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Filed pursuant to Rule 424b(2)
File No. 333-67703
[BE AEROSPACE, INC. LOGO]
OFFER TO EXCHANGE
ALL OUTSTANDING 9 1/2% SENIOR
SUBORDINATED NOTES DUE 2008
($200,000,000 AGGREGATE PRINCIPAL
AMOUNT OUTSTANDING)
FOR
9 1/2% SERIES B SENIOR SUBORDINATED
NOTES DUE 2008 OF
BE AEROSPACE, INC.
TERMS OF EXCHANGE OFFER
- - Expires 5:00 p.m., New York City time, February 11, 1999, unless extended
- - Not subject to any condition other than that the Exchange Offer not violate
applicable law or any applicable interpretation of the Staff of the Securities
and Exchange Commission
- - All outstanding notes that are validly tendered and not validly withdrawn will
be exchanged
- - Tenders of outstanding notes may be withdrawn any time period to 5:00 p.m. on
the business day prior to expiration of the Exchange Offer
- - The exchange of notes will not be a taxable exchange for the U.S. federal
income tax purposes
- - We will not receive any proceeds from the Exchange Offer
- - The terms of the notes to be issued are substantially identical to the
outstanding notes, except for certain transfer restrictions and registration
rights relating to the outstanding notes
SEE "RISK FACTORS" BEGINNING ON PAGE 22 FOR A DISCUSSION OF CERTAIN MATTERS THAT
SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
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Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of the notes to be distributed in the
exchange offer, nor have any of these organizations determined that this
Prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
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THE DATE OF THIS PROSPECTUS IS JANUARY 8, 1999
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TABLE OF CONTENTS
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Forward-Looking Statements........... i
Where You Can Find More Information.. ii
Incorporation of Certain Documents by
Reference.......................... iii
Summary.............................. 1
Risk Factors......................... 22
Use of Proceeds...................... 29
The Exchange Offer................... 29
Capitalization....................... 38
Selected Financial Data.............. 39
Pro Forma Combined Financial Data.... 43
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Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 51
Business............................. 63
Management........................... 84
Security Ownership of Certain
Beneficial Owners and Management... 88
Description of Certain
Indebtedness....................... 90
Description of the New Notes......... 92
Plan of Distribution................. 123
Legal Matters........................ 123
Experts.............................. 123
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FORWARD-LOOKING STATEMENTS
This Prospectus includes forward-looking statements. We have based these
forward-looking statements on our current expectations and projections about
future events. These forward-looking statements are subject to risks,
uncertainties, and assumptions about us, including, among other things:
- Our anticipated growth strategies,
- Our expected internal growth,
- Our intention to introduce new products,
- Technological advances in our industry,
- Anticipated trends and conditions in our industry, including regulatory
reform,
- Our ability to integrate acquired businesses,
- Our ability to implement a Year 2000 readiness program,
- Our future capital needs and
- Our ability to compete, including internationally.
We undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
In light of these risks, uncertainties, and assumptions, the forward-looking
events discussed in this Prospectus might not occur.
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WHERE YOU CAN FIND MORE INFORMATION
We are subject to the informational requirements of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"). As a result, we file periodic reports,
proxy statements and other information with the Securities and Exchange
Commission (the "Commission"). You may read and copy reports, proxy statements
and other information we file at the public reference facilities maintained by
the Commission at Room 1024, 450 Fifth Street, N.W., Judiciary Plaza,
Washington, D.C. 20549 and at the regional offices of the Commission located at
7 World Trade Center, 13th Floor, New York, New York 10048 and Suite 1400,
Northwestern Atrium Center, 14th Floor, 500 West Madison Street, Chicago,
Illinois 60661. Please call the Commission at 1-800-SEC-0330 for further
information on the public reference facilities. Copies of documents we file can
also be obtained at prescribed rates by writing to the Commission, Public
Reference Section, 450 Fifth Street, N.W., Washington, D.C. 20549. You may also
access this information electronically through the Commission's web page on the
Internet at http://www.sec.gov. This web cite contains reports, proxy statements
and other information regarding registrants such as ourselves that have filed
electronically with the Commission. Our Common Stock is listed on the Nasdaq
National Market. As a result, you can also read and copy information we file at
the offices of Nasdaq Operations, 1735 K Street, N.W., Washington, D.C. 20006.
This Prospectus constitutes a part of a registration statement (the
"Registration Statement") filed by us with the Commission under the Securities
Act of 1933, as amended (the "Securities Act"). As permitted by the rules and
regulations of the Commission, this Prospectus does not contain all of the
information contained in the Registration Statement and the exhibits and
schedules thereto. Therefore, we make in this Prospectus reference to the
Registration Statement and to the exhibits and schedules thereto. For further
information about us and about the securities we hereby offer, you should
consult the Registration Statement and the exhibits and schedules thereto. You
should be aware that statements contained in this Prospectus concerning the
provisions of any documents filed as an exhibit to the Registration Statement or
otherwise filed with the Commission are not necessarily complete, and in each
instance reference is made to the copy of such document so filed. Each such
statement is qualified in its entirety by such reference.
The indenture governing the outstanding notes provides that we will furnish to
the holders of the notes copies of the periodic reports required to be filed
with the Commission under the Exchange Act. Even if we are not subject to the
periodic reporting and informational requirements of the Exchange Act, we will
make such filings to the extent that such filings are accepted by the
Commission. We will make these filings regardless of whether we have a class of
securities registered under the Exchange Act. Furthermore, we will provide the
Trustee for the notes and the holders of the notes within 15 days after such
filings with annual reports containing the information required to be contained
in Form 10-K, and quarterly reports containing the information required to be
contained in Form 10-Q promulgated by the Exchange Act. From time to time, we
will also provide such other information as is required to be contained in Form
8-K promulgated by the Exchange Act. If the filing of such information is not
accepted by the Commission or is prohibited by the Exchange Act, we will then
provide promptly upon written request, and at our cost, copies of such reports
to prospective purchasers of the notes.
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Commission allows us to incorporate by reference the information we file
with them, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
considered to be part of this Prospectus, and information that we file later
with the Commission will automatically update and supersede this information. We
incorporate by reference into this Prospectus the following documents or
information filed with the Commission (File No. 000-18348):
(a) the Company's Annual Report on Form 10-K for the fiscal 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.
(b) the Company's Quarterly Reports on Form 10-Q for the fiscal 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.
(c) 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.
(d) all documents filed by the Company pursuant to Section 13(a), 13(c), 14
or 15(d) of the Exchange Act subsequent to the date of the Registration
Statement of which this Prospectus is part and prior to the
effectiveness thereof or subsequent to the date of this Prospectus and
prior to the termination of the offering made hereby.
As noted above, any statement contained in this Prospectus, or in any documents
incorporated or deemed to be incorporated by reference in this Prospectus shall
be deemed to be modified or superseded for the purpose of this Prospectus to the
extent that a subsequent statement contained in this Prospectus or in any
subsequently filed document which also is or is deemed to be incorporated by
reference in this Prospectus 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 this Prospectus.
THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT PRESENTED
HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS ARE AVAILABLE WITHOUT CHARGE UPON
WRITTEN OR ORAL REQUEST FROM THOMAS P. MCCAFFREY, CHIEF FINANCIAL OFFICER OF THE
COMPANY AT THE COMPANY'S PRINCIPAL EXECUTIVE OFFICES LOCATED AT 1400 CORPORATE
CENTER WAY, WELLINGTON, FLORIDA 33414, TELEPHONE NUMBER (561) 791-5000.
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THIS EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL WE ACCEPT SURRENDERS FOR
EXCHANGE FROM, HOLDERS OF OUTSTANDING NOTES IN ANY JURISDICTION IN WHICH THIS
EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH THE
SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION.
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SUMMARY
This Summary may not contain all the information that may be important to you.
You should read the entire Prospectus, including the financial data and related
notes, before making an investment decision. The terms "B/E," the "Company,"
"our company" and "we" as used in this Prospectus refer to "BE Aerospace, Inc."
and its subsidiaries as a combined entity, except where it is made clear that
such term means only the parent company. References to a fiscal year end relate
to a year ending on the last Saturday in February (for example, fiscal 1998
refers to our fiscal year ended February 28, 1998). Market share information in
this Prospectus is based upon industry sources or knowledge of the industry and
on our dollar sales for the twelve months ended August 29, 1998, except for
market shares for commercial aircraft seats and in-flight entertainment systems,
which are determined on the basis of installed base as of August 29, 1998. The
market share information does not include markets in the former Soviet Union and
will vary, sometimes significantly, from year to year. Investors should
carefully consider the information set forth under the heading "Risk Factors."
In addition, certain statements include forward-looking statements which involve
risks and uncertainties. See "Forward-Looking Statements."
THE EXCHANGE OFFER
We completed on November 2, 1998 the private offering of $200 million of 9 1/2%
Senior Subordinated Notes due 2008. We entered into a registration rights
agreement with the initial purchasers in the private offering in which we
agreed, among other things, to deliver to you this Prospectus and to complete
the Exchange Offer within 150 days of the issuance of the 9 1/2% Senior
Subordinated Notes due 2008. You are entitled to exchange in the Exchange Offer
your outstanding notes for registered notes with substantially identical terms.
If the Exchange Offer is not completed within 150 days of the issuance of the
9 1/2% Senior Subordinated Notes due 2008, then the interest rates on the notes
will be increased to 10% per year. You should read the discussion under the
heading "Summary Description of the New Notes" and "Description of the New
Notes" for further information regarding the registered notes.
We believe that the notes issued in the Exchange Offer may be resold by you
without compliance with the registration and prospectus delivery provisions of
the Securities Act, subject to certain conditions. You should read the
discussion under the headings "Summary of the Terms of Exchange Offer" and "The
Exchange Offer" for further information regarding the Exchange Offer and resale
of the notes.
THE COMPANY
Our company is the world's largest manufacturer of commercial and general
aviation aircraft cabin interior products. We serve virtually all major airlines
and a wide variety of general aviation customers and airframe manufacturers. Our
management believes that our company has achieved leading global market
positions and significant market shares in each of its major product categories,
which include:
- commercial aircraft seats, including an extensive line of first class,
business class, tourist class and commuter aircraft seats, with a market
share of 50%;
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- food and beverage preparation and storage equipment, with market shares
of:
-- 90% in coffee makers,
-- 90% in refrigeration equipment and
-- 50% in ovens;
- aircraft interior structures, such as galleys and crew rests, with a
market share of 15%;
- oxygen delivery systems, with a market share of 50%;
- general aviation interior products, with market shares of
-- 60% in executive aircraft seats,
-- 85% in indirect overhead lighting systems and
-- 90% in air valves; and
- in-flight entertainment systems, with a market share of
-- 35% in individual-passenger in-flight entertainment systems.
In addition, we offer our customers in-house capabilities to design, project
manage, integrate, install, test and certify reconfigurations and modifications
to commercial aircraft passenger cabin interiors and to manufacture related
products, including engineering kits and interface components. We also provide
upgrade, maintenance and repair services for our airline customers around the
world.
Our company has substantially expanded the size, scope and nature of its
business as a result of a number of acquisitions. Since 1989, we have completed
15 acquisitions, including six in fiscal 1999, for an aggregate purchase price
of approximately $680 million in order to:
- increase our cabin interior product and service offerings;
- expand our activities from the commercial to the general aviation market;
and
- position our company as the preferred global supplier to our customers.
The acquisitions we have consummated to date have allowed us to reduce costs,
principally by integrating manufacturing facilities, or to leverage our
established customer relationships by selling more products through our
integrated sales force, or both. The largest of the six transactions we have
completed to date in fiscal 1999 was the acquisition of SMR Aerospace, Inc. and
its affiliates ("SMR") for a total aggregate purchase price of approximately
$141.5 million. SMR is a leader in providing design, integration, installation
and certification services associated with the reconfiguration of commercial
aircraft passenger cabin interiors. We believe that the acquisition of SMR
complements our cabin interior product manufacturing capabilities. In addition,
our management believes such acquisition positions our company 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. This range extends 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.
As of August 29, 1998, our backlog was approximately $700 million, compared with
a backlog of $560 million on February 28, 1998 and $420 million on February 22,
1997. Of our backlog at August 29, 1998, approximately 43% is deliverable by the
end of fiscal 1999
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and 51% of our total backlog was with North American carriers, approximately 22%
was with European carriers and approximately 20% was with Asian carriers. Of
such Asian carrier backlog, $34 million is deliverable in fiscal 1999.
Approximately $35 million of the total Asian carrier backlog was with Japan
Airlines, Singapore Airlines and Cathay Pacific, three of the largest Asian
public airlines, each with a total equity market capitalization of at least $3.0
billion as of October 20, 1998.
In fiscal 1998, approximately 92% of our total revenues were derived from major
airlines and 8% of our total revenues were derived from airframe manufacturers.
Approximately 61% of our revenues for fiscal 1998 were from refurbishment and
upgrade orders.
During the six months ended August 29, 1998, our company had revenues of $296.3
million and operating earnings before acquisition-related expenses of $42.3
million, an increase of 27% in revenues and 45% in operating earnings before
acquisition-related expenses over the six months ended August 30, 1997. During
the fiscal year ended February 28, 1998, our company had revenues of $488.0
million and operating earnings of $58.7 million, an increase of 18% in revenues
and 38% in operating earnings over the fiscal year ended February 22, 1997.
COMPETITIVE STRENGTHS
We believe that we have a strong competitive position attributable to a number
of factors, including the following:
LEADING MARKET SHARES AND SIGNIFICANT INSTALLED BASE. We believe our
leading market positions in each of our major product categories provide us
with significant competitive advantages in serving our customers. Such
advantages include 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 our
large market shares and our approximate $4.7 billion installed base of
cabin interior equipment (valued at replacement prices as of August 29,
1998), we believe we are among the lowest cost producers in the cabin
interior products industry. We also believe that our large installed base
provides our company with a significant advantage over competitors in
obtaining orders for retrofit and refurbishment programs, principally
because airlines tend to purchase replacement 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. We have
continued to expand our 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. We believe that we are the only manufacturer of a broad
technologically advanced line of cabin interior products that also has
interior design capabilities. Based on our established reputation for
quality, service and product innovation among the world's commercial
airlines, we believe that we are well positioned to provide "one-stop
shopping" to these customers. This maximizes sales opportunities for our
company and increases the convenience and value of the service provided to
our customers.
TECHNOLOGICAL LEADERSHIP/NEW PRODUCT DEVELOPMENT. Our management believes
that we are a technological leader in our industry, with the largest R&D
organization in
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the industry comprised of approximately 725 engineers. We believe that our
R&D effort and our on-site engineers at both the airlines and airframe
manufacturers enable our company to play a leading role in developing and
introducing innovative products to meet emerging industry trends and needs.
This allows us to 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 we
believe are lighter in weight and provide greater comfort as a result of
their ergonomic design and pre-engineered individual passenger comfort
features;
- our family of individual passenger distributed video systems, which we
believe 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 we believe substantially
improves the appearance, aroma and taste of airline food.
Our two individual passenger distributed video systems are designed to meet
the varying technological and price specifications of the airlines. We also
have a new interactive entertainment system in 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. We have 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, our company
acquired nine companies. We have 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. Our integration activities, coupled with
our re-engineering program, have helped to improve our gross and operating
margins (before non-recurring expenses). During the five-year period ended
February 28, 1998 our gross margin increased from 33.0% to 36.7% and our
operating margin (before non-recurring expenses) increased from 10.5% to
13.0%. During fiscal 1999, we acquired six companies, including Aerospace
Interiors, Inc., Puritan-Bennett Aero Systems Co., Aircraft Modular
Products, Aerospace Lighting Corporation, SMR Aerospace, Inc. and its
affiliates and CF Taylor Interiors Limited and one of its affiliates, to
broaden our product lines, to expand our activities from the commercial to
the general aviation market and to position our Company as the preferred
global supplier to our customers. The aggregate purchase price of all
acquisitions made by our company since 1989 is approximately $680 million.
While our company will continue to be susceptible to industry-wide
conditions, our management believes that our significantly more diversified
product line and revenue base achieved through acquisitions has reduced our
exposure to demand fluctuations in any one product area within the
industry.
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GROWTH OPPORTUNITIES
We believe that we are benefitting from four major growth trends in the
aerospace industry:
INCREASE IN REFURBISHMENT AND UPGRADE ORDERS. Our substantial installed
base provides significant ongoing revenues from replacements, upgrades,
repairs and spare parts. Approximately 61% of our revenues for the year
ended February 28, 1998 were derived from refurbishment and upgrade orders.
We believe that we are 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 following a deferral of cabin interior maintenance expenditures
in the late 1980s and early 1990s. A significant portion of our recent
growth in backlog, revenues and operating earnings has been from
refurbishment and upgrade programs. We are currently 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.
Shipments of aircraft interior products will grow with new aircraft
deliveries.
- According to the Current Market Outlook published by the Boeing
Commercial Airplane Group in 1998, worldwide air travel growth is
projected to average 5% per year over the next ten 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 approximately 23,500 by the end of 2017.
- 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
us since these aircraft require as much as seven times the dollar value
of cabin interior products as do narrow-body aircraft, including
substantially more seats, galley equipment and in-flight entertainment
products.
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 approximately
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 to new aircraft deliveries, because we believe we have been
designated as the preferred supplier of seating products and fluorescent
lighting systems of
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essentially every general aviation airframe manufacturer, we believe that
we are well positioned to capitalize on retrofit opportunities in the
general aviation and VIP aircraft fleet, which consists of approximately
10,000 aircraft with an average age of approximately 15 years.
EMERGENCE OF INDIVIDUAL PASSENGER IN-FLIGHT ENTERTAINMENT SYSTEMS AS A
MAJOR NEW PRODUCT CATEGORY. Airlines increasingly are demanding individual
passenger in-flight entertainment systems 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. We expect 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.
BUSINESS STRATEGY
Our business strategy is to maintain our leadership position and best serve our
customers by:
- offering the broadest and most integrated product lines and services in
the industry, including not only new product and follow-on product sales,
but also design, integration, installation and certification services, as
well as maintenance, upgrade and repair services;
- pursuing a worldwide marketing approach focused by airline and general
aviation airframe manufacturer and encompassing our entire product line;
- pursuing the highest level of quality in every facet of our operations,
from the factory floor to customer support,
- remaining the technological leader in our industry, as well as
significantly growing our installed base of products in the developing
in-flight individual passenger entertainment market;
- enhancing our position in the growing upgrade, maintenance, inspection
and repair services market; and
- pursuing selective strategic acquisitions in the commercial aircraft and
general aviation cabin interior products industries.
RECENT DEVELOPMENTS
RECENT ACQUISITIONS. For the fiscal year 1999 to date, we have completed
six strategic acquisitions intended to further enhance our leadership
position in the commercial aircraft and general aviation cabin interior
products industries. A brief description of each of these acquisitions is
as follows:
- On March 27, 1998, we acquired Aerospace Interiors, Inc. for a total of
201,895 shares of Common Stock, representing a purchase price of
approximately $5.6 million. Aerospace Interiors 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.
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- On April, 13, 1998, we acquired Puritan-Bennett Aero Systems Co., a
wholly owned subsidiary of Nellcor Puritan Bennett Inc., for a cash
purchase price of $69.7 million. Puritan-Bennett is a leading
manufacturer 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, we acquired Aircraft Modular Products for a cash
purchase price of $117.3 million. Aircraft Modular Products 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, we acquired Aerospace Lighting Corporation for a total
of 964,780 shares of Common Stock, representing a purchase price of
approximately $28.1 million. Aerospace Lighting is a market leader in
producing interior fluorescent lighting systems for business and
corporate jet aircraft.
- On August 7, 1998, we acquired the common stock of SMR for a total
aggregate purchase 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 Aerospace'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, we acquired substantially all of the galley
equipment assets and certain property and assumed related liabilities of
CF Taylor Interiors Limited and acquired the common stock of CF Taylor
(Wales) Limited, both wholly owned subsidiaries of EIS Group PLC, for a
total cash purchase price of approximately L14.9 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.
SENIOR SUBORDINATED NOTES OFFERING. 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.
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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 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.
EARNINGS RELEASE. 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
$2.2
8
<PAGE> 15
million, or seven cents per share (diluted), 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 has adjusted
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 (diluted), 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 million was 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. For the 1999
nine-month period, B/E reported a net loss of $(42.9) million or $(1.72)
per share (diluted), versus earnings of $24.5 million, or $1.04 per share
(diluted), in fiscal 1998.
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 notes thereto, and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included, or
incorporated by reference, elsewhere in this Prospectus.
9
<PAGE> 16
- -------------------------------------------------------------------------------
BE AEROSPACE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(In thousands, except per share data)
<TABLE>
<CAPTION>
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 43,017
Research, development and
engineering........................ 16,085 12,438 40,827 34,988
Amortization......................... 6,624 2,666 16,038 8,195
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
potentially dilutive common
shares............................. 27,766 23,808 24,946 23,539
======== ======== ======== ========
</TABLE>
-------------------------
B/E's executive offices are located at 1400 Corporate Center Way, Wellington,
Florida 33414, and its telephone number is (561) 791-5000.
- -------------------------------------------------------------------------------
10
<PAGE> 17
SUMMARY OF THE TERMS OF THE EXCHANGE OFFER
The Exchange Offer relates to the exchange of up to $200 million aggregate
principal amount of outstanding notes for an equal aggregate principal amount of
new notes. The new notes will be obligations of the Company entitled to the
benefits of the indenture governing the outstanding notes. The form and terms of
the new notes are identical in all material respects to the form and terms of
the outstanding notes except that the new notes have been registered under the
Securities Act, and therefore are not entitled to the benefits of the
registration rights granted under the registration rights agreement, executed as
part of the offering of the outstanding notes, dated November 2, 1998 among the
Company and the initial purchasers in the private offering, including Merrill
Lynch & Co., BT Alex. Brown, Chase Securities Inc., Credit Suisse First Boston,
Morgan Stanley Dean Witter and Paine Webber Incorporated, relating to certain
contingent increases in the interest rates provided for pursuant thereto.
Registration Rights Agreement... You are entitled to exchange your notes for
registered notes with substantially
identical terms. The Exchange Offer is
intended to satisfy these rights. After the
Exchange Offer is complete, you will no
longer be entitled to any exchange or
registration rights with respect to your
notes.
The Exchange Offer.............. We are offering to exchange $1,000 principal
amount of 9 1/2% Series B Senior
Subordinated Notes due 2008 which have been
registered under the Securities Act of 1933
for each $1,000 principal amount of our
outstanding 9 1/2% Series B Senior
Subordinated Notes due 2008 which were
issued in November 1998 in a private
offering. In order to be exchanged, an
outstanding note must be properly tendered
and accepted. All outstanding notes that are
validly tendered and not validly withdrawn
will be exchanged.
As of this date there are $200 million
principal amount of notes outstanding.
We will issue registered notes on or
promptly after the expiration of the
Exchange Offer.
Resale of the New Notes......... Based on an interpretation by the staff of
the Commission set forth in no-action
letters issued to third parties, including
"Exxon Capital Holdings Corporation"
(available May 13, 1988), "Morgan Stanley &
Co. Incorporated" (available June 5, 1991),
"Mary Kay Cosmetics, Inc." (available June
5, 1991) and "Warnaco, Inc." (available
October 11, 1991), we believe that the notes
issued in the exchange offer may be offered
for resale, resold and otherwise transferred
by you without compliance with the
registration and prospectus
11
<PAGE> 18
delivery provisions of the Securities Act of
1933 provided that:
- the notes issued in the Exchange Offer are
being acquired in the ordinary course of
business;
- you are not participating, do not intend
to participate, and have no arrangement or
understanding with any person to
participate, in the distribution of the
notes issued to you in the Exchange Offer;
- you are not a broker-dealer who purchased
such outstanding notes directly from us
for resale pursuant to Rule 144A or any
other available exemption under the
Securities Act of 1933; and
- you are not an "affiliate" of ours.
If our belief is inaccurate and you transfer
any note issued to you in the Exchange Offer
without delivering a prospectus meeting the
requirement of the Securities Act of 1933 or
without an exemption from registration of
your notes from such requirements, you may
incur liability under the Securities Act of
1933. We do not assume or indemnify you
against such liability.
Each broker-dealer that is issued notes in
the Exchange Offer for its own account in
exchange for notes which were acquired by
such broker-dealer as a result of
market-making or other trading activities,
must acknowledge that it will deliver a
prospectus meeting the requirements of the
Securities Act of 1933, in connection with
any resale of the notes issued in the
Exchange Offer. The Letter of Transmittal
states that by so acknowledging and by
delivering a prospectus, such broker-dealer
will not be deemed to admit that it is an
"underwriter" within the meaning of the
Securities Act. A broker-dealer may use this
Prospectus for an offer to resell, resale or
other retransfer of the notes issued to it
in the Exchange Offer. We have agreed that,
for a period of 180 days after the date of
this Prospectus, we will make this
Prospectus and any amendment or supplement
to this Prospectus available to any such
broker-dealer for use in connection with any
such resales. We believe that no registered
holder of the outstanding notes is an
affiliate (as such term is defined in Rule
405 of the Securities Act) of the Company.
The Exchange Offer is not being made to, nor
will we accept surrenders for exchange from,
holders of
12
<PAGE> 19
outstanding notes in any jurisdiction in
which this Exchange Offer or the acceptance
thereof would not be in compliance with the
securities or blue sky laws of such
jurisdiction.
Expiration Date................. The Exchange Offer will expire at 5:00 p.m.,
New York City time, February 11, 1999,
unless we decide to extend the expiration
date.
Accrued Interest on the Exchange
Notes and the Outstanding
Notes......................... The new notes will bear interest from
November 2, 1998. Holders of outstanding
notes whose notes are accepted for exchange
will be deemed to have waived the right to
receive any payment of interest on such
outstanding notes accrued from November 2,
1998 to the date of the issuance of the new
notes. Consequently, holders who exchange
their outstanding notes for new notes will
receive the same interest payment on May 1,
1999 (the first interest payment date with
respect to the outstanding notes and the new
notes to be issued in the Exchange Offer)
that they would have received had they not
accepted the Exchange Offer.
Termination of the Exchange
Offer........................... We may terminate the Exchange Offer if we
determine that our ability to proceed with
the Exchange Offer could be materially
impaired due to any legal or governmental
action, new law, statute, rule or regulation
or any interpretation of the staff of the
Commission of any existing law, statute,
rule or regulation. We do not expect any of
the foregoing conditions to occur, although
there can be no assurance that such
conditions will not occur. Holders of
outstanding notes will have certain rights
against our Company under the registration
rights agreement executed as part of the
offering of the outstanding notes should we
fail to consummate the Exchange Offer.
Procedures for Tendering
Outstanding Notes............. If you are a holder of a note and you wish
to tender your note for exchange pursuant to
the Exchange Offer, you must transmit to The
Bank of New York, as exchange agent, on or
prior to the Expiration Date:
either
- a properly completed and duly executed
Letter of Transmittal, which accompanies
this
13
<PAGE> 20
Prospectus, or a facsimile of the Letter
of Transmittal, including all other
documents required by the Letter of
Transmittal, to the Exchange Agent at the
address set forth on the cover page of
the Letter of Transmittal; or
- a computer-generated message transmitted
by means of DTC's Automated Tender Offer
Program system and received by the
Exchange Agent and forming a part of a
confirmation of book entry transfer in
which you acknowledge and agree to be
bound by the terms of the Letter of
Transmittal;
and, either
- a timely confirmation of book-entry
transfer of your outstanding notes into
the Exchange Agent's account at The
Depository Trust Company ("DTC") pursuant
to the procedure for book-entry transfers
described in this Prospectus under the
heading "The Exchange Offer -- Procedure
for Tendering," must be received by the
Exchange Agent on or prior to the
Expiration Date; or
- the documents necessary for compliance
with the guaranteed delivery procedures
described below.
By executing the Letter of Transmittal, each
holder will represent to us that, among
other things, (i) the notes to be issued in
the Exchange Offer are being obtained in the
ordinary course of business of the person
receiving such new notes whether or not such
person is the holder, (ii) neither the
holder nor any such other person has an
arrangement or understanding with any person
to participate in the distribution of such
new notes and (iii) neither the holder nor
any such other person is an "affiliate," as
defined in Rule 405 under the Securities Act
of the Company.
Special Procedures for
Beneficial Owners............... If you are the beneficial owner of notes and
your name does not appear on a security
position listing of DTC as the holder of
such notes or if you are a beneficial owner
of registered notes that are registered in
the name of a broker, dealer, commercial
bank, trust company or other nominee and you
wish to tender such notes or registered
notes in the Exchange Offer, you should
contact such person
14
<PAGE> 21
whose name your notes or registered notes
are registered promptly and instruct such
person to tender on your behalf. If such
beneficial holder wishes to tender on his
own behalf such beneficial holder must,
prior to completing and executing the Letter
of Transmittal and delivering its
outstanding notes, either make appropriate
arrangements to register ownership of the
outstanding notes in such holder's name or
obtain a properly completed bond power from
the registered holder. The transfer of
record ownership may take considerable time.
Guaranteed Delivery
Procedures...................... If you wish to tender your notes and time
will not permit your required documents to
reach the Exchange Agent by the Expiration
Date, or the procedure for book-entry
transfer cannot be completed on time or
certificates for registered notes cannot be
delivered on time, you may tender your notes
pursuant to the procedures described in this
Prospectus under the heading "The Exchange
Offer -- Guaranteed Delivery Procedure."
Withdrawal Rights............... You may withdraw the tender of your notes at
any time prior to 5:00 p.m., New York City
time, on February 10, 1999, the business day
prior to the Expiration Date, unless your
notes were previously accepted for exchange.
Acceptance of Outstanding Notes
and Delivery of Exchange
Notes......................... Subject to certain conditions (as summarized
above in "Termination of the Exchange Offer"
and described more fully under "The Exchange
Offer -- Termination"), we will accept for
exchange any and all outstanding notes which
are properly tendered in the Exchange Offer
prior to 5:00 p.m., New York City time, on
the Expiration Date. The notes issued
pursuant to the Exchange Offer will be
delivered promptly following the Expiration
Date.
Certain U.S. Federal Income Tax
Consequences.................. The exchange of the notes will generally not
be a taxable exchange for United States
federal income tax purposes. We believe you
will not recognize any taxable gain or loss
or any interest income as a result of such
exchange.
Use of Proceeds................. We will not receive any proceeds from the
issuance of notes pursuant to the Exchange
Offer. We will pay all expenses incident to
the Exchange Offer.
Exchange Agent.................. The Bank of New York is serving as exchange
agent in connection with the Exchange Offer.
The
15
<PAGE> 22
Exchange Agent can be reached at Corporate
Trust Trustee Administration, 101 Barclay
Street, Floor 21W, New York, NY 10286. For
more information with respect to the
Exchange Offer, the telephone number for the
Exchange Agent is (212) 815-4997 and the
facsimile number for the Exchange Agent is
(212) 815-6339.
SUMMARY DESCRIPTION OF THE NEW NOTES
Notes Offered................... $200,000,000 aggregate principal amount of
9 1/2% Senior Subordinated Notes due 2008.
Maturity Date................... November 1, 2008.
Interest Payment Dates.......... May 1 and November 1 of each year,
commencing May 1, 1999.
Ranking......................... The notes will be unsecured senior
subordinated obligations and will be
subordinated to all our existing and future
senior indebtedness. The notes will rank
equally with all our other existing and
future senior subordinated indebtedness,
including our currently outstanding 8%
senior subordinated notes due 2008 and
9 7/8% senior subordinated notes due 2006,
and will rank senior to all our subordinated
indebtedness. The notes effectively will
rank junior to all liabilities of our
subsidiaries. Because the notes are
subordinated, in the event of bankruptcy,
liquidation or dissolution, holders of the
notes will not receive any payment until
holders of senior indebtedness have been
paid in full. The terms "senior
indebtedness" and "subordinated
indebtedness" are defined in the
"Description of the New
Notes -- Subordination" and "Description of
the New Notes -- Certain Definitions"
sections of this Prospectus.
As of August 29, 1998, after giving pro
forma effect to the offering of the
outstanding notes and our use of the net
proceeds from the offering and borrowings
related to certain acquisitions and related
costs, we would have had outstanding $88.5
million of senior indebtedness and $549.4
million of senior subordinated indebtedness
outstanding and our subsidiaries would have
had no indebtedness outstanding.
Optional Redemption............. We may redeem the notes, in whole or in
part, at any time on or after November 1,
2003, at the redemption prices set forth in
this Prospectus.
16
<PAGE> 23
Public Equity Offering Optional
Redemption.................... Before November 1, 2001, we may redeem up to
35% of the aggregate principal amount of the
notes with the net proceeds of a public
equity offering at 109 1/2% of the principal
amount thereof, plus accrued interest, if at
least 65% of the aggregate principal amount
of the notes originally issued remains
outstanding after such redemption. See
"Description of the New Notes -- Optional
Redemption."
Change of Control............... Upon certain change of control events, each
holder of notes may require us to repurchase
all or a portion of its notes at a purchase
price equal to 101% of the principal amount
thereof, plus accrued interest. See
"Description of the New Notes -- Certain
Definitions" for the definition of a Change
of Control.
Certain Covenants............... The indenture governing the notes will
contain covenants that, among other things,
will limit our ability and the ability of
our restricted subsidiaries to:
- incur additional indebtedness,
- incur additional senior subordinated
indebtedness,
- pay dividends on, redeem or repurchase our
capital stock,
- make investments,
- issue or sell capital stock of restricted
subsidiaries,
- engage in transactions with affiliates,
- create certain liens,
- sell assets,
- guarantee indebtedness,
- restrict dividend or other payments to us,
and
- consolidate, merge or transfer all or
substantially all our assets and the
assets of our subsidiaries on a
consolidated basis.
These covenants are subject to important
exceptions and qualifications, which are
described under the heading "Description of
the New Notes" in this Prospectus.
17
<PAGE> 24
Exchange Offer; Registration
Rights........................ Under a registration rights agreement
executed as part of the offering of the
outstanding notes, we have agreed to:
- file a registration statement within 30
days after the issue date of the notes
enabling note holders to exchange the
privately placed notes for publicly
registered notes with identical terms,
- use our best efforts to cause the
registration statement to become effective
within 120 days after the issue date of
the notes,
- consummate the exchange offer within 150
days after the effective date of our
registration date, and
- use our best efforts to file a shelf
registration statement for the resale of
the notes if we cannot effect an exchange
offer within the time periods listed above
and in certain other circumstances.
The interest rate on the notes will increase
if we do not comply with our obligations
under the registration rights agreement. See
"The Exchange Offer."
Risk Factors.................... See "Risk Factors" for a discussion of
factors you should carefully consider before
deciding to invest in the notes.
18
<PAGE> 25
SUMMARY FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The following table presents our summary historical financial information as of
and for the fiscal years ended February 24, 1996, February 22, 1997 and February
28, 1998. This data is from our audited consolidated financial statements and
notes. This table also presents our summary historical financial information as
of and for the six months ended August 30, 1997 and August 29, 1998. This data
is from our unaudited condensed consolidated financial statement and notes, but,
in the opinion of our management, includes all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation of the financial
position and results of operations for such periods. Operating results for the
six months ended August 30, 1997 and August 29, 1998 do not necessarily show
what the results for a full year may be. Also shown in the table is certain
unaudited pro forma financial information for the fiscal year ended February 28,
1998 and as of and for the six months ended August 29, 1998, reflecting pro
forma adjustments as described in the footnotes to the table. Since the
information in this table is only a summary, you should read our historical
financial statements and the related notes, which are incorporated herein by
reference, and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Pro Forma Combined Financial Data" found elsewhere
in this Prospectus. You should also read our financial statements and other
information filed with the SEC.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SIX MONTHS ENDED
-------------------------------------------- ------------------------------------
HISTORICAL PRO FORMA HISTORICAL PRO FORMA
------------------------------- ---------- ----------------------- ----------
FEB. 24, FEB. 22, FEB. 28, FEB. 28, AUGUST 30, AUGUST 29, AUGUST 29,
1996(a) 1997 1998 1998(b)(c) 1997 1998(d) 1998(b)(c)
-------- -------- -------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net sales............................... $232,582 $412,379 $487,999 $680,741 $233,689 $296,343 $363,747
Cost of sales........................... 160,031 270,557 309,094 436,594 148,477 184,863 228,258
-------- -------- -------- -------- -------- -------- --------
Gross profit............................ 72,551 141,822 178,905 244,147 85,212 111,480 135,489
Operating expenses:
Selling, general and administrative... 42,000 51,734 58,622 75,144 27,935 37,041 46,403
Research, development and
engineering......................... 58,327(e) 37,083 45,685 58,065 22,550 24,742 28,402
Amortization expense.................. 9,499 10,607 11,265 21,339 5,529 9,414 11,121
In-process research and development
and acquisition-related expenses.... -- -- -- 79,155(h) -- 79,155(h) --
Other expenses........................ 4,170(f) -- 4,664(g) 6,664(g) -- -- --
-------- -------- -------- -------- -------- -------- --------
Operating earnings (loss)............... (41,445) 42,398 58,669 3,780 29,198 (38,872) 49,563
Interest expense, net................... 18,636 27,167 22,765 54,909 11,531 16,446 26,796
-------- -------- -------- -------- -------- -------- --------
Earnings (loss) before income taxes,
extraordinary item and cumulative
effect of change in accounting
principle............................. (60,081) 15,231 35,904 (51,129) 17,667 (55,318) 22,767
Income taxes............................ -- 1,522 5,386 4,204 2,647 4,052 3,870
-------- -------- -------- -------- -------- -------- --------
Earnings (loss) before extraordinary
item and cumulative effect of change
in accounting principle............... (60,081) 13,709 30,518 (55,333) 15,020 (59,370) 18,897
Extraordinary item...................... -- -- 8,956(i) 8,956(i) -- -- --
-------- -------- -------- -------- -------- -------- --------
Earnings (loss) before cumulative effect
of change in accounting principle..... (60,081) 13,709 21,562 (64,289) 15,020 (59,370) 18,897
Cumulative effect of change in
accounting principle.................. (23,332)(e) -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Net earnings (loss)..................... $(83,413) $ 13,709 $ 21,562 $(64,289) $ 15,020 $(59,370) $ 18,897
======== ======== ======== ======== ======== ======== ========
(continued on following page)
</TABLE>
19
<PAGE> 26
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
FISCAL YEAR ENDED SIX MONTHS ENDED
-------------------------------------------- ------------------------------------
HISTORICAL PRO FORMA HISTORICAL PRO FORMA
------------------------------- ---------- ----------------------- ----------
FEB. 24, FEB. 22, FEB. 28, FEB. 28, AUGUST 30, AUGUST 29, AUGUST 29,
1996(a) 1997 1998 1998(b)(c) 1997 1998(d) 1998(b)(c)
-------- -------- -------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER DATA:
Gross margin............................ 31.2% 34.4% 36.7% 35.9% 36.5% 37.6% 37.2%
EBITDA(j)............................... $(18,840) $ 66,545 $ 87,493 $128,034 $ 41,663 $ 58,595 $ 70,643
Depreciation and amortization........... 18,435 24,147 24,160 38,435 12,465 18,312 21,080
Capital expenditures.................... 13,656 14,471 28,923 35,989 11,656 20,210 21,613
Backlog, at period end(k)............... 340,000 420,000 560,000 NM 525,000 700,000 NM
SELECTED RATIOS:
Ratio of earnings to fixed charges(l)... NM(m) 1.6x 2.5x 0.1x 2.5x NM(m) 1.8x
Ratio of EBITDA to interest expense,
net(n)................................ NM 2.4x 3.8x 2.3x 3.6x 3.6x 2.6x
</TABLE>
<TABLE>
<CAPTION>
AUGUST 29, 1998
---------------------------
ACTUAL PRO FORMA(b)(c)
-------- ---------------
<S> <C> <C>
BALANCE SHEET DATA (END OF PERIOD):
Working capital............................................. $182,464 $200,198
Total assets................................................ 901,168 963,395
Long-term debt.............................................. 464,813 629,937
Stockholders' equity........................................ 257,245 139,245
</TABLE>
- -------------------------
(a) On January 24, 1996, we acquired all of the stock of Burns Aerospace
Corporation, an industry leader in commercial aircraft seating. The
acquisition of Burns was accounted for as a purchase. The results of Burns
are included in our historical financial data from the date of acquisition.
(b) As adjusted to reflect the application of the net proceeds from this
offering to repurchase the 4,000,000 shares of our common stock issued to
the former stockholders of SMR and related costs associated with the
issuance of the notes.
(c) The pro forma combined statements of operations data for the fiscal year
ended February 28, 1998 and the six months ended August 29, 1998 gives
effect to the recent acquisitions of the Company which include (i) the
acquisition of SMR Aerospace, Inc. on August 7, 1998, (ii) the acquisition
of Puritan-Bennett Aero Systems on April 13, 1998, (iii) the acquisition of
Aircraft Modular Products on April 21, 1998 and (iv) the acquisition of CF
Taylor and one of its affiliates (together, "CF Taylor") on September 3,
1998 and the refinancing of our 9 3/4% Senior Notes due 2003 (which was
completed on March 16, 1998), in each case as if the acquisitions and the
refinancing had occurred on February 23, 1997. The pro forma combined
balance sheet as of August 29, 1998 assumes that the acquisition of CF
Taylor occurred on August 29, 1998. See "Pro Forma Combined Financial
Data."
(d) On March 27, 1998, we acquired Aerospace Interiors, Inc. On April 13, 1998,
we acquired Puritan-Bennett Aero Systems Co. On April 21, 1998, we acquired
Aircraft Modular Products. On July 30, 1998, we acquired Aerospace Lighting
Corporation. On August 7, 1998, we acquired SMR Aerospace, Inc. and its
affiliates. The results of such acquisitions are included in our historical
financial data from the date of acquisition. See "Summary -- Recent
Developments."
(e) In fiscal 1996, we changed our method of accounting relating to the
capitalization of precontract engineering costs. Previously our precontract
engineering costs were included as a component of inventories and charged
to earnings as the product was shipped. Effective February 26, 1995, such
costs have been charged to research, development and engineering and
expensed as incurred. In connection with such change in accounting, we
recorded a charge to earnings of $23,332.
(footnotes continued on following page)
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(f) In fiscal 1996, in conjunction with our rationalization of our seating
business and as a result of the Burns acquisition, we recorded a charge to
earnings of $4,170 related to costs associated with the integration and
consolidation of our European seating operations.
(g) In fiscal 1998, we settled a long-running dispute with the U.S. Government
over export sales between 1992 and 1995 to Iran Air. We recorded a charge
of $4,664 in fiscal year 1998 related to fines, civil penalties and
associated legal fees arising from the settlement. See "Business -- Legal
Proceedings."
(h) During the six months ended August 29, 1998, we recorded a charge of
$79,155 for the write-off of acquired in-process research and development
and acquisition-related expenses associated with the Puritan Bennett,
Aircraft Modular Products and SMR Aerospace transactions. These expenses
are reflected in the Pro Forma Combined Statements of Operations for the
year ended February 28, 1998 as the acquisitions are assumed to have
occurred on February 23, 1997. In addition, we engaged consultants to
assist in the allocation of the purchase price of CF Taylor. Based upon the
result 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 arise from new product development
projects that are in various stages of completion at the acquired
enterprise at the date of acquisition. 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
is identified are written off.
(i) We incurred an extraordinary charge of $8,956 during fiscal year 1998 for
unamortized debt issue costs, tender and redemption premium and fees and
expenses related to the repurchase of our 9 3/4% Senior Notes due 2003.
(j) EBITDA represents net earnings before deducting extraordinary items, income
tax expenses, interest expense, net, other expenses, in-process research
and development and acquisition-related expenses and depreciation and
amortization expense. EBITDA is not a measurement in accordance with
generally accepted accounting principles. EBITDA is presented to help you
in fully analyzing our financial condition. These data are not intended to
be a substitute for net income (loss) or operating cash flow as a measure
of our profitability. EBITDA, as presented, may not be comparable to
similarly titled measures of other companies.
(k) As adjusted to exclude certain backlog which was removed from bookings in
August 1997. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Bookings and Backlog Information."
(l) For purposes of computing this ratio, earnings consist of earnings before
extraordinary items, income taxes and fixed charges. Fixed charges consist
of interest expense, capitalized interest and amortization of deferred debt
issuance costs.
(m) Earnings were insufficient to cover fixed charges by $60,100 for the fiscal
year ended February 24, 1996 and by $55,800 for the six months ended August
29, 1998. The insufficiencies were primarily the result of the charge to
earnings of $23,332 in Fiscal 1996 for the change in accounting principal
described in note (e) above and the charge of $79,155 in Fiscal 1999 for
the write-off of acquired in-process research and development and
acquisition-related expenses described in note (h) above.
(n) The ratio of EBITDA to interest expense in the Pro Forma columns was
computed on a pro forma basis giving effect to the offering of the
outstanding notes and our use of the net proceeds from the offering and
borrowings related to certain acquisitions and related costs in each case
as if the offering and borrowings related to certain acquisitions and
related costs had occurred on February 23, 1997.
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RISK FACTORS
You should carefully consider the following factors and other information in
this Prospectus before deciding to invest in the notes.
SIGNIFICANT INDEBTEDNESS AND INTEREST PAYMENT OBLIGATIONS
As of August 29, 1998, after giving pro forma effect to the offering of the
outstanding notes and our use of the net proceeds of the offering and borrowings
related to certain acquisitions and related costs, we would have had outstanding
$637.9 million of consolidated indebtedness (of which approximately $88.5
million would have been senior indebtedness) and our total consolidated
indebtedness, as a percentage of capitalization, would have been 93%. For the
six months ended August 29, 1998, our earnings would have been insufficient to
cover fixed charges 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. We may incur additional indebtedness in the future, although we will be
limited in the amount we could incur by our existing and future debt agreements.
Our high level of indebtedness could have important consequences to note
holders, such as:
- limiting our ability to obtain additional financing to fund our growth
strategy, working capital, capital expenditures, debt service
requirements or other purposes;
- limiting our ability to use operating cash flow in other areas of our
business because we must dedicate a substantial portion of these funds to
make principal payments and fund debt service;
- increasing our vulnerability to adverse economic and industry conditions;
and
- increasing our vulnerability to interest rate increases because
borrowings under our bank credit facilities are at variable interest
rates.
Our ability to pay interest on the notes and to satisfy our other debt
obligations will depend upon, among other things, our future operating
performance and our ability to refinance indebtedness when necessary. Each of
these factors is to a large extent dependent on economic, financial, competitive
and other factors, beyond our control. If, in the future, we cannot generate
sufficient cash from operations to make scheduled payments on the notes or to
meet our other obligations, we will need to refinance, obtain additional
financing or sell assets. We cannot assure you that our business will generate
cash flow, or that we will be able to obtain funding, sufficient to satisfy our
debt service requirements.
RESTRICTIONS IN DEBT AGREEMENTS ON OUR OPERATIONS
The operating and financial restrictions and covenants in our existing debt
agreements, including our bank credit facilities, the indentures governing these
notes, the 9 7/8% senior subordinated notes and the 8% senior subordinated
notes, and any future financing agreements may adversely affect our ability to
finance future operations or capital needs or to engage in other business
activities. See "Description of the New Notes" and "Description of Certain
Indebtedness." A breach of any of these restrictions or covenants could cause a
default under other debt, and the notes. A significant portion of our
indebtedness then may become immediately due and payable. We are not certain
whether we would have, or be able to obtain, sufficient funds to make these
accelerated payments, including payments on the notes.
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SUBORDINATION OF THE NOTES TO SENIOR INDEBTEDNESS
The notes will be subordinate to all our senior indebtedness. In addition, the
notes effectively will rank junior to all liabilities of our subsidiaries. As of
August 29, 1998, after giving pro forma effect to the offering of the
outstanding notes and our use of the net proceeds of the offering and borrowings
related to certain acquisitions and related costs, we would have had outstanding
$88.5 million of senior indebtedness and $549.4 million of senior subordinated
indebtedness and our subsidiaries would have had no indebtedness. We also may
incur additional senior indebtedness consistent with the terms of our debt
agreements. For example, upon consummation of the offering of the outstanding
notes and our use of the net proceeds from the offering, as of August 29, 1998,
we would have had $109.4 million available under our bank credit facilities
which, if borrowed, would be senior indebtedness.
In the event of our bankruptcy, liquidation or dissolution, our assets would be
available to pay obligations on the notes only after all payments had been made
on our senior indebtedness. We cannot assure you that sufficient assets will
remain to make any payments on the notes. In addition, certain events of default
under our senior indebtedness would prohibit us from making any payments on the
notes. The term "senior indebtedness" is defined in the "Description of the New
Notes -- Subordination" section of this Prospectus.
NOTES ARE UNSECURED
In addition to being subordinate to all of our senior indebtedness, the notes
will not be secured by any of our assets. Our obligations under our bank credit
facilities are secured by substantially all of our assets. If we became
insolvent or are liquidated, or if payment under our bank credit facilities is
accelerated, the lenders under our bank credit facilities would be entitled to
exercise the remedies available to a secured lender under applicable law.
Therefore, our bank lenders will have a claim on such assets before the holders
of these notes. See "Description of Certain Indebtedness."
POSSIBLE INABILITY TO PURCHASE NOTES UPON A CHANGE OF CONTROL
Upon certain change of control events, each holder of notes may require us to
repurchase all or a portion of its notes at a purchase price equal to 101% of
the principal amount thereof, plus accrued interest. Our ability to repurchase
the notes upon a change of control event will be limited by the terms of our
debt agreements. Upon a change of control event, we may be required immediately
to repay the outstanding principal, any accrued interest on and any other
amounts owed by us under our bank credit facilities. There can be no assurance
that we would be able to repay amounts outstanding under our bank credit
facilities or obtain necessary consents under such facilities to repurchase
these notes. In addition, upon the happening of a change of control event, we
will be required to offer to purchase all of the 9 7/8% notes and the 8% notes.
Any requirement to offer to purchase any outstanding notes may result in us
having to refinance our outstanding indebtedness, which we may not be able to
do. In addition, even if we were able to refinance such indebtedness, such
financing may be on terms unfavorable to us. The term "Change of Control" is
defined in the "Description of the New Notes -- Certain Definitions."
DEPENDENCE UPON CONDITIONS IN THE AIRLINE INDUSTRY
Our principal customers are the world's commercial airlines. As a result, our
business is directly dependent upon the conditions in the highly cyclical and
competitive commercial
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airline industry. In the late 1980s and early 1990s, the world airline industry
suffered a severe downturn, which resulted in record losses and several air
carriers seeking protection under bankruptcy laws. As a consequence, during such
period, airlines sought to conserve cash by reducing or deferring scheduled
cabin interior refurbishment and upgrade programs and by delaying purchases of
new aircraft. This led to a significant contraction in the commercial aircraft
cabin interior products industry and a decline in our business and
profitability. Since early 1994, the airlines have experienced a turnaround in
operating results, leading the domestic airline industry to record operating
earnings during calender 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 our 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 our $700 million of backlog at August 29, 1998, we 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, including non-Asian carriers that have
substantial Asian routes, 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 continued severe economic
conditions in Asia, it will be substantially scaling back production of a number
of aircraft types, including particularly wide-body aircraft which require
proportionately more of the Company's products. 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 we have developed. Development of the MDDS and related
in-flight entertainment systems required substantial investment by us and third
parties in research, development and engineering. Our future success may depend
to some extent on our 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."
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COMPETITION
We compete with a number of established companies that have significantly
greater financial, technological and marketing resources than we do. Although we
have achieved a significant share of the market for a number of our commercial
airline cabin interior products, there can be no assurance that we will be able
to maintain this market share. Our ability to maintain our market share will
depend on our ability to remain the supplier of retrofit and refurbishment
products and spare parts on the commercial fleets on which our products are
currently in service. It will also depend on our success in causing our 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.
Our 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 we do. See "Business -- Competition."
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, our backlog has increased by approximately 67%. Our ability to receive new
contract awards and to deliver our existing backlog is dependent upon our (and
our suppliers') ability to increase deliveries to meet the recent surge in
demand. Although we believe we have sufficient manufacturing capacity to meet
customer demand, we, and our suppliers, may not 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, we acquired nine companies. During fiscal 1999,
we acquired six additional companies. See "Summary -- Recent Developments."
Through several of these recent acquisitions, we have expanded our activities
from the commercial to the general aviation market. There can be no assurance
that we will be successful in entering the general aviation market. We intend to
consider future strategic acquisitions in the commercial airline and general
aviation cabin interior industries, some of which could be material to us. We
are in discussions from time to time with one or more third parties regarding
possible acquisitions. As of the date of this Prospectus we have no agreement or
understanding on any acquisition. Our ability to continue to achieve our goals
will depend upon our ability to integrate effectively the recent and any future
acquisitions and to achieve cost efficiencies. Although we have been successful
in the past in doing so, we may not continue to be successful. See
"Business -- Competitive Strengths."
Depending upon, among other things, the acquisition opportunities available, we
may need to raise additional funds. We may seek additional funds through public
offerings or private placements of debt or equity securities or bank loans. In
the absence of such financing, our ability to make future acquisitions in
accordance with our business strategy, to absorb adverse operating results, to
fund capital expenditures or to respond to changing business
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and economic conditions may be adversely affected. All of these factors may have
a material adverse effect on our 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 we fail to obtain a required license for
one of our products or services or lose a license previously granted, the sale
of such product or service would be prohibited by law until such license is
obtained or renewed. In addition, 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 Regulations."
POTENTIAL FAILURE OF COMPUTER SYSTEMS TO RECOGNIZE YEAR 2000
We are highly dependent on our computer software programs and operating systems
in operating our business. We also depend 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 our financial condition, results of
operations, cash flow and business prospects. We are currently identifying our
own applications that will not be Year 2000 compliant and taking steps to
determine whether third parties are doing the same. In addition, we are
implementing a worldwide plan to prepare our computer systems to be Year 2000
compliant by the first half of 1999. We have already spent $17 million on Year
2000 issues and estimate that the total cost of implementing our Year 2000
compliance program will require an additional $13 million.
Our inability to remedy our 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. We can not assure
you that our Year 2000 program or the programs of third parties who do business
with us will be effective or that our estimates about the timing and cost of
completing our 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
Our foreign operations accounted for 26% of total sales for each of the six
months ended August 29, 1998 and fiscal 1998, as compared to 24% for the six
months ended August 30, 1997 and 25% for fiscal 1997. In addition, we have
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 our 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, we 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. There can be no assurance that we 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
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been material because a substantial majority of our 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.
We have not hedged net foreign investments in the past, although we may engage
in hedging transactions in the future to manage or reduce our exchange risk.
There can be no assurance that our attempts to manage our foreign currency
exchange risk will be successful.
Our 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 we operate. 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."
RISKS ASSOCIATED WITH THE CONVERSION BY CERTAIN EU MEMBER STATES TO THE "EURO"
We may be exposed to certain risks as a result of the conversion by certain
European Union member states of their respective currencies to the "euro" as
legal currency on January 1, 1999. The conversion rates between such member
states' currencies and the euro will be fixed by the Council of the European
Union. 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 our
products and services; and
- changes in currency exchange rate risk.
We have analyzed whether the conversion to the euro will materially affect our
business operations. While we are uncertain as to the impact of the conversion,
we do not expect 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 our
business, results of operations, and financial condition.
ENVIRONMENTAL MATTERS
We are 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. We are also
subject to laws and regulations governing remediation of contamination at
facilities currently or formerly owned or operated by us to which we have sent
hazardous substances or wastes for treatment, recycling or disposal. We believe
that we are currently in compliance, in all material respects, with all such
laws and regulations. However, we may be subject to future liabilities or
obligations as a result of new or more stringent interpretations of existing
laws and regulations. In addition, we may have liabilities or obligations in the
future if we
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discover any environmental contamination or liability at any of our facilities,
or at facilities we may acquire.
LIQUID TRADING MARKET FOR THE NOTES MAY NOT DEVELOP
There has not been an established trading market for the notes. Although each
initial purchaser has informed us that it currently intends to make a market in
the outstanding notes and, if issued, the exchange notes, which will replace the
outstanding notes, it has no obligation to do so and may discontinue making a
market at any time without notice.
The notes are eligible for trading in the Private Offerings, Resale and Trading
through the Automatic Linkage ("PORTAL") market. However, we do not intend to
apply for listing of the outstanding notes or, if issued, the exchange notes, on
any securities exchange or for quotation through the National Association of
Securities Dealers Automated Quotation System.
The liquidity of any market for the notes will depend upon the number of holders
of the notes, our performance, the market for similar securities, the interest
of securities dealers in making a market in the notes and other factors. A
liquid trading market may not develop for the notes.
CONSEQUENCES OF FAILURE TO EXCHANGE
Untendered outstanding notes that are not exchanged for new notes pursuant to
the Exchange Offer will remain restricted securities. Outstanding notes will
continue to be subject to the following restrictions on transfer: (i)
outstanding notes may be resold only if registered pursuant to the Securities
Act, if an exemption from registration is available thereunder, or if neither
such registration nor such exemption is required by law, (ii) outstanding notes
shall bear a legend restricting transfer in the absence of registration or an
exemption therefrom and (iii) a holder of outstanding notes who desires to sell
or otherwise dispose of all or any part of its outstanding notes under an
exemption from registration under the Securities Act, if requested by us, must
deliver to us an opinion of independent counsel experienced in Securities Act
matters, reasonably satisfactory in form and substance to us, that such
exemption is available.
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USE OF PROCEEDS
There will be no cash proceeds payable to the Company from the issuance of the
new notes pursuant to the Exchange Offer. The net proceeds less estimated debt
issue costs received by the Company from the sale of the outstanding notes were
approximately $193.7 million. The Company used approximately $118.0 million of
the net proceeds from the offering of the outstanding 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, bringing the
total aggregate purchase price paid by the Company for SMR Aerospace to
approximately $142.0 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 stockholders described above, the Company decided to repurchase
the SMR Shares with approximately $118.0 million of the proceeds from the sale
of the outstanding 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 EXCHANGE OFFER
GENERAL
In connection with the sale of the outstanding notes (the "Old Notes"), the
purchasers thereof became entitled to the benefits of certain registration
rights (the "Registration Rights"). Pursuant to the registration rights
agreement executed as part of the Offering (the "Registration Rights
Agreement"), the Company agreed to (i) file within 30 days, and cause to become
effective within 120 days of the date of original issue of the Old Notes, the
Registration Statement of which this Prospectus is a part with respect to the
exchange of the Old Notes for the new notes to be issued in the Exchange Offer
(the "New Notes" and, together with the Old Notes, the "Notes") and (ii) cause
the Exchange Offer to be consummated within 150 days of the original issue of
the Old Notes. The New Notes have terms identical in all material respects to
the terms of the Old Notes. However, in the event that any changes in law or
applicable interpretation of the
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staff of the Commission do not permit the Company to effect the Exchange Offer,
or if for any other reason the Exchange Offer is not consummated within 150 days
following the date of the original issue of the Old Notes, or if any holder of
the Old Notes other than the initial purchasers in the Offering (the "Initial
Purchasers") is not eligible to participate in the Exchange Offer, or upon the
request of any Initial Purchaser under certain circumstances, the Company has
agreed to use its best efforts to cause to become effective the 150th day after
the original issue of the Old Notes, a Shelf Registration Statement with respect
to the resale of the Old Notes and to keep the Shelf Registration Statement
effective until three years after the effective date thereof (or until one year
after such effective date if such Shelf Registration Statement is filed at the
request of the Initial Purchasers under certain circumstances). The Company also
had agreed that in the event that either (i) the Registration Statement is not
filed with the Commission on or prior to the 30th calendar day following the
date of the original issue of the Old Notes or (ii) the Registration Statement
is not declared effective on or prior to the 120th calendar day following the
date of the original issue of the Old Notes or (iii) the Exchange Offer is not
consummated or a Shelf Registration Statement is not declared effective on or
prior to the 150th calendar day following the original issue of the Old Notes,
the interest rate borne by the Old Notes shall be increased by one-half of one
percent per annum after such 30-day period in the case of clause (i) above after
such 120-day period in the case of clause (ii) above or after such 150-day
period in the case of clause (iii) above. The aggregate amount of such increase
from the original interest rate pursuant to those provisions will in no event
exceed one-half of one percent per annum. Upon (x) the effectiveness of the
Registration Statement after the 120-day period in clause (ii) above or (y) the
consummation of the Exchange Offer or the effectiveness of a Shelf Registration
Statement, as the case may be, after the 150-day period outlined in clause (iii)
above, the interest rate borne by the Old Notes from the date of such filing or
effectiveness or the day before the date of consummation, as the case may be,
will be reduced to the original interest rate if the Company is otherwise in
compliance with such requirements.
In the event the Exchange Offer is consummated, the Company will not be required
to file a Shelf Registration Statement relating to any outstanding Old Notes
other than those held by persons not eligible to participate in the Exchange
Offer, and the interest rate on such Old Notes will remain at its initial level
of 9 1/2%. The Exchange Offer shall be deemed to have been consummated upon the
earlier to occur of (i) the Company having exchanged New Notes for all
outstanding Old Notes (other than Old Notes held by persons not eligible to
participate in the Exchange Offer) pursuant to the Exchange Offer and (ii) the
Company having exchanged, pursuant to the Exchange Offer, New Notes for all Old
Notes that have been tendered and not withdrawn on the Expiration Date. Upon
consummation, holders of Old Notes seeking liquidity in their investment would
have to rely on exemptions to registration requirements under the securities
laws, including the Securities Act. See "Risk Factors -- Consequences of Failure
to Exchange."
Upon the terms and subject to the conditions set forth in this Prospectus and in
the accompanying Letter of Transmittal, the Company will accept all Old Notes
validly tendered prior to 5:00 p.m., New York City time, on the Expiration Date.
The Company will issue $1,000 principal amount of New Notes in exchange for each
$1,000 principal amount of outstanding Old Notes accepted in the Exchange Offer.
Holders may tender some or all of their Old Notes pursuant to the Exchange Offer
in denominations of $1,000 and integral multiples thereof.
Based on no-action letters issued by the staff of the Commission to third
parties, the Company believes that the New Notes issued pursuant to the Exchange
Offer in exchange
30
<PAGE> 37
for Old Notes may be offered for resale, resold and otherwise transferred by any
holder thereof (other than (i) a broker-dealer who purchased such Old Notes
directly from the Company to resell pursuant to Rule 144A or any other available
exemption under the Securities Act or (ii) a person that is an "affiliate" of
the Company within the meaning of Rule 405 under the Securities Act) without
compliance with the registration and prospectus delivery requirements of the
Securities Act, provided that the holder is acquiring the New Notes in its
ordinary course of business and is not participating, and has no arrangements or
understanding with any person to participate, in the distribution of the New
Notes. Holders of Old Notes wishing to accept the Exchange Offer must represent
to the Company that such conditions have been met.
Each broker-dealer that receives New Notes in Exchange for Old Notes held for
its own account, as a result of market-making or other trading activities, must
acknowledge that it will deliver a prospectus in connection with any resale of
such New Notes. The Letter of Transmittal states that by so acknowledging and by
delivering a prospectus, such broker-dealer will not be deemed to admit that it
is an "underwriter" within the meaning of the Securities Act. The Prospectus, as
it may be amended or supplemented from time to time, may be used by such
broker-dealer in connection with resales of New Notes received in exchange for
Old Notes. The Company has agreed that, for a period of 180 days after the
Expiration Date, it will make this Prospectus and any amendment or supplement to
this Prospectus available to any such broker-dealer for use in connection with
any such resale. See "Plan of Distribution."
As of the date of this Prospectus, $200 million aggregate principal amount of
the Old Notes is outstanding. In connection with the issuance of the Old Notes,
the Company arranged for the Old Notes initially purchased by Qualified
Institutional Buyers to be issued and transferable in book-entry form through
the facilities of DTC, acting as depositary. The New Notes will also be issuable
and transferable in book-entry form through DTC.
This Prospectus, together with the accompanying Letter of Transmittal, is being
sent to all registered holders as of January 7, 1999 (the "Record Date").
The Company shall be deemed to have accepted validly tendered Old Notes when, as
and if the Company has given oral or written notice thereof to the Exchange
Agent. See "-- Exchange Agent." The Exchange Agent will act as agent for the
tendering holders of Old Notes for the purpose of receiving New Notes from the
Company and delivering New Notes to such holders.
If any tendered Old Notes are not accepted for exchange because of an invalid
tender or the occurrence of certain other events set forth herein, certificates
for any such unaccepted Old Notes will be returned, without expenses, to the
tendering holder thereof as promptly as practicable after the Expiration Date.
Holders of Old Notes who tender in the Exchange Offer will not be required to
pay brokerage commissions or fees or, subject to the instructions in the Letter
of Transmittal, transfer taxes with respect to the exchange of Old Notes
pursuant to the Exchange Offer. The Company will pay all charges and expenses,
other than certain applicable taxes, in connection with the Exchange Offer. See
"-- Fees and Expenses."
31
<PAGE> 38
EXPIRATION DATES; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean February 11, 1999 unless the Company, in
its sole discretion, extends the Exchange Offer, in which case the term
"Expiration Date" shall mean the latest date to which the Exchange Offer is
extended.
In order to extend the Expiration Date, the Company will notify the Exchange
Agent of any extension by oral or written notice and will mail to the record
holders of Old Notes an announcement thereof, each prior to 9:00 a.m., New York
City time, on the next business day after the previously scheduled Expiration
Date. Such announcement may state that the Company is extending the Exchange
Offer for a specified period of time.
The Company reserves the right (i) to delay acceptance of any Old Notes, to
extend the Exchange Offer or to terminate the Exchange Offer and to refuse to
accept Old Notes not previously accepted, if any of the conditions set forth
herein under "-- Termination" shall have occurred and shall not have been waived
by the Company (if permitted to be waived by the Company), by giving oral or
written notice of such delay, extension or termination to the Exchange Agent,
and (ii) to amend the terms of the Exchange Offer in any manner deemed by it to
be advantageous to the holders of the Old Notes. Any such delay in acceptance,
extension, termination or amendment will be followed as promptly as practicable
by oral or written notice thereof. If the Exchange Offer is amended in a manner
determined by the Company to constitute a material change, the Company will
promptly disclose such amendment in a manner reasonably calculated to inform the
holders of the Old Notes of such amendment.
Without limiting the manner by which the Company may choose to make public
announcements of any delay in acceptance, extension, termination or amendment of
the Exchange Offer, the Company shall have no obligation to publish, advertise,
or otherwise communicate any such public announcement, other than by making a
timely release to the Dow Jones News Service.
INTEREST ON THE NEW NOTES
The New Notes will bear interest from November 2, 1998, payable semiannually on
May 1 and November 1 of each year commencing on May 1, 1999, at the rate of
9 1/2% per annum. Holders of Old Notes whose Old Notes are accepted for exchange
will be deemed to have waived the right to receive any payment in respect of
interest on the Old Notes accrued from November 2, 1998 until the date of the
issuance of the New Notes. Consequently, holders who exchange their Old Notes
for New Notes will receive the same interest payment on May 1, 1999 (the first
interest payment date with respect to the Old Notes and the New Notes) that they
would have received had they not accepted the Exchange Offer.
PROCEDURE FOR TENDERING
To tender in the Exchange Offer, a holder must complete, sign and date the
Letter of Transmittal, or a facsimile thereof, have the signatures thereon
guaranteed if required by the Letter of Transmittal, and mail or otherwise
deliver such Letter of Transmittal or such facsimile, together with the Old
Notes (unless such tender is being effected pursuant to the procedure for
book-entry transfer described below) and any other required documents, to the
Exchange Agent prior to 5:00 p.m., New York City time, on the Expiration Date.
Any financial institution that is a participant in DTC's Book-Entry Transfer
Facility system may make book-entry delivery of the Old Notes by causing DTC to
transfer such Old
32
<PAGE> 39
Notes into the Exchange Agent's account in accordance with DTC's procedure for
such transfer. Although delivery of Old Notes may be effected through book-entry
transfer into the Exchange Agent's account DTC, the Letter of Transmittal (or
facsimile thereof), with any required signature guarantees and any other
required documents, must, in any case, be transmitted to and received or
confirmed by the Exchange Agent at its addresses set forth herein under
"-- Exchange Agent" prior to 5:00 p.m., New York City time, on the Expiration
Date. DELIVERY OF DOCUMENTS TO DTC IN ACCORDANCE WITH ITS PROCEDURES DOES NOT
CONSTITUTE DELIVERY TO THE EXCHANGE AGENT.
The tender by a holder of Old Notes will constitute an agreement between such
holder and the Company in accordance with the terms and subject to the
conditions set forth herein and in the Letter of Transmittal.
Delivery of all documents must be made to the Exchange Agent at its address set
forth herein. Holders may also request that their respective brokers, dealers,
commercial banks, trust companies or nominees effect such tender for such
holders.
The method of delivery of Old Notes and the Letters of Transmittal and all other
required documents to the Exchange Agent is at the election and risk of the
holders. Instead of delivery by mail, it is recommended that holders use an
overnight or hand delivery service. In all cases, sufficient time should be
allowed to assure timely delivery. No Letter of Transmittal or Old Notes should
be sent to the Company.
Only a holder of Old Notes may tender such Old Notes in the Exchange Offer. The
term "holder" with respect to the Exchange Offer means any person in whose name
Old Notes are registered on the books of the Company or any other person who has
obtained a properly completed bond power from the registered holder, or any
person whose Old Notes are held of record by DTC who desires to deliver such Old
Notes by bookentry transfer at DTC.
Any beneficial holder whose Old Notes are registered in the name of his broker,
dealer, commercial bank, trust company or other nominee and who wishes to tender
should contact such registered holder promptly and instruct such registered
holder to tender on his behalf. If such beneficial holder wishes to tender on
his own behalf, such beneficial holder must, prior to completing and executing
the Letter of Transmittal and delivering his Old Notes, either make appropriate
arrangements to register ownership of the Old Notes in such holder's name or
obtain a properly completed bond power from the registered holder. The transfer
of record ownership may take considerable time.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the case may
be, must be Guaranteed by a member firm of a registered national securities
exchange or of the National Association of Securities Dealers, Inc., a
commercial bank or trust company having an office of correspondent in the United
States or an "eligible guarantor institution" within the meaning of Rule 17Ad-15
under the Exchange Act (an "Eligible Institution") unless the Old Notes tendered
pursuant thereto are tendered (i) by a registered holder who has not completed
the box entitled "Special Issuance Instructions" or "Special Delivery
Instructions" on the Letter of Transmittal or (ii) for the account of an
Eligible Institution.
If the Letter of Transmittal is signed by a person other than the registered
holder of any Old Notes listed therein, such Old Notes must be endorsed or
accompanied by appropriate bond powers which authorize such person to tender the
Old Notes on behalf of the
33
<PAGE> 40
registered holder, in either case signed as the name of the registered holder or
holders appears on the Old Notes.
If the Letter of Transmittal or any Old Notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and unless waived by the Company,
evidence satisfactory to the Company of their authority to so act must be
submitted with the Letter of Transmittal.
All the questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of the tendered Old Notes will be determined
by the Company in its sole discretion, which determinations will be final and
binding. The Company reserves the absolute right to reject any and all Old Notes
not validly tendered or any Old Notes the Company's acceptance of which would,
in the opinion of counsel for the Company, be unlawful. The Company also
reserves the absolute right to waive any irregularities or conditions of tender
as to particular Old Notes. The Company's interpretation of the terms and
conditions of the Exchange Offer (including the instructions in the Letter of
Transmittal) will be final and binding on all parties. Unless waived any defects
or irregularities in connection with tenders of Old Notes must be cured within
such time as the Company shall determine. Neither the Company, the Exchange
Agent nor any other person shall be under any duty to give notification of
defects or irregularities with respect to tenders of Old Notes nor shall any of
them incur any liability for failure to give such notification. Tenders of Old
Notes will not be deemed to have been made until such irregularities have been
cured or waived. Any Old Notes received by the Exchange Agent that are not
property tendered and as to which the defects or irregularities have not been
cured or waived will be returned without cost by the Exchange Agent to the
tendering holder of such Old Notes unless otherwise provided in the Letter of
Transmittal, as soon as practicable following the Expiration Date.
In addition, the Company reserves the right in its sole discretion to (a)
purchase or make offers for any Old Notes that remain outstanding subsequent to
the Expiration Date, or, as set forth under "Termination," to terminate the
Exchange Offer and (b) to the extent permitted by applicable law, purchase Old
Notes in the open market, in privately negotiated transactions or otherwise. The
terms of any such purchases or offers may differ from the terms of the Exchange
Offer.
By tendering, each holder of Old Notes will represent to the Company that among
other things, the New Notes acquired pursuant to the Exchange Offer are being
obtained in the ordinary course of business of the person receiving such New
Notes, whether or not such person is the holder, that neither the Holder nor any
other person has an arrangement or understanding with any person to participate
in the distribution of the New Notes and that neither the holder nor any such
other person is an "affiliate" of the Company within the meaning of Rule 405
under the Securities Act.
GUARANTEED DELIVERY PROCEDURE
Holders who wish to tender their Old Notes and (i) whose Old Notes are not
immediately available, or (ii) who cannot deliver their Old Notes, the Letter of
Transmittal, or any other required documents to the Exchange Agent prior to the
Expiration Date, or if such
34
<PAGE> 41
Holder cannot complete the procedure for book-entry transfer on a timely basis,
may effect a tender if:
(a) The tender is made through an Eligible Institution;
(b) Prior to the Expiration Date, the Exchange Agent receives from such
Eligible Institution a properly completed and duty executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the holder of the Old Notes, the
certificate number or numbers of such Old Notes and the principal
amount of Old Notes tendered, stating that the tender is being made
thereby, and guaranteeing that, within five business days after the
Expiration Date, the Letter of Transmittal (or facsimile thereof),
together with the certificate(s) representing the Old Notes to be
tendered in proper form for transfer and any other documents required
by the Letter of Transmittal, will be deposited by the Eligible
Institution with the Exchange Agent; and
(c) Such properly completed and executed Letter of Transmittal (or
facsimile thereof), together with the certificate(s) representing all
tendered Old Notes in proper form for transfer (or confirmation of a
book-entry transfer into the Exchange Agent's account at DTC of Old
Notes delivered electronically) and all other documents required by the
Letter of Transmittal are received by the Exchange Agent within five
business days after the Expiration Date.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Old Notes may be withdrawn at
any time prior to 5:00 p.m., New York City time, on the business day prior to
the Expiration Date, unless previously accepted for exchange.
To withdraw a tender of Old Notes in the Exchange Offer, a written or facsimile
transmission notice of withdrawal must be received by the Exchange Agent at its
address set forth herein prior to 5:00 p.m., New York City time, on the business
day, prior to the Expiration Date and prior to acceptance for exchange thereof
by the Company. Any such notice of withdrawal must (i) specify the name of the
person having deposited the Old Notes to be withdrawn (the "Depositor"), (ii)
identify the Old Notes to be withdrawn (including the certificate number or
numbers and principal amount of such Old Notes), (iii) be signed by the
Depositor in the same manner as the original signature on the Letter of
Transmittal by which such Old Notes were tendered (including any required
signature guarantees) or be accompanied by documents of transfers sufficient to
permit the Trustee with respect to the Old Notes to register the transfer of
such Old Notes into the name of the Depositor withdrawing the tender and (iv)
specify the name in which any such Old Notes are to be registered, if different
from that of the Depositor. All questions as to the validity, form and
eligibility (including time of receipt) for such withdrawal notices will be
determined by the Company, whose determination shall be final and binding on all
parties. Any Old Notes so withdrawn will be deemed not to have been validly
tendered for purposes of the Exchange Offer and no New Notes will be issued with
respect thereto unless the Old Notes so withdrawn are validly tendered. Any Old
Notes which have been tendered but which are not accepted for exchange will be
returned to the holder thereof without cost to such holder as soon as
practicable after withdrawal, rejection of tender or termination of the Exchange
Offer. Properly withdrawn Old Notes may be tendered by following one of the
procedures described above under "-- Procedures for Tendering" at any time prior
to the Expiration Date.
35
<PAGE> 42
TERMINATION
Notwithstanding any other term of the Exchange Offer, the Company will not be
required to accept for exchange, or exchange New Notes for, any Old Notes not
therefore accepted for exchange, and may terminate or amend the Exchange Offer
as provided herein before the acceptance of such Old Notes if: (i) any action or
proceeding is instituted or threatened in any court or by or before any
governmental agency with respect to the Exchange Offer, which, in the Company's
judgment, might materially impair the Company's ability to proceed with the
Exchange Offer or (ii) any law, statute, rule or regulation is proposed, adopted
or enacted, or any existing law, statute rule or regulation is interpreted by
the staff of the Commission or court of competent jurisdiction in a manner,
which, in the Company's judgment, might materially impair the Company's ability
to proceed with the Exchange Offer.
If the Company determines that it may terminate the Exchange Offer, as set forth
above, the Company may (i) refuse to accept any Old Notes and return any Old
Notes that have been tendered to the holders thereof, (ii) extend the Exchange
Offer and retain all Old Notes tendered prior to the Expiration of the Exchange
Offer, subject to the rights of such holders of tendered Old Notes to withdraw
their tendered Old Notes, or (iii) waive such termination event with respect to
the Exchange Offer and accept all properly tendered Old Notes that have not been
withdrawn. If such waiver constitutes a material change in the Exchange Offer,
the Company will disclose such change by means of a supplement to this
Prospectus that will be distributed to each registered holder of Old Notes and
the Company will extend the Exchange Offer for a period of five to ten business
days, depending upon the significance of the waiver and the manner of disclosure
to the registered holders of the Old Notes, if the Exchange Offer would
otherwise expire during such period.
EXCHANGE AGENT
The Bank of New York, the Trustee under the indenture governing the Notes (the
"Indenture"), has been appointed as Exchange Agent for the Exchange Offer.
Questions and requests for assistance and requests for additional copies of this
Prospectus or of the Letter of Transmittal should be directed to the Exchange
Agent addressed as follows:
<TABLE>
<S> <C>
By Mail or Hand Delivery: The Bank of New York
101 Barclay Street
New York, New York 10286
Attention: Reorganization Department 7-E
Facsimile Transmission: (212) 815-6339
Confirm by Telephone: (212) 815-4997
</TABLE>
FEES AND EXPENSES
The expenses of soliciting tenders pursuant to the Exchange Offer will be borne
by the Company. The principal solicitation for tenders pursuant to the Exchange
Offer is being made by mail. Additional solicitations may be made by officers
and regular employees of the Company and its affiliates in person, by telegraph
or telephone.
The Company will not make any payments to brokers, dealers or other persons
soliciting acceptances of the Exchange Offer. The Company, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
the Exchange Agent for its reasonable out-of-pocket expenses in connection
therewith. The Company may also pay
36
<PAGE> 43
brokerage houses and other custodians, nominees and fiduciaries the reasonable
out-of-pocket expenses incurred by them in forwarding copies of this Prospectus,
Letters of Transmittal and related documents to the beneficial owners of the Old
Notes and in handling or forwarding tenders for exchange.
The expenses to be incurred in connection with the Exchange Offer, including
fees and expenses of the Exchange Agent and Trustee and accounting and legal
fees, will be paid by the Company.
The Company will pay all transfer taxes, if any, applicable to the exchange of
Old Notes pursuant to the Exchange Offer. If, however, certificates representing
New Notes or Old Notes for principal amounts not tendered or accepted for
exchange are to be delivered to, or are to be registered or issued in the name
of, any person other than the registered holder of the Old Notes tendered, or if
tendered Old Notes are registered in the name of any person other than the
person signing the Letter of Transmittal, or if a transfer tax is imposed for
any reason other than the exchange of Old Notes pursuant to the Exchange Offer,
then the amount of any such transfer taxes (whether imposed on the registered
holder or any other person) will be payable by the tendering holder. If
satisfactory evidence of payment of such taxes or exemption therefrom is not
submitted with the Letter of Transmittal, the amount of such transfer taxes will
be billed directly to such tendering holder.
FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizing the federal income tax consequences of the
Exchange Offer reflects the opinion of Shearman & Sterling, counsel to the
Company, as to material federal income tax consequences expected to result from
the Exchange Offer. An opinion of counsel is not binding on the Internal Revenue
Service ("IRS") or the courts, and there can be no assurances that the IRS will
not take, and that a court would not sustain, a position to the contrary to that
described below. Moreover, the following discussion does not constitute
comprehensive tax advice to any particular Holder of Old Notes. The summary is
based on the current provisions of the Internal Revenue Code of 1986, as
amended, and applicable Treasure regulations, judicial authority and
administrative pronouncements. The tax consequences described below could be
modified by future changes in the relevant law, which could have retroactive
effect. Each Holder of Old Notes should consult its own tax advisor as to these
and any other federal income tax consequences of the Exchange Offer as well as
any tax consequences to it under foreign, state, local or other law.
In the opinion of Shearman & Sterling, exchanges of Old Notes for New Notes
pursuant to the Exchange Offer will be treated as a modification of the Old
Notes that does not constitute a material change in their terms, and the Company
intends to treat the exchanges in that manner. Therefore an exchanging Holder
will not recognize any gain or loss in respect of an exchange of an Old Note for
a New Note, and such Holder's basis and holding period in the New Note will be
the same as such Holder's basis and holding period in the Old Note. The Exchange
Offer will result in no federal income tax consequences to a non-exchanging
Holder.
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<PAGE> 44
CAPITALIZATION
The following table sets forth the capitalization of the Company as of August
29, 1998 and on a pro forma basis (i) as adjusted to give effect to the sale of
the Old Notes in the Offering after deducting estimated discounts, commissions
and other offering expenses, and the application of the net proceeds of the
Offering as described in "Use of Proceeds" and (ii) as if the acquisition of CF
Taylor occurred on August 29, 1998. The table should be read in conjunction with
the B/E historical financial statements, including the notes thereto, which are
incorporated herein by reference, and "Pro Forma Combined Financial Data"
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF AUGUST 29, 1998
-------------------------
ACTUAL PRO FORMA(A)
--------- ------------
(DOLLAR IN THOUSANDS)
<S> <C> <C>
Short-term debt, including current maturities of
long-term debt........................................ $ 7,983 $ 7,983
Long-term debt, excluding current maturities:
Bank Credit Facility.................................. 113,500 78,500(b)
9 7/8% Senior Subordinated Notes due 2006............. 100,000 100,000
8% Senior Subordinated Notes due 2008................. 249,409 249,409
Notes offered hereby.................................. -- 200,000
Other................................................. 1,904 2,028
--------- ---------
Total long-term debt............................... 464,813 629,937
Stockholders' equity:
Preferred Stock, $.01 par value, 1,000,000 shares
authorized; no shares issued and outstanding....... -- --
Common Stock, $.01 par value, 50,000,000 shares
authorized; 28,251,910 shares issued and
outstanding; 24,251,910 shares outstanding (as
adjusted).......................................... 283 243
Additional paid-in capital............................ 359,660 241,700
Accumulated deficit................................... (100,094) (100,094)
Cumulative foreign exchange translation adjustment.... (2,604) (2,604)
--------- ---------
Total stockholders' equity......................... 257,245 139,245
--------- ---------
Total capitalization............................... $ 730,041 $ 777,165
========= =========
</TABLE>
- -------------------------
(a) Adjusted to reflect the sale of the Old Notes. The Company used
approximately $118.0 million of the net proceeds from the Offering to
repurchase the four million shares of the Company's common stock previously
issued to the selling stockholders in connection with the acquisition of
SMR, with the remainder used to repay bank indebtedness under the Bank
Credit Facility (as defined herein). Following the Offering and the
application of the net proceeds received therefrom, the Company would have
available under its Bank Credit Facility approximately $109.4 million for
subsequent borrowings.
(b) The pro forma amount set forth above for the Bank Credit Facility reflects
the August 29, 1998 balance plus borrowings in September 1998 related to
certain acquisitions and related costs less the application of the proceeds
of the Offering.
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<PAGE> 45
SELECTED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
On January 24, 1996, the Company acquired all of the stock of Burns Aerospace
Corporation ("Burns"). On March 27, 1998, the Company acquired Aerospace
Interiors, Inc. ("ASI"). On April 13, 1998, the Company completed its
acquisition of Puritan-Bennett Aero Systems Co. ("PBASCO") and on April 21,
1998, the Company acquired substantially all of the assets of Aircraft Modular
Products ("AMP"). On July 30, 1998, the Company acquired Aerospace Lighting
Corporation ("ALC") and on August 7, 1998, the Company acquired SMR Aerospace,
Inc. and its affiliates ("SMR"). The financial data as of and for the fiscal
years ended February 26, 1994, February 25, 1995, February 24, 1996, February
22, 1997 and February 28, 1998 have been derived from financial statements which
have been audited by B/E's independent auditors. The financial data for the six
months ended August 30, 1997 and August 29, 1998 have been derived from
financial statements which are unaudited, but, in the opinion of management,
include all adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of the financial position and results of
operations of such periods. Operating results for the six months ended August
30, 1997 and August 29, 1998 are not necessarily indicative of results that may
be expected for a full year. The following financial information is qualified by
reference to, and should be read in conjunction with, the B/E historical
financial statements, including notes thereto, which are incorporated herein by
reference, and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SIX MONTHS ENDED
------------------------------------------------------ -------------------
FEB. 26, FEB. 25, FEB. 24, FEB. 22, FEB. 28, AUG. 30, AUG. 29,
1994 1995 1996(a) 1997 1998 1997 1998(b)
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net sales...................... $203,364 $229,347 $232,582 $412,379 $487,999 $233,689 $296,343
Cost of sales.................. 136,307 154,863 160,031 270,557 309,094 148,477 184,863
-------- -------- -------- -------- -------- -------- --------
Gross profit................... 67,057 74,484 72,551 141,822 178,905 85,212 111,480
Operating expenses:
Selling, general and
administrative............. 28,164 31,787 42,000 51,734 58,622 27,935 37,041
Research, development and
engineering................ 9,876 12,860 58,327(c) 37,083 45,685 22,550 24,742
Amortization expense......... 7,599 9,954 9,499 10,607 11,265 5,529 9,414
In-process research and
development and acquisition
related expenses........... -- -- -- -- -- -- 79,155(f)
Other expenses............... -- 23,736(d) 4,170(d) -- 4,664(e) -- --
-------- -------- -------- -------- -------- -------- --------
Operating earnings (loss)...... 21,418 (3,853) (41,445) 42,398 58,669 29,198 (38,872)
Interest expense, net.......... 12,581 15,019 18,636 27,167 22,765 11,531 16,446
-------- -------- -------- -------- -------- -------- --------
Earnings (loss) before income
taxes (benefit),
extraordinary item and
cumulative effect of change
in accounting principle...... 8,837 (18,872) (60,081) 15,231 35,904 17,667 (55,318)
Income taxes (benefit)......... 3,481 (6,806) -- 1,522 5,386 2,647 4,052
-------- -------- -------- -------- -------- -------- --------
Earnings (loss) before
extraordinary item and
cumulative effect of change
in accounting principle...... 5,356 (12,066) (60,081) 13,709 30,518 15,020 (59,370)
Extraordinary item............. -- -- -- -- 8,956(g) -- --
-------- -------- -------- -------- -------- -------- --------
Earnings (loss) before
cumulative effect of change
in accounting principle...... 5,356 (12,066) (60,081) 13,709 21,562 15,020 (59,370)
Cumulative effect of change in
accounting principle......... -- -- (23,332)(c) -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Net earnings (loss)............ $ 5,356 $(12,066) $(83,413) $ 13,709 $ 21,562 $ 15,020 $(59,370)
======== ======== ======== ======== ======== ======== ========
(continued on following page)
</TABLE>
39
<PAGE> 46
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SIX MONTHS ENDED
------------------------------------------------------ -------------------
FEB. 26, FEB. 25, FEB. 24, FEB. 22, FEB. 28, AUG. 30, AUG. 29,
1994 1995 1996(a) 1997 1998 1997 1998(b)
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Basic earnings (loss) per
share(1):
Earnings (loss) before
extraordinary item and
cumulative effect of change
in accounting principle.... $ .35 $ (.75) $ (3.71) $ .77 $ 1.36 $ .68 $ (2.49)
Extraordinary item........... -- -- -- -- (.40)(g) -- --
Cumulative effect of
accounting change.......... -- -- (1.44)(c) -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Net earnings (loss).......... $ .35 $ (.75) $ (5.15) $ .77 $ .96 $ .68 $ (2.49)
======== ======== ======== ======== ======== ======== ========
Weighted average common
shares..................... 15,438 16,021 16,185 17,692 22,442 22,103 23,822
Diluted earnings (loss) per
share(1):
Earnings (loss) before
extraordinary item and
cumulative effect of change
in accounting principle.... $ .34 $ (.75) $ (3.71) $ .72 $ 1.30 $ .64 $ (2.49)
Extraordinary item........... -- -- -- -- (.38)(g) -- --
Cumulative effect of
accounting change.......... -- -- (1.44)(c) -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Net earnings (loss).......... $ .34 $ (.75) $ (5.15) $ .72 $ .92 $ .64 $ (2.49)
======== ======== ======== ======== ======== ======== ========
Weighted average common
shares..................... 15,623 16,021 16,185 19,097 23,430 23,493 23,822
OTHER DATA:
Gross margin................... 33.0% 32.5% 31.2% 34.4% 36.7% 36.5% 37.6%
EBITDA(h)...................... $ 34,533 $ 36,029 $(18,840) $ 66,545 $ 87,493 $ 41,663 $ 58,595
Depreciation and
amortization................. 13,115 16,146 18,435 24,147 24,160 12,465 18,312
Capital Expenditures........... 11,002 12,172 13,656 14,471 28,923 11,656 20,210
Backlog, at period end(i)...... 131,000 221,000 340,000 420,000 560,000 525,000 700,000
SELECTED RATIOS:
Ratio of earnings to fixed
charges(j)................... 1.7x NM(k) NM(k) 1.6x 2.5x 2.5x NM(k)
Ratio of EBITDA to interest
expense, net................. 2.7x 2.4x NM 2.4x 3.8x 3.6x 3.6x
BALANCE SHEET DATA (END OF
PERIOD):
Working capital................ $ 76,874 $ 76,563 $ 41,824 $122,174 $262,504 $144,686 $182,464
Total assets................... 375,009 379,954 433,586 491,089 681,757 510,521 901,168
Long-term debt................. 159,170 172,693 273,192 225,402 349,557 225,446 464,813
Stockholders' equity........... 133,993 125,331 44,157 165,761 196,775 186,298 257,245
</TABLE>
- -------------------------
(footnotes on following page)
40
<PAGE> 47
(a) On January 24, 1996, the Company acquired all of the stock of Burns, an
industry leader in commercial aircraft seating. The acquisition of Burns
was accounted for as a purchase, and the results of Burns are included in
B/E's historical financial data from the date of acquisition.
(b) On March 27, 1998, the Company acquired ASI. On April 13, 1998, the Company
acquired PBASCO. On April 21, 1998, the Company acquired AMP. On July 30,
1998, the Company acquired ALC. On August 7, 1998, the Company acquired
SMR. The results of such acquisitions are included in B/E's historical
financial data from the date of acquisition. See "Summary -- Recent
Developments."
(c) In fiscal 1996, the Company changed its method of accounting relating to
the capitalization of precontract engineering costs that were previously
included as a component of inventories and amortized to earnings as the
product was shipped. Effective February 26, 1995, such costs have been
charged to research, development and engineering and expensed as incurred
and, as a result, periods prior to fiscal 1996 are not comparable. In
connection with such change in accounting, the Company recorded a charge to
earnings of $23,332.
(d) In fiscal 1996, in conjunction with the Company's rationalization of its
seating business and as a result of the Burns acquisition, the Company
recorded a charge to earnings of $4,170 related to costs associated with
the integration and consolidation of the Company's European seating
operations. In fiscal 1995, the Company charged to earnings $23,736 of
expenses primarily related to intangible assets and inventories associated
with the Company's earlier generations of passenger entertainment systems.
(e) In fiscal 1998, the Company settled a long-running dispute with the U.S.
Government over export sales between 1992 and 1995 to Iran Air. The Company
recorded a charge of $4,664 in fiscal 1998 related to fines, civil
penalties and associated legal fees arising from the settlement. See
"Business -- Legal Proceedings."
(f) During the six months ended August 29, 1998, the Company recorded a charge
of $79,155 for the write-off of acquired in-process research and
development and acquisition-related expenses associated with the PBASCO,
AMP and SMR transactions. In-process research and development expenses
arise from new product development projects that are in various stages of
completion at the acquired enterprise at the date of acquisition.
In-process research and development expenses for products under development
at the date of acquisition that have not established technological
feasibility and for which no alternative use is identified are written off.
(g) 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% Senior Notes due 2003
(the "9 3/4% Notes").
(h) EBITDA represents net earnings before deducting extraordinary items, income
tax expenses, interest expense, net, other expenses, in-process research
and development and acquisition-related expenses and depreciation and
amortization expense. EBITDA is not a measurement in accordance with GAAP
and is presented to facilitate a further analysis of B/E's financial
condition. These data are not intended to be a substitute for net income
(loss) or operating cash flow as a measure of B/E's profitability. EBITDA,
as presented, may not be comparable to similarly titled measures of other
companies.
(i) 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."
(footnotes continued on following page)
41
<PAGE> 48
(j) For purposes of computing this ratio, earnings consist of earnings before
extraordinary items, income taxes and fixed charges. Fixed charges consist
of interest expense, capitalized interest and amortization of deferred debt
issuance costs.
(k) Earnings were insufficient to cover fixed charges by approximately $18,000,
$60,100 and $55,800 for the fiscal years ended February 25, 1995 and
February 24, 1996 and the six months ended August 29, 1998, respectively.
(l) During fiscal year 1998, the Company adopted Statement of Financial
Accounting Standard No. 128, Earnings per Share, and, accordingly, has
restated earnings per share for all periods presented.
42
<PAGE> 49
PRO FORMA COMBINED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The unaudited pro forma combined statements of operations and unaudited pro
forma combined balance sheet give effect to (i) the acquisition by B/E of SMR,
(ii) the acquisitions of AMP, PBASCO and CF Taylor (together, the "Other
Insignificant Acquisitions"), (iii) the issuance of the Company's shares in
connection with the acquisition of SMR, (iv) the refinancing of B/E's 9 3/4%
Notes (which was completed on March 16, 1998) and (v) the sale of the Old Notes
in the Offering and the use of $118.0 million of the net proceeds of the
Offering to repurchase the SMR Shares and the remainder to repay indebtedness
under the Bank Credit Facility. The pro forma combined statements of operations
for the year ended February 28, 1998 is comprised of the results of B/E for the
year ended February 28, 1998, the results of SMR, PBASCO and CF Taylor for the
year ended December 31, 1997 and the results of AMP for the twelve months ended
January 31, 1998. The pro forma combined statements of operations for the six
months ended August 29, 1998 is comprised of the results of B/E for the six
months ended August 29, 1998, the results of CF Taylor for the six months ended
June 30, 1998, the results of SMR for the five months ended May 31, 1998 and the
results of AMP and PBASCO for the one month ended March 31, 1998. The pro forma
combined balance sheet as of August 29, 1998 has been prepared by combining the
consolidated balance sheet of B/E as of August 29, 1998 with the balance sheet
of CF Taylor as of August 31, 1998 (SMR, AMP and PBASCO were already included in
the consolidated balance sheet of B/E as of August 29, 1998). Financial
information for CF Taylor has been prepared in conformity with generally
accepted accounting principles of the United Kingdom ("U.K. GAAP") applied on a
consistent basis throughout the periods involved. The differences between U.K.
GAAP and U.S. generally accepted accounting principles, insofar as they affect
the financial information of CF Taylor, are not material. The balance sheet of
CF Taylor was derived from the balance sheet prepared by the Company in
connection with the Company's acquisition of CF Taylor. The CF Taylor financial
information presented herein has been converted from U.K. pounds to U.S. dollars
at exchange rates of 1.6401 and 1.6508, respectively, based upon the weighted
average exchange rate for the year ended December 31, 1997 and the six months
ended June 30, 1998, respectively, and at an exchange rate of 1.6801, based upon
the exchange rate in effect on August 31, 1998 for the financial information as
of August 31, 1998.
The pro forma combined statements of operations for the year ended February 28,
1998 and the six months ended August 29, 1998 assume that the acquisition of
SMR, the issuance of the Company's shares in connection with the acquisition of
SMR, the Other Insignificant Acquisitions, the refinancing of B/E's 9 3/4% Notes
and the Offering, and the application of the proceeds therefrom occurred on
February 23, 1997. The pro forma combined balance sheet as of August 29, 1998
assumes that the acquisition of CF Taylor and the Offering and the application
of the proceeds therefrom occurred on August 29, 1998. The pro forma combined
statements of operations and balance sheet do not purport to represent the
results of operations or financial position of the Company had the transactions
and events assumed therein occurred on the dates specified, nor are they
necessarily indicative of the results of operations that may be achieved in the
future. Certain of the pro forma adjustments, for expenses related to the SMR
selling shareholders which will no longer be incurred after the acquisition,
represent estimates of cost savings expected to be realized in connection with
the acquisition of SMR. No assurance can be given as to the amount of costs that
will actually be incurred or cost savings that will
43
<PAGE> 50
actually be realized. The pro forma adjustments are based on management's
preliminary assumptions regarding purchase accounting adjustments.
The pro forma combined financial information is based upon certain assumptions
and adjustments described in the notes to the pro forma financial statements. In
connection with the acquisitions of AMP, PBASCO and SMR, during the six months
ended August 29, 1998, the Company recorded a charge of $79,155 for in-process
research and development and acquisition-related expenses. The Company engaged
consultants to assist in the allocation of the purchase price of CF Taylor.
Based upon the result of their work, the Company did not allocate any of the
purchase price of CF Taylor to in-process research and development. The pro
forma combined financial information should be read in conjunction with the B/E
historical financial statements, including notes thereto, which are incorporated
herein by reference, and "Management's Discussion and Analysis of Results of
Operations and Financial Condition" and other financial information included
elsewhere in this Prospectus.
(statements on following page)
44
<PAGE> 51
BE AEROSPACE, INC.
PRO FORMA COMBINED STATEMENTS OF OPERATIONS (UNAUDITED)
YEAR ENDED FEBRUARY 28, 1998
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
OTHER
INSIGNIFICANT
B/E ACQUISITIONS ADJUSTMENTS COMBINED SMR ADJUSTMENTS PRO FORMA
-------- ------------- ----------- -------- ------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Sales............................... $487,999 $119,937 $ -- $607,936 $72,805 $ -- $680,741
Cost of Sales........................... 309,094 84,190 (804)(a) 392,480 43,914 200(b) 436,594
-------- -------- --------- -------- ------- -------- --------
Gross profit............................ 178,905 35,747 804 215,456 28,891 (200) 244,147
Operating expenses:
Selling, general and administrative... 58,622 10,117 (937)(a) 67,802 8,593 (1,251)(c) 75,144
Research, development and
engineering......................... 45,685 3,250 937(a) 50,676 7,389 -- 58,065
804(a)
Amortization expense.................. 11,265 2,552 5,077(b) 18,894 -- 2,445(b) 21,339
In-process research and development
and acquisition-related expenses.... -- -- 32,253(h) 32,253 -- 46,902(h) 79,155
Other expenses........................ 4,664 2,000 -- 6,664 -- -- 6,664
-------- -------- --------- -------- ------- -------- --------
Total operating expenses................ 120,236 17,919 38,134 176,289 15,982 48,096 240,367
-------- -------- --------- -------- ------- -------- --------
Operating earnings (loss)............... 58,669 17,828 (37,330) 39,167 12,909 (48,296) 3,780
Interest expense, net................... 22,765 538 14,904(d) 38,207 723 15,979(e) 54,909
-------- -------- --------- -------- ------- -------- --------
Earnings (loss) before income taxes and
extraordinary items................... 35,904 17,290 (52,234) 960 12,186 (64,275) (51,129)
Minority interest in net earnings of
subsidiary............................ -- -- -- -- 1,285 (1,285)(f) --
Income taxes............................ 5,386 7,555 (7,959)(g) 4,982 2,500 (3,278)(g) 4,204
-------- -------- --------- -------- ------- -------- --------
Earnings (loss) before extraordinary
item.................................. 30,518 9,735 (44,275) (4,022) 8,401 (59,712) (55,333)
Extraordinary item...................... 8,956 -- -- 8,956 -- -- 8,956
-------- -------- --------- -------- ------- -------- --------
Net earnings (loss)..................... $ 21,562 $ 9,735 $ (44,275) $(12,978) $ 8,401 $(59,712) $(64,289)
======== ======== ========= ======== ======= ======== ========
Basic net earnings (loss) per share:
Earnings (loss) before extraordinary
item................................ $ 1.36 $ (2.47)
Extraordinary item.................... (0.40) (0.40)
-------- --------
Net earnings (loss)................... $ 0.96 $ (2.87)
======== ========
Weighted average common shares........ 22,442 22,442
Diluted net earnings (loss) per share:
Earnings (loss) before extraordinary
item................................ $ 1.30 $ (2.47)
Extraordinary item.................... (0.38) (0.40)
-------- --------
Net earnings (loss)................... $ 0.92 $ (2.87)
======== ========
Weighted average common shares........ 23,430 22,442
OPERATING AND OTHER DATA:
Gross margin............................ 36.7% 35.9%
EBITDA(i)............................... $ 87,493 $128,034
Depreciation and amortization........... 24,160 38,435
Capital expenditures.................... 28,923 35,989
SELECTED RATIOS:
Ratio of EBITDA to interest expense,
net................................... 3.8x 2.3x
Ratio of EBITDA minus capital
expenditures to interest expense...... 2.6x 1.7x
Ratio of total debt to EBITDA........... 4.4x 5.2x
Ratio of earnings to fixed charges(j)... 2.5x 0.1x
</TABLE>
See accompanying notes to Pro Forma Combined Statements of Operations for the
Year Ended February 28, 1998.
45
<PAGE> 52
BE AEROSPACE, INC.
NOTES TO PRO FORMA COMBINED STATEMENTS OF OPERATIONS
YEAR ENDED FEBRUARY 28, 1998
(a) Reflects adjustments to reclassify certain expenses in a manner consistent
with B/E's presentation, in which B/E classifies certain engineering related
expenses as a component of research and development as compared to general
and administrative expenses or cost of sales.
(b) Reflects adjustments to depreciation and amortization based on the
preliminary purchase price allocation related to the acquired property and
equipment and intangible assets.
(c) Reflects adjustments to eliminate costs paid directly to the selling
shareholders of the acquired businesses. The selling shareholders will no
longer be employed by B/E. Such costs consist of the following:
<TABLE>
<S> <C>
Shareholder salaries and benefits........................... $ 711
Shareholder bonuses......................................... 540
------
Total.................................................. $1,251
======
</TABLE>
(d) Represents additional interest expense for the year ended February 28, 1998
that would have been incurred had the Other Insignificant Acquisitions and
refinancing of B/E's 9 3/4% Notes (which was completed on March 16, 1998)
taken place on February 23, 1997.
(e) Represents additional interest expense for the year ended February 28, 1998
that would have been incurred had the acquisition by B/E of SMR and the
Offering and the application of the net proceeds therefrom to repurchase the
shares issued in the acquisition of SMR taken place on February 23, 1997.
(f) To eliminate minority interest.
(g) To adjust income tax expense to reflect the Company's 15% effective tax
rate.
(h) During the first six months of fiscal 1999, the Company expensed $79,155
related to in-process research and development and acquisition-related
expenses. These expenses are reflected in the Pro Forma Combined Statements
of Operations for the year ended February 28, 1998 as the acquisitions are
assumed to have occurred on February 23, 1997.
(i) EBITDA represents net earnings before deducting extraordinary items, income
tax expenses, interest expense, net, other expenses, in-process research and
development and acquisition-related expenses and depreciation and
amortization expense. EBITDA is not a measurement in accordance with GAAP
and is presented to facilitate a further analysis of B/E's financial
condition. These data are not intended to be a substitute for net income
(loss) or operating cash flow as a measure of B/E's profitability. EBITDA,
as presented, may not be comparable to similarly titled measures of other
companies.
(j) For purposes of computing this ratio, earnings consist of earnings before
extraordinary items, income taxes and fixed charges. Fixed charges consist
of interest expense, capitalized interest and amortization of deferred debt
issuance costs.
46
<PAGE> 53
BE AEROSPACE, INC.
PRO FORMA COMBINED STATEMENTS OF OPERATIONS (UNAUDITED)
SIX MONTHS ENDED AUGUST 29, 1998
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
OTHER
INSIGNIFICANT
B/E ACQUISITIONS ADJUSTMENTS COMBINED SMR ADJUSTMENTS PRO FORMA
-------- ------------- ----------- -------- ------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Sales............................. $296,343 $27,089 $ -- $323,432 $40,315 $ -- $363,747
Cost of Sales......................... 184,863 19,113 -- 203,976 24,199 83(b) 228,258
-------- ------- -------- -------- ------- -------- --------
Gross profit.......................... 111,480 7,976 -- 119,456 16,116 (83) 135,489
Operating expenses:
Selling, general and
administrative.................... 37,041 4,713 (78)(a) 41,676 5,276 (549)(c) 46,403
Research, development and
engineering....................... 24,742 1,577 78(a) 26,397 2,005 -- 28,402
Amortization expense................ 9,414 -- 680(b) 10,094 8 1,019(b) 11,121
In-process research and development
and acquisition-related
expenses.......................... 79,155 -- (32,253)(h) 46,902 -- (46,902)(h) --
-------- ------- -------- -------- ------- -------- --------
Total operating expenses.............. 150,352 6,290 (31,573) 125,069 7,289 (46,432) 85,926
-------- ------- -------- -------- ------- -------- --------
Operating earnings (loss)............. (38,872) 1,686 31,573 (5,613) 8,827 46,349 49,563
Interest expense, net................. 16,446 (10) 2,047(d) 18,483 179 8,134(e) 26,796
-------- ------- -------- -------- ------- -------- --------
Earnings (loss) before income taxes... (55,318) 1,696 29,526 (24,096) 8,648 38,215 22,767
Minority interest..................... -- -- -- -- 1,129 (1,129)(f) --
Income taxes.......................... 4,052 -- (175)(g) 3,877 2,549 (2,556)(g) 3,870
-------- ------- -------- -------- ------- -------- --------
Net earnings (loss)................... $(59,370) $ 1,696 $ 29,701 $(27,973) $ 4,970 $ 41,900 $ 18,897
======== ======= ======== ======== ======= ======== ========
Basic net earnings (loss) per share:
Net earnings (loss)................. $ (2.49) $ 0.80
======== ========
Weighted average common shares...... 23,822 23,570
Diluted net earnings (loss) per share:
Net earnings (loss)................. $ (2.49) $ 0.77
======== ========
Weighted average common shares...... 23,822 24,452
OPERATING AND OTHER DATA:
Gross margin.......................... 37.6% 37.2%
EBITDA(i)............................. $ 58,595 $ 70,643
Depreciation and amortization......... 18,312 21,080
Capital expenditures.................. 20,210 21,613
SELECTED RATIOS:
Ratio of EBITDA to interest expense,
net................................. 3.6x 2.6x
Ratio of EBITDA minus capital
expenditures to interest expense.... 2.3x 1.8x
Ratio of earnings to fixed
charges(j).......................... NM 1.8x
</TABLE>
See accompanying notes to Pro Forma Combined Statements of Operations for the
Six Months Ended August 29, 1998.
47
<PAGE> 54
BE AEROSPACE, INC.
NOTES TO PRO FORMA COMBINED STATEMENTS OF OPERATIONS
SIX MONTHS ENDED AUGUST 29, 1998
(a) Reflects adjustments to reclassify certain expenses in a manner consistent
with B/E's presentation, in which B/E classifies certain engineering related
expenses as a component of research and development as compared to general
and administrative expenses.
(b) Reflects adjustments to depreciation and amortization based on the
preliminary purchase price allocation related to the acquired property and
equipment and intangible assets.
(c) Reflects adjustments to eliminate costs attributable to the selling
shareholders of the acquired businesses. The selling shareholders will no
longer be employed by B/E. Such costs consist of:
<TABLE>
<S> <C>
Shareholder salaries and benefits........................... $549
====
</TABLE>
(d) Represents additional interest expense for the six months ended August 29,
1998 that would have been incurred had the Other Insignificant Acquisitions
and refinancing of B/E's 9 3/4% Notes (which was completed on March 16,
1998) taken place on February 23, 1997.
(e) Represents additional interest expense for the six months ended August 29,
1998 that would have been incurred had the acquisition by B/E of SMR and the
Offering and the application of the proceeds therefrom to repurchase the
shares issued in the acquisition of SMR taken place on February 23, 1997.
(f) To eliminate minority interest.
(g) To adjust income tax expense to reflect the Company's 17% effective tax
rate.
(h) During the first six months of fiscal 1999, the Company expensed $79,155
related to in-process research and development and acquisition-related
expenses. These expenses are eliminated in the Pro Forma Combined Statements
of Operations for the six months ended August 29, 1998 as the acquisitions
are assumed to have occurred on February 23, 1997 and therefore are
reflected in the Pro Forma Combined Statements of Operations for the year
ended February 28, 1998.
(i) EBITDA represents net earnings before deducting extraordinary items, income
tax expenses, interest expense, net, other expenses, in-process research and
development and acquisition-related expenses and depreciation and
amortization expense. EBITDA is not a measurement in accordance with GAAP
and is presented to facilitate a further analysis of B/E's financial
condition. These data are not intended to be a substitute for net income
(loss) or operating cash flow as a measure of B/E's profitability. EBITDA,
as presented, may not be comparable to similarly titled measures of other
companies.
(j) For purposes of computing this ratio, earnings consist of earnings before
extraordinary items, income taxes and fixed charges. Fixed charges consist
of interest expense, capitalized interest and amortization of deferred debt
issuance costs. Earnings were insufficient to cover fixed charges by $55,800
for the six months ended August 29, 1998. The insufficiency was primarily
the result of the charge to earnings of $79,155 in fiscal 1999 for the
write-off of acquired in-process research and development and
acquisition-related expenses described in note (h) above.
48
<PAGE> 55
BE AEROSPACE, INC.
PRO FORMA COMBINED BALANCE SHEET (UNAUDITED)
AUGUST 29, 1998
(Dollars in thousands)
<TABLE>
<CAPTION>
B/E CF TAYLOR ADJUSTMENTS COMBINED ADJUSTMENTS PRO FORMA
--------- --------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents....................... $ 29,203 $ -- $ -- $ 29,203 $ 194,750(d) $ 44,953
(119,000)(e)
15,000(e)
(75,000)(f)
Account receivable -- trade, net................ 113,524 7,895 -- 121,419 -- 121,419
Inventories, net................................ 188,668 9,121 -- 197,789 -- 197,789
Other current assets............................ 9,506 71 -- 9,577 -- 9,577
--------- ------- -------- --------- --------- ---------
Total current assets.......................... 340,901 17,087 -- 357,988 15,750 373,738
Property & equipment, net......................... 136,873 4,536 -- 141,409 -- 141,409
Intangibles & other assets, net................... 423,394 1,935 25,124(a) 441,998 5,250(d) 448,248
(11,815)(b) 1,000(e)
3,360(b)
--------- ------- -------- --------- --------- ---------
Total assets.................................. $ 901,168 $23,558 $ 16,669 $ 941,395 $ 22,000 $ 963,395
========= ======= ======== ========= ========= =========
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................ $ 56,874 $ 4,523 $ -- $ 61,397 $ -- $ 61,397
Accrued liabilities............................. 93,580 7,220 3,360(b) 104,160 -- 104,160
Current portion of long-term debt............... 7,983 -- -- 7,983 -- 7,983
--------- ------- -------- --------- --------- ---------
Total current liabilities..................... 158,437 11,743 3,360 173,540 -- 173,540
Long-term debt.................................... 464,813 -- 25,124(a) 489,937 200,000(d) 629,937
15,000(e)
(75,000)(f)
Deferred income taxes........................... 1,161 -- -- 1,161 -- 1,161
Other liabilities............................... 19,512 -- -- 19,512 -- 19,512
--------- ------- -------- --------- --------- ---------
Total liabilities............................. 643,923 11,743 28,484 684,150 140,000 824,150
--------- ------- -------- --------- --------- ---------
Stockholders' equity:
Common stock.................................... 283 10,516 (10,516)(c) 283 (40)(e) 243
Additional paid-in capital...................... 359,660 -- -- 359,660 (117,960)(e) 241,700
Accumulated deficit............................. (100,094) 1,299 (1,299)(c) (100,094) -- (100,094)
Cumulative foreign exchange translation
adjustment.................................... (2,604) -- -- (2,604) -- (2,604)
--------- ------- -------- --------- --------- ---------
Total stockholders' equity.................... 257,245 11,815 (11,815) 257,245 (118,000) 139,245
--------- ------- -------- --------- --------- ---------
$ 901,168 $23,558 $ 16,669 $ 941,395 $ 22,000 $ 963,395
========= ======= ======== ========= ========= =========
</TABLE>
See accompanying notes to Pro Forma Combined Balance Sheet as of August 29,
1998.
49
<PAGE> 56
BE AEROSPACE, INC.
NOTES TO PRO FORMA COMBINED BALANCE SHEET
AUGUST 29, 1998
(a) Reflects the use of cash related to the acquisition of CF Taylor:
<TABLE>
<S> <C>
Proceeds from borrowings under the Company's Bank Credit
Facility.................................................. $25,124
=======
</TABLE>
(b) The acquisition of CF Taylor has been accounted for as a purchase pursuant
to APB Opinion No. 16 "Business Combinations." The purchase price has been
allocated to the assets and liabilities of CF Taylor based on relative fair
values. Such allocations are subject to final determination based on
valuations and other studies. The Company engaged consultants to assist in
the allocation of the purchase price of CF Taylor. Based upon the result of
their work, the Company did not allocate any of the purchase price of CF
Taylor to in-process research and development. The final values may differ
significantly from those set forth below:
<TABLE>
<S> <C>
Purchase cost:
Aggregate purchase price.................................... $ 25,124
Purchase accounting reserves................................ 3,360
Less estimated book value of net assets purchased........... (11,815)
--------
Total.................................................. $ 16,669
========
Allocation of excess of purchase cost over book value of
assets:
Goodwill and other intangible assets, subject to final
determination............................................. $ 16,669
========
</TABLE>
Purchase accounting reserves include the costs to implement the business
integration plan, including severance, relocation, systems conversion and
other business acquisition-related costs.
(c) To reclassify the equity in CF Taylor as part of the allocation of purchase
price.
(d) Reflects the proceeds from the issuance of the Notes:
<TABLE>
<S> <C>
Net proceeds from issuance of the Notes..................... $194,750
Initial Purchasers' discount................................ 5,250
--------
Total.................................................. $200,000
========
</TABLE>
(e) Reflects adjustments for the repurchase of the 4,000,000 shares of common
stock issued to the selling stockholders in the acquisition of SMR, related
offering expenses (exclusive of initial purchasers' discount) incurred in
connection with the Notes (estimated at $1,000) and borrowings related to
certain acquisitions and related costs.
(f) Reflects adjustments to pay down debt with net proceeds after the repurchase
of the 4,000,000 shares of common stock discussed in note (e) above.
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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. Chances 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 both new aircraft and refurbishment
programs.
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
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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
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 of $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 of
CF Taylor. Based upon the result 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
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<PAGE> 59
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) continued 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.
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 resolved 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
53
<PAGE> 60
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 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.
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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 19, 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 $(55,318)
(which includes in-process research and development, acquisition-related and
other expenses of $79,155) as compared to earnings before income 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 sales), and is primarily due
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<PAGE> 62
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.
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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.
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
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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."
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 Company's Bank Credit Facility consists of a $100,000 revolving credit
facility and an acquisition facility of up to $86,000. 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 August
2004 and the acquisition facility is amortizable over five years beginning in
August 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, including the
irrevocable letter of credit in connection with the SMR acquisition of $120,000,
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 $40,000 under the
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revolving credit facility related to certain acquisitions and related costs,
repaid approximately $75,000 of outstanding borrowings with proceeds from the
Offering and canceled the irrevocable letter of credit in connection with the
SMR acquisition of $120,000. See "Use of Proceeds."
In February 1998, the Company sold $250,000 of 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") in the Offering. 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. 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 the 9 3/4% Notes. Long-term debt principally consists of the Bank Credit
Facility, the 9 7/8% Notes, the 8% Notes and the Old Notes. The 9 7/8% Notes, 8%
Notes and the 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
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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, LANs, WANs and PBXs. This phase was intended to address 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
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.
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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. Through August 29, 1998, 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 in costs 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 -- Potential Failure of Computer Systems to Recognize Year 2000."
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 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
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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, including non-Asian carriers that have substantial Asian routes, 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 continued severe economic conditions in Asia, it will be
substantially scaling back production of a number of aircraft types, including
particularly wide-body aircraft which require proportionately more of the
Company's products. See "Risk Factors -- Dependence upon Conditions in the
Airline Industry" and "Business -- Industry Overview."
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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
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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) 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
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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, fluorescent 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.
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
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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, AUG. 30, AUG. 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 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 arow 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
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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.
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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 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
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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 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 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
have reduced its exposure to demand fluctuations in any one product area.
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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."
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
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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-complaint 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
noninteractive 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 delivered the second MDDS
product to JAL, in June 1998. 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
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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
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
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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.
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:
- 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.
- 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. Subsequently, the
Company delivered the Second MDDS Product to JAL in June 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
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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 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 beverage 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
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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, fluorescent 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.
SERVICES AND SPECIALITY 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 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/
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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 18, 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 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
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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 on-site customer training.
Customer service is particularly important to airlines due to the high cost to
the airlines of late delivery, malfunctions and other problems.
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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.
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 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
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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.
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 with 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.
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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 and sales 17,700 Owned
SEATING PRODUCTS
Litchfield, Connecticut........ Manufacturing, service and
warehousing 147,700 Owned
Winston-Salem, North
Carolina..................... Manufacturing, research and
development, finance, marketing
and sales; Seating Products Group
Headquarters 264,800 Owned
Leighton Buzzard, England...... Manufacturing, service, research
and development, sales support,
finance and warehousing 114,000 Owned
Kilkeel, Northern Ireland...... Manufacturing, sales support and
warehousing 38,500 Owned
INTERIOR SYSTEMS
Anaheim, California............ Manufacturing, service, research
and development, sales support,
finance and warehousing 57,100 Leased
Delray Beach, Florida.......... Manufacturing, service, research
and development, sales support,
finance and warehousing; Interior
Systems Group Headquarters 52,000 Owned
Lenexa, Kansas................. Manufacturing, service,
engineering and warehousing 80,000 Leased
Nieuwegein, The Netherlands.... Manufacturing, service, research
and development, sales support,
finance and warehousing 39,000 Leased
PESS PRODUCTS
Irvine, California............. Manufacturing, service, research
and development, sales support,
finance and warehousing; In-flight
Entertainment Group Headquarters 106,700 Leased
</TABLE>
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<PAGE> 87
<TABLE>
<CAPTION>
FACILITY
SIZE
LOCATION PRODUCTS AND FUNCTION (SQ. FEET) OWNERSHIP
-------- --------------------- ---------- ---------
<S> <C> <C> <C>
GENERAL AVIATION AND VIP
PRODUCTS
Miami, Florida................. Manufacturing, service, research
and development, sales support,
finance and warehousing; General
Aviation Headquarters 84,300 Leased
71,700 Owned
Fountain Valley, California.... Manufacturing, service, research
and development, sales support,
finance and warehousing 26,000 Owned
Holbrook, New York............. Manufacturing, service, research
and development, sales support,
finance and warehousing 20,115 Leased
SERVICES
Orange, California............. Upgrade, maintenance, inspection
and repair, finance, sales support
and warehousing; Services Group
Headquarters 106,300 Leased
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
SMR TECHNOLOGIES
Sharon Center, Ohio............ Services, research and
development, sales support,
finance and warehousing 16,282 Owned
Fenwick, West Virginia......... Manufacturing, service and
warehousing 132,600 Owned
</TABLE>
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<PAGE> 88
<TABLE>
<CAPTION>
FACILITY
SIZE
LOCATION PRODUCTS AND FUNCTION (SQ. FEET) OWNERSHIP
-------- --------------------- ---------- ---------
<S> <C> <C> <C>
FLIGHT STRUCTURE AND
INTEGRATION GROUP
Arlington, Washington.......... Manufacturing, service, research
and development, sales support,
finance and warehousing 130,164 Leased
Jacksonville, Florida.......... Manufacturing, service,
engineering, and warehousing 75,000 Owned
Wokingham, England............. Manufacturing, service, research
and development, sales support,
finance and warehousing 70,000 Leased
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,
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<PAGE> 89
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 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.
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<PAGE> 90
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth information regarding the directors and executive
officers of the Company. Officers of the Company are elected annually by the
Board of Directors.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Amin J. Khoury............................ 59 Chairman of the Board
Robert J. Khoury.......................... 56 Vice Chairman of the Board and Chief
Executive Officer and Director
Paul E. Fulchino.......................... 52 President, Chief Operating Officer and
Director
Marco C. Lanza............................ 42 Executive Vice President, Marketing and
Product Development
Thomas P. McCaffrey....................... 44 Corporate Senior Vice President of
Administration, Chief Financial Officer
and Assistant Secretary
E. Ernest Schwartz........................ 62 Corporate Senior Vice President,
Development and Planning
Edmund J. Moriarty........................ 54 Corporate Vice President -- Law, General
Counsel and Secretary
Jeffrey P. Holtzman....................... 43 Corporate Vice President, Treasurer and
Assistant Secretary
Sam G. Ayoub.............................. 56 Group Vice President and General
Manager, Services Group
Roman G. Ptakowski........................ 50 Group Vice President and General
Manager, Interior Systems Group
Louis Senunas............................. 58 Group Vice President and General
Manager, Seating Products Group
Scott A. Smith............................ 44 Group Vice President and General
Manager, In-Flight Entertainment Group
Jim C. Cowart............................. 47 Director**
Richard G. Hamermesh...................... 50 Director*
Brian H. Rowe............................. 67 Director**
Hansjoerg Wyss............................ 63 Director
</TABLE>
- -------------------------
* Member, Audit Committee.
** Member, Stock Option and Compensation Committee.
The Company's Restated Certificate of Incorporation provides that the Board of
Directors is divided into three classes, each nearly as equal in number as
possible, so that each director (in certain circumstances after a transitional
period) will serve for three years, with one class of directors being elected
each year. The Board is currently comprised of three Class I Directors (Brian H.
Rowe, Jim C. Cowart and Paul E. Fulchino), two Class II Directors (Robert J.
Khoury and Hansjoerg Wyss) and two Class III Directors (Amin J. Khoury and
Richard G. Hamermesh). The terms of the Class I, Class II and
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<PAGE> 91
Class III Directors expire upon the election and qualification of successor
directors at annual meetings of stockholders held following the end of fiscal
years 1998, 1997 and 1996, respectively. The executive officers of the Company
are elected annually by the Board of Directors following the annual meeting of
stockholders and serve at the discretion of the Board of Directors.
AMIN J. KHOURY has been Chairman of the Board of the Company since July 1987 and
was Chief Executive Officer until April 1, 1996. Since 1986, Mr. Khoury has also
been the Managing Director of The K.A.D. Companies, Inc., an investment, venture
capital and consulting firm. Mr. Khoury is currently the Chairman of the Board
of Directors of Applied Extrusion Technologies, Inc., a manufacturer of oriented
polypropylene films used in consumer products labeling and packaging
applications, and a member of the Board of Directors of Brooks Automation, Inc.,
the leading manufacturer in the U.S. of vacuum central wafer handling systems
for semiconductor manufacturing. Mr. Khoury is employed by the Company pursuant
to an employment agreement extending through May 28, 2003. Mr. Khoury is the
brother of Robert J. Khoury.
ROBERT J. KHOURY has been a Director of the Company since July 1987. Mr. Khoury
was elected Vice Chairman and Chief Executive Officer effective April 1, 1996.
From July 1987 until that date, Mr. Khoury served as the Company's President and
Chief Operating Officer. From 1986 to 1987, Mr. Khoury was Vice President of The
K.A.D. Companies, Inc. The Company has entered into an employment agreement with
Mr. Khoury extending through May 28, 2003. Mr. Khoury is the brother of Amin J.
Khoury.
PAUL E. FULCHINO was elected a Director and President and Chief Operating
Officer of the Company effective April 1, 1996. From 1990 to 1996, Mr. Fulchino
served as President and Vice Chairman of Mercer Management Consulting, Inc.
("Mercer"), an international general management consulting firm with over 1,100
employees. In addition to his management responsibilities as President of
Mercer, Mr. Fulchino also had responsibility for advising clients throughout the
world, particularly with respect to the transportation industry, including a
number of major airlines. The Company has entered into an employment agreement
with Mr. Fulchino extending through May 28, 2003.
MARCO C. LANZA has been the Executive Vice President, Marketing and Product
Development since January 1994. From March 1992 through January 1994, Mr. Lanza
was Vice President and General Manager of the In-Flight Entertainment Group of
the Company. From 1987 through February 1992, Mr. Lanza was Vice President,
Marketing and Product Development of the Company. The Company has entered into
an Employment Agreement with Mr. Lanza extending through December 31, 1999.
THOMAS P. MCCAFFREY has been Corporate Senior Vice President of Administration,
Chief Financial Officer and Assistant Secretary since May 1993. From August 1989
through May 1993, Mr. McCaffrey was an Audit Director with Deloitte & Touche
LLP, and from 1976 through 1989 served in several capacities, including Audit
Partner, with Coleman & Grant. The Company has entered into an employment
agreement with Mr. McCaffrey extending through May 28, 2003.
E. ERNEST SCHWARTZ has been Corporate Senior Vice President -- Development and
Planning since December 1997. From March 1992 through November 1997, Mr.
Schwartz was Group Vice President and General Manager of the Interior Systems
Group of the Company. From 1986 through February 1992, Mr. Schwartz was
President of Aircraft Products Company, which was acquired by the Company in
1992.
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<PAGE> 92
EDMUND J. MORIARTY has been Corporate Vice President -- Law, General Counsel and
Secretary since November 16, 1995. From 1991 to 1995, Mr. Moriarty served as
Vice President and General Counsel to Rollins, Inc., a national service company.
From 1982 through 1991, Mr. Moriarty served as Vice President and General
Counsel to Old Ben Coal Company, a wholly owned coal subsidiary of The Standard
Oil Company.
JEFFREY P. HOLTZMAN has been Treasurer since September 1993 and Vice President
since November 1996. From June 1986 to July 1993, Mr. Holtzman served in several
capacities at FPL Group, Inc., including Assistant Treasurer and Manager of
Financial Planning. Mr. Holtzman previously worked for Mellon Bank, Gulf Oil and
Arthur Young & Company.
SAM G. AYOUB has been Group Vice President and General Manager of the Company's
Services Group since May 1996 and from November 1994 through April 1996, was
Executive Vice President -- Services. From 1984 to 1994 Mr. Ayoub served in
several capacities with AAR Corp. including Corporate Vice President Marketing
and President -- Technical Services Division. Prior to that Mr. Ayoub was with
United Airlines for 20 years with his last position being General Manager of
their Cargo Division.
ROMAN G. PTAKOWSKI has been the Group Vice President and General Manager of the
Interior Systems Group since December 1997. From September 1995 through December
1997, Mr. Ptakowski was Vice President, Sales and Marketing of the Galley
Products Group of the Company. From January 1995 through August 1995, Mr.
Ptakowski served as Senior Vice President, Marketing for Farrel Corporation.
Prior to that he was with the ABB Power T&D Company Inc. and Westinghouse
Electric Corp. for 25 years with his last position being General Manager of
their Protective Relay Division.
LOUIS SENUNAS has been Group Vice President and General Manger of the Company's
Seating Product Group since November 1998. From 1984 to 1998 Mr. Senunas served
as Vice President and General Manager of several internationally based operating
divisions of Johnson Control and as the Vice President of Program Management and
Quality. Prior to that Mr. Senunas served in a number of management positions in
product development and manufacturing at Ford Motor Co.
SCOTT A. SMITH has been the Group Vice President and General Manager of the
In-Flight Entertainment Group since April 1998. From December 1995 through March
1998, Mr. Smith was with Toshiba American Information Electronics with his last
position being Senior Vice President, Sales of the Americas. From December 1992
to February 1994, Mr. Smith served as Corporate Vice President of Engineering
and from February 1994 to September 1995 served as the General Manager of the
Desktop and Server Product Division of AST Research. Prior to that, Mr. Smith
was with IBM for 16 years and served in numerous capacities, including Systems
Manager of the engineering team which developed IBM's first PC Server and
advanced desktop, Staff Assistant to the Chairman of the Board and Director of
Visual Subsystems Group.
JIM C. COWART has been a Director of the Company since November 1989. Mr. Cowart
is currently an independent investor and has been a principal of Cowart & Co.
L.L.C. and EOS Capital, Inc., private capital firms retained from time to time
by the Company for strategic planning, competitive analysis, financial relations
and other services. From October 1992 to April 1998, Mr. Cowart was a Director,
and from January 1993 to November 1997, Mr. Cowart was the Chief Executive
Officer of Aurora Electronics Inc. (now known as Cerplex Group, Inc.). From 1987
until 1991, Mr. Cowart was a founding general partner of Capital Resources
Partners, a private investment capital manager. Prior
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<PAGE> 93
to such time, Mr. Cowart held various positions in investment banking and
venture capital with Lehman Brothers, Shearson Venture Capital and Kidder,
Peabody & Co.
RICHARD G. HAMERMESH has been a Director of the Company since July 1987. Since
August 1987, Dr. Hamermesh has been the Managing Partner of the Center for
Executive Development, an independent executive education consulting company,
and, from December 1986 to August 1987, Dr. Hamermesh was an independent
consultant. Prior to such time, Dr. Hamermesh was on the faculty at the Harvard
Business School. Dr. Hamermesh is also a Director of Applied Extrusion
Technologies, Inc.
BRIAN H. ROWE has been a Director of the Company since July 1995. He is
currently Chairman Emeritus of GE Aircraft Engines, a principal business unit of
the General Electric Company, where he also served as Chairman from September
1993 through January 1995 and as President from 1979 through 1993. Mr. Rowe is
also a Director of the following companies: January 1980 -- Fifth Third Bank, an
Ohio banking corporation; December 1994 -- Stewart & Stevenson Services, Inc., a
custom packager of engine systems; March 1995 -- Atlas Air, Inc., an air cargo
carrier; December 1995 -- Textron Inc., a manufacturer of aircraft, automobile
components, an industrial segment, systems and components for commercial
aerospace and defense industries, and financial services; March 1996 -- Canadian
Marconi Company, a manufacturer of aerospace, electronic communications products
and surface transportation electronics systems; and October 1996 -- Cincinnati
Bell Inc., a communications services company. From January 1996 to June 1998,
Mr. Rowe served as Executive Vice Chairman of American Regional Aircraft
Industries, Inc.
HANSJOERG WYSS has been a Director of the Company since October 1989. Since
1977, Mr. Wyss has served as Director, President and is currently Chairman and
Chief Executive Officer of Synthes North America and Synthes Canada, Ltd.,
manufacturers and distributors of orthopedic implants and instruments. Mr. Wyss
formerly held management positions with Monsanto Europe in Belgium and
Schappe-Burlington and Chrysler International in Switzerland. Mr. Wyss earned
his MBA at Harvard Graduate School of Business and attained a Master of Science
from the Swiss Federal Institute of Technology in Zurich. Mr. Wyss presently
sits on numerous boards including Harvard Graduate School of Business, Norian
Corporation, Boathouse Sports, Southern Utah Wilderness Alliance and the Grand
Canyon Trust.
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<PAGE> 94
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table and notes thereto set forth certain information with respect
to the beneficial ownership of the Company's Common Stock as of December 16,
1998 by (i) each person who is known to the Company to beneficially own more
than 5% of the outstanding shares of Common Stock of the Company; (ii) each of
the chief executive officer and the four other most highly paid executive
officers of the Company in fiscal 1998 (collectively, the "Named Executive
Officers") and each director of the Company; and (iii) all Named Executive
Officers and directors of the Company as a group. Except as otherwise indicated,
each of the stockholders named below has sole voting and investment power with
respect to the shares of Common Stock beneficially owned:
<TABLE>
<CAPTION>
COMMON STOCK
BENEFICIALLY OWNED
------------------------
PERCENT OF
NUMBER OUTSTANDING
NAME OF SHARES SHARES(1)
- ---- --------- -----------
<S> <C> <C>
Executive Officers, Directors and 5% Stockholders:
T. Rowe Price Associates............................... 2,019,500 7.91%
100 East Pratt
Baltimore, MD 21202
Amin J. Khoury+*....................................... 202,722(2) **
Marco C. Lanza+........................................ 190,482(3) **
Paul E. Fulchino+*..................................... 167,381(4) **
Hansjoerg Wyss*........................................ 151,109(5) **
Robert J. Khoury+*..................................... 131,223(6) **
Thomas P. McCaffrey+................................... 122,515(7) **
Jim C. Cowart*......................................... 61,750(8) **
Brian H. Rowe*......................................... 33,750(9) **
Richard G. Hamermesh*.................................. 22,350(10) **
All Directors and Executive Officers as a group
(15 Persons).......................................... 1,285,155(11) 5.03%
</TABLE>
- -------------------------
+ Named Executive Officer
* Director of the Company
** Less than 1 percent
(1) The number of shares of Common Stock deemed outstanding includes: (i)
24,447,963 shares of Common Stock outstanding as of December 16, 1998; and
(ii) 1,085,500 shares of Common Stock subject to outstanding stock options
which are exercisable by the named individual or group in the next sixty
days (commencing December 16, 1998).
(2) Includes 202,722 shares issuable upon the exercise of stock options
exercisable in the next sixty days and shares owned through Company benefit
plans. Excludes options to purchase 160,000 shares of Common Stock which
are not exercisable in the next sixty days.
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<PAGE> 95
(3) Includes 190,482 shares issuable upon the exercise of stock options
exercisable in the next sixty days and shares owned through Company benefit
plans. Excludes options to purchase 56,250 shares of Common Stock which are
not exercisable in the next sixty days.
(4) Includes 165,333 shares issuable upon the exercise of stock options
exercisable in the next sixty days and shares owned through Company benefit
plans. Excludes options to purchase 167,500 shares of Common Stock which
are not exercisable in the next sixty days.
(5) Includes 10,000 shares days issuable upon the exercise of stock options
exercisable in the next sixty days. Excludes options to purchase 12,500
shares of Common Stock which are not exercisable in the next sixty days.
(6) Includes 131,223 shares issuable upon the exercise of stock options
exercisable in the next sixty days and shares owned through Company benefit
plans. Excludes options to purchase 135,000 shares of Common Stock which
are not exercisable in the next sixty days.
(7) Includes 118,113 shares issuable upon the exercise of stock options
exercisable in the next sixty days and shares owned through Company benefit
plans. Excludes options to purchase 90,000 shares of Common Stock which are
not exercisable in the next sixty days.
(8) Includes 3,000 shares acquired by a profit sharing plan and 58,750 shares
issuable upon the exercise of stock options exercisable in the next sixty
days. Excludes options to purchase 31,250 shares of Common Stock which are
not exercisable in the next sixty days.
(9) Includes 33,750 shares issuable upon the exercise of stock options
exercisable in the next sixty days. Excludes options to purchase 21,250
shares of Common Stock which are not exercisable in the next sixty days.
(10) Includes 13,750 shares issuable upon the exercise of stock options
exercisable in the next sixty days. Excludes options to purchase 12,500
shares of Common Stock which are not exercisable in the next sixty days.
(11) Includes 1,085,500 shares issuable upon the exercise of stock options
exercisable in the next sixty days. Excludes options to purchase 891,250
shares of Common Stock which are not exercisable in the next sixty days.
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<PAGE> 96
DESCRIPTION OF CERTAIN INDEBTEDNESS
The Bank Credit Facility consists of a $100.0 million revolving credit facility
and an acquisition facility of up to $86 million. An interim revolving credit
commitment of $120.0 million 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 Book and canceled on November 2, 1998 when the
SMR Shares were repurchase. 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 $124.0 million and
outstanding borrowings under the revolving and acquisition credit facilities
aggregating $121.0 million 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 proceeds from
the Offering and canceled the irrevocable letter credit in connection with the
SMR acquisition. Upon completion of the Offering and the Company's use of the
net proceeds from the Offering and giving effect to borrowings relating to
certain acquisitions and related costs, the Company would have had $109.4
million available under the Bank Credit Facility as of August 29, 1998.
In addition to the Old Notes, the Company has outstanding the $100 million of
9 7/8% Notes which are unsecured senior subordinated obligations of the Company
and are subordinated to all senior indebtedness of the Company and mature on
February 1, 2006. Interest on the 9 7/8% Notes is payable semiannually in
arrears February 1 and August 1 of each year. The 9 7/8% Notes are redeemable at
the option of the Company, in whole or in part, at any time after February 1,
2001 at predetermined redemption prices together with accrued and unpaid
interest through the date of redemption. Upon a chance of control (as defined),
each holder of the 9 7/8% Notes may require the Company to repurchase such
holder's 9 7/8% Notes at 101% of the principal amount thereof, plus accrued and
unpaid interest to the date of such purchase. The 9 7/8% Notes contain certain
restrictive covenants, all of which were met by the Company as of August 19,
1998, including limitations on future indebtedness, restricted payments,
transactions with affiliates, liens, dividends, mergers and transfers of assets.
In February 1998, the Company sold $250.0 million of 8% Notes. In conjunction
with the sale of the 8% Notes, the Company initiated a tender offer for the
$125.0 million of 9 3/4% Senior Notes due 2003 (the "9 3/4% Notes"). The net
proceeds from the offering of approximately $240.4 million were used (i) for the
tender offer (which expired on February 25, 1998) in which approximately $101.8
million 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 $9.0 million for unamortized debt issue
costs, tender and redemption premiums and fees and expenses related to the
repurchase of the 9 3/4% Notes.
The 8% Notes are unsecured senior subordinated obligations of the Company and
are subordinated to all senior indebtedness of the Company and mature on March
1, 2008.
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<PAGE> 97
Interest on the 8% Notes is payable semiannually in arrears March 1 and
September 1 of each year. The 8% Notes are redeemable at the option of the
Company, in whole or in part, at any time after March 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 8% Notes
may require the Company to repurchase such holder's 8% Notes at 101% of the
principal amount thereof, plus accrued and unpaid interest to the date of such
purchase. The 8% 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.
B/E Aerospace (UK) Limited ("B/E (UK)"), a subsidiary of the Company, has a
revolving line of credit agreement aggregating approximately $5.0 million (the
"UK Credit Agreement"). The UK Credit Agreement is collateralized by accounts
receivable and inventory of B/E (UK). There were no borrowings outstanding under
the UK Credit Agreement as of August 29, 1998.
Inventum, another subsidiary of the Company, has a revolving line of credit
agreement for approximately $1 million (the "Inventum Credit Agreement"). The
Inventum Credit Agreement is collateralized by substantially all of the assets
of Inventum. There were no borrowings outstanding under the Inventum Credit
Agreement as of August 29, 1998.
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<PAGE> 98
DESCRIPTION OF THE NEW NOTES
The Old Notes were issued under an indenture dated as of November 2, 1998 (the
"Indenture") between the Company, as issuer, and The Bank of New York, as
trustee (the "Trustee"), a copy of the form of which will be made available upon
request. Upon the issuance of the New Notes the Indenture will be subject to and
governed by the Trust Indenture Act of 1939, as amended (the "Trust Indenture
Act"). The following summary of the material provisions of the Indenture does
not purport to be complete and is subject to, and qualified in its entirety by,
reference to the provisions of the Indenture, including the definitions of
certain terms contained therein and those terms made part of the Indenture by
reference to the Trust Indenture Act.
GENERAL
The New Notes will be unsecured, senior subordinated obligations of the Company
limited to $200,000,000 aggregate principal amount. The New Notes will be issued
solely in exchange for an equal principal amount of Old Notes pursuant to the
Exchange Offer. The form and terms of the New Notes will be identical in all
material respects to the form and terms of the Old Notes except that: (i) the
New Notes will have been registered under the Securities Act and (ii) the
Registration Rights and contingent interest reset provisions applicable to the
Old Notes are not applicable to the New Notes. The New Notes will be issued only
in registered form without coupons, in denominations of $1,000 and integral
multiples thereof. (Section 302) Principal of, premium, if any, and interest on
the Notes will be payable, and the Notes will be transferable (subject to
compliance with transfer restrictions imposed by applicable securities laws for
so long as the Notes are not registered for resale under the Securities Act), at
the principal corporate trust office or agency of the Trustee in The City of New
York maintained for such purposes at 101 Barclay Street, Floor 21W, New York,
New York 10286. (Sections 301 and 305) In addition, interest may be paid, at the
option of the Company, by check mailed to the Person entitled thereto as shown
on the Note Register. (Section 309) No service will be made for any transfer,
exchange or redemption of Notes, except in certain circumstances for any tax or
other governmental share that may be imposed in connection therewith. (Section
305)
MATURITY, INTEREST AND PRINCIPAL PAYMENTS
The Notes will mature on November 1, 2008. Except as otherwise described below,
each Note will bear interest at the applicable rate set forth on the cover page
hereof from November 2, 1998 or from the most recent interest payment date to
which interest has been paid, payable in cash semiannually in arrears on May 1
and November 1 of each year, commencing May 1, 1999, to the Person in whose name
the Note (or any predecessor Note) is registered in the Note Register at the
close of business on the April 15 or October 15 next preceding such interest
payment date.
As discussed under "Exchange Offer; Registration Rights," pursuant to the
Registration Rights Agreement, the Company has agreed for the benefit of the
holders of the Old Notes, at the Company's cost, either (i) to effect a
registered Exchange Offer under the Securities Act to exchange the Old Notes for
Exchange Notes (the "Exchange Offer"), which will have terms identical in all
material respects to the Old Notes (except that the Exchange Notes will not
contain terms with respect to transfer restrictions) (the "Exchange Notes") or
(ii) in the event that any changes in law or applicable interpretations of the
staff of the Commission do not permit the Company to effect the
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Exchange Offer, or if for any other reason the Exchange Offer is not consummated
within 150 days following the date of the original issue of the Old Notes, or if
any holder of the Old Notes (other than the Initial Purchasers) is not eligible
to participate in the Exchange Offer, or upon the request of any Initial
Purchaser in certain circumstances, to register the Notes for resale under the
Securities Act through a shelf registration statement (the "Shelf Registration
Statement"). In the event that either (a) the registration statement with
respect to the Exchange Offer (the "Exchange Offer Registration Statement") is
not filed with the Commission on or prior to the 30th calendar day following the
date of original issue of the Old Notes, (b) the Exchange Offer Registration
Statement has not been declared effective on or prior to the 120th calendar day
following the date of original issue of the Old Notes or (c) the Exchange Offer
is not consummated or a Shelf Registration Statement is not declared effective
on or prior to the 150th calendar day following the date of original issue of
the Old Notes, the interest rate borne by the Old Notes shall be increased by
one-half of one percent per annum following, such 30-day period in the case of
(a) above, following such 120-day period in the case of clause (b) above or
following such 150-day period in the case of clause (c) above. The aggregate
amount of such increase from the original interest rate pursuant to these
provisions will in no event exceed one-half of one percent per annum. Upon (x)
the filing of the Exchange Offer Registration Statement after the 30-day period
described in clause (a) above, (y) the effectiveness of the Exchange Offer
Registration Statement after the 120-day period described in clause (b) above or
(z) the consummation of the Exchange Offer or the effectiveness of a Shelf
Registration Statement, as the case may be, after the 150-day period described
in clause (c) above, the interest rate borne by the Notes from the date of such
filing, effectiveness or consummation, as the case may be, will be reduced to
the original interest if the Company is otherwise in compliance with this
paragraph. See "Exchange Offer; Registration Rights."
Notes that remain outstanding after the consummation of the Exchange Offer and
Exchange Notes issued in connection with the Exchange Offer will be treated as a
single class of securities under the Indenture.
SUBORDINATION
The payment of the principal of, premium, if any, interest on and all other
amounts owing in respect of, the Notes will be subordinated, as set forth in the
Indenture, in right of payment to the prior payment in full in cash or cash
equivalents of all Senior Indebtedness; provided, however, that the Notes shall
rank equal with, or prior to, all existing and future unsecured indebtedness of
the Company that is subordinated to any Senior Indebtedness. (Section 1301)
In the event of any insolvency or bankruptcy case or proceeding, or any
receivership, liquidation, reorganization or other similar case or proceeding in
connection therewith, relating to the Company or to its creditors, as such, or
its assets, or any liquidation, dissolution or other winding-up of the Company,
whether voluntary or involuntary and whether or not involving insolvency or
bankruptcy, or any assignment for the benefit of creditors or any other
marshalling of assets or liabilities of the Company (except in connection with
the consolidation or merger of the Company or its liquidation or dissolution
following the conveyance, transfer or lease of its properties and assets
substantially as an entirety upon the terms and conditions described under
"Merger, Consolidation and Sale of Assets, etc." below), the holders of Senior
Indebtedness will first be entitled to receive payment in full in cash or cash
equivalents of all amounts due on or in respect of all Senior Indebtedness, or
provision shall be made for such payment in
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cash or cash equivalents, before the holders of the Notes will be entitled to
receive any payment or distribution of any kind or character (other than any
payment or distribution in the form of equity securities or subordinated
securities of the Company or any successor obligor provided for by a plan of
reorganization or readjustment that, in the case of any such subordinated
securities, are subordinated in right of payment to all Senior Indebtedness that
may at the time be outstanding to at least the same extent as the Notes are so
subordinated (such equity securities or subordinated securities hereinafter
being "Permitted Junior Securities")) on account of principal of (or premium, if
any) or interest on the Notes; and any payment or distribution of assets of the
Company of any kind or character, whether in cash, property or securities (other
than a payment or distribution in the form of Permitted Junior Securities) by
set-off or otherwise, to which the holders or the Trustee would be entitled but
for the provisions of the Indenture shall be paid by the liquidating trustee or
agent or other person making such payment or distribution, whether a trustee in
bankruptcy, a receiver or liquidating trustee or otherwise, directly to the
holders of Senior Indebtedness or their representative or representatives
ratably according to the aggregate amounts remaining unpaid on account of the
Senior Indebtedness to the extent necessary to make payment in full in cash or
cash equivalents of all Senior Indebtedness remaining unpaid, after giving
effect to any concurrent payment or distribution to the holders of such Senior
Indebtedness. (Section 1302)
No payment (other than any payments made pursuant to the provisions described
under "-- Defeasance or Covenant Defeasance of Indenture" from monies or U.S.
Government Obligations previously deposited with the Trustee) or distribution of
any assets of the Company of any kind or character, whether in cash, property or
securities (other than Permitted Junior Securities), may be made by or on behalf
of the Company on account of principal of (or premium, if any) or interest on
the Notes or on account of the purchase, redemption or other acquisition of
Notes upon the occurrence of any default in payment of Designated Senior
Indebtedness (a "Payment Default") until such Payment Default shall have been
cured or waived in writing or shall have ceased to exist or such Designated
Senior Indebtedness shall have been discharged or paid in full in cash or cash
equivalents. (Section 1303(a))
No payment (other than any payments made pursuant to the provisions described
under "-- Defeasance or Covenant Defeasance of Indenture" from monies or U.S.
Government Obligations previously deposited with the Trustee) or distribution of
any assets of the Company of any kind or character, whether in cash, property or
securities (other than Permitted Junior Securities), may be made by or on behalf
of the Company on account of principal (or premium, if any) or interest on the
Notes or on account of the purchase, redemption or other acquisition of Notes
for the period specified below (a "Payment Blockage Period") upon the occurrence
of any default or event of default with respect to any Designated Senior
Indebtedness other than any Payment Default pursuant to which the maturity
thereof may be accelerated (a "Non-payment Default") and after the receipt by
the Trustee of written notice thereof from the Agent Bank or any other
representative of a holder of Designated Senior Indebtedness. (Section 1303(b))
The Payment Blockage Period will commence upon the date of receipt by the
Trustee of written notice from the Agent Bank or such other representative of
the Designated Senior Indebtedness in respect of which the Non-payment Default
exists and shall end on the earliest of (i) 179 days thereafter (provided any
Designated Senior Indebtedness as to which notice was given shall not
theretofore have been accelerated), (ii) the date on which such Non-payment
Default is cured, waived or ceased to exist or such Designated Senior
Indebtedness is discharged or paid in full in cash or cash equivalents or (iii)
such
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Payment Blockage Period shall have been terminated by written notice to the
Company or the Trustee from the Agent Bank or such other representative
initiating such Payment Blockage Period, after which the Company will resume
making any and all required payments in respect of the Notes, including any
missed payments. In any event, not more than one Payment Blockage Period may be
commenced during any period of 365 consecutive days. No event of default with
respect to Designated Senior Indebtedness that existed or was continuing on the
date of the commencement of any Payment Blockage Period will be, or can be made,
the basis for the commencement of a subsequent Payment Blockage Period, unless
such default has been cured or waived for a period of not less than 90
consecutive days subsequent to the commencement of such initial Payment Blockage
Period (it being acknowledged that any breach of any financial covenant for a
period commencing after the date of commencement of such Payment Blockage Period
which would give rise to a Non-payment Default pursuant to any provision under
which a Non-payment Default previously existed or was continuing shall
constitute a new Non-payment Default for this purpose).
Failure by the Company to make any required payment in respect of the Notes when
due or within any applicable period, whether or not occurring during a Payment
Blockage Period, would result in an Event of Default and, thereafter, holders of
the Notes would have the right to accelerate the maturity thereof. See
"-- Events of Default."
By reason of such subordination, in the event of liquidation, receivership,
reorganization or insolvency of the Company, creditors of the Company who are
holders of Senior Indebtedness may recover more, ratably, than the holders of
the Notes, and assets which would otherwise be available to pay obligations in
respect of the Notes will be available only after all Senior Indebtedness has
been paid in full in cash or cash equivalents, at which time there may not be
sufficient assets remaining to pay any amounts due on any or all of the Notes.
"SENIOR INDEBTEDNESS" means the principal of, premium, if any, and interest on
(including interest accruing after the filing of a petition by or against the
Company under any bankruptcy laws) and all other amounts due on or in connection
with any Indebtedness of the Company, whether outstanding on the date of the
Indenture or thereafter created, incurred or assumed, unless, in the case of any
particular Indebtedness, the instrument creating or evidencing the same or
pursuant to which the same is outstanding expressly provides that such
Indebtedness shall not be senior in right of payment to the Notes. Without
limiting the generality of the foregoing, "Senior Indebtedness" shall include
the principal of (and premium, if any, on) and interest (including interest
accruing after the occurrence of an event of default or after the filing of a
petition by or against the Company under any bankruptcy law) on all
Indebtedness, and all other amounts and obligations of every nature of the
Company, from time to time owed, under the Bank Credit Agreement.
Notwithstanding the foregoing, "Senior Indebtedness" shall not include (i)
Indebtedness evidenced by the Notes, the 8% Notes and the 9 7/8% Notes, (ii)
Indebtedness of the Company that is expressly subordinated in right of payment
to any Indebtedness of the Company, (iii) Indebtedness of the Company that by
operation of law is subordinate to any general unsecured obligations of the
Company, (iv) that portion of any Indebtedness of the Company that at the time
of incurrence is incurred in violation of any covenant of the Indenture, (v) any
liability for federal, state or local taxes or other taxes, owed or owing by the
Company, (vi) trade accounts payable owed or owing by the Company, (vii)
Indebtedness of the Company to any Subsidiary or any other Affiliate of the
Company, (viii) Redeemable Capital Stock of the Company and (ix) Indebtedness
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which when incurred and without respect to any election under Section 1111(b) of
Title 11 of the United States Code is without recourse to the Company or any
Subsidiary.
"DESIGNATED SENIOR INDEBTEDNESS" means (i) all Senior Indebtedness under the
Bank Credit Agreement and (ii) following the full repayment of indebtedness
under the Bank Credit Agreement and the termination of the commitments
thereunder, any other Senior Indebtedness which, at the time of determination,
has an aggregate principal amount outstanding of at least $17 million and is
specifically designated in the instrument evidencing such Senior Indebtedness as
"Designated Senior Indebtedness" by the Company.
SINKING FUND
The Notes will not be entitled to the benefit of any sinking fund.
REDEMPTION
OPTIONAL REDEMPTION. The Notes will be redeemable at the option of the Company,
in whole or in part, at any time on or after November 1, 2003, at the redemption
prices (expressed as percentages of principal amount) set forth below, plus
accrued and unpaid interest to the redemption date, if redeemed during the
12-month period beginning on March 1 of the years indicated below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
- ---- ----------
<S> <C>
2003................................................ 104.750%
2004................................................ 103.167%
2005................................................ 101.583%
2006 and thereafter................................. 100.000%
</TABLE>
In addition, at any time or from time to time, on or prior to November 1, 2001,
the Company may, at its option, redeem up to 35% of the aggregate principal
amount of Notes originally issued under the Indenture at a redemption price
equal to 109 1/2% of the aggregate principal amount thereof, plus accrued and
unpaid interest thereon, if any, to the redemption date, with the net cash
proceeds of one or more Equity Offerings; provided that at least 65% of the
aggregate principal amount of Notes issued under the Indenture on the Issuance
Date remains outstanding immediately after the occurrence of such redemption;
provided further such redemption occurs within 60 days of the date of closing of
each such Equity Offering. The Trustee shall select the Notes to be purchased in
the manner described under "-- Selection and Notice."
As described below, (a) upon the occurrence of a Change of Control, the Company
is obligated to make an offer to purchase all outstanding Notes at a redemption
price of 101% of the principal amount thereof, plus accrued and unpaid interest
to the date of purchase and (b) upon certain sales or other dispositions of
assets, the Company may be obligated to make offers to purchase Notes with a
portion of the Net Cash Proceeds of such sales or other dispositions at a
redemption price of 100% of the principal amount thereof plus accrued and unpaid
interest to the date of purchase. See "Certain Covenants -- Change of Control"
and "-- Limitation on Disposition of Proceeds of Asset Sales." (Section 1101)
Selection and Notice. In the event that less than all of the Notes are to be
redeemed at any time, selection of such Notes for redemption will be made by the
Trustee on a pro
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rata basis, by lot or by such method as the Trustee shall deem fair and
appropriate; provided, however, that no Note of a principal amount of $1,000 or
less shall be redeemed in part. Notice of redemption shall be mailed by
first-class mail least 30 but not more than 60 days before the redemption date
to each holder of Notes to be redeemed at its registered address. If any Note is
to be redeemed in part only, the notice of redemption that relates to such Note
shall state the portion of the principal amount thereof to be redeemed. A new
Note in a principal amount equal to the unredeemed portion thereof will be
issued in the name of the holder thereof upon cancellation of the original Note.
On and after the redemption date, interest will cease to accrue on Notes or
portions thereof called for redemption and accepted for payment. (Sections 1104,
1105, 1107 and 1108)
CERTAIN COVENANTS
The Indenture will contain, among others, the covenants described below.
LIMITATION ON INDEBTEDNESS. (a) The Indenture will provide that the Company
will not create, incur, issue, assume, guarantee or in any manner become
directly or indirectly liable for the payment of, or otherwise incur
(collectively, "incur"), any Indebtedness (including any Acquired Indebtedness),
other than Permitted Indebtedness, unless (x) the Company's Consolidated Fixed
Charge Coverage Ratio for the four full fiscal quarters immediately preceding
the incurrence of such Indebtedness, taken as one period (and after giving pro
forma effect to: (i) the incurrence of such Indebtedness and (if applicable) the
application of the net proceeds therefrom, including to refinance other
Indebtedness, as if such Indebtedness was incurred and the application of such
proceeds occurred at the beginning of such four-quarter period; (ii) the
incurrence, repayment or retirement of any other Indebtedness by the Company or
its Restricted Subsidiaries since the first day of such four-quarter period as
if such Indebtedness was incurred, repaid or retired at the beginning of such
four-quarter period; and (iii) notwithstanding clause (d) of the definition of
Consolidated Adjusted Net Income, the acquisition (whether by purchase, merger
or otherwise) or disposition (whether by sale, merger or otherwise) of any
company, entity or business acquired or disposed of by the Company or its
Restricted Subsidiaries, as the case may be, since the first day of such
four-quarter period, as if such acquisition or disposition occurred at the
beginning of such four-quarter period, reflecting, in the case of such an
acquisition, any amount attributable to operating expense that will be
eliminated or cost reduction that will be realized (in each case, net of any
operating expense or other cost increase) in connection with such acquisition,
as determined in good faith by the chief financial officer of the Company in
accordance with GAAP and the rules, regulations and guidelines of the
Commission, as if such elimination of operating expense or the realization of
such cost reduction were achieved at the beginning of such four-quarter period),
would have been at least equal to 2.0 to 1 and (y) if such Indebtedness is
Subordinated Indebtedness, such Indebtedness shall have an Average Life longer
than the Average Life of the Notes and a final Stated Maturity of principal
later than the final Stated Maturity of principal of the Notes.
(b) The Company will not permit any Restricted Subsidiary to incur any
Indebtedness (including any Acquired Indebtedness), other than Permitted
Subsidiary Indebtedness, unless (x) the Company's Consolidated Fixed Charge
Coverage Ratio for the four full fiscal quarters immediately preceding the
incurrence of such Indebtedness, taken as one period (and after giving pro forma
effect to the matters referred to in clauses (i), (ii) and (iii) in the
parenthetical in paragraph (a) of the "Limitation on Indebtedness" covenant),
would have been at least equal to 3.0 to 1, and (y) any Restricted Subsidiary
which incurs any Indebtedness pursuant to clause (x) of this paragraph (b) shall
Guarantee the Notes
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in compliance with clause (i) of paragraph (b) and clauses (i)(A), (ii) and
(iii) of paragraph (a) of the "Limitation on Guarantees of Indebtedness by
Restricted Subsidiaries" covenant. (Section 1010)
LIMITATION ON OTHER SENIOR SUBORDINATED INDEBTEDNESS. The Indenture will
provide that the Company will not, and will not permit any Restricted Subsidiary
to, incur, create, assume, guarantee or in any other manner become directly or
indirectly liable with respect to or responsible for, or permit to remain
outstanding, any Indebtedness that is subordinate or junior in right of payment
to any Senior Indebtedness unless such Indebtedness is also pari passu with, or
subordinate in right of payment to, the Notes pursuant to subordination
provisions substantially similar to those contained in the Indenture. (Section
1019)
LIMITATION ON RESTRICTED PAYMENTS. (a) The Indenture will provide that the
Company will not, and will not permit any Restricted Subsidiary to, directly or
indirectly, take the following actions:
(i) declare or pay any dividend on, or make any distribution to holders
of, any shares of the Company's Capital Stock (other than dividends
or distributions payable in shares of its Capital Stock or in
options, warrants or other rights to purchase such Capital Stock, but
excluding dividends or distributions payable in Redeemable Capital
Stock or in options, warrants or other rights to purchase Redeemable
Capital Stock),
(ii) purchase, redeem or otherwise acquire or retire for value any Capital
Stock of the Company or any options, warrants or other rights to
acquire such Capital Stock,
(iii) make any principal payment on or repurchase, redeem, defease or
otherwise acquire or retire for value, prior to a scheduled principal
payment, scheduled sinking fund payment or maturity, any Subordinated
Indebtedness,
(iv) make any Investment (other than any Permitted Investment) in any
Person, or
(v) incur any guarantee of Indebtedness of any Affiliate, including any
Unrestricted Subsidiary (other than with respect to (a) guarantees of
Indebtedness of any wholly-owned Restricted Subsidiary by the Company
or (b) guarantees of Indebtedness of the Company by any Restricted
Subsidiary),
(such payments or other actions described in (but not excluded from) clauses (i)
through (v) are collectively referred to as "Restricted Payments"), unless at
the time of and after giving effect to the proposed Restricted Payment (the
amount of any such Restricted Payment, if other than cash, as determined by the
Board of Directors of the Company, whose determination shall be conclusive and
evidenced by a Board Resolution), (1) no Default or Event of Default shall have
occurred and be continuing, (2) the Company could incur $1.00 of additional
Indebtedness (other than Permitted Indebtedness) pursuant to the "Limitation on
Indebtedness" covenant, and (3) the aggregate amount of all Restricted Payments
declared or made after the date of the 9 7/8% Notes Indenture shall not exceed
the sum of (A) 50% of the aggregate cumulative Consolidated Adjusted Net Income
of the Company accrued on a cumulative basis during the period beginning on the
first day after the date of the 9 7/8% Notes Indenture and ending on the last
day of the Company's last fiscal quarter ending prior to the date of such
proposed Restricted Payment (or, if such aggregate cumulative Consolidated
Adjusted Net Income shall be a loss, minus 100% of such loss), plus (B) the
aggregate net cash proceeds received after the date of the 9 7/8% Notes
Indenture by the Company from the issuance or sale (other than
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to any Restricted Subsidiary) of shares of Capital Stock of the Company (other
than Redeemable Capital Stock) or warrants, options or rights to purchase such
shares of Capital Stock of the Company, plus (C) the aggregate net cash proceeds
received after the date of the 9 7/8% Notes Indenture by the Company from the
issuance or sale (other than to any Restricted Subsidiary) of debt securities
that have been converted into or exchanged for Capital Stock of the Company
(other than Redeemable Capital Stock) to the extent such debt securities were
originally sold for cash, together with the aggregate cash received by the
Company at the time of such conversion or exchange, plus (D) to the extent not
otherwise included in the Company's Consolidated Adjusted Net Income, the net
reduction in Investments in Unrestricted Subsidiaries resulting from the
payments of interest on Indebtedness, dividends, repayments of loans or
advances, or other transfers of assets, in each case to the Company or a
Restricted Subsidiary after the date of the 9 7/8% Notes Indenture from any
Unrestricted Subsidiary or from the redesignation of an Unrestricted Subsidiary
as a Restricted Subsidiary (valued in each case as provided in the definition of
"Investment"), not to exceed in the case of any Unrestricted Subsidiary the
total amount of Investments (other than Permitted Investments), after the date
of the 9 7/8% Notes Indenture in such Unrestricted Subsidiary by the Company and
its Restricted Subsidiaries, plus (E) $10 million.
(b) Notwithstanding paragraph (a) above, the Company and its Restricted
Subsidiaries may take the following actions so long as (with respect to clauses
(ii), (iii), (iv), (v) and (vi) below) no Default or Event of Default shall have
occurred and be continuing:
(i) the payment of any dividend within 60 days after the date of
declaration thereof, if at such declaration date such declaration
complied with the provisions of paragraph (a) above;
(ii) the purchase, redemption or other acquisition or retirement for value
of any shares of Capital Stock of the Company, in exchange for, or
out of the net cash proceeds of, a substantially concurrent issuance
and sale (other than to a Restricted Subsidiary) of shares of Capital
Stock (other than Redeemable Capital Stock) of the Company;
(iii) the purchase, redemption, defeasance or other acquisition or
retirement for value of any Subordinated Indebtedness (other than
Redeemable Capital Stock) in exchange for or out of the net cash
proceeds of a substantially concurrent issuance and sale (other than
to a Restricted Subsidiary) of shares of Capital Stock (other than
Redeemable Capital Stock) of the Company;
(iv) the repurchase of any Subordinated Indebtedness of the Company at a
purchase price not greater than 101% of the principal amount of such
Subordinated Indebtedness in the event of a Change of Control
pursuant to a provision similar to the "Change of Control" covenant;
provided that prior to such repurchase the Company has made the
Change of Control Offer as provided in such covenant with respect to
the Notes and has repurchased all Notes validly tendered for payment
in connection with such Change of Control Offer;
(v) the purchase, redemption or other acquisition or retirement for value
of Subordinated Indebtedness (other than Redeemable Capital Stock) in
exchange for, or out of the net cash proceeds of a substantially
concurrent incurrence (other than to a Restricted Subsidiary) of,
Indebtedness of the Company so long as (A) the principal amount of
such new Indebtedness does not exceed the principal amount (or, if
such Indebtedness being refinanced provides for an
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amount less than the principal amount thereof to be due and payable
upon a declaration of acceleration thereof, such lesser amount as of
the date of determination) of the Indebtedness being so purchased,
redeemed, acquired or retired, plus the amount of any premium
required to be paid in connection with such refinancing pursuant to
the terms of the Subordinated Indebtedness refinanced or the amount
of any premium reasonably determined by the Company as necessary to
accomplish such refinancing, plus the amount of expenses of the
Company incurred in connection with such refinancing, (B) such new
Indebtedness is subordinated to the Notes to the same extent as the
Notes are subordinated to Senior Indebtedness and (C) such new
Indebtedness has an Average Life longer than the Average Life of the
Notes and a final Stated Maturity of principal later than the final
Stated Maturity of principal of the Notes; and
(vi) the purchase, redemption or other acquisition or retirement for value
of shares of Common Stock of the Company issued pursuant to
non-qualified options granted under stock option plans of the
Company, in order to pay withholding taxes due as a result of income
recognized upon the exercise of such options, provided that (1) the
Company is required, by the terms of such plans, to effect such
purchase, redemption or other acquisition or retirement for value of
such shares and (2) the aggregate consideration paid by the Company
for such shares so purchased, redeemed or otherwise acquired or
retired for value does not exceed $2 million during any fiscal year
of the Company.
The actions described in clauses (i), (ii), (iii), (iv) and (vi) of this
paragraph (b) shall be Restricted Payments that shall be permitted to be taken
in accordance with this paragraph (b) but shall reduce the amount that would
otherwise be available for Restricted Payments under clause (3) of paragraph (a)
(provided that any dividend paid pursuant to clause (i) of this paragraph (b)
shall reduce the amount that would otherwise be available under clause (3) of
paragraph (a) when declared, but not also when subsequently paid pursuant to
such clause (i)) and the actions described in clause (v) of this paragraph (b)
shall be Restricted Payments that shall be permitted to be taken in accordance
with this paragraph (b) and shall not reduce the amount that would otherwise be
available for Restricted Payments under clause (3) of paragraph (a).
(c) In computing Consolidated Adjusted Net Income of the Company under clause
(3)(A) of paragraph (a) above, (1) the Company shall use audited financial
statements for the portions of the relevant period for which audited financial
statements are available on the date of determination and unaudited financial
statements and other current financial data based on the books and records of
the Company for the remaining portion of such period and (2) the Company shall
be permitted to rely in good faith on the financial statements and other
financial data derived from the books and records of the Company that are
available on the date of determination. If the Company makes a Restricted
Payment which, at the time of the making of such Restricted Payment would in the
good faith determination of the Company be permitted under the requirements of
the Indenture, such Restricted Payment shall be deemed to have been made in
compliance with the Indenture notwithstanding any subsequent adjustments made in
good faith to the Company's financial statements affecting Consolidated Adjusted
Net Income of the Company for any period. (Section 1011)
LIMITATION ON ISSUANCES AND SALES OF RESTRICTED SUBSIDIARY STOCK. The Indenture
will provide that the Company (i) will not permit any Restricted Subsidiary to
issue any
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Capital Stock (other than to the Company or a wholly-owned Restricted
Subsidiary) and (ii) will not permit any Person (other than the Company or a
wholly-owned Restricted Subsidiary) to own any Capital Stock of any Restricted
Subsidiary; provided, however, that this covenant shall not prohibit (1) the
issuance and sale of all, but not less than all, of the issued and outstanding
Capital Stock of any Restricted Subsidiary owned by the Company or any of its
Restricted Subsidiaries in compliance with the other provisions of the
Indenture, (2) the ownership by directors of director's qualifying shares or the
ownership by foreign nationals of Capital Stock of any Restricted Subsidiary, to
the extent mandated by applicable law or (3) the issuance and sale of Capital
Stock by a Restricted Subsidiary, or the ownership by any Person of any Capital
Stock of a Restricted Subsidiary, if, in each case, the Company has made, or is
making, an Investment in such Restricted Subsidiary pursuant to clause (v) of
the definition of "Permitted Investment." (Section 1012)
LIMITATION ON TRANSACTIONS WITH AFFILIATES. The Indenture will provide that the
Company will not, and will not permit any Restricted Subsidiary to, directly or
indirectly, enter into or suffer to exist any transaction with, or for the
benefit of, any Affiliate of the Company or any beneficial owner of 5% or more
of any class of the Company's Capital Stock at any time outstanding ("Interested
Persons"), unless (i) such transaction is among the Company and wholly-owned
Restricted Subsidiaries or (ii) (A) such transaction is on terms that are no
less favorable to the Company, or such Restricted Subsidiary, as the case may
be, than those which could have been obtained in an arm's length transaction
with third parties who are not Interested Persons, (B) with respect to any
transaction involving aggregate consideration equal to or greater than $2
million, the Company has delivered an Officers' Certificate to the Trustee
certifying that such transaction complies with clause (ii)(A) above, and (C)
with respect to any transaction involving aggregate consideration equal to or
greater than $5 million, such transaction has been approved by the Board of
Directors (including a majority of the Disinterested Directors); provided,
however, that this covenant will not restrict the Company from paying reasonable
and customary regular compensation and fees to directors of the Company or any
Restricted Subsidiary who are not employees of the Company or any Restricted
Subsidiary. (Section 1013)
LIMITATION ON LIENS SECURING PARI PASSU INDEBTEDNESS OR SUBORDINATED
INDEBTEDNESS. (a) The Company will not, and will not permit any Restricted
Subsidiary to, directly or indirectly, create, incur, assume or suffer to exist
any Lien (other than Permitted Liens) securing Pari Passu Indebtedness or
Subordinated Indebtedness of the Company on or with respect to any of its
property or assets, including any shares of stock or indebtedness of any
Restricted Subsidiary, whether owned at the date of the Indenture or thereafter
acquired, or any income, profits or proceeds therefrom, or assign or otherwise
convey any right to receive income thereon, unless (x) in the case of any Lien
securing Pari Passu Indebtedness of the Company, the Notes are secured by a Lien
on such property, assets or proceeds that is senior in priority to or pari passu
with such Lien and (y) in the case of any Lien securing Subordinated
Indebtedness of the Company, the Notes are secured by a Lien on such property,
assets or proceeds that is senior in priority to such Lien.
(b) The Company will not permit any Restricted Subsidiary to, directly or
indirectly, create, incur, assume or suffer to exist any Lien (other than
Permitted Liens) securing Indebtedness of such Restricted Subsidiary that is
pari passu or subordinate in right of payment to the Guarantee of such
Subsidiary, on or with respect to any of such Restricted Subsidiary's properties
or assets, including any shares of stock or Indebtedness of any Subsidiary of
such Restricted Subsidiary, whether owned at the date of the Indenture or
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thereafter acquired, or any income, profits or proceeds therefrom, or assign or
otherwise convey any right to receive income thereon, unless (x) in the case of
any Lien securing Indebtedness of the Restricted Subsidiary that is pari passu
in right of payment to the Guarantee of such Restricted Subsidiary, such
Guarantee is secured by a Lien on such property, assets or proceeds that is
senior in priority to or pari passu with such Lien and (y) in the case of any
Lien securing Indebtedness of the Restricted Subsidiary that is subordinate in
right of payment to the Guarantee of such Restricted Subsidiary, such Guarantee
is secured by a Lien on such property, assets or proceeds that is senior in
priority to such Lien. (Section 1014)
CHANGE OF CONTROL. Upon the occurrence of a Change of Control, the Company
shall be obligated to make an offer to purchase all of the then outstanding
Notes (a "Change of Control Offer"), and shall purchase, on a business day (the
"Change of Control Purchase Date") not more than 70 nor less than 60 days
following the Change of Control, all of the then outstanding Notes validly
tendered pursuant to such Change in Control Offer, at a purchase price (the
"Change of Control Purchase Price") equal to 101% of the principal amount
thereof plus accrued and unpaid interest, if any, to the Change of Control
Purchase Date. The Change of Control Offer is required to remain open for at
least 20 Business Days and until the close of business on the Change of Control
Purchase Date.
In order to effect such Change of Control Offer, the Company shall, not later
than the 30th day after the Change of Control, mail to each Noteholder and the
Banks notice of the Change of Control Offer, which notice shall govern the terms
of the Change of Control Offer and shall state, among other things, the
procedures that Noteholders must follow to accept the Change of Control Offer.
If a Change of Control Offer is made, there can be no assurance that the Company
will have available funds sufficient to pay the Change of Control Purchase Price
for all of the Notes that might be delivered by Noteholders seeking to accept
the Change of Control Offer. The Bank Credit Agreement prohibits the purchase of
the Notes by the Company prior to full repayment of indebtedness under the Bank
Credit Agreement and the termination of the commitments thereunder and, upon a
Change of Control, all amounts outstanding under the Bank Credit Agreement may
become due and payable. In addition, under the terms of the indenture governing
the Senior Notes, the repurchase of the Notes by the Company would constitute a
restricted payment that may be prohibited at the time of a Chance of Control.
There can be no assurance that in the event of a Change of Control the Company
will be able to obtain the necessary consents from the lenders under the Bank
Credit Agreement, or, if necessary, from the holders of the Senior Notes, to
consummate a Change of Control Offer. The failure of the Company to make or
consummate the Change of Control Offer or pay the Change of Control Purchase
Price when due would result in an Event of Default and would give the Trustee
and the holders of the Notes the rights described under "-- Events of Default."
One of the events which constitutes a Change of Control under the Indenture is
the disposition of "all or substantially all" of the Company's assets. This term
has not been interpreted under New York law (which is the governing law of the
Indenture) to represent a specific quantitative test. As a consequence, in the
event holders of the Notes elect to require the Company to purchase the Notes
and the Company elects to contest such election, there can be no assurance as to
how a court interpreting New York law would interpret the phrase.
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The existence of a holder's right to require the Company to purchase such
holder's Notes upon a Change of Control may deter a third party from acquiring
the Company in a transaction which constitutes a Change of Control.
The definition of "Change of Control" in the Indenture is limited in scope. The
provisions of the Indenture may not afford holders of Notes the right to require
the Company to purchase such Notes in the event of a highly leveraged
transaction or certain transactions with the Company's management or its
affiliates, including a reorganization, restructuring, merger or similar
transaction involving the Company (including, in certain circumstances, an
acquisition of the Company by management or its affiliates) that may adversely
affect holders of the Notes, if the transaction is not a transaction defined as
a Change of Control. See "-- Certain Definitions" for the definition of "Change
of Control."
The Company will comply with Rule 14e-1 under the Exchange Act and any other
securities laws and regulations thereunder to the extent such laws and
regulations are applicable, in the event that a Change of Control occurs and the
Company is required to purchase Notes as described above. (Section 1015)
LIMITATION ON DISPOSITION OF PROCEEDS OF ASSET SALES. (a) The Indenture will
provide that the Company will not, and will not permit any Restricted Subsidiary
to, engage in any Asset Sale unless (i) such Asset Sale is for not less than the
Fair Market Value of the assets sold (as determined by the Board of Directors of
the Company, whose determination shall be conclusive and evidenced by a Board
Resolution) and (ii) the consideration received by the Company or the relevant
Restricted Subsidiary in respect of such Asset Sale consists of at least 75%
cash or Cash Equivalents; provided that the Company and its Restricted
Subsidiaries may engage in Asset Sales for consideration not in the form of cash
or Cash Equivalents in amounts in excess of that permitted in this clause (ii),
so long as (x) such excess consideration is in the form of Fully Traded Common
Stock, (y) the aggregate Fair Market Value of such Fully Traded Common Stock
received by the Company and its Restricted Subsidiaries (measured as of the date
of receipt) from all Asset Sales in reliance on this proviso since the date of
the Indenture that has not been converted into cash or Cash Equivalents does not
exceed $10 million and (z) any Fully Traded Common Stock that is converted into
cash or Cash Equivalents shall be applied as provided in paragraphs (b) and (c)
of this "Limitation on Disposition of Proceeds of Asset Sales" covenant.
(b) If the Company or any Restricted Subsidiary engages in an Asset Sale, the
Company may use the Net Cash Proceeds thereof, within 12 months after such Asset
Sale, to (i) repay or prepay any then outstanding Senior Indebtedness of the
Company or Indebtedness of any Restricted Subsidiary or Indebtedness represented
by the 8% Notes or the 9 7/8% Notes or (ii) invest (or enter into a legally
binding agreement to invest) in properties and assets to replace the properties
and assets that were the subject of the Asset Sale or in properties and assets
that will be used in businesses of the Company or its Restricted Subsidiaries,
as the case may be, existing on the Closing Date or in businesses reasonably
related thereto. If any such legally binding agreement to invest such Net Cash
Proceeds is terminated, then the Company may, within 90 days of such termination
or within 12 months of such Asset Sale, whichever is later, invest such Net Cash
Proceeds as provided in clause (i) or (ii) (without regard to the parenthetical
contained in such clause (ii)) above. The amount of such Net Cash Proceeds not
so used as set forth above in this paragraph (b) constitutes "Excess Proceeds."
(c) When the aggregate amount of Excess Proceeds exceeds $10 million, the
Company shall, within 15 business days, make an Offer to Purchase (an "Excess
Proceeds Offer")
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from all holders of Notes, on a pro rata basis, in accordance with the
procedures set forth below, the maximum principal amount (expressed as a
multiple of $1,000) of Notes that may be purchased with the Excess Proceeds. The
offer price as to each Note shall be payable in cash in an amount equal to 100%
of the principal amount of such Note plus accrued and unpaid interest, if any,
to the date such Excess Proceeds Offer is consummated. To the extent that the
aggregate principal amount of Notes tendered pursuant to an Excess Proceeds
Offer is less than the Excess Proceeds, the Company may use such deficiency for
general corporate purposes. If the aggregate principal amount of Notes validly
tendered and not withdrawn by holders thereof exceeds the Excess Proceeds, Notes
to be purchased will be selected on a pro rata basis. Upon completion of such
offer to purchase, the amount of Excess Proceeds shall be reset to zero.
(Section 1016)
LIMITATION ON GUARANTEES OF INDEBTEDNESS BY RESTRICTED SUBSIDIARIES. (a) The
Indenture will provide that the Company will not permit any Restricted
Subsidiary to guarantee the payment of any Indebtedness of the Company or any
Indebtedness of any other Restricted Subsidiary unless (i) such Restricted
Subsidiary simultaneously executes and delivers a supplemental indenture to the
Indenture providing for a Guarantee of payment of the Notes by such Restricted
Subsidiary except that (A) if the Notes are subordinated in right of payment to
such Indebtedness, the Guarantee under the supplemental indenture shall be
subordinated to such Restricted Subsidiary's guarantee with respect to such
Indebtedness substantially to the same extent as the Notes are subordinated to
such Indebtedness under the Indenture and (B) if such Indebtedness is by its
express terms subordinated in right of payment to the Notes, any such guarantee
of such Restricted Subsidiary with respect to such Indebtedness shall be
subordinated in right of payment to such Restricted Subsidiary's Guarantee with
respect to the Notes substantially to the same extent as such Indebtedness is
subordinated to the Notes; (ii) such Restricted Subsidiary waives and will not
in any manner whatsoever claim or take the benefit or advantage of, any rights
of reimbursement, indemnity or subrogation or any other rights against the
Company or any other Restricted Subsidiary as a result of any payment by such
Restricted Subsidiary under its Guarantee; (iii) such Restricted Subsidiary
shall appoint CT Corporation in New York City as its agent for the service of
process; and (iv) such Restricted Subsidiary shall deliver to the Trustee an
Opinion of Counsel to the effect that (A) such appointment of CT Corporation is
valid, (B) such Guarantee of the Notes has been duly executed and authorized and
(C) such Guarantee of the Notes constitutes a valid, binding and enforceable
obligation of such Restricted Subsidiary, except insofar as enforcement thereof
may be limited by bankruptcy, insolvency or similar laws (including, without
limitation, all laws relating to fraudulent transfers) and except insofar as
enforcement thereof is subject to general principles of equity; provided that
this paragraph (a) shall not be applicable to any Guarantee of any Restricted
Subsidiary that (x) existed at the time such Person became a Restricted
Subsidiary of the Company and (y) was not incurred in connection with, or in
contemplation of, such Person becoming a Restricted Subsidiary of the Company.
(b) Notwithstanding the foregoing and the other provisions of the Indenture, any
Guarantee by a Restricted Subsidiary of the Notes shall provide by its terms
that it shall be automatically and unconditionally released and discharged upon
(i) any sale, exchange or transfer, to any Person not an Affiliate of the
Company, of all of the Company's Capital Stock in, or all or substantially all
the assets of, such Restricted Subsidiary (which sale, exchange or transfer is
not prohibited by the Indenture) or (ii) the release or discharge of the
Guarantee which resulted in the creation of such Guarantee, except a discharge
or release by or as a result of payment under such Guarantee. (Section 1017)
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LIMITATION ON DIVIDENDS AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED
SUBSIDIARIES. The Indenture will provide that the Company will not, and will not
permit any Restricted Subsidiary to, directly or indirectly, create or otherwise
cause or suffer to exist or become effective any encumbrance or restriction on
the ability of any Restricted Subsidiary of the Company to (a) pay dividends, in
cash or otherwise, or make any other distributions on or in respect of its
Capital Stock or any other interest or participation in, or measured by, its
profits, (b) pay any Indebtedness owed to the Company or any other Restricted
Subsidiary of the Company, (c) make loans or advances to the Company or any
other Restricted Subsidiary of the Company, (d) transfer any of its properties
or assets to the Company or any other Restricted Subsidiary of the Company or
(e) guarantee any Indebtedness of the Company or any other Restricted Subsidiary
of the Company, except for such encumbrances or restrictions existing under or
by reason of (i) applicable law, (ii) customary nonassignment provisions of any
lease governing a leasehold interest of the Company or any Restricted Subsidiary
of the Company, (iii) any agreement or other instrument of a Person acquired by
the Company or any Restricted Subsidiary of the Company in existence at the time
of such acquisition (but not created in contemplation thereof), which
encumbrance or restriction is not applicable to any Person, or the properties or
assets of any Person, other than the Person, or the property or assets of the
Person, so acquired, (iv) any agreement in existence on the Closing Date (to the
extent of any encumbrances or restrictions in existence thereunder on the
Closing Date) and (v) any agreement providing for the incurrence of Indebtedness
of Restricted Subsidiaries pursuant to either clause (x) of paragraph (b) of the
"Limitation of Indebtedness" covenant or clause (vii) of the definition of
Permitted Subsidiary Indebtedness; provided that any Restricted Subsidiary that
becomes subject to any such encumbrances or restrictions pursuant to this clause
(v) shall Guarantee the Notes in compliance with the provisions of clause (i) of
paragraph (b) and clauses (i)(A), (ii) and (iii) of paragraph (a) of the
"Limitation on Guarantees of Indebtedness by Restricted Subsidiaries" covenant.
(Section 1018)
REPORTS. The Indenture will require that the Company file on a timely basis
with the Commission, to the extent such filings are accepted by the Commission
and whether or not the Company has a class of securities registered under the
Exchange Act, the annual reports, quarterly reports and other documents that the
Company would be required to file if it were subject to Section 13 or 15 of the
Exchange Act. The Company will also be required (a) to file with the Trustee,
and provide to each holder of Notes, without cost to such holder, copies of such
reports and documents within 15 days after the date on which the Company files
such reports and documents with the Commission or the date on which the Company
would be required to file such reports and documents if the Company were so
required and (b) if filing such reports and documents with the Commission is not
accepted by the Commission or is prohibited under the Exchange Act, to supply at
the Company's cost copies of such reports and documents to any prospective
holder of Notes promptly upon written request. (Section 1009)
MERGER, CONSOLIDATION AND SALE OF ASSETS, ETC.
The Company will not, in any transaction or series of transactions, merge or
consolidate with or into, or sell, assign, transfer, lease or otherwise dispose
of all or substantially all of its properties and assets as an entirety to, any
Person or Persons, and the Company will not permit any Restricted Subsidiary to
enter into any such transaction or series of transactions if such transaction or
series of transactions, in the aggregate, would result in a sale, assignment,
transfer, lease or other disposition of all or substantially all of the
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properties and assets of the Company and its Restricted Subsidiaries on a
consolidated basis to any other Person or Persons, unless at the time and after
giving effect thereto (i) either (A) if the transaction or transactions is a
merger or consolidation, the Company shall be the surviving Person of such
merger or consolidation, or (B) the Person formed by such consolidation or into
which the Company or such Restricted Subsidiary is merged or to which the
properties and assets of the Company or such Restricted Subsidiary, as the case
may be, substantially as an entirety, are sold, assigned, transferred, leased or
otherwise disposed of (any such surviving Person or transferee Person being the
"Surviving Entity") shall be a corporation organized and existing under the laws
of the United States of America, any state thereof or the District of Columbia
and shall expressly assume by a supplemental indenture executed and delivered to
the Trustee, in form satisfactory to the Trustee, all the obligations of the
Company under the Notes and the Indenture, and, in each case, the Indenture
shall remain in full force and effect; (ii) immediately before and immediately
after giving effect to such transaction or series of transactions on a pro forma
basis (including, without limitation, any Indebtedness incurred or anticipated
to be incurred in connection with or in respect of such transaction or series of
transactions), no Default or Event of Default shall have occurred and be
continuing and the Company or the Surviving Entity, as the case may be, after
giving effect to such transaction or series of transactions on a pro forma
basis, could incur $1.00 of additional Indebtedness (other than Permitted
Indebtedness) pursuant to the "Limitation on Indebtedness" covenant; and (iii)
immediately after giving effect to such transaction or series of transactions on
a pro forma basis, the Consolidated Net Worth of the Company or the Surviving
Entity, as the case may be, is at least equal to the Consolidated Net Worth of
the Company immediately before such transaction or series of transactions.
(Section 801)
In connection with any consolidation, merger, transfer, lease or other
disposition contemplated hereby, the Company shall deliver, or cause to be
delivered, to the Trustee, in the form and substance reasonably satisfactory to
the Trustee, an Officers' Certificate stating that such consolidation, merger,
transfer, lease or other disposition and the supplemental indenture in respect
thereto comply with the requirements under the Indenture and an Opinion of
Counsel stating that the requirements of clause (i) of the preceding paragraph
have been complied with.
Upon any consolidation or merger or any sale, assignment, conveyance, transfer,
lease or disposition of all or substantially all of the properties and assets of
the Company in accordance with the immediately preceding paragraphs in which the
Company is not the continuing obligor under the Indenture, the Surviving Entity
shall succeed to, and be substituted for, and may exercise every right and power
of, the Company under the Indenture with the same effect as if such successor
had been named as the Company therein. When a successor assumes all the
obligations of its predecessor under the Indenture or the Notes, the predecessor
shall be released from those obligations; provided that in the case of a
transfer by lease, the predecessor shall not be released from the payment of
principal and interest on the Notes.
EVENTS OF DEFAULT
The following will be "Events of Default" under the Indenture:
(i) default in the payment of the principal of or premium, if any, when due
and payable, on any of the Notes; or
(ii) default in the payment of an installment of interest on any of the Notes,
when due and payable, for 30 days; or
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(iii) default in the performance or breach of the provisions of the "Merger,
Consolidation and Sale of Assets" section of the Indenture, the failure
to make or consummate a Change of Control Offer in accordance with the
provisions of the "Change of Control" covenant or the failure to make or
consummate an Excess Proceeds Offer in accordance with the provisions of
the "Limitation on Disposition of Proceeds of Asset Sales" covenant; or
(iv) the Company or any Guarantor shall fail to perform or observe any other
erm, covenant or agreement contained in the Notes, any Guarantee or the
Indenture (other than a default specified in (i), (ii) or (iii) above)
for a period of 30 days after written notice of such failure requiring
the Company to remedy the same shall have been given (x) to the Company
by the Trustee or (y) to the Company and the Trustee by the holders of
25% in aggregate principal amount of the Notes then outstanding; or
(v) default or defaults under one or more mortgages, bonds, debentures or
other evidences of Indebtedness under which the Company or any
Significant Subsidiary then has outstanding Indebtedness in excess of $5
million, individually or in the aggregate, and either (a) such
Indebtedness is already due and payable in full or (b) such default or
defaults have resulted in the acceleration of the maturity of such
Indebtedness; or
(vi) one or more final judgments, orders or decrees of any court or regulatory
or administrative agency of competent jurisdiction for the payment of
money in excess of $5 million, either individually or in the aggregate,
shall be entered against the Company or any of its Significant
Subsidiaries or any of their respective properties and shall not be
discharged or fully bonded and there shall have been a period of 60 days
after the date on which any period for appeal has expired and during
which a stay of enforcement of such judgment, order or decree shall not
be in effect; or
(vii) (A) any holder of at least $5 million in aggregate principal amount of
secured Indebtedness of the Company or of any Significant Subsidiary as
to which a default has occurred and is continuing shall commence judicial
proceedings (which proceedings shall remain unstayed for 5 Business Days)
to foreclose upon assets of the Company or any Significant Subsidiary
having an aggregate Fair Market Value, individually or in the aggregate,
in excess of $5 million or shall have exercised any right under
applicable law or applicable security documents to take ownership of any
such assets in lieu of foreclosure or (B) any action described in the
foregoing clause (A) shall result in any court of competent jurisdiction
issuing any order for the seizure of such assets; or
(viii) any Guarantee ceases to be in full force and effect or is declared null
and void or any Guarantor denies that it has any further liability under
any Guarantee, or gives notice to such effect (other than by reason of
the termination of the Indenture or the release of any such Guarantee in
accordance with the Indenture) and such condition shall have continued
for a period of 30 days after written notice of such failure requiring
the Guarantor and the Company to remedy the same shall have been given
(x) to the Company by the Trustee or (y) to the Company and the Trustee
by the holders of 25% in aggregate principal amount of the Notes then
outstanding; or
(ix) the occurrence of certain events of bankruptcy, insolvency or
reorganization with respect to the Company or any Significant Subsidiary.
(Section 501)
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If an Event of Default (other than as specified in clause (ix) above) shall
occur and be continuing, the Trustee, by notice to the Company, or the holders
of at least 25% in aggregate principal amount of the Notes then outstanding, by
notice to the Trustee and the Company, may declare the principal of, premium, if
any, and accrued interest on all of the outstanding Notes due and payable
immediately, upon which declaration all amounts payable in respect of the Notes
shall be immediately due and payable, provided, however, that, for so long as
the Bank Credit Agreement is in effect, such declaration shall not become
effective until the earlier of (i) five Business Days following delivery of
notice to the Agent Bank of the intention to accelerate the Notes or (ii) the
acceleration of any Indebtedness under the Bank Credit Agreement. If an Event of
Default specified in clause (ix) above occurs and is continuing, then the
principal of, premium, if any, and accrued interest on all of the outstanding
Notes shall ipso facto become and be immediately due and payable without any
declaration or other act on the part of the Trustee or any holder of Notes.
(Section 502)
After a declaration of acceleration under the Indenture, but before a judgment
or decree for payment of the money due has been obtained by the Trustee, the
holders of a majority in aggregate principal amount of the outstanding Notes, by
written notice to the Company and the Trustee, may rescind such declaration if
(a) the Company has paid or deposited with the Trustee a sum sufficient to pay
(i) all sums paid or advanced by the Trustee under the Indenture and the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel, (ii) all overdue interest on all Notes, (iii) the
principal of and premium, if any, on any Notes which have become due otherwise
than by such declaration of acceleration and interest thereon at the rate borne
by the Notes, and (iv) to the extent that payment of such interest is lawful,
interest upon overdue interest at the rate borne by the Notes which has become
due otherwise than by such declaration of acceleration; (b) the rescission would
not conflict with any judgment or decree of a court of competent jurisdiction;
and (c) all Events of Default, other than the nonpayment of principal of,
premium, if any, and interest on the Notes that has become due solely by such
declaration of acceleration, have been cured or waived. (Section 502)
Notwithstanding the preceding paragraph, in the event of a declaration of
acceleration in respect of the Notes because an Event of Default shall have
occurred and be continuing, such declaration of acceleration shall be
automatically annulled if the Indebtedness that is the subject of such Event of
Default has been discharged or the holders thereof have rescinded their
declaration of acceleration in respect of such Indebtedness, and written notice
of such discharge or rescission, as the case may be, shall have been given to
the Trustee by the Company and countersigned by the holders of such Indebtedness
or a trustee, fiduciary or agent for such holders, within 30 days after such
declaration of acceleration in respect of the Notes, and no other Event of
Default has occurred during such 30-day period which has not been cured or
waived during such period. (Section 502)
The holders of not less than a majority in aggregate principal amount of the
outstanding Notes may on behalf of the holders of all the Notes waive any past
defaults under the Indenture, except a default in the payment of the principal
of, premium, if any, or interest on any Note, or in respect of a covenant or
provision which under the Indenture cannot be modified or amended without the
consent of the holder of each Note outstanding. (Section 513)
No holder of any of the Notes has any right to institute any proceeding with
respect to the Indenture or any remedy thereunder, unless the holders of at
least 25% in aggregate principal amount of the outstanding Notes have made
written request, and offered
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reasonable indemnity, to the Trustee to institute such proceeding as Trustee
under the Notes and the Indenture, the Trustee has failed to institute such
proceeding within 15 days after receipt of such notice and the Trustee, within
such 15-day period, has not received directions inconsistent with such written
request by holders of a majority in aggregate principal amount of the
outstanding Notes. Such limitations do not apply, however, to a suit instituted
by a holder of a Note for the enforcement of the payment of the principal of,
premium, if any, or interest on such Note on or after the respective due dates
expressed in such Note. (Section 507)
During the existence of an Event of Default, the Trustee is required to exercise
such rights and powers vested in it under the Indenture and use the same degree
of care and skill in its exercise thereof as a prudent person would exercise
under the circumstances in the conduct of such person's own affairs. Subject to
the provisions of the Indenture relating to the duties of the Trustee, in case
an Event of Default shall occur and be continuing, the Trustee under the
Indenture is not under any obligation to exercise any of its rights or powers
under the Indenture at the request or direction of any of the Noteholders unless
such holders shall have offered to the Trustee reasonable security or indemnity.
Subject to certain provisions concerning the rights of the Trustee, the holders
of a majority in aggregate principal amount of the outstanding Notes have the
right to direct the time, method and place of conducting any proceeding for any
remedy available to the Trustee, or exercising any trust or power conferred on
the Trustee under the Indenture. (Sections 512 and 602)
If a Default or an Event of Default occurs and is continuing and is actually
known to the Trustee, the Trustee shall mail to each holder of the Notes notice
of the Default or Event of Default within five days after the occurrence
thereof. Except in the case of a Default or an Event of Default in payment of
principal of, premium, if any, or interest on any Notes, the Trustee may
withhold the notice to the holders of such Notes if a committee of its Trust
Officers in good faith determines that withholding the notice is in the interest
of the Noteholders. (Section 601)
The Company is required to furnish to the Trustee annual and quarterly
statements as to the performance by the Company and the Guarantors of their
respective obligations under the Indenture and as to any default in such
performance. The Company is also required to notify the Trustee within ten days
of any Default.
DEFEASANCE OR COVENANT DEFEASANCE OF INDENTURE
The Company may, at its option and at any time, terminate the obligations of the
Company and the Guarantors with respect to the outstanding Notes ("defeasance").
Such defeasance means that the Company shall be deemed to have paid and
discharged the entire Indebtedness represented by the outstanding Notes, except
for (i) the rights of holders of outstanding Notes to receive payment in respect
of the principal of, premium, if any, and interest on such Notes when such
payments are due, (ii) the Company's obligations to issue temporary Notes,
register the transfer or exchange of any Notes, replace mutilated, destroyed,
lost or stolen Notes and maintain an office or agency for payments in respect of
the Notes, (iii) the rights, powers, trusts, duties and immunities of the
Trustee, and (iv) the defeasance provisions of the Indenture. In addition, the
Company may, at its option and at any time, elect to terminate the obligations
of the Company and any Guarantor with respect to certain covenants that are set
forth in the Indenture, some of which are described under "Certain Covenants"
above, and any omission to comply with such obligations shall not constitute a
Default or an Event of Default with respect to the
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Notes ("covenant defeasance"). The Company is permitted to exercise defeasance
or covenant defeasance only with the consent of the Banks. (Sections 1202 and
1203)
In order to exercise either defeasance or covenant defeasance, (i) the Company
must irrevocably deposit with the Trustee, in trust, for the benefit of the
holders of the Notes, cash in United States dollars, U.S. Government Obligations
(as defined in the Indenture), or a combination thereof, in such amounts as will
be sufficient, in the opinion of a nationally recognized firm of independent
public accountants, to pay the principal of, premium, if any, and interest on
the outstanding Notes to redemption or maturity; (ii) the Company shall have
delivered to the Trustee an Opinion of Counsel to the effect that the holders of
the outstanding Notes will not recognize income, gain or loss for federal income
tax purposes as a result of such defeasance or covenant defeasance and will be
subject to federal income tax on the same amounts, in the same manner and at the
same times as would have been the case if such defeasance or covenant defeasance
had not occurred (in the case of defeasance, such opinion must refer to and be
based upon a ruling of the Internal Revenue Service or a change in applicable
federal income tax laws); (iii) no Default or Event of Default shall have
occurred and be continuing on the date of such deposit; (iv) such defeasance or
covenant defeasance shall not cause the Trustee to have a conflicting interest
with respect to any securities of the Company or any Guarantor; (v) such
defeasance or covenant defeasance shall not result in a breach or violation of,
or constitute a default under, any material agreement or instrument to which the
Company or any Guarantor is a party or by which it is bound; (vi) the Company
shall have delivered to the Trustee an Opinion of Counsel to the effect that
after the 91st day following the deposit, the trust funds will not be subject to
the effect of any applicable bankruptcy, insolvency, reorganization or similar
laws affecting creditors' rights generally; and (vii) the Company shall have
delivered to the Trustee an Officers' Certificate and an Opinion of Counsel
satisfactory to the Trustee, which, taken together, state that all conditions
precedent under the Indenture to either defeasance or covenant defeasance, as
the case may be, have been complied with. (Section 1204)
SATISFACTION AND DISCHARGE
The Indenture will be discharged and will cease to be of further effect (except
as to surviving rights or registration of transfer or exchange of the Notes, as
expressly provided for in the Indenture) as to all outstanding Notes when (i)
either (a) all the Notes theretofore authenticated and delivered (except lost,
stolen or destroyed Notes which have been replaced or paid and Notes for whose
payment money has theretofore been deposited in trust or segregated and held in
trust by the Company and thereafter repaid to the Company or discharged from
such trust) have been delivered to the Trustee for cancellation or (b) all Notes
not theretofore delivered to the Trustee for cancellation have become due and
payable and the Company or any Guarantor has irrevocably deposited or caused to
be deposited with the Trustee funds in an amount sufficient to pay and discharge
the entire Indebtedness on the Notes not theretofore delivered to the Trustee
for cancellation, for principal of, premium, if any, and interest on the Notes
to the date of deposit together with irrevocable instructions from the Company
directing the Trustee to apply such funds to the payment thereof at maturity or
redemption, as the case may be; (ii) the Company has paid all other sums payable
under the Indenture by the Company; and (iii) the Company has delivered to the
Trustee an Officers' Certificate and an Opinion of Counsel satisfactory to the
Trustee, which, taken together, state that all conditions precedent under the
Indenture relating to the satisfaction and discharge of the Indenture have been
complied with. (Section 401)
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AMENDMENTS AND WAIVERS
From time to time, the Company and the Trustee may, without the consent of the
Noteholders, amend, waive or supplement the Indenture or the Notes for certain
specified purposes, including, among other things, curing ambiguities, defects
or inconsistencies, qualifying, or maintaining the qualification of, the
Indenture under the Trust Indenture Act of 1939, or making any change that does
not adversely affect the rights of any Noteholder; provided, however, that the
Company has delivered to the Trustee an Opinion of Counsel stating, in certain
cases, that such change does not adversely affect the rights of any Noteholder.
Other amendments and modifications of the Indenture or the Notes may be made by
the Company and the Trustee with the consent of the holders of not less than a
majority of the aggregate principal amount of the outstanding Notes; provided,
however, that no such modification or amendment may, without the consent of the
holder of each outstanding Note affected thereby, (i) reduce the principal
amount of, extend the fixed maturity of or alter the redemption provisions of,
the Notes, (ii) change the currency in which any Notes or any premium or the
interest thereon is payable, (iii) reduce the percentage in principal amount of
outstanding Notes that must consent to an amendment, supplement or waiver or
consent to take any action under the Indenture or the Notes, (iv) modify the
"Limitation on Other Senior Subordinated Indebtedness" covenant or any of the
provisions in the Indenture relating to the subordination of the Notes in a
manner adverse to the holders, (v) impair the right to institute suit for the
enforcement of any payment on or with respect to the Notes, (vi) waive a default
in payment with respect to the Notes, (vii) alter the Company's obligation to
purchase the Notes in accordance with the Indenture or waive any default in the
performance thereof, (viii) reduce or change the rate or time for payment of
interest on the Notes, or (ix) release any Guarantor from any of its obligations
under its Guarantee or the Indenture other than in accordance with the terms of
the Indenture. (Sections 901 and 902) The ability of the Company to amend the
Indenture will be restricted by the terms of the Bank Credit Agreement.
THE TRUSTEE
The Indenture provides that, except during the continuance of an Event of
Default, the Trustee thereunder will perform only such duties as are
specifically set forth in the Indenture. If an Event of Default has occurred and
is continuing, the Trustee will exercise such rights and powers vested in it
under the Indenture and use the same degree of care and skill in its exercise as
a prudent Person would exercise under the circumstances in the conduct of such
Person's own affairs. (Section 602)
The Indenture and provisions of the Trust Indenture Act of 1939, as amended,
incorporated by reference therein contain limitations on the rights of the
Trustee thereunder, should it become a creditor of the Company, to obtain
payment of claims in certain cases or to realize on certain property received by
it in respect of any such claims, as security or otherwise. The Trustee is
permitted to engage in other transactions; provided, however, that if it
acquires any conflicting interest (as defined) it must eliminate such conflict
or resign.
GOVERNING LAW
The Indenture and the Notes will be governed by the laws of the State of New
York, without regard to the principles of conflicts of law.
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CERTAIN DEFINITIONS
"ACQUIRED INDEBTEDNESS" means Indebtedness of a Person (a) assumed in connection
with an Asset Acquisition from such Person or (b) existing at the time such
Person becomes a subsidiary of any other Person (other than any Indebtedness
incurred in connection with, or in contemplation of, such Asset Acquisition or
such Person becoming such a subsidiary).
"AFFILIATE" means, with respect to any specified Person, any other Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified Person and, in the case of the Company and
its Restricted Subsidiaries, also means AET and The K.A.D. Companies, Inc.
"ASSET ACQUISITION" means (a) an Investment by the Company or any Restricted
Subsidiary in any other Person pursuant to which such Person shall become a
Restricted Subsidiary or any Restricted Subsidiary shall be merged with or into
the Company or any Restricted Subsidiary or (b) the acquisition by the Company
or any Restricted Subsidiary of the assets of any Person which constitute all or
substantially all of the assets of such Person or any division or line of
business of such Person.
"ASSET SALE" means any sale, issuance, conveyance, transfer, lease or other
disposition to any Person other than the Company or a wholly-owned Restricted
Subsidiary, in one or a series of related transactions, of (a) any Capital Stock
of any Restricted Subsidiary held by the Company or any Restricted Subsidiary;
(b) all or substantially all of the properties and assets of any division or
line of business of the Company or any Restricted Subsidiary; or (c) any other
properties or assets of the Company or any Restricted Subsidiary other than in
the ordinary course of business. For the purposes of this definition, the term
"Asset Sale" shall not include any sale, issuance, conveyance, transfer, lease
or other disposition of properties or assets (i) that is governed by the
provisions of the Indenture governing "Merger, Consolidation and Sale of
Assets," (ii) to an Unrestricted Subsidiary, if permitted under the "Limitation
on Restricted Payments" covenant or (iii) having a Fair Market Value of less
than $250,000.
"AVERAGE LIFE" means, with respect to any Indebtedness, as at any date of
determination, the quotient obtained by dividing (a) the sum of the products of
(i) the number of years from such date to the date or dates of each successive
scheduled principal payment (including, without limitation, any sinking fund
requirements) of such Indebtedness multiplied by (ii) the amount of each such
principal payment by (b) the sum of all such principal payments.
"BANK CREDIT AGREEMENT" means the Credit Agreement dated as of October 29, 1993,
amended and restated as of August 7, 1998, between the Company and the Banks as
in effect on the date hereof and as such Agreement may be amended, restated,
supplemented, replaced, refinanced, substituted or otherwise modified from time
to time.
"BANKS" means the banks and other financial institutions from time to time that
are lenders under the Bank Credit Agreement.
"BEAH (UK)" means BE Aerospace Holdings (UK) Limited (Company number 516846).
"CAPITAL STOCK" means, with respect to any Person, any and all shares,
interests, participations, rights in or other equivalents (however designated)
of such Person's capital stock, and any rights (other than debt securities
convertible into capital stock), warrants or options exchangeable for or
convertible into such capital stock.
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"CAPITALIZED LEASE OBLIGATION" means any obligation under a lease of (or other
agreement conveying the right to use) any property (whether real, personal or
mixed) that is required to be classified and accounted for as a capital lease
obligation under GAAP, and, for the purpose of the Indenture, the amount of such
obligation at any date shall be the capitalized amount thereof at such date,
determined in accordance with GAAP.
"CASH EQUIVALENTS" means (i) any evidence of Indebtedness with a maturity of 180
days or less issued or directly and fully guaranteed or insured by the United
States of America or any agency or instrumentality thereof (provided that the
full faith and credit of the United States of America is pledged in support
thereof); (ii) certificates of deposit or acceptances with a maturity of 180
days or less of any financial institution that is a member of the Federal
Reserve System having combined capital and surplus and undivided profits of not
less than $500,000,000; and (iii) commercial paper with a maturity of 180 days
or less issued by a corporation that is not an Affiliate of the Company and is
organized under the laws of any state of the United States or the District of
Columbia and rated at least A-1 by S&P or at least P-1 by Moody's.
"CHANGE OF CONTROL" means the occurrence of any of the following events: (a) any
"person" or "group" (as such terms are used in Sections 13(d) and 14(d) of the
Exchange Act) is or becomes the "beneficial owner" (as defined in Rules 13d-3
and 13d-5 under the Exchange Act, except that a Person shall be deemed to have
"beneficial ownership" of all securities that such Person has the right to
acquire, whether such right is exercisable immediately or only after the passage
of time), directly or indirectly, of more than 40% of the total Voting Stock of
the Company; (b) the Company consolidates with, or merges with or into, another
Person or sells, assigns, conveys, transfers, leases or otherwise disposes of
all or substantially all of its assets to any Person, or any Person consolidates
with, or merges with or into, the Company, in any such event pursuant to a
transaction in which the outstanding Voting Stock of the Company is converted
into or exchanged for cash, securities or other property, other than any such
transaction where (i) the outstanding Voting Stock of the Company is converted
into or exchanged for (1) Voting Stock (other than Redeemable Capital Stock) of
the surviving or transferee corporation or (2) cash, securities and other
property in an amount which could be paid by the Company as a Restricted Payment
under the Indenture and (ii) immediately after such transaction no "person" or
"group" (as such terms are used in Sections 13(d) and 14(d) of the Exchange Act)
is the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the
Exchange Act, except that a Person shall be deemed to have "beneficial
ownership" of all securities that such Person has the right to acquire, whether
such right is exercisable immediately or only after the passage of time),
directly or indirectly, of more than 40% of the total Voting Stock of the
surviving or transferee corporation; (c) during any consecutive two-year period,
individuals who at the beginning of such period constituted the Board of
Directors of the Company (together with any new directors whose election by such
Board of Directors or whose nomination for election by the stockholders of the
Company was approved by a vote of 66 2/3% of the directors then still in office
who were either directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any reason to
constitute a majority of the Board of Directors of the Company then in office;
or (d) any final order, judgment or decree of a court of competent jurisdiction
shall be entered against the Company decreeing the dissolution or liquidation of
the Company.
"CLOSING DATE" means the date of the closing of the offering of the Notes.
"COMMISSION" means the Securities and Exchange Commission.
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"COMMON STOCK" means, with respect to any Person, any and all shares, interests
or other participations in, and other equivalents (however designated and
whether voting or nonvoting) of, such Person's common stock, whether outstanding
at the Closing Date or issued after the Closing Date, and includes, without
limitation, all series and classes of such common stock.
"CONSOLIDATED ADJUSTED NET INCOME" means, for any period, the consolidated net
income (or loss) of the Company and its Restricted Subsidiaries for such period
as determined in accordance with GAAP, adjusted by excluding (a) net after-tax
extraordinary gains or losses (less all fees and expenses relating thereto), (b)
net after-tax gains or losses (less all fees and expenses relating thereto)
attributable to asset dispositions, (c) the net income (or net loss) of any
Person (other than the Company or a Restricted Subsidiary), including
Unrestricted Subsidiaries, in which the Company or any of its Restricted
Subsidiaries has an ownership interest, except to the extent of the amount of
dividends or other distributions actually paid to the Company or its Restricted
Subsidiaries in cash by such other Person during such period, (d) net income (or
net loss) of any Person combined with the Company or any of its Restricted
Subsidiaries on a "pooling of interests" basis attributable to any period prior
to the date of combination, (e) the net income of any Restricted Subsidiary to
the extent that the declaration or payment of dividends or similar distributions
by that Restricted Subsidiary of that net income is not at the date of
determination permitted, directly or indirectly, by operation of the terms of
its charter or any agreement, instrument, judgment, decree, order, statute, rule
or governmental regulation applicable to that Restricted Subsidiary or its
stockholders and (f) income resulting from transfers of assets received by the
Company or any Restricted Subsidiary from an Unrestricted Subsidiary.
"CONSOLIDATED FIXED CHARGE COVERAGE RATIO" of any Person means, for any period,
the ratio of (a) the sum of Consolidated Adjusted Net Income, Consolidated
Interest Expense, Consolidated Income Tax Expense and Consolidated Noncash
Charges, in each case, for such period, of such Person and its subsidiaries on a
consolidated basis, all determined in accordance with GAAP, to (b) the sum of
such Consolidated Interest Expense for such period; provided that (i) in making
such computation, the Consolidated Interest Expense of such Person attributable
to interest on any Indebtedness computed on a pro forma basis and bearing a
floating interest rate shall be computed as if the rate in effect on the date of
computation had been the applicable rate for the entire period, (ii) in making
such computation, the Consolidated Interest Expense of such Person attributable
to interest on any Indebtedness under a revolving credit facility computed on a
pro forma basis shall be computed based upon the average daily balance of such
Indebtedness during the applicable period, and (iii) notwithstanding clauses (i)
and (ii) above, interest on Indebtedness determined on a fluctuating basis, to
the extent such interest is covered by agreements relating to Interest Rate
Protection Obligations, shall be deemed to have accrued at the rate per annum
resulting after giving effect to the operation of such agreements. If such
Person or any of its subsidiaries directly or indirectly guarantees Indebtedness
of a third Person, the above clause shall give effect to the incurrence of such
guaranteed Indebtedness as if such Person or such subsidiary had directly
incurred or otherwise assumed such Guaranteed Indebtedness.
"CONSOLIDATED INCOME TAX EXPENSE" means, with respect to any Person for any
period, the provision for federal, state, local and foreign income taxes of such
Person and its Restricted Subsidiaries for such period as determined on a
consolidated basis in accordance with GAAP.
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"CONSOLIDATED INTEREST EXPENSE" means, with respect to any Person for any
period, without duplication, the sum of (i) the interest expense of such Person
and its Subsidiaries for such period as determined on a consolidated basis in
accordance with GAAP, including, without limitation, (a) any amortization of
debt discount, (b) the net cost under Interest Rate Protection Obligations
(including any amortization of discounts), (c) the interest portion of any
deferred payment obligation, (d) all commissions, discounts and other fees and
charges owed with respect to letters of credit and bankers' acceptance financing
and (e) all accrued interest, (ii) the interest component of Capitalized Lease
Obligations paid, accrued and/or scheduled to be paid or accrued by such Person
and its Subsidiaries during such period as determined on a consolidated basis in
accordance with GAAP and (iii) the aggregate dividends paid or accrued on
Preferred Stock of such Person or its Subsidiaries, to the extent such Preferred
Stock is owned by Persons other than such Person and its Subsidiaries.
"CONSOLIDATED NET TANGIBLE ASSETS" of any Person means, as of any date, (a) all
amounts that would be shown on the latest consolidated balance sheet of such
Person and its Subsidiaries prepared in accordance with GAAP, at the date of
determination less (b) the amount thereof constituting goodwill and other
intangible assets as calculated in accordance with GAAP.
"CONSOLIDATED NET WORTH" means, with respect to any Person at any date, the
consolidated stockholders' equity of such Person less the amount of such
stockholders' equity attributable to Redeemable Capital Stock or treasury stock
of such Person and its Subsidiaries, as determined in accordance with GAAP.
"CONSOLIDATED NONCASH CHARGES" means, with respect to any Person for any period,
the aggregate depreciation, amortization and other non-cash expenses of such
Person and its Subsidiaries reducing Consolidated Adjusted Net Income of such
Person and its Subsidiaries for such period, determined on a consolidated basis
in accordance with GAAP.
"DEFAULT" means any event that is, or after notice or passage of time or both
would be, an Event of Default.
"DISINTERESTED DIRECTOR" means, with respect to any transaction or series of
transactions in respect of which the Board of Directors is required to deliver a
resolution of the Board of Directors under the Indenture, a member of the Board
of Directors who does not have any material direct or indirect financial
interest in or with respect to such transaction or series of transactions.
"ELIGIBLE INVENTORIES" as of any date means the consolidated inventories of the
Company and its Restricted Subsidiaries (net of any reserve) on the basis of the
method of accounting (either last in/first out or first in/first out) used by
the Company in the preparation of its financial statements included in the
latest Form 10-K filed by the Company under the Securities Act, as shown on a
consolidated balance sheet of the Company and its Restricted Subsidiaries, all
in accordance with GAAP.
"ELIGIBLE RECEIVABLES" as of any date means the consolidated accounts
receivables (net of any reserve) of the Company and its Restricted Subsidiaries
that are not more than 60 days past their due date and that were entered into on
normal payment terms as shown on a consolidated balance sheet of the Company and
its Restricted Subsidiaries, all in accordance with GAAP.
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"EQUITY OFFERING" means any public or private sale of common stock of the
Company, other than (i) any public offerings with respect to the Company's
Common Stock registered on Form S-8 or Form S-4 and (ii) any private placement
occurring in connection with or after the occurrence of a Change of Control when
the Company's Common Stock is eligible for delisting from a national securities
exchange or automated quotation dealer system on which such Common Stock was
trading or quoted prior to such Change of Control.
"EVENT OF DEFAULT" has the meaning set forth under "EVENTS OF DEFAULT" herein.
"FAIR MARKET VALUE" means, with respect to any asset, the price which could be
negotiated in an arm's-length free market transaction, for cash, between a
willing seller and a willing buyer, neither of which is under pressure or
compulsion to complete the transaction.
"FULLY TRADED COMMON STOCK" means Common Stock issued by any corporation if (A)
such Common Stock is listed on either The New York Stock Exchange, The American
Stock Exchange, The London Stock Exchange or the Nasdaq National Market;
provided that such Common Stock is freely tradeable under the Securities Act
(or, in the case of The London Stock Exchange, any applicable law, rule or
regulation) upon issuance; and (B) such Common Stock does not constitute more
than 15% of the issued and outstanding Common Stock of such corporation held by
Persons other than 10% holders of such Common Stock and Affiliates and insiders
of such corporation.
"GAAP" means generally accepted accounting principles, consistently applied,
that are set forth in the opinions and pronouncements of the Accounting
Principles Board of the American Institute of Certified Public Accountants and
statements and pronouncements of the Financial Accounting Standards Board or in
such other statements by such other entity as may be approved by a significant
segment of the accounting profession of the United States of America, which are
applicable as of the Closing Date.
"GUARANTEE" means, as applied to any obligation, (i) a guarantee (other than by
endorsement of negotiable instruments for collection in the ordinary course of
business), direct or indirect, in any manner, of any part or all of such
obligation and (ii) an agreement, direct or indirect, contingent or otherwise,
the practical effect of which is to assure in any way the payment or performance
(or payment of damages in the event of nonperformance) of all or any part of
such obligation, including, without limiting the foregoing, the payment of
amounts drawn down by letters of credit.
"GUARANTEE" means any guarantee of any Indebtedness of the Company incurred by
any Restricted Subsidiary pursuant to (1) paragraph (a) of the "Limitation on
Guarantees of Indebtedness by Restricted Subsidiaries" covenant, (2) clause (v)
of the "Limitation on Dividends and other Payment Restrictions Affecting
Restricted Subsidiaries" covenant, (3) clause (y) of paragraph (b) of the
"Limitation on Indebtedness" covenant, or (4) clause (ii) of the definition of
Permitted Investment. When used as a verb, "Guarantee" shall have a
corresponding meaning.
"GUARANTOR" means any Restricted Subsidiary which incurs a Guarantee.
"INDEBTEDNESS" means, with respect to any Person, without duplication, (a) all
liabilities of such Person for borrowed money or for the deferred purchase price
of property or services, excluding any trade payables and other accrued current
liabilities incurred in the ordinary course of business, but including, without
limitation, all obligations, contingent or otherwise, of such Person in
connection with any letters of credit, bankers' acceptance or other similar
credit transaction and in connection with any agreement to purchase, redeem,
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exchange, convert or otherwise acquire for value any Capital Stock of such
Person, or any warrants, rights or options to acquire such Capital Stock, now or
hereafter outstanding, if, and to the extent, any of the foregoing would appear
as a liability upon a balance sheet of such Person prepared in accordance with
GAAP, (b) all obligations of such Person evidenced by bonds, notes, debentures
or other similar instruments, if, and to the extent, any of the foregoing would
appear as a liability upon a balance sheet of such Person prepared in accordance
with GAAP, (c) all indebtedness of such Person created or arising under any
conditional sale or other title retention agreement with respect to property
acquired by such Person (even if the rights and remedies of the seller or lender
under such agreement in the event of default are limited to repossession or sale
of such property), but excluding trade accounts payable arising in the ordinary
course of business, (d) all Capitalized Lease Obligations of such Person, (e)
all Indebtedness referred to in the preceding clauses of other Persons and all
dividends of other Persons, the payment of which is secured by (or for which the
holder of such Indebtedness has an existing right, contingent or otherwise, to
be secured by) any Lien upon property (including, without limitation, accounts
and contract rights) owned by such Person, even though such Person has not
assumed or become liable for the payment of such Indebtedness (the amount of
such obligation being deemed to be the lesser of the value of such property or
asset or the amount of the obligation so secured), (f) all guarantees by such
Person of Indebtedness referred to in this definition, (g) all Redeemable
Capital Stock of such Person valued at the greater of its voluntary or
involuntary maximum fixed repurchase price plus accrued dividends, (h) all
obligations of such Person under or in respect of currency exchange contracts
and Interest Rate Protection Obligations and (i) any amendment, supplement,
modification, deferral, renewal, extension or refunding of any liability of such
Person of the types referred to in clauses (a) through (h) above. For purposes
hereof, the "maximum fixed repurchase price" of any Redeemable Capital Stock
which does not have a fixed repurchase price shall be calculated in accordance
with the terms of such Redeemable Capital Stock as if such Redeemable Capital
Stock were purchased on any date on which Indebtedness shall be required to be
determined pursuant to the Indenture, and if such price is based upon, or
measured by, the fair market value of such Redeemable Capital Stock, such fair
market value shall be determined in good faith by the board of directors of the
issuer of such Redeemable Capital Stock.
"INTEREST RATE PROTECTION OBLIGATIONS" means the obligations of any Person
pursuant to any arrangement with any other Person whereby, directly or
indirectly, such person is entitled to receive from time to time periodic
payments calculated by applying either a floating or a fixed rate of interest on
a stated notional amount in exchange for periodic payments made by such Person
calculated by applying a fixed or a floating rate of interest on the same
notional amount and shall include, without limitation, interest rate swaps,
caps, floors, collars and similar agreements.
"INVESTMENT" means, with respect to any Person, any direct or indirect loan or
other extension of credit or capital contribution to (by means of any transfer
of cash or other property to others or any payment for property or services for
the account or use of others), or any purchase or acquisition by such Person of
any Capital Stock, bonds, notes, debentures or other securities or evidences of
Indebtedness issued by, any other Person. In addition, the Fair Market Value of
the net assets of any Restricted Subsidiary of the Company at the time that such
Restricted Subsidiary is designated an Unrestricted Subsidiary shall be deemed
to be an "Investment" made by the Company in such Unrestricted Subsidiary at
such time. "Investments" shall exclude extensions of trade credit on
commercially reasonable terms in accordance with normal trade practices.
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"LIEN" means any mortgage, charge, pledge, lien (statutory or other), security
interest, hypothecation, assignment for security, claim, or preference or
priority or other encumbrance upon or with respect to any property of any kind.
A Person shall be deemed to own subject to a Lien any property which such Person
has acquired or holds subject to the interest of a vendor or lessor under any
conditional sale agreement, capital lease or other title retention agreement.
"MATURITY" means, with respect to any Note, the date on which any principal of
such Note or an installment of interest becomes due and payable as therein or
herein provided, whether at the Stated Maturity with respect to such principal
or by declaration of acceleration, call for redemption or purchase or otherwise.
"MOODY'S" means Moody's Investors Service, Inc. and its successors.
"NET CASH PROCEEDS" means, with respect to any Asset Sale, the proceeds thereof
in the form of cash or Cash Equivalents including payments in respect of
deferred payment obligations when received in the form of cash or Cash
Equivalents (except to the extent that such obligations are financed or sold
with recourse to the Company or any Restricted Subsidiary), net of (i) brokerage
commissions and other fees and expenses (including fees and expenses of legal
counsel and investment banks) related to such Asset Sale, (ii) provisions for
all taxes payable as a result of such Asset Sale, (iii) amounts required to be
paid to any Person (other than the Company or any Restricted Subsidiary) owning
a beneficial interest in the assets subject to the Asset Sale and (iv)
appropriate amounts to be provided by the Company or any Restricted Subsidiary,
as the case may be, as a reserve required in accordance with GAAP consistently
applied against any liabilities associated with such Asset Sale and retained by
the Company or any Restricted Subsidiary, as the case may be, after such Asset
Sale, including, without limitation, pension and other post-employment benefit
liabilities, liabilities related to environmental matters and liabilities under
any indemnification obligations associated with such Asset Sale, all as
reflected in an Officers' Certificate delivered to the Trustee.
"PARI PASSU INDEBTEDNESS" means Indebtedness of the Company which is pari passu
with the Notes.
"PERMITTED INDEBTEDNESS" means any of the following:
(i) Indebtedness of the Company in an aggregate principal amount at any
one time outstanding not to exceed the greater of (i) $200 million
and (ii) the sum of 80% of the aggregate amount of Eligible
Receivables and 50% of the aggregate amount of Eligible Inventory,
measured as of the most recent fiscal quarter preceding the time such
Indebtedness is incurred;
(ii) Indebtedness of the Company under the Notes;
(iii) Indebtedness of the Company outstanding on the date of the Indenture
(other than Indebtedness incurred pursuant to clause (i) of this
definition);
(iv) Obligations of the Company pursuant to Interest Rate Protection
Obligations, which obligations do not exceed the aggregate principal
amount of the Indebtedness covered by such Interest Rate Protection
Obligations and obligations under currency exchange contracts entered
into in the ordinary course of business;
(v) Indebtedness of the Company to any wholly-owned Restricted
Subsidiaries;
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(vi) Indebtedness of the Company consisting of guarantees, indemnities or
obligations in respect of purchase price adjustments in connection
with the acquisition or disposition of assets, including, without
limitation, shares of Capital Stock of Restricted Subsidiaries;
(vii) any renewals, extensions, substitutions, refinancings or
replacements (each, for purposes of this clause, a "refinancing") by
the Company of any Indebtedness of the Company incurred pursuant to
the "Limitation on Indebtedness" covenant or clauses (ii) and (iii)
of this definition, including any successive refinancings by the
Company, so long as (A) any such new Indebtedness shall be in a
principal amount that does not exceed the principal amount (or, if
such Indebtedness being refinanced provides for an amount less than
the principal amount thereof to be due and payable upon a
declaration of acceleration thereof, such lesser amount as of the
date of determination) so refinanced plus the amount of any premium
required to be paid in connection with such refinancing pursuant to
the terms of the Indebtedness refinanced or the amount of any
premium reasonably determined by the Company as necessary to
accomplish such refinancing, plus the amount of expenses of the
Company incurred in connection with such refinancing, (B) in the
case of any refinancing of Pari Passu Indebtedness or Subordinated
Indebtedness, such new Indebtedness is made pari passu with or
subordinate to the Notes at least to the same extent as the
Indebtedness being refinanced and (C) such new Indebtedness has an
Average Life longer than the Average Life of the Notes and a final
Stated Maturity later than the final Stated Maturity of the Notes;
and
(viii) Indebtedness in an aggregate principal amount not in excess of $30
million at any one time outstanding, less the amount of Permitted
Subsidiary Indebtedness then outstanding pursuant to clause (vii) of
the definition thereof.
"PERMITTED INVESTMENTS" means any of the following:
(i) Investments in Cash Equivalents;
(ii) Investments in the Company or wholly-owned Restricted Subsidiaries;
(iii) Investments in an amount not to exceed $15 million at any one time
outstanding;
(iv) Investments by the Company or any Restricted Subsidiary of the
Company in another Person, if as a result of such Investment (A)
such other Person becomes a wholly-owned Restricted Subsidiary or
(B) such other Person is merged or consolidated with or into, or
transfers or conveys all or substantially all of its assets to, the
Company or a wholly-owned Restricted Subsidiary; or
(v) Investments from the date of the Indenture in a Restricted
Subsidiary that is less than wholly-owned in an aggregate amount
measured at the time of Investment (less payments of interest on
Indebtedness, dividends, repayments of loans or advances, or other
transfers of assets, in each case to the Company or any Restricted
Subsidiary, to the extent not included in clause (D) of the last
paragraph of Subsection (a) of the "Limitation on Restricted
Payments" covenant) not to exceed 5% of Consolidated Net Tangible
Assets of the Company. In connection with any assets or property
contributed or transferred to any Person as an Investment, such
property and assets shall be equal to the Fair
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Market Value (as determined by the Company's Board of Directors) at
the time of Investment.
"PERMITTED LIENS" means the following types of Liens:
(a) Liens on any property or assets of a Restricted Subsidiary granted in
favor of the Company or any Restricted Subsidiary;
(b) Liens securing the Notes;
(c) Liens securing the Guarantees;
(d) Liens securing Acquired Indebtedness created prior to (and not in
connection with or in contemplation of) the incurrence of such
Indebtedness by the Company or any Restricted Subsidiary; provided that
any such Lien does not extend to any property or assets of the Company
or any Restricted Subsidiary other than the assets acquired in
connection with the incurrence of such Acquired Indebtedness; and
(e) any extension, renewal or replacement, in whole or in part, of any Lien
described in the foregoing clauses (a) through (d); provided that any
such extension, renewal or replacement shall be no more restrictive in
any material respect that the Lien so extended, renewed or replaced and
shall not extend to any additional property or assets.
"PERMITTED SUBSIDIARY INDEBTEDNESS" means any of the following:
(i) Indebtedness of any Restricted Subsidiary outstanding on the date of
the Indenture;
(ii) Obligations of any Restricted Subsidiary pursuant to Interest Rate
Protection Obligations, which obligations do not exceed the
aggregate principal amount of the Indebtedness covered by such
Interest Rate Protection Obligations;
(iii) Indebtedness of any Restricted Subsidiary to any wholly-owned
Restricted Subsidiary of the Company or to the Company;
(iv) Indebtedness of any Restricted Subsidiary consisting of guaranties,
indemnities or obligations in respect of purchase price adjustments
in connection with the acquisition or disposition of assets,
including, without limitation, shares of Capital Stock of Restricted
Subsidiaries;
(v) any renewals, extensions, substitutions, refinancings or
replacements (each, for purposes of this clause, a "refinancing") by
any Restricted Subsidiary of any Indebtedness of such Restricted
Subsidiary incurred pursuant to clause (i) of this definition,
including any successive refinancings by such Restricted Subsidiary,
so long as any such new Indebtedness shall be in a principal amount
that does not exceed the principal amount (or, if such Indebtedness
being refinanced provides for an amount less than the principal
amount thereof to be due and payable upon a declaration of
acceleration thereof, such lesser amount as of the date of
determination) so refinanced plus the amount of any premium required
to be paid in connection with such refinancing pursuant to the terms
of the Indebtedness refinanced or the amount of any premium
reasonably determined by such Restricted Subsidiary as necessary to
accomplish such refinancing, plus the amount of expenses of such
Restricted Subsidiary incurred in connection with such refinancing
and such new
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Indebtedness has an Average Life longer than the Average Life of the
Notes and a final Stated Maturity later than the final Stated
Maturity of the Notes;
(vi) Indebtedness (as defined in clauses (e) and (f) of the definition of
Indebtedness) to the Noteholders incurred pursuant to provisions of
the Indenture;
(vii) Indebtedness in an amount not to exceed $30 million at any one time
outstanding, less the amount of Permitted Indebtedness then
outstanding pursuant to clause (viii) of the definition thereof; and
(viii) Guarantees of Indebtedness of the Company permitted under the
"Limitation on Guarantees of Indebtedness by Restricted
Subsidiaries" covenant.
"PERSON" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
"PREFERRED STOCK" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated) of such
Person's preferred or preference stock whether now outstanding, or issued after
the Closing Date, and including, without limitation, all classes and series of
preferred or preference stock of such Person.
"REDEEMABLE CAPITAL STOCK" means any class or series of Capital Stock that,
either by its terms, by the terms of any security into which it is convertible
or exchangeable or by contract or otherwise, is, or upon the happening of an
event or passage of time would be, required to be redeemed prior to the final
Stated Maturity of the Notes or is redeemable at the option of the holder
thereof at any time prior to such final Stated Maturity, or is convertible into
or exchangeable for debt securities at any time prior to such final Stated
Maturity.
"RESTRICTED SUBSIDIARY" means any Subsidiary of the Company other than an
Unrestricted Subsidiary.
"S&P" means Standard and Poor's Ratings Group, a division of McGraw-Hill, Inc.
and its successors.
"SIGNIFICANT SUBSIDIARY" of the Company means any Restricted Subsidiary of the
Company that is a "significant subsidiary" as defined in Rule 1.02(v) of
Regulation S-X under the Securities Act, and in any event shall include any
Guarantor.
"STATED MATURITY" means, when used with respect to any Note or any installment
of interest thereon, the date specified in such Note as the fixed date on which
the principal of such Note or such installment of interest is due and payable,
and, when used with respect to any other Indebtedness, means the date specified
in the instrument governing such Indebtedness as the fixed date on which the
principal of such Indebtedness, or any installment of interest thereon, is due
and payable.
"SUBORDINATED INDEBTEDNESS" means Indebtedness of the Company which is expressly
subordinated in right of payment to the Notes.
"SUBSIDIARY" means, with respect to any Person, (i) a corporation a majority of
whose Voting Stock is at the time, directly or indirectly, owned by such Person,
by one or more Subsidiaries of such Person or by such Person and one or more
Subsidiaries thereof or (ii) other Person (other than a corporation), including,
without limitation, a joint venture, in which such Person, one or more
Subsidiaries thereof or such Person and one or more Subsidiaries thereof,
directly or indirectly, at the date of determination thereof, has at least
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majority ownership interest entitled to vote in the election of directors,
managers or trustees thereof (or other Person performing similar functions).
Unless specifically provided to the contrary herein, Unrestricted Subsidiaries
shall not be included in the definition of Subsidiaries for any purpose of the
Indenture (other than for the purposes of the definition of "Unrestricted
Subsidiary" herein).
"UNRESTRICTED SUBSIDIARY" means (1) any Subsidiary of the Company which at the
time of determination shall be an Unrestricted Subsidiary (as designated by the
Board of Directors of the Company, as provided below) and (2) any Subsidiary of
an Unrestricted Subsidiary. The Board of Directors of the Company may designate
any Subsidiary of the Company (including any newly acquired or newly formed
Subsidiary) to be an Unrestricted Subsidiary unless such Subsidiary owns any
Capital Stock of, or owns, or holds any Lien on, any property of the Company or
any other Subsidiary of the Company which is not a Subsidiary of the Subsidiary
to be so designated; provided that either (x) the Subsidiary to be designated
has total assets of $1,000 or less at the time of its designation or (y)
immediately after giving effect to such designation, the Company could incur
$1.00 of additional Indebtedness (other than Permitted Indebtedness) pursuant to
the "Limitation on Indebtedness" covenant. The Board of Directors may designate
any Unrestricted Subsidiary to be a Subsidiary; provided that immediately after
giving effect to such designation, the Company could incur $1.00 of additional
Indebtedness (other than Permitted Indebtedness) pursuant to the "Limitation on
Indebtedness" covenant.
"VOTING STOCK" means any class or classes of Capital Stock pursuant to which the
holders thereof have the general voting power under ordinary circumstances to
elect at least a majority of the board of directors, managers or trustees of any
Person (irrespective of whether or not, at the time, stock of any other class or
classes shall have, or might have, voting power by reason of the happening of
any contingency).
"WHOLLY OWNED" with respect to any Subsidiary, means any Subsidiary of any
Person of which at least 99% of the outstanding Capital Stock is owned by such
Person or another wholly-owned Subsidiary of such Person. For purposes of this
definition, any directors' qualifying shares or investments by foreign nationals
mandated by applicable law shall be disregarded in determining the ownership of
a Subsidiary.
"8% NOTES" means the Company's 8% Senior Subordinated Notes due 2008.
"9 7/8% NOTES" means the Company's 9 7/8% Senior Subordinated Notes due 2006.
BOOK-ENTRY DELIVERY AND FORM
The certificates representing the Notes will be issued in fully registered form,
without coupons. Except as described in the next paragraph, the Notes will be
deposited with, or on behalf of, The Depository Trust Company, New York, New
York ("DTC"), and registered in the name of Cede & Co., as DTC's nominee in the
form of a global Note certificate (the "Global Certificate") or will remain in
the custody of the Trustee pursuant to a FAST Balance Certificate Agreement
between DTC and the Trustee.
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PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account pursuant to the
Exchange Offer must acknowledge that it will deliver a prospectus in connection
with any resale of such New Notes. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of New Notes received in exchange for Old Notes where such Old
Notes were acquired as a result of market-making activities or other trading
activities. The Company has agreed that for a period of 180 days after the
Expiration Date, it will make this Prospectus, as amended or supplemented,
available to any broker-dealer for use in connection with any such resales. In
addition, the Company agreed that it would not for a period of 120 days from
October 28, 1998, the date of the Offering Memorandum distributed in connection
with the sale of the Old Notes, directly or indirectly offer, sell, grant any
options to purchase or otherwise dispose of any debt securities other than in
connection with this Exchange Offer.
The Company will not receive any proceeds from any sale of New Notes by broker-
dealers. New Notes received by broker-dealers for their own account pursuant to
the Exchange Offer may be sold from time to time in one or more transactions in
the over-the-counter market, in negotiated transactions, through the writing of
options on the New Notes or a combination of such methods of resale, at market
prices prevailing at the time of resale, at prices related to such prevailing
market prices or negotiated prices. Any such resale may be made directly to
purchasers or to or through brokers or dealers who may receive compensation in
the form of commissions or concessions from any such broker-dealer and/or the
purchasers of any such New Notes. Any broker-dealer that resells New Notes that
were received by it for its own account pursuant to the Exchange Offer and any
broker or dealer that participates in a distribution of such New Notes may be
deemed to be an "underwriter" within the meaning of the Securities Act and any
profit on any such resale of New Notes and any commissions or concessions
received by any such persons may be deemed to be underwriting compensation under
the Securities Act. The Letter of Transmittal states that by acknowledging that
it will deliver and by delivering a prospectus, a broker-dealer will not be
deemed to admit that it is an "underwriter" within the meaning of the Securities
Act.
We have been advised by Merrill Lynch, Pierce, Fenner & Smith Incorporated, BT
Alex. Brown Incorporated, Chase Securities Inc., Credit Suisse First Boston
Corporation, Morgan Stanley & Co. Incorporated and Paine Webber Incorporated,
the Initial Purchasers of the Old Notes, that following completion of the
Exchange Offer they intend to make a market in the New Notes to be issued in the
Exchange Offer; however, such entities are under no obligation to do so and any
market activities with respect to the New Notes may be discontinued at any time.
LEGAL MATTERS
Certain legal matters with respect to the legality of the issuance of the New
Notes offered hereby will be passed upon for the Company by Shearman & Sterling,
New York, New York.
EXPERTS
The consolidated financial statements and the related consolidated financial
statement schedule incorporated in this Prospectus by reference from the
Company's Annual Report on Form 10-K for the year ended February 28, 1998, have
been audited by Deloitte &
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Touche LLP, independent auditors, as stated in their report, which is
incorporated herein by reference, and have been so incorporated in reliance upon
the report of such firm given upon their authority as experts in accounting and
auditing.
The consolidated and combined 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 reports incorporated herein by reference and have been included in
reliance upon the report of such firm given upon their authority as experts in
accounting and auditing.
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================================================================================
$200,000,000
EXCHANGE OFFER
BE AEROSPACE, INC.
[BE AEROSPACE, INC. LOGO]
9 1/2% SENIOR SUBORDINATED
NOTES DUE 2008
-------------------------
PROSPECTUS
-------------------------
January 8, 1999
================================================================================
