BE AEROSPACE, INC.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended May 27, 2000
Commission File No. 0-18348
BE AEROSPACE, INC.
(Exact name of registrant as specified in its charter)
Delaware 06-1209796
(State of Incorporation) (I.R.S. Employer Identification No.)
1400 Corporate Center Way
Wellington, Florida 33414-2105
(Address of principal executive offices)
(561) 791-5000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES[X] NO[ ]
The registrant has one class of common stock, $0.01 par value, of
which 25,172,613 shares were outstanding as of July 3, 2000.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share data)
<TABLE>
<CAPTION>
May 27, February 26,
2000 2000
(Unaudited)
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 32,441 $ 37,363
Accounts receivable - trade, less allowance for doubtful
accounts of $3,659 (May 27, 2000)
and $3,883 (February 26, 2000) 100,067 103,719
Inventories, net 120,499 127,230
Other current assets 35,053 35,291
----------- -----------
Total current assets 288,060 303,603
----------- -----------
Property and equipment, net 150,372 152,350
Intangibles and other assets, net 419,877 425,836
----------- -----------
$ 858,309 $ 881,789
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 56,741 $ 60,824
Accrued liabilities 92,058 109,143
Current portion of long-term debt 3,697 3,723
----------- -----------
Total current liabilities 152,496 173,690
----------- -----------
Long-term debt 617,317 618,202
Other liabilities 26,242 25,400
Stockholders' Equity:
Preferred stock, $0.01 par value; 1,000,000 shares
authorized; no shares outstanding - -
Common stock, $0.01 par value; 25,150,459 (May 27, 2000) and
24,931,307 (February 26, 2000) issued and outstanding 252 249
Additional paid-in capital 251,282 249,682
Accumulated deficit (170,436) (174,874)
Accumulated other comprehensive loss (18,844) (10,560)
----------- -----------
Total stockholders' equity 62,254 64,497
----------- -----------
$ 858,309 $ 881,789
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended
May 27, May 29,
2000 1999
<S> <C> <C>
Net sales $ 169,125 $ 185,032
Cost of sales 107,572 118,445
----------- -----------
Gross profit 61,553 66,587
Operating Expenses:
Selling, general and administrative 24,041 22,028
Research, development and engineering 12,981 11,245
Amortization 5,868 5,696
----------- -----------
Total operating expenses 42,890 38,969
----------- -----------
Operating earnings 18,663 27,618
----------- -----------
Equity in losses of unconsolidated subsidiary - 727
Interest expense, net 13,731 12,622
----------- -----------
Earnings before income taxes 4,932 14,269
Income taxes 494 2,854
----------- -----------
Net earnings $ 4,438 $ 11,415
=========== ===========
Basic net earnings per common share $ 0.18 $ 0.46
=========== ===========
Diluted net earnings per common share $ 0.18 $ 0.46
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Dollars in thousands)
<TABLE>
<CAPTION>
Three Months Ended
May 27, May 29,
2000 1999
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net earnings $ 4,438 $ 11,415
Adjustments to reconcile net earnings to net cash flows
provided by operating activities:
Depreciation and amortization 10,819 10,052
Deferred income taxes - (42)
Non-cash employee benefit plan contributions 581 611
Changes in operating assets and liabilities:
Accounts receivable 2,001 12,359
Inventories 3,333 (12,363)
Other current assets 840 (3,000)
Accounts payable (4,195) (1,023)
Accrued liabilities (14,470) (4,673)
----------- -----------
Net cash flows provided by operating activities 3,347 13,336
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (4,994) (14,237)
Change in intangible and other assets (2,870) (218)
----------- -----------
Net cash flows used in investing activities (7,864) (14,455)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net payments under bank credit facilities (885) (2,634)
Proceeds from issuances of stock 1,020 307
----------- -----------
Net cash flows provided by (used in) financing activities 135 (2,327)
----------- -----------
Effect of exchange rate changes on cash flows (540) (17)
----------- -----------
Net decrease in cash and cash equivalents (4,922) (3,463)
Cash and cash equivalents, beginning of period 37,363 39,500
----------- -----------
Cash and cash equivalents, end of period $ 32,441 $ 36,037
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during period for:
Interest, net $ 20,451 $ 20,107
Income taxes, net $ 476 $ 716
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
Notes to Condensed Consolidated Financial Statements
May 27, 2000 and May 29, 1999
(Unaudited - Dollars in thousands, except share data)
Note 1. Basis of Presentation
The condensed consolidated financial statements of BE
Aerospace, Inc. and its wholly-owned subsidiaries (the "Company" or
"B/E") have been prepared by the Company and are unaudited pursuant
to the rules and regulations of the Securities and Exchange
Commission. Certain information related to the Company's
organization, significant accounting policies and footnote
disclosures normally included in financial statements prepared in
accordance with accounting principles generally accepted in the
United States of America have been condensed or omitted. In the
opinion of management, these unaudited condensed consolidated
financial statements reflect all material adjustments (consisting
only of normal recurring adjustments) necessary for a fair
presentation of the results of operations and statements of financial
position for the interim periods presented. These results are not
necessarily indicative of a full year's results of operations.
Certain reclassifications have been made to the prior year financial
statements to conform to the May 27, 2000 presentation.
Although the Company believes that the disclosures provided
are adequate to make the information presented not misleading, these
unaudited interim condensed consolidated financial statements should
be read in conjunction with the audited consolidated financial
statements and notes thereto included in the Company's Annual Report
on Form 10-K for the fiscal year ended February 26, 2000.
Note 2. Comprehensive Earnings (Loss)
Comprehensive earnings (loss) is defined as all changes in a
company's net assets except changes resulting from transactions with
shareholders. It differs from net earnings (loss) in that certain
items currently recorded to equity would be a part of comprehensive
earnings (loss). The following table sets forth the computation of
comprehensive earnings (loss) for the periods presented:
<TABLE>
<CAPTION>
Three Months Ended
May 27, May 29,
2000 1999
<S> <C> <C>
Net earnings $ 4,438 $ 11,415
Other comprehensive earnings:
Foreign exchange translation adjustment (8,284) (1,651)
----------- -----------
Comprehensive earnings (loss) $ (3,846) $ 9,764
=========== ===========
</TABLE>
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<PAGE>
Note 3. Segment Reporting
The Company is organized based on customer-focused lines of
business operating in a single segment. Each operation reports its
results of operations and makes requests for capital expenditures and
acquisition funding to the Company's chief operations decision-making
group. This group is presently comprised of the Chairman, the
Vice-Chairman and the Chief Executive Officer, and the Corporate
Senior Vice President of Administration and Chief Financial Officer.
Under this organizational structure, the Company's operations are
aggregated into one reportable segment -- the Aircraft Cabin Interior
Products and Services segment ("ACIPS"). The ACIPS is comprised of
five lines of business: Seating Products, Interior Systems Products,
Flight Structures and Engineering Services, Business Jet and VIP
Products and Global Customer Service and Product Support, each of
which have separate management teams and infrastructures dedicated to
providing a full range of products and services to their commercial
and general aviation operator customers. Each of these lines of
business demonstrates similar economic performance and utilizes
similar distribution methods and manufacturing processes. All of
B/E's customers are supported by a single worldwide after-sale
service organization. The Company sold a 51% interest in its
In-Flight Entertainment ("IFE") subsidiary on February 25, 1999 and
its remaining 49% interest in IFE on October 5, 1999. IFE was a
separate, reportable segment.
Note 4. Earnings Per Common Share
Basic net earnings per common share is computed using the
weighted average common shares outstanding during the period. Diluted
net earnings per common share is computed by using the average share
price during the period when calculating the dilutive effect of stock
options. Shares outstanding for the periods presented were as
follows:
<TABLE>
<CAPTION>
Three Months Ended
May 27, May 29,
2000 1999
<S> <C> <C>
Weighted average common shares outstanding 25,091 24,631
Dilutive effect of employee stock options 4 269
----------- -----------
Diluted shares outstanding 25,095 24,900
=========== ===========
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</TABLE>
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
(Dollars in thousands, except per share data)
The following discussion and analysis addresses the results of
the Company's operations for the three months ended May 27, 2000, as
compared to the Company's results of operations for the three months
ended May 29, 1999. The discussion and analysis then addresses the
liquidity and financial condition of the Company and other matters.
Three Months Ended May 27, 2000, as Compared to the Results of Operations for
the Three Months Ended May 29, 1999
Net sales for the fiscal 2001 three-month period were $169,125,
or 8.6% lower than net sales of $185,032 for the comparable period in
the prior year. The year over year decrease in net sales is
attributable to a lower volume of seating and galley structures
revenues during the first quarter of fiscal 2001 and our previously
announced decision to discontinue certain low-margin products and
services. Seating revenues declined year over year as a result of last
year's seat manufacturing problems that adversely impacted new orders
for seating products last year whereas the decline in galley structures
revenues is consistent with the year over year decline in new aircraft
deliveries to our customers.
Gross profit was $61,553 or 36.4% of net sales for the three
months ended May 27, 2000 as compared to $66,587 or 36.0% of net sales
in the comparable period in the prior year. The Company's gross margin
improved by 1,180 basis points compared to the immediately preceding
quarter, from 24.6% to 36.4%. This gross margin improvement was due to
a return to on-plan performance in the seating business. Lean
manufacturing and continuous improvement programs are enabling the
seating business to reduce costs, improve quality and productivity and
accelerate the order fulfillment cycle. The year over year decrease in
gross profit was directly related to the lower level of revenues as
compared to the prior year.
Selling, general and administrative expenses were $24,041 or
14.2% of net sales for the three months ended May 27, 2000 as compared
to $22,028 or 11.9% of net sales in the comparable period in the prior
year and as compared to $24,315 in the Company's fourth quarter in
fiscal 2000, which represented 13.4% of net sales. The year over year
increase in selling, general and administrative expenses was primarily
attributable to costs associated with the lean manufacturing
initiatives now underway at each operating plant, along with the costs
associated with the implementation of shared platforms for information
management and increased depreciation expense associated with the
Company's new Enterprise Resource Planning system which was placed into
service during fiscal 2000.
Research, development and engineering expenses were $12,981 or
7.7% of net sales for the three months ended May 27, 2000, as compared
with $11,245 in the comparable period in the prior year and as compared
with $13,739 in the preceding quarter. The year over year increase in
research, development and engineering expenses is primarily
attributable to costs incurred for new product development activity for
two of the world's leading airlines and increased depreciation expense
resulting from our shared engineering design platforms recently placed
into service.
Amortization expense for the quarter ended May 27, 2000 of $5,868
was $172 greater than the amount recorded in the first quarter of
fiscal 2000.
The Company generated operating earnings of $18,663 or 11.0% of
net sales as compared to operating earnings of $27,618 or 14.9% of net
sales during the comparable period in the prior year. The decrease in
operating earnings in the current period is primarily the result of a
lower sales volume.
Interest expense, net was $13,731 for the three months ended May
27, 2000, or $1,109 greater than interest expense of $12,622 for the
comparable period in the prior year. The increase in interest expense
is due to the impact of higher interest rates during the current
quarter on the Company's bank borrowings.
Earnings before income taxes in the current quarter were $4,932,
as compared to $14,269 in the prior year's comparable period. Income
tax expense for the quarter ended May 27, 2000 was $494, as compared to
$2,854 in the prior year's comparable period.
Net earnings were $4,438 or $0.18 per share for the three months
ended May 27, 2000, as compared to $11,415 or $0.46 per share for the
comparable period in the prior year.
<PAGE>
Liquidity and Capital Resources
The Company's liquidity requirements consist of working capital
needs, on-going capital expenditures and scheduled payments of interest
and principal on indebtedness. B/E's primary requirements for working
capital have been related to the reduction of accrued liabilities,
including interest, accrued penalties incurred in connection with the
fiscal 2000 seating manufacturing problems, incentive compensation,
warranty obligations and accrued severance. B/E's working capital was
$135,564 as of May 27, 2000, as compared to $129,913 as of February 26,
2000.
At May 27, 2000, the Company's cash and cash equivalents were
$32,441, as compared to $37,363 at February 26, 2000. Cash provided
from operating activities was $3,347 for the three months ended May 27,
2000. The primary source of cash during the three months ended May 27,
2000 was net earnings, depreciation and amortization of $15,257, a
$6,174 decrease in accounts receivable, inventories and other current
assets offset by a use of cash of $4,195 related to a decrease in
accounts payable and $14,470 related to a decrease in accrued
liabilities.
The Company's capital expenditures were $4,994 and $14,237 during
the three months ended May 27, 2000 and May 29, 1999, respectively. The
year over year decrease in capital expenditures is primarily
attributable to significant expenditures in the prior year for
management information system enhancements and expenditures for plant
modernization. The Company anticipates on-going annual capital
expenditures of approximately $20,000 for the next several years.
The Company believes that the cash flow from operations and
availability under the Company's Bank Credit Facility will provide
adequate funds for its working capital needs, planned capital
expenditures and debt service requirements through the term of the Bank
Credit Facility. The Company believes that it will be able to refinance
the Bank Credit Facility prior to its termination, although there can
be no assurance that it will be able to do so. The Company's ability to
fund its operations, make planned capital expenditures, make scheduled
payments and refinance its indebtedness depends on its future operating
performance and cash flow, which, in turn, are subject to prevailing
economic conditions and to financial, business and other factors, some
of which are beyond its control.
Deferred Tax Assets
The Company has established a valuation allowance related to the
utilization of its deferred tax assets because of uncertainties that
preclude it from determining that it is more likely than not that it
will be able to generate taxable income to realize such assets during
the federal operating loss carryforward period, which begins to expire
in 2012. Such uncertainties include recent cumulative losses by the
Company, the highly cyclical nature of the industry in which it
operates, economic conditions in Asia that are impacting the airframe
manufacturers and the airlines, the Company's high degree of financial
leverage, risks associated with new product introductions, recent
increases in the cost of fuel and its impact on our airline customers,
further remediation of our Seating Products operating problems and
risks associated with the integration of its acquired businesses. The
Company monitors these uncertainties, 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>
Dependence upon Conditions in the Airline Industry
The Company's 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 such period, airlines sought to conserve cash by
reducing or deferring scheduled cabin interior refurbishment and
upgrade programs and by delaying purchases of new aircraft. This led to
a significant contraction in the commercial aircraft cabin interior
products industry and a decline in our business and profitability.
Since early 1994, the airlines have experienced a turnaround in
operating results, leading the domestic airline industry to record
operating earnings during calendar years 1995 through 1998. This
financial turnaround was, in part, driven by record load factors,
rising fare prices and declining fuel costs. Airline company balance
sheets have been substantially strengthened and their liquidity
enhanced as a result of their record profitability, debt and equity
financings and a closely managed fleet expansion. Recent increases in
fuel prices have not had a material impact on the airline industry
to-date. However, should fuel prices continue at or above the current
level for a prolonged period, we would expect to see the airline
industry's profitability impacted and discretionary airline spending
may be more closely monitored or even reduced.
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 with respect to the
economic outlook for these countries. 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,
in December 1998, Boeing announced that in light of continued economic
conditions in Asia, it would be reducing production of a number of
aircraft types, including particularly wide-body aircraft that require
almost five times the dollar content for our products as compared to
narrow-body aircraft.
[Remainder of page intentionally left blank]
<PAGE>
Forward Looking Statements
This report includes forward-looking statements based on our
current expectations, assumptions, estimates and projections about our
company and our industry. These forward-looking statements involve
risks and uncertainties, including, but not limited to, the future
benefits of corrective actions in our seating business, implementation
and expected benefits of lean manufacturing and continuous improvement
programs, our dealings with customers and partners, the consolidation
of facilities, productivity improvements from recent information
technology investments, the reduction of debt and other risks detailed
in our Securities and Exchange Commission filings. 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 the
Company's Annual Report on Form 10-K for the fiscal year ended February
26, 2000, as well as future events that may have the effect of reducing
our available operating income and cash balances, such as unexpected
operating losses, the impact of rising fuel prices on our airline
customers, delays in, or unexpected costs associated with, the
integration of our acquired businesses, conditions in the airline
industry, problems meeting customer delivery requirements, new or
expected refurbishments, capital expenditures, cash expenditures
related to possible future acquisitions, further remediation of our
Seating Products operating problems, labor disputes involving us, our
significant customers or airframe manufacturers, the possibility of a
write-down of intangible assets, delays or inefficiencies in the
introduction of new products or fluctuations in currency exchange
rates.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
During the three months ended May 27, 2000, there were no
material changes to the disclosure about market risk included in the
Company's Annual Report on Form 10-K for the fiscal year ended February
26, 2000.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings Not applicable.
Item 2. Changes in Securities Not applicable.
Item 3. Defaults Upon Senior Securities Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders Not applicable.
Item 5. Other Information None.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
1. Exhibit 27 Financial Data Schedule for the three months
ended May 27, 2000.
b. Reports on Form 8-K None.
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BE AEROSPACE, INC.
Date: June 28, 2000 By: /s/ Robert J. Khoury
--------------------------------
Robert J. Khoury
Vice Chairman and
Chief Executive Officer
Date: June 28, 2000 By: /s/ Thomas P. McCaffrey
-----------------------------
Thomas P. McCaffrey
Corporate Senior Vice President of
Administration and Chief
Financial Officer
