEBT 225,446 225,402
DEFERRED INCOME TAXES 1,325 1,667
OTHER LIABILITIES 8,036 7,114
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value; 1,000,000 shares
authorized; no shares outstanding
Common stock, $.01 par value; 50,000,000 shares
authorized 22,648,360 (August 30, 1997)
21,893,392 (February 22, 1997) issued and outstanding 227 219
Additional paid-in capital 236,961 228,710
Accumulated deficit (47,266) (62,286)
Cumulative foreign exchange translation adjustment (3,624) (882)
--------- ---------
Total stockholders' equity 186,298 165,761
--------- ---------
$ 510,521 $ 491,089
========= =========
</TABLE>
<PAGE>
BE AEROSPACE, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended
---------------------
August 30, August 31,
1997 1996
<S> <C> <C>
NET SALES $119,843 $103,026
COST OF SALES 75,694 68,587
-------- --------
GROSS PROFIT 44,149 34,439
OPERATING EXPENSES:
Selling, general and administrative 15,032 12,669
Research, development and engineering 11,542 9,430
Amortization of intangible assets 2,676 2,806
-------- --------
Total operating expenses 29,250 24,905
-------- --------
OPERATING EARNINGS 14,899 9,534
INTEREST EXPENSE, net 5,401 7,464
-------- --------
EARNINGS BEFORE INCOME TAXES 9,498 2,070
INCOME TAXES 1,421 207
-------- -------
NET EARNINGS $ 8,077 $ 1,863
======== ========
NET EARNINGS PER COMMON SHARE $ .35 $ 0.11
======== ========
COMMON AND COMMON EQUIVALENT SHARES 23,344 17,598
======== ========
</TABLE>
<PAGE>
BE AEROSPACE, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Six Months Ended
----------------------
August 30, August 31,
1997 1996
<S> <C> <C>
NET SALES $233,689 $200,328
COST OF SALES 148,477 133,342
-------- --------
GROSS PROFIT 85,212 66,986
OPERATING EXPENSES:
Selling, general and administrative 27,935 24,254
Research, development and engineering 22,550 19,157
Amortization of intangible assets 5,529 5,514
-------- --------
Total operating expenses 56,014 48,925
OPERATING EARNINGS 29,198 18,061
INTEREST EXPENSE, net 11,531 14,399
-------- --------
EARNINGS BEFORE INCOME TAXES 17,667 3,662
INCOME TAXES 2,647 366
-------- --------
NET EARNINGS $ 15,020 $ 3,296
======== ========
NET EARNINGS PER COMMON SHARE $ .65 $ .19
======== ========
COMMON AND COMMON EQUIVALENT SHARES 23,209 17,446
======== ========
</TABLE>
<PAGE>
BE AEROSPACE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands) Six Months Ended
<TABLE>
<CAPTION>
August 30, August 26,
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net earnings $ 15,020 $ 3,296
Adjustments to reconcile net earnings to net cash flows
provided by (used in) operating activities:
Depreciation and amortization 12,465 11,840
Deferred income taxes (344) 524
Non cash employee benefit plan contributions 804 442
Changes in operating assets and liabilities:
Accounts receivable (388) (5,596)
Inventories (5,332)
Other current assets (3,011)
Accounts payable 2,918 (3,724)
Other liabilities (1,606) (5,599)
-------- --------
Net cash flows provided by (used in) operating activities 20,526 (4,022)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (11,656) (7,065)
Change in other assets - net (2,464) (4,591)
-------- --------
Net cash flows used in investing activities (14,120) (11,656)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) under revolving lines of credit (957) 10,576
Proceeds from issuances of stock 7,455 3,927
-------- --------
Net cash flows provided by financing activities 6,498 14,503
-------- --------
Effect of exchange rate changes on cash flows (177) (13)
-------- --------
Net increase (decrease) in cash and cash equivalents 12,727 (1,188)
Cash and cash equivalents, beginning of period 44,149 15,376
-------- --------
Cash and cash equivalents, end of period $ 56,876 $ 14,188
======== ========
Supplemental disclosures of cash flow information:
Cash paid during period for interest $ 11,343 $ 13,336
Cash paid during period for income taxes $ 568 $ 309
</TABLE>
<PAGE>
BE AEROSPACE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED AUGUST 30, 1997 AND AUGUST 31, 1996
Note 1. Basis of Presentation:
The information set forth in these consolidated financial statements as
of August 30, 1997 and for the three months and six months ended August 30,
1997 and August 31, 1996 is unaudited and may be subject to normal year-end
adjustments. In the opinion of management, the unaudited consolidated
financial statements reflect all adjustments, consisting only of normal
recurring adjustments necessary to present fairly the financial position of
B/E Aerospace, Inc. (the "Company" or "B/E") for the periods indicated.
Results of operations for the interim periods ended August 30, 1997 are not
necessarily indicative of the results of operations for the full fiscal year.
For further information, including information with regard to conditions in
the airline industry and their possible impact on the Company, please refer
to the Company's annual report on Form 10-K for the fiscal year ended
February 22, 1997.
The accompanying consolidated financial statements consolidate all of
the Company's subsidiaries. All significant intercompany transactions have
been eliminated. Certain amounts in the prior year's Consolidated Financial
Statements have been reclassified to conform to the current fiscal year's
presentation.
Certain information normally included in footnote disclosures to the
annual financial statements has been condensed or omitted in accordance with
the rules and regulations of the Securities and Exchange Commission.
Note 2. Earnings Per Share
In February 1997, the FASB issued SFAS No. 128, Earnings Per Share which
is effective for financial statements issued for periods ending after
December 15, 1997. SFAS No. 128 requires the disclosure of basic and diluted
earnings per share. Earnings per share, as reported and as would be
reportable under SFAS No. 128 for the three months and six months ended
August 30, 1997 and August 31, 1996 are as follows:
<TABLE>
<CAPTION>
As Reported As Reported
Three Months Ended Six Months Ended
----------------------- -----------------------
August 30, August 31, August 30, August 31,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Primary earnings per share $.35 $.11 $ .65 $ .19
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
Proforma Proforma
Three Months Ended Six Months Ended
August 30, August 31, August 30, August 31,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Basic earnings per share $.36 $.11 $ .68 $ .20
Diluted earnings per share $.34 $.10 $ .64 $ .19
</TABLE>
Note 3. New Accounting Pronouncements
COMPREHENSIVE INCOME - During 1997 the FASB issued SFAS No. 130,
"Reporting Comprehensive Income," which established standards for the
reporting and displaying of comprehensive income. Comprehensive income is
defined as all changes in a Company's net assets except changes resulting
from transactions with shareholders. It differs from net income in that
certain items currently recorded to equity would be a part of
comprehensive income. Comprehensive income must be reported in a financial
statement with the cumulative total presented as a component of equity. This
statement will be adopted by the Company in its fiscal 1999 quarterly
financial statements.
SEGMENT INFORMATION - In June 1997, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards (SFAS) No. 131,
"Disclosures about Segments of an Enterprise and Related Information," which
will be effective for the Company beginning January 1, 1998. SFAS No. 131
redefines how operating segments are determined and requires disclosure of
certain financial and descriptive information about a company's operating
segments. The Company believes the segment information required to be
disclosed under SFAS No. 131 will be more comprehensive than previously
provided, including expanded disclosure of income statement and balance sheet
items. The Company has not yet completed its analysis of which operating
segments it will report on.
Note 4. Long-Term Debt
In May 1997, the Company amended its existing credit facilities with The
Chase Manhattan Bank by increasing the aggregate principal amount that may be
borrowed thereunder to $125,000 (the "Bank Credit Facility"). The Bank Credit
Facility consists of a $25,000 Reducing Revolver and a $100,000 Revolving
Facility. The amount of the Reducing Revolver will be reduced automatically
by 12.5% on August 26, 2000 and on each of the seven succeeding quarterly
anniversaries of such date. The Reducing Revolver is collateralized by all of
the issued and outstanding capital stock of a wholly owned subsidiary and has
a five-year maturity. The Revolving Facility is collateralized by all of the
Company's accounts receivable, all of its inventory and substantially all of
its other personal property and has a five-year maturity. The Bank Credit
<PAGE>
BE AEROSPACE, INC.
Facility contains customary affirmative covenants, negative covenants and
conditions of borrowing. At August 30, 1997 indebtedness under the Bank
Credit Facility were letters of credit amounting to approximately $4,572. The
Company has approximately $120,428 available for subsequent borrowings under
its bank credit facility.
Item 2. Management's Discussion and Analysis of Financial Condition and
of Operations.
(Dollars in thousands, except per share data)
The following discussion and analysis addresses the results of the
Company's operations for the three months ended August 30, 1997, as compared
to the Company's results of operations for the three months ended August 31,
1996. The discussion and analysis then addresses the results of the Company's
operations for the six months ended August 30, 1997 as compared to the
Company's results of operations for the six months ended August 31, 1996. The
discussion and analysis then addresses the liquidity and financial condition
of the Company.
THREE MONTHS ENDED AUGUST 30, 1997, AS COMPARED TO THE RESULTS OF OPERATIONS FOR
THE THREE MONTHS ENDED AUGUST 31, 1996.
Net sales for the fiscal 1998 three month period were $119,843, or 16%
higher than sales of $103,026 for the comparable period in the prior year and
reflecting a 25-percent increase in product sales offset by a $5,072 decline
in service revenues.
Gross profit was $44,149 (36.8% of sales) for the three months ended
August 30, 1997 and was $9,710 or 28% greater than the comparable period in
the prior year of $34,439 which represented 33.4% of sales. The increase in
gross profit is the result of the higher sales volume and the mix of products
and services sold.
Selling, general and administrative expenses were $15,032 (12.6% of
sales) for the three months ended August 30, 1997. This was $2,363 or 19%
higher than the comparable period in the prior year of $12,669 (12.3% of
sales) and is primarily due to a substantially higher level of sales and
THREE MONTHS ENDED AUGUST 30, 1997, AS COMPARED TO THE RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED AUGUST 31, 1996. (Continued)
quotation activity as well as a higher level of customer service,
program management, product support and information technology activities.
Research, development and engineering expense was $11,542 or 9.6% of
sales for the three months ended August 30, 1997. For the comparable period
in the prior year, research, development and engineering expense was $9,430
or 9.2% of sales.
<PAGE>
BE AEROSPACE, INC.
Amortization expense for the quarter ended August 30, 1997 of $2,676 was
$130 less than the amount recorded in the first quarter of fiscal 1997.
The increase in gross profit, offset by somewhat higher operating
expenses resulted in operating earnings of $14,899 (12.4% of sales), an
increase of $5,365 or 56% over the comparable period in the prior year of
$9,534 (9.3% of sales).
Interest expense, net was $5,401 for the three months ended August 30,
1997, or $2,063 lower than interest expense of $7,464 for the comparable
period in the prior year, and is due to the decrease in the Company's
long-term debt.
Earnings before income taxes of $9,498 for the three months ended August
30, 1997 were $7,428 or 359% greater than the prior year. Income tax expense
for the quarter ended August 30, 1997 was $1,421 or 15% as compared to $207,
or 10% in the prior year.
Net earnings were $8,077 or $.35 per share for the three months ended
August 30,1997, as compared to net earnings of $1,863 or $.11 per share for
the comparable period in the prior year.
BACKLOG
On September 15, 1997, British Airways ("BA") notified the Company of
its decision not to conduct a flight trial of B/E's MDDS interactive video
system. BA has made a new proposal to work with B/E using a version of the
MDDS system, which is installed on one of BA's Boeing 747 aircraft to give
B/E an opportunity to prove the reliability of a multi-channel upgradeable
system.
As a result of BA's decision not to move forward at this time with the
interactive program, the Company has debooked approximately $155,000 of
backlog related to the BA MDDS program. After debooking the BA program, the
Company's backlog stood at approximately $525,000 which represents a
year-to-year increase of approximately $155,000 or 42%, versus the Company's
backlog at the end of its fiscal 1997 second quarter, as similarly adjusted
to exclude the amount then attributable to the BA MDDS backlog. New order
bookings of $265,000 were $157,000 greater than new order bookings for the
comparable period in the prior year. The robust order activity during the
quarter was primarily associated with new seating and in-flight entertainment
programs with American Airlines and Asiana Airlines, respectively.
SIX MONTHS ENDED AUGUST 30, 1997 AS COMPARED TO THE RESULTS OF OPERATIONS FOR
THE SIX MONTHS ENDED AUGUST 31, 1996.
Net sales for the fiscal 1998 six month period were $233,689, or 17%
higher than sales for the comparable period in the prior year of $200,328,
and reflecting a 25-percent increase in product sales offset by a $9.9
million decline in service revenues.
Gross profit was $85,212 (36.5% of sales) for the six months ended
August 30, 1997 and was $18,226 or 27% greater than the comparable period in
the prior year of $66,986 which represented 33.4% of sales. The increase in
<PAGE>
BE AEROSPACE, INC.
SIX MONTHS ENDED AUGUST 30, 1997 AS COMPARED TO THE RESULTS OF OPERATIONS FOR
THE SIX MONTHS ENDED AUGUST 31, 1996. (Continued)
gross profit is the result of the higher sales volume and the mix of products
and services sold.
Selling, general and administrative expenses were $27,935 (12% of sales)
for the six months ended August 30, 1997. This was $3,681 or 15% higher than
the comparable period in the prior year of $24,254 (12.1% of sales) and is
primarily due to a substantially higher level of sales and quotation activity
as well as a higher level of customer service, program management, product
support and information technology activities.
Research, development and engineering expense was $22,550 or 9.6% of
sales for the six months ended August 30, 1997. For the comparable period in
the prior year, research, development and engineering expense was $19,157 or
9.6% of sales.
Amortization expense for the six months ended August 30, 1997 of $5,529
was $15 less than the amount recorded in the first half of fiscal 1997.
The increase in gross profit, offset by somewhat higher operating
expenses resulted in operating earnings of $29,198 (12.5% of sales), an
increase of $11,137 or 62% over the comparable period in the prior year of
$18,061 (9% of sales).
Interest expense, net was $11,531 for the six months ended August 30,
1997, or $2,868 lower than interest expense of $14,399 for the comparable
period in the prior year, and is due to the decrease in the Company's
long-term debt.
Earnings before income taxes of $17,667 for the six months ended August
30, 1997 were $14,005 or 382% greater than in the prior year. Income tax
expense for the six months ended August 30, 1997 was $2,647 or 15% as
compared to $366, or 10% in the prior year.
Net earnings were $15,020 or $.65 per share for the six months ended
August 30, 1997, as compared to net earnings of $3,296 or $.19 per share for
the comparable period in the prior year.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity requirements consist primarily of working
capital needs and scheduled payments of interest on its indebtedness. B/E's
primary requirements for working capital have been directly related to
increased accounts receivable and inventory levels as a result of growth in
revenues. B/E's working capital was $144,686 as of August 30, 1997, compared
to $122,174 as of February 22, 1997.
In May 1997, the Company amended its existing credit facilities with The
Chase Manhattan Bank by increasing the aggregate principal amount that may be
borrowed thereunder to $125,000 (the "Bank Credit Facility"). The Bank Credit
Facility consists of a $25,000 Reducing Revolver and a $100,000 Revolving
Facility. The amount of the Reducing Revolver will be reduced automatically
<PAGE>
BE AEROSPACE, INC.
by 12.5% on August 26, 2000 and on each of the seven succeeding quarterly
anniversaries of such date. The Reducing Revolver is collateralized by all of
the issued and outstanding capital stock of a wholly owned subsidiary and has
a five-year maturity. The Revolving Facility is collateralized by all of the
Company's accounts receivable, all of its inventory and substantially all of
its other personal property and has a five-year maturity. The Bank Credit
Facility contains customary affirmative covenants, negative covenants and
conditions of borrowing. At August 30, 1997 indebtedness under the Bank
Credit Facility were letters of credit amounting to approximately $4,572. The
Company has approximately $120,428 available for subsequent borrowings under
its bank credit facility.
The Company's 9 3/4 Senior Notes and 9 7/8 Senior Subordinated Notes are
due March 1, 2003 and February 1, 2006, respectively.
At August 30, 1997, the Company's cash and cash equivalents were $56,876
as compared to $44,149 at February 22, 1997. Cash provided from operating
activities during the six months ended August 30, 1997 was $20,526 and cash
used in operating activities in the first half of fiscal 1997 was $(4,022).
The primary source of cash during the six months ended August 30, 1997 was
net earnings of $15,020, non-cash charges for depreciation and amortization
of $12,465 and increases in accounts payable of $2,918 offset by a use of
cash of $5,720 related to increases in receivables and inventories and $4,617
related to decreases in other assets and liabilities.
The Company's capital expenditures were $11,656, and $7,065 during the
six months ended August 30, 1997, and August 31, 1996, respectively. The
Company anticipates ongoing capital expenditures of approximately $22 million
per year for the next several years.
The Company believes that cash flow from operations and availability
under the Bank Credit Facility will provide adequate funds for its working
capital needs, planned capital expenditures and debt service obligations
through the term of the Bank Credit Facility. The Company believes that it
will be able to refinance the Bank Credit Facility prior to its termination,
although there can be no assurance that it will be able to do so. The
Company's ability to fund its operations and make planned capital
expenditures, to make scheduled payments and to refinance its indebtedness
depends on its future operating performance and cash flow, which, in turn,
are subject to prevailing economic conditions and to financial, business and
other factors, some of which are beyond its control.
This report includes forward-looking statements which involve risks and
uncertainties. The Company's actual experience may differ materially from
that discussed above. Factors that might cause such a difference include, but
are not limited to, those discussed in "Risk Factors" in the Company's
Registration Statement on Form S-3 dated December 12, 1996, the Company's
Form 10-K for the year ended February 22, 1997, as well as future events that
have the effect of reducing the Company's available cash balances, such as
unexpected operating losses or delays in the integration of the Company's
seating business or the delivery of the MDDS interactive video system or
capital expenditures or cash expenditures related to possible future
acquisitions.
<PAGE>
BE AEROSPACE, INC.
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings. Not applicable.
Item 2. Changes in Securities. Not applicable.
Item 3. Defaults Upon Senior Securities. Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
1. Annual meeting took place on August 6, 1997.
2. Directors elected (Class III) - Richard G. Hamermesh and Amin J. Khoury.
3. Directors whose term of office continued after meeting (Class I and II) -
Jim C. Cowart, Paul E. Fulchino, Robert J. Khoury, Brian H. Rowe and
Hansjorg Wyss.
1. Election of two Class III Directors
For Withheld
--- --------
Richard G. Hamermesh 18,177,985 562,630
Amin J. Khoury 18,177,585 652,030
2. Proposal to approve amendment to article four of the Company's
Certificate of Incorporation to increase the authorized common stock
of the Company from 30,000,000 shares to 50,000,000.
For Against Abstain Broker Non-Votes
--- ------- ------- ----------------
17,694,675 1,023,581 23,359
3. Proposal to amend the Amended and Restated 1989 Stock Option Plan by
increasing the aggregate number of shares for grant thereunder.
For Against Abstain Broker Non-Votes
--- ------- ------- ----------------
15,851,052 2,858,760 30,803
Item 5. Other Information. None.
Item 6. Exhibits and Reports on Form 8-K.
a. Exhibits. None.
b. Form 8-K Reports None.
<PAGE>
BE AEROSPACE, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BE AEROSPACE, INC.
Date: September 30, 1997 By: /s/ Robert J. Khoury
Vice Chairman and
Chief Executive Officer
Date: September 30, 1997 By: /s/ Thomas P. McCaffrey
Corporate Senior Vice President
Administration and Chief
Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-END> AUG-30-1997
<CASH> 56,876
<SECURITIES> 0
<RECEIVABLES> 76,997
<ALLOWANCES> (3,479)
<INVENTORY> 97,986
<CURRENT-ASSETS> 234,102
<PP&E> 134,189
<DEPRECIATION> (42,251)
<TOTAL-ASSETS> 510,521
<CURRENT-LIABILITIES> 89,416
<BONDS> 225,446
0
0
<COMMON> 227
<OTHER-SE> (50,890)
<TOTAL-LIABILITY-AND-EQUITY> 510,521
<SALES> 233,689
<TOTAL-REVENUES> 233,689
<CGS> 148,477
<TOTAL-COSTS> 204,491
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,531
<INCOME-PRETAX> 17,667
<INCOME-TAX> 2,647
<INCOME-CONTINUING> 15,020
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,020
<EPS-PRIMARY> .65
<EPS-DILUTED> .65
</TABLE>
