UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended August 29, 1998
Commission File No. 0-18348
BE AEROSPACE, INC.
(Exact name of registrant as specified in its charter)
Delaware 06-1209796
(State of Incorporation) (I.R.S. Employer Identification No.)
1400 Corporate Center Way
Wellington, Florida 33414
(Address of principal executive offices)
(561) 791-5000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. YES[X] NO[ ]
The registrant has one class of common stock, $ .01 par value, of which
28,309,929 shares were outstanding as of September 23, 1998.
<PAGE>
<TABLE>
<CAPTION>
Item 1. Financial Statements
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share data)
August 29, February 28,
1998 1998
ASSETS
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 29,203 $ 164,685
Accounts receivable - trade, less allowance for doubtful
accounts of $4,817 (August 29, 1998)
and $2,190 (February 28, 1998) 113,524 87,931
Inventories, net 188,668 121,728
Other current assets 9,506 7,869
------------- --------------
Total current assets 340,901 382,213
------------- --------------
PROPERTY AND EQUIPMENT, net 136,873 103,821
INTANGIBLES AND OTHER ASSETS, net 335,447 195,723
------------- --------------
$ 813,221 $ 681,757
============= ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 56,874 $ 47,858
Accrued liabilities 93,928 38,566
Current portion of long-term debt 7,983 33,285
------------- --------------
Total current liabilities 158,785 119,709
------------- --------------
LONG-TERM DEBT 464,813 349,557
DEFERRED INCOME TAXES 1,161 1,207
OTHER LIABILITIES 19,512 14,509
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value; 1,000,000 shares
authorized; no shares outstanding - -
Common stock, $.01 par value; 50,000,000 shares
authorized; 28,251,910 (August 29, 1998) and
22,891,918 (February 28, 1998) issued and outstanding 283 229
Additional paid-in capital 359,660 240,289
Accumulated deficit (188,389) (40,724)
Cumulative foreign exchange translation adjustment (2,604) (3,019)
-------------- ---------------
Total stockholders' equity 168,950 196,775
------------- --------------
$ 813,221 $ 681,757
============= ==============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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<CAPTION>
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share data)
Three Months Ended
-------------------------------
August 29, August 30,
1998 1997
<S> <C> <C>
NET SALES $ 156,352 $ 119,843
COST OF SALES 96,752 75,694
----------- -----------
GROSS PROFIT 59,600 44,149
OPERATING EXPENSES:
Selling, general and administrative 19,042 15,032
Research, development and engineering 12,770 11,542
Amortization 3,919 2,676
In-process research and development and
acquisition-related expenses 70,902 -
----------- ----------
Total operating expenses 106,633 29,250
----------- ----------
OPERATING EARNINGS (LOSS) (47,033) 14,899
INTEREST EXPENSE, net 8,664 5,401
----------- -----------
EARNINGS (LOSS) BEFORE INCOME TAXES (55,697) 9,498
INCOME TAXES 2,585 1,421
----------- -----------
NET EARNINGS (LOSS) $ (58,282) $ 8,077
============ ==========
BASIC NET EARNINGS (LOSS) PER COMMON SHARE $ (2.37) $ .36
============ ===========
DILUTED NET EARNINGS (LOSS) PER COMMON SHARE $ (2.37) $ .34
============ ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share data)
Six Months Ended
-------------------------------
August 29, August 30,
1998 1997
<S> <C> <C>
NET SALES $ 296,343 $ 233,689
COST OF SALES 184,863 148,477
----------- ----------
GROSS PROFIT 111,480 85,212
OPERATING EXPENSES:
Selling, general and administrative 37,041 27,935
Research, development and engineering 24,742 22,550
Amortization 7,360 5,529
In-process research and development and
acquisition-related expenses 169,155 -
----------- ----------
Total operating expenses 238,298 56,014
----------- ----------
OPERATING EARNINGS (LOSS) (126,818) 29,198
INTEREST EXPENSE, net 16,446 11,531
----------- ----------
EARNINGS (LOSS) BEFORE INCOME TAXES (143,264) 17,667
INCOME TAXES 4,401 2,647
----------- ---------
NET EARNINGS (LOSS) $ (147,665) $ 15,020
============ ===========
BASIC NET EARNINGS (LOSS) PER COMMON SHARE $ (6.20) $ .68
============ ===========
DILUTED NET EARNINGS (LOSS) PER COMMON SHARE $ (6.20) $ .64
============ ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Six Months Ended
-----------------------------------
August 29, August 30,
1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net earnings (loss) $ (147,665) $ 15,020
Adjustments to reconcile net earnings to net cash flows
provided by operating activities:
In-process research and development and acquisition-
related expenses 169,155 -
Depreciation and amortization 16,258 12,465
Deferred income taxes (70) (344)
Non cash employee benefit plan contributions 1,055 804
Changes in operating assets and liabilities, net of effects from
acquisitions:
Accounts receivable 6,163 (388)
Inventories (45,435) (5,332)
Other current assets (1,115) (3,011)
Accounts payable 4,887 2,918
Accrued liabilities 8,552 (1,606)
---------- -----------
Net cash flows provided by operating activities 11,785 20,526
---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (20,210) (11,656)
Change in intangible and other assets (3,991) (2,464)
Acquisitions, net of cash acquired (209,636) -
----------- ------------
Net cash flows used in investing activities (233,837) (14,120)
----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) under bank credit facilities 120,271 (957)
Proceeds from issuances of stock, net of expenses 2,604 7,455
Principal payments on long-term debt (36,691) -
----------- ------------
Net cash flows provided by financing activities 86,184 6,498
---------- ------------
Effect of exchange rate changes on cash flows 386 (177)
---------- ------------
Net increase (decrease) in cash and cash equivalents (135,482) 12,727
Cash and cash equivalents, beginning of period 164,685 44,149
---------- ------------
Cash and cash equivalents, end of period $ 29,203 $ 56,876
========== ===========
Supplemental disclosures of cash flow information:
Cash paid during period for:
Interest $ 4,897 $ 11,343
Income taxes, net $ 460 $ 568
Schedule of noncash transactions:
Fair market value of assets acquired in acquisitions $ 367,386 -
Cash paid for businesses acquired in acquisitions $ 210,986 -
Common stock issued in connection with acquisitions $ 117,413 -
Liabilities assumed and accrued acquisition costs
incurred in connection with acquisitions $ 38,400 -
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AUGUST 29, 1998
AND AUGUST 30, 1997
Note 1. Basis of Presentation
The condensed consolidated financial statements of BE Aerospace,
Inc., its wholly-owned and majority-owned subsidiaries (the "Company"
or "B/E") have been prepared by the Company and are unaudited
pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information related to the Company's
organization, significant accounting policies and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted. In the opinion of management, these unaudited
condensed consolidated financial statements reflect all material
adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation of the results of operations and
statements of financial position for the interim periods presented.
These results are not necessarily indicative of a full year's results
of operations.
Although the Company believes that the disclosures provided are
adequate to make the information presented not misleading, these
unaudited interim condensed consolidated financial statements should
be read in conjunction with the audited consolidated financial
statements and notes thereto included in the Company's Annual Report
on Form 10-K/A for the fiscal year ended February 28, 1998.
Note 2. Fiscal 1999 Acquisitions
On April 13, 1998, the Company completed its acquisition of Puritan
Bennett Aero Systems Co. ("PBASCO") for approximately $69,700 in cash
and the assumption of liabilities aggregating approximately $2,810.
PBASCO is the leading manufacturer of commercial aircraft oxygen
delivery systems and "WEMAC" air valve components and in addition
supplies overhead lights and switches, crew masks and protective
breathing devices for both commercial and general aviation aircraft.
During the first quarter of fiscal 1999, the Company recorded a
charge of approximately $37,000 associated with the PBASCO
transaction, for the write-off of in-process research and development
and acquisition-related expenses.
On April 21, 1998, the Company acquired substantially all of the
assets of Aircraft Modular Products ("AMP") for approximately
$117,300 in cash and assumed certain liabilities aggregating
approximately $2,840. 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, credenzas, closets, galley structures,
lavatories, tables and sofas; along with related spare parts. During
the first quarter of fiscal 1999, the Company recorded a charge of
approximately $61,253 associated with the AMP transaction, for the
write-off of in-process research and development and
acquisition-related expenses.
On August 7, 1998, the Company acquired all of the capital stock of
SMR Aerospace, Inc. and its affiliates, SMR Developers LLC and SMR
Associates (together "SMR") for an aggregate purchase price of
approximately $142,000 subject to adjustment, and the assumption of
liabilities aggregating approximately $21,100. The purchase price of
$142,000 consisted of a cash payment of $24,000, which included a
payment of $22 million in cash to the employee stock ownership plan
of Flight Structures, Inc., a subsidiary of SMR Aerospace, Inc. and
the issuance of 4,000,000 shares of the Company's common stock to the
SMR selling shareholders. Terms of the SMR acquisition agreement (the
"SMR Acquisition Agreement"), provide that to the extent that the SMR
selling shareholders do not receive Net Proceeds (as defined),
<PAGE>
(which included the $2 million in cash already received by the SMR
selling shareholders) of $120,000 from the sale of the 4,000,000
shares of the Company's common stock, the Company will pay such
difference to the SMR selling shareholders with funds drawn under
the Company's existing bank credit facility. The Company has
secured its obligations under the SMR purchase agreements by
establishing an irrevocable letter of credit in favor of the SMR
selling shareholders. If the Net Proceeds (as defined) are in
excess of $142,000, such excess will be paid to the Company. SMR
is a leader in providing design, integration, installation, and
certification services for commercial aircraft passenger cabin
interiors.
SMR's broad range of interior reconfiguration services 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. During the second quarter of
fiscal 1999, the Company recorded a charge of approximately $71,000
associated with the SMR transaction, for the write-off of in-process
research and development and acquisition-related expenses
As a result of the acquisitions of PBASCO, AMP and SMR, the Company
has recorded a charge of $169,155 for the write-off of acquired
in-process research and development and acquisition-related expenses
associated with the transactions. In addition, in connection with the
acquisition of C. F. Taylor, the Company expects that less than 10%
of the purchase price will be allocated to in-process research and
development, and will be written off. In-process research and
development expenses arose from new product development projects that
were in various stages of completion at the respective acquired
enterprises at the date of acquisition. In-process research and
development costs for 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.
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, Visionare Vantage and Lear 60, as well as other specific
executive aircraft seating products. 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. 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.
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
approximately $19,000, which would be incurred over a three to
four 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.
<PAGE>
Note 3. Comprehensive Income
In the first quarter of fiscal 1999, the Company adopted Statement of
Financial Accounting Standards ("SFAS" or "Statement") No. 130,
"Reporting Comprehensive Income," which establishes standards for the
reporting and display of comprehensive income. Comprehensive income
is defined as all changes in a company's net assets except changes
resulting from transactions with shareholders. It differs from net
income in that certain items currently recorded to equity would be a
part of comprehensive income. The following table sets forth the
computation of comprehensive income for the periods presented:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
--------------------------- -------------------------
August 29, August 30, August 29, August 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Net earnings (loss) $ (58,282) $ 8,077 $ (147,665) $ 15,020
Other comprehensive income:
Foreign exchange translation adjustment 943 (2,374) 415 (2,742)
-------------- --------- ----------- ---------
Comprehensive income (loss) $ (57,339) $ 5,703 $ (147,250) $ 12,278
============= ======= ============ =========
</TABLE>
Note 4. Segment Information
In June 1997, the Financial Accounting Standards Board issued SFAS
No. 131, "Disclosures about Segments of an Enterprise and Related
Information." SFAS No. 131 redefines how operating segments are
determined and requires disclosure of certain financial and
descriptive information about a company's operating segments. The
Company believes the required segment information disclosure under
SFAS No. 131 will be more comprehensive than previously provided,
including expanded disclosure of income statement and balance sheet
items. The Statement is effective for fiscal years beginning after
December 15, 1997; however, application is not required for interim
periods in the initial year of its application. The Company adopted
the Statement effective March 1, 1998.
Note 5. Long-Term Debt
8% Senior Subordinated Notes - In February 1998, the Company sold
$250,000 of 8% Senior Subordinated Notes, priced to yield 8.02% (the
"8% Notes"). In conjunction with the sale of the 8% Notes, the
Company initiated a tender offer for its 9 3/4% Notes. The net
proceeds from the offering of approximately $240,419 were used for
the tender offer (which expired on February 25, 1998) in which
approximately $101,808 of the 9 3/4% Notes were retired; the
remaining $23,192 of the 9 3/4% Notes were redeemed on March 16,
1998.
Credit Facilities - On August 7, 1998, the Company acquired all of
the capital stock of SMR Aerospace, Inc. and its affiliates, SMR
Developers LLC and SMR Associates (together, "SMR") for an aggregate
purchase price of approximately $142,000, subject to adjustment, and
the assumption of liabilities aggregating approximately $21,100. The
purchase price of $142,000 consisted of a cash payment of $24,000,
which included a payment of $22 million in cash to the employee stock
ownership plan of Flight Structures, Inc., a subsidiary of SMR
Aerospace, Inc. and the issuance of 4,000,000 shares of the Company's
common stock to the SMR selling shareholders. Terms of the SMR
acquisition agreement (the "SMR Acquisition Agreement"), provide that
to the extent that the SMR selling shareholders do not receive Net
Proceeds (as defined), which include the $2,000 in cash already
received by the SMR selling shareholders, of $120,000 from the
sale of the 4,000,000 shares of the Company common stock, the
Company will pay such difference to the SMR selling
<PAGE>
shareholders with funds drawn under the Company's existing bank
credit facility. The Company has secured its obligations under the
SMR purchase agreements by establishing an irrevocable letter of
credit in favor of the SMR selling shareholders. If the Net Proceeds
(as defined) are in excess of $142,000, such excess will be paid to
the Company. SMR is a leader in providing design, integration,
installation, and certification services for commercial aircraft
passenger cabin interiors.
The Bank Credit Facility consists of a $100,000 revolving credit
facility, an acquisition facility of up to $100,000 and an interim
revolving credit commitment of $120,000 available for the irrevocable
letter of credit in connection with the SMR acquisition. The
revolving credit facility expires in April 2004, the acquisition
facility is amortizable over five years beginning in April 1999, and
the interim revolving credit commitment terminates on April 2, 1999.
At the termination of the interim revolving credit commitment or, at
the option of the Company, upon the earlier expiration of the
Company's obligation to maintain the irrevocable letter of credit,
the aggregate principal amount that may be borrowed under the Bank
Credit Facility will be reduced by $120,000, back to $200,000.
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 (including the $120,000 SMR letter of credit) and
outstanding borrowings under the revolving and acquisition facilities
credit aggregating $121,000 (bearing interest at LIBOR plus 1.50%, as
defined).
Note 6. Earnings (Loss) Per Share
The following table sets forth the computation of basic and diluted
earnings (loss) per share for the three months and six months ended
August 29, 1998 and August 30, 1997.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
--------------------------- --------------------------
August 29, August 30, August 29, August 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Numerator - Net earnings (loss) $ (58,282) $ 8,077 $ (147,665) $ 15,020
============ ========= =========== ========
Denominator:
Denominator for basic earnings (loss) per
share -
Weighted average shares 24,575 22,269 23,822 22,103
Effect of dilutive securities -
Employee stock options 814 1,258 882 1,390
----------- ---------- ----------- --------
Denominator for diluted earnings (loss) per
share -
Adjusted weighted average shares 25,389 23,527 24,704 23,493
========== ========== =========== ========
Basic earnings (loss) per share $ (2.37) $ .36 $ (6.20) $ .68
=========== ========== =========== ========
Diluted earnings (loss) per share $ (2.37) $ .34 $ (6.20) $ .64
=========== =========== =========== ========
</TABLE>
Note 7. Subsequent Event
On September 3, 1998, the Company acquired substantially all of the
galley equipment assets and assumed related liabilities of C. F. Taylor
Interiors Limited and acquired the common stock of C. F. Taylor (Wales)
Limited (collectively "CF Taylor"), both wholly owned subsidiaries of
EIS Group PLC, for a total cash purchase price of approximately
GBP 14.9 million, (approximately $25.1 million, based upon the
exchange rate in effect on September 3, 1998). CF Taylor is a
manufacturer of galley equipment for both narrow and wide-body
aircraft, including galley structures, crew rests and related spare
parts.
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis addresses the results of the
Company's operations for the three months ended August 29, 1998, as
compared to the Company's results of operations for the three months
ended August 30, 1997. The discussion and analysis then 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 liquidity and financial condition of the Company and other matters.
On April 13, 1998, the Company completed its acquisition of Puritan
Bennett Aero Systems Co. ("PBASCO") for approximately $69,700 in cash and
the assumption of liabilities aggregating approximately $2,810. PBASCO is
the leading manufacturer of commercial aircraft oxygen delivery systems
and "WEMAC" air valve components and in addition supplies overhead lights
and switches, crew masks and protective breathing devices for both
commercial and general aviation aircraft.
On April 21, 1998, the Company acquired substantially all of the assets
of Aircraft Modular Products ("AMP") for approximately $117,300 in cash
and assumed certain liabilities aggregating approximately $2,840. 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, credenzas, closets,
galley structures, lavatories, tables and sofas, along with related spare
parts.
On August 7, 1998, the Company acquired all of the capital stock of SMR
Aerospace, Inc. and its affiliates, SMR Developers LLC and SMR Associates
(together "SMR") for an aggregate purchase price of approximately
$142,000, subject to adjustment, and the assumption of liabilities
aggregating approximately $21,000. The purchase price of $142,000
consisted of a cash payment of $24,000 and the issuance of 4,000,000
shares of the Company's common stock to the SMR selling shareholders.
Terms of the SMR purchase agreement provide that to the extent that the
SMR selling shareholders do not receive net proceeds (as defined) of
$142,000, the Company will pay such difference to the SMR selling
shareholders with funds drawn under the Company's existing bank credit
facility.
The Company has secured its obligations under the SMR purchase agreements
by establishing an irrevocable letter of credit in favor of the SMR
selling shareholders. If the net proceeds (as defined) are in excess of
$142,000, such excess will be paid to the Company. SMR is a leader in
providing design, integration, installation and certification services
for commercial aircraft passenger cabin interiors. SMR's broad range of
interior reconfiguration services 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.
As a result of the acquisitions of PBASCO, AMP and SMR, the Company has
recorded a charge of $169,155 for the write-off of acquired in-process
research and development and acquisition related expenses associated with
the transactions. In addition, in connection with the acquisition of CF
Taylor, the Company expects that less than 10% of the purchase price will
be allocated to in-process research and development, and will be written
off. In-process research and development expenses arose from new product
development projects that were in various stages of completion at the
respective acquired enterprises at the date of acquisitions. In-process
research and development expenses for 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.
<PAGE>
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, Visionare Vantage
and Lear 60, as well as other specific executive aircraft seating
products. 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. 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.
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 approximately $19,000, which would be
incurred over a three to four year period. Uncertainties that could
impede progress to a developed technology include (1) availability of
financial resources to complete the development, (2) regulatory approval
(FAA, CAA, etc.) required for each product before it can be installed on
an aircraft, (3) economic feasibility of developed technologies, (4)
customer acceptance and (5) 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.
The acquisition of PBASCO, AMP and SMR are collectively referred to as
the "Acquisitions." The Acquisitions have been accounted for using
purchase accounting.
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
evaulated 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. Accordingly, the Company may monetize all or a
portion of its investment in its in-flight entertainment business.
THREE MONTHS ENDED AUGUST 29, 1998, AS COMPARED TO THE RESULTS OF
OPERATIONS FOR THE THREE MONTHS ENDED AUGUST 30, 1997
Net sales for the fiscal 1999 three-month period were $156,352, or
$36,509 (30%) greater than sales of $119,843 for the comparable period in
the prior year. The Acquisitions accounted for a substantial portion of
the increase in revenues during the quarter ended August 29,1998; AMP and
PBASCO contributed approximately $22,700, with SMR adding $6,000 of
revenues. Internal growth during the quarter was unusually 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 the three months ended August
29, 1998 and year ended February 28, 1998, the Seating Products and
Interior Systems Groups, exclusive of businesses acquired during fiscal
1999, generated approximately 79% and 78%, respectively, of total
revenues. During the eighteen month period 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, US Airways, 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, with a book to bill ratio of
approximately 1.9:1 during the three months ended August 29, 1998.
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. 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 revenue growth for the Company during the second
half of Fiscal 1999.
<PAGE>
THREE MONTHS ENDED AUGUST 29, 1998, AS COMPARED TO THE RESULTS OF
OPERATIONS FOR THE THREE MONTHS ENDED AUGUST 30, 1997 (CONTINUED)
Gross profit was $59,600 (38.1% of sales) for the three months ended
August 29, 1998. This was $15,451, or 35%, greater than the comparable
period in the prior year of $44,149, which represented 36.8% of sales.
The increase in gross profit is attributable to the growth in revenues
and the improved gross margins.
Selling, general and administrative expenses were $19,042 (12.2% of
sales) for the three months ended August 29, 1998. This was $4,010, or
27%, greater than the comparable period in the prior year of $15,032
(12.5% of sales). The increase in selling, general and administrative
expenses was primarily due to inclusion of the relevant expenses from the
Acquisitions along with increases associated with internal growth.
Research, development and engineering expenses were $12,770 (8.2% of
sales) for the three months ended August 29, 1998, an increase of $1,228
over the comparable period in the prior year. The increase in research,
development and engineering expense in the current period is primarily
attributable to on-going new product development activities.
Amortization expense for the quarter ended August 29, 1998 of $3,919, was
$1,243 greater than the amount recorded in the second quarter of Fiscal
1998 due to the Acquisitions.
Based on management's assumptions, a portion of the Acquisition purchase
price was allocated to purchased research and development that had not
reached technological feasibility and had no future alternative use.
During the second quarter of Fiscal 1999, the Company recorded a charge
of $70,902 for the write-off of in-process research and development and
acquisition-related 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 three to four year period.
Due to the acquisition-related charges of $70,902 during the current
quarter, the Company incurred an operating loss of $(47,033), as compared
to operating earnings of $14,899 during the comparable period in the
prior year. Operating earnings excluding the acquisition-related charges
were $23,869.
Interest expense, net was $8,664 for the three months ended August 29,
1998, or $3,263 greater than interest expense of $5,401 for the
comparable period in the prior year. The increase in interest expense is
due to the increase in the Company's long-term debt.
The loss before income taxes in the current quarter was $(55,697), (which
includes in-process research and development and acquisition-related
expenses of $70,902) as compared to earnings before incomes taxes of
$9,498 in the prior year's comparable period. Earnings before income
taxes excluding the acquisition-related charges were $15,205. Income tax
expense for the quarter ended August 29, 1998 was $2,585, as compared to
$1,421 in the prior year's comparable period.
The net loss for the quarter ended August 29, 1998 was $(58,282), or
$(2.37) per share (diluted), as compared to net earnings of $8,077, or
$.34 per share (diluted), for the comparable period in the prior year.
SIX MONTHS ENDED AUGUST 29, 1998, AS COMPARED TO THE RESULTS OF
OPERATIONS FOR THE SIX MONTHS ENDED AUGUST 30, 1997
Net sales for the fiscal 1999 six-month period were $296,343, an increase
of approximately $62,654, or 27% over the comparable period in the prior
year. The recent acquisitions of PBASCO,
<PAGE>
SIX MONTHS ENDED AUGUST 29, 1998, AS COMPARED TO THE RESULTS OF
OPERATIONS FOR THE SIX MONTHS ENDED AUGUST 30, 1997 (CONTINUED)
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, with SMR adding approximately $6,000. Internal
growth during the six month period 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,
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. 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 margins 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 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 on-going new product development activities.
Amortization expense for the six months ended August 29 1998 of $7,360
was $1,831 greater than the amount recorded in the comparable period in
the prior year.
Based on management's assumptions, a portion of the Acquisition purchase
price was allocated to purchased 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 $169,155 for the write-off of the acquired in-process research and
development and acquisition-related 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 three to
four year period. Due to the acquisition-related charges of $169,155
during the six months ended August 29, 1998, the Company incurred an
operating loss of $(126,818), as compared to operating earnings of
$29,198 in the prior year. Operting earnings excluding the
<PAGE>
SIX MONTHS ENDED AUGUST 29, 1998, AS COMPARED TO THE RESULTS OF
OPERATIONS FOR THE SIX MONTHS ENDED AUGUST 30, 1997 (CONTINUED)
acquisition-related charges were $42,337.
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 quarter was $(143,264),
(which includes in-process research and development and
acquisition-related expenses of $169,155) 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 $25,891. Income tax expense for the six months ended August 29,
1998 was $4,401, as compared to $2,647 in the prior year's comparable
period.
The net loss for the six months ended August 29, 1998 was $(147,665), or
$(6.20) per share (diluted), as compared to net earnings of $15,020, or
$.64 per share (diluted), for the comparable period in the prior year.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity requirements consist of working capital needs,
ongoing capital expenditures and scheduled payments of interest and
principal 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 both acquisitions and revenue growth.
B/E's working capital was $182,116 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 $(147,665) offset by non-cash charges for
in-process research and development, depreciation, amortization and
acquisition-related expenses of $185,413, decreases in accounts
receivable of $6,163 and increases in accrued and other liabilities of
$8,552, 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 acquisitions 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.
On August 7, 1998, the Company amended its credit facilities with The
Chase Manhattan Bank by increasing the aggregate principal amount that
may be borrowed thereunder by $120,000, up to $320,000, by adding an
interim revolving credit commitment to provide for an irrevocable
letter of credit (the "Bank Credit Facility"). Pursuant to the SMR
Acquisition Agreement, to the extent the Net Proceeds (as defined)
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
which include the $2,000 in cash already received by the SMR Sellers,
from the sale of the 4,000,000 shares of the Company common stock by
the SMR sellers is less than $120,000, the Company will pay such
difference to the SMR sellers with funds drawn under the Bank Credit
Facility.
The Bank Credit Facility consists of a $100,000 revolving credit
facility, an acquisition facility of up to $100,000 and an interim
revolving credit commitment of $120,000 available for the irrevocable
letter of credit in connection with the SMR acquisition. The revolving
credit facility expires in April 2004, the acquisition facility is
amortizable over five years beginning in April 1999, and the interim
revolving credit commitment terminates on April 2, 1999. Current
maturities associated with the Bank Credit Facility aggregate $7,500. At
the termination of the interim revolving credit commitment or, at the
option of the Company, upon the earlier expiration of the Company's
obligation to maintain the irrevocable letter of credit, the aggregate
principal amount that may be borrowed under the Bank Credit Facility will
be reduced by $120,000, back to $200,000.
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 (including the $120,000
SMR letter of credit) and outstanding borrowings under the revolving
and acquisition facilities credit aggregating $121,000 (bearing
interest at LIBOR plus 1.50%, as defined).
In February 1998, the Company sold $250,000 of 8% Notes. In conjunction
with the sale of the 8% Notes, the Company initiated at 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 AMP
and PBASCO. The Company incurred an extraordinary charge of $8,956 for
unamortized debt issue costs, tender and redemption premiums and fees and
expenses related to the repurchase of 9 3/4% Notes.
Long-term debt consists of the Bank Credit Facility, 9 7/8% Senior
Subordinated Notes ("9 7/8% Notes") and 8% Senior Subordinated Notes ("8%
Notes"). The 9 7/8% Notes and 8% Notes mature on February 1, 2006 and
March 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 assets 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,
<PAGE>
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 a
separate information system, 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); (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, LANs, WANs and PBXs. These phases were intended to
address potential Year 2000 problems of the ERP system in relation to
both information technology, 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, one location has 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 December 31, 1999.
Contingency Plans - The Company has begun to analyze contingency plans to
handle worse case Year 2000 scenarios that the Company believes
reasonably could occur and, if necessary, intends to develop a timetable
for completing such contingency plans.
<PAGE>
Costs Related to the Year 2000 Issue - To date, the Company has incurrred
approximately $15,000 in costs related to the implementation of the ERP
system. The Company currently estimates that 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 $8,000 related to this program during 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.
This report includes forward-looking statements that involve risks and
uncertainties. The Company's actual experience may differ materially from
that anticipated in such statements. Factors that might cause such a
difference include, but are not limited to, those discussed in "Risk
Factors" contained in Exhibit 99.1 of the Company's Annual Report on Form
10-K/A for the fiscal year ended February 28, 1998, and in the Company's
Form S-3 dated September 11, 1998, as well as future events that have the
effect of reducing the Company's 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.
<PAGE>
Item 1. Legal Proceedings Not applicable.
Item 2. Changes in Securities Not applicable.
Item 3. Defaults Upon Senior Securities Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
1. Annual meting took place on August 5, 1998
2. Directors elected (Class I) - Jim C. Cowart, Paul E. Fulchino
and Brian H. Rowe
3. Directors whose term of office continued after meeting
(Class II and III) - Richard G. Hamermesh,
Amin J. Khoury, Robert J. Khoury and Hansjorg Wyss
4. MacBride Principles
1. Election of three Class I Directors
For Withheld
Jim C. Cowart 20,625,994 378,458
Paul E. Fulchino 20,609,916 394,536
Brian H. Rowe 20,616,736 387,716
2. Proposal to amend the Amended and Restated 1989 Stock Option Plan by
increasing the aggregate number of shares for grant thereunder
For Against Abstain Broker Non-Votes
18,639,270 2,316,129 49,053
3. Proposal to amend the 1991 Directors Stock Option Plan by increasing the
aggregate number of shares available for grant thereunder
For Against Abstain Broker Non-Votes
18,965,866 1,980,603 57,983
4. Proposal to adopt the MacBride Principles
For Against Abstain Broker Non-Votes
1,972,506 13,861,308 725,083 4,445,555
Item 5. Other Information None.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits None.
b. Reports None.
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
B/E AEROSPACE, INC.
Date: September 24, 1998 By: /s/ Robert J. Khoury
-------------------------
Vice Chairman and
Chief Executive Officer
Date: September 24, 1998 By: /s/ Thomas P. McCaffrey
----------------------------
Corporate Senior Vice President
Administration and Chief
Financial Officer
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<S> <C>
<PERIOD-TYPE> 6-mos
<FISCAL-YEAR-END> FEB-27-1999
<PERIOD-END> AUG-29-1998
<CASH> 29,203
<SECURITIES> 0
<RECEIVABLES> 118,341
<ALLOWANCES> (4,817)
<INVENTORY> 188,668
<CURRENT-ASSETS> 340,901
<PP&E> 197,471
<DEPRECIATION> (60,598)
<TOTAL-ASSETS> 813,221
<CURRENT-LIABILITIES> 158,785
<BONDS> 225,446
0
0
<COMMON> 283
<OTHER-SE> 168,667
<TOTAL-LIABILITY-AND-EQUITY> 813,221
<SALES> 296,343
<TOTAL-REVENUES> 296,343
<CGS> 184,863
<TOTAL-COSTS> 423,161
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 16,446
<INCOME-PRETAX> (143,264)
<INCOME-TAX> 4,401
<INCOME-CONTINUING> (147,665)
<DISCONTINUED> 0
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<NET-INCOME> (147,665)
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