As filed with the Securities and Exchange Commission on December 21, 1998.
Registration No. 333-60209
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
----------------
Amendment No. 4
to
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
BE AEROSPACE, INC.
(Exact name of registrant as specified in its charter)
Delaware 06-1209796
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1400 Corporate Center Way, Wellington, Florida 33414 (561) 791-5000
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
Edmund J. Moriarty, Esq.
General Counsel
1400 Corporate Center Way
Wellington, FL 33414
(561) 791-5000 / (561) 791-3966 (fax)
(Name, address, including zip code, and telephone number, including
area code, of agent for service)
----------------
Copies of all communications to:
Rohan S. Weerasinghe, Esq.
Shearman & Sterling
599 Lexington Avenue
New York, New York 10022
(212) 848-4000 / (212) 848-7179 (fax)
----------------
Approximate date of commencement of proposed sale to the public: From
time to time or at one time after the effective date of this Registration
Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. |_|
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933 (the "Securities Act") other than securities offered only in connection
with dividend or interest reinvestment plans, check the following box. |X|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_|
----------------
The registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
================================================================================
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This Prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
<PAGE>
SUBJECT TO COMPLETION, DATED DECEMBER 21, 1998
1,181,675 Shares
[Logo] BE AEROSPACE, INC.
Common Stock
------------
All of the shares (the "Shares") of Common Stock of BE Aerospace,
Inc., a Delaware corporation ("B/E" or the "Company"), par value $.01 per share
(the "Common Stock"), offered hereby are being offered by certain stockholders
listed herein (collectively, the "Selling Stockholders"), who may from time to
time offer for sale shares of the Common Stock. Certificate of the Selling
Stockholders received such shares in connection with the acquisitions of either
ASI or ALC (each as defined herein). The remainder of the Selling Stockholders
received such shares pursuant to the exercise of options granted by the Company.
The Company will not receive any proceeds from the sale by the Selling
Stockholders of the Shares. See "Selling Stockholders."
The Selling Stockholders have advised the Company that the Shares of
Common Stock offered hereby may be offered or sold by or for the account of such
Selling Stockholders, from time to time, to purchasers directly, or through
brokers in brokerage transactions on the Nasdaq National Market, or to
underwriters or dealers in negotiated transactions or in a combination of such
methods of sale, at fixed prices which may be changed, at market prices
prevailing at the time of sale, at prices related to such prevailing market
prices or at negotiated prices. From time to time the Selling Stockholders may
engage in short sales, puts and calls and other transactions in securities of
the Company, or derivatives thereof, and may sell and deliver the Shares in
connection therewith. Brokers, dealers and underwriters that participate in the
distribution of the Common Stock offered hereby may be deemed to be underwriters
under the Securities Act of 1933 as amended, and together with the rules and
regulations thereunder (the "Securities Act"), and any discounts or commissions
received by them from the Selling Stockholders and any profit on the resale of
the Common Stock offered hereby by them may be deemed to be underwriting
discounts and commissions under the Securities Act. The Selling Stockholders may
be deemed to be underwriters under the Securities Act. The Company will bear all
expenses in connection with the offering made hereunder, other than all
applicable stock transfer taxes, brokerage commissions, underwriting discounts
or commissions and fees of such Selling Stockholders' counsel which will be paid
by such Selling Stockholders. The Company has agreed to indemnify the Selling
Stockholders against certain liabilities, including certain liabilities under
the Securities Act, in connection with the registration and the offering and
sale of the Common Stock offered hereby. See "Plan of Distribution."
The Common Stock is listed on the Nasdaq National Market ("Nasdaq")
under the symbol "BEAV." On December 16, 1998, the last reported sale price of
the Common Stock was $23.125 per share.
If necessary, certain information relating to the Selling
Stockholders, the terms of each sale of Common Stock offered hereby, including
the public offering price, the names of any underwriters or agents, the
compensation, if any, of such underwriters or agents and the other terms in
connection with the sale of the Common Stock, in respect of which this
Prospectus is delivered will be set forth in an accompanying Prospectus
Supplement (the "Prospectus Supplement").
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY
PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED HEREBY, SEE "RISK FACTORS"
BEGINNING ON PAGE 7.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
----------------
The date of this Prospectus is , 1998.
<PAGE>
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus or any Prospectus
Supplement and, if given or made, such information or representations must not
be relied upon as having been authorized. This Prospectus and any Prospectus
Supplement does not constitute an offer to sell or the solicitation of an offer
to buy any securities other than the securities to which it relates or an offer
to sell or the solicitation of an offer to buy such securities in any
circumstances in which such offer or solicitation is unlawful. Neither the
delivery of this Prospectus or any Prospectus Supplement nor any sale made
hereunder or thereunder shall, under any circumstances, create any implication
that there has been no change in the affairs of the Company since the date
hereof or thereof or that the information contained herein or therein is correct
as of any time subsequent to the date of such information.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements, and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information can be inspected and copied at the public
reference facilities of the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549; and at the Commission's regional offices at 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center,
13th Floor, New York, New York 10048. Copies of such material can be obtained
from the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates. Such material may also be accessed
electronically by means of the Commission's home page on the Internet at
http://www.sec.gov. The Company's Common Stock is listed on the Nasdaq National
Market System, and such reports, proxy and information statements and other
information can also be inspected at the offices of Nasdaq Operations, 1735 K
Street, N.W., Washington, D.C. 20006.
The Company has filed with the Commission a registration statement on
Form S-3 (the "Registration Statement") under the Securities Act with respect to
the Common Stock to which this Prospectus relates. This Prospectus does not
contain all the information set forth in the Registration Statement, certain
portions of which have been omitted as permitted by the rules and regulations of
the Commission. For further information with respect to the Company and the
Common Stock, reference is made to the Registration Statement, including the
exhibits thereto. The Registration Statement may be inspected by anyone without
charge at the principal office of the Commission in Washington, D.C., and copies
of all or part of it may be obtained from the Commission upon payment of the
prescribed fees.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents heretofore filed with the Commission
(Commission File No. 000-18348) by the Company are incorporated in this
Prospectus by reference and made a part hereof:
(1) B/E's Annual Report on Form 10-K for the year ended February
28, 1998 (the "1998 10-K"), filed with the Commission on May
29, 1998, as amended by the amendment to the 1998 10-K filed
with the Commission on June 29, 1998 and as further amended
by the amendment to the 1998 10-K filed with the Commission
on December 21, 1998.
(2) The Company's Quarterly Reports on Form 10-Q for the quarter
ended May 30, 1998 (the "1st Quarter 10- Q"), filed with the
Commission on July 14, 1998, as amended by the amendment to
the 1st Quarter 10-Q filed with the Commission on December
18, 1998, and the quarter ended August 29, 1998 (the 2nd
Quarter 10-Q"), filed with the Commission on September 25,
1998, as amended by the amendment to the 2nd Quarter 10-Q
filed with the Commission on December 18, 1998.
(3) The description of the Company's Common Stock contained in
the Company's Registration Statement on Form 8-A filed with
the Commission on March 7, 1990 under Section 12 of the
Exchange Act, including any report or amendment updating such
description.
-2-
<PAGE>
(4) The Company's Current Reports on Form 8-K filed on April 13,
1998, April 27, 1998, May 8, 1998, August 24, 1998 and
November 18, 1998, respectively.
All documents subsequently filed by B/E with the Commission pursuant
to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date hereof
and prior to the termination of the offering of the Common Stock shall be deemed
to be incorporated by reference into this Prospectus and to be a part of this
Prospectus from the date of filing of such document. Any statement contained
herein, or in a document all or a portion of which is incorporated or deemed to
be incorporated by reference herein, shall be deemed to be modified or
superseded for purposes of the Registration Statement and this Prospectus to the
extent that a statement contained herein or in any other subsequently filed
document that is also deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of the
Registration Statement or this Prospectus.
This Prospectus incorporates documents by reference which are not
presented herein or delivered herewith. B/E will provide without charge to any
person to whom this Prospectus is delivered, on the written or oral request of
such person, a copy of any or all of the foregoing documents incorporated by
reference, other than exhibits to such documents (unless such exhibits are
specifically incorporated by reference into such documents). Written requests
should be directed to: Chief Financial Officer, BE Aerospace, Inc., 1400
Corporate Center Way, Wellington, FL 33414. Telephone requests may be directed
to B/E at (561) 791-5000.
In connection with any underwritten offering of the Shares, any
underwriters and certain persons participating in such offering may engage in
transactions that stabilize, maintain or otherwise affect the price of the
Common Stock, including over-allotment, stabilizing transactions, syndicate
short covering transactions and penalty bids. Such transactions may be effected
on the Nasdaq, in the over-the-counter market or otherwise. Such transactions,
if commenced, may be discontinued at any time.
THE COMPANY
General
B/E is the world's largest manufacturer of commercial and general
aviation aircraft cabin interior products, serving virtually all major airlines
and a wide variety of general aviation customers and airframe manufacturers.
Management believes that the Company has achieved leading global market
positions in each of its major product categories, which include aircraft seats,
food and beverage preparation and storage equipment, galley and other interior
structures, oxygen delivery systems, lighting systems and in-flight
entertainment systems. In addition, B/E provides design, integration,
installation and certification services, offering its customers in-house
capabilities to design, project manage, integrate, test and certify
reconfigurations and modifications to commercial aircraft passenger cabin
interiors and to manufacture related products, including engineering kits and
interface components. B/E also provides upgrade, maintenance and repair services
for its airline customers around the world.
B/E's executive offices are located at 1400 Corporate Center Way,
Wellington, Florida 33414, and its telephone number is (561) 791-5000.
Recent Acquisitions
On March 27, 1998, the Company acquired Aerospace Interiors, Inc.
("ASI") for a total of 201,895 shares of Common Stock, representing a purchase
price of approximately $5.6 million. ASI services, cleans and repairs aircraft
interior parts and products, and is a leading provider of seat repair and
maintenance services performed by non-airline entities. See "Selling
Stockholders."
On April, 13, 1998, the Company acquired Puritan-Bennett Aero Systems
Co. ("PBASCO"), a wholly owned subsidiary of Nellcor Puritan Bennett Inc., for a
cash purchase price of $69.7 million. PBASCO is a leading manufacturer
-3-
<PAGE>
of commercial aircraft oxygen delivery systems and passenger service unit
components and systems and is a major supplier of air valves, overhead lights
and switches for both commercial and general aviation aircraft.
On April 21, 1998, the Company acquired Aircraft Modular Products
("AMP") for a cash purchase price of $117.3 million. AMP is a leading
manufacturer of cabin interior products for general aviation (business jet) and
commercial-type VIP aircraft, providing a broad line of products including
seating, sidewalls, bulkheads, credenza, closets, galley structures, lavatories,
tables and sofas, as well as related spare parts.
On July 30, 1998, the Company acquired Aerospace Lighting Corporation
("ALC") for a total of 964,780 shares of Common Stock, representing a purchase
price of approximately $28.1 million. ALC is a market leader in producing
interior fluorescent lighting systems for business and corporate jet aircraft.
See "Selling Stockholders."
On August 7, 1998, the Company acquired the common stock of SMR
Aerospace, Inc. ("SMR") for a total aggregate price of approximately $141.5
million. SMR is a leader in providing design, integration, installation and
certification services for commercial aircraft passenger cabin interiors. SMR
provides a broad range of interior reconfiguration services that allow airlines
to change the size of certain classes of service, modify and upgrade the
seating, install telecommunications or entertainment options, relocate galleys,
lavatories, and overhead bins, and install crew rest compartments. SMR is also a
supplier of structural design and integration services, including airframe
modifications for passenger-to-freighter conversions. In addition, SMR provides
a variety of niche products and components that are used for reconfigurations
and conversions. SMR's services are performed primarily on an aftermarket basis,
and its customers include major airlines, such as United Airlines, Japan
Airlines, British Airways, Air France, Cathay Pacific and Qantas, as well as
Boeing, Airborne Express and Federal Express.
On September 3, 1998, the Company acquired substantially all of the
galley equipment assets and assumed related liabilities of CF Taylor Interiors
Limited and acquired the common stock of CF Taylor (Wales) Limited (collectively
"CF Taylor"), both wholly owned subsidiaries of EIS Group PLC, for a total cash
purchase price of approximately (pound)14.9 million (approximately $25.1
million, based upon the exchange rate in effect on September 3, 1998), subject
to adjustments. CF Taylor is a manufacturer of galley equipment for both narrow-
and wide-body aircraft, including galley structures, crew rests and related
spare parts.
Other Recent Developments
On November 2, 1998, the Company sold $200 million of 9 1/2% Senior
Subordinated Notes due 2008 (the "9 1/2% Notes") in a private offering. The net
proceeds less estimated debt issue costs received by the Company from the sale
of the 9 1/2 Notes were approximately $193.7 million. The Company used
approximately $118.0 million of the net proceeds from the offering of the 9 1/2%
Notes (the "Offering"), to repurchase four million shares (the "SMR Shares") of
the Company's common stock previously issued to the selling stockholders in
connection with the acquisition of SMR. The remainder of the net proceeds were
used for the repayment of approximately $75.0 million of outstanding borrowings
under the Company's bank credit facilities.
The Company paid for the acquisition of SMR by issuing the SMR Shares
(then valued at approximately $30 per share) to the former stockholders of SMR
and paying them $2.0 million in cash. The Company also paid $22.0 million in
cash to the employee stock ownership plan of a subsidiary of SMR Aerospace to
purchase the minority equity interest in such subsidiary held by the ESOP and
agreed on final purchase adjustments of approximately $0.5 million, bringing the
total aggregate purchase price paid by the Company for SMR Aerospace to
approximately $141.5 million. The Company agreed to register for sale with the
Securities and Exchange Commission the SMR Shares. If the net proceeds from the
sale of the shares, which included the $2.0 million in cash already paid, was
less than $120.0 million, subject to adjustment, the Company agreed to pay such
difference to the selling stockholders in cash. The Company's obligations to the
selling stockholders were secured by an irrevocable stand-by letter of credit
from The Chase Manhattan Bank in favor of the selling stockholders. This letter
of credit could have been drawn upon after December 31, 1998 if the selling
stockholders had not received net proceeds of $120.0 million, including the $2.0
million in cash already paid, from the sale of the SMR Shares. Because of the
market price for the Company's common stock and the Company's payment obligation
to the selling
-4-
<PAGE>
stockholders described above, the Company decided to repurchase the SMR Shares
with approximately $118.0 million of the proceeds from the sale of the 9 1/2%
Notes (representing the net proceeds of $120.0 million the Company was obligated
to pay the selling stockholders, less the $2.0 million in cash the Company
already paid them) instead of registering them for sale. In connection with the
repurchase of the SMR Shares, the irrevocable stand-by letter of credit was
returned to The Chase Manhattan Bank. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Liquidity and Capital
Resources."
The 9 1/2% Notes are unsecured senior subordinated obligations of the
Company and are subordinated to all senior indebtedness of the Company and
mature on November 1, 2008. Interest on the 9 1/2% Notes is payable semiannually
in arrears May 1 and November 1 of each year. The 9 1/2% Notes are redeemable at
the option of the Company, in whole or in part, at any time after November 1,
2003 at predetermined redemption prices together with accrued and unpaid
interest through the date of redemption. Upon a change of control (as defined),
each holder of the 9 1/2% Notes may require the Company to repurchase such
holder's 9 1/2% Notes at 101% of the principal amount thereof, plus accrued and
unpaid interest to the date of such purchase. The 9 1/2% Notes contain certain
restrictive covenants, all of which were met by the Company as of August 29,
1998, including limitations on future indebtedness, restricted payments,
transactions with affiliates, liens, dividends, mergers and transfers of assets.
On December 17 , 1998, the Company announced its financial results for
the third quarter ended November 28, 1998. The following summarizes such
operating results.
Net sales for the fiscal 1999 third quarter were $195.8 million, up 52
percent versus fiscal 1998 third quarter sales of $129.0 million. Third quarter
gross profit of $75.6 million (38.6% of sales) was up 62 percent from the fiscal
1998 third quarter level of $46.7 million (36.2% of sales). For the fiscal 1999
third quarter, B/E reported operating earnings of $31.2 million, an increase of
90 percent over the prior year. As described below, the Company has adjusted
acquisition-related expenses recorded in prior periods, resulting in an increase
in current-period amortization expense of $2.1 million (or seven cents per
share) over what would have been recorded prior to this adjustment. Earnings and
earnings per share (diluted) were $16. 5 million and 59 cents for the period, an
increase of 75 percent and 48 percent, respectively, over the prior year's
results of $9.4 million and 40 cents per share (diluted).
The Company recently consulted with the SEC staff regarding the
allocation of the purchase price of its fiscal 1999 acquisitions to in-process
research and development expenses and the write-off of such amounts. On the
basis of these discussions, the Company has reduced acquisition-related expenses
by approximately $90 million and increased intangible assets by a like amount.
While the change has no cash impact, the Company will adjust its previously
reported operating results for the first two quarters of fiscal 1999 by
increasing amortization expense by $2.1 million, decreasing acquisition-related
expenses by $90 million, and decreasing the net loss and net loss per share by
$88.3 million and $3.57, respectively. This reallocation of the purchase price
resulted in an increase in amortization expense of $2.2 million (or seven cents
per share) in the third quarter results as announced on December 17, 1998 over
what would have been recorded prior to this adjustment.
Sales for the first nine months of fiscal 1999 were $492. 1 million,
up 36 percent from the fiscal 1998 nine-month period. Likewise, gross profit for
the first nine months of fiscal 1999 of $187.1 millionwas up 42 percent versus
the prior year of $131.9 million while the gross margin expanded to 38.0% of
sales versus 36.4% reported last year. For the 1999 nine-month period, adjusted
to exclude acquisition-related expenses, B/E reported earnings of $36.3 million,
or $1.41 per share (diluted), versus $24.5 million, or $1.04 per share
(diluted), in fiscal 1998, a year-over-year increase of 48 percent and 36
percent, respectively.
Although complete financials for the third quarter of fiscal 1999 are
not yet available, the following table sets forth consolidated unaudited
financial results of the Company for the nine months ended November 29, 1997 and
unaudited consolidated financial results for the Company for the nine months
ended November 28, 1998. The table also sets forth the unaudited consolidated
financial results for the three months ended November 29, 1997 and November 28,
1998. The following summary third quarter financial data should be read in
conjunction with B/E's financial statements, including the
-5-
<PAGE>
notes thereto, and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" included, or incorporated by reference, elsewhere in
this Prospectus.
B/E Aerospace, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
(In thousands, except per share data)
Three Months Ended Nine Months Ended
--------------------------------- ---------------------------------
Nov. 28, Nov. 29, Nov. 28, Nov. 29,
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $ 195,751 $ 128,998 $ 492,094 $ 362,687
Cost of sales 120,141 82,348 305,004 230,825
----------- ----------- ------------ ------------
Gross profit 75,610 46,650 187,090 131,862
Percent 38.6% 36.2% 38.0% 36.4%
OPERATING EXPENSES:
Selling, general and administrative 21,674 15,082 58,715 42,945
Research, development and engineering 16,085 12,438 40,827 34,988
Amortization 6,624 2,666 16,038 8,267
In-process research and development,
and acquisition-related expenses -- -- 79,155 --
----------- ----------- ----------- -----------
Total Operating Expenses 44,383 30,186 194,735 86,200
----------- ----------- ----------- -----------
Operating earnings (loss) 31,227 16,464 (7,645) 45,662
Percent 16.0% 12.8% nm 12.6%
Interest expense, net 11,370 5,368 27,816 16,899
----------- ----------- ----------- -----------
Earnings (loss) before income taxes 19,857 11,096 (35,461) 28,763
Income taxes 3,376 1,664 7,428 4,311
----------- ----------- ------------ -----------
Net earnings (loss) $ 16,481 $ 9,432 $ (42,889) $ 24,452
=========== =========== ============ ===========
Basic earnings (loss) per share $ .61 $ .41 $ (1.72) $ 1.10
=========== =========== ============ ===========
Weighted average common shares 27,195 22,760 24,946 22,316
=========== =========== ============ ===========
Diluted net earnings (loss) per share $ .59 $ .40 $ (1.72) $ 1.04
=========== =========== ============ ===========
Weighted average common and 27,766 23,808 24,946 23,539
potentially dilutive common shares =========== =========== ============ ===========
</TABLE>
-6-
<PAGE>
RISK FACTORS
Prior to making an investment decision with respect to the Shares of Common
Stock offered hereby, prospective investors should carefully consider the
specific factors set forth below, together with all of the other information
appearing herein, in light of their particular investment objectives and
financial circumstances.
Dependence upon Conditions in the Airline Industry
The Company's principal customers are the world's commercial airlines. As a
result, the Company's business is directly dependent upon the conditions in the
highly cyclical and competitive commercial airline industry. In the late 1980s
and early 1990s, the world airline industry suffered a severe downturn, which
resulted in record losses and several air carriers seeking protection under
bankruptcy laws. As a consequence, during such period, airlines sought to
conserve cash by reducing or deferring scheduled cabin interior refurbishment
and upgrade programs and by delaying purchases of new aircraft. This led to a
significant contraction in the commercial aircraft cabin interior products
industry and a decline in the Company's business and profitability. Since early
1994, the airlines have experienced a turnaround in operating results, leading
the domestic airline industry to record operating earnings during calendar years
1995 through 1997. This financial turnaround has, in part, been driven by record
load factors, rising fare prices and declining fuel costs. The airlines have
substantially improved their balance sheets through cash generated from
operations and the sale of debt and equity securities. As a result, the levels
of airline spending on refurbishment and new aircraft purchases have expanded.
However, due to the volatility of the airline industry and the current general
economic and financial turbulence, the current profitability of the airline
industry may not continue and the airlines may not be able to maintain or
increase expenditures on cabin interior products for refurbishments or new
aircraft.
In addition, the airline industry is undergoing a process of consolidation
and significantly increased competition. Such consolidation could result in a
reduction of future aircraft orders as overlapping routes are eliminated and
airlines seek greater economies through higher aircraft utilization. Increased
airline competition may also result in airlines seeking to reduce costs by
promoting greater price competition from airline cabin interior products
manufacturers, thereby adversely affecting the Company's revenues and margins.
Recently, turbulence in the financial and currency markets of many Asian
countries has led to uncertainty as to the economic outlook for these countries.
Of the Company's $700 million of backlog at August 29, 1998, the Company had $34
million with Asian carriers deliverable in fiscal 1999 and a further $107
million deliverable in subsequent fiscal years. Of such Asian carrier backlog,
approximately $35 million was with Japan Airlines, Singapore Airlines and Cathay
Pacific. Although not all carriers have been affected by the current economic
events in the Pacific Rim, certain carriers could cancel or defer their existing
orders and future orders from airlines in these countries may be adversely
affected. In addition, Boeing has recently announced that in light of the recent
economic conditions in Asia it will be scaling back production of several
commercial jet lines over the next several years. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Industry
Conditions," and "--Deferred Tax Assets" and "Business--Industry Overview."
New Product Introductions and Technological Change
Airlines currently are taking delivery of a new generation of aircraft and
demanding increasingly sophisticated cabin interior products. As a result, the
cabin interior configurations of commercial aircraft are becoming more complex
and will require more technologically advanced and integrated products. For
example, airlines increasingly are seeking sophisticated in-flight entertainment
systems, such as the MDDS interactive individual passenger in-flight
entertainment system developed by B/E. Development of the MDDS and related
in-flight entertainment systems required substantial investment by the Company
and third parties in research, development and engineering. The future success
of the Company may depend to some extent on its ability to continue to develop,
profitably manufacture and deliver, on a timely basis, other technologically
advanced, reliable high-quality products, which can be readily integrated into
complex cabin interior configurations. See "Business--Products and Services."
-7-
<PAGE>
Competition
The Company competes with a number of established companies that have
significantly greater financial, technological and marketing resources than the
Company. Although the Company has achieved a significant share of the market for
a number of its commercial airline cabin interior products, there can be no
assurance that the Company will be able to maintain this market share. The
ability of the Company to maintain its market share will depend not only on its
ability to remain the supplier of retrofit and refurbishment products and spare
parts on the commercial fleets on which its products are currently in service,
but also on its success in causing its products to be selected for installation
in new aircraft, including next-generation aircraft, expected to be purchased by
the airlines over the next decade, and in avoiding product obsolescence.
The Company's primary competitors in the market for new passenger
entertainment products, including individual seat video and in-flight
entertainment and cabin management systems, are Matsushita Electronics and
Rockwell Collins, each of which has significantly greater technological
capabilities and financial and marketing resources than the Company. See
"Business--Competition."
Adverse Consequences of Financial Leverage
The Company has substantial indebtedness and, as a result, significant debt
service obligations. As of August 29, 1998, the Company had approximately $472.8
million aggregate amount of indebtedness outstanding, representing approximately
74% of total capitalization. On November 2, 1998 the Company sold the 9 1/2%
Notes, the proceeds of which the Company used to repurchase the SMR Shares and
to repay certain indebtedness. As of August 29, 1998, after giving pro forma
effect to the offering of the 9 1/2% Notes and the Company's use of the net
proceeds therefrom and borrowings related to certain acquisitions and related
costs, the Company would have had $637.9 million of consolidated indebtedness
and the Company's total consolidated indebtedness, as a percentage of
capitalization, would have been 93%. For the six months ended August 29, 1998,
the Company's earnings would have been insufficient to cover fixed charges on a
pro forma basis by $55.8 million, primarily due to the write-off of acquired
in-process research and development and acquisition related expenses of $79.2
million. In-process research and development expenses arose from new product
development projects that were in various stages of completion at the respective
acquired companies at the date of such acquisitions. In-process research and
development expenses related to products under development at the date of
acquisition that had not established technological feasibility and for which no
alternative use was identified were written off. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations." The Company may
incur additional indebtedness in the future, although it will be limited in the
amount it could incur by its existing and future debt agreements.
The degree of the Company's leverage could have important consequences to
purchasers or holders of its shares of Common Stock, including: (i) limiting the
Company's ability to obtain additional financing to fund its growth strategy,
working capital requirements, capital expenditures, acquisitions, debt service
requirements or other general corporate requirements; (ii) requiring a
substantial portion of the Company's cash flow from operations to be dedicated
to debt service requirements, thereby reducing the funds available for
operations and further business opportunities; and (iii) increasing the
Company's vulnerability to adverse economic and industry conditions. In
addition, since any borrowings under the Company's bank credit facilities will
be at variable rates of interest, the Company will be vulnerable to increases in
interest rates. The Company may incur additional indebtedness in the future,
although its ability to do so will be restricted by the indentures governing the
Company's 9 7/8% Senior Subordinated Notes due 2006 (the "9 7/8% Notes"), 8%
Senior Subordinated Notes due 2008 (the "8% Notes") and the 9 1/2% Notes and by
the terms of its existing credit facilities with The Chase Manhattan Bank (the
"Bank Credit Facility"). The ability of the Company to make scheduled payments
under its present and future indebtedness will depend on, among other things,
the future operating performance of the Company and the Company's ability to
refinance its indebtedness when necessary. Each of these factors is to a large
extent subject to economic, financial, competitive and other factors beyond the
Company's control.
The Company's bank credit facilities and the indentures governing the
9 7/8% Notes, 8% Notes and the 9 1/2% Notes contain numerous financial and
operating covenants that will limit the discretion of the Company's management
with
-8-
<PAGE>
respect to certain business matters. These covenants, and any restrictions in
any future financial agreements, will place significant restrictions on, among
other things, the ability of the Company to incur additional indebtedness, to
create liens or other encumbrances, to make certain payments and investments,
including dividend payments and to sell or otherwise dispose of assets and merge
or consolidate with other entities. The Company's bank credit facilities also
require the Company to meet certain financial ratios and tests. A failure to
comply with the obligations contained in the Company's bank credit facilities,
or the indentures governing the 9 7/8% Notes, 8% Notes and the 9 1/2% Notes,
could result in an event of default under the Company's Bank Credit Facility, or
the aforementioned indentures, which could permit acceleration of the related
debt and acceleration of debt under other instruments that may contain cross-
acceleration or cross-default provisions. The Company is not certain whether it
would have, or be able to obtain, sufficient funds to make these accelerated
payments.
Customer Delivery Requirements
The commercial aircraft cabin interior products industry is currently
experiencing a period of rapid growth. From February 22, 1997 to August 29,
1998, the Company has experienced an approximately 67% increase in its backlog.
The ability of the Company to receive new contract awards and to deliver its
existing backlog is dependent upon its (and its suppliers') ability to increase
deliveries to meet the recent surge in demand. Although the Company believes it
has sufficient manufacturing capacity to meet customer demand, there can be no
assurance that the Company, or its suppliers, will be able to meet the increased
product delivery requirements. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Bookings and Backlog Information"
and "Business--Backlog."
General Aviation Acquisitions; Ability to Integrate Acquired Businesses;
Additional Capital Requirements
Between 1989 and January 1996, the Company acquired nine companies. During
fiscal 1999, the Company acquired six additional companies, including ASI,
PBASCO, AMP, ALC, SMR and CF Taylor. Through several recent acquisitions, the
Company has expanded its activities from the commercial to the general aviation
market. There can be no assurance that the Company will be successful in
entering the general aviation market. The Company intends to consider future
strategic acquisitions in the commercial airline and general aviation cabin
interior industries, some of which could be material to the Company. B/E is in
discussions from time to time with one or more third parties regarding possible
acquisitions. As of the date of this Prospectus, except as disclosed herein, the
Company has no agreements or understandings with any prospective acquisition
candidates in respect of a specific transaction. The ability of the Company to
continue to achieve its goals will depend upon its ability to integrate
effectively the recent and any future acquisitions and to achieve cost
efficiencies. Although B/E has been successful in the past in doing so, there
can be no assurance that the Company will continue to be successful. See "The
Company--Recent Acquisitions."
Depending upon, among other things, the acquisition opportunities
available, the Company may need to raise additional funds. The Company may seek
such additional funds through public offerings or private placements of debt or
equity securities or bank loans. Issuance of additional equity securities by the
Company could result in substantial dilution to stockholders. In the absence of
such financing, the Company's ability to make future acquisitions in accordance
with its business strategy, to absorb adverse operating results, to fund capital
expenditures or to respond to changing business and economic conditions may be
adversely affected, all of which may have a material adverse effect on the
Company's business, results of operations and financial condition.
Regulation
The Federal Aviation Administration (the "FAA") prescribes standards and
licensing requirements for aircraft components, including virtually all
commercial airline and general aviation cabin interior products, and licenses
component repair stations within the United States. Comparable agencies regulate
these matters in other countries. If the Company fails to obtain a required
license for one of its products or services or loses a license previously
granted, the sale of the subject product or service would be prohibited by law
until such license is obtained or renewed. In addition,
-9-
<PAGE>
designing new products to meet existing FAA requirements and retrofitting
installed products to comply with new FAA requirements can be both expensive and
time-consuming. See "Business--Government Regulation."
Risks Associated with the Year 2000 Issue
The Company is highly dependent on its computer software programs and
operating systems in operating its business. The Company also depends on the
proper functioning of computer systems of third parties, such as vendors and
clients. The failure of any of these systems to appropriately interpret the
upcoming calendar year 2000 could have a material adverse effect on the
Company's financial condition, results of operations, cash flow and business
prospects. The Company is currently identifying its own applications that will
not be Year 2000 compliant and taking steps to determine whether third parties
are doing the same. In addition, the Company is implementing a worldwide plan to
prepare its computer systems to be Year 2000 compliant by the first half of
1999. The Company has already spent $17 million on Year 2000 issues and
estimates that the total cost of implementing its Year 2000 compliance program
will require an additional $13 million.
The Company's inability to remedy its own Year 2000 problems or the failure
of third parties to do so may cause business interruptions or shutdown,
financial loss, regulatory actions, reputational harm and/or legal liability.
There can be no assurance that the Company's Year 2000 program, or the programs
of third parties whom the Company does business with, will be effective or that
the Company's estimates about the timing and cost of completing its program will
be accurate. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Year 2000 Costs."
Risks Inherent in International Operations; Risks Associated with the Conversion
by Certain EU Member States to the "Euro"
Foreign operations of B/E accounted for 26% of total sales for each of the
six months ended August 29, 1998 and fiscal 1998, as compared to 24% and 25% for
the six months ended August 30, 1997 and for fiscal 1997, respectively. In
addition, the Company has direct investments in a number of subsidiaries in
foreign countries (primarily in Europe). Fluctuations in the value of foreign
currencies affect the dollar value of B/E's net investment in foreign
subsidiaries, with these fluctuations being included in a separate component of
stockholders' equity. Operating results of foreign subsidiaries are translated
into U.S. dollars at average monthly exchange rates. For the six months ended
August 29, 1998 and fiscal 1998, the impact of such transactions on operating
results was not significant; however, B/E reported a cumulative foreign currency
translation amount of $(2.6) million in stockholders' equity at August 29, 1998
as a result of foreign currency adjustments, and there can be no assurance that
the Company will not incur additional adjustments in future periods. In
addition, the U.S. dollar value of transactions based in foreign currency
(collections on foreign sales or payments for foreign purchases) also fluctuates
with exchange rates. Historically, foreign currency risk has not been material
because a substantial majority of the Company's sales have been denominated in
the currency of the country of product origin and no repatriation of earnings
has occurred (or is anticipated). However, there can be no assurance that a
substantial majority of sales will continue to be denominated in the currency of
the country of product origin or as to the impact of changes in the value of the
United States dollar or other currencies. The largest foreign currency exposure
results from activity in Dutch guilders, British pounds and Japanese yen.
B/E has not hedged net foreign investments in the past, although it may
engage in hedging transactions in the future to manage or reduce its foreign
exchange risk. There can be no assurance that B/E's attempts to manage its
foreign currency exchange risk will be successful.
The Company's foreign operations could also be subject to unexpected
changes in regulatory requirements, tariffs and other market barriers and
political and economic instability in the countries where it operates. There can
be no assurance as to the impact of any such events that may occur in the
future. See "Risk Factors--Dependence upon Conditions in the Airline Industry."
-10-
<PAGE>
In addition, the Company may be exposed to certain risks as a result of the
conversion by certain European Union ("EU") member states of their respective
currencies to the "euro" as legal currency on January 1, 1999. The conversion
rates between such EU member states' currencies and the euro will be fixed by
the Council of the EU. Risks related to the conversion to the euro could
include, among other things, effects on pricing due to increased cross-border
price transparency, costs of modifying information systems, including both
software and hardware, costs of relying on third parties whose systems also
require modification, changes in the conduct of business and in the principal
markets for the Company's products and services and changes in currency exchange
rate risk. The Company has analyzed whether the conversion to the euro will
materially affect its business operations. While the Company is uncertain as to
the impact of the conversion, the Company does not expect anticipated costs in
connection with the euro conversion to be material. However, the actual effects
of the conversion cannot be known until the conversion to the euro has taken
place and there can be no assurance that the actual effects of the conversion
could not have a material adverse effect on the Company's business, results of
operations, and financial condition.
Environmental Matters
The Company is subject to extensive and changing federal, state and foreign
laws and regulations establishing health and environmental quality standards,
and may be subject to liability or penalties for violations of those standards.
The Company is also subject to laws and regulations governing remediation of
contamination at facilities currently or formerly owned or operated by the
Company or to which the Company has sent hazardous substances or wastes for
treatment, recycling or disposal. The Company believes that it is currently in
compliance, in all material respects, with all such laws and regulations.
However, the Company may be subject to future liabilities or obligations as a
result of new or more stringent interpretations of existing laws and
regulations. In addition, the Company may have liabilities or obligations in the
future if it discovers any environmental contamination or liability at any of
its facilities, or at facilities it may acquire.
Dividend Policy; Restrictions on Payment of Dividends
The Company has never paid a cash dividend and does not plan to pay cash
dividends on its Common Stock in the foreseeable future. The Company's Bank
Credit Facility and the Indentures governing the 9 7/8% Notes, the 8% Notes and
the 9 1/2% Notes restrict and limit the payment of dividends on the Common
Stock. Future indebtedness may also contain restrictions and limitations on the
payment of dividends on the Common Stock.
Certain Anti-Takeover Provisions
The Company's Restated Certificate of Incorporation and By-laws contain
provisions that may have the effect of discouraging a third party from making an
acquisition of the Company by means of a tender offer, proxy contest or
otherwise. The Restated Certificate of Incorporation and By-laws of the Company,
among other things, (i) classify the Board of Directors into three classes, with
directors of each class serving for a staggered three-year period, (ii) provide
that directors may be removed only for cause and only upon the approval of the
holders of at least two-thirds of the voting power of the Company's shares
entitled to vote generally in the election of such directors, (iii) require at
least two-thirds of the voting power of the Company's shares entitled to vote
generally in the election of directors to alter, amend or repeal the provisions
relating to the classified board and removal of directors described above, (iv)
permit the Board of Directors to fill vacancies and newly created directorships
on the Board, (v) restrict the ability of stockholders to call special meetings
and (vi) contain advance notice requirements for stockholder proposals. Such
provisions would make the removal of incumbent directors more difficult and
time-consuming and may have the effect of discouraging a tender offer or other
takeover attempt not previously approved by the Board of Directors.
The Company's Board of Directors has declared a dividend of one preferred
share purchase right (a "Right") for each share of Common Stock outstanding. A
Right will also be attached to each share of Common Stock subsequently issued.
The Rights will have certain anti-takeover effects. If triggered, the Rights
would cause substantial dilution to a person or group of persons that acquires
more than 15.0% of the Common Stock on terms not approved by the
-11-
<PAGE>
Company's Board of Directors. The Rights could discourage or make more difficult
a merger, tender offer or other similar transaction. See "Description of Capital
Stock -- Rights Agreement."
Under the Company's Restated Certificate of Incorporation, the Board of
Directors of the Company also has the authority to issue preferred stock in one
or more series and to fix the powers, preferences and rights of any such series
without stockholder approval. The Board of Directors could, therefore, issue,
without stockholder approval, preferred stock with voting and other rights that
could adversely affect the voting power of the holders of Common Stock and could
make it more difficult for a third party to gain control of the Company. In
addition, under certain circumstances, Section 203 of the Delaware General
Corporation Law makes it more difficult for an "interested stockholder"
(generally a 15% stockholder) to effect various business combinations with a
corporation for a three-year period. See "Description of Capital Stock --
Preferred Stock."
-12-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Dollars in thousands, except per share data)
Introduction
B/E is the world's largest manufacturer of commercial and general aviation
aircraft cabin interior products serving virtually all major airlines and a wide
variety of general aviation customers and airframe manufacturers. Management
believes that the Company has achieved leading global market positions in each
of its major product categories, which include aircraft seats, food and beverage
preparation and storage equipment, galley and other interior structures, oxygen
delivery systems, lighting systems and in-flight entertainment systems. In
addition, B/E provides design, integration, installation and certification
services, offering its customers in-house capabilities to design, project
manage, integrate, test and certify reconfigurations and modifications for
commercial aircraft cabin interiors and to manufacture related products,
including engineering kits and interface components. B/E also provides upgrade,
maintenance and repair services for its airline customers around the world.
B/E's revenues are generally derived from two primary sources:
refurbishment or upgrade programs for the existing worldwide fleets of
commercial and general aviation aircraft, and new aircraft deliveries. B/E
believes its large installed base of products, estimated to be approximately
$4,700,000 as of August 29, 1998 (valued at replacement prices), gives it a
significant advantage over competitors in obtaining orders for refurbishment
programs, principally due to the tendency of the airlines to purchase equipment
for such programs from the original supplier. With the exception of spare parts
sales, B/E's revenues are generated from programs initiated by the airlines
which may vary significantly from year to year in terms of size, mix of products
and length of delivery. As a result, B/E's revenues and margins may fluctuate
from period to period based upon the size and timing of the program and the type
of products sold. Historically, B/E experienced certain trends in its two
revenue drivers: as the airlines took deliveries of large numbers of new
aircraft, refurbishment programs as a percentage of revenues declined and,
similarly, when new aircraft deliveries declined, refurbishment programs tended
to increase in number and size. Changes in revenues by classes of product are
the result of acquisitions and volume demand in the industry, as more fully
described in the discussion and analysis that follows. During the most recent
airline industry recession, which ended in 1994, the airlines significantly
depleted their cash reserves and incurred record losses. In an effort to improve
their liquidity, the airlines conserved cash by reducing or deferring cabin
interior refurbishment and upgrade programs and purchases of new aircraft. As a
result, in contrast with historical experience, B/E experienced declines in the
number of both new orders and refurbishments.
Since early 1994, the airlines have experienced a significant turnaround in
operating results, with the domestic airline industry achieving record operating
earnings during calendar years 1995 through 1997. Consequently, during fiscal
1998 B/E has experienced significant growth in backlog of seating and galley
products, and has experienced significant growth in revenues and operating
earnings. This growth is a reflection of the airlines' need to begin
refurbishing worn fleets and their ability to do so as a result of the
strengthening of the airlines' balance sheets.
B/E has substantially expanded the size, scope and nature of its business
as a result of a number of acquisitions. On January 24, 1996, the Company
acquired all of the stock of Burns, an industry leader in commercial aircraft
seating. On March 27, 1998, the Company acquired all of the capital stock of
Aerospace Interiors, Inc., which services, cleans and repairs aircraft interior
parts and products, and is a leading provider of seat repair and maintenance
services performed by non-airline entities. On April 13, 1998, the Company
acquired substantially all of the assets and assumed certain of the liabilities
of PBASCO, a leading manufacturer of commercial aircraft oxygen delivery
systems, a leading manufacturer of passenger service unit components and
systems, and a major supplier of air valves, overhead lights and switches, crew
masks and protective breathing devices. On April 21, 1998, the Company acquired
substantially all of the assets and assumed certain of the liabilities of AMP, a
leading manufacturer of cabin interior products for general aviation (business
jet) and commercial type VIP aircraft. On July 30, 1998, the Company acquired
all of the capital stock of ALC, a market leader in producing interior
fluorescent lighting systems for business and corporate jet aircraft. On August
7, 1998, the Company acquired all of the capital stock of SMR Aerospace, Inc., a
leader in providing design, integration, installation and certification services
for commercial aircraft passenger cabin interiors. On September 3, 1998, the
Company acquired
-13-
<PAGE>
substantially all of the galley equipment assets and assumed related liabilities
of CF Taylor, a manufacturer of galley equipment and structures for both narrow-
and wide-body aircraft. While the Company will continue to be susceptible to
industry-wide conditions, management believes that the Company's significantly
more diversified product line and revenue base achieved through acquisitions has
reduced its exposure to demand fluctuations in any one product area.
As a result of the acquisitions of PBASCO, AMP and SMR, the Company has
recorded a charge aggregating $79,155 for the write-off of acquired in-process
research and development and acquisition related expenses associated with these
and other transactions. In addition, in connection with the acquisition of CF
Taylor, the Company engaged consultants to assist in the allocation of the
purchase price. Based upon the results of their work, the Company did not
allocate any of the purchase price of CF Taylor to in-process research and
development. In-process research and development expenses arose from new product
development projects that were in various stages of completion at the respective
acquired companies at the dates of such acquisitions. In-process research and
development expenses related to products under development at the dates of such
acquisition that had not established technological feasibility and for which no
alternative use was identified were written off. The in-process research and
development projects have been valued based on expected net cash flows over the
product life, costs to complete, the stage of completion of the projects, the
result of which has been discounted to reflect the inherent risk associated with
the completion of the projects, and the realization of the efforts expended.
New product development projects underway at PBASCO at the date of
acquisition included, among others, modular drop boxes, passenger and flight
crew oxygen masks, oxygen regulators and generators, protective breathing
equipment, on board oxygen generating systems, reading lights, passenger service
units, external viewing systems for executive and commercial aircraft and cabin
monitoring systems. In-process research and development and acquisition-related
expenses associated with PBASCO were approximately $13,000. The Company has
determined that these projects were approximately 28% complete at the date of
acquisition, and estimates that the cost to complete these projects will
aggregate approximately $11,800, and will be incurred over a four year period.
New product development projects underway at AMP at the date of acquisition
included, among others, executive aircraft interior products for the Bombardier
Global Express, Boeing Business Jet, Airbus Corporate Jet, Cessna Citation
560XL, Cessna Citation 560 Ultra, Visionaire Vantage and Lear 60, as well as
other specific executive aircraft seating products. In-process research and
development and acquisition-related expenses associated with AMP were
approximately $19,253. The Company has determined that these projects were
approximately 25% complete at the date of acquisition, and estimates that the
cost to complete these projects will aggregate approximately $4,800, and will be
incurred over a two year period.
New product development projects underway at SMR at the date of
acquisition included, among others, pneumatic and electrical deicing systems for
the substantial majority of all executive and commuter aircraft types, crew rest
modules for selected wide-body aircraft, passenger to freighter and combi to
freighter conversion kits for selected wide-body aircraft, hovercraft skirting
devices, cargo nets, and smoke barriers. In-process research and development and
acquisition-related expenses associated with SMR were approximately $46,902. The
Company has determined that these projects were approximately 60% complete at
the date of acquisition, and estimates that the cost to complete these projects
will aggregate approximately $2,700, and will be incurred over a two year
period.
Uncertainties that could impede progress to a developed technology include
(i) availability of financial resources to complete the development, (ii)
regulatory approval (FAA, CAA, etc.) required for each product before it can be
installed on an aircraft, (iii) economic feasibility of developed technologies,
(iv) customer acceptance and (v) general competitive conditions in the industry.
There can be no assurance that the in-process research and development projects
will be successfully completed and commercially introduced.
Recently, Rockwell Collins has entered the in-flight entertainment industry
by purchasing Hughes Avicom, and in doing so has changed the competitive
landscape for this line of business. The Company has evaluated the impact of the
changing market conditions, and has determined that the long-term success of
this line of business may be enhanced by teaming with a partner with substantial
economic and technology resources. In connection therewith, the Company may
monetize a portion, or if no suitable partner can be found, all of its
investment in its in-flight entertainment business.
-14-
<PAGE>
Over the last two fiscal years, the Company's gross margins have improved
substantially, increasing from 31.2% in fiscal 1996 to 34.4% in fiscal 1997 and
to 36.7% in fiscal 1998. The primary reasons for the improvement in gross
margins include: (i) shift in product mix in all divisions toward higher margin
products; (ii) higher unit volumes; and (iii) a company-wide re-engineering
program which has resulted in higher employee productivity and better
manufacturing efficiency.
B/E's business strategy is to maintain its market leadership position
through various initiatives, including new product development. In fiscal 1998,
research, development and engineering expenses totaled $45,685, or 9.4% of net
sales, primarily consisting of costs related to the development of the MDDS,
with the balance attributable to the seating and galley products businesses.
In January 1998, the Company settled a long-running dispute with the U.S.
Government over export sales between 1992 and 1995 to Iran, which resulted in a
charge of $4,664 in its fourth quarter, which ended February 28, 1998. See
"Business--Legal Proceedings."
The following discussion and analysis addresses the results of the
Company's operations for the six months ended August 29, 1998, as compared to
the Company's results of operations for the six months ended August 30, 1997.
The discussion and analysis then addresses the results of the Company's
operations for the year ended February 28, 1998 as compared to the Company's
results of operations for the year ended February 22, 1997. The discussion and
analysis then addresses the results of the Company's operations for the year
ended February 22, 1997 as compared to the Company's results of operations for
the year ended February 24, 1996. The discussion and analysis then addresses the
liquidity and financial condition of the Company and other matters.
Six Months Ended August 29, 1998, as Compared to the Six Months Ended August 30,
1997
Net sales for the fiscal 1999 six-month period were $296,343, an increase
of approximately $62,700, or 27% over the comparable period in the prior year.
The recent acquisitions of PBASCO, AMP and SMR accounted for a substantial
portion of the increase in revenues during this period; AMP and PBASCO generated
approximately $36,700 of revenues, in the aggregate, with SMR adding
approximately $6,000. Internal growth during the six months was low due to
uneven airline scheduling requirements. The Company does not believe this period
is reflective of the Company's strong growth in orders and backlog. As described
below, the Company expects very significant internal growth during the second
half of the year and significant internal growth for the full year. During each
of the six months ended August 29, 1998 and the year ended February 28, 1998,
the Seating Products and Interior Systems Groups, exclusive of businesses
acquired during fiscal 1999, generated approximately 78% of total revenues.
During the eighteen month period ended August 29, 1998, these two groups
generated their highest bookings ever, with program awards of approximately
$764,909 from the world's airlines, including, among others, Delta Air Lines,
USAirways, British Airways, United Airlines, American Airlines and Northwest
Airlines. The Seating Products Group, which generated approximately 52% of total
revenues in Fiscal 1998, had its strongest booking quarter ever during the
quarter ended August 29, 1998, with a book to bill ratio of approximately 1.9:1;
total bookings for the Company during the quarter were approximately $215,000,
and the Company experienced a book to bill ratio of almost 1.4:1. Of the
Company's backlog of approximately $700 million as of August 29, 1998, $302
million is deliverable by the end of fiscal 1999. The scheduled delivery dates
for the Seating Products and Interior Systems Groups along with scheduled
deliveries for other programs form the basis for management's expectation of
very significant internal growth for the Company during the second half of
fiscal 1999.
Gross profit was $111,480 (37.6% of sales) for the six months ended August
29, 1998. This was $26,268, or 31%, greater than the comparable period in the
prior year of $85,212, which represented 36.5% of sales. The primary reasons for
the improvement in gross margins include: (i) shift in product mix in all
divisions toward higher margin products; (ii) higher unit volumes; and (iii) a
company-wide re-engineering program which has resulted in higher employee
productivity and better manufacturing efficiency.
Selling, general and administrative expenses were $37,041 (12.5% of sales)
for the six months ended August 29, 1998. This was $9,106, or 33%, greater than
the comparable period in the prior year of $27,935 (12.0% of sales). The
increase
-15-
<PAGE>
in selling, general and administrative expenses was primarily due to inclusion
of the relevant expenses of the acquired companies along with increases
associated with internal growth.
Research, development and engineering expenses were $24,742 (8.3% of sales)
for the six months ended August 29, 1998, an increase of $2,192 over the
comparable period in the prior year. The increase in research, development and
engineering expense in the current period is primarily attributable to ongoing
new product development activities.
Amortization expense for the six months ended August 29, 1998 of $9,414 was
$3,885 greater than the amount recorded in the comparable period in the prior
year.
Based on management's assumptions, a portion of the purchase price for each
of the recent acquisitions of PBASCO, AMP and SMR was allocated to purchased
in-process research and development that had not reached technological
feasibility and had no future alternative use. During the first six months of
fiscal 1999, the Company recorded a charge of $79,155 for the write-off of
acquired in-process research and development, acquisition-related and other
expenses. Management estimates that the research and development cost to
complete the in-process research and development related to projects underway at
PBASCO, AMP and SMR will aggregate $19,000 which will be incurred over a 3-4
year period.
Due, in part, to the acquisition-related charges of $79,155 during the six
months ended August 29, 1998, the Company incurred an operating loss of
$(38,872), as compared to operating earnings of $29,198 in the prior year's
comparable period. Operating earnings excluding the acquisition-related charges
were $40,283.
Interest expense, net was $16,446 for the six months ended August 29, 1998,
or $4,915 greater than interest expense of $11,531 for the comparable period in
the prior year and is due to the increase in the Company's long-term debt.
The loss before income taxes in the current six month period was $(53,318)
(which includes in-process research and development, acquisition-related and
other expenses of $79,155) as compared to earnings before incomes taxes of
$17,667 in the prior year's comparable period. Earnings before income taxes
excluding the acquisition-related charges were $23,837. Income tax expense for
the six months ended August 29, 1998 was $4,052, as compared to $2,647 in the
prior year's comparable period.
The net loss for the six months ended August 29, 1998 was $(59,370), or
$(2.49) per share (diluted), as compared to net earnings of $15,020 or $.64 per
share (diluted), for the comparable period in the prior year.
Year Ended February 28, 1998 Compared to Year Ended February 22, 1997
Sales for the year ended February 28, 1998 were $487,999, or 18% higher
than sales of $412,379 in the prior year, and reflected a 24% increase in
product sales, offset by a $13,305 decline in service revenues (attributable to
discontinued service lines of business). Year over year, the Company experienced
an increase in seating products revenues of approximately $35,000 (or 16%), a
$25,000, or 25% increase in interior systems products revenues and a $29,000, or
56% increase in in-flight entertainment products revenues. The revenue increases
for the Seating Products and In-Flight Entertainment Groups are primarily the
result of retrofit programs that seven of the ten largest airlines in the world
have commenced, while the increase in revenues for the Interior Systems Products
Group is primarily related to both the surge in new aircraft deliveries and the
increase in retrofit activity.
Gross profit was $178,905, or 36.7% of sales, for the year ended February
28, 1998 and was $37,083, or 26% greater than the prior year's gross profit of
$141,822, which represented 34.4% of sales. The increase in gross profit, while
primarily the result of the higher sales volume, was also positively impacted by
the 230 basis point improvement in gross margin.
Selling, general and administrative expenses were $58,622, or 12% of sales,
for the year ended February 28, 1998. This was $6,888, or 13% higher than the
selling, general and administrative expenses for the prior year of $51,734
(12.5% of
-16-
<PAGE>
sales), and is primarily due to the higher level of sales and quotation
activity, as well as a higher level of customer service, product support and
information technology activities.
Research, development and engineering expenses were $45,685, or 9.4% of
sales, for the fiscal year ended February 28, 1998. For the prior year,
research, development and engineering expenses were $37,083, or 9.0% of sales.
The increase in research, development and engineering was attributable to B/E's
ongoing new product development programs, including costs related to the
development of the MDDS and related Boeing line-fit expenditures.
Amortization expense for the fiscal year ended February 28, 1998 of $11,265
was $658, or 6% higher than the amount recorded in the prior year.
Other expenses for the fiscal year ended February 28, 1998 consisted of a
non-recurring charge of $4,664 related to the settlement of a dispute with the
U.S. Government over certain export sales between 1992 and 1995. See "Business
- -- Legal Proceedings."
Net interest expense was $22,765 for the year ended February 28, 1998 or
$4,402 less than the net interest expense of $27,167 recorded for the prior year
and is due to the decrease in the Company's long-term debt.
The increase in gross profit offset by somewhat higher operating expenses
and lower interest expenses in the current year resulted in earnings before
income taxes, extraordinary item and cumulative effect of change in accounting
principle of $35,904, an increase of $20,673 over the prior year.
Income taxes for the year ended February 28, 1998 were $5,386, or 15% of
earnings before income taxes as compared to $1,522, or 10% of earnings before
income taxes, in the prior year.
Earnings before extraordinary item were $30,518, or $1.30 per share
(diluted), which includes the $4,664 non-recurring charge related to the
settlement of the dispute with the U.S. Government, for the year ended February
28, 1998, as compared to $13,709, or $.72 per share (diluted), for the prior
year.
The Company incurred an extraordinary charge of $8,956 during fiscal 1998
for unamortized debt issue costs, tender and redemption premiums and fees and
expenses related to the repurchase of its 9 3/4% Notes.
Net earnings were $21,562, or $.96 per share (basic) and $.92 per share
(diluted), for the year ended February 28, 1998, as compared to $13,709, or $.77
per share (basic) and $.72 per share (diluted), for the prior year.
Year Ended February 22, 1997 Compared to Year Ended February 24, 1996
Sales for the year ended February 22, 1997 were $412,379, or 77% higher
than sales of $232,582 for the comparable period in the prior year. Year over
year, Seating revenues increased $120,000, and Services revenues increased by
$19,000. The acquisition of Burns accounted for approximately $104,000 of the
$139,000 increase. Year over year, the interior systems products rose by
$22,000, or 28% while in-flight entertainment revenues increased by $19,000, or
58%. The revenue increases for the Seating Products and In-flight Entertainment
Groups are primarily the result of retrofit programs underway throughout the
airline industry, while the increase in revenues for the Interior Products Group
is primarily related to both the surge in new aircraft deliveries and the
increase in retrofit activity. Excluding the effect of the Burns acquisition,
sales increased 33% year over year.
Gross profit was $141,822, or 34.4% of sales, for the year ended February
22, 1997, and was $69,271 higher than gross profit for the comparable period in
the prior year of $72,551, which represented 31.2% of sales. The increase in
gross profit was primarily the result of the higher sales volumes and the mix of
all products and services sold.
-17-
<PAGE>
Selling, general and administrative expenses were $51,734, or 12.5% of
sales, for the year ended February 22, 1997. This was $9,734 higher than
selling, general and administrative expenses for the comparable period in the
prior year of $42,000, or 18.1% of sales, principally due to the substantial
increases in revenues and the acquisition of Burns.
Research, development and engineering expenses were $37,083, or 9.0% of
sales, for the year ended February 22, 1997. For the comparable period in the
prior year, research and development expense was $58,327, or 25.1% of sales. The
decrease in expenses during the current year was the result of a decrease in the
level of activity associated with the MDDS interactive entertainment system,
offset somewhat by an increase in product development activity in the Seating
Products Group.
Amortization expense of $10,607 for the year ended February 22, 1997 was
$1,108 more than the amount recorded in fiscal 1996 as a result of the Burns
acquisition.
Other expenses of $4,170 for the year ended February 24, 1996 was a charge
to earnings related to costs associated with the integration and consolidation
of the Company's European seating operations in connection with the Company's
rationalization of its seating business and as a result of the Burns
acquisition. There was no similar charge in fiscal 1997.
Net interest expense was $27,167 for the year ended February 22, 1997, or
$8,531 higher than the net interest expense of $18,636 recorded for the
comparable period in the prior year, and was due to the increase in the
Company's long-term debt outstanding throughout most of fiscal 1997 as a result
of the 9 7/8% Notes issued at the time of the Burns acquisition.
Earnings before income taxes of $15,231 for the year ended February 22,
1997 were $75,312 more than the loss before income taxes of $60,081 in the prior
year.
Income taxes for the year ended February 22, 1997 were $1,522, or 10% of
earnings before income taxes, as compared to no tax provision in fiscal 1996.
Net earnings were $13,709, or $.77 per share (basic) and $.72 per share
(diluted), for the year ended February 22, 1997 as compared to a net loss of
($83,413), or ($5.15) per share (basic and diluted) for the comparable period in
the prior year, which included the cumulative effect of an accounting change of
$23,332.
Bookings and Backlog Information
Management estimates that B/E's backlog at August 29, 1998 was
approximately $700,000, approximately 57% of which management believes to be
deliverable during the 12 months following August 29, 1998, compared with a
backlog of $560,000 and $420,000 on February 28, 1998 and February 22, 1997,
respectively (as adjusted for the debooking of the British Airways MDDS program
in August 1997 described below). See "Risk Factors-- Customer Delivery
Requirements" and "Business--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 ultimately selected a competitor's system for their in-flight entertainment
equipment needs. As a result of BA's decision not to move forward with the
interactive program, as of August 1997, the Company debooked approximately
$155,000 of backlog related to the MDDS program. Although the Company has
debooked the BA backlog, the Company is continuing to complete the development
and testing of the MDDS product and has completed line fit certification of its
MDDS System on Boeing 747-400 aircraft and delivered the first MDDS product to
its launch customer, Japan Airlines, in April 1998. Subsequently, the Company
delivered the second MDDS product to Japan Airlines in June 1998. See
"Business--Products and Services."
-18-
<PAGE>
Liquidity and Capital Resources
The Company's liquidity requirements consist of working capital needs,
ongoing capital expenditures 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
revenue growth. B/E's working capital was $182,464 as of August 29, 1998, as
compared to $262,504 as of February 28, 1998.
At August 29, 1998, the Company's cash and cash equivalents were $29,203,
as compared to $164,685 at February 28, 1998. Cash provided from operating
activities was $11,785 for the six months ended August 29, 1998. The primary
source of cash during the six months ended August 29, 1998 was the net loss of
($59,370) offset by non-cash charges for in-process research and development,
depreciation, amortization and acquisition-related expenses of $97,467,
decreases in accounts receivable of $6,163 and increases in accrued and other
liabilities of $13,090, offset by a use of cash of $46,550 related to increases
in inventories and other current assets. The primary use of cash during the
six-month period was $209,636 for the acquisition of PBASCO, AMP and SMR.
The Company's capital expenditures were $20,210 and $11,656 during the six
months ended August 29, 1998 and August 30, 1997, respectively. The increase in
capital expenditures was primarily attributable to (i) the development of a new
management information system to replace the Company's existing systems, many of
which were inherited in acquisitions, and (ii) expenditures for plant
modernization. The management information system is expected to be installed
over 18 months and will be year 2000 compliant. The Company anticipates ongoing
annual capital expenditures of approximately $35,000 for the next several years
to be in line with the expanded growth in business and the recent acquisitions.
The Bank Credit Facility consists of a $100,000 revolving credit facility
and an acquisition facility of up to $100,000. An interim revolving credit
commitment of $120,000 available for the irrevocable letter of credit in
connection with the SMR acquisition, which was added in August 1998, was
returned to The Chase Manhattan Bank and canceled on November 2, 1998 when the
SMR Shares were repurchased. The revolving credit facility expires in April 2004
and the acquisition facility is amortizable over five years beginning in April
1999.
The Bank Credit Facility is collateralized by the Company's accounts
receivable, inventories and by substantially all of its other personal property.
The Bank Credit Facility contains customary affirmative covenants, negative
covenants and conditions of borrowing, all of which were met by the Company as
of August 29, 1998. At August 29, 1998, indebtedness under the existing Bank
Credit Facility consisted of letters of credit aggregating approximately
$124,000 and outstanding borrowings under the revolving and acquisition credit
facilities aggregating $121,000 bearing interest at LIBOR plus 1.50%. Since
August 29, 1998, the Company has borrowed an additional $40.0 million under the
revolving credit facility related to certain acquisitions and related costs,
repaid approximately $75.0 million of outstanding borrowings with the proceeds
from the sale of the 9 1/2% Notes (as described below) and canceled the
irrevocable letter of credit in connection with the SMR acquisition of $120.0
million. See "The Company -- Other Recent Developments."
In February 1998, the Company sold $250,000 of 8% Senior Subordinated Notes
due 2008 (the "8% Notes"). In conjunction with the sale of the 8% Notes, the
Company initiated a tender offer for the $125,000 of 9 3/4% Senior Notes due
2003 (the "9 3/4% Notes"). The net proceeds from the offering of approximately
$240,419 were used (i) for the tender offer (which expired on February 25, 1998)
in which approximately $101,800 of the 9 3/4% Notes were retired, (ii) to call
the remaining 9 3/4% Notes on March 16, 1998, and (iii) together with the
proceeds from the Bank Credit Facility, to fund the acquisitions of PBASCO and
AMP.
On November 2, 1998, the Company sold the 9 1/2% Notes in a private
offering. The net proceeds less estimated debt issue costs received by the
Company from the sale of the 9 1/2 Notes were approximately $193,700. The
Company used approximately $118,000 of the net proceeds from the Offering, to
repurchase the SMR Shares. The remainder of the net proceeds were used for the
repayment of approximately $75,000 of outstanding borrowings under the Company's
bank credit facilities. See "The Company -- Other Recent Developments."
-19-
<PAGE>
Long-term debt principally consists of the Bank Credit Facility, the 9 7/8%
Notes, the 8% Notes and the 9 1/2% Notes. The 9 7/8% Notes, 8% Notes and 9 1/2%
Notes mature on February 1, 2006, March 1, 2008 and November 1, 2008,
respectively.
The Company believes that the 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 requirements
through the term of the Bank Credit Facility. The Company believes that it will
be able to refinance the Bank Credit Facility prior to its termination, although
there can be no assurance that it will be able to do so. The Company's ability
to fund its operations, make planned capital expenditures, make scheduled
payments and refinance its indebtedness depends on its future operating
performance and cash flow, which, in turn, are subject to prevailing economic
conditions and to financial, business and other factors, some of which are
beyond its control.
Deferred Tax Assets
The Company has established a valuation allowance related to the
utilization of its deferred tax assets because of uncertainties that preclude it
from determining that it is more likely than not that it will be able to
generate taxable income to realize such asset during the operating loss
carryforward period, which expires in 2012. Such uncertainties include recent
cumulative losses by the Company, the highly cyclical nature of the industry in
which it operates, economic conditions in Asia which is impacting the airframe
manufacturers and the airlines, the Company's high degree of financial leverage
and risks associated with the integration of acquisitions. The Company monitors
these as well as other positive and negative factors that may arise in the
future, as it assesses the necessity for a valuation allowance for its deferred
tax assets.
Year 2000 Costs
The "Year 2000" issue is the result of computer programs using two digits
rather than four to define the applicable year. Because of this programming
convention, software, hardware or firmware may recognize a date using "00" as
the year 1900 rather than the year 2000. Use of non-Year 2000 compliant programs
could result in system failures, miscalculations or errors causing disruptions
of operations or other business problems, including, among others, a temporary
inability to process transactions and invoices or engage in similar normal
business activities.
B/E Technology Initiatives Program. The Company has experienced substantial
growth as a result of having completed 15 acquisitions since 1989. Essentially
all of the acquired businesses were operating on separate information systems,
using different hardware and software platforms. In fiscal 1997, the Company
undertook to examine its systems, both pre-existing and acquired, for Year 2000
compliance with a view to replacing non-compliant systems and creating an
integrated Year 2000 compliant system. In addition, the Company has undertaken a
comprehensive program to address the Year 2000 issue with respect to the
following non-system areas: (i) network switching, (ii) the Company's
non-information technology systems (such as buildings, plant, equipment and
other infrastructure systems that may contain embedded microcontroller
technology and (iii) the status of major vendors, third party network service
providers and other material service providers (insofar as they relate to the
Company's business). As explained below, the Company's efforts to assess its
systems as well as non-system areas related to Year 2000 compliance involve (i)
a wide-ranging assessment of the Year 2000 problems that may affect the Company,
(ii) the development of remedies to address the problems discovered in the
assessment phase and (iii) testing of the remedies.
Assessment Phase. The Company has identified substantially all of its major
hardware and software platforms in use as well as the relevant non-system areas
described above. The Company has determined its systems requirements on a
company-wide basis and has begun the implementation of an enterprise resource
planning (ERP) system, which is intended to be a single system data base onto
which all the Company's individual systems will be migrated. In relation
thereto, the Company has signed contracts with substantially all of its
significant hardware, software and other equipment vendors and third party
network service providers related to Year 2000 compliance.
Remediation and Testing Phase. In implementing the ERP system, the Company
undertook, and has completed, a remediation and testing phase of all internal
systems, LAN's, WAN's and PBX's. These phases were intended to address
-20-
<PAGE>
potential Year 2000 problems of the ERP system in relation to both information
technology and non-information technology systems and then to demonstrate that
the ERP software was Year 2000 compliant. ERP system software was selected and
applications implemented by a team of internal users, outside system integrator
specialists and ERP application experts. The ERP system was tested between June
1997 to 1998 by this team of experts. To date, four locations have been fully
implemented on the ERP system. This company-wide solution is being deployed to
all other B/E sites in a manner that is designed to meet full implementation for
all non-Year 2000 compliant sites by the year 2000.
Program to Assess and Monitor Progress of Third Parties. As noted
above, B/E has also undertaken an action plan to assess and monitor the progress
of third party vendors in resolving Year 2000 issues. To date, the Company has
(i) obtained guidance from outside counsel to ensure legal compliance, (ii)
Generated correspondence to each of its third party vendors to assess the Y2K
readiness of these vendors, (iii) contracted a `Vendor Y2K' fully automated
tracking program to track all correspondence to/from vendors, to track timely
responses via an automatic computer generated `trigger', to provide an
electronic folder for easy reference and retention and to specifically track
internally identified `critical' vendors. The Company is also currently in the
midst of developing an internal consolidated data base of the Company's vendors.
Future actions that the Company expects to take in connection with the
monitoring of its third party vendors include a target mailing of correspondence
to vendors scheduled for mid-January 1999. Replies from these vendors will be
requested to be returned within 20 days. The Company intends to continue follow
up with any vendors who indicate any material problems in their replies. The
Company believes that the majority of the required compliance and clean-up with
respect to these vendors will be completed by the end of the first quarter of
1999.
Contingency Plans. The Company has begun to analyze contingency plans to
handle worst case Year 2000 scenarios that the Company believes reasonably could
occur and, if necessary, intends to develop a timetable for completing such
contingency plans.
Costs Related to the Year 2000 Issue. To date, the Company has incurred
approximately $17,000 in costs related to the implementation of the ERP system.
The Company currently estimates the total ERP implementation will cost
approximately $30,000 and a portion of the costs have and will be capitalized to
the extent permitted under generally accepted accounting principles. The Company
expects that it will incur approximately $6,000 related to this program during
the remainder of calendar 1998 and an additional $7,000 during calendar 1999.
Risks Related to the Year 2000 Issue. Although the Company's efforts to be
Year 2000 compliant are intended to minimize the adverse effects of the Year
2000 issue on the Company's business and operations, the actual effects of the
issue will not be known until 2000. Difficulties in implementing the ERP system
or failure by the Company to fully implement the ERP system or the failure of
its major vendors, third party network service providers, and other material
service providers and customers to adequately address their respective Year 2000
issues in a timely manner would have a material adverse effect on the Company's
business, results of operations, and financial condition. The Company's capital
requirements may differ materially from the foregoing estimate as a result of
regulatory, technological and competitive developments (including market
developments and new opportunities) in the Company's industry. See "Risk
Factors--Risks Associated with the Year 2000 Issue."
Industry Conditions
The Company's principal customers are the world's commercial airlines. As a
result, the Company's business is directly dependent upon the conditions in the
highly cyclical and competitive commercial airline industry. In the late 1980s
and early 1990s the world airline industry suffered a severe downturn, which
resulted in record losses and several air carriers seeking protection under
bankruptcy laws. As a consequence, during such period, airlines sought to
conserve cash by reducing or deferring scheduled cabin interior refurbishment
and upgrade programs and delaying purchases of new aircraft. This led to a
significant contraction in the commercial aircraft cabin interior products
industry and a decline in the
-21-
<PAGE>
Company's business and profitability. Since early 1994, the airlines have
experienced a turnaround in operating results, leading the domestic airline
industry to record operating earnings during calendar years 1995 through 1997.
This financial turnaround has, in part, been driven by record load factors,
rising fare prices and declining fuel costs. The airlines have substantially
restored their balance sheets through cash generated from operations and debt
and equity placements. As a result, the levels of airline spending on
refurbishment and new aircraft purchases have expanded. However, due to the
volatility of the airline industry and the current general economic and
financial turbulence, there can be no assurance that the profitability of the
airline industry will continue or that the airlines will maintain or increase
expenditures on cabin interior products for refurbishments or new aircraft.
In addition, the airline industry is undergoing a process of consolidation
and significantly increased competition. Such consolidation could result in a
reduction in future aircraft orders as overlapping routes are eliminated and
airlines seek greater economics through higher aircraft utilization. Increased
airline competition may also result in airlines seeking to reduce costs by
producing greater price competition from airline cabin interior products
manufacturers, thereby adversely affecting the Company's revenues and margins.
Recently, turbulence in the financial and currency markets of many Asian
countries has led to uncertainty with respect to the economic outlook for these
countries. Of the Company's $700,000 of backlog at August 29, 1998,
approximately $302,000 is deliverable by the end of fiscal 1999. Of the total
backlog at August 29, 1998, the Company had $34,000 with Asian carriers
deliverable in fiscal 1999 and a further $107,000 deliverable in subsequent
fiscal years. Of such Asian carrier backlog, approximately $35,000 is with Japan
Airlines, Singapore Airlines and Cathay Pacific. Although not all carriers have
been affected by the current economic events in the Pacific Rim, certain
carriers could cancel or defer their existing orders and future orders from
airlines in these countries may be adversely affected. In addition, Boeing has
recently announced that in light of the recent economic conditions in Asia, it
will be scaling back production of several commercial jet lines over the next
several years. See "Risk Factors--Dependence upon Conditions in the Airline
Industry" and "Business--Industry Overview."
-22-
<PAGE>
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained in "Risk Factors," "Management's Discussion
and Analysis of Financial Condition and Results of Operations," "Business" and
elsewhere, and incorporated by reference herein, including statements regarding
the business strategy of the Company, the Company's expected internal growth,
potential strategic acquisitions, the products which the Company expects to
offer, implementation of the Company's Year 2000 readiness program, anticipated
development and marketing expenditures and regulatory reform, effects of the
conversion by certain EU member states to the "euro," the intent, belief or
current expectations of the Company, its directors or its officers, primarily
with respect to the future operating performance of the Company, and other
statements contained herein, and incorporated by reference herein, regarding
matters that are not historical facts, are "forward-looking" statements (as such
term is defined in the Private Securities Litigation Reform Act of 1995). In
addition, when used in this Prospectus and elsewhere, the words "believe,"
"anticipate," "expect," intend" and similar expressions are intended to identify
forward-looking statements. Because such statements include risks and
uncertainties, actual results may differ materially from those expressed or
implied by such forward-looking statements. Factors that could cause actual
results to differ materially from those expressed or implied by such
forward-looking statements include, but are not limited to, the factors set
forth in "Risk Factors," as well as future events that have the effect of
reducing the Company's operating income and available cash balances, such as
unexpected operating losses, delays in the integration of the Company's acquired
businesses, delivery of the Company's MDDS interactive video system, delays in
the implementation of the Company's Year 2000 readiness program, customer
delivery requirements, new or expected refurbishments or cash expenditures
related to possible future acquisitions.
-23-
<PAGE>
BUSINESS
Introduction
B/E is the world's largest manufacturer of commercial and general aviation
aircraft cabin interior products, serving virtually all major airlines and a
wide variety of general aviation customers and airframe manufacturers.
Management believes that the Company has achieved leading global market
positions in each of its major product categories, which include aircraft seats,
food and beverage preparation and storage equipment, galley and other interior
structures, oxygen delivery systems, lighting systems and in-flight
entertainment systems. In addition, B/E provides design, integration,
installation and certification services, offering its customers in-house
capabilities to design, project manage, integrate, test and certify
reconfigurations and modifications for commercial aircraft passenger cabin
interiors and to manufacture related products, including engineering kits and
interface components. B/E also provides upgrade, maintenance and repair services
for its airline customers around the world. In fiscal 1998, approximately 92%
and 8%, respectively, of the Company's total revenues were derived from major
airlines and airframe manufacturers. Approximately 61% of B/E's revenues for
fiscal 1998 were derived from refurbishment and upgrade orders.
B/E is the largest manufacturer of airline seats in the world, offering an
extensive line of first class, business class, tourist class and commuter seats
and a complete line of general aviation seating products. The Company is also
the world's largest manufacturer of galley equipment for both narrow- and
wide-body aircraft, including a wide selection of coffee and beverage makers,
water boilers, ovens, liquid containers and refrigeration equipment. In
addition, the Company manufactures a broad range of interior structures,
including galleys, lavatories, sidewalls, credenzas, and closets. The Company is
also a worldwide leader in the manufacture of oxygen delivery systems, passenger
service units, air valves, lighting and switches, and is a major manufacturer of
passenger entertainment and service systems, including individual passenger
in-flight entertainment systems. The Company believes that in-flight
entertainment systems, including the emerging live broadcast television market
for domestic narrow-body aircraft, will be one of the fastest growing and among
the largest product categories in the commercial aircraft cabin interior
products industry.
B/E has substantially expanded the size, scope and nature of its business
as a result of a number of acquisitions. Since 1989, the Company has completed
15 acquisitions for an aggregate purchase price of approximately $680 million in
order to increase its cabin interior product and service offerings, to expand
its activities from the commercial to the general aviation market and to
position B/E as the preferred global supplier to its customers. Acquisitions
have also enabled the Company to reduce costs, principally through the
integration of manufacturing facilities, and to leverage its established
customer relationships by selling more products through its integrated sales
force. The largest of the six transactions the Company has completed in fiscal
1999 was the acquisition of SMR, a leader in providing design, integration,
installation and certification services for commercial aircraft passenger cabin
interiors, for a total aggregate purchase price of approximately $141.5 million.
Management believes that the acquisition of SMR complements the Company's cabin
interior product manufacturing capabilities and positions B/E as the only
company in the industry able to offer its customers the complete range of
products and services required for major cabin interior reconfigurations and
modifications, from the conceptualization and engineering design of new cabin
interiors, to the supply of cabin interior products, through the management of
the integration, final installation and certification processes.
Industry Overview
The commercial and general aircraft cabin interior products industries
encompass a broad range of products and services, including not only aircraft
seating products, passenger entertainment and service systems, food and beverage
preparation and storage systems, and oxygen delivery systems, but also
lavatories, lighting systems, evacuation equipment, overhead bins, as well as a
wide variety of engineering design, integration, installation and certification
services and maintenance, upgrade and repair services. Management estimates that
the industry had annual sales in excess of $1.7 billion during fiscal 1998.
Historically, revenues in the airline cabin interior products industry have
been derived from five sources: (i) retrofit programs in which airlines purchase
new components to overhaul completely the interiors of aircraft already in
service; (ii)
-24-
<PAGE>
refurbishment programs in which airlines purchase components and services to
improve the appearance and functionality of certain cabin interior equipment;
(iii) new installation programs in which airlines purchase new equipment to
outfit a newly delivered aircraft; (iv) spare parts; and (v) equipment to
upgrade the functionality or appearance of the aircraft interior. The retrofit
and refurbishment cycles for commercial aircraft cabin interior products differ
by product category. Aircraft seating typically has a refurbishment cycle of one
to two years and a retrofit cycle of seven to eight years, although during the
last industry downturn, these periods tended to be extended. See "--Recent
Industry Conditions." Galley structures and products are periodically upgraded
or repaired, and require a continual flow of spare parts, but may be retrofitted
only once or twice during the life of the aircraft.
Historically, revenues in the general aviation cabin interior products
industry have been derived from four sources: (i) retrofit and refurbishment
programs in which the interior components of the aircraft are substantially
overhauled to improve the appearance and functionality; (ii) new installation
programs to outfit newly delivered aircraft; (iii) spare parts; and (iv)
equipment to upgrade the functionality or appearance of the aircraft interior.
The various product and service categories in which the Company currently
participates include:
Seating Products. This is the largest single product category in the
industry and includes first class, business class, tourist class and
commuter seats. Management estimates that the aggregate size of the
worldwide aircraft seat market (including spare parts) during fiscal
1998 was in excess of $570 million. Approximately ten companies
worldwide, including the Company, supply aircraft seats, although the
Company (which has an approximately 50% market share) and three other
competitors share approximately 90% of the market based on installed
base as of August 29, 1998.
Passenger Entertainment and Service Systems ("PESS"). This product
category includes individual seat video systems, overhead video
projection systems, audio distribution systems, passenger control
units ("PCUs") and related wiring and harness assemblies and
sophisticated interactive telecommunications and entertainment
systems. Management estimates that the aggregate size of the worldwide
PESS market was approximately $325 million during fiscal 1998.
Industry sources expect the PESS market to increase substantially in
the near term as individual passenger entertainment systems become
standard in-flight entertainment equipment in first, business and
tourist classes on wide-body aircraft and, with the further
development of live broadcast television, many narrow-body aircraft.
PESS products are currently supplied by approximately five companies
worldwide. The Company has a market share of approximately 35% in
individual passenger in-flight entertainment systems, based on
installed base as of August 29, 1998.
Interior Systems Products. This product category includes interior
systems for both narrow-body and wide-body commercial aircraft and
general aviation/VIP aircraft, including a wide selection of coffee
and beverage makers, water boilers, ovens, liquid containers, air
chillers, wine coolers and other refrigeration equipment, oxygen
delivery systems, air valves, lighting and switches, and other
interior systems components. The Company believes it is the only
manufacturer with a complete line of interior systems products and the
only supplier with the capability to fully integrate overhead
passenger service units with either chemical or gaseous oxygen
equipment.
General Aviation and VIP Products. The Company entered this line of
business with its acquisition of AMP in April 1998. By combining AMP's
substantial presence in the general aviation and VIP aircraft cabin
interior products industry with that of PBASCO and ALC, B/E has become
the industry's leading manufacturer with a broad product line,
including a complete line of executive aircraft seating products,
flourescent lighting, air valves and oxygen delivery systems as well
as sidewalls, bulkheads, credenzas, closets, galley structures,
lavatories, tables and sofas. B/E has the capability to provide
complete interior packages, including all design services, all
interior components and program management services for executive
aircraft interiors. B/E is the preferred supplier of seating products
and fluorescent lighting systems of essentially every general
aviation-airframe manufacturer.
-25-
<PAGE>
Engineering/Integration and Maintenance/Support Services. The Company
entered the engineering design, integration, installation and
certification services market through the acquisition of SMR in August
1998. The Company has also historically been an active participant in
the growing market for upgrade, maintenance and repair services
through its Services Group. Historically, the airlines have relied on
the airframe manufacturers or in-house engineering resources to
provide engineering design and integration services, as well as
maintenance and repair services. As cabin interior configurations have
become increasingly sophisticated and the airline industry
increasingly competitive, the airlines have begun to outsource such
services in order to increase productivity and reduce costs and
overhead. Through the recent acquisition of SMR, the Company provides
design, integration, installation and certification services for
commercial aircraft passengers cabin interiors, offering its customers
in-house capabilities to design, project manage, integrate, test and
certify reconfigurations and modifications for commercial aircraft
passenger cabin interiors and to manufacture related products,
including engineering kits and interface components. Through its
Services Group, B/E also provides upgrade, maintenance and repair
services for the products which it manufactures as well as for those
supplied by other manufacturers.
Through August 29, 1998, the Company operated primarily in the
commercial aircraft cabin interior products segment of the commercial airlines
supplier industry. Revenues for similar classes of products or services within
this business segment for the six months ended August 30, 1997 and August 29,
1998 and for the fiscal years ended February 1996, 1997 and 1998 are presented
below (dollars in millions):
<TABLE>
<CAPTION>
Fiscal Year Ended Six Months Ended
----------------------------------------- -----------------------------
Feb. 24, Feb. 22, Feb. 28, August 30, August 29,
1996 1997 1998 1997 1998
---- ---- ---- ------------ -------------
<S> <C> <C> <C> <C> <C>
Seating products ........................ $ 97 $ 217 $ 252 $ 127 $ 129
Interior systems products ............... 79 101 126 66 80
Passenger entertainment and service
systems................................. 33 52 81 26 44
Engineering/Integration and
Services................................ 23 42 29 15 19
General aviation and VIP products.......... -- -- -- -- 24
----------- ----------- ----------- ----------- -----------
Total revenues ........................ $ 232 $ 412 $ 488 $ 234 $ 296
=========== =========== =========== =========== ===========
</TABLE>
Recent 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. The losses incurred during the
downturn seriously impaired airline balance sheets and negatively influenced
airline purchasing decisions with respect to both new aircraft and refurbishment
programs. The domestic airlines in large part returned to profitable operations
during calendar year 1994, and achieved record operating earnings during
calendar years 1995 through 1997. During this period, the domestic airlines
substantially restored their balance sheets through cash generated from
operations and debt and equity placements. This improvement in the airlines'
profitability and liquidity has, in turn, led to an increase in refurbishment
and retrofit programs which, coupled with spares revenues, generated
approximately 61% of the Company's revenues in fiscal 1998. Further, throughout
calendar 1997, the aircraft manufacturers continued to experience a significant
increase in new aircraft orders. Among those factors expected to affect the
cabin interior products industry are the following:
Large Existing Installed Base. According to the Current Market Outlook
published by the Boeing Commercial Airplane Group in 1998 (the "Boeing
Report"), the world commercial passenger aircraft fleet consisted of
10,845 aircraft as of the end of 1997, including 3,102 aircraft with
fewer than 120 seats, 4,824 aircraft with between 120 and 240 seats
and 2,919 aircraft with more than 240 seats. Based on such fleet
numbers, management estimates that the total worldwide installed base
of commercial and general aviation aircraft cabin interior products,
valued at replacement prices, was approximately $13.7 billion at the
end of 1997. This existing installed base will generate continued
retrofit, refurbishment and spare parts revenue, particularly in light
of the deterioration of
-26-
<PAGE>
existing interior cabin functionality and aesthetics resulting from
the airlines' deferral of refurbishment programs in recent years.
Expanding Worldwide Fleet. Worldwide air traffic has grown in every
year since 1946 (except in 1990) and, according to the Boeing Report,
is projected to grow at a compounded average rate of five percent per
year over the next 10 years, increasing annual revenue passenger miles
from approximately 1.7 trillion in 1997 to approximately 4.4 trillion
by 2017 (according to the July 1998 Airline Monitor). Airlines have
recently been purchasing a significant number of new aircraft due in
part to the current high load factors and the projected growth in
worldwide air travel. According to Airbus Industrie Global Market
Forecast published in April 1998 (the "Airbus Industrie Report"), the
worldwide installed seat base, which management considers to be a good
indicator for potential growth in the aircraft cabin interior products
industry, is expected to increase from approximately 1.7 million
passenger seats at the end of 1997 to approximately 4.1 million
passenger seats at the end of 2017. The expanding worldwide fleet will
generate additional revenues from new installation programs, while the
increase in the size of the installed base will generate additional
and continual retrofit, refurbishment and spare parts revenue.
Wide-body Aircraft Orders. Orders for wide-body, long-haul aircraft
constitute an increasing share of total new airframe orders. According
to the February 1998 Airline Monitor, the percentage of Boeing
aircraft deliveries projected to be wide-body aircraft for 1998
through 2002 is 42%, as compared to 37% for the five-year period ended
December 31, 1997. Wide-body aircraft currently carry up to three
times the number of seats as narrow-body aircraft, and because of
multiple classes of service, including large first class and business
class configurations, the Company's average revenue per seat on
wide-body aircraft is also higher. Aircraft crews on wide-body
aircraft may make and serve between 300 and 900 meals and may brew and
serve more than 2,000 cups of coffee on a single flight. As a result,
wide-body aircraft require as much as seven times the dollar value of
cabin interior products as narrow-body aircraft, as well as products
which are technically more sophisticated and typically more expensive.
Further, individual passenger in-flight entertainment systems are
installed principally on wide-body aircraft. Airlines are increasingly
demanding such systems for long-haul flights to attract and retain
customers, especially as the quality of in-flight entertainment has
become a differentiating factor in passengers' airline selection
decisions. Such systems also provide the airlines with the opportunity
to increase revenues per passenger mile, without raising ticket
prices, by charging individually for services used. For these reasons,
management believes that in the future, interactive in-flight
entertainment systems will be installed on essentially all wide-body
aircraft and, with the further development of live broadcast in-flight
television, many narrow-body planes.
New Product Development. The commercial and general aircraft cabin
interior products industries are engaged in intensive development and
marketing efforts for a number of new products, including full
electric "sleeper seats," convertible seats, interactive individual
passenger entertainment systems, live broadcast television, crew
masks, advanced telecommunications equipment, protective breathing
equipment, oxygen generating systems and new galley equipment.
Interactive video technology provides a passenger with a wide range of
computer capabilities, which are designed to accept information
generated by the passenger and communicate such information to the
cabin crew for assisting passengers and crew with food service
selection, the purchase of duty-free goods, information in connection
with the arrival time, connecting flights, gate and other passenger
information, as well as facilitate effective on-board inventory
control and provide individual entertainment. Live TV(TM), a new
product line being developed by a joint venture between the Company
and Harris Corporation, will provide live broadcast television via
satellite to passenger aircraft allowing passengers the capability to
view up to 48 different channels of television service. New cabin
interior products will generate new installation and retrofit revenues
as well as service revenues from equipment maintenance, inspection and
repair.
Growing Services Markets. Historically, the airlines have relied on
airframe manufacturers or their own in-house engineering resources to
provide engineering, design, integration and installation services, as
well as services related to repairing or replacing cabin interior
products that have become damaged or otherwise non-functional. As
cabin interior product configurations have become increasingly
sophisticated and the airline industry increasingly competitive, the
airlines have begun to outsource such services in order to increase
productivity and
-27-
<PAGE>
reduce costs and overhead. Outsourced services include: (i)
engineering design, integration, installation and certification
services, which will entail providing the capabilities to design,
project manage, integrate, test and certify reconfigurations and
modifications for commercial aircraft and to manufacture related
products, including engineering kits and interface components; and
(ii) product upgrades (such as the installation of a
telecommunications module or individual passenger entertainment unit
in an aircraft seat not originally designed to accommodate such
equipment), cabin interior product maintenance and inspection, as well
as other repair services.
Competitive Strengths
The Company believes that it has a strong competitive position
attributable to a number of factors including the following:
Leading Market Shares and Significant Installed Base. Management
believes that the Company has achieved leading global market positions
in each of its major product categories, with market shares, based
upon industry sources, of approximately 50% in commercial aircraft
seats, determined on the basis of installed base as of August 29,
1998, 60% in executive aircraft seats, 90% in coffee makers, 90% in
refrigeration equipment, 90% in air valves, 50% in oxygen delivery
systems, 50% in ovens, each based on dollar sales for the twelve
months ended August 29, 1998, and 35% in individual-passenger
in-flight entertainment systems, determined on the basis of installed
base as of August 29, 1998. The Company believes these market shares
provide it with significant competitive advantages in serving its
customers, including economies of scale and the ability to commit
greater product development, global product support and marketing
resources. Furthermore, because of economies of scale, in part
attributable to its large market shares and its approximate $4.7
billion installed base of cabin interior equipment (valued at
replacement prices as of August 29, 1998), the Company believes it is
among the lowest cost producers in the cabin interior products
industry. The Company also believes that its large installed base
provides B/E with a significant advantage over competitors in
obtaining orders for retrofit and refurbishment programs, principally
because airlines tend to purchase equipment from the original
supplier. In addition, because of the need for compatible spare parts
at airline maintenance depots and the desire of airlines to maximize
fleet commonality, a single vendor is typically used for all aircraft
of the same type operated by a particular airline.
Combination of Manufacturing and Cabin Interior Design Services. The
Company has continued to expand its products and services, believing
that the airline industry increasingly will seek an integrated
approach to the design, development, integration, installation,
testing and sourcing of aircraft cabin interiors. The Company believes
that it is the only manufacturer of a broad technologically-advanced
line of cabin interior products with interior design capabilities.
Based on its established reputation for quality, service and product
innovation among the world's commercial airlines, the Company believes
that it is well positioned to provide "one stop shopping" to these
customers, thereby maximizing sales opportunities for the Company and
increasing the convenience and value of the service provided to its
customers.
Technological Leadership/New Product Development. Management believes
that the Company is a technological leader in its industry, with the
largest R&D organization in the industry currently comprised of
approximately 725 engineers. The Company believes that its R&D effort
and its on-site engineers at both the airlines and airframe
manufacturers enable B/E to play a leading role in developing and
introducing innovative products to meet emerging industry trends and
needs and thereby gain early entrant advantages and substantial market
shares. Examples of such product development include: the introduction
of several premium and main cabin class seats, which the Company
believes provide greater comfort and are lighter in weight as a result
of their ergonomic design and pre-engineered individual passenger
comfort features; the Company's family of individual passenger
distributed video systems, which it believes to be superior to
existing operational systems in terms of performance, reliability,
weight, heat generation and flexibility to adapt to changing
technology; a cappuccino/espresso maker; a quick chill wine cooling
system; and a constant-pressure, steam cooking oven, which the Company
believes substantially improves the appearance, aroma and taste of
airline food. The Company's two individual passenger distributed video
systems are designed to meet the varying technological and price
specifications of the airlines. The Company
-28-
<PAGE>
also has a new interactive entertainment system in the final
development stage and a joint venture with Harris Corporation to
develop and deliver live broadcast television (LiveTV(TM)) to
domestic narrow body commercial aircraft.
Proven Track Record of Acquisition Integration. The Company has
demonstrated the ability to make strategic acquisitions and
successfully integrate such acquired businesses by identifying
opportunities to consolidate engineering, manufacturing and marketing
activities, as well as rationalizing product lines. Between 1989 and
January 1996, B/E acquired nine companies and has integrated the
acquisitions by eliminating 11 operating facilities and consolidating
personnel at the acquired businesses, resulting in headcount
reductions of approximately 1,300 employees, through January 1998.
B/E's integration activities, coupled with its re-engineering program,
have positively impacted gross margins, which have increased from
33.0% to 36.7%, and operating margins (before non-recurring expenses),
which have increased from 10.5% to 13.0%, during the five-year period
ended February 28, 1998. During fiscal 1999, the Company acquired six
additional companies, including ASI, PBASCO, AMP, ALC, SMR and CF
Taylor, to broaden its product lines, to expand its activities from
the commercial to the general aviation market and to position B/E as
the preferred global supplier to its customers. The aggregate purchase
price of all acquisitions made by B/E since 1989 is approximately $680
million. While the Company will continue to be susceptible to
industry-wide conditions, management believes that the Company's
significantly more diversified product line and revenue base achieved
through acquisitions has reduced its exposure to demand fluctuations
in any one product area.
Growth Opportunities
B/E believes that it has benefitted from four major growth trends in
the aerospace industry.
Increase in Refurbishment and Upgrade Orders. B/E's substantial
installed base provides significant ongoing revenues from
replacements, upgrades, repairs and the sale of spare parts.
Approximately 61% of B/E's revenues for the year ended February 28,
1998 were derived from refurbishment and upgrade orders. In the late
1980s and early 1990s, the airline industry suffered a significant
downturn, which resulted in a deferral of cabin interior maintenance
expenditures. Since early 1994, the airlines have experienced a
turnaround in operating results, leading the domestic airline industry
to record operating earnings during calendar years 1995 through 1997.
Deterioration of cabin interior product functionality and aesthetics
occurred within the commercial airline fleets during the industry
downturn because of maintenance deferrals. Since the turnaround began,
the airlines have experienced greater utilization resulting from
higher load factors, which has encouraged airlines to increase
spending on refurbishments and upgrades. The Company believes that it
is well positioned to benefit over the next several years as a result
of the airlines' dramatically improved financial condition and
liquidity and the need to refurbish and upgrade cabin interiors. A
significant portion of the Company's recent growth in backlog,
revenues and operating earnings has been from refurbishment and
upgrade programs, and the Company has been experiencing a high level
of new order quote activity related to such programs.
Expansion of Worldwide Fleet and Shift Toward Wide-Body Aircraft.
Airlines have been purchasing a significant number of new aircraft in
part due to current high load factors and the projected growth in
worldwide air travel. According to the Boeing Report, worldwide air
travel growth is projected to average 5% per year over the next 10
years and the worldwide fleet of commercial passenger aircraft is
projected to expand from approximately 10,845 at the end of 1997 to
approximately 15,900 by the end of 2007 and to more than 23,500 by the
end of 2017. Related growth in aircraft interior product shipments
associated with new aircraft deliveries began during calendar 1996.
The Company generally receives orders related to new aircraft
deliveries approximately six months before the delivery date.
Furthermore, according to the February 1998 Airline Monitor, the
percentage of new Boeing aircraft deliveries projected to be wide-body
aircraft for 1998 through 2002 is 42% as compared to 37% for the
five-year period ended December 31, 1997. This shift toward wide-body
aircraft is significant to the Company since these aircraft require as
much as seven times the dollar value of cabin interior products as
narrow-body aircraft, including substantially more seats, galley
equipment and in-flight entertainment products. See "Risk
Factors--Dependence upon Conditions in the Airline Industry."
-29-
<PAGE>
General Aviation and VIP Aircraft Fleet Expansion and Related Retrofit
Opportunities. General aviation and VIP airframe manufacturers are
experiencing a surge in new aircraft deliveries similar to that
occurring in the commercial aircraft industry. According to industry
sources, executive aircraft deliveries amounted to 241 units in
calendar 1996 and were approximately 348 in calendar 1997. Industry
sources indicate that executive aircraft deliveries are expected to be
approximately 450 in calendar 1998 and should reach 545 per year by
the year 2000. Several new aircraft models, including the Visionaire
Vantage, Cessna Citation Excel, the Boeing Business Jet, Global
Express and Airbus Business Jet, have been or are expected to be
introduced over the next several years. Advances in engine technology
and avionics and emergence of fractional ownership of executive
aircraft are all important growth factors. In addition, the general
aviation and VIP aircraft fleet consists of approximately 10,000
aircraft with an average age of approximately 15 years. As aircraft
age or ownership changes, operators retrofit and upgrade the cabin
interior, including seats, sofas and tables, sidewalls, headliners,
structures such as closets, lavatories and galleys, and related
equipment including lighting and oxygen delivery systems. The
installed value of a new interior can range from $1 million for
smaller models to up to $7 million for a long haul aircraft. In
addition, operators generally reupholster or replace seats every five
to seven years. Management believes the Company is well positioned to
benefit from the retrofit opportunities due to (i) the 15-year average
age of the executive jet fleet; (ii) operators who have historically
reupholstered their seats are now more inclined to replace these seats
with lighter weight, more modern and 16G-compliant seating models; and
(iii) the belief that the Company is the only manufacturer with the
capability for cabin interior design services, a broad product line
for essentially all cabin interior products and program management
services, for true "one-stop shopping."
Emergence of Individual Passenger In-flight Entertainment Systems as a
Major New Product Category. Airlines increasingly are demanding
individual passenger in-flight entertainment systems as a method to
attract and retain customers, as the availability of such service
affects passengers' decisions on airline selection. These systems also
provide the airlines with the opportunity to generate increased
revenues, without raising ticket prices, by charging passengers for
the services used. In June 1997, the Company announced a joint venture
with Harris Corporation to develop and deliver live broadcast
television (LiveTV(TM)) to domestic narrow-body commercial aircraft.
The Company expects that in-flight entertainment systems, including
the new technology designed to deliver live broadcast television on
domestic narrow-body aircraft, will be one of the fastest growing and
among the largest product categories in the commercial aircraft cabin
interior products industry. The Company has developed a number of
individual in-flight entertainment systems that are designed to meet
the varying technological and price specifications of the airlines.
The Company's two current systems are (i) the B/E 2000, with an
installed base of approximately 21,000 units, which is a system that
provides non-interactive video programming and (ii) the B/E 2000M,
with an installed base of approximately 11,000 units, which offers
similar functionality to the B/E 2000 but can be upgraded to the
Company's Multimedia Digital Distribution System ("MDDS") product. The
MDDS product is a fully interactive entertainment system with the
capacity to provide movies on demand, telecommunications, gaming and
other services. The Company has completed the initial development and
testing of the MDDS product and delivered the first MDDS product to
its launch customer, Japan Airlines ("JAL"), in April 1998.
Subsequently, the Company also completed the engineering necessary to
enable installation of the MDDS as a line fit option on Boeing
aircraft in 1998. As of August 29, 1998, B/E had an in-flight
entertainment systems backlog of approximately $86 million.
Recently, Rockwell Collins has entered the in-flight entertainment
industry by purchasing Hughes Avicom, and in doing so has changed the
competitive landscape for this line of business. The Company has
evaluated the impact of the changing market conditions, and has
determined that the long term success of this line of business may be
enhanced by teaming with a partner with substantial economic and
technology resources. In connection therewith, the Company may
monetize a portion, or if no suitable partner can be found, all of its
investment in its in-flight entertainment business.
Business Strategy
The Company's business strategy is to maintain its leadership position
and best serve its customers by (i) offering the broadest and most integrated
product lines and services in the industry, including not only new product and
follow-on
-30-
<PAGE>
product sales, but also design, integration, installation and certification
services as well as maintenance, upgrade and repair services; (ii) pursuing a
worldwide marketing approach focused by airline and general aviation airframe
manufacturer and encompassing the Company's entire product line; (iii) pursuing
the highest level of quality in every facet of its operations, from the factory
floor to customer support; (iv) remaining the technological leader in its
industry, as well as significantly growing its installed base of products in the
developing in-flight individual passenger entertainment market; (v) enhancing
its position in the growing upgrade, maintenance, inspection and repair services
market; and (vi) pursuing selective strategic acquisitions in the commercial
aircraft and general aviation cabin interior products industries.
Products and Services
Seating Products
The Company is the world's leading manufacturer of aircraft seats,
offering a wide selection of first class, business class, tourist class and
commuter seats. A typical seat manufactured and sold by the Company includes the
seat frame, cushions, armrests and tray table, together with a variety of
optional features such as in-flight entertainment systems, oxygen masks and
telephones. The Company estimates that as of August 29, 1998 the Company had an
aggregate installed base of more than 1,000,000 aircraft seats, valued at
replacement prices of approximately $2.1 billion.
Tourist Class. The Company is the leading worldwide manufacturer of
tourist class seats. B/E has designed tourist class seats which
incorporate features not previously utilized in that class, such as
top-mounted passenger control units, footrests and improved oxygen
systems.
First and Business Classes. Based upon major airlines program
selection and orders on hand, the Company is the leading worldwide
manufacturer of premium-class seats. First class and business class
seats are generally larger, heavier and more complicated in design,
and are substantially more expensive than tourist class aircraft
seats. The Company's first class seats and certain of its business
class seats are equipped with articulating bottom cushion suspension
systems, sophisticated hydraulic leg-rests, lumbar massage devices,
adjustable thigh support cushions, reading lights, adjustable head and
neck supports and large tables.
Convertible Seats. The Company has developed two types of seats which
can be converted from tourist class triple- row seats to business
class double-row seats with minimal conversion complexity. Convertible
seats allow airline customers to optimize the ratio of business class
to tourist class seats for a given aircraft configuration.
Commuter Seats. The Company is the leading manufacturer of commuter
seats in both the U.S. and worldwide markets. The Company's
Silhouette(TM) Composite commuter seats are similar to commercial jet
seats in comfort and performance but are lightweight and require
minimal maintenance.
Spares. Aircraft seats are exposed to significant stress in the course
of normal passenger activity, and certain seat parts are particularly
susceptible to damage from continued use. As a result, a significant
market exists for spare parts.
Passenger Entertainment and Service Systems ("PESS")
Management estimates that the Company has the largest installed base
of PESS products in the world, which as of August 29, 1998, valued at
replacement prices, is approximately $470 million. The Company has the leading
share of the market for passenger control units ("PCUs") and related wiring and
harness assemblies, and has developed products aimed at other portions of the
PESS market, including individual seat video systems, advanced multiplexer and
hard-wired distribution systems and other products. The Company believes that it
is a market leader in individual passenger in-flight entertainment systems and
that this product category will be the fastest growing, and among the largest,
product categories in the commercial aircraft cabin interior products industry
in the future.
-31-
<PAGE>
Individual Passenger Entertainment. The Company has developed a number
of in-flight entertainment systems that are designed to meet the
technological and price specifications of the airlines:
B/E 2000. The B/E 2000, introduced in 1992, is one of the Company's
first-generation individual in-flight video systems and offers
centralized electronic distribution of a limited range of programming.
Since its introduction, the Company has installed approximately 21,000
units of the B/E 2000 and earlier generation individual passenger
video systems with 10 airlines.
MDDS Family. The Company has developed a family of next-generation,
individual passenger in-flight entertainment products, which includes
the 2000M and the MDDS:
o B/E 2000M -- The B/E 2000M is an in-flight entertainment
system that offers similar functionality to the 2000 but can
be upgraded to the Company's fully interactive MDDS. Since
its introduction in 1994, the Company has installed
approximately 11,000 units.
o MDDS -- B/E's MDDS is a state-of-the-art, fully interactive
individual passenger in-flight entertainment system which has
the capacity to offer numerous movies on demand,
telecommunications, gaming, Nintendo(TM), Sega(TM) and
PC-based games, in-flight shopping and, in the future, live
television, among other services. The Company has completed
the initial development and testing of the MDDS product and
delivered the first MDDS product to its launch customer, JAL,
in April 1998. The Company also completed the engineering
necessary to enable installation of the MDDS as a line fit
option on Boeing aircraft in conjunction with the JAL
delivery.
LiveTV(TM). In June 1997, the Company announced a joint venture with
Harris Corporation to develop and market a system which will allow
airline passengers to receive in-flight, live broadcast television
aboard narrow-body commercial aircraft at each individual passenger
seat. The Company controls a 51 percent voting interest in the joint
venture. Under the joint venture agreement, B/E will provide its
individual-seat video distribution system as its part of the overall
LiveTV(TM) reception system, while Harris Corporation will provide the
specialized aircraft antenna and receiver system to enable in-the-air
reception. The Company expects to be in a position to commence
deliveries to a launch customer for LiveTV(TM) sometime in 1999.
PCUs, Wiring and Harness Assemblies. The Company's PCU product line is
the broadest in the industry, including over 300 different designs
which are functionally similar but differ widely due to the style
preferences and technical requirements of the various airlines. Wiring
and harness assemblies (which stabilize installed wiring) are sold as
a package with PCUs and vary as widely as PCU types.
Distribution Systems. The Company has manufactured hard-wired audio
(since 1963) and video distribution systems (since 1992) and is
currently the principal supplier of such systems to the airline
industry. The Company also offers frequency division multiplex
distribution systems, which deliver substantially improved audio
performance compared to competitors' multiplex systems.
Interior Systems Products
The Company is the world's largest manufacturer of interior systems
products for both narrow and wide-body aircraft, offering a wide selection of
structures, coffee and beverage makers, water boilers, ovens, liquid containers,
refrigeration equipment, oxygen delivery systems, passenger service units, air
valves, lighting and switches, and a variety of other interior components.
Management estimates that as of August 29, 1998 the Company has an aggregate
installed base of such equipment, valued at replacement prices, of approximately
$1.5 billion.
Coffee Makers. The Company is the leading manufacturer of aircraft
coffee makers, with the Company's equipment currently installed in
virtually every type of aircraft for almost every major airline. The
Company manufactures a broad line of coffee makers, coffee warmers and
water boilers including the Flash Brew Coffee Maker, with the
-32-
<PAGE>
capability to brew 54 ounces of coffee in one minute, a Combi(TM)
unit which will both brew coffee and boil water for tea while
utilizing 25% less electrical power than traditional 5,000 watt water
boilers, and a recently introduced cappuccino/espresso maker.
Ovens. The Company is the leading supplier of a broad line of
specialized ovens, including high-heat efficiency ovens, high-heat
convection ovens, and warming ovens. The Company's newest offering,
the DS-2000 Steam Oven, represents a new method of preparing food
in-flight by maintaining constant temperature and moisture in the
food. It addresses the airlines' need to provide a wider range of
foods than can be prepared by convection ovens.
Refrigeration Equipment. The Company is the worldwide industry leader
in the design, manufacture, and supply of commercial aircraft
refrigeration equipment. The Company recently introduced a
self-contained wine and beverage chiller, the first unit specifically
designed to rapidly chill wine and beverages on board an aircraft.
Galley Structures. Galley structures are generally custom designed to
accommodate the unique product specifications and features required by
a particular carrier. Galley structures require intensive design and
engineering work and are among the most sophisticated and expensive of
the aircraft's cabin interior products. The Company provides a variety
of galley structures, closets and class dividers, emphasizing
sophisticated and higher value-added galleys for wide-body aircraft.
Oxygen Delivery System. The Company is a leading manufacturer of
oxygen delivery systems, passenger service units, air valves, lighting
and switches for both commercial and general aviation aircraft. B/E is
the only manufacturer with the capability to fully integrate its own
manufactured components with overhead passenger service units with
either chemical or gaseous oxygen equipment. The Company's oxygen and
passenger service unit equipment has been approved for use on all
Boeing and Airbus aircraft and is also found on essentially all
general aviation and VIP aircraft.
General Aviation
The Company entered the market for general aviation and VIP aircraft
products with its acquisition of AMP in April 1998. By combining AMP's
substantial presence in the general aviation and VIP aircraft cabin interior
products industry with that of PBASCO and ALC, B/E is now the leading
manufacturer of a broad product line including a complete line of executive
aircraft seating products, flourescent lighting, air valves and oxygen delivery
systems as well as sidewalls, bulkheads, credenzas, closets, galley structures,
lavatories, tables and sofas. B/E has the capability to provide complete
interior packages, including all design services, all interior components and
program management services for executive aircraft interiors. B/E is the
preferred supplier of seating products and flourescent lighting systems at
essentially every general aviation airframe manufacturer.
Services and Specialty Products
The Company is an active participant in the growing services and
custom products markets. Management believes that the Company's broad and
integrated product line and close relationships with its airline and leasing
customers position the Company to become a leading service provider in this
market. Most participants in this market are small, and management believes that
the Company is the only major product manufacturer in the industry currently
participating in this market.
Engineering Design, Integration, Installation and Certification
Services. Through the acquisition of SMR in August 1998, B/E is a
leader in providing engineering design, integration, installation and
certification services for commercial aircraft passenger cabin
interiors, offering its customers in-house capabilities to design,
project manage, integrate, test and certify reconfigurations and
modifications for commercial aircraft and to manufacture related
products, including engineering kits and interface components. The
Company provides a broad range of interior reconfiguration services
which allow airlines to change the size of certain classes of service,
modify and upgrade the seating, install telecommunications or
entertainment options, relocate galleys, lavatories, and overhead
-33-
<PAGE>
bins, and install crew rest compartments. B/E is also a leading
supplier of structural design and integration services, including
airframe modifications for passenger-to-freighter conversions.
Upgrade, Maintenance and Repair Services. The Company provides a
comprehensive range of services for cabin interior products on board
aircraft either between flights or on an overnight basis, or at one or
more of eight service centers in the worldwide service network. The
spectrum of services includes systems check and components repair,
parts inventory and management, refurbishment of seating products, on
board surveys regarding status and product installations, as well as
data support functions such as loading and updating of in-flight
systems entertainment software, direct satellite broadcast systems
support and systems integration.
Specialty Products. The Company manufacturers several specialty
products for the commercial airline industry including crew rest
compartments, flight attendant seats, observer seats, and custom
products in the passenger seating area, as well as fire/smoke barriers
and cargo nets. The Company maintains a staff of engineers to design
and certify various modules and kits to accommodate individual
passenger video and telecommunications modules in seat backs and
center consoles which were originally not designed for such
applications. The Company believes it is able to provide products for
unique applications more rapidly than original manufacturers.
Research, Development and Engineering
The Company works closely with commercial airlines to improve existing
products and identify customers' emerging needs. B/E's expenditures in research,
development and engineering totaled $24.7 million, $45.7 million, and $37.1
million for the six months ended August 29, 1998 and for the fiscal years ended
February 28, 1998, and February 22, 1997, respectively. The increase in expenses
during fiscal 1998 is the result of the substantial completion of the Boeing
Line Fit certification activities for MDDS and ongoing product development
activity in the seating and galley products groups. B/E currently employs
approximately 725 professionals in the engineering and product development
areas. As part of its engineering design, integration, installation and
certification services business acquired in August 1998, the Company added
approximately 105 engineers. The Company believes that it has the largest
engineering organization in the cabin interior products industry, with not only
software, electronic, electrical and mechanical design skills but also
substantial expertise in materials composition and custom cabin interior layout
design.
Marketing and Customers
The Company markets and sells its products directly to virtually all
of the world's major airlines and commercial and general aviation aircraft
manufacturers. The Company markets its general aviation products directly to all
of the world's general aviation air frame manufacturers, modification centers
and operators. B/E has a sales and marketing organization of 138 persons, along
with 48 independent sales representatives. B/E's sales to non-U.S. airlines were
$137.0 million, $232.7 million, and $203.4 million for the six months ended
August 29, 1998 and for the fiscal years ended February 28, 1998 and February
22, 1997, respectively, or approximately 46%, 48% and 49%, respectively, of net
sales during such periods.
Airlines select manufacturers of cabin interior products primarily on
the basis of custom design capabilities, product quality and performance, on
time delivery, after-sales service and price. B/E believes that its large
installed base, its timely responsiveness in connection with the custom design,
manufacture, delivery and after-sales service of its products and its broad
product line and stringent customer and regulatory requirements all present
barriers to entry for potential new competitors in the cabin interior products
market.
The Company believes that its integrated worldwide marketing approach,
focused by airline and encompassing the Company's entire product line, is
preferred by airlines. Led by a B/E senior executive, teams representing each
product line serve designated airlines which together accounted for
approximately 67% of the purchases of products manufactured by B/E during fiscal
1998. These airline customer teams have developed customer specific strategies
to meet each airline's product and service needs. The Company also staffs
"on-site" customer engineers at major airlines and airframe manufacturers to
represent its entire product line and work closely with the customers to develop
specifications for each
-34-
<PAGE>
successive generation of products required by the airlines. These engineers help
customers integrate the wide range of cabin interior products and assist in
obtaining the applicable regulatory certification for each particular product or
cabin configuration. Through its on-site customer engineers, the Company expects
to be able to more efficiently design and integrate products which address the
requirements of its customers. The Company provides program management services,
integrating all on-board cabin interior equipment and systems, including
installation and FAA certification, allowing airlines to substantially reduce
costs. The Company believes that it is one of the only suppliers in the
commercial aircraft cabin interior products industry with the size, resources,
breadth of product line and global product support capability to operate in this
manner.
The Company markets its general aviation products directly to all of
the world's general aviation airframe manufacturers, modification centers and
operators.
During the latter part of fiscal 1997, the Company initiated a program
management discipline under which a program manager is assigned for each
significant contract. The program manager is responsible for all aspects of the
specific contract, including management of change orders and negotiation of
related non-recurring engineering charges, monitoring the progress of the
contract through its scheduled delivery dates, and overall profitability
associated with the contract. The Company believes that it and its customers
derive substantial benefit from its program management approach, including
better on-time delivery and higher service levels. The Company also believes its
program management approach results in better customer satisfaction and higher
profitability over the life of the contract.
During the six months ended August 29, 1998 and for the fiscal year
ended February 28, 1998, one customer accounted for approximately 17% and 18%,
respectively, of the Company's total revenues, and no other customer accounted
for more than 10% of such revenues. There were no major customers in fiscal 1997
or 1996. Because of differing schedules of various airlines for purchases of new
aircraft and for retrofit and refurbishment of existing aircraft, the portion of
the Company's revenues attributable to particular airlines varies from year to
year.
Backlog
Management estimates that B/E's backlog at August 29, 1998 was
approximately $700 million, approximately 57% of which management believes to be
deliverable in the 12 months following August 29, 1998, compared with a backlog
of $560 million and $420 million on February 28, 1998 and February 22, 1997,
respectively (as adjusted to exclude certain backlog which was debooked in
August 1997). See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Bookings and Backlog Information."
Customer Service
The Company believes that it provides the highest level of customer
service and product support available in the commercial aircraft cabin interior
products industry and that such service is a critical factor in the Company's
success. The key elements of such service include (i) rapid response to requests
for engineering designs, proposal requests and technical specifications; (ii)
flexibility with respect to customized features; (iii) on-time delivery; (iv)
immediate availability of spare parts for a broad range of products; and (v)
prompt attention to customer problems, including onsite customer training.
Customer service is particularly important to airlines due to the high cost to
the airlines of late delivery, malfunctions and other problems.
Warranty and Product Liability
The Company warrants its products, or specific components thereof, for
periods ranging from one to ten years, depending upon product type and
component. The Company generally establishes reserves for product warranty
expense on the basis of the ratio of warranty costs incurred by the product over
the warranty period to sales of the product over the warranty period. Actual
warranty costs reduce the warranty reserve as they are incurred. Management
periodically reviews the adequacy of accrued product warranty reserves; and
revisions of such reserves are recognized in the period in which such revisions
are determined.
-35-
<PAGE>
The Company also carries product liability insurance. The Company
believes that its insurance is generally sufficient to cover product liability
claims.
Competition
The commercial aircraft cabin interior products market is relatively
fragmented with a number of competitors in each of the individual product
categories. Due to the global nature of the commercial airline industry,
competition in product categories comes from both U.S. and foreign
manufacturers. However, as aircraft cabin interiors have become increasingly
sophisticated and technically complex, airlines have demanded higher levels of
engineering support and customer service than many smaller cabin interior
products suppliers can provide. At the same time, airlines have recognized that
cabin interior product suppliers must be able to integrate a wide range of
products, including sophisticated electronic components, particularly in
wide-body aircraft. Management believes that these increasing demands of
airlines upon their suppliers will result in a number of suppliers leaving the
cabin interior products industry and a consolidation of those suppliers which
remain. The Company has participated in this consolidation through strategic
acquisitions and internal growth and intends to continue to participate in the
consolidation.
The Company's principal competitors for seating products include Group
Zodiac S.A., Keiper Recaro GmbH, and a number of other producers in the European
community and Japan. The Company's principal competitors for PESS products are
Matsushita Electronics and Rockwell Collins. The Company's primary competitors
for galley products are JAMCO Limited, Britax PLC, Scott Aviation and
Intertechnique. The market for general aviation products and services is highly
fragmented, consisting of numerous competitors.
Manufacturing and Raw Materials
The Company's manufacturing operations consist of both the in-house
manufacturing of component parts and sub-assemblies and the assembly of Company
specified and designed component parts which are purchased from outside vendors.
The Company maintains state-of-the-art facilities, and management has an ongoing
strategic manufacturing improvement plan utilizing focused factories and
cellular production technologies. Management expects that continuous improvement
from implementation of this plan for each of its product lines will occur over
the next several years and should lower production costs, cycle times and
inventory requirements and at the same time improve product quality and customer
response.
Government Regulation
The FAA prescribes standards and licensing requirements for aircraft
components, and licenses component repair stations within the United States.
Comparable agencies regulate such matters in other countries. The Company holds
several FAA component certificates and performs component repairs at a number of
its U.S. facilities under FAA repair station licenses. The Company also holds an
approval issued by the UK Civil Aviation Authority to design, manufacture,
inspect and test aircraft seating products in Leighton Buzzard, England and in
Kilkeel, Northern Ireland and the necessary approvals to design, manufacture,
inspect, test and repair its galley products in Nieuwegein, The Netherlands and
to inspect, test and repair products at its eight service centers throughout the
world.
In March 1992, the FAA adopted Technical Standard Order C127 requiring
that all seats on certain new generation commercial aircraft installed after
such date be certified to meet a number of new safety requirements, including an
ability to withstand a 16G force. Management understands that the FAA plans to
adopt in the near future additional regulations which will require that within
the next five years all seats, including those on existing older commercial
aircraft which are subject to the FAA's jurisdiction, will have to comply with
similar seat safety requirements. At August 29, 1998, the Company had developed
15 different seat models which meet these new seat safety regulations.
-36-
<PAGE>
Environmental Matters
The Company is subject to extensive and changing federal, state and
foreign laws and regulations establishing health and environmental quality
standards, and may be subject to liability or penalties for violations of those
standards. The Company is also subject to laws and regulations governing
remediation of contamination at facilities currently or formerly owned or
operated by it or to which it has sent hazardous substances or wastes for
treatment, recycling or disposal. The Company believes that it is currently in
compliance, in all material respects, with all such laws and regulations.
However, there can be no assurance that it will not be subject to future
liabilities or obligations as a result of new or more stringent interpretations
of existing laws and regulations. In addition, the Company may have liabilities
or obligations in the future if it discovers any environmental contamination or
liability at any of its facilities, or at facilities that may be acquired.
Patents
B/E currently holds 73 United States patents and 28 international
patents, covering a variety of products. However, the Company believes that the
termination, expiration or infringement of one or more of such patents would not
have a material adverse effect on the Company.
Employees
As of August 29, 1998, B/E had approximately 5,600 employees.
Approximately 73% of these employees are engaged in manufacturing, 13% in
engineering, research and development, and 14% in sales, marketing, product
support and general administration. Approximately 13% of the employees are
represented by unions. On April 25, 1997, the Company completed negotiations
with one of its two domestic unions which represents 7% of the Company's
employees. This contract, which covers a period of three years, was ratified by
the members of the union on April 26, 1997. The contract at the only other
domestic union which represents approximately 2% of the Company's employees runs
to the year 2003. B/E considers its employee relations to be good.
Property
As of August 29, 1998, B/E had 27 principal facilities, comprising an
aggregate of approximately 1.9 million square feet of space. The following table
describes the principal facilities and indicates the location, function,
approximate size and ownership status of each location, including SMR, ALC and
CF Taylor:
<TABLE>
<CAPTION>
Facility
Size
Location Products and Function (Sq. Feet) Ownership
-------- --------------------- ---------- ---------
<S> <C> <C> <C>
Corporate
Wellington, Florida......................... Corporate headquarters, finance, marketing 17,700 Owned
sales
Seating Products
Litchfield, Connecticut..................... Manufacturing, service and warehousing 147,700 Owned
Winston-Salem, North Carolina............... Manufacturing, research and development, 264,800 Owned
finance, marketing and sales; Seating
Products Group Headquarters
Leighton Buzzard, England................... Manufacturing, service, research and 114,000 Owned
development, sales support, finance and
warehousing
</TABLE>
-37-
<PAGE>
<TABLE>
<CAPTION>
Facility
Size
Location Products and Function (Sq. Feet) Ownership
-------- --------------------- ---------- ---------
<S> <C> <C> <C>
Kilkeel, Northern Ireland................... Manufacturing, sales support and 38,500 Owned
warehousing
Interior Systems
Anaheim, California......................... Manufacturing, service, research and 57,100 Leased
development, sales support, finance and
warehousing
Delray Beach, Florida....................... Manufacturing, service, research and 52,000 Owned
development, sales support, finance and
warehousing; Interior Systems Group
Headquarters
Lenexa, Kansas.............................. Manufacturing, service, engineering and 80,000 Leased
warehousing
Nieuwegein, The Netherlands................. 39,000 Leased
Manufacturing, service, research and
development, sales support, finance and
warehousing
PESS Products
Irvine, California.......................... Manufacturing, service, research and 106,700 Leased
development, sales support, finance and
warehousing; In-flight Entertainment Group
Headquarters
General Aviation and VIP Products
Miami, Florida.............................. Manufacturing, service, research and 84,300 Leased
development, sales support, finance and 71,700 Owned
warehousing; General Aviation Headquarters
Fountain Valley, California................. Manufacturing, service, research and 26,000 Owned
development, sales support, finance and
warehousing
Holbrook, New York.......................... Manufacturing, service, research and 20,115 Leased
development, sales support, finance and
warehousing
Services
Orange, California.......................... Upgrade, maintenance, inspection and repair, 106,300 Leased
finance, sales support and warehousing;
Services Group Headquarters
Longwood, Florida........................... Upgrade, maintenance, inspection and repair 5,300 Leased
Burnsville, Minnesota....................... Upgrade, maintenance, inspection and repair 7,200 Leased
Woodville, Washington....................... Upgrade, maintenance, inspection and repair 26,800 Leased
Chesham, United Kingdom..................... Upgrade, maintenance, inspection and repair 34,000 Owned
Toulouse, France............................ Upgrade, maintenance, inspection and repair 400 Leased
Houston, Texas.............................. Upgrade, maintenance, inspection and repair 45,000 Owned
Schiphol, The Netherlands................... Upgrade, maintenance, inspection and repair 3,600 Leased
</TABLE>
-38-
<PAGE>
<TABLE>
<CAPTION>
Facility
Size
Location Products and Function (Sq. Feet) Ownership
-------- --------------------- ---------- ---------
<S> <C> <C> <C>
SMR Technologies
Sharon Center, Ohio......................... Service, research and development, sales 16,282 Owned
support, finance and warehousing
Fenwick, West Virginia...................... Manufacturing, service and warehousing 132,600 Owned
Flight Structure and Integration Group
Arlington, Washington....................... Manufacturing, service, research and 130,164 Leased
development, sales support, finance and
warehousing
Jacksonville, Florida....................... Manufacturing, service, engineering, and 75,000 Owned
warehousing
Wokingham, England.......................... Manufacturing, service, research and 70,000 Leased
development, sales support, finance and
warehousing
Wales, United Kingdom....................... Manufacturing, service and warehousing 80,000 Owned
</TABLE>
The Company believes that its facilities are suitable for their
present intended purposes and adequate for the Company's present and anticipated
level of operations. As a result of recent conditions in the airline industry as
described in "--Industry Overview" and "--Recent Industry Conditions," B/E's
facilities have been substantially underutilized for the past several years. The
Company believes that its ongoing facility integration program, together with
anticipated continued growth in airline profitability, should result in
significant improvement in the degree of utilization in the Company's
facilities.
Legal Proceedings
The Company is not a party to litigation or other legal proceedings
which the Company believes could reasonably be expected to have a material
adverse effect on the Company's business, financial condition and results of
operations.
In January 1998, the Company entered into a settlement related to a
long-running dispute with the U.S. Government over export sales between 1992 and
1995 to Iran Air. The dispute centered on shipments of aircraft seats and
related spare parts for five civilian aircraft operated by Iran Air. Iran Air
purchased the seats in 1992 and arranged for them to be installed by a
contractor in France. At the time, Iran was not the subject of a U.S. trade
embargo. In connection with its sale of seats to Iran Air, B/E applied for and
was granted a validated export license by the U.S. Department of Commerce (the
"DOC"). The dispute with the U.S. Government centered on whether seats were
delivered to Iran Air before the formal license was issued by the DOC, some
seven months after B/E first applied for the license. The settlement resolved
all disputes between B/E Aerospace and the Department of Justice as well as the
DOC's Bureau of Export Enforcement. As part of the settlement, B/E plead guilty
to a violation of the International Economic Emergency Powers Act and was placed
on probation for a three-year period. In addition, B/E entered into a consent
order with the DOC under which the DOC has agreed to suspend the imposition of a
three-year export denial order on PTC Aerospace, a member of B/E's U.S. Seating
Products Group, provided no further violations of the export laws occur. The
consent order issued by the DOC applies solely to PTC Aerospace ("PTC"), a unit
of the Company's Seating Products Group. PTC is located in Litchfield,
Connecticut. Under the terms of the consent order, if PTC were to violate any
federal export laws during the three-year period ending in January 2001, PTC,
not B/E, would be subject to an order denying export privileges. Under the
Company's current organization, the Company believes that it is unlikely that
PTC would be in a position to engage in any export transactions that are not
reviewed and controlled at the Seating Products Group level. As part of the plea
agreement that was negotiated with the Office of the United States Attorney for
the District of Connecticut, B/E is subject to a three-year term of corporate
-39-
<PAGE>
probation that began in January 1998. The probation is unsupervised and thus B/E
is not subject to monitoring or other conditions that impede or affect its
ability to conduct business. Under the probation, the Company must refrain from
violating any federal laws. The Company has taken steps to implement a legal
compliance program to prevent and detect any violations of law. The Company
recorded a charge of $4.7 million in its fourth quarter of fiscal 1998, which
ended February 28, 1998, related to fines, civil penalties and associated legal
fees arising from the settlement.
-40-
<PAGE>
USE OF PROCEEDS
The Company will not receive any of the proceeds from the sale of the
Shares of Common Stock by the Selling Stockholders. See "Selling Stockholders."
SELLING STOCKHOLDERS
General
B/E has recently made several acquisitions and, pursuant to the
provisions of the agreements governing such acquisitions, B/E agreed to register
shares of Common Stock issued as consideration in such acquisitions. Certain of
the Selling Stockholders received the Shares of Common Stock offered hereby in
connection with either the acquisition of ASI or ALC. The remainder of the
Selling Stockholders (the "Other Selling Stockholders") received the Shares of
Common Stock offerred hereby pursuant to the exercise of options granted by the
Company.
The following are brief summaries of certain provisions of the
agreements governing the Company's recent acquisitions of ASI and ALC. Such
summaries do not purport to be complete and are subject to, and are qualified in
their entirety by reference to, such agreements which will be filed as exhibits
to the Registration Statement. Capitalized terms are defined in the respective
agreements unless otherwise defined herein. Whenever any term therein is
referred to, such definition is incorporated herein by reference.
The ASI Acquisition
On March 27, 1998, pursuant to the terms of an Agreement and Plan of
Reorganization and Merger dated as of March 27, 1998, by and among B/E, BE
Acquisition Corp., ASI, the Gregory and Deborah Fodell Partnership, Ltd. (the
"Fodell Partnership I"), the Gregory and Deborah Fodell Partnership II, Ltd.
(the "Fodell Partnership II" and collectively with the Fodell Partnership I, the
"ASI Sellers") and Gregory N. Fodell (the "ASI Merger Agreement"), B/E acquired
from the ASI Sellers all of the outstanding stock of ASI, a company based in
Houston, Texas that services, cleans and repairs aircraft interior parts and
products. In exchange, the ASI Sellers received a total of 201,895 shares of
Common Stock, representing a purchase price of approximately $5.6 million.
Pursuant to the terms of the ASI Merger Agreement, B/E agreed to register the
shares of Common Stock received by the ASI Sellers.
The shares of Common Stock offered by the ASI Sellers by this
Prospectus were initially issued to the ASI Sellers pursuant to the ASI Merger
Agreement. Gregory N. Fodell is a general partner and limited partner of each of
the ASI Sellers and is currently a Vice President - Major Accounts of B/E
Aerospace Services, Inc., a wholly-owned subsidiary of the Company. Immediately
following the closing under the ASI Merger Agreement, the Fodell Partnership I
beneficially owned 18,354 shares of Common Stock and the Fodell Partnership II
beneficially owned 183,541 shares of Common Stock. The B/E Common Stock
beneficially owned by the ASI Sellers represented approximately 0.83% of the
shares of the Company's Common Stock outstanding on December 16, 1998.
The ALC Acquisition
On July 30, 1998, pursuant to the terms of an Agreement and Plan of
Reorganization and Merger dated as of July 30, 1998, by and among B/E, BE
Aerospace Acquisition Corp, Aerospace Lighting Corp., and Louis J. Francisco,
Elsie M. Francisco, Michael J. Tenzyk, Judith D. Tenzyk, Trustee U/A Gertrude
Brown dated 1/7/92 and Trustee U/A William Brown dated 1/7/92 (together, the
"ALC Sellers" and, collectively with the ASI Sellers, the "Selling
Stockholders") (the "ALC Merger Agreement" and, together with the ASI Merger
Agreement, the "Merger Agreements"), B/E acquired from the ALC Sellers all of
the outstanding stock of ALC, a company based in Holbrook, New York, that
produces interior fluorescent lighting systems for business and corporate jet
aircraft. In exchange, the ALC Sellers received a total of 964,780 shares of
Common Stock, representing a purchase price of approximately $28.1 million.
Pursuant to the terms of the ALC Merger Agreement, B/E agreed to register the
shares of Common Stock received by the ALC Sellers.
-41-
<PAGE>
The Shares of Common Stock offered by the ALC Sellers by this
Prospectus were originally issued to the ALC Sellers pursuant to the ALC Merger
Agreement. Immediately following the closing under the ALC Merger Agreement,
Louis J. Francisco owned 260,198 shares of Common Stock, Elsie M. Francisco
owned 61,395 shares of Common Stock, Michael J. Tenzyk owned 160,797 shares of
Common Stock, Judith D. Tenzyk owned 160,797 shares of Common Stock, Trustee U/A
Gertrude Brown dated 1/7/92 owned 78,936 shares of Common Stock and Trustees U/A
William Brown dated 1/7/92 owned 242,657 shares of Common Stock. The Common
Stock received by the ALC Sellers pursuant to the ALC Merger Agreement
constitute all of the shares of the Company's Common Stock held by them. The B/E
Common Stock owned by the ALC Sellers represented approximately 3.95% of the
shares of the Company's Common Stock outstanding on December 16, 1998.
Set forth below are the names of each Selling Stockholder, the number
of shares of Common Stock beneficially owned as of December 16, 1998 by each
Selling Stockholder, the number of Shares that may be offered and sold by or on
behalf of each Selling Stockholder hereunder and the amount of Common Stock to
be owned by each Selling Stockholder upon the completion of the Offering if all
Shares offered by such Selling Stockholder are sold. As of December 16, 1998,
none of the Selling Stockholders beneficially owns more than 1% of the
outstanding Common Stock except as noted below and, to the knowledge of the
Company, except for Gregory Fodell, who is an employee of the Company, none of
the Selling Stockholders has had any material relationships with the Company
subsequent to the closings of the respective acquisitions of ASI and ALC. Any
and all of the Shares listed below under the heading "Shares Offered" may be
offered for sale by or on behalf of the Selling Stockholders. Except as provided
by the Merger Agreements, ASI Sellers and ALC Sellers may sell the Shares of
Common Stock offered hereby by them from time to time and, as a result, no
estimate can be given as of the date hereof as to the amount of Shares of Common
Stock that will actually be offered for sale by ASI Sellers and the ALC Sellers
or as to the amount of Common Stock that will be held by the Selling
Stockholders upon termination of such offering. The Other Selling Stockholders
have agreed with the Company to sell the Shares of Common Stock offered by them
hereby as soon as practicable following the effectiveness of the Registration
Statement. See "Plan of Distribution." Additional information as to the number
and percentage of Shares beneficially owned before the offering by the Selling
Stockholders, the number of Shares to be sold and the number of Shares
beneficially owned after the offering will be set forth in an accompanying
Prospectus Supplement, to the extent necessary.
<TABLE>
<CAPTION>
Shares Beneficially
Owned Shares Beneficially
Prior to Offering Owned After Offering
--------------------- Shares ----------------------
Selling Stockholders Number Percent Offered Number Percent
-------------------- ------ ------- ------- ------ -------
<S> <C> <C> <C> <C> <C>
ASI Sellers:
Gregory and Deborah Fodell Partnership, Ltd. 18,354 * 18,354 -- --
Gregory and Deborah Fodell Partnership II, Ltd. 183,541 * 183,541 -- --
ALC Sellers:
Elise M. Francisco 61,395 * 61,395 -- --
Louis J. Francisco 260,198 1.06% 260,198 -- --
Judith D. Tenzyk 160,797 * 160,797 -- --
Michael J. Tenzyk 160,797 * 160,797 -- --
Trustees U/A Gertrude Brown dated 1/7/92 78,936 * 78,936 -- --
Trustees U/A William Brown dated 1/7/92 242,657 * 242,657 -- --
Other Selling Stockholders:
LP Stock Trust 46,666 * 5,000 41,666 *
PLP Stock Trust 46,667 * 5,000 41,667 *
PAP Stock Trust 46,667 * 5,000 41,667 *
- ---------------
* The percentage of shares of Common Stock beneficially owned does not exceed
one percent of the outstanding shares of Common Stock as of December 16,
1998.
</TABLE>
-42-
<PAGE>
PLAN OF DISTRIBUTION
The ASI Sellers and the ALC Sellers may sell shares of Common Stock
offered hereby from time to time subject to the terms of the ASI Merger
Agreement and the ALC Merger Agreement, respectively. The Other Selling
Stockholders have agreed with the Company to sell the shares of Common Stock
offered by them hereby as soon as practicable following the effectiveness of the
Registration Statement. The Company has been advised by each of the Selling
Stockholders that sales by such Selling Stockholders of the Shares of Common
Stock offered hereby may be offered or sold by or for the account of such
Selling Stockholders, from time to time, to purchasers directly, or through
brokers in brokerage transactions on the Nasdaq National Market, or to
underwriters or dealers in negotiated transactions or in a combination of such
methods of sale, at fixed prices which may be changed, at market prices
prevailing at the time of sale, at prices related to such prevailing market
prices or at negotiated prices. The Selling Stockholders may be deemed to be
underwriters within the meaning of the Securities Act. Where any Selling
Stockholder effects such transactions by selling to or through one or more
broker-dealers, such broker-dealers may receive compensation in the form of
underwriting discounts, concessions or commissions from the Selling
Stockholders. The Selling Stockholders and any broker-dealers that participate
in the distribution may under certain circumstances be deemed to be underwriters
within the meaning of the Securities Act, and any commissions received by such
broker-dealers and any profits realized on the resale of shares by them may be
deemed to be underwriting discounts and commissions under the Securities Act.
Alternatively, where the Selling Stockholders from time to time offer the Shares
through underwriters, brokers, dealers or agents, such underwriters, brokers,
dealers or agents may receive compensation in the form of underwriting
discounts, commissions or concessions from the Selling Stockholders and/or the
purchasers of the Shares for whom they act as an agent. The Merger Agreements
provide that the Company indemnify the Selling Stockholders against certain
liabilities, including liabilities under the Securities Act. The Merger
Agreements also provide for the indemnification of the Company by the Selling
Stockholders for certain liabilities, including liabilities under the Securities
Act.
To the extent required under the Securities Act, a supplemental
prospectus will be filed, disclosing (a) the name of any Selling Stockholder;
(b) the name of any underwriters, brokers, dealers or agents effecting the
transaction on behalf of the Selling Stockholder; (c) the number of shares
involved; (d) the price at which such shares are to be sold; (e) the commissions
paid or discounts or concessions allowed to such underwriters, brokers, dealers
or agents, where applicable; (f) that such underwriters, brokers, dealers or
agents did not conduct any investigation to verify the information set out or
incorporated by reference in this Prospectus, as supplemented, where applicable;
and (g) other facts material to the transaction.
Pursuant to the Merger Agreements, the Company has agreed to pay
substantially all fees and expenses incident to the preparation, filing,
amending and supplementing of the Registration Statement of which this
Prospectus is a part and any registration, filing, qualification and other fees
and expenses of complying with state Blue Sky or securities law. In connection
with the acquisitions of ASI and ALC, the ASI Sellers and the ALC Sellers will
pay all applicable stock transfer taxes, brokerage commissions, underwriting
discounts or commissions and any fees of such Selling Stockholders' counsel. The
Other Selling Stockholders have also agreed to pay all applicable stock transfer
taxes, brokerage commissions, underwiting discounts or commissions and any fees
of such Selling Stockholders' counsel.
Pursuant to the Merger Agreements, and subject to certain conditions,
the Company has agreed to keep the Registration Statement relating to the
offering and sale by the ASI Sellers and the ALC Sellers of the shares of Common
Stock received by them in connection with the acquisition of ASI and ALC
continuously effective until a fixed date following the effectiveness of the
Registration Statement or such earlier date as of which all such shares of
Common Stock registered hereunder have been disposed of. The Company has agreed
with the Other Selling Stockholders to keep the Registration Statement relating
to the offering and sale by the Other Selling Stockholders of their shares of
Common Stock effective only so long as it is required to do so pursuant to the
Merger Agreements.
-43-
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Common Stock
The Company is authorized to issue 50,000,000 shares of Common Stock,
$0.01 par value, of which 24,447,963 shares were outstanding as of December 16,
1998, and held by approximately 721 stockholders of record. Holders of Common
Stock are entitled to one vote per share on all matters to be voted upon by the
stockholders and to receive such dividends as may be declared by the Board of
Directors out of funds legally available therefor. The indentures relating to
the Company's 9 7/8% Notes and 8% Notes and the Bank Credit Agreement, however,
currently restrict dividend payments by the Company to its stockholders. In the
event of a liquidation, dissolution or winding up of the Company, holders of
Common Stock have the right to a ratable portion of the assets remaining after
payment of liabilities. Holders of Common Stock do not have cumulative voting,
preemptive, redemption or conversion rights. All outstanding shares of Common
Stock are, and the shares to be sold in this offering will be, fully paid and
non-assessable.
Preferred Stock
The Company's Restated Certificate of Incorporation (the
"Certificate") provides, among other things, for the authorization of 1,000,000
shares of Preferred Stock, $0.01 par value (the "Preferred Stock"). The shares
of Preferred Stock may be issued from time to time at the discretion of the
Board of Directors without stockholder approval. The Board of Directors is
authorized to issue these shares in different classes and series and, with
respect to each class or series, to determine the dividend rate, the redemption
provisions, conversion provisions, liquidation preference and other rights and
privileges not in conflict with the Certificate. No shares of Preferred Stock
are outstanding, and the Company has no immediate plans to issue any Preferred
Stock. While issuance of Preferred Stock could provide needed flexibility in
connection with possible acquisitions and other corporate purposes, such
issuance could also make it more difficult for a third party to acquire a
majority of the outstanding voting stock of the Company or discourage an attempt
to gain control of the Company. In addition, the Board of Directors, without
stockholder approval, can issue shares of Preferred Stock with voting and
conversion rights which could adversely affect the voting power and other rights
of the holders of Common Stock.
Directors' Exculpation and Indemnification
The Certificate provides that no director of the Company shall be
liable to the Company or its stockholders for monetary damages for any breach of
fiduciary duty as a director, except to the extent otherwise required by the
Delaware General Corporation Law (the "DGCL"). The effect of this provision of
the Certificate is to eliminate the rights of the Company and its stockholders
(through stockholders' derivative suits on behalf of the Company) to recover
monetary damages against a director for breach of a fiduciary duty of care as a
director. This provision does not limit or eliminate the rights of the Company
or any stockholder to seek non-monetary relief, such as an injunction or
rescission in the event of a breach of a director's duty of care. In addition,
the Certificate provides that, if the DGCL is amended to authorize the further
elimination or limitation of the liability of a director, then the liability of
the directors shall be eliminated or limited to the fullest extent permitted by
the DGCL, as so amended. These provisions will not alter the liability of
directors under federal or state securities laws. The Certificate also includes
provisions for the indemnification of the Company's directors and officers to
the fullest extent permitted by Section 145 of the DGCL.
Election and Removal of Directors
The Certificate classifies the board of directors into three classes,
as nearly equal in number as possible, so that each director will serve for
three years, with one class of directors being elected each year. The
Certificate also provides that directors may be removed for cause only with the
approval of the holders of at least two-thirds of the voting power of the
Company's shares entitled to vote generally in the election of directors at an
annual meeting or special meeting called for such purpose. In addition, the
Certificate requires at least two-thirds of the voting power of the Company's
shares entitled to vote generally in the election of directors at an annual
meeting or special meeting called for such purpose to alter, amend or repeal the
provisions relating to the classified board and removal of directors described
above.
-44-
<PAGE>
Management believes that the Certificate provisions described in the
preceding paragraph (the "Provisions"), taken together, reduce the possibility
that a third party could effect a change in the composition of the Company's
board of directors without the support of the incumbent board. The Provisions,
however, may have significant effects on the ability of stockholders of the
Company to change the composition of the incumbent board, to benefit from
transactions which are opposed by the incumbent board, to assume control of the
Company or effect a fundamental corporate transaction such as a merger.
Nevertheless, although the Company has not experienced any problems in the past
with the continuity or stability of the board, management believes that the
Provisions help assure the continuity and stability of the Company's policies in
the future, since the majority of the directors at any time will have prior
experience as directors of the Company.
Section 203 of the Delaware General Corporation Law
The Company is subject to the provisions of Section 203 of the DGCL.
That section provides, with certain exceptions, that a Delaware corporation may
not engage in any of a broad range of business combinations with a person or
affiliate, or associate of such person, who is an "interested stockholder" for a
period of three years from the date that such person became an interested
stockholder unless: (i) the transaction resulting in a person becoming an
interested stockholder, or the business combination, is approved by the board of
directors of the corporation before the person becomes an interested
stockholder, (ii) the interested stockholder acquires 85% or more of the
outstanding voting stock of the corporation in the same transaction that makes
it an interested stockholder (excluding shares owned by persons who are both
officers and directors of the corporation, and shares held by certain employee
stock ownership plans); or (iii) on or after the date the person becomes an
interested stockholder, the business combination is approved by the
corporation's board of directors and by the holders of at least 66 2/3% of the
corporation's outstanding voting stock at an annual or special meeting,
excluding shares owned by the interested stockholder. An "interested
stockholder" is defined as any person that is (i) the owner of 15% or more of
the outstanding voting stock of the corporation or (ii) an affiliate or
associate of the corporation and was the owner of 15% or more of the outstanding
voting stock of the corporation at any time within the three-year period
immediately prior to the date on which it is sought to be determined whether
such person is an interested stockholder.
Rights Agreement
On November 12, 1998, the Company's Board of Directors declared a
distribution of one Right (a "Right") for each outstanding share of Common Stock
to stockholders of record at the close of business on November 23, 1998 and for
each share of Common Stock issued (including shares distributed from Treasury)
by the Company thereafter and prior to the Distribution Date (as defined below).
Each Right entitles the registered holder, subject to the terms of the Rights
Agreement (as defined below), to purchase from the Company one one-thousandth of
a share (a "Unit") of Series A Junior Preferred Stock, par value $0.01 per share
(the "Preferred Stock"), at a Purchase Price of $100.00 per Unit, subject to
adjustment. The description and terms of the Rights are set forth in a Rights
Agreement dated as of November 12, 1998 (the "Rights Agreement").
Initially, the Rights will attach to all certificates representing shares
of outstanding Common Stock, and no separate Rights Certificates will be
distributed. The Rights will separate from the Common Stock and the Distribution
Date will occur upon the earlier of (i) 10 days following a public announcement
(the date of such announcement being the "Stock Acquisition Date") that a person
or group of affiliated or associated persons (other than the Company, any
Subsidiary of the Company or any employee benefit plan of the Company or such
Subsidiary) (an "Acquiring Person") has acquired, obtained the right to acquire,
or otherwise obtained beneficial ownership of 15% or more of the then
outstanding shares of Common Stock, or (ii) 10 days following the commencement
of a tender offer or exchange offer that would result in a person or group
beneficially owning 15% or more of the then outstanding shares of Common Stock.
Until the Distribution Date, (i) the Rights will be evidenced by Common Stock
certificates and will be transferred with and only with such Common Stock
certificates, (ii) new Common Stock certificates issued after November 23, 1998
(also including shares distributed from Treasury) will contain a notation
incorporating the Rights Agreement by reference and (iii) the surrender for
transfer of any certificates representing outstanding Common Stock will also
constitute the transfer of the Rights associated with the Common Stock
represented by such certificates
-45-
<PAGE>
The Rights are not exercisable until the Distribution Date and will expire
at the close of business on the tenth anniversary of the Rights Agreement unless
earlier redeemed by the Company as described below.
As soon as practicable after the Distribution Date, Rights Certificates
will be mailed to holders of record of Common Stock as of the close of business
on the Distribution Date and, thereafter, the separate Rights Certificates alone
will represent the Rights.
In the event that (i) the Company is the surviving corporation in a merger
with an Acquiring Person and shares of Common Stock shall remain outstanding,
(ii) a Person becomes the beneficial owner of 15% or more of the then
outstanding shares of Common Stock, (iii) an Acquiring Person engages in one or
more "self-dealing" transactions as set forth in the Rights Agreement, or (iv)
during such time as there is an Acquiring Person, an event occurs which results
in such Acquiring Person's ownership interest being increased by more than 1%
(e.g., by means of a reverse stock split or recapitalization), then, in each
such case, each holder of a Right will thereafter have the right to receive,
upon exercise, Units of Preferred Stock (or, in certain circumstances, Common
Stock, cash, property or other securities of the Company) having a value equal
to two times the exercise price of the Right. The exercise price is the Purchase
Price multiplied by the number of Units of Preferred Stock issuable upon
exercise of a Right prior to the events described in this paragraph.
Notwithstanding any of the foregoing, following the occurrence of any of the
events set forth in this Paragraph, all Rights that are, or (under certain
circumstances specified in the Rights Agreement) were, beneficially owned by any
Acquiring Person will be null and void.
In the event that, at any time following the Stock Acquisition Date, (i)
the Company is acquired in a merger or other business combination transaction
and the Company is not the surviving corporation (other than a merger described
in the preceding paragraph), (ii) any Person consolidates or merges with the
Company and all or part of Common Stock is converted or exchanged for
securities, cash or property of any other Person or (iii) 50% or more of the
Company's assets or earning power is sold or transferred, each holder of a Right
(except Rights which previously have been voided as described above) shall
thereafter have the right to receive, upon exercise, common stock of the
Acquiring Person having a value equal to two times the exercise price of the
Right.
The Purchase Price payable, and the number of Units of Preferred Stock
issuable, upon exercise of the Rights are subject to adjustment from time to
time to prevent dilution (i) in the event of a stock dividend on, or a
subdivision, combination or reclassification of, the Preferred Stock, (ii) if
holders of the Preferred Stock are granted certain rights or warrants to
subscribe for Preferred Stock or convertible securities at less than the current
market price of the Preferred Stock, or (iii) upon the distribution to the
holders of the Preferred Stock of evidences of indebtedness or assets (excluding
regular quarterly cash dividends) or of subscription rights or warrants (other
than those referred to above).
With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments amount to at least 1% of the Purchase
Price. The Company is not required to issue fractional Units. In lieu thereof,
an adjustment in cash may be made based on the market price of the Preferred
Stock prior to the date of exercise.
At any time until ten days following the Stock Acquisition Date, a
majority of the Board of Directors may redeem the Rights in whole, but not in
part, at a price of $0.01 per Right (the "Redemption Price"), payable, at the
election of such majority of the Board of Directors, in cash or shares of Common
Stock. Immediately upon the action of a majority of the Board of Directors
ordering the redemption of the Rights, the Rights will terminate and the only
right of the holders of Rights will be to receive the Redemption Price.
Until a Right is exercised, the holder thereof, as such, will have no
rights as a stockholder of the Company, including, without limitation, the right
to vote or to receive dividends. While the distribution of the Rights will not
be taxable to stockholders or to the Company, stockholders may, depending upon
the circumstances, recognize taxable income in the event that the Rights become
exercisable for Units of Preferred Stock (or other consideration).
Any of the provisions of the Rights Agreement may be amended at any time
prior to the Distribution Date. After the Distribution Date, the provisions of
the Rights Agreement may be amended in order to cure any ambiguity, defect or
-46-
<PAGE>
inconsistency, to make changes which do not adversely affect the interests of
holders of Rights (excluding the interests of any Acquiring Person), or to
shorten or lengthen any time period under the Rights Agreement; provided,
however, that no amendment to adjust the time period governing redemption shall
be made at such time as the Rights are not redeemable.
The Units of Preferred Stock that may be acquired upon exercise of the
Rights will be nonredeemable and subordinate to any other shares of preferred
stock that may be issued by the Company.
Each Unit of Preferred Stock will have a minimum preferential quarterly
dividend rate of $0.01 per Unit but will, in any event, be entitled to a
dividend equal to the per share dividend declared on the Common Stock.
In the event of liquidation, the holder of a Unit of Preferred Stock will
receive a preferred liquidation payment equal to the greater of $0.01 per Unit
or the per share amount paid in respect of a share of Common Stock.
Each Unit of Preferred Stock will have one vote, voting together with the
Common Stock. The holders of Units of Preferred Stock, voting as a separate
class, shall be entitled to elect two directors if dividends on the Preferred
Stock are in arrears for six fiscal quarters.
In the event of any merger, consolidation or other transaction in which
shares of Common Stock are exchanged, each Unit of Preferred Stock will be
entitled to receive the per share amount paid in respect of each share of Common
Stock.
The rights of holders of the Preferred Stock to dividends, liquidation and
voting, and in the event of mergers and consolidations, are protected by
customary antidilution provisions.
Because of the nature of the Preferred Stock's dividend, liquidation and
voting rights, the economic value of one Unit of Preferred Stock that may be
acquired upon the exercise of each Right should approximate the economic value
of one share of Common Stock.
Transfer Agent and Registrar
The transfer agent and registrar for the Company's Common Stock is
Boston EquiServe L.P., Canton, Massachusetts 02021.
LEGAL MATTERS
Certain legal matters with respect to the validity of the Shares of
Common Stock offered hereby will be passed upon for the Company by Shearman &
Sterling, New York, New York.
EXPERTS
The consolidated financial statements and schedule of the Company
appearing in its annual report on Form 10-K for the fiscal year ended February
28, 1998, have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their report included therein and incorporated herein by reference.
Such consolidated financial statements and schedule are incorporated herein by
reference in reliance upon such reports given upon the authority of such firm as
experts in accounting and auditing.
The consolidated financial statements of SMR as of December 31, 1997
and 1996 and for the years ended December 31, 1997 and 1996, have been audited
by Zalick, Torok, Kirgesner, Cook & Co., independent auditors, as stated in
their report incorporated herein by reference. Such consolidated financial
statements are incorporated herein by reference in reliance upon such reports
given upon the authority of such firm as experts in accounting and auditing.
-47-
<PAGE>
================================================================================
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus or any Prospectus
Supplement and, if given or made, such information or representations must not
be relied upon as having been authorized. This Prospectus and any Prospectus
Supplement does not constitute an offer to sell or the solicitation of an offer
to buy any securities other than the securities to which it relates or an offer
to sell or the solicitation of an offer to buy such securities in any
circumstances in which such offer or solicitation is unlawful. Neither the
delivery of this Prospectus or any Prospectus Supplement nor any sale made
hereunder or thereunder shall, under any circumstances, create any implication
that there has been no change in the affairs of the Company since the date
hereof or thereof or that the information contained herein or therein is correct
as of any time subsequent to the date of such information.
-------------
TABLE OF CONTENTS
Page
----
Prospectus
Available Information........................................................2
Incorporation of Certain Documents
by Reference.............................................................2
The Company..................................................................3
Risk Factors.................................................................7
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...........................................................13
Cautionary Statement Regarding
Forward-Looking Statements..............................................23
Business....................................................................24
Use of Proceeds.............................................................40
Selling Stockholders........................................................40
Plan of Distribution........................................................42
Description of Capital Stock................................................43
Legal Matters...............................................................46
Experts.....................................................................46
================================================================================
BE AEROSPACE, INC.
[LOGO]
1,181,675 Shares of Common Stock
--------------
PROSPECTUS
--------------
, 1998
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
Securities and Exchange Commission registration fee..... $ 49,955
Printing................................................ 30,000*
Legal fees and expenses................................. 150,000*
Nasdaq National Market Additional Listing Fee........... 39,038
Accounting fees and expenses 20,000*
Miscellaneous........................................... 11,007*
----------
Total.......................................... $ 300,000*
==========
- ----------------------
* Estimated
Item 15. Indemnification of Directors and Officers
Section 145 of the Delaware General Corporation Law, as amended
("DGCL") provides that a corporation may indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding whether civil, criminal or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that he is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amount paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any action or
proceeding, had no reasonable cause to believe his conduct was unlawful. Section
145 further provides that a corporation similarly may indemnify any such person
serving in any such capacity who was or is a party or is threatened to be made a
party to any threatened, pending or completed action or suit by or in the right
of the corporation to procure a judgment in its favor, against expenses actually
and reasonably incurred in connection with the defense or settlement of such
action or suit if he acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best interests of the corporation and except that
no indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the Delaware Court of Chancery or such other
court in which such action or suit was brought shall determine upon application
that, despite the adjudication of liability but in view of all the circumstances
of the case, such person is fairly and reasonably entitled to indemnity for such
expenses which the Court of Chancery or such other court shall deem proper.
Section 102(b)(7) of the DGCL permits a corporation to include in its
certificate of incorporation a provision eliminating or limiting the personal
liability of a director to the corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director, provided that such provision
shall not eliminate or limit the liability of a director: (i) for any breach of
the director's duty of loyalty to the corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the DGCL (relating to
unlawful payment of dividends and unlawful stock purchase and redemption) or
(iv) for any transaction from which the director derived an improper personal
benefit.
The Registrant's Restated Certificate of Incorporation (the
"Certificate") provides that the Company's Directors shall be liable to the
Registrant or its stockholders for monetary damages for breach of fiduciary duty
as a director except to the extent that exculpation from liabilities is not
permitted under the DGCL as in effect at the time such liability is determined.
The Registrant's Certificate further provides that the Registrant shall
indemnify its directors and officers to the fullest extent permitted by the
DGCL.
II-1
<PAGE>
The directors and officers of the Company are covered under directors'
and officer's liability insurance policies maintained by the Company.
Item 16. Exhibits and Financial Statement Schedules
Exhibit
Number Description
- ------ -----------
Exhibit 3 Articles of Incorporation and By-Laws
3.1 Amended and Restated Certificate of Incorporation*
3.2 Certificate of Amendment of the Restated Certificate of
Incorporation*
3.3 Certificate of Amendment of the Restated Certificate of
Incorporation **
3.4 Amended and Restated By-Laws*
Exhibit 4 Instruments Defining the Rights of Security Holders,
including debentures
4.1 Specimen Common Stock Certificate (1)
4.2 Form of Note for the Registrant's 9 1/2% Senior Subordinated
Notes (included in Exhibit 4.3)*
4.3 Indenture dated November 2, 1998 between The Bank of New
York, as trustee, and the Registrant relating to the
Registrant's 9 1/2% Senior Subordinated Notes*
4.4 Form of Note for the Registrant's Series B 9 7/8% Senior
Subordinated Notes *
4.5 Indenture dated January 24, 1996 between Fleet National Bank,
as trustee, and the Registrant relating to the Registrant's
9-7/8% Senior Subordinated Notes and Series B 9 7/8% Senior
Subordinated Notes *
4.6 Form of Note for the Registrant's 8% Series B Senior
Subordinated Notes *
4.7 Indenture dated February 13, 1998 for the Registrant's issue
of 8% Senior Subordinated Notes *
4.8 Form of Stockholders' Agreement by and among the Registrant,
Summit Ventures II, L.P., Summit Investors II, L.P. and
Wedbush Capital Partners *
4.9 Rights Agreement between the Registrant and BankBoston, N.A.,
as rights agent, dated as of November 12, 1998*
Exhibit 5 Opinion Re Legality
5.1 Opinion of Shearman & Sterling*
Exhibit 10(i) Material Contracts
10.1 Supply Agreement dated as of April 17, 1990 between the
Registrant and Applied Extrusion Technologies, Inc.*
10.2 Fifth Amended and Restated Credit Agreement (the "Chase
Credit Agreement) dated August 7, 1998*
10.3 Receivables Sales Agreement dated January 24, 1996 among the
Registrant, First Trust of Illinois, N.A. and Centrally Held
Eagle Receivables Program, Inc.*
10.4 Escrow Agreement dated January 24, 1996 among the Registrant,
Eagle Industrial Product Corporation and First Trust of
Illinois, N.A. as Escrow Agent*
10.5 Acquisition Agreement dated as of December 14, 1995 by and
among the Registrant, Eagle Industrial Products Corporation,
Eagle Industries, Inc. and Great American Management and
Investment, Inc.*
10.6 Asset Purchase Agreement dated as of April 16, 1998 by and
between Stanford Aerospace Group, Inc. and the Registrant*
10.7 Stock Purchase Agreement dated as of March 31, 1998 by and
between the Registrant and Puritan Bennet Corporation*
10.8 Acquisition Agreement dated July 21, 1998 among the
Registrant and Sellers named therein*
Exhibit 10(ii) Leases
10.9 Lease dated May 15, 1992 between McDonnell Douglas Company,
as lessor, and the Registrant, as lessee, relating to the
Irvine, California property*
II-2
<PAGE>
10.10 Lease dated September 1, 1992 relating to the Wellington,
Florida property*
10.11 Chesham, England Lease dated October 1, 1973 between
Drawheath Limited and the Peninsular and Oriental Steam
Navigation Company (assigned in February 1985)*
10.12 Utrecht, The Netherlands Lease dated December 15, 1988
between the Pension Fund Foundation for Food Supply Commodity
Boards and Inventum*
10.13 Utrecht, The Netherlands Lease dated January 31, 1992 between
G.W. van de Grift Onroerend Goed B.V. and Inventum*
10.14 Lease dated October 25, 1993 relating to the property in
Longwood, Florida*
Exhibit 10(iii) Executive Compensation Plans and Arrangements
10.15 Amended and Restated 1989 Stock Option Plan
10.16 Directors' 1991 Stock Option Plan*
10.17 1990 Stock Option Agreement with Richard G. Hamermesh*
10.18 1990 Stock Option Agreement with B. Martha Cassidy
10.19 1990 Stock Option Agreement with Jim C. Cowart*
10.20 1990 Stock Option Agreement with Petros A. Palandjian*
10.21 1990 Stock Option Agreement with Hansjorg Wyss*
10.22 1991 Stock Option Agreement with Amin J. Khoury*
10.23 1991 Stock Option Agreement with Jim C. Cowart*
10.24 1992 Stock Option Agreement with Amin J. Khoury*
10.25 1992 Stock Option Agreement with Jim C. Cowart*
10.26 1992 Stock Option Agreement with Paul W. Marshall*
10.27 1992 Stock Option Agreement with David Lahar*
10.28 United Kingdom 1992 Employee Share Option Scheme*
10.29 1994 Employee Stock Purchase Plan*
10.30 Amended and Restated Employment Agreement dated as of May 29,
1998 between the Registrant and Amin J. Khoury*
10.31 Amended and Restated Employment Agreement dated as of May 29,
1998 between the Registrant and Robert J. Khoury*
10.32 Employment Agreement dated as of March 1, 1992 between the
Registrant and Marco Lanza (the "Lanza Agreement")*
10.33 Amendment No. 1 dated as of January 1, 1996 to the Lanza
Agreement*
10.34 Employment Agreement dated as of April 1, 1992 between the
Registrant and G. Bernard Jewell*
10.35 Amended and Restated Employment Agreement dated as of May 29,
1998 between the Registrant and Thomas P. McCaffrey*
10.36 Amended and Restated Employment Agreement dated as of May 29,
1998 between the Registrant and Paul E. Fulchino*
10.37 BE Aerospace, Inc. Savings and Profit Sharing Plan and
Trust-- Financial Statements for the Ten Months Ended
December 31, 1995 and the Year Ended February 28, 1995,
Supplemental Schedules and Independent Auditors' Report*
10.38 BE Aerospace, Inc. 1994 Employee Stock Purchase Plan
Financial Statements as of February 29, 1996 and February 26,
1995; and for the Year Ended February 29, 1996 and the period
from May 15, 1994 (inception) to February 28, 1995 and
Independent Auditors' Report*
10.39 Amendment No. 1 to Employment Agreement dated November 12,
1998 between the Registrant and Amin J. Khoury*
10.40 Amendment No. 1 to Employment Agreement dated November 12,
1998 between the Registrant and Robert J. Khoury*
10.41 Amendment No. 1 to Amended and Restated Employment Agreement
dated November 12, 1998 between the Registrant and Thomas P.
McCaffey*
10.42 Amendment No. 1 to Amended and Restated Employment Agreement
dated November 12, 1998 between the Registrant and Paul E.
Fulchino*
10.43 Amendment No. 2 dated as of November 12, 1998 to the Lanza
Agreement*
II-3
<PAGE>
Exhibit 21 Subsidiaries of the Registrant
21.1 Subsidiaries*
Exhibit 23 Consent of Experts and Counsel
23.1 Consent of Independent Accountants-- Deloitte & Touche LLP**
23.2 Consent of Shearman & Sterling (Included in Exhibit 5.1)
23.3 Consent of Independent Accountants-- Zalick, Torok,
Kirgesner, Cook & Co.**
Exhibit 24 Power of Attorney
24.1 Power of Attorney (Included on page II-6)
Exhibit 99
99.1 Agreement and Plan of Reorganization and Merger dated March
27, 1998 by and among the Registrant, BE Acquisition Corp.,
Aerospace Interiors, Inc., Gregory and Deborah Fodell
Partnership, Ltd., Gregory and Deborah Fodell Partnership II,
Ltd. and Gregory N. Fodell*
99.2 Agreement and Plan of Reorganization and Merger dated as of
July 30, 1998 by and among the Registrant, BE Aerospace
Acquisition Corp., Aerospace Lighting Corp., and Louis J.
Francisco, Elsie M. Francisco, Michael J. Tenzyk, Judith D.
Tenzyk, Trustees U/A Gertrude Brown dated 1/7/92 and Trustee
U/A William Brown dated 1/7/92.*
- -------------------
* Previously filed as an exhibit to the Registration Statement or incorporated
by reference herein. See Exhibit Index.
** Filed herewith
Item 17. Undertakings
The undersigned Company hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to registration statement:
(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act, unless the information required to be included in
such post-effective amendment is contained in a periodic report filed
by the Registrant pursuant to Section 13 or Section 15(d) of the
Exchange Act and incorporated herein by reference;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement, unless the information required to be
included in such post-effective amendment is contained in a periodic
report filed by the Registrant pursuant to Section 13 or Section 15(d)
of the Exchange Act and incorporated herein by reference.
Notwithstanding the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of securities offered
would not exceed that which was registered) and any deviation from the
low or high and of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Commission pursuant
to Rule 424(b) if, in the aggregate, the changes in volume and price
represent no more than 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee"
table in the effective registration statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement.
II-4
<PAGE>
(2) That for the purpose of determining any liability under the
Securities Act, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any securities being registered which remain unsold at the termination of the
offering.
(4) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's Annual Report pursuant to Section 13(a) or 15(d) of the Exchange
Act that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(5) The undersigned registrant hereby undertakes to deliver or cause
to be delivered with the prospectus, to each person to whom the prospectus is
sent or given, the latest annual report to security holders that is incorporated
by reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Exchange Act; and, where
interim financial information is required to be presented by Article 3 of
Regulation S-X is not set forth in the prospectus, to deliver, or cause to be
delivered to each person to whom the prospectus is sent or given, the latest
quarterly report that is specifically incorporated by reference in the
prospectus to provide such financial information.
(6) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the registrant pursuant to the provisions described in Item 15, or otherwise,
the registrant has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person or controlling person in connection with
the securities being registered, the registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Company has
duly caused this Amendment to the Registration Statement on Form S-3 to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Wellington and the State of Florida, on the 21th day of December, 1998.
BE AEROSPACE, INC.
By: *
---------------------------------------
Title: Chairman of the Board of Directors
Pursuant to the requirements of the Securities Act, this Amendment to
the Registration Statement has been signed by the following persons in the
capacities indicated below on the 21th day of December, 1998.
Signature Title
* Chairman of the Board of Directors
- ---------------------------------
Amin J. Khoury
* Vice Chairman of the Board of Directors and
- --------------------------------- Chief Executive Officer (principal
Robert J. Khoury executive officer)
* President, Chief Operating Officer and
- --------------------------------- Director
Paul E. Fulchino
* Corporate Senior Vice President of
- --------------------------------- Administration, Chief Financial Officer and
Thomas P. McCaffrey Assistant Secretary (principal financial
and accounting officer)
* Director
- ---------------------------------
Jim C. Cowart
* Director
- ---------------------------------
Richard G. Hamermesh
* Director
- ---------------------------------
Brian H. Rowe
* Director
- ---------------------------------
Hansjorg Wyss
*By: /S/ Thomas P. McCaffrey
-----------------------------
Thomas P. McCaffrey
Attorney-in-fact
II-6
<PAGE>
Exhibit Index
Exhibit
Number Description
- ------ -----------
Exhibit 3 Articles of Incorporation and By-Laws
3.1 Amended and Restated Certificate of Incorporation (1)
3.2 Certificate or Amendment of the Restated Certificate of
Incorporation (2)
3.3 Certificate of Amendment of the Restated Certificate of
Incorporation **
3.4 Amended and Restated By-Laws (17)
Exhibit 4 Instruments Defining the Rights of Security Holders,
including debentures
Exhibit 4 Instruments Defining the Rights of Security Holders,
including debentures
4.1 Specimen Common Stock Certificate (1)
4.2 Form of Note for the Registrant's 9 1/2% Senior Subordinated
Notes (included in Exhibit 4.3) (18)
4.3 Indenture dated November 2, 1998 between The Bank of New
York, as trustee, and the Registrant relating to the
Registrant's 9 1/2% Senior Subordinated Notes (18)
4.4 Form of Note for the Registrant's Series B 9 7/8% Senior
Subordinated Notes (3)
4.5 Indenture dated January 24, 1996 between Fleet National Bank,
as trustee, and the Registrant relating to the Registrant's
9 7/8% Senior Subordinated Notes and Series B 9 7/8% Senior
Subordinated Notes (3)
4.6 Form of Note for the Registrant's 8% Series B Senior
Subordinated Notes (4)
4.7 Indenture dated February 13, 1998 for the Registrant's issue
of 8% Senior Subordinated Notes (4)
4.8 Form of Stockholders' Agreement by and among the Registrant,
Summit Ventures II, L.P., Summit Investors II, L.P. and
Wedbush Capital Partners (5)
4.9 Rights Agreement between the Registrant and BankBoston, N.A.,
as rights agent, dated as of November 12, 1998 (17)
Exhibit 5 Opinion Re Legality
5.1 Opinion of Shearman & Sterling*
Exhibit 10(i) Material Contracts
10.1 Supply Agreement dated as of April 17, 1990 between the
Registrant and Applied Extrusion Technologies, Inc.(1)
10.2 Fifth Amended and Restated Credit Agreement (the "Chase
Credit Agreement") dated August 7,1998*
10.3 Receivables Sales Agreement dated January 24, 1996 among the
Registrant, First Trust of Illinois, N.A. and Centrally Held
Eagle Receivables Program, Inc. (3)
10.4 Escrow Agreement dated January 24, 1996 among the Registrant,
Eagle Industrial Product Corporation and First Trust of
Illinois, N.A. as Escrow Agent (3)
10.5 Acquisition Agreement dated as of December 14, 1995 by and
among the Registrant, Eagle Industrial Products Corporation,
Eagle Industries, Inc. and Great American Management and
Investment, Inc. (8)
10.6 Asset Purchase Agreement dated as of April 16, 1998 by and
between Stanford Aerospace Group, Inc. and the Registrant (9)
10.7 Stock Purchase Agreement dated as of March 31, 1998 by and
between the Registrant and Puritan Bennet Corporation (10)
10.8 Acquisition Agreement dated July 21, 1998 among the
Registrant and Sellers named therein(16)
Exhibit 10(ii) Leases
10.9 Lease dated May 15, 1992 between McDonnell Douglas Company,
as lessor, and the Registrant, as lessee, relating to the
Irvine, California property(2)
10.10 Lease dated September 1, 1992 relating to the Wellington,
Florida property (2)
i
<PAGE>
10.11 Chesham, England Lease dated October 1, 1973 between
Drawheath Limited and the Peninsular and Oriental Steam
Navigation Company (assigned in February 1985) (14)
10.12 Utrecht, The Netherlands Lease dated December 15, 1988
between the Pension Fund Foundation for Food Supply Commodity
Boards and Inventum (14)
10.13 Utrecht, The Netherlands Lease dated January 31, 1992 between
G.W. van de Grift Onroerend Goed B.V. and Inventum (14)
10.14 Lease dated October 25, 1993 relating to the property in
Longwood, Florida (6)
Exhibit 10(iii) Executive Compensation Plans and Arrangements
10.15 Amended and Restated 1989 Stock Option Plan (11)
10.16 Directors' 1991 Stock Option Plan (11)
10.17 1990 Stock Option Agreement with Richard G. Hamermesh ( 11)
10.18 1990 Stock Option Agreement with B. Martha Cassidy (11)
10.19 1990 Stock Option Agreement with Jim C. Cowart (11)
10.20 1990 Stock Option Agreement with Petros A. Palandjian (11)
10.21 1990 Stock Option Agreement with Hansjorg Wyss (11)
10.22 1991 Stock Option Agreement with Amin J. Khoury (11)
10.23 1991 Stock Option Agreement with Jim C. Cowart (11)
10.24 1992 Stock Option Agreement with Amin J. Khoury (11)
10.25 1992 Stock Option Agreement with Jim C. Cowart (11)
10.26 1992 Stock Option Agreement with Paul W. Marshall (11)
10.27 1992 Stock Option Agreement with David Lahar (11)
10.28 United Kingdom 1992 Employee Share Option Scheme (2)
10.29 1994 Employee Stock Purchase Plan (12)
10.30 Amended and Restated Employment Agreement dated as of May 29,
1998 between the Registrant and Amin J. Khoury (15)
10.31 Amended and Restated Employment Agreement dated as of May 29,
1998 between the Registrant and Robert J. Khoury (15)
10.32 Employment Agreement dated as of March 1, 1992 between the
Registrant and Marco Lanza (the "Lanza Agreement") (14)
10.33 Amendment No. 1 dated as of January 1, 1996 to the Lanza
Agreement (13)
10.34 Employment Agreement dated as of April 1, 1992 between the
Registrant and G. Bernard Jewell (14)
10.35 Amended and Restated Employment Agreement dated as of May 29,
1998 between the Registrant and Thomas P. McCaffrey (15)
10.36 Amended and Restated Employment Agreement dated as of May 29,
1998 between the Registrant and Paul E. Fulchino (15)
10.37 BE Aerospace, Inc. Savings and Profit Sharing Plan and
Trust-- Financial Statements for the Ten Months Ended
December 31, 1995 and the Year Ended February 28, 1995,
Supplemental Schedules and Independent Auditors' Report (14)
10.38 BE Aerospace, Inc. 1994 Employee Stock Purchase Plan
Financial Statements as of February 29, 1996 and February 26,
1995; and for the Year Ended February 29, 1996 and the period
from May 15, 1994 (inception) to February 28, 1995 and
Independent Auditors' Report (14)
10.39 Amendment No. 1 to Employment Agreement dated November 12,
1998 between the Registrant and Amin J. Khoury (18)
10.40 Amendment No. 1 to Employment Agreement dated November 12,
1998 between the Registrant and Robert J. Khoury (18)
10.41 Amendment No. 1 to Amended and Restated Employment Agreement
dated November 12, 1998 between the Registrant and Thomas P.
McCaffey (18)
10.42 Amendment No. 1 to Amended and Restated Employment Agreement
dated November 12, 1998 between the Registrant and Paul E.
Fulchino (18)
10.43 Amendment No. 2 dated as of November 12, 1998 to the Lanza
Agreement (18)
Exhibit 21 Subsidiaries of the Registrant
ii
<PAGE>
21.1 Subsidiaries (14)
Exhibit 23 Consent of Experts and Counsel
23.1 Consent of Independent Accountants -- Deloitte & Touche LLP**
23.2 Consent of Shearman & Sterling (Included in Exhibit 5.1)
23.3 Consent of Independent Accountants -- Zalik, Torok,
Kirgesner, Cook & Co.**
Exhibit 24 Power of Attorney
24.1 Power of Attorney*
Exhibit 99
99.1 Agreement and Plan of Reorganization and Merger dated March
27, 1998 by and among the Registrant, BE Acquisition Corp.,
Aerospace Interiors, Inc., Gregory and Deborah Fodell
Partnership, Ltd., Gregory and Deborah Fodell Partnership II,
Ltd. and Gregory N. Fodell*
99.2 Agreement and Plan of Reorganization and Merger dated as of
July 30, 1998 by and among the Registrant, BE Aerospace
Acquisition Corp., Aerospace Lighting Corp., and Louis J.
Francisco, Elsie M. Francisco, Michael J. Tenzyk, Judith D.
Tenzyk, Trustees U/A Gertrude Brown dated 1/7/92 and Trustee
U/A William Brown dated 1/7/92.*
- -------------------
* Previously filed as part of this Registration Statement.
** Filed herein.
(1) Incorporated by reference to the Company's Registration Statement on
Form S-1, as amended (No. 33-33689), filed with the Commission on
March 7, 1990.
(2) Incorporated by reference to the Company's Registration Statement on
Form S-1, as amended (No. 33-54146), filed with the Commission on
November 3, 1992.
(3) Incorporated by reference to the Company's Registration Statement on
Form S-4 (No. 333-00433), filed with the Commission on January 26,
1996.
(4) Incorporated by reference to the Company's Registration Statement on
Form S-4 (No. 333-47649), filed with the Commission on March 10, 1998.
(5) Incorporated by reference to the Company's Registration Statement on
Form S-2 (No. 33-66490), filed with the Commission on July 23, 1993.
(6) Incorporated by reference to the Company's Annual Report on Form 10-K
as amended for the Fiscal year ended February 26, 1994, filed with the
Commission on May 25, 1994.
(7) Incorporated by reference to the Company's Annual Report on Form 10-K
as amended for the Fiscal year ended February 25, 1995, filed with the
Commission on May 26, 1995.
(8) Incorporated by reference to the Company's Current Report on Form 8-K
dated December 14, 1995, filed with the Commission on December 28,
1995.
(9) Incorporated by reference to the Company's Current Report on Form 8-K
dated May 8, 1998, filed with the Commission on May 8, 1998.
(10) Incorporated by reference to the Company's Current Report on Form 8-K
dated March 31, 1998, filed with the Commission on April 27, 1998.
(11) Incorporated by reference to the Company's Registration Statement on
Form S-8 (No. 33-48119), filed with the Commission on May 26, 1992.
(12) Incorporated by reference to the Company's Registration Statement on
Form S-8 (No. 33-82894), filed with the Commission on August 16, 1994.
(13) Incorporated by reference to the Company's Current Report on Form 8-K
dated March 26, 1996, filed with the Commission on April 5, 1996.
(14) Incorporated by reference to the Company's Annual Report on Form 10-K
as amended for the Fiscal year ended February 28, 1998, filed with the
Commission on May 29, 1998.
(15) Incorporated by reference to the Company's Quarterly Report on Form
10-Q for the quarter ended May 30, 1998, filed with the Commission on
July 14, 1998.
iii
<PAGE>
(16) Incorporated by reference to the Company's Current Report on Form 8-K
dated August 24, 1998, filed with the Commission on August 24, 1998.
(17) Incorporated by reference to the Company's Current Report on Form 8-K
dated November 12, 1998, filed with the Commission on November 18,
1998.
(18) Incorporated by reference to the Company's Registration Statement on
Form S-3 (No. 333- 67703), filed with the Commission on November 20,
1998.
iv
CERTIFICATE OF AMENDMENT
OF THE
RESTATED CERTIFICATE OF INCORPORATION
OF
BE AEROSPACE, INC.
BE Aerospace Inc., a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware (the
"Corporation").
DOES HEREBY CERTIFY:
FIRST: That at a meeting of the Board of Directors held on April 2,
1997, the Board of Directors of the Corporation unanimously and duly adopted the
following resolutions setting forth a proposed amendment to the Restated
Certificate of Incorporation of the Corporation declaring the advisability
thereof and calling for submission of the proposed amendment to the stockholders
of the Corporation for their approval and adoption:
RESOLVED: That a proposal to amend this Corporation's Restated
Certificate of Incorporation to increase the number of shares
of Common Stock, $0.01 par value per share, that this
Corporation shall have authority to issue from 30,000,000 to
50,000,000 be, and the same is, hereby approved; that the
Restated Certificate of Incorporation of this Corporation be
amended by changing the first sentence of Article 4 thereof
so that, as amended, mid sentence of said Article reads as
follows:
"The total number of shares of all shares of capital
stock that this Corporation shall have authorized to
issue is 51,000,000, consisting of 50,000,000 shares
of Common Stock, $0.01 par value per share, and
1,000,000 shares of Preferred Stock, $0.01 par value
per share."
and that such proposal be submitted as Proposal No. 2
("Proposal No. 2") to this Corporation's stockholders for
their consideration and approval at the 1997 Annual Meeting
of this Corporation.
RESOLVED: That, upon approval by the stockholders of this Corporation
of Proposal No. 2 at the 1997 Annual Meeting of this
Corporation, the officers of this Corporation at the time in
office be and they are, and each of them acting singly is,
hereby authorized and empowered, in the name and on behalf
of this Corporation, to take any and all action and to
execute and deliver any and all documents, agreements,
instruments or certificates; including, without limitation
(i) executing, acknowledging and filing with the Delaware
Secretary of State a certificate setting forth the amendment
embodying said Proposal No. 2 (the "Amendment") and
certifying that said Amendment has been duly adopted in
accordance with the provisions of Section 242 of this
Delaware Corporation Law, and (ii) executing, acknowledging
and filing with such other authorities in such other
jurisdictions in which this Corporation is qualified to do
business such papers as may be required
<PAGE>
by the rules of such jurisdiction in connection with said
Amendment, and to do or come to be done any and all such
other acts and things as may be shown by his, her or their
judgment necessarily, desirable or appropriate in order to
give effect to and carry out the interest of this vote, the
execution and delivery of any such document, instrument or
certificate; the taking of any such action, and the doing of
any such thing to be conclusive evidence of the authority of
the officer or officers so acting in the premises and to be
conclusive evidence that the same has been approved by the
Board of Directors.
SECOND: That the annual meeting of stockholders of the Corporation was
duly called and subsequently held on August 6, 1997, upon notice in
accordance with Section 222 of the General Corporation Law of the
State of Delaware, at which meeting the necessary number of shares as
required by statute were voted in favor of the amendment.
THIRD: That said amendment was only adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State
of Delaware.
IN WITNESS WHEREOF, BE Aerospace, Inc. has caused this
certificate to be signed by Jeffrey P. Holtzman, its Vice President
and Treasurer, this 14th day of August, 1997.
BE AEROSPACE, INC.
By /s/ Jeffrey P. Holtzman
---------------------------
Jeffrey P. Holtzman, Vice President
and Treasurer
INDEPENDENT AUDITOR'S CONSENT
We consent to the incorporation by reference in this Amendment No. 4 to
Registration Statement No. 333-60209 of B/E Aerospace, Inc. on Form S-3 of our
reports dated April 15 1998, appearing in the Annual Report on Form 10-K of B/E
Aerospace, Inc. for the year ended February 28, 1998 and to the reference to us
under the heading "Experts" in the Prospectus, which is part of this
Registration Statement.
/s/ DELOITTE & TOUCHE LLP
Costa Mesa, California
December 18,1998
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the incorporation by reference in this Registration
Statement on Form-3 of our report dated February 7, 1998, except for Note 20, as
to which the date is August 7, 1998, relating to the consolidated and combined
financial statements of SMR Aerospace, Inc. (an S Corporation), its affiliates,
and subsidiaries, which appears in the Form 8-K of B/E Aerospace, Inc. dated
August 7, 1998 and to the reference to our Firm under the caption "Experts" in
the Form S-3.
/s/ Zalik, Torok, Kirgesner, Cook & Co.
Cleveland, Ohio
December 18, 1998
