SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended February 27, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission File No. 0-18348
BE AEROSPACE, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
06-1209796
(I.R.S. Employer Identification No.)
1400 Corporate Center Way, Wellington, Florida 33414
(Address of principal executive offices) (Zip Code)
(561) 791-5000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 Par Value
(Title of Class)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days: Yes[X] No[ ].
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.[ ]
The aggregate market value of the registrant's voting stock held by
non-affiliates was approximately $433,552,038 on May 27, 1999 based on the
closing sales price of the registrant's Common Stock as reported on the Nasdaq
National Market as of such date.
The number of shares of the registrant's Common Stock, $.01 par value,
outstanding as of May 27, 1999 was 24,662,692 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Certain sections of the registrant's Proxy Statement to be filed with the
Commission in connection with the 1999 Annual Meeting of Stockholders are
incorporated by reference in Part III of this Form 10-K.
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INDEX
PART I
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ITEM 1. Business..........................................................................................3
ITEM 2. Properties.......................................................................................17
ITEM 3. Legal Proceedings................................................................................19
ITEM 4. Submission of Matters to a Vote of Security Holders..............................................19
Executive Officers of the Registrant.............................................................20
PART II
ITEM 5. Market for the Registrant's Common Equity and Related Stockholder
Matters..........................................................................................24
ITEM 6. Selected Financial Data..........................................................................25
ITEM 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................................................27
ITEM 7a. Quantitative and Qualitative Disclosures about Market Risk.......................................35
ITEM 8. Consolidated Financial Statements and Supplementary Data.........................................36
ITEM 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.............................................................................36
PART III
ITEM 10. Directors and Executive Officers of the Registrant...............................................37
ITEM 11. Executive Compensation...........................................................................37
ITEM 12. Security Ownership of Certain Beneficial Owners and Management...................................37
ITEM 13. Certain Relationships and Related Transactions...................................................37
PART IV
ITEM 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.................................38
Index to Consolidated Financial Statements and Schedule.........................................F-1
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PART I
This Item 1 "Business" includes forward-looking statements which
involve risks and uncertainties. Our actual experience may differ materially
from that anticipated in such statements. Factors that might cause such a
difference include, but are not limited to, those discussed in "Risk Factors"
contained in Exhibit 99 hereto, as well as future events that may have the
effect of reducing our available operating income and available cash balances,
such as unexpected operating losses or delays in the integration of our
acquired businesses, conditions in the airline industry, customer delivery
requirements, new or expected refurbishments, cash expenditures related to
possible future acquisitions, delays in the implementation of our integrated
management information system, labor disputes involving us, our significant
customers or airframe manufacturers, delays or inefficiencies in the
introduction of new products or fluctuations in currency exchange rates.
ITEM 1. BUSINESS
INTRODUCTION
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 worldwide market share of 50%;
a full line of food and beverage preparation and storage equipment,
including coffee makers, water boilers, beverage containers,
refrigerators, freezers, chillers and ovens, with worldwide market
shares in excess of 50%;
both chemical and gaseous oxygen delivery systems, with a worldwide
market share of 50%; and
general aviation interior products, including an extensive line of
executive aircraft seats, indirect overhead lighting systems and air
valves, with worldwide market shares in excess of 50%
In addition, we have an engineering and structural group through which 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 as well as
aircraft interior structures, such as galleys and crew rests. 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 four major acquisitions in fiscal 1999,
for an aggregate purchase price of approximately $680 million in order to
position our company as the preferred global supplier to our customers.
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During the period from 1989 to 1996, our company acquired nine commercial
aircraft cabin interior products manufacturers for approximately $290 million.
Through these acquisitions we built worldwide market leadership positions and
our company became the number one manufacturer for a great number of product
offerings. At the same time, we rationalized our businesses and began
re-engineering operations We 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. The impact of these efforts is evidenced by the improvement in
our gross margin (before special costs and charges). During the five-year and
three-year periods ended February 27, 1999, our gross margin expanded by 550
basis points (i.e., 5.5%) and 360 basis points, respectively, ending at 38%
for fiscal 1999. Similarly, we have expanded our operating margin (before
special costs and charges) from 10.3% in fiscal 1997 to 14.8% in fiscal 1999.
During fiscal 1999 we completed four major acquisitions for approximately
$354 million. Through these acquisitions we have extended our product
offerings into oxygen systems and we have entered three new markets. These
markets are the structural reconfiguration of passenger cabins, the conversion
of passenger aircraft to freighters and the business jet cabin interiors
market.
The largest of the acquisitions that we completed 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 this acquisition positions our company as the only company in the
industry able to offer its customers a 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 manufacture and supply of cabin interior products, through
the management of the integration, final installation and certification
processes. We believe that the acquisitions we completed in fiscal 1999 will
afford us the same rationalization opportunities as the pre-1996 acquisitions
wherein we were able 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.
During the fourth quarter of fiscal 1999 our company began to implement a
restructuring plan designed to lower our cost structure and improve our
long-term competitive position. This plan includes eliminating seven principal
facilities, reducing the total number from 21 to 14, reducing our employment
base by approximately 8% and rationalizing our product offerings. We
recognized a charge in the fourth quarter of fiscal 1999 of $87.8 million to
provide for the entire amount of the restructuring, along with costs
associated with new product introductions, all of which was charged to cost of
sales (See Management's Discussion and Analysis of Financial Condition and
Results of Operations).
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The worldwide reduction in facilities, personnel and product offerings
will aid our company in several ways. It will strengthen the global business
management focus on our core product categories, achieve a more effective
leveraging of our resources and improve our ability to rapidly react to
changing business conditions. The rationalization of our company's product
offerings, which was brought about as a result of the 1999 Acquisitions, and
the large number of new product introductions during the past year is expected
to provide our company with ongoing benefits of a generally lower cost
structure.
As of February 27, 1999, our backlog was approximately $640 million,
compared with a backlog of $450 million on February 28, 1998 and $330 million
on February 22, 1997, each of which was computed to exclude backlog from our
In-Flight Entertainment business, in which we sold a 51% interest in February
1999 (the "IFE Sale") (See Management's Discussion and Analysis of Financial
Condition and Results of Operations). Of our backlog at February 27, 1999,
approximately 67% is deliverable by the end of fiscal 2000; 56% of our total
backlog is with North American carriers, approximately 26% is with European
carriers and approximately 14%, or $90 million, is with Asian carriers. Of
such Asian carrier backlog, $48 million is deliverable in fiscal 2000.
Approximately $50 million of the total Asian carrier backlog was with Japan
Airlines, Singapore Airlines and Cathay Pacific, three of the largest Asian
airlines.
In fiscal 1999, approximately 90% of our total revenues were derived from
the airlines. Approximately 56% of our revenues for fiscal 1999 were from
refurbishment and upgrade orders.
During the year ended February 27, 1999, our company had revenues of $701
million and operating earnings of $104 million, (before transaction gain and
acquisition-related expenses, restructuring charges and new product
introduction costs -- See Management's Discussion and Analysis of Financial
Condition and Results of Operations), an increase of 44% in revenues and 64%
in operating earnings computed on a similar basis for the year ended February
28, 1998.
In the late 1980s and early 1990s, the airline industry suffered a
significant downturn, which resulted in a deferral of cabin interior upgrade,
refurbishment and 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 1998. 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. We believe our company is well positioned to benefit over the
next several years from the airlines' improved financial condition and
liquidity and the need to refurbish, retrofit and upgrade cabin interiors. A
significant portion of our recent growth in backlog, revenues and operating
earnings has been from refurbishment, retrofit and upgrade programs. In fact,
56% of our business in fiscal 1999 was generated from these aftermarket
activities.
INDUSTRY OVERVIEW
The commercial and business jet 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
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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. We estimate that the industry had annual sales in excess of $ 2.4
billion during fiscal 1999.
Historically, revenues in the airline cabin interior products industry
have been derived from five sources: (1) retrofit programs in which airlines
purchase new interior furnishings to overhaul completely the interiors of
aircraft already in service, (2) refurbishment programs in which airlines
purchase components and services to improve the appearance and functionality
of certain cabin interior equipment, (3) new installation programs in which
airlines purchase new equipment to outfit a newly delivered aircraft, (4)
spare parts and (5) 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." Interior
systems 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.
The various product and service categories in which our 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. We estimate that the aggregate size of the worldwide
aircraft seat market (including spare parts) during fiscal 1999 was in
excess of $710 million. Approximately ten companies worldwide,
including our company, supply aircraft seats, although our company
(which has a market share of approximately 50%) and two other competitors
share approximately 90% of the market (based on installed base as of
February 27, 1999).
INTERIOR SYSTEMS PRODUCTS. This product category includes interior
systems for both narrow-body and wide-body commercial aircraft and
business jet/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
and components. We believe our company 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.
BUSINESS JET AND VIP PRODUCTS. We entered this line of business with
our acquisition of Aircraft Modular Products, Inc. ("AMP") in April
1998. By combining AMP's substantial presence in the general aviation
and VIP aircraft cabin interior products industry with that of
Puritan-Bennett Aero Systems Co. ("PBASCO") and Aerospace Lighting
Corporation ("ALC"), our company has become the industry's leading
manufacturer with a broad product line, including a complete line of
executive aircraft seating products, lighting, air valves and oxygen
delivery systems as well as sidewalls, bulkheads, credenzas, closets,
galley structures, lavatories, tables and sofas. Our company has the
capability to provide complete interior packages, including all design
services, all interior components and program management services for
executive aircraft interiors. Our company is the preferred supplier of
seating products and fluorescent lighting systems for essentially every
business jet airframe manufacturer.
<PAGE>
FLIGHT STRUCTURES AND INTEGRATION. We entered the engineering design,
integration, installation and certification services market through the
acquisition of SMR in August 1998. Historically, the airlines have
relied on in-house engineering resources or consultants to provide
engineering design and integration services. As cabin interior
configurations have become increasingly sophisticated and the airline
industry increasingly differentiated, the airlines have begun to
outsource such services in order to increase speed to market and to
improve productivity and reduce costs. Through the recent acquisition
of SMR, our company now provides design, integration, installation and
certification services for commercial aircraft passenger cabin
interiors, offering its customers a broad range of capabilities
including design, project management, integration, test and
certification of reconfigurations for commercial aircraft passenger
cabin interiors. We also provide engineering and structural components
for the conversion of passenger aircraft to freighters, as well as the
manufacture of other structural components such as crew rest
compartments and galleys.
Services. Through our Services Group, we also provide upgrade,
maintenance and repair services for the products that we manufacture as
well as for those supplied by other manufacturers.
* Exclusive of our company's In-Flight Entertainment ("IFE") business in
which we sold a 51% interest during fiscal 1999 (See Management's Discussion
and Analysis of Financial Condition and Results of Operations).
Through February 25, 1999, our company operated primarily in the (1)
Aircraft Cabin Interior Products and Services and (2) In-Flight Entertainment
segments of the commercial airline and general aviation industry. Following
the sale of our controlling interest in the IFE business, we operated in the
Aircraft Cabin Interior Products and Services segment. Revenues for similar
classes of products or services within these business segments for the fiscal
years ended February 1999, 1998 and 1997 are presented below (dollars in
millions):
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Fiscal Year Ended
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Feb. 27, 1999 Feb. 28, 1998 Feb. 22, 1997
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Seating products $ 296 $ 252 $ 217
Interior systems products 138 93 71
Flight structures and integration services 65 33 30
Business jet and VIP products 86 - -
Services 37 29 42
In-flight entertainment products 79 81 52
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Total Revenues $ 701 $ 488 $ 412
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RECENT INDUSTRY CONDITIONS
Our 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 1998. During this period, the
domestic airlines substantially restored their balance sheets through cash
generated from operations and debt and equity placements. This dramatic
improvement in the airlines' balance sheets and liquidity has, in turn, led to
an increase in refurbishment and retrofit programs which, coupled with spares
revenues, generated approximately 56% of our revenues in fiscal 1999. Further,
during calendar 1993 through 1998, the aircraft manufacturers continued to
experience a significant increase in new aircraft deliveries. 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. Further, based on industry
sources, we estimate that there are currently over 10,000 general
aviation aircraft currently in service. Based on such fleet numbers, we
estimate that the total worldwide installed base of commercial and
general aviation aircraft cabin interior products, valued at
replacement prices, was approximately $33 billion at the end of
February 27, 1999. This existing installed base is expected to 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.
<PAGE>
EXPANDING WORLDWIDE FLEET. Worldwide air traffic has grown in every
year since 1946 (except in 1990) and, according to the Boeing Report,
is projected to grow at a compounded average rate of five percent per
year over the next 10 years, increasing annual revenue passenger miles
from approximately 1.7 trillion in 1997 to approximately 4.4 trillion
by 2017 (according to the July 1998 Airline Monitor). Airlines have
recently been purchasing a significant number of new aircraft due in
part to the current high load factors and the projected growth in
worldwide air travel. According to Airbus Industrie Global Market
Forecast published in April 1998 (the "Airbus Industrie Report"), the
worldwide installed seat base, which we consider 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 DELIVERIES. Deliveries of wide-body, long-haul
aircraft constitute an increasing share of total new aircraft
deliveries and are an increasing percentage of the worldwide fleet.
According to the February 1999 Airline Monitor, the percentage of
Boeing and Airbus aircraft deliveries projected to be wide-body
aircraft for the year 2003 is 35% as compared to 31% for the year ended
December 31, 1998. Both the longer term trend in the shift toward
wide-body aircraft along with the shorter term impact of Boeing's
recent announcements regarding a reduction in wide-body aircraft are
significant to our company. Wide-body aircraft currently carry up to
three or four 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 substantially higher. Aircraft cabin 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 and 400 glasses of wine
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.
NEW PRODUCT DEVELOPMENT. The aircraft cabin interior products companies
are engaged in intensive development and marketing efforts. Such
products include full electric "sleeper seats," convertible seats,
full face crew masks, advanced telecommunications equipment, protective
breathing equipment, oxygen-generating systems, new food and
beverage preparation and storage equipment, kevlar barrier nets,
de-icing systems, crew rests and cabin management systems.
GROWING SERVICES MARKETS. Historically, the airlines have relied
primarily on 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: (1) engineering
design, integration, project management, installation and certification
services, (2) modifications and reconfigurations for commercial
aircraft and (3) services related to the support of product upgrades.
<PAGE>
COMPETITIVE STRENGTHS
We believe that our company has a strong, competitive position
attributable to a number of factors, including the following:
LEADING MARKET SHARES AND SIGNIFICANT INSTALLED BASE. We believe that
our company has achieved leading global market positions in each of its
major product categories, with market shares, based upon industry
sources, in excess of 50% for commercial aircraft seats, (determined on
the basis of installed base as of February 27, 1999), executive
aircraft seats, coffee makers, refrigeration equipment, and air valves,
and for oxygen delivery systems, and ovens, (based on dollar sales for
the year ended February 27, 1999). We believe these market shares
provide our company 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.
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
with 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, thereby maximizing sales
opportunities for our company and increasing the convenience and value
of the service provided to our customers.
TECHNOLOGICAL LEADERSHIP/NEW PRODUCT DEVELOPMENT. We believe that our
company is a technological leader in its industry, with the largest
research and development ("R&D") organization in the industry currently
comprised of 644 engineers. We believe our company's R&D effort and our
on-site engineers at both the airlines and airframe manufacturers
enable us to play a leading role in developing and introducing
innovative products to meet emerging industry trends and needs and
thereby gain early entrant advantages.
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 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. Our integration activities,
coupled with our re-engineering program, have positively impacted gross
margins (before special costs and charges), which have increased from
32.5% to 38.0%, and operating margins (before special costs and
charges), which have increased from 8.7% to 14.8%, during the five-year
period ended February 27, 1999.
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 four major acquisitions in fiscal 1999,
for an aggregate purchase price of approximately $680 million in order to
position our company as the preferred global supplier to our customers.
<PAGE>
During fiscal 1999 we completed four major acquisitions for approximately
$354 million. These acquisitions have allowed our company to broaden its
product lines, to expand its activities from the commercial to the general
aviation market and to strengthen our position as the preferred global
supplier to our customers. Through these acquisitions we have extended our
product offerings into oxygen systems and we have entered three new markets.
These markets are the structural reconfiguration of passenger cabins, the
conversion of passenger aircraft to freighters and the business jet cabin
interiors market.
Growth Opportunities
We believe that we have benefited from three major growth trends in the
aerospace industry.
INCREASE IN REFURBISHMENT AND UPGRADE ORDERS. Our company's substantial
installed base provides significant ongoing revenues from replacements,
upgrades, repairs and the sale of spare parts. Approximately 56% of
B/E's revenues for the year ended February 27, 1999 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 1998. 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. 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. A significant portion of our company's
recent growth in backlog, revenues and operating earnings has been from
refurbishment and upgrade programs, and our 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 approximately 5% per year over
the next 10 years and the worldwide fleet of commercial passenger
aircraft is projected to expand from approximately 10,800 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. According to the February 1998 Airline Monitor, the
percentage of new Boeing and Airbus aircraft deliveries projected to be
wide-body aircraft for the year 2003 is 35% as compared to 31% for the
year ended December 31, 1998. Both the longer term trend in the shift
toward wide-body aircraft along with the shorter term impact of
Boeing's recent announcements regarding a reduction in wide-body
aircraft are significant to our 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 and cabin
interior products.
<PAGE>
BUSINESS JET 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 415 in calendar 1998. Industry
sources indicate that executive aircraft deliveries should reach 545
per year in the year 2000. Several new aircraft models, and larger
business jets including the Visionaire Vantage, Cessna Citation Excel,
the Boeing Business Jet, Gulfstream V, the Falcon 900, Global Express
and Airbus Business Jet, which have been or are expected to be
introduced over the next several years and are expected to be a
significant contributor to the growth in new general aviation aircraft
deliveries going forward. The typical cost of cabin interior products
manufactured for a Cessna Citation is approximately $265,000; whereas
the same contents for a larger business jet, such as the Boeing
Business Jet could range up to approximately $1,500,000. 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. In
addition, operators generally reupholster or replace seats every five
to seven years. We believe our company is well positioned to benefit
from the retrofit opportunities due to (1) the 15-year average age of
the executive jet fleet, (2) operators who have historically
reupholstered their seats are now more inclined to replace these seats
with lighter weight, more modern and 16G-compliant seating models and
(3) the belief that our 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."
BUSINESS STRATEGY
Our business strategy is to maintain a leadership position and to best
serve our customers by (1) 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,
(2) pursuing a worldwide marketing approach focused by airline and general
aviation airframe manufacturers and encompassing our entire product line, (3)
pursuing the highest level of quality in every facet of our operations, from
the factory floor to customer support, (4) remaining the technological leader
in our industry, (5) enhancing our position in the growing upgrade
maintenance, inspection and repair services market and (6) pursuing selective
strategic acquisitions in the commercial aircraft and general aviation cabin
interior products industries.
PRODUCTS AND SERVICES
Seating Products
Our 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 our company includes the
seat frame, cushions, armrests and tray table, together with a variety of
optional features such as adjustable lumbar supports, foot rests, reading
lights, head/neck supports, oxygen masks and telephones. We estimate that as of
February 27, 1999 we had an aggregate installed base of more than 1,100,000
aircraft seats valued at replacement prices of approximately $2.2 billion.
<PAGE>
TOURIST CLASS. Our company is the leading worldwide manufacturer of
tourist class seats. We have designed tourist class seats which
incorporate features not previously utilized in that class, such as
top-mounted passenger control units and footrests.
FIRST AND BUSINESS CLASSES. Based upon major airlines' program selection
and orders on hand, our 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 seats. Our 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. We have developed two types of seats that 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. Our company is the leading manufacturer of commuter
seats in both the U.S. and worldwide markets. Our company's
SilhouetteTM Composite commuter seats are similar to commercial jet
seats in comfort and performance but are lightweight and require
minimal maintenance.
SPARES. Aircraft seats are exposed to significant stress in the course
of normal passenger activity, and certain seat parts are particularly
susceptible to damage from continued use. As a result, a significant
market exists for spare parts.
INTERIOR SYSTEMS PRODUCTS
Our company is the world's largest manufacturer of interior systems
products for both narrow- and wide-body aircraft, offering a wide selection of
coffee and beverage makers, water boilers, ovens, liquid containers,
refrigeration equipment, oxygen delivery systems, and a variety of other
interior components. We estimate that as of February 27, 1999 we have an
aggregate installed base of such equipment, valued at replacement prices, of
approximately $1.1 billion.
COFFEE MAKERS. Our company is the leading manufacturer of aircraft
coffee makers, with our equipment currently installed in virtually
every type of aircraft for almost every major airline. We manufacture 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. We also manufacture a
cappuccino/espresso maker.
<PAGE>
OVENS. We are the leading supplier of a broad line of specialized
ovens, including high-heat efficiency ovens, high-heat convection ovens
and warming ovens. Our newest offering, the DS 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. Our company is the worldwide industry leader
in the design, manufacture, and supply of commercial aircraft
refrigeration equipment. We manufacture a self-contained wine and
beverage chiller, the first unit specifically designed to rapidly chill
wine and beverage on board an aircraft.
OXYGEN DELIVERY SYSTEMS. We are a leading manufacturer of oxygen
delivery systems,for both commercial and general aviation aircraft. We
are 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. Our oxygen 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
We entered the market for general aviation and VIP aircraft products with
the 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, we are 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. We have the capability to provide complete interior
packages, including all design services, all interior components and program
management services for executive aircraft interiors. Our company is the
preferred supplier of seating products and fluorescent lighting systems of
essentially every general aviation airframe manufacturer.
FLIGHT STRUCTURES AND INTEGRATION
We formed our Flight Structures and Integration Group by combining our
existing galley structures operations with the acquisitions of SMR and CF
Taylor. The Flight Structures and Integration Group is a leader in providing
design, integration, installation and certification services associated with
the reconfiguration of commercial aircraft cabin interiors, converting
commercial aircraft to freighters and in the design and manufacture of galley
structures and crew rest compartments. We estimate that as of February 27,
1999, our company had an installed base of such equipment, valued at
replacement prices, of approximately $289 million.
ENGINEERING DESIGN, INTEGRATION, INSTALLATION AND CERTIFICATION
SERVICES. Through the acquisition of SMR in August 1998, our company
became a leader in providing engineering design, integration,
installation and certification services for commercial aircraft
passenger cabin interiors, offering our 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. We
provide 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.
<PAGE>
PASSENGER TO FREIGHTER CONVERSIONS. We are a leading supplier of
structural design and integration services, including airframe
modifications for passenger-to-freighter conversions. Our company is
the leading provider of Boeing 767 passenger to freighter conversions
and has performed conversions for Boeing 747-200 Combi, Boeing 747-200
(door only) and Airbus A300 B4 aircraft. Freighter conversions require
sophisticated engineering capabilities and very large and complex
proprietary parts kits.
CREW REST COMPARTMENTS. We are the worldwide leader in the design,
certification and manufacture of crew rest compartments. Crew rest
compartments are utilized by the flight crew during long-haul
international flights. A crew rest compartment is constructed utilizing
lightweight cabin interior technology and incorporating electrical,
HVAC, lavatory and sleep compartments.
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. Our company provides a variety
of galley structures, closets and class dividers, emphasizing
sophisticated and higher value-added galleys for wide-body aircraft.
SERVICES AND SPECIALTY PRODUCTS
Our company is an active participant in the growing services and custom
products markets. We believe that our broad and integrated product line and
close relationships with our airline and leasing customers position us to
become a leading service provider in this market. Most participants in this
market are small, and we believe that we are the only major product
manufacturer in the industry currently participating in this market.
UPGRADE, MAINTENANCE AND REPAIR SERVICES. Our 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. We manufacture several specialty products for the
commercial airline industry including flight attendant seats, observer
seats, and custom products in the passenger seating area, as well as
fire/smoke barriers and cargo nets. Our 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. We believe we are able to provide products for unique
applications more rapidly than original manufacturers.
<PAGE>
RESEARCH, DEVELOPMENT AND ENGINEERING
Our company works closely with commercial airlines to improve existing
products and identify customers' emerging needs. Our expenditures in research,
development and engineering totaled $56.2 million, $45.7 million, and $37.1
million for the fiscal years ended February 27, 1999, February 28, 1998, and
February 22, 1997, respectively. We currently employ 644 professionals in the
engineering and product development areas. We believe that we have 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 and certification.
MARKETING AND CUSTOMERS
Our company markets and sells its products directly to virtually all of
the world's major airlines and commercial and general aviation aircraft
manufacturers. We market our general aviation products directly to all of the
world's business jet airframe manufacturers, modification centers and operators.
Our company has a sales and marketing organization of 142 persons, along with 27
independent sales representatives. Our sales to non-U.S. airlines were $297.5
million, $232.7 million, and $203.4 million for the fiscal years ended February
27, 1999, February 28, 1998 and February 22, 1997, respectively, or
approximately 42%, 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. We believe that our large installed
base, our timely responsiveness in connection with the custom design,
manufacture, delivery and after-sales service of its products and our broad
product line and stringent customer and regulatory requirements all present
barriers to entry for potential new competitors in the cabin interior products
market.
We believe that our integrated worldwide marketing approach, focused by
airline and encompassing our entire product line, is preferred by airlines.
Led by a senior executive, teams representing each product line serve
designated airlines that together accounted for approximately 51% of the
purchases of products manufactured by our company during fiscal 1999. These
airline customer teams have developed customer specific strategies to meet
each airline's product and service needs. We also staff "on-site" customer
engineers at major airlines and airframe manufacturers to represent our 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 regulatory certification for each
particular product or cabin configuration. Through our on-site customer
engineers, we expect to be able to more efficiently design and integrate
products whichaddress the requirements of our customers. We provide program
management services, integrating all on-board cabin interior equipment and
systems, including installation and FAA certification, allowing airlines to
substantially reduce costs. We believe that our company 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. We market our general aviation products directly to
all of the world's general aviation airframe manufacturers, modification
centers and operators.
<PAGE>
Our company has 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. We believe that our
customers derive substantial benefits from our program management approach,
including better on-time delivery and higher service levels. We also believe our
program management approach results in better customer satisfaction and higher
profitability over the life of the contract.
During the fiscal years ended February 27, 1999 and February 28, 1998,
one customer accounted for approximately 13% and 17%, respectively, of our total
revenues, and no other customer accounted for more than 10% of such revenues.
There were no major customers in fiscal 1997. The portion of our revenues
attributable to particular airlines varies from year to year because of
differing schedules of various airlines for purchases of new aircraft and for
retrofit and refurbishment of existing aircraft.
BACKLOG
We estimate that our backlog at February 27, 1999 was approximately $640
million, approximately 67% of which we believe to be deliverable in fiscal 2000,
compared with a backlog of $450 million and $330 million on February 28, 1998
and February 22, 1997, respectively (as adjusted to exclude backlog from our
In-Flight Entertainment business in which we sold a 51% interest in February
1999). See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
CUSTOMER SERVICE
We believe that we provide 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 our success. The key
elements of such service include: (1) rapid response to requests for engineering
designs, proposal requests and technical specifications, (2) flexibility with
respect to customized features, (3) on-time delivery, (4) immediate availability
of spare parts for a broad range of products and (5) 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.
WARRANTY AND PRODUCT LIABILITY
We warrant our products, or specific components thereof, for periods
ranging from one to ten years, depending upon product type and component. Our
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. We periodically review the adequacy
of accrued product warranty reserves and revisions of such reserves are
recognized in the period in which such revisions are determined.
We also carry product liability insurance. We believe that our
insurance is generally sufficient to cover product liability claims.
<PAGE>
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. We
believe that these increasing demands of airlines upon their suppliers will
result in a consolidation of those suppliers that remain. We have participated
in this consolidation through strategic acquisitions and internal growth and we
intend to continue to participate in the consolidation.
Our principal competitors for seating products are Group Zodiac S.A. and
Keiper Recaro GmbH. Our primary competitors for interior systems products are
Britax PLC, Scott Aviation and Intertechnique. Our principal competitors for
Flight Structures and Integration products are JAMCO, Ltd., Britax PLC and
Driessen Aircraft Interior Systems. The market for general aviation products
and services is highly fragmented, consisting of numerous competitors.
MANUFACTURING AND RAW MATERIALS
Our company's manufacturing operations consist of both the in-house
manufacturing of component parts and sub-assemblies and the assembly of our
specified and designed component parts which are purchased from outside vendors.
We maintain state-of-the-art facilities, and we have an ongoing strategic
manufacturing improvement plan utilizing focused factories and cellular
production technologies. We expect that continuous improvement from
implementation of this plan for each of our 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, customer response and
profitability.
GOVERNMENT REGULATION
The Federal Aviation Administration ("FAA") prescribes standards and
licensing requirements for aircraft components, and licenses component repair
stations within the United States. Comparable agencies regulate such matters in
other countries. We hold several FAA component certificates and perform
component repairs at a number of our U.S. facilities under FAA repair station
licenses. Our company also holds an approval issued by the UK Civil Aviation
Authority ("CAA") to design, manufacture, inspect and test aircraft seating
products in Leighton Buzzard, England and in Kilkeel, Northern Ireland and to
design, manufacture inspect and test our flight structures and integration
products in Dafen, Wales and the necessary approvals to design, manufacture,
inspect, test and repair our interior systems products in Nieuwegein,
Netherlands and to inspect, test and repair products at our service centers
throughout the world.
<PAGE>
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. We understand 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. Our company has developed 27 different seat models
that meet these new seat safety regulations.
ENVIRONMENTAL MATTERS
Our 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. Our company is also subject to laws and regulations governing
remediation of contamination at facilities that we currently or formerly owned
or operated or 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 can offer no assurances that we 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, we may have
liabilities or obligations in the future if we discover any environmental
contamination or liability at any of our facilities, or at facilities that we
may acquire in the future.
PATENTS
Our company currently holds 78 United States patents and 27 international
patents, covering a variety of products. However, we believe that the
termination, expiration or infringement of one or more of such patents would not
have a material adverse effect on our company.
EMPLOYEES
As of February 27, 1999, our company had approximately 5,600 employees.
Approximately 75% of these employees are engaged in manufacturing, 11% in
engineering, research and development and 14% in sales, marketing, product
support and general administration. Approximately 20% of our worldwide employees
are represented by unions. On April 25, 1997, we completed negotiations with one
of our two domestic unions which represents 11% of our 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 our employees, runs through the year 2003. We
consider our employee relations to be good.
<PAGE>
ITEM 2. PROPERTIES
As of February 27, 1999, our company had 21 principal facilities,
comprising an aggregate of approximately 1.7 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.
<TABLE>
<CAPTION>
FACILITY
LOCATION PRODUCTS AND FUNCTION SIZE OWNERSHIP
(SQ. FEET)
<S> <C> <C> <C>
CORPORATE
Wellington, Florida............... Corporate headquarters, finance, human 17,700 Owned
resources, law, marketing and sales
SEATING PRODUCTS
Litchfield, Connecticut........... Manufacturing and warehousing 147,700 Owned
Winston-Salem, North Carolina..... Manufacturing, research and development,
finance, marketing and sales; Seating 264,800 Owned
Products Group Headquarters
Leighton Buzzard, England......... Manufacturing, service, research and
development, sales support, finance and 114,000 Owned
warehousing
Kilkeel, Northern Ireland......... Manufacturing, sales support and warehousing 38,500 Owned
INTERIOR SYSTEMS
Anaheim, California............... Manufacturing, service, research and
development, sales support, finance and 57,100 Leased
warehousing
Delray Beach, Florida............. Manufacturing, service, research and
development, sales support, finance and
warehousing; Interior Systems Group 52,000 Owned
Headquarters
Lenexa, Kansas.................... Manufacturing, service, engineering and 80,000 Leased
warehousing
Nieuwegein, The Netherlands....... Manufacturing, service, research and
development, sales support, finance and
warehousing 39,000 Leased
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FACILITY
LOCATION PRODUCTS AND FUNCTION SIZE OWNERSHIP
(SQ. FEET)
<S> <C> <C> <C>
GENERAL AVIATION AND VIP PRODUCTS
Miami, Florida.................... Manufacturing, service, research and
development, sales support, finance and 106,300 Leased
warehousing; General Aviation Headquarters 52,400 Owned
Fountain Valley, California....... Manufacturing, service, research and
development, sales support, finance and 26,000 Owned
warehousing
Holbrook, New York................ Manufacturing, service, research and
development, sales support, finance and 20,100 Leased
warehousing
Sharon Center, Ohio............... Services, research and development, sales 16,300 Owned
support, finance and warehousing
Fenwick, West Virginia............ Manufacturing, service and warehousing 132,600 Owned
SERVICES
Orange, California................ Upgrade, maintenance, inspection and repair,
finance, sales support and warehousing; 106,300 Leased
Services Group Headquarters
Chesham, United Kingdom........... Upgrade, maintenance, inspection and repair 34,000 Owned
Houston, Texas.................... Upgrade, maintenance, inspection and repair 45,000 Owned
Various other service centers in
North America and Europe....... Upgrade, maintenance, inspection and repair 43,300 Leased
FLIGHT STRUCTURE AND INTEGRATION GROUP
Arlington, Washington............. Manufacturing, service, research and
development, sales support, finance and 130,200 Leased
warehousing
Jacksonville, Florida............. Manufacturing, service, engineering, and 75,000 Owned
warehousing
Wokingham, England................ Manufacturing, service, research and
development, sales support, finance and 70,000 Leased
warehousing
Dafen, Wales...................... Manufacturing, service and warehousing 80,000 Owned
</TABLE>
We believe that our facilities are suitable for their present intended
purposes and adequate for our 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," our
facilities have been substantially underutilized for the past several years.
We believe that our restructuring plan, which includes closing seven of the
above facilities, together with anticipated continued growth in airline
profitability, should result in significant improvement in the degree of
utilization of our facilities.
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
Our company is not a party to litigation or other legal proceedings that
we believe could reasonably be expected to have a material adverse effect on our
company's business, financial condition and results of operations.
In January 1998, our 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, we applied for and
were 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 we first applied for the license. The settlement resolved all
disputes between our company and the Department of Justice as well as the DOC's
Bureau of Export Enforcement. As part of the settlement, our company plead
guilty to a violation of the International Economic Emergency Powers Act and was
placed on probation for a three-year period. In addition, we 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 our 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 our company, would be subject to an order denying export
privileges. Under our current organization, we believe 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, our company is subject to a three-year term of
corporate probation that began in January 1998. The probation is unsupervised
and thus we are not subject to external monitoring or other conditions that
impede or affect our ability to conduct business. Under the probation, our
company must refrain from violating any federal laws. Our company has taken
steps to implement a legal compliance program to prevent and detect any
violations of law. We recorded a charge of $4.7 million in our fourth quarter of
fiscal 1998, which ended February 28, 1998, related to fines, civil penalties
and associated legal fees arising from the settlement.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the last quarter of the fiscal year covered by this report, our
company did not submit any matters to a vote of security holders, through the
solicitation of proxies or otherwise.
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT
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>
TITLE AGE POSITION
<S> <C> <C>
Amin J. Khoury...................... 60 Chairman of the Board
Robert J. Khoury.................... 57 Vice Chairman of the Board, Chief Executive Officer and Director
Paul E. Fulchino.................... 52 President, Chief Operating Officer and Director
Thomas P. McCaffrey................. 45 Corporate Senior Vice President of Administration, Chief Financial
Officer and Assistant Secretary
Marco C. Lanza...................... 43 Executive Vice President, Marketing and Product Development
Edmund J. Moriarty.................. 55 Corporate Vice President, Law, General Counsel and Secretary
Jeffrey P. Holtzman................. 43 Vice President, Treasurer and Assistant Secretary
Roman G. Ptakowski.................. 50 Group Vice President and General Manager, Interior Systems Group
Michael B. Baughan................. 40 Group Vice President and General Manager, Seating Products Group
Robert C. Ayers..................... 49 Group Vice President and General Manager, General Aviation/VIP Products
Group
Scott A. Smith...................... 44 Group Vice President and General Manager, Global Customer Service and
Product Support Group
Jim C. Cowart....................... 47 Director*
Richard G. Hamermesh................ 51 Director*
Brian H. Rowe....................... 68 Director**
Hansjoerg Wyss...................... 63 Director**
</TABLE>
- --------
* Member, Audit Committee
** Member, Stock Option and Compensation Committee
<PAGE>
The Company's Restated Certificate of Incorporation provides that the
Board of Directors is to be 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 Class III Directors expired 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, a member of the Board of Directors of
Synthes Stratec, Inc., the world's leading orthopedic trauma company 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 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. 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 has advised clients, including a number
of major airlines throughout the world, particularly with respect to the
transportation industry. The Company has entered into an employment agreement
with Mr. Fulchino extending through May 28, 2003.
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.
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.
<PAGE>
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 Corporation and Ernst & Young L.L.P.
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.
Michael B. Baughan has been Group Vice President and General Manager of
the Seating Products Group since May 1999. From September 1994 to May 1999,
Mr. Baughan was Vice President, Sales and Marketing for the Seating Products
Group. Prior to 1994, Mr. Baughan held various positions including President
of AET Systems, Manager of Strategic Initiatives at The Boston Company
(American Express) and Sales Representative at Dow Chemical Company.
Robert C. Ayers has been Group Vice President and General Manager of
the General Aviation/VIP Products Group since May 1999. From July 1998 through
May 1997, Mr. Ayers was Vice President and General Manager of the SMR Division
of the General Aviation/VIP Products Group. From March 1997 to July 1998, Mr.
Ayers was President of SMR Technologies, Inc. From 1989 to 1997, Mr. Ayers was
employed by Michelin Aircraft Tire Corporation where he served as Vice
President of Sales and Marketing and as an Executive Vice President and
General Manager. Other posts held include Director of Sales and Marketing and
Vision Controller with BF Goodrich Aerospace.
Scott A. Smith has been Group Vice President and General Manager of the
Company's Global Customer Service and Product Support Group since February
1999 and from April 1998 to February 1999, the Group Vice President and
General Manager of the In-Flight Entertainment Group. 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.
<PAGE>
Jim C. Cowart has been a Director of the Company since November 1989.
Mr. Cowart is currently an independent investor and a principal of Cowart &
Co. LLC 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 January 1993 to November 1997, Mr. Cowart
was the Chairman of the Board of Directors and Chief Executive Officer of
Aurora Electronics Inc. From 1987 until 1991, Mr. Cowart was a founding
general partner of Capital Resource Partners, a private investment capital
manager. Prior 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., a manufacturer of oriented polypropylene
films used in consumer products labeling and packaging applications and Vialog
Corporation, a provider of teleconferencing and other group communications
services.
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;
December 1998 - Convergys Corporation, outsourced, integration, billing and
customer management services; and December 1998 - Dynatech Corporation, test
equipment and communication systems.
Hansjoerg Wyss has been a Director of the Company since August 1989. He
is currently Chairman of Synthes/Stratec, Inc., a publicly traded company
which is the world's leading manufcturer of orthopedic trauma devices. He is
the Chairman and Chief Executive Officer of Synthes North America and Synthes
Canada, Ltd., manufacturers and distributors of orthopedic implants and
instruments and is the Chairman of Synthes-Stratec, the world's leading
Orthopedic Trauma Company, he has served in that capacity since 1977. Mr. Wyss
formerly held management positions with Monsanto Europe in Belgium,
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, The Wilderness Society, The Grand Canyon Trust and is Chairman of
the Southern Utah Wilderness Alliance.
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our company's common stock is quoted on the Nasdaq National Market under
the symbol "BEAV." The following table sets forth, for the periods indicated,
the range of high and low per share sales prices for the common stock as
reported by Nasdaq.
<TABLE>
<CAPTION>
High Low
<S> <C> <C>
Fiscal Year Ended February 22, 1997
First Quarter 16 1/4 9 7/8
Second Quarter 16 3/4 12 3/8
Third Quarter 25 1/8 15 1/2
Fourth Quarter 29 22 3/4
Fiscal Year Ended February 28, 1998
First Quarter 27 1/2 19 1/2
Second Quarter 37 23 5/8
Third Quarter 41 1/2 27 1/8
Fourth Quarter 32 1/4 20 1/2
Fiscal Year Ended February 27, 1999
First Quarter 35 3/4 25 3/4
Second Quarter 33 3/8 21 1/2
Third Quarter 27 1/8 13
Fourth Quarter 27 1/4 11 1/2
</TABLE>
On May 27, 1999 the closing price of the company's common stock as
reported by Nasdaq was $17.84 per share. As of such date, our company had 926
shareholders of record, and we estimate that there are approximately 20,000
beneficial owners of our common stock. We have not paid any cash dividends in
the past, and we have no present intention of doing so in the immediate future.
Our company's Board of Directors intends, for the foreseeable future, to retain
any earnings to finance the future growth of the company, but expects to review
its dividend policy regularly. The Indentures pursuant to which the our 9 7/8%,
8% and 9 1/2% Senior Subordinated Notes were issued and the terms of our
company's credit facilities permit the declaration or payment of cash dividends
only in certain circumstances described therein.
[Remainder of page intentionally left blank]
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
(In thousands, except per share data)
On January 24, 1996, B/E acquired all of the stock of Burns Aerospace
Corporation. During fiscal 1999, B/E completed the following acquisitions: (1)
On March 27, 1998, B/E acquired all of the stock of AI; (2) on April 13, 1998,
B/E acquired all of the stock of PBASCO; (3) on April 21, 1998, B/E acquired all
of the stock of AMP; (4) on July 30, 1998, B/E acquired all of the stock of ALC;
(5) on August 7, 1998, B/E acquired all of the stock of SMR; and (6) on
September 3, 1998, B/E acquired all of the galley equipment business assets of C
F Taylor. The financial data as of and for the fiscal years ended February 27,
1999, February 28, 1998, February 22, 1997, February 24, 1996 and February 25,
1995 have been derived from financial statements which have been audited by
B/E's independent auditors. The following financial information is qualified by
reference to, and should be read in conjunction with, the B/E financial
statements, including notes thereto, and "Management's Discussion and Analysis
of Financial Condition and Results of Operations" included elsewhere in this
Annual Report.
<PAGE>
<TABLE>
<CAPTION>
Fiscal Year Ended
-----------------------------------------------------------------------
Feb. 27, Feb. 28, Feb. 22, Feb. 24, Feb. 25,
1999 1998 1997 1996 (f) 1995
---- ---- ---- -------- ----
<S> <C> <C> <C> <C> <C>
Statements of Operations Data:
Net sales............................... $ 701,325 $ 487,999 $ 412,379 $ 232,582 $ 229,347
Cost of sales........................... 522,875 (a) 309,094 270,557 160,031 154,863
-------- ------- ------- ------- -------
Gross profit............................ 178,450 178,905 141,822 72,551 74,484
Operating expenses:
Selling, general and administrative... 83,648 58,622 51,734 42,000 31,787
Research, development and engineering. 56,207 45,685 37,083 58,327 (g) 12,860
Amortization.......................... 22,498 11,265 10,607 9,499 9,954
Transaction gain, expenses and other 53,854 (b) 4,664(d) -- 4,170 (h) 23,736 (i)
------- ----- -------- ----- ------
expenses................................
Operating earnings (loss)............... (37,757)(c) 58,669 42,398 (41,445) (3,853)
Interest expense, net................... 41,696 22,765 27,167 18,636 15,019
------ ------ ------ ------ ------
Earnings (loss) before income taxes
(benefit),
extraordinary item and cumulative effect of (79,453) 35,904 15,231 (60,081) (18,872)
accounting change.....................
Income taxes (benefit).................. 3,900 5,386 1,522 -- (6,806)
-------- -------- -------- --------- ---------
Earnings (loss) before extraordinary item and
cumulative effect of accounting change (83,353) 30,518 13,709 (60,081) (12,066)
Extraordinary item...................... -- 8,956 (e) -- -- --
--------- -------- -------- --------- ---------
Earnings (loss) before cumulative effect of
accounting (83,353) 21,562 13,709 (60,081) (12,066)
change .................................
Cumulative effect of accounting change.. -- -- -- (23,332) (g) --
--------- -------- --------- -------- --------
Net earnings (loss)..................... $(83,353) $ 21,562 $ 13,709 $(83,413) $(12,066)
======== ======== ======== ======== ========
Basic earnings (loss) per share (j):
Earnings (loss) before extraordinary item
and cumulative effect of change in $ $ 1.36 $ .77 $ (3.71) $ (.75)
accounting principle................. (3.36) (c)
Extraordinary item...................... -- -- -- --
(.40)(e)
Cumulative effect of accounting change.. -- -- -- (1.44) (g) --
--------- --------- -------- ---------- --------
Net earnings (loss)..................... $ (3.36) $ .96 $ .77 $ (5.15) $ (.75)
======== ======== ======== ========== ========
Weighted average common shares......... 4,814 22,442 17,692 16,185 6,021
Diluted earnings (loss) per share (j):
Earnings (loss) before extraordinary item
and cumulative effect of change in $ - $ 1.30 $ .72 (3.71) $ (.75)
accounting principle................. (3.36) (c)
Extraordinary item...................... -- -- -- --
(.38)(e)
Cumulative effect of accounting change.. -- -- -- (1.44) (g) --
--------- -------- -------- ---------- --------
Net earnings (loss)..................... $ (3.36) $ .92 $ .72 $ (5.15) $ (.75)
======== ======= ======== ========== ========
Weighted average common shares......... 24,814 23,430 19,097 16,185 16,021
Balance Sheet Data (end of period):
Working capital......................... $143,423 $262,504 $122,174 $41,824 $76,563
Total assets............................ 904,299 681,757 491,089 433,586 379,954
Long-term debt.......................... 583,715 349,557 225,402 273,192 172,693
Stockholders' equity.................... 115,873 196,775 165,761 44,157 125,331
</TABLE>
<PAGE>
SELECTED FINANCIAL DATA (continued)
Footnotes to Table
(a) During fiscal 1999, the Company implemented a restructuring plan and
incurred costs associated with new product introductions, which together
aggregated $87,825, and which were charged to cost of sales. Excluding
such costs and charges, the Company's gross profit and gross margin for
fiscal 1999 would be $266,275 and 38%, respectively (See Management's
Discussion and Analysis of Financial Condition and Results of
Operations).
(b) As a result of the 1999 Acquisitions, the Company recorded a charge of
$79,155 for the write-off of acquired in-process research and development
and acquisition-related expenses. The Company also sold a 51% interest in
its In-Flight Entertainment business ("IFE Sale"), as a result of which
the Company recorded a gain of $25,301. Transaction gain, expenses and
other expenses for the year ended February 27, 1999 consist of the
in-process research and development and other acquisition expenses,
offset by the gain attributable to the IFE Sale.
(c) Excluding the non-operational impact of the matters described above,
operating earnings, net earnings and earnings per share (diluted) (based
upon a 17% tax rate) were $103,922, $50,817 and $2.03, respectively.
(d) In fiscal 1998, the Company resolved 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.
(e) 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.
(f) On January 24, 1996, the Company acquired all of the stock of Burns
Aerospace, Inc., an industry leader in commercial aircraft seating. The
acquisition of Burns was accounted for as a purchase, and Burns results
are included in B/E's historical financial data from the date of
acquisition.
(g) In fiscal 1996, the Company changed its method of accounting relating to
the capitalization of pre-contract engineering costs that were previously
included as a component of inventories and amortized to earnings as the
product was shipped. Effective February 24, 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.
(h) 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.
(i) 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.
(j) 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.
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This Item 7 "Management's Discussion and Analysis of Financial Condition and
Results of Operations" includes forward-looking statements which involve risks
and uncertainties. Our actual experience may differ materially from that
anticipated in such statements. Factors that might cause such a difference
include, but are not limited to, those discussed in "Risk Factors" contained in
Exhibit 99 hereto, as well as future events that may have the effect of reducing
our available operating income and available cash balances, such as unexpected
operating losses or delays in the integration of our acquired businesses,
conditions in the airline industry, customer delivery requirements, new or
expected refurbishments, cash expenditures related to possible future
acquisitions, delays in the implementation of the Company's integrated
management information system, labor disputes involving us, our significant
customers or airframe manufacturers, delays or inefficiencies in the
introduction of new products or fluctuations in currency exchange rates.
INTRODUCTION
(Dollars in thousands, except per share data)
B/E Aerospace, Inc. ("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
$5,400,000 as of February 27, 1999 (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. B/E's revenues are generated
primarily from programs initiated by the airlines that may vary significantly
from year to year in terms of size, mix of products and length of delivery.
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.
<PAGE>
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 1998. Consequently, during
fiscal 1999 B/E experienced significant growth in backlog, 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.
The Company has substantially expanded the size, scope and nature of
its business as a result of a number of acquisitions. Since 1989, B/E has
completed 15 acquisitions, including four major acquisitions in fiscal 1999, for
an aggregate purchase price of approximately $680,000 in order to position the
Company as the preferred global supplier to its customers.
During the period from 1989 to 1996, the Company acquired nine
commercial aircraft cabin interior products manufacturers for approximately
$290,000. Through these acquisitions, B/E built worldwide market leadership
positions and became the number one manufacturer for a great number of its
product offerings. At the same time, the Company rationalized its businesses and
began re-engineering operations. We 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. The impact of these efforts is evidenced by the improvement in
gross margin (before special costs and charges). During the five-year and three-
year periods ended February 27, 1999, the Company's gross margin expanded by 550
basis points and 360 basis points, respectively, ending at 38% for fiscal 1999.
Similarly, the Company has expanded its operating margin (before special costs
and charges) from 10.3% in fiscal 1997 to 14.8% in fiscal 1999.
The acquisitions completed during fiscal 1999 are collectively referred
to as the "1999 Acquisitions." 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 1999 Acquisitions, the Company has recorded a charge
of $79,155 for the write-off of in-process research and development and other
acquisition-related expenses associated with the Company's Acquisitions.
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 had been 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. For
a more complete description of in-process research and development costs, see
Note 4 to the Company's 1999 financial statements.
On February 25, 1999, the Company sold a 51% interest in its In-flight
Entertainment ("IFE") business to a wholly owned subsidiary of Sextant
Avionique, S.A. ("Sextant"). Sextant, which supplies complete avionics systems
for both military and civil aircraft, is one of the world's leading suppliers
of aircraft avionics systems, is a wholly owned subsidiary of Thomson CSF, and
the largest supplier of such systems to Airbus Industrie. Terms of the
agreement provide for Sextant to acquire its 51% interest in IFE for an
initial cash purchase price of $62,000. The final purchase price will be
determined on the basis of operating results for the joint venture over its
initial two years of operations and could range from $47,000 to $87,000. For
financial reporting purposes, the Company recorded a gain on this transaction
(the "IFE Sale") of approximately $25,301, (which has been reflected as a
component of transaction gain, expenses and other expenses in its statement of
operations for the year ended February 27, 1999) and has deferred $15,000 of
the initial purchase price subject to the determination of the final purchase
price described above. The Company used substantially all of the net proceeds
to repay bank borrowings.
<PAGE>
During the fourth quarter of fiscal 1999, the Company began to implement a
restructuring plan designed to lower its cost structure and improve its
long-term competitive position. This plan includes eliminating seven of its
principal facilities, reducing the total number from 21 to 14, reducing its
employment base by approximately 8% and rationalizing its product offerings. The
Company recognized a charge in the fourth quarter of fiscal 1999 of $87,825 to
provide for the entire amount of restructuring, along with costs associated with
new product introductions, all of which was charged to cost of sales, of which
$62,497 is related to North American facilities. These costs and charges are
comprised of $61,089 related to impaired inventories and property, plant and
equipment related to the rationalization of its product offerings, new product
introduction costs of $21,787, and severance and related separation costs, lease
termination and other costs of $4,949.
The worldwide reduction in facilities, personnel and product offerings
will aid the Company in several ways. It will strengthen the global business
management focus on the core product categories, achieve a more effective
leveraging of resources and improve the Company's ability to rapidly react to
changing business conditions. The rationalization of product offerings, which
was brought about as a result of the 1999 Acquisitions and the large number of
new product introductions during the past year, will provide an ongoing benefit
of a generally lower cost structure.
Pretax cash outlays associated with the restructuring program were not
significant during fiscal 1999, and are expected to be approximately $4,900
during fiscal 2000. Cash requirements are expected to be funded from operations.
The Company identified seven facilities, four domestic and three in Europe, for
consolidation. The consolidation activities are expected to commence during the
first quarter of fiscal 2000 and be substantially complete by the end of the
fiscal year. When fully implemented, management expects that this program will
generate pretax savings of approximately $15,000 - $20,000 annually.
The assets impacted by this program include factories, warehouses,
assembly operations, administration facilities, machinery and equipment and
inventories. The new product introduction costs represent costs incurred in
bringing new products to market in volume for the first time and include
tooling, engineering design and development, costs in excess of standard costs
at budgeted manufacturing levels and related expenditures. Management
anticipates that the Company will continue to incur pressure on its gross
margins during the upcoming year as it achieves learning curve efficiencies
associated with the introduction of these new products in volume for the first
time and as it implements its integrated management information system
throughout the Company, and such costs could be material.
Over the last two fiscal years, the Company's gross margins have improved
substantially, increasing from 34.4% in fiscal 1997 to 36.7% in fiscal 1998 and
to 38.0% in fiscal 1999 (before special costs and charges described above). The
primary reasons for the improvement in gross margins include: (1) a company-wide
re-engineering program which has resulted in higher employee productivity and
better manufacturing efficiency, (2) higher unit volumes and (3) improvement in
product mix.
<PAGE>
B/E's business strategy is to maintain its market leadership position
through various initiatives, including new product development. In fiscal 1999,
research, development and engineering expenses totaled $56,207, or 8.0% of net
sales.
The following discussion and analysis addresses the results of the
Company's operations for the year ended February 27, 1999, as compared to the
Company's results of operations for the year ended February 28, 1998. The
discussion and analysis then addresses the results of the Company's operations
for the year ended February 28, 1998 as compared to the Company's results of
operations for the year ended February 22, 1997. The discussion and analysis
then addresses the liquidity and financial condition of the Company and other
matters.
YEAR ENDED FEBRUARY 27, 1999 COMPARED TO THE YEAR ENDED FEBRUARY 28, 1998
Net sales for fiscal 1999 were $701,325, an increase of approximately
$213,326, or 44% over the prior year. Organic revenue growth during fiscal 1999
was approximately 10.6%; organic revenue growth, exclusive of IFE in both fiscal
1998 and fiscal 1999 was approximately 13.7%, whereas revenue growth on a pro
forma basis for both fiscal 1999 and 1998 giving effect to the 1999 Acquisitions
and excluding IFE for both periods was approximately 15.5%. The second half of
fiscal 1999 reflected substantially greater internal growth than the first half
of the year, primarily driven by the Company's Seating Products Group. Of the
Company's backlog of approximately $640,000 as of February 27, 1999, $431,000 is
deliverable by the end of fiscal 2000.
Gross profit for fiscal 1999 before the special costs and charges
described above was $266,275 (38.0% of sales). This was $87,370, or 49%,
greater than the comparable period in the prior year of $178,905, which
represented 36.7% of sales. The primary reasons for the improvement in gross
margins include: (1) a company-wide re-engineering program which has resulted in
higher employee productivity and better manufacturing efficiency, (2) higher
unit volumes and (3) improvement in product mix. As described above, during
fiscal 1999 the Company commenced a restructuring plan designed to lower its
cost structure and improve its long-term competitive position. The cost of the
restructuring, along with costs associated with new product introductions was
approximately $87,800. The Company recorded such amount as an increase in cost
of sales during fiscal 1999; reflecting such costs and charges, gross profit for
the year was $178,450 or 25.4% of sales.
Selling, general and administrative expenses were $83,648 (11.9% of
sales) for fiscal 1999, which was $25,026, or 43%, greater than the comparable
period in the prior year of $58,622 (12.0% of sales). The increase in selling,
general and administrative expenses was primarily due to the 1999 Acquisitions
along with increases associated with internal growth.
Research, development and engineering expenses were $56,207 (8.0% of
sales) during fiscal 1999, an increase of $10,522 over the prior year. The
increase in research, development and engineering expense is primarily
attributable to ongoing new product development activities and the 1999
Acquisitions.
Amortization expense for fiscal 1999 of $22,498 was $11,233 greater
than the amount recorded in the prior year, and is due to the 1999
Acquisitions.
<PAGE>
Based on management's assumptions, a portion of the purchase price for
the 1999 Acquisitions was allocated to purchased in-process research and
development that had not reached technological feasibility and had no future
alternative use. During fiscal 1999, the Company recorded a charge of $79,155
for the write-off of acquired in-process research and development and other
acquisition-related expenses. Such amount has been presented as a component of
transaction gain, expenses and other expense in the accompanying financial
statements. Management estimates that the research and development cost to
complete the in-process research and development related to projects will
aggregate approximately $11,000 which will be incurred over a five-year period.
In February 1999, the Company sold a 51% interest in IFE to Sextant for
an initial cash purchase price of $62,000. The final purchase price will be
determined on the basis of the operating results for the joint venture over its
initial two years of operations and could range from $47,000 to $87,000;
accordingly, $15,000 of the proceeds have been deferred at February 25, 1999 and
are included in other liabilities. The Company has recorded a gain on this
transaction of approximately $25,301, which has been reflected as component of
transaction gain, expenses and other expense in the accompanying financial
statements.
The Company incurred an operating loss of $(37,757) (which includes
restructuring and new product introduction costs of $87,825, acquisition-related
expenses of $79,155 and the transaction gain of $25,301) during fiscal 1999, as
compared to operating earnings of $58,669 in the prior year. Operating earnings
during fiscal 1999 excluding such costs, expenses and the transaction gain were
$103,922, or 14.8% of sales.
Interest expense, net was $41,696 during fiscal 1999, or $18,931 greater
than interest expense of $22,765 for the prior year and is due to the increase
in the Company's long-term debt incurred in connection with the 1999
Acquisitions.
The loss before income taxes in the current year was $(79,453) (which
includes restructuring and new product introduction costs of $87,825,
acquisition-related expenses of $79,155 and the transaction gain of $25,301) as
compared to earnings before income taxes of $35,904 in the prior year. Earnings
before income taxes excluding the above mentioned costs and expenses were
$62,226. Income tax expense for fiscal 1999 was $3,900 as compared to $5,386 in
the prior year.
The loss before extraordinary items for fiscal 1999 was $(83,353), or
$(3.36) per share (diluted), as compared to earnings before extraordinary items
of $30,518 or $1.30 per share (diluted), for the comparable period in the prior
year.
The Company incurred an extraordinary loss of $8,956 during fiscal 1998
for unamortized debt issue costs, tender and redemption premiums and costs and
expenses associated with the repurchase of its 9 3/4% Notes.
The net loss for fiscal 1999 was $(83,353), or $(3.36) per share
(diluted), as compared to net earnings of $21,562 of $.92 per share (diluted)
in fiscal 1998.
<PAGE>
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 12.0% 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 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 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.
<PAGE>
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.
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 $143,423 as of February 27, 1999, as
compared to $262,504 as of February 28, 1998.
At February 27, 1999, cash and cash equivalents were $39,500, as compared
to $164,685 at February 28, 1998. The primary use of cash during the current
fiscal year was $349,690 for the 1999 Acquisitions. Cash provided from
operating activities was $15,215 for fiscal 1999. The primary source of cash
during fiscal 1999 was the net loss of ($83,353) offset by non-cash
restructuring and transaction charges of $166,980, decreases in accounts
receivable of $21,407 and increases in accounts and income taxes payable and
accrued and other liabilities of $39,856, offset by a use of cash of $16,449
related to increases in inventories and other current assets.
The Company's capital expenditures were $37,465 and $28,923 during fiscal
1999 and 1998, respectively. The increase in capital expenditures was primarily
attributable to (1) the development of a new management information system to
replace the Company's existing systems, many of which were inherited in
acquisitions, and (2) expenditures for plant modernization. The management
information system is expected to be installed over 71 months and is Year 2000
compliant. Those facilities slated for implementation after September 1999 are
currently Year 2000 compliant. The Company anticipates ongoing annual capital
expenditures of approximately $30,000 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 $36,000. 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. At February 27, 1999, indebtedness under the
existing Bank Credit Facility consisted of letters of credit aggregating
approximately $3,053 and outstanding borrowings under the acquisition facility
aggregating $36,000 (bearing interest at LIBOR plus 1.50%, or approximately 6.5%
as of February 27, 1999). The Bank Credit Facility contains customary
affirmative covenants, negative covenants and conditions of borrowing, all of
which were met by the Company as of February 27, 1999.
<PAGE>
In January 1996, the Company sold $100,000 of 9 7/8% Senior Subordinated
Notes (the "9 7/8% Notes"). In February 1998, the Company sold $250,000 of 8%
Senior Subordinated Notes (the "8% Notes"). In conjunction with the sale of the
8% Notes, the Company initiated a tender offer for the $125,000 of 9 3/4% Senior
Notes due 2003 (the "9 3/4% Notes"). The net proceeds from the offering of
approximately $240,419 were used (1) for the tender offer (which expired on
February 25, 1998) in which approximately $101,800 of the 9 3/4% Notes were
retired, (2) to call the remaining 9 3/4% Notes on March 16, 1998 and (3)
together with the proceeds from the Bank Credit Facility, to partially fund the
1999 Acquisitions. 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. In December 1998, the
Company sold $200,000 of 9 1/2% Senior Subordinated Notes (the "9 1/2 Notes").
The net proceeds from the offering of approximately $194,100 were used to settle
the Company's obligations related to the SMR obligation and to repay a portion
of the Company's bank borrowings.
Long-term debt consists principally of the Bank Credit Facility, 9 7/8%
Notes, 8% Notes and 9 1/2% Notes. The 9 7/8% Notes, 8% Notes and 9 1/2% Notes
mature on February 1, 2006, March 1, 2008 and November 1, 2008, respectively.
The 9 7/8% Notes, 8% Notes and 9 1/2% Notes contain restrictive covenants, all
of which were met by the Company as of February 27, 1999, including limitations
on future indebtedness, restricted payments, transactions with affiliates,
liens, dividends, mergers and transfers of assets.
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 2013. 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 impact the airframe
manufacturers and the airlines, the Company's high degree of financial leverage,
risks associated with the implementation of its integrated management
information system, 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.
<PAGE>
YEAR 2000 COSTS
The "Year 2000" ("Y2K")issue is the result of computer programs using
two digits rather than four to define the applicable year. Because of this
programming convention, software, hardware or firmware may recognize a date
using "00" as the year 1900 rather than the year 2000. Use of non-Year 2000
compliant programs could result in system failures, miscalculations or errors
causing disruptions of operations or other business problems, including, among
others, a temporary inability to process transactions and invoices or engage
in similar normal business activities.
B/E Technology Initiatives Program. The Company has experienced
substantial growth as a result of having completed 15 acquisitions since 1989.
Essentially all of the acquired businesses were operating on separate
information systems, using different hardware and software platforms. In fiscal
1997, the Company analyzed 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 developed a
comprehensive program to address the Year 2000 issue with respect to the
following non-system areas: (1) network switching, (2) the Company's
non-information technology systems (such as buildings, plant, equipment and
other infrastructure systems that may contain embedded microcontroller
technology) and (3) 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: (1)
a wide-ranging assessment of the Year 2000 problems that may affect the Company,
(2) the development of remedies to address the problems discovered in the
assessment phase and (3) 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 database 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, eight 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.
<PAGE>
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 (1) obtained guidance from outside counsel to ensure legal
compliance, (2) generated correspondence to each of its third-party vendors to
assess the Y2K readiness of these vendors, (3) 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 database of
the Company's vendors. To monitor its third- party vendors, the Company has
sent a correspondence mailing to targeted vendors and is currently following
up on non-deliverable letters and those vendors that indicated material
problems in their replies. The Company believes that the majority of the
required compliance and remediation with respect to these vendors will be
completed in the beginning of the second quarter of fiscal 2000.
Contingency Plans. The Company has begun to analyze contingency plans to
handle the worst-case Year 2000 scenarios that the Company believes reasonably
could occur and, if necessary, intends to develop a timetable for completing
such contingency plans.
Costs Related to the Year 2000 Issue. To date, the Company has incurred
approximately $30,000 in costs related to the implementation of the ERP system.
The Company currently estimates the total ERP implementation will cost
approximately $38,000 and a portion of the costs have and will be capitalized to
the extent permitted under generally accepted accounting principles.
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 the year 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 1998. 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.
<PAGE>
In addition, the airline industry is undergoing a process of
consolidation and significantly increased competition. Such consolidation could
result in a reduction in future aircraft orders as overlapping routes are
eliminated and airlines seek greater economics through higher aircraft
utilization. Increased airline competition may also result in airlines seeking
to reduce costs by producing greater price competition from airline cabin
interior products manufacturers, thereby adversely affecting the Company's
revenues and margins.
Recently, turbulence in the financial and currency markets of many Asian
countries has led to uncertainty with respect to the economic outlook for these
countries. Of the Company's $640,000 of backlog at February 27, 1999,
approximately $431,200 is deliverable by the end of fiscal 2000. Of the total
backlog at February 27, 1999, the Company had $91,800 with Asian carriers. Of
such Asian carrier backlog, approximately $49,600 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. In addition, Boeing has 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 up to seven times the dollar content for B/E's
products as compared to narrow-body aircraft.
ITEM 7A. QUANTITIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to a variety of risks, including foreign
currency fluctuations and changes in interest rates affecting the cost of its
debt.
Foreign currency -- The Company has direct operations in Europe that
receive revenues from customers in various currencies and purchase raw
materials and component parts from foreign vendors in various currencies.
Accordingly, the Company is exposed to transaction gains and losses that could
result from changes in foreign currency exchange rates relative to the U.S.
dollar. The largest foreign currency exposure results from activity in British
pounds and Dutch guilders.
From time to time, the Company and its foreign subsidiaries may enter
into foreign currency exchange contracts to manage risk on transactions
conducted in foreign currencies. At February 27, 1999, the Company had no
outstanding forward currency exchange contracts. The Company does not enter
into any other derivative financial instruments.
Directly and through its subsidiaries, the Company sells to various
customers in the European Union which adopted the Euro as their legal currency
on January 1, 1999. The Euro is already used for some financial transactions
and expected to enter general circulation after a three-year transition period
ending January 1, 2002. The Company has analyzed whether the conversion to the
Euro will materially affect its business operations. The Company's information
systems are capable of processing transactions in Euros.
<PAGE>
Additionally, the Company is planning to upgrade certain of its information
systems through December 2000 to enhance its capability to process transactions
and keep records in Euros. The Company does not expect costs in connection with
the Euro conversion to be material.
Interest Rates -- At February 27, 1999, the Company had adjustable rate
debt of approximately $44,191 and fixed rate debt of approximately $549,440.
The weighted average interest rate for the adjustable and fixed rate debt was
approximately 6.5% and 8.9%, respectively, at February 27, 1999. If interest
rates were to increase by 10% above current rates, the estimated impact on the
Company's financial statements would be to reduce pretax income by
approximately $300. The Company does not engage in transactions intended to
hedge its exposure to changes in interest rates.
As of February 27, 1999, the Company maintained a portfolio of
securities consisting mainly of taxable, interest-bearing deposits with
weighted average maturities of less than three months. If short-term interest
rates were to increase or decrease by 10%, the Company estimates interest
income would increase or decrease by approximately $200.
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this section is set forth beginning from page F-1
of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
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<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information set forth under the caption "Election of Directors" in the
proxy statement to be filed with the Commission in connection with the
Company's 1999 Annual Meeting of Stockholders (the "Proxy Statement") is
incorporated by reference herein.
Information relating to the executive officers of the Company is set
forth in Part I, Item 4 of this annual report under the caption "Executive
Officers of the Registrant."
ITEM 11. EXECUTIVE COMPENSATION
Information set forth under the caption "Executive Compensation" in the
Proxy Statement is incorporated by reference herein. The Compensation
Committee Report and the Performance Graph included in the Proxy Statement are
not incorporated herein.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information set forth under the caption "Security Ownership of Certain
Beneficial Owners and Management" in the Proxy Statement is incorporated by
reference herein.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information set forth under the caption "Certain Relationships and
Related Transactions" in the Proxy Statement is incorporated by reference
herein.
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<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
1. Consolidated Financial Statement (See page F-1)
Independent Auditors' Report.
Consolidated Balance Sheets, February 27, 1999 and February 28,
1998.
Consolidated Statements of Operations and Comprehensive Income
(Loss) for the Years Ended February 27, 1999, February 28, 1998 and
February 22, 1997.
Consolidated Statements of Stockholders' Equity for the Years Ended
February 27, 1999, February 28, 1998 and February 22, 1997.
Consolidated Statements of Cash Flows for the Years Ended February
27, 1999 February 28, 1998 and February 22, 1997.
Notes to Consolidated Financial Statements for the Years Ended
February 27, 1999, February 28, 1998 and February 22, 1997.
2. Financial Statement Schedule
Schedule II - Valuation and Qualifying Accounts
All other financial statement schedules are omitted because
such schedules are not required or the information required
has been presented in the aforementioned consolidated financial
statements.
3. Exhibits - The exhibits listed in the following "Index to Exhibits"
are filed with this Form 10-K or incorporated by reference as set
forth below.
(b) The following reports on Form 8-K were filed during the quarter
ended February 27, 1999.
January 25, 1999 Form 8-K/A relating to the acquisition of
SMR Aerospace, Inc.
January 27, 1999 Form 8-K relating to the announcement of the
sale of a 51% interest in the Company's
In-Flight Entertainment ("IFE") business.
(c) The exhibits listed in the following "Index to Exhibits" are filed with
this Form 10-K or incorporated by reference as set forth below.
(d) Additional Financial Statement Schedules - None.
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Description
- ------- -----------
EXHIBIT 3 ARTICLES OF INCORPORATION AND BY-LAWS
3.1 Amended and Restated Certificate of Incorporation (1)
3.2 Certificate of Amendment of the Restated Certificate of
Incorporation (2)
3.3 Certificate of Amendment of the Restated Certificate of
Incorporation (17)
3.4 Amended and Restated By-Laws (18)
Exhibit 4 Instruments Defining the Rights of Security Holders,
including debentures
4.1 Specimen Common Stock Certificate (1)
4.2 Form of Note for the Registrant's 9 1/2% Senior Subordinated
Notes (19)
4.3 Indenture dated November 2, 1998 between The Bank of New York,
as trustee, and the Registrant relating to the Registrant's 9 1/2%
Senior Subordinated Notes (19)
4.4 Form of Note for the Registrant's Series B 9 7/8% Senior
Subordinated Notes (3)
4.5 Indenture dated January 24, 1996 between Fleet National Bank, as
trustee, and the Registrant relating to the Registrant's 9 7/8%
Senior Subordinated Notes and Series B 9 7/8% Senior Subordinated
Notes (3)
4.6 Form of Note for the Registrant's 8% Series B Senior Subordinated
Notes (4)
4.7 Indenture dated February 13, 1998 for the Registrant's issue of 8%
Senior Subordinated Notes (4)
4.8 Form of Stockholders' Agreement by and among the Registrant,
Summit Ventures II, L.P., Summit Investors II, L.P. and Wedbush
Capital Partners (5)
4.9 Rights Agreement between the Registrant and BankBoston, N.A.,
as rights agent, dated as of November 12, 1998 (18)
EXHIBIT 10(I) MATERIAL CONTRACTS
10.1 Supply Agreement dated as of April 17, 1990 between the Registrant
and Applied Extrusion Technologies, Inc. (1)
10.2 Fifth Amended and Restated Credit Agreement dated August 7, 1998
(17)
10.3 Receivables Sales Agreement dated January 24, 1996 among the
Registrant, First Trust of Illinois, N.A. and Centrally Held
Eagle Receivables Program, Inc. (3)
10.4 Escrow Agreement dated January 24, 1996 among the Registrant,
Eagle Industrial Product Corporation and First Trust of Illinois,
N.A. as Escrow Agent (3)
10.5 Acquisition Agreement dated as of December 14, 1995 by and among
the Registrant, Eagle Industrial Products Corporation, Eagle
Industries, Inc. and Great American Management and Investment,
Inc. (8)
10.6 Asset Purchase Agreement dated as of April 16, 1998 by and between
Stanford Aerospace Group, Inc. and the Registrant (9)
10.7 Stock Purchase Agreement dated as of March 31, 1998 by and between
the Registrant and Puritan Bennet Corporation (10)
10.8 Acquisition Agreement dated July 21, 1998 among the Registrant
and Sellers named therein (16)
EXHIBIT 10(II) LEASES
10.9 Lease dated May 15, 1992 between McDonnell Douglas
Company, as lessor, and the Registrant, as lessee,
relating to the Irvine, California property (2)
10.10 Lease dated September 1, 1992 relating to the Wellington,
Florida property (2)
<PAGE>
Exhibit
Number Description
- ------- -----------
10.11 Chesham, England Lease dated October 1, 1973 between Drawheath
Limited and the Peninsular and Oriented Stem Navigation
Company (assigned in February 1985) (14)
10.12 Utrecht, The Netherlands Lease dated December 15, 1988 between
the Pension Fund Foundation for Food Supply Commodity Boards
and Inventum (14)
10.13 Utrecht, The Netherlands Lease dated January 31, 1992 between
G.W. van de Grift Onroerend Goed B.V. and Inventum (14)
10.14 Lease dated October 25, 1993 relating to the property in
Longwood, Florida (6)
Exhibit 10(iii) Executive Compensation Plans and Arrangements
10.15 Amended and Restated 1989 Stock Option Plan (11)
10.16 Directors' 1991 Stock Option Plan (11)
10.17 1990 Stock Option Agreement with Richard G. Hamermesh (11)
10.18 1990 Stock Option Agreement with B. Martha Cassidy (11)
10.19 1990 Stock Option Agreement with Jim C. Cowart (11)
10.20 1990 Stock Option Agreement with Petros A. Palandjian (11)
10.21 1990 Stock Option Agreement with Hansjorg Wyss (11)
10.22 1991 Stock Option Agreement with Amin J. Khoury (11)
10.23 1991 Stock Option Agreement with Jim C. Cowart (11)
10.24 1992 Stock Option Agreement with Amin J. Khoury (11)
10.25 1992 Stock Option Agreement with Jim C. Cowart (11)
10.26 1992 Stock Option Agreement with Paul W. Marshall (11)
10.27 1992 Stock Option Agreement with David Lahar (11)
10.28 United Kingdom 1992 Employee Share Option Scheme (2)
10.29 1994 Employee Stock Purchase Plan (12)
10.30 Amended and Restated Employment Agreement as of May 29, 1998
between the Registrant and Amin J. Khoury (15)
10.31 Amended and Restated Employment Agreement as of May 29, 1998
between the Registrant and Robert J. Khoury (15)
10.32 Employment Agreement dated as of March 1, 1992 between the
Registrant and Marco Lanza (the "Lanza Agreement") (14)
10.33 Amendment No. 1 dated as of January 1, 1996 to the Lanza
Agreement (13)
10.34 Employment Agreement dated as of April 1, 1992 between the
Registrant and G. Bernard Jewel (14)
10.35 Amended and Restated Employment Agreement dated as of May 29,
1998 between the Registrant and Thomas P. McCaffrey (15)
10.36 Amended and Restated Employment Agreement dated as of May 29,
1998 between the Registrant and Paul E. Fulchino (15)
10.37 BE Aerospace, Inc. Savings and Profit Sharing Plan and Trust--
Financial Statements for the Ten Months Ended December 31, 1995
and the Year Ended February 28, 1995,Supplemental Schedules and
Independent Auditors' Report (14)
10.38 BE Aerospace, Inc. 1994 Employee Stock Purchase Plan Financial
Statements as of February 29, 1996 and February 26, 1995; and
for the Year Ended February 29, 1996 and the period from May 15,
1994 (inception) to February 28, 1995 and Independent
Auditors' Report (14)
10.39 Amendment No. 1 to Employment Agreement dated November 12, 1998
between the Registrant and Amin J. Khoury (19)
10.40 Amendment No. 1 to Employment Agreement dated November 12, 1998
between the Registrant and Robert J. Khoury (19)
10.41 Amendment No. 1 to Amended and Restated Employment Agreement
dated November 12, 1998 between the Registrant and
Thomas P. McCaffrey (19)
<PAGE>
Exhibit
Number Description
- ------- -----------
10.42 Amendment No. 1 to Amended and Restated Employment Agreement dated
November 12, 1998 between the Registrant and Paul E. Fulchino (19)
10.43 Amendment No. 2 dated as of November 12, 1998 to the Lanza
Agreement (19)
10.44 B/E Aerospace, Inc. Savings Plan Financial Statements for the
years ended December 31, 1997 and 1996, supplemental Schedules,
and Independent Auditors' Report (14)
10.45 B/E Aerospace, Inc. 1995 Employee Stock Purchase Plan
Financial Statements for the years ended February 28, 1998
and 1997 and Independent Auditors'Report (14)
10.46 B/E Aerospace, Inc. 1995 Employee Stock Purchase Plan
Financial Statements for the years ended February 27, 1999 and
1998 and Independent Auditors' Report *
10.47 B/E Aerospace, Inc. Savings Plan Financial Statements for the
years ended December 31, 1998 and 1997 and Independent
Auditors' Report *
Exhibit 21 Subsidiaries of the Registrant
21.1 Subsidiaries *
Exhibit 23 Consents of Experts and Counsel
23.1 Consent of Independent Accountants - Deloitte & Touche LLP*
Exhibit 27 Financial Data Schedule
27.1 Financial Data Schedule for the fiscal year ended
February 27, 1999*
Exhibit 99 Risk Factors*
- -----------------------
* Filed herewith.
(1) Incorporated by reference to the Company's Registration Statement on
Form S-1, as amended (No. 33-33689), filed with the Commission on
March 7, 1990.
(2) Incorporated by reference to the Company's Registration Statement on
Form S-1, as amended (No. 33-54146), filed with the Commission on
November 3, 1992.
(3) Incorporated by reference to the Company's Registration Statement on
Form S-4 (No. 333-00433), filed with the Commission on January 26, 1996.
(4) Incorporated by reference to the Company's Registration Statement on
Form S-4 (No. 333-47649), filed with the Commission on March 10, 1998.
(5) Incorporated by reference to the Company's Registration Statement on
Form S-2 (No. 33-66490), filed with the Commission on July 23, 1993.
(6) Incorporated by reference to the Company's Annual Report on Form 10-K
as amended for the Fiscal year ended February 26, 1994, filed with the
Commission on May 25, 1994.
(7) Incorporated by reference to the Company's Annual Report on Form 10-K
as amended for the Fiscal year ended February 25, 1995, filed with the
Commission on May 26, 1995.
(8) Incorporated by reference to the Company's Current Report on Form 8-K
dated December 14, 1995, filed with the Commission on December 28, 1995.
(9) Incorporated by reference to the Company's Current Report on Form 8-K
dated May 8, 1998, filed with the Commission on May 8, 1998.
(10) Incorporated by reference to the Company's Current Report on Form 8-K
dated March 31, 1998, filed with the Commission on April 27, 1998.
(11) Incorporated by reference to the Company's Registration Statement on
Form S-8 (No. 33-48119), filed with the Commission on May 26, 1992.
(12) Incorporated by reference to the Company's Registration Statement on
Form S-8 (No. 33-82894), filed with the Commission on August 16, 1994.
<PAGE>
(13) Incorporated by reference to the Company's Current Report on Form 8-K
dated March 26, 1996, filed with the Commission on April
5, 1996.
(14) Incorporated by reference to the Company's Annual Report on Form 10-K
as amended for the Fiscal year ended February 28, 1998,
filed with the Commission on May 29, 1998.
(15) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended May 30, 1998, filed with the
Commission on July 14, 1998.
(16) Incorporated by reference to the Company's Current Report on Form 8-K
dated August 24, 1998, filed with the Commission on
August 24, 1998.
(17) Incorporated by reference to the Company's Registration Statement
on Form S-3 (No. 333-60209), filed with the Commission on July 30,
1998.
(18) Incorporated by reference to the Company's Current Report on Form
8-K dated November 12, 1998, filed with the Commission on November
18, 1998.
(19) Incorporated by reference to the Company's Registration Statement on
Form S-4 (No. 333-67703), filed with the Commission on January 13,
1999.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
BE AEROSPACE, INC.
By /s/ Robert J. Khoury
Vice Chairman and
Chief Executive Officer
Dated: May 21, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed on May 21, 1999 by the following persons on behalf of the
registrant in the capacities indicated.
Signature Title
/s/ Amin J. Khoury Chairman
- ---------------------------------------
/s/ Robert J. Khoury Vice Chairman and Chief
- --------------------------------------- Executive Officer
/s/ Paul E. Fulchino President and Chief Operating
- --------------------------------------- Officer
/s/ Thomas P. McCaffrey Corporate Senior Vice President of
- --------------------------------------- Administration, Chief
Financial Officer and Assistant
Secretary (principal
financial and accounting officer)
/s/ Jim C. Cowart Director
- ---------------------------------------
/s/ Richard G. Hamermesh Director
- ---------------------------------------
/s/ Brian H. Rowe Director
- ---------------------------------------
/s/ Hansjoerg Wyss Director
- ---------------------------------------
ITEM 8. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
<TABLE>
<CAPTION>
Page
<S> <C>
Independent Auditors' Report F-2
Financial Statements:
Consolidated Balance Sheets, February 27, 1999 and February 28, 1998 F-3
Consolidated Statements of Operations and Comprehensive F-4
Income (Loss) for the Years Ended February 27, 1999, February 28, 1998
and February 22, 1997
Consolidated Statements of Stockholders' Equity for the Years Ended F-5
F-5 February 27, 1999, February 28, 1998 and February 22, 1997
Consolidated Statements of Cash Flows for the Years Ended F-6 F-6
February 27, 1999, February 28, 1998 and February 22, 1997
Notes to Consolidated Financial Statements for the Years Ended F-7 F-7
February 27, 1999, February 28, 1998 and February 22, 1997
Financial Statement Schedule:
Schedule II - Valuation and Qualifying Accounts for the Years Ended F-25
F-25 February 27, 1999, February 28, 1998 and February 22, 1997
</TABLE>
[Remainder of page intentionally left blank]
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
BE Aerospace, Inc.
Wellington, Florida
We have audited the accompanying consolidated balance sheets of BE
Aerospace, Inc. and subsidiaries as of February 27, 1999 and February 28,
1998, and the related consolidated statements of operations and comprehensive
income (loss), stockholders' equity, and cash flows for each of the three
years in the period ended February 27, 1999. Our audits also included the
financial statement schedule on page F-25. These financial statements and
financial statement schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of BE Aerospace, Inc. and
subsidiaries as of February 27, 1999 and February 28, 1998, and the results of
their operations and their cash flows for each of the three years in the
period ended February 27, 1999, in conformity with generally accepted
accounting principles. Also, in our opinion, such financial statement
schedule, when considered in relation to the basic financial statements taken
as a whole, presents fairly, in all material respects, the information set
forth therein.
DELOITTE & TOUCHE LLP
Costa Mesa, California
April 16, 1999
<PAGE>
CONSOLIDATED BALANCE SHEETS, FEBRUARY 27, 1999 AND FEBRUARY 28, 1998 (Dollars
in thousands, except share data)
<TABLE>
<CAPTION>
ASSETS 1999 1998
- ------ ---- ----
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 39,500 $ 164,685
Accounts receivable - trade, less allowance for doubtful
accounts of $2,633 (1999) and $2,190 (1998) 140,782 87,931
Inventories, net 119,247 121,728
Other current assets 14,086 7,869
----------- ---------
Total current assets 313,615 382,213
----------- ---------
PROPERTY AND EQUIPMENT, net 138,730 103,821
INTANGIBLES AND OTHER ASSETS, net 450,900 195,723
DEFERRED INCOME TAXES 1,054 -
------------ ----------
$ 904,299 $ 681,757
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 63,211 $ 47,858
Accrued liabilities 97,065 38,566
Current portion of long-term debt 9,916 33,285
--------- -----------
Total current liabilities 170,192 119,709
--------- ----------
LONG-TERM DEBT 583,715 349,557
DEFERRED INCOME TAXES - 1,207
OTHER LIABILITIES 34,519 14,509
COMMITMENTS AND CONTINGENCIES - -
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value; 1,000,000 shares
authorized; no shares outstanding - -
Common stock, $.01 par value; 50,000,000 shares
authorized; 24,602,915 (1999) and 22,891,918 (1998)
shares issued and outstanding 246 229
Additional paid-in capital 245,809 240,289
Accumulated deficit (124,077) (40,724)
Accumulated other comprehensive loss (6,105) (3,019)
---------- ------------
Total stockholders' equity 115,873 196,775
---------- ------------
$ 904,299 $ 681,757
========== ===========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) FOR THE
YEARS ENDED FEBRURY 27, 1999, FEBRUARY 28, 1998 AND FEBRUARY 22, 1997 (Dollars
in thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended
---------------------------------------------------
February 27, February 28, February 22,
1999 1998 1997
<S> <C> <C> <C>
NET SALES $ 701,325 $ 487,999 $ 412,379
COST OF SALES (Note 3) 522,875 309,094 270,557
-------- -------- --------
GROSS PROFIT 178,450 178,905 141,822
OPERATING EXPENSES:
Selling, general and administrative 83,648 58,622 51,734
Research, development and engineering 56,207 45,685 37,083
Amortization of intangible assets 22,498 11,265 10,607
Transaction gain, expenses
and other expenses (Note 4) 53,854 4,664 -
-------- -------- --------
Total operating expenses 216,207 120,236 99,424
-------- -------- --------
OPERATING EARNINGS (LOSS) (37,757) 58,669 42,398
INTEREST EXPENSE, net 41,696 22,765 27,167
------ -------- -------
EARNINGS (LOSS) BEFORE INCOME TAXES AND
EXTRAORDINARY ITEM (79,453) 35,904 15,231
INCOME TAXES 3,900 5,386 1,522
-------- ------- -------
EARNINGS (LOSS) BEFORE EXTRAORDINARY ITEM (83,353) 30,518 13,709
EXTRAORDINARY ITEM - 8,956 -
--------- --------- ----------
NET EARNINGS (LOSS) $ (83,353) $ 21,562 $ 13,709
OTHER COMPREHENSIVE INCOME (LOSS):
Foreign exchange translation adjustment (3,086) (2,137) 496
--------- ----------- ----------
COMPREHENSIVE INCOME (LOSS) $ (86,439) $ 19,425 $ 14,205
========== ========= ========
BASIC EARNINGS (LOSS) PER SHARE:
Earnings (loss) before extraordinary item $ (3.36) $ 1.36 $ .77
Extraordinary item - (.40) -
--------- --------- --------
Net earnings (loss) $ (3.36) $ .96 $ .77
Weighted average common shares 24,814 22,442 17,692
========= ========= ========
DILUTED EARNINGS (LOSS) PER SHARE:
Earnings (loss) before extraordinary item $ (3.36) $ 1.30 $ .72
Extraordinary item - (.38) -
--------- ---------- --------
Net earnings (loss) $ (3.36) $ .92 $ .72
========= ========= ========
Weighted average common shares 24,814 23,430 19,097
========= ========= ========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED FEBRUARY 27, 1999, FEBRUARY 28, 1998 AND FEBRUARY 22, 1997
(in thousands)
<TABLE>
<CAPTION>
Accumulated
Additional Retained Other Total
Common Stock Paid-in Earnings Comprehensive Stockholders'
Shares Amount Capital (Deficit) Loss Equity
------ ------ ------ -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, February 24, 1996 16,393 $ 164 $ 121,366 $(75,995) $ (1,378) $ 44,157
Sale of stock under
employee stock purchase plan 58 - 482 - - 482
Exercise of stock options 1,362 14 11,650 - - 11,664
Employee benefit plan
matching contribution 75 1 1,316 - - 1,317
Sale of common stock
under public offering 4,005 40 93,896 - - 93,936
Net earnings - - - 13,709 - 13,709
Foreign currency translation
adjustment - - - - 496 496
------- ------ ------- -------- -------- ---------
Balance, February 22, 1997 21,893 219 228,710 (62,286) (882) 165,761
Sale of stock under
employee stock purchase plan 88 1 1,796 - - 1,797
Exercise of stock options 852 9 8,106 - - 8,115
Employee benefit plan
matching contribution 59 - 1,677 - - 1,677
Net earnings - - - 21,562 - 21,562
Foreign currency translation
adjustment - - - - (2,137) (2,137)
------- ----- ------- ------- ------- --------
Balance, February 28, 1998 22,892 229 240,289 (40,724) (3,019) 196,775
Sale of stock under
employee stock purchase plan 151 1 2,167 - - 2,168
Exercise of stock options 292 3 3,829 - - 3,832
Employee benefit plan
matching contribution 101 1 2,300 - - 2,301
Issuance of stock in conjunction
with acquisition of SMR (Note 2) 4,000 40 117,960 - - 118,000
Repurchase of stock in
conjunction with acquisition
of SMR (Note 2) (4,000) (40) (117,960) - - (118,000)
Impact of immaterial poolings
(Note 2) 1,167 12 (2,776) - - (2,764)
Net loss - - - (83,353) - (83,353)
Foreign currency translation
adjustment - - - - (3,086) (3,086)
------ ---- --------- -------- --------- ---------
Balance, February 27, 1999 24,603 $ 246 $ 245,809 $(124,077) $(6,105) $ 115,873
====== ====== ========== ========== ========= ==========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED FEBRUARY 27, 1999, FEBRUARY 28, 1998 AND FEBRUARY 22, 1997
(Dollars in thousands)
<TABLE>
<CAPTION>
CASH FLOWS FROM OPERATING ACTIVITIES: 1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net earnings (loss) $ (83,353) $ 21,562 $ 13,709
Adjustments to reconcile net earnings (loss) to
net cash flows provided by (used in) operating activities:
In-process research and development and acquisition-
related expenses 79,155 - -
Gain on sale of 51% interest in subsidiary (25,301) - -
Extraordinary item - 8,956 -
Depreciation and amortization 40,690 24,160 24,147
Deferred income taxes (277) (460) 410
Non-cash employee benefit plan contributions 2,301 1,677 1,317
Changes in operating assets and liabilities, net of effects
from acquisitions:
Accounts receivable (21,407) (14,665) (19,366)
Inventories (10,935) (28,597) (19,536)
Other current assets (5,514) (5,141) 5,059
Accounts and income taxes payable 6,107 3,972 (4,767)
Accrued and other liabilities 33,749 (1,866) (11,564)
--------- ------- --------
Net cash flows provided by (used in) operating activities 15,215 9,598 (10,591)
--------- ------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for purchase of property and equipment (37,465) (28,923) (14,471)
Change in intangibles and other assets (19,429) (15,686) (1,331)
Acquisitions, net of $3,910 cash acquired (231,690) - -
Net proceeds on sale of 51% interest in subsidiary 61,735 - -
-------- -------- --------
Net cash flows used in investing activities (226,849) (44,609) (15,802)
--------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) under revolving lines of credit 36,267 5,450 (38,882)
Proceeds from issuance of stock, net of expenses 6,000 11,611 106,082
Principal payments on long-term debt (31,714) (101,808) (11,968)
Repurchase of common stock originally issued
in conjunction with acquisition of SMR Aerospace (118,000) - -
Proceeds from long-term debt 194,137 240,419 -
------- ------- ---------
Net cash flows provided by financing activities 86,690 155,672 55,232
-------- ------- --------
Effect of exchange rate changes on cash flows (241) (125) (66)
---------- ---------- ----------
Net increase (decrease) in cash and cash equivalents (125,185) 120,536 28,773
Cash and cash equivalents, beginning of year 164,685 44,149 15,376
------- --------- ---------
Cash and cash equivalents, end of year $ 39,500 $ 164,685 $ 44,149
========= ========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during year for:
Interest, net $ 27,994 $ 25,065 $ 26,097
Income taxes, net 4,570 5,012 1,209
Interest capitalized in computer equipment and software 2,088 467 -
</TABLE>
See notes to consolidated financial statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED FEBRUARY 27, 1999, FEBRUARY 28, 1998 AND FEBRUARY 22, 1997
(Dollars in thousands, except per share data)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Basis of Presentation - BE Aerospace, Inc. ("B/E" or
the "Company") designs, manufactures, sells and services a broad line of
commercial and general aviation aircraft cabin interior products consisting of
a broad range of aircraft seating products, service systems and interior
systems products, including structures as well as all food and beverage
storage and preparation equipment. The Company's customers are the operators
of commercial and general aviation aircraft. As a result, the Company's
business is directly dependent upon the conditions in the commercial airline
and general aviation industry.
Consolidation - The accompanying consolidated financial statements
include the accounts of B/E Aerospace, Inc. and its wholly-owned subsidiaries.
Investments in less than majority-owned businesses are accounted for under the
equity method. All intercompany transactions and balances have been eliminated
in consolidation.
Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Income Taxes - In accordance with Statement of Financial Accounting
Standards ("SFAS") No. 109, Accounting for Income Taxes, the Company provides
deferred income taxes for temporary differences between amounts of assets and
liabilities recognized for financial reporting purposes and such amounts
recognized for income tax purposes.
Warranty Costs - Estimated costs related to product warranties are
accrued at the time products are sold.
Revenue Recognition - Sales of assembled products, equipment or services
are recorded on the date of shipment or, if required, upon acceptance by the
customer. Revenues and costs under certain long-term contracts are recognized
using contract accounting. The Company sells its products primarily to
airlines worldwide, including occasional sales collateralized by letters of
credit. The Company performs ongoing credit evaluations of its customers and
maintains reserves for potential credit losses. Actual losses have been within
management's expectations.
Cash Equivalents - The Company considers all highly liquid debt
instruments purchased with an original maturity of three months or less to be
cash equivalents.
<PAGE>
Long-Lived Assets - The Company accounts for the impairment and
disposition of long-lived assets in accordance with SFAS No. 121, Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of. In accordance with SFAS No. 121, long-lived assets to be held are
reviewed for events or changes in circumstances which indicate that their
carrying value may not be recoverable. The Company periodically evaluates the
carrying value of the intangible assets versus the cash benefit expected to be
realized and adjusts for any impairment of value.
Research and Development - Research and development expenditures are
expensed as incurred.
Stock-Based Compensation - SFAS No. 123, Accounting for Stock-Based
Compensation, requires disclosure of the fair value method of accounting for
stock options and other equity instruments. SFAS No. 123 requires disclosure
of the fair value method of accounting for stock options and other equity
instruments. Under the fair value method, compensation cost is measured at the
grant date based on the fair value of the award and is recognized over the
service period which is usually the vesting period. The Company has chosen,
under the provisions of SFAS No. 123, to continue to account for employee
stock-based transactions under Accounting Principle Board ("ABP") Opinion No.
25, Accounting for Stock Issued to Employees. The Company has disclosed, in
Note 13 to the consolidated financial statements, pro forma net earnings
(loss) and pro forma net earnings (loss) per share (diluted) as if the Company
had applied this method of accounting.
Earnings (Loss) Per Share - In accordance with SFAS No. 128, Earnings per
Share, basic earnings per common share calculations are determined by dividing
earnings available to common shareholders by the weighted average number of
shares of common stock. Diluted earnings per share are determined by dividing
earnings available to common shareholders by the weighted average number of
shares of common stock and dilutive common stock equivalents outstanding (all
related to outstanding stock options discussed in Note 13). The Company's
reported primary earnings per share for fiscal 1997 have been restated to
comply with the requirements of SFAS No. 128. The effect on previously
reported earnings per share for fiscal 1997 was as follows:
Primary earnings per share as reported $ .72
Effect of SFAS No. 128 .05
--- -----
Basic EPS as restated $ .77
Comprehensive Income - During fiscal 1999, the Company adopted SFAS No.
130, Reporting Comprehensive Income, which establishes standards for the
reporting and display of comprehensive income. Comprehensive income is defined
as all changes in a Company's net assets except changes resulting from
transactions with shareholders. It differs from net income in that certain
items currently recorded through equity are included in comprehensive income.
Prior years have been restated to conform to the requirements of SFAS No. 130.
Segment Information - The Company has adopted SFAS No. 131, Disclosures
about Segments of an Enterprise and Related Information. SFAS No. 131
establishes standards for reporting information about operating segments in
interim financial reports issued to stockholders. It also establishes
standards for related disclosures about products and services, geographic
areas and major customers. The Company currently operates in a single business
segment, serving the operators of commercial and general aviation aircraft.
<PAGE>
Pensions and Other Postretirement Benefits - On March 1, 1998, the
Company adopted SFAS No. 132, Employers' Disclosure about Pensions and Other
Postretirement Benefits. This statement standardizes the disclosure
requirements for pensions and other postretirement benefits to the extent
practicable, requires additional information on changes in the benefit
obligations and fair values of plan assets that will facilitate financial
analysis, and eliminates certain disclosures that are no longer as useful as
they were under previous statements.
Effect of Accounting Changes - In 1998, the American Institute of
Certified Public Accountants issued Statement of Position ("SOP") 98-1,
Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use, and SOP 98-5, Reporting on the Costs of Start-up Activities. The
Company adopted SOP 98-1 and SOP 98-5 on March 1, 1998, with no material
effect on the consolidated financial statements.
Foreign Currency Translation - In accordance with the provisions of SFAS
No. 52, Foreign Currency Translation, the assets and liabilities located
outside the United States are translated into U.S. dollars at the rates of
exchange in effect at the balance sheet dates. Income and expense items are
translated at the average exchange rates prevailing during the period. Gains
and losses resulting from foreign currency transactions are recognized
currently in income, and those resulting from translation of financial
statements are accumulated as a separate component of stockholders' equity.
New Accounting Pronouncement - In June 1998, the Financial Accounting
Standards Board (the "FASB") issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, which the Company is required to adopt
effective in its fiscal year 2001, pursuant to the proposed amendment to SFAS
133. SFAS No. 133 will require the Company to record all derivatives on the
balance sheet at fair value. The Company is not currently engaged in hedging
activities and will continue to evaluate the effect of adopting SFAS No. 133.
The Company will adopt SFAS No. 133 in its fiscal year 2001.
2. ACQUISITIONS AND DISPOSITIONS
During fiscal 1999, the Company completed a number of acquisitions,
which are collectively referred to as the "1999 Acquisitions." The following
is a description of each of the more significant transactions:
Puritan Bennett Aero Systems Company
On April 13, 1998, the Company completed its acquisition of Puritan
Bennett Aero Systems Co. ("PBASCO") for approximately $69,700 in cash and the
assumption of approximately $9,200 of liabilities, including related
acquisition costs and certain liabilities arising from the acquisition. PBASCO
is a manufacturer of commercial aircraft oxygen delivery systems and "WEMAC"
air valve components and, in addition, supplies overhead lights and switches,
crew masks and protective breathing devices for both commercial and general
aviation aircraft. During the first quarter of fiscal 1999, the Company
recorded a charge of $13,000 associated with the PBASCO transaction, for the
write-off of in-process research and development and acquisition-related
expenses (Note 4).
<PAGE>
The PBASCO acquisition was accounted for as a purchase, and accordingly,
the assets purchased and liabilities assumed have been reflected in the
accompanying consolidated balance sheet as of February 27, 1999. The operating
results of PBASCO have been included in the consolidated financial statements
of the Company since the date of the acquisition. The aggregate purchase price
for the PBASCO acquisition has been allocated to the net assets acquired based
on appraisals and management's estimates as follows:
<TABLE>
<CAPTION>
<S> <C>
Accounts receivable $ 10,200
Inventories 12,000
Other current assets 200
Property, plant and equipment 4,700
Intangible assets 38,800
Purchased in-process research and development and
acquisition-related expenses 13,000
========
$78,900
========
</TABLE>
Aircraft Modular Products
On April 21, 1998, the Company acquired substantially all of the assets
of Aircraft Modular Products ("AMP") for approximately $117,300 in cash and
the assumption of approximately $12,800 of liabilities, including related
acquisition costs and certain liabilities arising from the acquisition. AMP is
a manufacturer of cabin interior products for general aviation (business jet)
and commercial-type VIP aircraft, providing a broad line of products including
seating, sidewalls, bulkheads, credenzas, closets, galley structures,
lavatories, tables and sofas, along with related spare parts. During the first
quarter of fiscal 1999, the Company recorded a charge of approximately $19,255
associated with the AMP transaction, for the write-off of in-process research
and development and acquisition-related expenses (Note 4).
The AMP acquisition was accounted for as a purchase, and accordingly, the
assets purchased and liabilities assumed have been reflected in the
accompanying consolidated balance sheet as of February 27, 1999. The operating
results of AMP have been included in the consolidated financial statements of
the Company since the date of the acquisition. The aggregate purchase price
for the AMP acquisition has been allocated to the net assets acquired based on
appraisals and management's estimates as follows:
<TABLE>
<CAPTION>
<S> <C>
Accounts receivable $ 8,300
Inventories 2,045
Other current assets 1,400
Property, plant and equipment 5,400
Intangible and other assets 93,700
Purchased in-process research and development and
acquisition-related expenses 19,255
==========
$ 130,100
==========
</TABLE>
<PAGE>
SMR Aerospace
On August 7, 1998, the Company acquired all of the capital stock of SMR
Aerospace, Inc. and its affiliates, SMR Developers LLC and SMR Associates
(together, "SMR") for an aggregate purchase price of approximately $141,500
cash and the assumption of approximately $32,600 of liabilities, including
related acquisition costs and certain liabilities arising from the
acquisition. The Company paid for the acquisition of SMR by issuing four
million shares (the "SMR Shares") of Company stock (then valued at
approximately $30 per share) to the former stockholders of SMR and paying them
$2,000 in cash. The Company also paid $22,000 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. 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 $2,000 in
cash already paid, was less than $120,000, the Company agreed to pay such
difference in cash to the selling stockholders. 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 $118,000 of the proceeds from the sale of 9 1/2%
Senior Subordinated Notes instead of registering the shares for sale (the
$118,000 payment represents the net proceeds of $120,000 the Company was
obligated to pay the selling stockholders, less the $2,000 in cash the Company
already paid them).
SMR provides design, integration, installation and certification services
for commercial aircraft passenger cabin interiors. SMR provides a broad range
of interior reconfiguration services that allow airlines to change the size of
certain classes of service, modify and upgrade the seating, install
telecommunications or entertainment options, relocate galleys, lavatories, and
overhead bins and install crew rest compartments. SMR is also a supplier of
structural design and integration services, including airframe modifications
for passenger-to-freighter conversions. In addition, SMR provides a variety of
niche products and components that are used for reconfigurations and
conversions. SMR's services are performed primarily on an aftermarket basis
and its customers include major airlines such as United Airlines, Japan
Airlines, British Airways, Air France, Cathay Pacific and Qantas, as well as
Boeing, Airborne Express and Federal Express. During the second quarter of
fiscal 1999, the Company recorded a charge of approximately $46,900 associated
with the SMR transaction, for the write-off of in-process research and
development and acquisition-related expenses (Note 4).
The SMR acquisition was accounted for as a purchase, and accordingly, the
assets purchased and liabilities assumed have been reflected in the
accompanying consolidated balance sheet as of February 27, 1999. The operating
results of SMR have been included in the consolidated financial statements of
the Company since the date of the acquisition. The aggregate purchase price
for the SMR acquisition has been allocated to the net assets acquired based on
appraisals and management's estimates as follows:
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Accounts receivable $ 11,700
Inventories 9,700
Other current assets 1,400
Property, plant and equipment 6,100
Intangible and other assets 98,300
Purchased in-process research and development and
acquisition-related expenses 46,900
=========
$ 174,100
=========
</TABLE>
CF Taylor
On September 3, 1998, the Company acquired substantially all of the
galley equipment assets and certain property and assumed related liabilities
of C.F. Taylor Interiors Limited and acquired the common stock of C.F. Taylor
(Wokingham) Limited (collectively "C.F. Taylor"), both wholly owned
subsidiaries of EIS Group PLC, for a total cash purchase price of
approximately $25,100, subject to adjustments, and the assumption of
approximately $16,500 of liabilities, including related acquisition costs and
certain liabilities arising from the acquisition. C.F. Taylor is a
manufacturer of galley equipment for both narrow- and wide-body aircraft,
including galley structures, crew rests and related spare parts.
The CF Taylor acquisition was accounted for as a purchase, and
accordingly, the assets purchased and liabilities assumed have been reflected
in the accompanying consolidated balance sheet as of February 27, 1999. The
operating results of C F Taylor have been included in the consolidated
financial statements of the Company since the date of the acquisition. The
aggregate purchase price for the CF Taylor acquisition has been allocated to
the net assets acquired based on appraisals and management's estimates as
follows:
<TABLE>
<CAPTION>
<S> <C>
Accounts receivable $ 7,500
Inventories 7,600
Other current assets 100
Property, plant and equipment 3,700
Intangible and other assets 22,700
==========
$ 41,600
===========
</TABLE>
<PAGE>
In-Flight Entertainment Business
On February 25, 1999, the Company completed the sale of a 51% interest
in its In Flight Entertainment ("IFE") business to Sextant Avionique, Inc.
("Sextant"), a wholly owned subsidiary of Sextant Avionique SA (the "IFE
Sale"). The Company sold its 51% interest in IFE for $62,000 in cash. Terms of
the purchase agreement provide for the final price for the 51% interest to be
determined on the basis of operating results for the IFE business over the
two-year period ending February 28, 2001. Depending on the operating results
during that period, the ultimate purchase price could range from $47,000 to
$87,000; accordingly, $15,000 of the proceeds have been deferred at February
25, 1999 and are included in other liabilities. As a result of the
transaction, IFE's assets and liabilities have been deconsolidated as of
February 25, 1999 and B/E's remaining 49% interest is accounted for under the
equity method of accounting subsequent to February 27, 1999. The Company used
substantially all of the proceeds from the IFE Sale to repay a portion of its
bank line of credit.
Pro Forma Information
The following pro forma unaudited financial data is presented to illustrate
the estimated effects of the 1999 Acquisitions and the IFE sale as if these
transactions had occurred as of the beginning of each year presented.
<TABLE>
<CAPTION>
1999 1998
(Unaudited) (Unaudited)
-------------- -------------
<S> <C> <C>
Net sales $ 689,816 $ 597,182
Net earnings (loss) (32,728) 9,983
Diluted earnings (loss) per share $ (1.32) $ 0.43
</TABLE>
Other Acquisitions
During fiscal 1999, the Company acquired all of the issued and
outstanding shares of Aerospace Interiors, Inc. on March 27, 1998 and Aircraft
Lighting Corporation on July 30, 1998 for 201,895 and 964,780 shares,
respectively, in transactions accounted for as a pooling of interests. The
Company's consolidated financial statements for fiscal year 1999 include the
results of these entities from the date of acquisition. Prior period financial
statements were not restated as the results of operations would not have been
materially different than those previously reported by the Company.
3. RESTRUCTURING PLAN AND NEW PRODUCT INTRODUCTION COSTS
During the fourth quarter of fiscal 1999 the Company began to implement
a restructuring plan designed to lower its cost structure and improve its
long-term competitive position. This plan includes consolidating seven
facilities reducing the total number from 21 to 14, reducing its employment
base by approximately 8% and rationalizing its product offerings. The cost of
the restructuring, along with costs associated with new product introductions,
was $87,825 and was charged to cost of sales, of which $62,497 is related to
North American facilities. The restructuring costs and charges are comprised
of $61,089 related to impaired inventories and property, plant and equipment
as a result of the rationalization of its product offerings and severance and
related separation costs, lease termination and other costs of $4,949. New
product introduction costs aggregated $21,787.
<PAGE>
Pretax cash outlays were not significant during fiscal 1999, and are
expected to be approximately $4,900 during fiscal 2000. Cash requirements are
expected to be funded from operations. The Company identified seven
facilities, four domestic and three in Europe, for consolidation. The
consolidation activities are expected to commence during the first quarter of
fiscal 2000 and be substantially complete by the end of the fiscal year. When
fully implemented, management expects that this program will result in
significant reductions in the Company's cost structure.
The assets impacted by this program include inventories, factories,
warehouses, assembly operations, administration facilities and machinery and
equipment. New product introduction costs represent costs incurred in bringing
new products to market in volume for the first time and include tooling,
engineering design and development, costs in excess of standard costs at
budgeted manufacturing levels, and related expenditures.
<TABLE>
<CAPTION>
The following table summarizes the restructuring costs:
Balance at
Original Utilized Feb. 27, 1999
--------------------- ------------------ -----------------
<S> <C> <C> <C>
Severance, lease termination and other costs $ 4,949 $ 651 $ 4,298
Impaired inventories, property and equipment 61,089 41,178 19,911
===================== ================== =================
$66,038 $41,829 $24,209
===================== ================== =================
</TABLE>
4. TRANSACTION GAIN, EXPENSES AND OTHER EXPENSES
As a result of the acquisitions of PBASCO, AMP and SMR, the Company
recorded a charge aggregating $79,155 for the write-off of acquired in-process
research and development and acquisition-related expenses associated with its
acquisitions. In-process research and development expenses arose from new
product development projects that were in various stages of completion at the
respective acquired enterprises at the date of acquisition. In-process
research and development expenses for products under development at the date
of acquisition that had not established technological feasibility and for
which no alternative use had been 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 the dates 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, executive aircraft interior products for the Bombardier
Global Express, Boeing Business Jet, Airbus Corporate Jet, Cessna Citation
560XL, Cessna Citation 560 Ultra, Visionaire Vantage and Lear 60, as well as
other specific executive aircraft seating products, pneumatic and electrical
<PAGE>
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. The Company has determined that these projects ranged from 25%-75%
complete at year-end, and estimates that the cost to complete these projects
will aggregate approximately $11,000 and will be incurred over a five-year
period.
Uncertainties that could impede progress to a developed technology
include (1) availability of financial resources to complete the development,
(2) regulatory approval (FAA, CAA, etc.) required for each product before it
can be installed on an aircraft, (3) continued economic feasibility of
developed technologies, (4) customer acceptance and (5) general competitive
conditions in the industry. There can be no assurance that the in-process
research and development projects will be successfully completed and
commercially introduced.
The Company recorded the in-process research and development and
acquisition-related expenses of $79,155 net of the gain on the IFE sale of
$25,301 as transaction gain, expenses and other expenses in the accompanying
statement of operations.
In January 1998, the Company resolved 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. Other expenses for the year ended
February 28, 1998 relate to fines, civil penalties and associated legal fees
arising from the settlement.
5. INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined
using the weighted average cost method. Finished goods and work in process
inventories include material, labor and manufacturing overhead costs.
Inventories consist of the following:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Raw materials $ 48,058 $ 56,100
Work-in-process 64,983 59,036
Finished goods 6,206 6,592
---------- ----------
$ 119,247 $ 121,728
========== ==========
</TABLE>
<PAGE>
6. PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and depreciated and amortized
generally on the straight-line method over their estimated useful lives of two
to thirty years (term of lease as to leasehold improvements). Property and
equipment consist of the following:
<TABLE>
<CAPTION>
Years 1999 1998
----- ---- ----
<S> <C> <C> <C>
Land, buildings and improvements 10-30 $ 56,943 $ 45,951
Machinery 3-13 57,692 43,622
Tooling 3-10 26,313 24,771
Computer equipment and software 4-10 45,777 22,750
Furniture and equipment 2-10 7,098 14,621
--------- ----------
193,823 151,715
Less accumulated depreciation and amortization (55,093) (47,894)
------------ ----------
$ 138,730 $ 103,821
========= =========
</TABLE>
7. INTANGIBLES AND OTHER ASSETS
<TABLE>
<CAPTION>
Intangibles and other assets consist of the following:
Straight-line
Amortization
Period (Years) 1999 1998
-------------- ---- ----
<S> <C> <C> <C>
Goodwill 30 $ 233,463 $ 77,452
Developed technologies 16-17 69,438 -
Product technology, production plans and drawings 7-20 56,163 60,577
Replacement parts annuity 20 24,188 29,652
Product approvals and technical manuals 20 23,677 22,942
Trademarks and patents 20 20,380 10,491
Other intangible assets 5-20 12,192 16,540
Covenants not-to-compete 14 11,694 10,195
Assembled workforce 10 7,000 -
Debt issue costs 5-10 23,507 16,789
Other assets 12,455 4,277
Investment in and advances to Sextant In-Flight Systems 28,025 -
------------------------
522,182 248,915
Less accumulated amortization (71,282) (53,192)
---------- ----------
$ 450,900 $ 195,723
========= =========
</TABLE>
<PAGE>
8. ACCRUED LIABILITIES
<TABLE>
<CAPTION>
Accrued liabilities consist of the following:
1999 1998
---- ----
<S> <C> <C>
Other accrued liabilities $ 34,953 $ 7,633
Accrued salaries, vacation and related benefits 24,555 17,022
Accrued interest 17,232 2,995
Accrued acquisition expenses 11,703 1,190
Accrued product warranties 8,306 4,353
Accrued income taxes 316 5,373
---------- ---------
$ 97,065 $ 38,566
========== ==========
</TABLE>
9. LONG-TERM DEBT
<TABLE>
<CAPTION>
Long-term debt consists of the following:
1999 1998
---- ----
<S> <C> <C>
9 7/8% Senior Subordinated Notes $ 100,000 $ 100,000
8% Senior Subordinated Notes 249,440 249,375
9 1/2% Senior Subordinated Notes 200,000 -
9 3/4% Senior Notes - 23,192
Revolving lines of credit 43,216 10,093
Other long-term debt 975 182
---------- ----------
593,631 382,842
Less current portion of long-term debt (9,916) (33,285)
---------- ----------
$ 583,715 $ 349,557
========== ==========
</TABLE>
9 7/8% Senior Subordinated Notes
The 9 7/8% Senior Subordinated Notes (the "9 7/8% Notes") are unsecured
senior subordinated obligations of the Company, subordinated to any senior
indebtedness of the Company and mature on February 1, 2006. Interest on the 9
7/8% Senior Subordinated Notes is payable semiannually in arrears on 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 change of control (as defined), each
holder of the 9 7/8% Notes may require the Company to repurchase such holders'
9 7/8% Notes at 101% of the principal amount thereof, plus accrued and unpaid
interest to the date of such purchase.
<PAGE>
8% Senior Subordinated Notes
In February 1998, the Company sold $250,000 of 8% Senior Subordinated
Notes, priced to yield 8.02% (the "8% Notes"). In conjunction with the sale of
the 8% Notes, the Company initiated a tender offer for its 9 3/4% Notes. The
net proceeds from the offering of approximately $240,419 were used for the
tender offer (which expired on February 25, 1998) in which approximately
$101,808 of the 9 3/4% Senior Notes were retired; the remaining $23,192 of the
9 3/4% Senior Notes were called on March 16, 1998. 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.
The 8% Notes are unsecured senior subordinated obligations of the
Company, subordinated to any senior indebtedness of the Company and mature on
March 1, 2008. Interest on the 8% Notes is payable semiannually in arrears on
March 1 and September 1 of each year. The 8% Notes are redeemable at the
option of the Company, in whole or in part, on or after March 1, 2003 at
predetermined redemption prices together with accrued and unpaid interest
through the date of redemption. In addition, at any time prior to March 1,
2001, the Company may, at predetermined prices together with accrued and
unpaid interest through the date of redemption, redeem up to 35% of the
aggregate principal amount of the Notes originally issued with the net
proceeds of one or more equity offerings, provided that at least 65% of the
aggregate principal amount of the 8% Notes originally issued remains
outstanding after the 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 interest to the
date of such purchase.
9 1/2% Senior Subordinated Notes
In November 1998, the Company sold $200,000 of 9 1/2% Senior Subordinated
Notes due 2008 (the "9 1/2% Notes"). The net proceeds from the sale of the 9
1/2% Notes were approximately $194,100, of which approximately $118,000 were
used to meet the Company's obligations associated with the SMR acquisition.
The remaining proceeds were used to repay approximately $75,000 of outstanding
borrowings under the Company's Bank Credit Facility.
The 9 1/2% Notes are unsecured senior subordinated obligations and are
subordinated to any 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 7/8% Notes, 8% Notes and 9 1/2% Notes contain certain restrictive
covenants, all of which were met by the Company as of February 27, 1999,
including limitations on future indebtedness, restricted payments,
transactions with affiliates, liens, dividends, mergers and transfers of
assets.
<PAGE>
9 3/4% Senior Notes
The 9 3/4% Senior Notes (the "9 3/4% Notes") were senior unsecured
obligations of the Company. As described above, $101,808 of the 9 3/4% Notes
were repurchased in February 1998. The balance of the 9 3/4% Notes were
redeemed in March 1998.
Credit Facilities
In August 1998, the Company amended its credit facilities with The Chase
Manhattan Bank (the "Bank Credit Facility"). The Bank Credit Facility consists
of a $100,000 revolving credit facility (of which $50,000 may be utilized for
acquisitions) and an acquisition facility of $36,000. 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. At February 27, 1999,
indebtedness under the existing Bank Credit Facility consisted of letters of
credit aggregating approximately $3,053 and outstanding borrowings under the
acquisition facility aggregating $36,000 (bearing interest at LIBOR plus
1.50%, or approximately 6.5% as of February 27, 1999). The Bank Credit
Facility contains customary affirmative covenants, negative covenants and
conditions of borrowing, all of which were met by the Company as of February
27, 1999.
<TABLE>
<CAPTION>
Maturities of long-term debt at February 27, 1999 are as follows:
<S> <C>
Fiscal year ending February:
2000 $ 9,916
2001 3,890
2002 5,639
2003 9,080
2004 12,178
Thereafter 552,928
$ 593,631
</TABLE>
Interest expense amounted to $44,794, $25,834 and $28,369 for the years
ended February 27, 1999, February 28, 1998 and February 22, 1997,
respectively.
10. INCOME TAXES
<TABLE>
<CAPTION>
Income tax expense consists of the following:
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Current:
Federal $ 1,004 $ (920) $ -
State - - -
Foreign 5,157 6,766 1,112
--------- --------- -----------
6,161 5,846 1,112
Deferred:
Federal (25,731) (3,666) 2,703
State (8,169) (716) 1,550
Foreign (4,828) (460) 410
----------- ---------- ------------
(38,728) (4,842) 4,663
Change in valuation allowance 36,467 4,382 (4,253)
---------- --------- -------------
$ 3,900 $ 5,386 $ 1,522
========== ========== ===========
</TABLE>
<PAGE>
The difference between income tax expense and the amount computed by
applying the statutory U.S. federal income tax rate (35%) to the pretax
earnings before extraordinary item consists of the following:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Statutory U.S. federal income tax expense (benefit) $ (27,809) $ 9,432 $ 5,331
Operating loss (with)/without tax benefit 25,940 (6,114) (6,164)
Foreign tax rate differential 2,514 1,309 1,267
Goodwill amortization 1,507 537 566
Penalties - 1,050 -
Other, net 1,748 (828) 522
--------- -------- --------
$ 3,900 $ 5,386 $ 1,522
======== ========= =========
</TABLE>
The tax effects of temporary differences and carryforwards that give
rise to the Company's deferred income tax assets and liabilities consist of
the following:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Accrued vacation $ 1,652 $ 1,172 $ 1,117
Inventory reserves 8,516 3,987 3,145
Acquisition reserves (2,190) (1,220) (1,740)
Inventory costs 720 1,327 1,236
Bad debt reserves 605 579 948
Warranty reserves 1,777 2,440 1,452
Other 2,663 843 1,723
-------- -------- --------
Net current deferred income tax asset 13,743 9,128 7,881
-------- -------- --------
Intangible assets (11,662) (12,576) (13,565)
Depreciation (2,078) (1,853) (2,074)
Net operating loss carryforward 21,853 27,462 26,309
Research credit carryforward 4,157 3,285 2,941
Deferred compensation 8,605 888 -
In-process research and development 24,232 - -
Software development costs (4,739) - -
Deferred gain on IFE Sale 6,600 - -
Investment in Sextant 4,351 - -
-------- ---------- ----------
Net noncurrent deferred income tax asset 51,319 17,206 13,611
-------- ---------- ---------
Valuation allowance (64,008) (27,541) (23,159)
-------- ---------- ----------
Net deferred tax assets (liabilities) $ 1,054 $ (1,207) $ (1,667)
========= ========= ==========
</TABLE>
<PAGE>
The Company has established a valuation allowance of $64,008 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 begins to expire in 2010. 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 are
impacting the airframe manufacturers and the airlines, the Company's high
degree of financial leverage, risks associated with new product introductions,
risks associated with the implementation of its integrated management
information system, 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.
As of February 27, 1999, the Company had approximately $46,152 of federal
operating loss carryforwards, which expire at various dates beginning in 2010,
federal research credit carryforwards of $4,157, which expire at various dates
beginning in 2007, and alternative minimum tax credit carryforwards of $794,
which have no expiration date. Approximately $30,000 of the Company's net
operating loss carryforward related to the exercise of stock options will be
credited to additional paid-in-capital rather than income tax expense when
utilized.
The Company has not provided for any residual U.S. income taxes on the
approximately $714 of earnings from its foreign subsidiaries because such
earnings are intended to be indefinitely reinvested. Such residual U.S. income
taxes, if provided for, would be immaterial.
The Internal Revenue Service audit of the Company's federal tax returns
for the years ended February 24, 1996 and February 25, 1995 is in the process
of being finalized. Management believes that the finalization of this
examination will not have a material adverse effect on the Company's results
of operations and certain agreed-upon adjustments have been reflected in the
financial statements.
11. COMMITMENTS AND CONTINGENCIES
Leases -- The Company leases certain of its office, manufacturing and
service facilities and equipment under operating leases, which expire at
various times through February 2007. Rent expense for fiscal 1999, 1998 and
1997 was approximately $13,423, $8,848 and $7,021, respectively. Future
payments under operating leases with terms currently greater than one year are
as follows:
<TABLE>
<CAPTION>
<S> <C>
Year ending February:
2000 11,545
2001 9,591
2002 6,222
2003 4,282
2004 2,652
Thereafter 8,706
-------
$ 42,998
</TABLE>
<PAGE>
Litigation -- The Company is a defendant in various legal actions arising
in the normal course of business, the outcomes of which, in the opinion of
management, neither individually nor in the aggregate are likely to result in
a material adverse effect to the Company's financial statements.
Employment Agreements -- The Company has employment and compensation
agreements with four key officers of the Company. One of the agreements
provides for an officer to earn a minimum of $650 per year through 2003,
adjusted annually for changes in the consumer price index (as defined) or as
determined by the Company's Board of Directors, as well as a deferred
compensation benefit equal to the product of the years worked by the highest
annual salary paid over the period. Such deferred compensation will be payable
in either a lump sum or in equal monthly installments for that number of
months equal to the number of months elapsed from the commencement date (as
defined) through the cessation date (as defined).
A second agreement provides for an officer to receive annual minimum
compensation of $600 per year through 2003, adjusted annually for changes in
the consumer price index (as defined) or as determined by the Company's Board
of Directors, as well as a deferred compensation benefit equal to the product
of the years worked by the highest annual salary paid over the period. In all
other respects, this officer's employment agreement contains similar
provisions to those described above in the first agreement.
A third agreement provides for an officer to receive annual minimum
compensation of $500 per year through 2003, adjusted annually for changes in
the consumer price index (as defined) or as determined by the Company's Board
of Directors, as well as a deferred compensation benefit upon completion of
ten years of service for a period not to exceed ten years equal to one-half of
this officer's average highest three year's annual salary (as defined).
A fourth agreement provides for an officer to receive annual minimum
compensation of $293 per year through 2003, adjusted annually for changes in
the consumer price index (as defined) or as determined by the Company's Board
of Directors. In all other respects, this officer's employment agreement
contains similar provisions to those described above in the third agreement.
Such deferred compensation has been accrued as provided for under the
above mentioned employment agreements, aggregates $15,318 as of February 27,
1999 and is included in other liabilities. In addition, the Company has
employment agreements with certain other key members of management that
provide for aggregate minimum annual base compensation of $4,915 expiring on
various dates through the year 2000.
Supply Agreement - The Company had a supply agreement with Applied
Extrusion Technologies, Inc. ("AETC"), a related party by way of common
management. Under this agreement, which was terminated in September 1997, the
Company agreed to purchase its requirements for certain component parts
through March 1998 at a price that resulted in a 33 1/3% gross margin to AETC.
The Company's purchases under this contract for the years ended February 28,
1998 and February 22, 1997 were $1,743 and $1,642, respectively. The Company
has not made any purchases from AETC since September 1997.
<PAGE>
12. EMPLOYEE RETIREMENT PLANS
Effective March 1, 1998, the Company adopted SFAS No. 132, Employers'
Disclosures about Pensions and Other Postretirement Benefits. The Company
sponsors and contributes to a qualified, defined contribution Savings and
Investment Plan covering substantially all U.S. employees. The Company also
sponsors and contributes to nonqualified deferred compensation programs for
certain officers and other employees. The Company has invested in
corporate-owned life insurance policies to assist in funding certain of these
programs. The cash surrender values of these policies are maintained in an
irrevocable rabbi trust and are recorded as assets of the Company. In
addition, the Company and its subsidiaries participate in government-sponsored
programs in certain European countries. In general, the Company's policy is to
fund these plans based on legal requirements, tax considerations, local
practices and investment opportunities.
The BE Aerospace Savings and Investment Plan was established pursuant to
Section 401(k) of the Internal Revenue Code. Under the terms of the plan,
covered employees are allowed to contribute up to 15% of their pay, limited to
$10 per year. The Company match is equal to 50% of employee contributions,
subject to a maximum of 8% of an employee's pay. Total expense for the plan
was $2,301, $1,677 and $1,317 related to this plan for the years ended
February 27, 1999, February 28, 1998 and February 22, 1997, respectively.
Participants vest 100% in the Company match after five years of service.
The BE Supplemental Executive Retirement Plan is an unfunded plan
maintained for the purpose of providing deferred compensation for certain
employees. This plan allows certain employees to annually elect to defer a
portion of their compensation, on a pre-tax basis, until their retirement. The
retirement benefit to be provided is based on the amount of compensation
deferred, Company match and earnings on deferrals. Deferred compensation
expense was $231, $163 and $50 in fiscal 1999, 1998 and 1997, respectively.
<PAGE>
13. STOCKHOLDERS' EQUITY
Earnings (Loss) Per Share. SFAS No. 128, Earnings per Share, establishes
standards for computing and presenting basic and diluted net earnings (loss)
per share. All prior period net earnings (loss) per share data have been
restated to conform with SFAS No. 128. The following table sets forth the
computation of basic and diluted net earnings (loss) per share for the years
ended February 27, 1999, February 28, 1998 and February 22, 1997:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Numerator - Net earnings (loss) $ (83,353) $ 21,562 $ 13,709
========= ======= =======
Denominator:
Denominator for basic earnings (loss) per share -
Weighted average shares 24,814 22,442 17,692
Effect of dilutive securities -
Employee stock options - 988 1,405
--------- -------- -------
Denominator for diluted earnings (loss) per share -
Adjusted weighted average shares 24,814 23,430 19,097
====== ====== ======
Basic net earnings (loss) per share $(3.36) $ .96 $ .77
======= ===== =====
Diluted net earnings (loss) per share $(3.36) $ .92 $ .72
======= ===== =====
</TABLE>
<PAGE>
Stock Option Plans. The Company has various stock option plans, including
the 1989 Stock Option Plan, the 1991 Directors Stock Option Plan, the 1992
Share Option Scheme and the 1996 Stock Option Plan (collectively, the "Option
Plans"), under which shares of the Company's Common Stock may be granted to
key employees and directors of the Company. The Option Plans provide for
granting key employees options to purchase the Company's common stock. Options
are granted at the discretion of the Stock Option and Compensation Committee
of the Board of Directors. Options granted generally vest at the rate of 25%
per year from the date of grant and are exercisable to the extent vested and
the option term generally cannot exceed ten years.
The following table sets forth options granted, canceled, forfeited and
outstanding:
<TABLE>
<CAPTION>
February 27, 1999 February 28, 1998 February 22, 1997
---------------- ----------------- -----------------
Option Price Option Price Option Price
Options Per Share Options Per Share Options Per Share
<S> <C> <C> <C> <C> <C> <C>
Outstanding,
Beginning of period 2,931,501 $ 7.00 -$31.50 2,447,425 $0.81-$24.93 2,720,350 $0.81-$13.00
Options granted 1,453,500 16.44 - 29.50 1,394,250 21.50- 31.50 1,313,500 10.25- 24.94
Options exercised (292,100) 7.375 -29.88 (852,174) 0.81- 29.88 (1,361,925) 0.81- 16.13
Options forfeited (93,750) 16.125 -29.88 (58,000) 7.63- 29.88 (224,500) 7.38- 16.13
--------- --------- ----------
Outstanding, end of period 3,999,151 7.00 - 31.50 2,931,501 7.00- 31.50 2,447,425 0.81-24.93
==========
Exercisable at end
of year 2,004,531 $ 7.00 -$31.50 1,317,503 $7.00-$31.50 1,374,927 $0.81-$24.93
========== ========= =========
</TABLE>
At February 27, 1999, options were available for grant under each of the
Company's option plans.
<TABLE>
<CAPTION>
Options Outstanding at February 27, 1999
- --------------------------------------------------------------------------------------------------------------------------
Average Weighted Weighted Average Options
Range of Options Average Remaining Exercisable Weighted Average
Exercise Price Outstanding Exercise Price Contractual Life at February 27, 1999 Exercise Price
-------------- ----------- -------------- --------------- -------------------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 7.00 - $19.00 1,298,651 $ 13.91 6.67 1,000,403 $ 13.17
$ 20.81 - $20.81 986,500 $ 20.81 9.51 248,502 $ 20.81
$ 21.50 - $29.50 832,250 $ 24.91 8.83 319,125 $ 24.07
$ 29.878 - $31.50 881,750 $ 29.89 8.47 436,501 $ 29.89
</TABLE>
<PAGE>
The estimated fair value of options granted during fiscal 1999 was $13.93 per
share. The estimated fair value of options granted during fiscal 1998 was
$13.56 per share. The Company applies APB Opinion No. 25 and related
Interpretations in accounting for its stock option and purchase plans.
Accordingly, no compensation cost has been recognized for its stock option
plans and stock purchase plan. Had compensation cost for the Company's stock
option plans and stock purchase plan been determined consistent with SFAS No.
123, the Company's net earnings and net earnings per share for the year ended
February 27, 1999 and February 28, 1998 would have been reduced to the pro
forma amounts indicated in the following table:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <S>
As reported
Net earnings (loss) $(83,353) $ 21,562
Diluted net earnings (loss) per share (3.36)
0.92
Pro forma
Net earnings (loss) $(98,477) $ 13,232
Diluted net earnings (loss) per share (3.97) 0.56
Weighted Average
Weighted average and pro forma
weighted average common shares 24,814 23,430
</TABLE>
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option pricing model with the following weighted
average assumptions used for options granted in 1999 and 1998: risk-free
interest rates of 5.0% and 7.0%; expected dividend yields of 0.0%; expected
lives of 3.5 years and 3 years; and expected volatility of 73% and 40%,
respectively.
The impact of outstanding non-vested stock options granted prior to
fiscal 1997 has been excluded from the pro forma calculation; accordingly, the
1999 and 1998 pro forma adjustments are not indicative of future period pro
forma adjustments, when the calculation will apply to all applicable stock
options.
14. EMPLOYEE STOCK PURCHASE PLAN
The Company has established a qualified Employee Stock Purchase Plan, the
terms of which allow for qualified employees (as defined) to participate in
the purchase of designated shares of the Company's common stock at a price
equal to the lower of 85% of the closing price at the beginning or end of each
semi-annual stock purchase period. The Company issued 151,654 and 87,561
shares of common stock during fiscal 1999 and 1998 pursuant to this plan at an
average price per share of $14.30 and $20.52, respectively.
15. SEGMENT REPORTING
The Company is organized based on customer-focused operating groups. Each
group reports its results of operations and makes requests for capital
expenditures and acquisition funding to the Company's chief operation
decision-making group. This group is comprised of the Chairman, the Vice
Chairman and Chief Executive Officer, the President and Chief Operating
Officer, the Corporate Senior Vice President of Administration and Chief
Financial Officer and the Executive Vice President, Marketing and New Product
Development. Under this organizational structure, the Company's operating
groups were aggregated into two reportable segments. The Aircraft Cabin
Interior Products and Services segment is comprised of four operating groups:
the Seating Products Group, the Interior Systems Group, the Flight Structures
and Integration Group and the Services Group, each of which have separate
management teams and infrastructures dedicated to providing a full range of
products to their commercial and general aviation operator customers. Each of
these groups demonstrate similar economic performance, utilize similar
distribution methods and manufacturing processes. Customers in this segment
are supported by a single worldwide after-sale service organization.
<PAGE>
The Company's other reportable segment was its In-Flight Entertainment
Group, which demonstrated similar distribution methods, but utilized different
manufacturing processes and served a different customer base. As described in
Note 2, the Company sold its 51% interest in IFE on February 25, 1999. The
Company evaluates the performance of its operating segments based primarily on
sales, gross profit before special costs and charges, operating earnings
before special costs and charges, and working capital management.
<PAGE>
The following table presents sales and other financial information by business
segment:
<TABLE>
<CAPTION>
FISCAL 1999
Aircraft Cabin Interior In-Flight
Products and Services Entertainment Total
<S> <C> <C> <C>
Sales $ 622,548 $ 78,777 $ 701,325
Gross profit as reported $146,472 $ 31,978 $ 178,450
Gross profit before special
costs and charges $230,420 $ 35,855 $ 266,275
Operating earnings (loss) as
reported $ (35,403) $(2,354) $ (37,757)
Operating earnings before
special costs and charges $ 94,859 $ 9,063 $ 103,922
Working Capital $ 143,423 N/A $ 143,423
</TABLE>
<TABLE>
<CAPTION>
FISCAL 1998
Aircraft Cabin Interior In-Flight
Products and Services Entertainment Total
<S> <C> <C> <C>
Sales $406,905 $ 81,094 $487,999
Gross profit as reported $136,020 $ 42,885 $178,905
Gross profit before special
costs and charges $136,020 $ 42,885 $178,905
Operating earnings as
reported $ 47,250 $ 11,419 $ 58,669
Operating earnings before
special costs and charges $ 51,914 $ 11,419 $ 63,333
Working capital $240,463 $ 22,041 $262,504
</TABLE>
<TABLE>
<CAPTION>
FISCAL 1997
Aircraft Cabin Interior In-Flight
Products and Services Entertainment Total
<S> <C> <C> <C>
Sales $360,457 $ 51,922 $412,379
Gross profit as reported $106,835 $ 34,987 $141,822
Gross profit before special
costs and charges $106,835 $ 34,987 $141,822
Operating earnings as
reported $ 35,804 $ 6,594 $ 42,398
Operating earnings before
special costs and charges $ 35,804 $ 6,594 $ 42,398
Working capital $112,628 $ 9,546 $122,174
</TABLE>
<PAGE>
The Company operated principally in two geographic areas, the United
States and Europe, during the years ended February 27, 1999, February 28, 1998
and February 22, 1997. There were no significant transfers between geographic
areas during the period. Identifiable assets are those assets of the Company
that are identified with the operations in each geographic area.
The following table presents net sales and operating earnings before
special costs and charges for the years ended February 27, 1999, February 28,
1998 and February 22, 1997 and identifiable assets as of February 27, 1999,
February 28, 1998 and February 22, 1997 by geographic area.
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net Sales:
United States $511,063 $365,957 $312,497
Europe 190,262 122,042 99,882
-------- -------- --------
Total: $701,325 $487,999 $412,379
======== ======== ========
Operating Earnings:
United States $73,499 $ 43,592 $ 33,834
Europe 30,423 19,741 8,564
------- ------- --------
Total: $103,922 $ 63,333 $ 42,398
======== ======== ========
Identifiable Assets:
United States $726,056 $541,675 $380,273
Europe 178,243 140,082 110,816
-------- -------- --------
Total: $904,299 $681,757 $491,089
========= ======== =========
</TABLE>
Export sales from the United States to customers in foreign countries
amounted to approximately $174,659, $132,831 and $153,423 in fiscal 1999, 1998
and 1997, respectively. Total sales to all customers in foreign countries
amounted to $297,474, $232,691 and $203,388 in fiscal 1999, 1998 and 1997,
respectively. Total sales to Europe amounted to 22%, 23% and 29% in fiscal
1999, 1998 and 1997, respectively. Total sales to Asia amounted to 12%, 18%
and 16% in fiscal 1999, 1998 and 1997, respectively. Major customers (i.e.,
customers representing more than 10% of total sales) change from year to year
depending on the level of refurbishment activity and/or the level of new
aircraft purchases by such customers. During the fiscal years ended February
27, 1999 and February 28, 1998, one customer accounted for approximately 13%
and 18% of the Company's sales, respectively. There were no major customers in
fiscal 1997.
<PAGE>
16. FAIR VALUE INFORMATION
The following disclosure of the estimated fair value of financial
instruments at February 27, 1999 and February 28, 1998 is made in accordance
with the requirements of SFAS No. 107, Disclosures about Fair Value of
Financial Instruments. The estimated fair value amounts have been determined
by the Company using available market information and appropriate valuation
methodologies; however, considerable judgment is required in interpreting
market data to develop the estimates of fair value. Accordingly, the estimates
presented herein are not necessarily indicative of the amounts that the
Company could realize in a current market exchange. The use of different
market assumptions and/or estimation methodologies may have a material effect
on the estimated fair value amounts.
The carrying amounts of cash and cash equivalents, accounts
receivable-trade, and accounts payable are a reasonable estimate of their fair
values. At February 27, 1999 and February 28, 1998, the Company's 9 7/8% Notes
had a carrying value of $100,000 and a fair value of $104,500 and $107,500,
respectively. At February 27, 1999 and February 28, 1998, the Company's 8%
Notes had carrying values of $249,440 and $249,375 and fair values of $241,957
and $248,750, respectively. The Company's 9 1/2% Notes had a carrying value of
$200,000 and fair value of $209,000. Additionally, at February 28, 1998, the
Company's 9 3/4% Notes had a carrying value of $23,192 and fair value of
$24,410. The carrying amounts of other long-term debts approximate fair value
because the obligations either bear interest at floating rates or compare
favorably with fixed rate obligations that would be available to the Company.
The fair value information presented herein is based on pertinent
information available to management as of February 27, 1999. Although
management is not aware of any factors that would significantly affect the
estimated fair value amounts, such amounts have not been comprehensively
revalued for purposes of these consolidated financial statements since that
date, and current estimates of fair value may differ significantly from the
amounts presented herein.
<PAGE>
17. SELECTED QUARTERLY DATA (Unaudited)
Summarized quarterly financial data for fiscal 1999 are as follows:
<TABLE>
<CAPTION>
Year Ended February 27, 1999
-----------------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
<S> <C> <C> <C> <C>
Sales $139,991 $156,352 $195,751 $ 209,231
Gross profit $ 51,880 $ 59,600 $ 75,610 $ (8,640)
Net earnings (loss) $(23,875) $(35,495) $ 16,481 $(40,464)
======== ======== ======== =========
Basic net earnings (loss) per share $ (1.03) $ (1.44) $ .61 $ (1.65)
======== ======== ========= ========
Diluted net earnings (loss) per share $ (1.03) $ (1.44) $ .59 $ (1.65)
======== ======== ========= =========
</TABLE>
Summarized quarterly financial data for fiscal 1998 are as follows:
<TABLE>
<CAPTION>
Year Ended February 28, 1998
--------------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
<S> <C> <C> <C> <C>
Sales $ 113,846 $ 119,843 $ 128,998 $ 125,312
Gross profit $ 41,063 $ 44,149 $ 46,650 $ 47,043
Earnings before extraordinary item $ 6,943 $ 8,077 $ 9,432 $ 6,066
Extraordinary item $ - $ - $ - $ -
$ (8,956)
Net earnings (loss) $ 6,943 $ 8,077 $ 9,432 $ (2,890)
Basic net earnings (loss) per share:
Before extraordinary item $ .32 $ .36 $ .41 $ .27
Extraordinary item - - - (.40)
--------- --------- --------- ---------
Net earnings (loss) per share $ .32 $ .36 $ .41 $ (.13)
========= ========= ========= =========
Diluted net earnings (loss) per share:
Before extraordinary item $ .30 $ .34 $ .40 $ .26
Extraordinary item - - - (.38)
--------- ---------- --------- ---------
Net earnings (loss) per share $ .30 $ .34 $ .40 $ (.12)
========= ========= ========== ==========
</TABLE>
<PAGE>
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED FEBRUARY 27, 1999, FEBRUARY 28, 1998 AND FEBRUARY 22,1997
(Dollars in thousands)
<TABLE>
<CAPTION>
BALANCE BALANCE
AT BEGINNING AT END
OF YEAR EXPENSES OTHER DEDUCTIONS OF YEAR
------------ -------- ----- ---------- -------
DEDUCTED FROM ASSETS:
Allowance for doubtful accounts:
<S> <C> <C> <C> <C> <C>
1999 $ 2,190 $ 721 $ 110 $ 388 $ 2,633
1998 4,864 481 - 3,155 2,190
1997 4,973 2,144 (69) 2,184 4,864
Reserve for obsolete inventories:
1999 $ 10,489 $ 37,138 (1) $ 1,826 $ 28,303 (1) $ 21,150
1998 8,282 9,973 - 7,766 10,489
1997 19,785 4,583 1,758 17,844 (2) 8,282
</TABLE>
(1) During fiscal 1999, the Company recorded a restructuring charge related
to the rationalization of its product offering and disposed of a
substantial portion of such inventories.
(2) During fiscal 1997, the Company disposed of substantially all of the
inventories that were fully reserved in fiscal years 1995 and 1996.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> FEB-27-1999
<PERIOD-END> FEB-27-1999
<CASH> 39,500
<SECURITIES> 0
<RECEIVABLES> 140,782
<ALLOWANCES> (2,633)
<INVENTORY> 119,247
<CURRENT-ASSETS> 313,615
<PP&E> 193,823
<DEPRECIATION> (55,093)
<TOTAL-ASSETS> 904,299
<CURRENT-LIABILITIES> 170,192
<BONDS> 583,715
0
0
<COMMON> 246
<OTHER-SE> 115,627
<TOTAL-LIABILITY-AND-EQUITY> 904,299
<SALES> 701,325
<TOTAL-REVENUES> 701,325
<CGS> 522,875
<TOTAL-COSTS> 739,082
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 41,696
<INCOME-PRETAX> (79,453)
<INCOME-TAX> 3,900
<INCOME-CONTINUING> (83,353)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (83,353)
<EPS-BASIC> (3.36)
<EPS-DILUTED> (3.36)
</TABLE>
EXHIBIT 21.1
LIST OF SUBSIDIARIES
BE AEROSPACE, INC.
BE Aerospace (USA), Inc.
BE Aerospace Netherlands BV
Royal Inventum, BV
BE Aerospace (Sales & Services) BV
BE Aerospace (UK) Holdings Limited
BE Aerospace (UK) Limited
AFI Holdings Ltd.
Fort Hill Aircraft Ltd.
CF Taylor (B/E) UK Limited
CF Taylor (Wales) Ltd.
BE Aerospace Services, Inc.
BE Advanced Thermal Technologies, Inc.
Acurex Corporation
BE Aerospace International Ltd.
Nordskog Industries, Inc.
Burns Aerospace (SARL)
Puritan-Bennett Aero Systems Corporation
Sextant In-Flight Systems, LLC (1%)
BE Intellectual Property, Inc.
Sextant In-Flight Systems, LLC (1%)
Sextant In-Flight Systems, LLC (47%)
Aerospace Interiors, Inc.
Aerospace Lighting Corporation
SMR Aerospace, Inc.
Flight Structures, Inc.
BE Aerospace Canada, Inc.
BE Aerospace (Canada) Company
BE Aerospace (France) SARL
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement
Nos. 333-14037, 33-48119, 33-72194 and 33-82894 on Form S-8 of BE Aerospace,
Inc. of our reports dated April 16, 1999 (BE Aerospace, Inc.), April 15, 1999
(BE Aerospace, Inc. Savings and Profit Sharing Plan and Trust for the year
ended December 31, 1998) and April 1, 1999 (BE Aerospace, Inc. 1994 Employee
Stock Purchase Plan for the year ended February 27, 1999), appearing in this
Annual Report on Form 10-K of BE Aerospace, Inc. for the year ended February
27, 1999.
DELOITTE & TOUCHE LLP
Costa Mesa, California
May 26, 1999
EXHIBIT 99
RISK FACTORS
Significant Indebtedness and Interest Payment Obligations
We have substantial indebtedness and, as a result, significant debt
service obligations. As of February 27, 1999, indebtedness outstanding was
$594 million and represented 83% of total capitalization.
The degree of our leverage could have important consequences to
purchasers or holders of our common stock, including:
o limiting our ability to obtain additional financing to fund our growth
strategy, working capital, capital expenditures, debt service
requirements or other purposes;
o 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;
o increasing our vulnerability to adverse economic and industry conditions;
and
o 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 the 9 7/8% senior subordinated notes, the 8% senior subordinated
notes, the 9 1/2% 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. A breach of any of
these restrictions or covenants could cause a default under the bank credit
facilities 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.
<PAGE>
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 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 this 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 calendar years 1995 through 1998.
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 $640 million of backlog at February 27, 1999, we had $48
million with Asian carriers deliverable in fiscal 2000 and a further $42
million deliverable in subsequent fiscal years. Of such Asian carrier backlog,
approximately $50 million was with Japan Airlines, Singapore Airlines and
Cathay Pacific, three of the largest Asian airlines. 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 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."
<PAGE>
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. 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."
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.
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 Annual Report
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 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.
<PAGE>
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 customers. 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 fiscal 2000.
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 42% of total sales for fiscal 1999,
as compared to 26% for fiscal 1998 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. We reported a cumulative foreign currency
translation amount of $(6.1) million in stockholders' equity at February 27,
1999 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 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 British pounds and Dutch guilders.
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."
<PAGE>
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:
o effects on pricing due to increased cross-border price transparency;
o costs of modifying information systems, including both software and
hardware;
o costs of relying on third parties whose systems also require
modification;
o changes in the conduct of business and in the principal markets for
our products and services; and
o 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 discover any environmental
contamination or liability at any of our facilities.
<PAGE>
BE AEROSPACE, INC.
1994 EMPLOYEE STOCK PURCHASE PLAN
TABLE OF CONTENTS
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
Page
<S> <C>
INDEPENDENT AUDITORS' REPORT 1
FINANCIAL STATEMENTS:
Statements of net assets available for benefits
as of February 28, 1999 and 1998 2
Statements of changes in net assets available for benefits
for the years ended February 28, 1999 and 1998 3
Notes to financial statements for the years ended
February 28, 1999 and 1998 4
All schedules pursuant to the Department of Labor's rules and regulations are
omitted because of the absence of the conditions under which they are
required.
</TABLE>
<PAGE>
BE AEROSPACE, INC.
1994 EMPLOYEE STOCK PURCHASE PLAN
INDEPENDENT AUDITORS' REPORT
The Benefits Administrative Committee
BE Aerospace, Inc.
1994 Employee Stock Purchase Plan
Wellington, Florida
We have audited the accompanying statements of net assets available for
benefits of BE Aerospace, Inc. 1994 Employee Stock Purchase Plan (the Plan)
as of February 28, 1999 and 1998, and the related statements of changes in
net assets available for benefits for the years then ended. These financial
statements are the responsibility of the Plan's Administrative Committee. Our
responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the net assets available for benefits of BE Aerospace, Inc. 1994
Employee Stock Purchase Plan as of February 28, 1999 and 1998, and the
changes in net assets available for benefits for the years then ended in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Costa Mesa, California
April 1, 1999
<PAGE>
BE AEROSPACE, INC.
1994 EMPLOYEE STOCK PURCHASE PLAN
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
AS OF FEBRUARY 28, 1999 AND 1998
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
ASSETS - Cash and cash equivalents $1,256,484 $ 859,217
LIABILITIES - Stock subscribed 1,255,781 854,147
---------- ---------
NET ASSETS AVAILABLE FOR BENEFITS $ 703 $ 5,070
========== =========
</TABLE>
<PAGE>
BE AEROSPACE, INC.
1994 EMPLOYEE STOCK PURCHASE PLAN
STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
FOR THE YEARS ENDED FEBRUARY 28, 1999 AND 1998
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
NET ASSETS AVAILABLE FOR BENEFITS,
beginning of period $ 5,070 $ 1,145
ADDITIONS TO NET ASSETS ATTRIBUTED TO -
Participant payroll deductions 2,167,239 1,462,575
DEDUCTIONS FROM NET ASSETS ATTRIBUTED TO -
Purchase of BE Aerospace common stock 2,171,606 1,458,650
----------- ----------
NET ASSETS AVAILABLE FOR BENEFITS,
end of period $ 703 $ 5,070
=========== ==========
</TABLE>
<PAGE>
BE AEROSPACE, INC.
1994 EMPLOYEE STOCK PURCHASE PLAN
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED FEBRUARY 28, 1999 AND 1998
- -----------------------------------------------------------------------------
1. GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Plan - Effective April 1, 1994, BE Aerospace, Inc. (the
Company) adopted the BE Aerospace, Inc. 1994 Employee Stock Purchase
Plan (the Plan).
The Company is the Plan sponsor. All employees (participants) with a
minimum of 90 days' service, who generally complete a minimum of 20
hours of service per week, are eligible to participate. Under the Plan,
contributions are made on behalf of participants who choose to
contribute from 2% to 15% of their total gross pay.
Common stock of the Company is purchased every six months on
approximately February 28 and August 31 (Option Period). The purchase
price is 85% of the lesser of the fair value of either the first day or
last day of each Option Period. Participants are allocated a pro rata
share of stock consistent with the balance of the participant account.
The stock is then issued by the Plan transfer agent, Boston Equiserve,
directly to the participant. The maximum number of shares available for
each option period to an individual is the largest whole number of
shares which, when multiplied by the fair market value of the Company
stock at the beginning of the option period, produces a dollar amount of
$12,500 or less.
Stock Subscribed - The Plan issues the stock to participants subsequent
to the end of each Option Period but dated the last day of the Option
Period. Therefore, a liability for stock purchased by the Plan but not
yet distributed to the participants has been reflected as stock
subscribed in the accompanying statements of net assets available for
benefits as of February 28, 1999 and 1998.
Stock purchased by the Plan for the years ended February 28, 1999 and
1998, was 151,931 and 63,463 shares, respectively.
Termination Benefits and Vesting - Upon termination of employment with
the Company, a participant is entitled to receive all contributions not
yet used to acquire stock of the Company.
Cash and Cash Equivalents - Cash and cash equivalents consist of highly
liquid investments purchased with original maturities of 90 days or
less.
<PAGE>
BE AEROSPACE, INC.
1994 EMPLOYEE STOCK PURCHASE PLAN
Income Tax - The Plan administrator believes that the Plan is currently
designed and being operated in compliance with the applicable
requirements of the Internal Revenue Code of 1986. Plan assets consist
of cash not yet used to purchase common stock. Such cash remains an
asset of the Company until used to purchase common stock. Accordingly,
Plan assets are not held in trust and, therefore, the Plan is not
subject to income tax.
Administrative Expenses - Administrative expenses have been paid
directly by the Company and, accordingly, are not reflected in the
Plan's financial statements. There is no written agreement requiring the
Company to pay these expenses, and the Company may elect to stop paying
Plan expenses at any time.
2. PLAN TERMINATION
Although it has not expressed any intent to do so, the Company has the
right under the Plan to terminate the Plan.
<PAGE>
BE AEROSPACE, INC. SAVINGS PLAN
FINANCIAL STATEMENTS FOR THE YEARS ENDED
DECEMBER 31, 1998 AND 1997,
SUPPLEMENTRAL SCHEDULES AND
INDEPENDENT AUDITORS' REPORT
<PAGE>
BE AEROSPACE, INC. SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997 (Continued)
- -----------------------------------------------------------------------------
TABLE OF CONTENTS
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
Page
<S> <C>
INDEPENDENT AUDITORS' REPORT 1
FINANCIAL STATEMENTS:
Statements of net assets available for benefits
as of December 31, 1998 and 1997 2
Statements of changes in net assets available for benefits
for the years ended December 31, 1998 and 1997 3
Notes to financial statements 4
SUPPLEMENTAL SCHEDULES PROVIDED PURSUANT TO THE DEPARTMENT
OF LABOR'S RULES AND REGULATIONS:
Line 27a - Schedule of assets held for investment purposes
as of December 31, 1998 13
Line 27d - Schedule of reportable transactions
for the year ended December 31, 1998 14
All other schedules required by the Department of Labor are omitted
because of the absence of the conditions under which they are required.
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997 (Continued)
INDEPENDENT AUDITORS' REPORT
The Benefits Administrative Committee
BE Aerospace, Inc. Savings Plan
Wellington, Florida
We were engaged to audit the financial statements and supplemental
schedules of BE Aerospace, Inc. Savings Plan (the Plan) as of December 31,
1998 and 1997, and for the years then ended, listed in the Table of Contents.
These financial statements and supplemental schedules are the responsibility
of the Plan's management.
As permitted by Section 2520.103-8 of the Department of Labor's Rules and
Regulations for Reporting and Disclosure under the Employee Retirement Income
Security Act of 1974, the Plan administrator instructed us not to perform, and
we did not perform, any auditing procedures with respect to the investment
information summarized in Note 2 and certain information in Notes 3 and 4 that
was certified by PW Trust Company, the trustee of the Plan, except for
comparing the information with the related information included in the
financial statements and supplemental schedules. We have been informed by the
Plan administrator that the trustee holds the Plan's investment assets and
executes investment transactions. The Plan administrator has obtained
certifications from the trustee that the information as of and for the years
ended December 31, 1998 and 1997, provided to the Plan administrator by the
trustee is complete and accurate.
Because of the significance of the information that we did not audit, we
are unable to express, and do not express, an opinion on the accompanying
financial statements and supplemental schedules taken as a whole. The form and
content of the information included in the financial statements and
supplemental schedules, other than that derived from the information certified
by the trustee, have been audited by us in accordance with generally accepted
auditing standards and, in our opinion, are presented in compliance with the
Department of Labor's Rules and Regulations for Reporting and Disclosure under
the Employee Retirement Income Security Act of 1974.
DELOITTE & TOUCHE LLP
Costa Mesa, California
April 15, 1999
<PAGE>
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997 (Continued)
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
AS OF DECEMBER 31, 1998 AND 1997
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
ASSETS -
Investments, at fair value (Note 3):
Investment in the PW Trust Company Pooled Trusts (Note 2) $ 52,536,711 $ 39,878,562
BE Aerospace, Inc. common stock (Note 2) 6,001,083 6,390,953
Participant loans receivable 202,986 102,236
------------ ------------
Total investments 58,740,780 46,371,751
EMPLOYER CONTRIBUTIONS RECEIVABLE 423,756 128,318
CASH AND CASH EQUIVALENTS (Note 2) 53,362 36,467
------------ ------------
NET ASSETS AVAILABLE FOR BENEFITS $ 59,217,898 $ 46,536,536
============ ============
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997 (Continued)
STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
NET ASSETS AVAILABLE FOR BENEFITS,
beginning of year $ 46,536,536 $ 38,146,077
ADDITIONS TO NET ASSETS ATTRIBUTED TO:
Investment income:
Net appreciation in fair value of investments (Notes 2 and 3) 6,871,721 5,262,288
Interest and dividends (Note 2) 46,875 21,482
- ------------ ------------
Total investment income 6,918,596 5,283,770
Contributions and rollovers (Note 1) 9,918,008 7,275,773
------------ ------------
Total additions to net assets 16,836,604 12,559,543
DEDUCTIONS FROM NET ASSETS ATTRIBUTED TO:
Distributions to participants or their beneficiaries 3,465,337 3,768,400
Plan administrative expenses 473,648 361,581
Loan repayments 216,257 39,103
------------ -----------
Total deductions from net assets 4,155,242 4,169,084
------------ -----------
NET INCREASE 12,681,362 8,390,459
------------ -----------
NET ASSETS AVAILABLE FOR BENEFITS,
end of year $ 59,217,898 $ 46,536,536
============ ============
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997 (Continued)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
- ------------------------------------------------------------------------------
1. GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Description of
Plan - Effective August 1, 1988, BE Aerospace, Inc. (the Company) adopted
the BE Aerospace, Inc. Savings Plan (formerly the BE Aerospace, Inc.
Savings and Profit Sharing Plan and Trust) (the Plan), a defined
contribution retirement plan designed to qualify under Internal Revenue
Code (IRC) Section 401(a) and 401(k) for the cash or deferred arrangement
part of the Plan.
Under the Plan, contributions are made on behalf of employees
(participants) who choose to defer a portion of their total gross pay.
Effective December 1994, the Plan was amended to allow participants to
make a contribution election from 2% to 15%. Elective contributions under
a qualified cash or deferred arrangement are treated as employer
contributions. Company contributions are made in the Company common stock
(the Stock). Participants age 55 or older have the option of receiving
the matching contribution in cash. The Stock is held by the trustee and
adjusted to fair value as determined by published market prices.
Resulting unrealized gains and losses are included in the statement of
changes in net assets available for benefits.
In January 1996, the Company purchased Burns Aerospace, Inc. (Burns) from
Eagle Industries. Former Burns employees who transferred to the Company
and were participants under the Eagle Industries (Eagle) 401(k) Plan were
cashed out of the Eagle plan, and their distributions totaling $7,154,260
were rolled over into the Plan. Participant loans receivables, totaling
$286,417, were transferred into the Plan as a result of the Nellcor
Puritan Bennett acquisition in 1998.
Termination Benefits and Vesting - Upon termination of employment with
the Company, participants are immediately vested in their contributions
and are entitled to receive all vested contributions, with 100% vesting
after five years of service.
Forfeitures - Forfeited nonvested account balances are used to reduce
future employer contributions.
Cash and Cash Equivalents - Cash and cash equivalents consist of
highly liquid investments with initial maturities of 90 days or less.
Investment in the PW Trust Company Pooled Trusts - The investment in the
PW Trust Company Pooled Trusts (the Trusts) consists primarily of
guaranteed insurance contracts (GICs) and certain debt and equity
securities held by the Trusts. It is the policy of the Trusts to hold GIC
investments until maturity. GIC investments are stated at contract value
that approximates their fair value at December 31, 1998 and 1997, as
determined by quoted or published market prices. All other investments
are stated at their fair value.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997 (Continued)
- ------------------------------------------------------------------------------
Income Tax - The Plan is intended to be qualified under 401(a) of the
Internal Revenue Code of 1986 and is intended to be exempt from taxation
under 501(a) of the IRC. The Plan received a favorable IRS determination
letter dated August 20, 1998. There were no significant amendments to the
Plan between the date of the determination letter and December 31, 1998.
Therefore, the Plan administrator believes that the Plan is currently
designed and being operated in compliance with the applicable
requirements of the IRC and the related trust was tax exempt as of the
financial statement date. Therefore, no provision of income taxes has
been included in the Plan's financial statements.
Benefits Payable - Benefits under the Plan are distributed upon
retirement, death, disability, or termination of employment. At December
31, 1998 and 1997, payables to participants totaled zero and $43,133,
respectively.
Administrative Expenses - Administrative expenses are paid by the Plan.
Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting periods. Actual results could differ from
those estimates.
The foregoing description of the Plan provides only general information.
Participants should refer to the Plan document for a more complete
description of the Plan's provisions.
2. INFORMATION CERTIFIED BY TRUSTEE (UNAUDITED) Plan investments are held
by PW Trust Company, the trustee. The following is a summary of the
unaudited information regarding the Plan, included in the Plan's
financial statements and supplemental schedules, that was prepared by the
trustee and reported to the Plan administrator. The Company has obtained
certifications from the trustee that such information is complete and
accurate.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997 (Continued)
- ----------------------------------------------------------------------------
<TABLE>
<CAPTION>
a. Assets held at fair value as of December 31:
1998 1997
---- ----
<S> <C> <C>
Investments, at fair value:
GIC Portfolio of the PW Trust Company
Pooled Trust for Employee Benefits Plan $ 10,325,398 $ 9,647,288
Balanced Value Portfolio of the PW Trust
Company Pooled Trust for Employee Benefits
Plan 8,505,410 6,983,055
Capital Growth Portfolio of the PW Trust
Company Pooled Trust for Employee Benefits
Plan 14,673,768 11,148,710
Strategic Balance Portfolio of the PW Trust
Company Pooled Trust for Employee Benefits
Plan 4,778,480 3,048,384
Strategic Growth Portfolio of the PW Trust
Company Pooled Trust for Employee Benefits
Plan 8,043,749 4,726,181
Target Value Portfolio of the PW Trust Company
Pooled Trust for Employee Benefits Plan 5,215,260 3,893,093
Overseas Portfolio of the PW Trust Company
Pooled Trust for Employee Benefits Plan 994,646 431,851
BE Aerospace, Inc. common stock 6,001,083 6,390,953
------------ -----------
Total investments 58,537,794 46,269,515
Cash and cash equivalents - Money Market Fund 53,362 36,467
------------- ------------
$ 58,591,156 $ 46,305,982
============= ============
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997 (Continued)
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
b. Changes in net assets available for benefits for the years
ended December 31:
1998 1997
---- ----
<S> <C> <C>
Investment income:
Net appreciation in fair value of investments $ 6,871,721 $ 5,262,288
Interest and dividends 46,875 21,482
----------- -----------
Total investment income $ 6,918,596 $ 5,283,770
=========== ===========
</TABLE>
c. Line 27a - Schedule of assets held for investment purposes as of
December 31, 1998, excluding participant loan data obtained from
the Company (see supplemental schedule)
d. Line 27d - Schedule of reportable transactions for the year ended
December 31, 1998 (see supplemental schedule)
3. INVESTMENTS
<TABLE>
<CAPTION>
Investments consist of the following:
AS OF DECEMBER 31, 1998
---------------------------------------
FAIR
COST VALUE
<S> <C> <C>
GIC Portfolio of the PW Trust Company
Pooled Trust for Employee Benefits Plan $ 8,877,340 $ 10,325,398
Balanced Value Portfolio of the PW Trust Company
Pooled Trust for Employee Benefits Plan 5,737,317 8,505,410
Capital Growth Portfolio of the PW Trust Company
Pooled Trust for Employee Benefits Plan 8,543,888 14,673,768
Strategic Balance Portfolio of the PW Trust Company
Pooled Trust for Employee Benefits Plan 3,491,776 4,778,480
Strategic Growth Portfolio of the PW Trust Company
Pooled Trust for Employee Benefits Plan 5,454,248 8,043,749
Target Value Portfolio of the PW Trust Company
Pooled Trust for Employee Benefits Plan 4,481,319 5,215,260
Overseas Portfolio of the PW Trust Company
Pooled Trust for Employee Benefits Plan 909,997 994,646
BE Aerospace, Inc. common stock 5,078,165 6,001,083
Participant loans receivable 202,986 202,986
------------ ------------
$ 42,777,036 $ 58,740,780
============ ============
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997 (Continued)
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1997
---------------------------------------
FAIR
COST VALUE
<S> <C> <C>
GIC Portfolio of the PW Trust Company
Pooled Trust for Employee Benefits Plan $ 8,285,706 $ 9,647,288
Balanced Value Portfolio of the PW Trust Company
Pooled Trust for Employee Benefits Plan 4,585,451 6,983,055
Capital Growth Portfolio of the PW Trust Company
Pooled Trust for Employee Benefits Plan 7,340,587 11,148,710
Strategic Balance Portfolio of the PW Trust Company
Pooled Trust for Employee Benefits Plan 2,554,079 3,048,384
Strategic Growth Portfolio of the PW Trust Company
Pooled Trust for Employee Benefits Plan 4,019,957 4,726,181
Target Value Portfolio of the PW Trust Company
Pooled Trust for Employee Benefits Plan 3,392,434 3,893,093
Overseas Portfolio of the PW Trust Company
Pooled Trust for Employee Benefits 437,462 431,851
BE Aerospace, Inc. common stock 3,401,478 6,390,953
Participant loans receivabl 102,236 102,236
----------- -----------
$34,119,390 $46,371,751
=========== ===========
</TABLE>
Investments are in the custody of the trustee under a trust agreement
with the Plan. The trustee has no authority, however, for the purchase or
sale of investments.
During the years ended December 31, 1998 and 1997, the Plan's investments
appreciated in fair value by $6,871,721 and $5,262,288, respectively.
<PAGE>
4. STATEMENT OF CHANGES IN NET ASSESTS AVAILABLE FOR BENEFITS BY FUND
FOR THE YEAR ENDED DECEMBER 31, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
December 31, 1998 supplemental information by fund--Part (1)
------------------------------------------------------------------------------------
Balanced Capital Strategic Strategic Target
GIC Value Growth Balance Growth Value
<S> <C> <C> <C> <C> <C> <C>
NET ASSETS AVAILABLE FOR
BENEFITS, beginning of year ........... $ 9,661,261 $ 6,987,974 $ 11,141,452 $ 3,046,930 $ 4,712,287 $ 3,883,521
ADDITIONS TO NET ASSETS
ATTRIBUTED TO:
Investment income:
Net appreciation (depreciation) in fair
value of investments ................ 601,409 1,142,495 3,179,738 894,394 2,142,810 326,785
Interest and dividends - - - - - -
----------- ------------ ----------- ----------- ----------- ----------
Total investment income (loss) .... 601,409 1,142,495 3,179,738 894,394 2,142,810 326,785
Contributions and rollovers ............. 971,920 900,770 1,740,810 932,043 1,596,885 1,283,383
Total additions to net assets ... 1,573,329 2,043,265 4,920,548 1,826,437 3,739,695 1,610,168
DEDUCTIONS FROM NET ASSETS
ATTRIBUTED TO:
Distributions to participants or
their beneficiaries ................... 1,104,657 430,038 933,477 167,467 512,129 271,846
Plan administrative expenses ............ 43,908 95,976 151,765 45,983 71,527 55,698
Loan repayments - - - - - -
---------- ---------- ---------- ---------- ---------- -----------
Total deductions from net assets 1,148,565 526,014 1,085,242 213,450 583,656 327,544
----------- ---------- ----------- ---------- ---------- -----------
NET INCREASE ............................ 424,764 1,517,251 3,835,306 1,612,987 3,156,039 1,282,624
ACCOUNT TRANSFERS ....................... 276,253 27,774 (250,501) 148,412 223,317 85,111
NET ASSETS AVAILABLE FOR
BENEFITS, end of year ................. $ 10,362,278 $ 8,532,999 $ 14,726,257 $ 4,808,329 $ 8,091,643 $ 5,251,256
============ ============ ============ ============ ============ ============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
4. STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS BY FUND
FOR THE YEAR ENDED DECEMBER 31, 1998 (UNAUDITED) (Continued)
December 31, 1998 supplemental information by fund--Part (2)
---------------------------------------------------------------------------------
BE Aerospace Cash and
common Participant cash
Overseas Stock Loans Equivalents Total
<S> <C> <C> <C> <C> <C>
NET ASSETS AVAILABLE FOR
BENEFITS, beginning of year $ 432,269 $ 6,532,139 $ 102,236 $ 36,467 $ 46,536,536
ADDITIONS TO NET ASSETS
ATTRIBUTED TO:
Investment income:
Net appreciation (depreciation) in fair
value of investments 94,612 (1,510,522) - - 6,871,721
Interest and dividends - - 30,590 16,285 46,875
--------- ------------- --------- -------- -----------
Total investment income (loss) 94,612 (1,510,522) 30,590 16,285 6,918,596
Contributions and rollovers 330,790 2,160,797 - 610 9,918,008
---------- ------------- -------- -------- -----------
Total additions to net assets 425,402 650,275 30,590 16,895 16,836,604
DEDUCTIONS FROM NET ASSETS
ATTRIBUTED TO:
Distributions to participants or
their beneficiaries 26,789 305,351 (286,417) - 3,465,337
Plan administrative expenses 8,791 - - - 473,648
Loan repayments - - 216,257 - 216,257
---------- ------------ --------- -------- -----------
Total deductions from net assets 35,580 305,351 (70,160) 4,155,242
---------- ------------ --------- -------- -----------
NET INCREASE 389,822 344,924 100,750 16,895 12,681,362
ACCOUNT TRANSFERS 182,093 (692,459) - - -
----------- ------------ --------- -------- ------------
NET ASSETS AVAILABLE FOR
BENEFITS, end of year $ 1,004,184 $ 6,184,604 $ 202,986 $ 53,362 $ 59,217,898
=========== =========== ========= ======== ============
</TABLE>
The Plan maintains a holding account that allows for the future
distributions of cash and cash equivalents and liabilities to the appropriate
fund.
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS BY FUND FOR THE
YEAR ENDED DECEMBER 31, 1997 (UNAUDITED)
December 31, 1998 supplemental information by fund--Part(1)
-------------------------------------------------------------------------------------
Balanced Capital Strategic Strategic Target
GIC Value Growth Balance Growth Value
<S> <C> <C> <C> <C> <C> <C>
NET ASSETS AVAILABLE FOR
BENEFITS, beginning of year $ 10,242,926 $ 6,272,522 $ 8,552,004 $ 1,958,799 $ 2,975,820 $ 1,788,273
ADDITIONS TO NET ASSETS
ATTRIBUTED TO:
Investment income:
Net appreciation (depreciation) in fair
value of investments 617,592 1,159,170 1,979,922 418,420 624,311 548,827
Interest and dividends - - - - - -
----------- ---------- ---------- ----------- ----------- -----------
Total investment income (loss) 617,592 1,159,170 1,979,922 418,420 624,311.00 548,827.00
Contributions and rollovers 1,043,732 685,079 991,533 690,171 1,130,643 905,439
------------ ---------- ---------- ----------- ----------- ------------
Total additions to net assets 1,661,324 1,844,249 2,971,455 1,108,591 1,754,950 1,454,266
DEDUCTIONS FROM NET ASSETS
ATTRIBUTED TO:
Distributions to participants or
their beneficiaries 1,684,714 565,669 578,400 121,775 228,034 192,063
Plan administrative expenses 44,372 82,056 120,721 30,683 45,461 36,553
Loan repayments - - - - - -
---------- ---------- ---------- ----------- ----------- ------------
Total deductions from net assets 1,729,086 647,725 699,121 152,458 273,495 228,616
----------- ---------- ----------- ----------- ----------- ------------
NET (DECREASE) INCREASE (67,762) 1,196,524 2,272,334 956,133 1,481,459 1,225,650
ACCOUNT TRANSFERS (513,903) (481,072) 317,114 131,998 255,008 869,598
----------- ----------- ---------- ------------ ---------- ------------
NET ASSETS AVAILABLE FOR
BENEFITS, end of year $ 9,661,261 $ 6,987,974 $ 11,141,452 $ 3,046,930 $ 4,712,287 $ 3,883,521
=========== =========== ============ =========== =========== ===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS BY FUND FOR THE
YEAR ENDED DECEMBER 31, 1997 (UNAUDITED) (Continued)
December 31, 1998 supplemental information by fund--Part(2)
-------------------------------------------------------------------------------------
BE Aerospace Cash and
Common Participant cash
Overseas Stock Loans Equivalents Total
<S> <C> <C> <C> <C> <C>
NET ASSETS AVAILABLE FOR
BENEFITS, beginning of year $ - $ 6,031,985 $ 133,783 $ 189,965 $ 38,146,077
ADDITIONS TO NET ASSETS
ATTRIBUTED TO:
Investment income:
Net appreciation (depreciation) in fair
value of investments (7,856) (78,098) - - 5,262,288
Interest and dividends - - 7,556 13,926 21,482
----------- ------------ -------- -------- ----------
Total investment income (loss) (7,856) (78,098) 7,556 13,926 5,283,770
Contributions and rollovers 200,311 1,628,865 - - 7,275,773
----------- ------------ -------- -------- -----------
Total additions to net assets 192,455 1,550,767 7,556 13,926 12,559,543
DEDUCTIONS FROM NET ASSETS
ATTRIBUTED TO:
Distributions to participants or
their beneficiaries 2,049 395,690 - - 3,768,400
Plan administrative expenses 1,735 - - - 361,581
Loan repayments - - 39,103 - 39,103
----------- ------------ -------- -------- ------------
Total deductions from net assets 3,784 395,696 39,103 - 4,169,084
NET (DECREASE) INCREASE 188,671 1,155,071 (31,547) 13,926 8,390,459
ACCOUNT TRANSFERS 243,598 (654,917) - (167,424) -
----------- ------------ -------- --------- ------------
NET ASSETS AVAILABLE FOR
BENEFITS, end of year $ 432,269 $ 6,532,139 $ 102,236 $ 36,467 $ 46,536,536
============ ============= ========= ======== ============
</TABLE>
The Plan maintains a holding account that allows for the future
distributions of cash and cash equivalents and liabilities to the appropriate
fund.
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS BY FUND AS OF DECEMBER 31,
1998 (UNAUDITED)
December 31, 1998 supplemental information by fund--Part(1)
------------------------------------------------------------------------------------
Balanced Capital Strategic Strategic Target
GIC Value Growth Balance Growth Value
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Investments, at fair value:
Investment in the PW Trust Company
Pooled Trusts $ 10,325,398 $ 8,505,410 $14,673,768 $ 4,778,480 $ 8,043,749 $ 5,215,260
BE Aerospace, Inc. common stock
Participant loans receivable - - - - - -
------------ ----------- ----------- ----------- ----------- -----------
Total investments 10,325,398 8,505,410 14,673,768 4,778,480 8,043,749 5,215,260
EMPLOYER CONTRIBUTIONS
RECEIVABLE 36,880 27,589 52,489 29,849 47,894 35,996
CASH AND CASH EQUIVALENTS - - - - - -
------------ ----------- ----------- ---------- ----------- -----------
NET ASSETS AVAILABLE FOR
BENEFITS $ 10,362,278 $ 8,532,999 $14,726,257 $ 4,808,329 $ 8,091,643 $ 5,251,256
============ =========== =========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS BY FUND AS OF DECEMBER 31,
1998 (UNAUDITED) (Continued)
December 31, 1998 supplemental information by fund--Part(2)
------------------------------------------------------------------------------------
BE Aerospace Cash and
Common Participant cash
Overseas Stock Loans Equivalents Total
<S> <C> <C> <C> <C> <C>
ASSETS:
Investments, at fair value:
Investment in the PW Trust Company
Pooled Trusts $ 994,646 $ - $ - $ - $ 52,536,711
BE Aerospace, Inc. common stock 6,001,083 - - 6,001,083
Participant loans receivable - - 202,986 - 202,986
--------- -------------- -------- ------- --------------
Total investments 994,646 6,001,083 202,986 - 58,740,780
EMPLOYER CONTRIBUTIONS
RECEIVABLE 9,538 183,521 - - 423,756
CASH AND CASH EQUIVALENTS - - - 53,362 53,362
---------- ------------ --------- --------- -----------
NET ASSETS AVAILABLE FOR
BENEFITS $1,004,184 $ 6,184,604 $ 202,986 $ 53,362 $ 59,217,898
========== ============ ========= ========= =============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS BY FUND AS OF
DECEMBER 31, 1997 (UNAUDITED)
December 31, 1998 supplemental information by fund--Part(1)
------------------------------------------------------------------------------------
Balanced Capital Strategic Strategic Target
GIC Value Growth Balance Growth Value
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Investments, at fair value:
Investment in the PW Trust Company
Pooled Trusts $ 9,647,288 $ 6,983,055 $ 11,148,710 $ 3,048,384 $ 4,726,181 $ 3,893,093
BE Aerospace, Inc. common stock
Participant loans receivable - - - - - -
------------- ------------- -------------- ------------- ------------- -------------
Total investments 9,647,288 6,983,055 11,148,710 3,048,384 4,726,181 3,893,093
EMPLOYER CONTRIBUTIONS
RECEIVABLE 13,973 4,919 (7,258) (1,454) (13,894) (9,572)
CASH AND CASH EQUIVALENTS - - - - - -
------------ ------------- -------------- ------------- ------------- -------------
NET ASSETS AVAILABLE FOR
BENEFITS $ 9,661,261 $ 6,987,974 $ 11,141,452 $ 3,046,930 $ 4,712,287 $ 3,883,521
============= ============= ============== ============= ============= ============
</TABLE>
<TABLE>
<CAPTION>
TATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS BY FUND AS OF
DECEMBER 31, 1997 (UNAUDITED) (Continued)
December 31, 1998 supplemental information by fund--Part(2)
------------------------------------------------------------------------------------
BE Aerospace Cash and
Common Participant cash
Overseas Stock Loans Equivalents Total
<S> <C> <C> <C> <C> <C>
ASSETS:
Investments, at fair value:
Investment in the PW Trust Company
Pooled Trusts $ 431,851 $ - $ - $ - $ 39,878,562
BE Aerospace, Inc. common stock - 6,390,953 - - 6,390,953
Participant loans receivable - - 102,236 - 102,236
---------- ------------- -------- -------- -------------
Total investments 431,851 6,390,953 102,236 - 46,371,751
EMPLOYER CONTRIBUTIONS
RECEIVABLE 418.00 141,186 - - 128,318
CASH AND CASH EQUIVALENTS - - - 36,467 36,467
---------- ------------ -------- -------- --------------
NET ASSETS AVAILABLE FOR
BENEFITS $ 432,269 $ 6,532,139 $ 102,236 $ 36,467 $ 46,536,536
=========== ============ ========= ======== ==============
</TABLE>
<PAGE>
SUPPLEMENTAL SCHEDULES PROVIDED PURSUANT TO
THE DEPARTMENT OF LABOR'S RULES AND REGULATIONS
<TABLE>
<CAPTION>
BE AEROSPACE, INC. SAVINGS PLAN
LINE 27a - SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES
AS OF DECEMBER 31, 1998
- --------------------------------------------------------------------------
Units/ Current
Rates Cost Value
<S> <C> <C> <C>
GIC Portfolio of the PW Trust Company
Pooled Trust for Employee Benefits Plan 481,187 $ 8,877,340 $ 10,325,398
Balanced Value Portfolio of the PW Trust Company
Pooled Trust for Employee Benefits Plan 229,167 5,737,317 8,505,410
Capital Growth Portfolio of the PW Trust Company
Pooled Trust for Employee Benefits Plan 504,567 8,543,888 14,673,768
Strategic Balance Portfolio of the PW Trust
Company Pooled Trust for Employee
Benefits Plan 227,237 3,491,776 4,778,480
Strategic Growth Portfolio of the PW Trust
Company Pooled Trust for Employee
Benefits Plan 325,318 5,454,248 8,043,740
Target Value Portfolio of the PW Trust Company
Pooled Trust for Employee Benefits Plan 276,440 4,481,319 5,215,26
Overseas Portfolio of the PW Trust Company
Pooled Trust for Employee Benefits Plans 65,611 909,997 994,646
BE Aerospace, Inc. common stock 294,513 5,078,165 6,001,083
Participant loans receivable 6 to 13% 202,986 202,986
------------ ------------
$ 42,777,036 $ 58,740,780
============ ============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
BE AEROSPACE, INC. SAVINGS PLAN
LINE 27d - SCHEDULE OF REPORTABLE TRANSACTIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
- ----------------------------------------------------------------------------
Purchase Selling Cost of
Price Price Asset Net Gain
<S> <C> <C> <C> <C>
GIC Portfolio of the PW Trust Company Pooled
Trust for Employee Benefits Plan -
638 transactions $ 3,632,304 $ 3,621,538 $ 3,106,518 $ 515,020
Strategic Growth Portfolio of the PW Trust
Company Pooled Trust for Employee Benefits
Plan - 434 transactions 2,558,214 1,368,401 1,108,141 260,260
Balance Value Portfolio of the PW Trust
Company Pooled Trust for Employee Benefits
Plan - 392 transactions 1,446,928 1,068,291 695,389 372,902
Capital Growth Portfolio of the PW Trust for
Employee Benefits Plan - 474 transactions 2,704,792 2,302,002 1,442,169 859,833
Strategic Balance Portfolio of the PW Trust for
Employee Benefits Plan - 355 transactions 1,349,882 511,952 409,417 102,535
Target Value Portfolio of the PW Trust for
Employee Benefits Plan - 397 transactions 1,925,996 922,223 827,299 94,924
Overseas Portfolio of the PW Trust for
Employee Benefits Plan - 231 transactions 599,300 129,813 124,639 5,174
</TABLE>
