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United States
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 26, 2000
[ ] 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 $164,360,986 on May 1, 2000 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 1, 2000 was 25,115,944 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Certain sections of the registrant's Proxy Statement to be filed with the
Commission in connection with the 2000 Annual Meeting of Stockholders are
incorporated by reference in Part III of this Form 10-K.
INDEX
PART I
ITEM 1. Business.............................................................3
ITEM 2. Properties..........................................................16
ITEM 3. Legal Proceedings...................................................18
ITEM 4. Submission of Matters to a Vote of Security Holders.................18
PART II
ITEM 5. Market for the Registrant's Common Equity and Related Stockholder
Matters.............................................................19
ITEM 6. Selected Financial Data.............................................20
ITEM 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations...............................................22
ITEM 7a. Quantitative and Qualitative Disclosures about Market Risk..........33
ITEM 8. Consolidated Financial Statements and Supplementary Data............33
ITEM 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure................................................33
PART III
ITEM 10. Directors and Executive Officers of the Registrant..................34
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
PART I
In this Form 10-K, when we use the terms the "company," "B/E," "we," "us," and
"our," unless otherwise indicated or the context requires, we are referring to
BE Aerospace, Inc. and its consolidated subsidiaries. Certain disclosures
included in this Form 10-K constitute forward-looking statements that are
subject to risks and uncertainty. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Forward-Looking Statements."
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. We
believe that we have achieved leading global market positions and significant
market shares in each of our major product categories, which include:
o commercial aircraft seats, including an extensive line of
first class, business class, tourist class and commuter aircraft
seats, with a worldwide market share of approximately 46%;
o 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 for each of these products in excess of 50%;
o both chemical and gaseous oxygen delivery systems, with a worldwide
market share of approximately 50%; and
o general aviation interior products, including an extensive
line of executive aircraft seats, indirect overhead lighting systems,
oxygen, safety and air valve products, with worldwide market shares in
excess of 50%.
In addition, we offer our customers in-house capabilities to design,
project manage, integrate, install, test and certify reconfigurations,
modifications and passenger to freighter conversions for commercial aircraft
passenger cabins and to manufacture related products, including engineering kits
and interface components as well as aircraft interior structures, such as
galleys, lavatories and crew rests. We also provide upgrade, maintenance and
repair services for our airline customers around the world.
We have substantially expanded the size, scope and nature of our business
as a result of a number of acquisitions. Since 1989, we have completed 15
acquisitions, including six acquisitions in fiscal 1999, for an aggregate
purchase price of approximately $677 million in order to position ourselves as
the preferred global supplier to our customers.
During the period from 1989 to 1996, we 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 large number of product
offerings. At the same time, we rationalized our businesses and began
re-engineering our 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.
During fiscal 1999 we completed six acquisitions for approximately $387
million. Through these acquisitions we extended our product offerings into
oxygen systems and we entered three new markets. These markets include the
structural reconfiguration of passenger cabins, the conversion of passenger
aircraft to freighters and the business jet cabin interiors market. During the
fourth quarter of fiscal 1999, we launched a series of initiatives directed
towards expanding our profit margins by improving productivity, reducing costs
and inventory levels and speeding production of finished products. These actions
included eliminating seven principal facilities, reducing our employment base by
over 1,000 employees during fiscal 2000 and rationalizing our product offerings.
The plan also included initiatives to install company-wide information
technology and engineering design systems and implement lean manufacturing
techniques in our remaining factories. 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."
During fiscal 2000, we restructured our Seating Products operations and
decided to discontinue certain product and service offerings. This product line
rationalization is expected to eliminate two additional facilities bringing the
total number of facilities down to 14 from 31. This is also expected to result
in a headcount reduction of approximately 700. The total cost of this product
and service line rationalization was approximately $34 million. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
All of the aforementioned initiatives to integrate, rationalize and
restructure the fifteen acquired businesses had an aggregate cost of
approximately $180 million. These initiatives enabled us to eliminate 17
facilities and reduce headcount by over 3,000 employees. We believe these
initiatives will enable us to substantially expand profit margins, 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. In conjunction with these efforts, we
have also implemented a company-wide information technology system, a
company-wide engineering system and initiated lean manufacturing in our
remaining facilities. Common management information and engineering systems and
lean manufacturing processes across all operations, coupled with a rationalized
product offering are expected to provide us with the ongoing benefit of a
generally lower cost structure, and expanding gross and operating margins.
INDUSTRY OVERVIEW
The commercial and business jet aircraft cabin interior products
industries encompass a broad range of products and services, including aircraft
seating products, passenger entertainment and service systems, food and beverage
preparation and storage systems, oxygen delivery systems, 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 $3.5 billion during fiscal 2000.
Historically, revenues in the airline cabin interior products industry
have been derived from five sources:
o retrofit programs in which airlines purchase new interior
furnishings to overhaul the interiors of aircraft already in service,
o refurbishment programs in which airlines purchase components
and services to improve the appearance and functionality of certain
cabin interior equipment,
o new installation programs in which airlines purchase new equipment
to outfit a newly delivered aircraft,
o spare parts and
o 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 four to eight
years. See "Recent Industry Conditions." Galley and lavatory structures as well
as food and beverage preparation and storage equipment 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 we currently
participate 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 2000 was in
excess of $730 million. Including our company, there are approximately ten
companies worldwide that supply aircraft seats. We have a market share of
approximately 46%, and along with two other competitors share
approximately 90% of the worldwide market (based on installed base as of
February 26, 2000).
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 that we are 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 are 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. We have the capability to provide complete
interior packages, including all design services, all interior components
and program management services for executive aircraft interiors. We are
the preferred supplier of seating products, interior lighting systems and
WEMAC components for essentially every business jet manufacturer.
FLIGHT STRUCTURES AND ENGINEERING SERVICES. We provide engineering design,
integration, installation and certification services to the airline
industry. These services include project management of aircraft, including
reconfigurations and passenger to freighter conversions. Historically, the
airlines have relied on in-house engineering resources or consultants to
provide such services. As cabin interiors 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. We provide design,
integration, installation and certification services for commercial
aircraft passenger cabin interiors, offering 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, lavatories
and galleys.
GLOBAL CUSTOMER SERVICE AND PRODUCT SUPPORT. We provide upgrade,
maintenance and repair services for the products that we manufacture as
well as for those supplied by other manufacturers.
* We sold a 51% interest in our In-Flight Entertainment ("IFE") business
during fiscal 1999 and the remaining 49% interest in fiscal 2000. See
"Management's Discussion and Analysis of Financial Condition and Results
of Operations."
Through February 27, 1999, we operated 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 a single segment
-- Aircraft Cabin Interior Products and Services. Revenues for similar
classes of products or services within these business segments for the
fiscal years ended February 2000, 1999 and 1998 are presented below
(dollars in millions):
Year Ended
------------------------------------------------------------
Feb. 26, 2000 Feb. 27, 1999 Feb. 28, 1998
------------- ------------- -------------
Seating products $ 325 $ 296 $ 252
Interior systems products 145 138 93
Flight structures and engineering services 122 86 33
Business jet and VIP products 81 65 -
Global customer service, product support and other 50 37 29
In-flight entertainment products - 79 81
---------------- ------------------ ------------------
TOTAL REVENUES $ 723 $ 701 $ 488
================ ================== ==================
RECENT INDUSTRY CONDITIONS
Our principal customers are the world's commercial airlines. Airline
company balance sheets have been substantially strengthened and their liquidity
significantly enhanced over the past several years as a result of 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, the airline industry's profitability could be
impacted and discretionary airline spending may be more closely monitored or
even reduced. Among those factors expected to affect the cabin interior products
industry are the following:
LARGE EXISTING INSTALLED BASE. B/E's existing installed product base is
expected to generate continued retrofit, refurbishment and spare parts
revenue as airlines continue to maintain their aircraft cabin interiors.
According to industry sources, the world commercial passenger aircraft
fleet consisted of 11,759 aircraft as of the end of 1999, including 1,038
aircraft with fewer than 120 seats, 7,996 aircraft with between 120 and 240
seats and 2,725 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 $23 billion at the end of February 26, 2000.
EXPANDING WORLDWIDE FLEET. The expanding worldwide aircraft fleet is
expected to generate additional revenues from new installation programs,
while the increase in the size of the installed base is expected to
generate additional and continual retrofit, refurbishment and spare parts
revenue. Worldwide air traffic has grown every year since 1946 (except in
1990) and, according to the 1999 Current Market Outlook published by the
Boeing Commercial Airplane Group (the "Boeing Report"), is projected to
grow at a compounded average rate of approximately 4.7% per year by 2008,
increasing annual revenue passenger miles from approximately 1.8 trillion
in 1998 to approximately 4.9 trillion by 2018 (according to the February
2000 Airline Monitor). According to the Airbus Industrie Global Market
Forecast published in June 1999 (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 1.8 million passenger seats at the
end of 1998 to approximately 4.2 million passenger seats at the end of
2018.
NEW AIRCRAFT DELIVERIES. The number of new aircraft delivered each year is
an important determinant of fleet expansion and is generally regarded as
cyclical in nature. New aircraft deliveries peaked at 914 during calendar
1999, exclusive of 216 regional jet deliveries. Industry sources project
lower deliveries over the next five years. However, annual deliveries over
the five-year period ending calendar 2004 are expected to be 1.6 times to
2.5 times greater than the lowest level during the last cycle, which ended
in 1995.
WIDE-BODY AIRCRAFT DELIVERIES. The trend towards wide-body aircraft is
significant to our company because wide-body aircraft require almost four
times the dollar value content for our products as compared to narrow-body
aircraft. 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. Wide-body aircraft represented 28% of
all new commercial aircraft delivered in 1999, and are expected to increase
to 33% of new deliveries in 2002 and 35% of new deliveries in 2004.
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, our 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.
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 ENGINEERING 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:
o engineering design, integration, project management, installation and
certification services,
o modifications and reconfigurations for commercial aircraft and
o services related to the support of product upgrades.
COMPETITIVE STRENGTHS
We believe that we have a strong, competitive position attributable to a
number of factors, including the following:
LEADING MARKET SHARES AND SIGNIFICANT INSTALLED BASE. We believe we have
achieved leading global market positions in each of our major product
categories, with market shares, based upon industry sources, of
approximately 46% for commercial aircraft seats (based on installed base as
of February 26, 2000) and in excess of 50% for executive aircraft seats,
coffee makers, refrigeration equipment, air valves, oxygen delivery systems
and ovens (based on dollar sales for the year ended February 26, 2000). We
believe these market shares provide us with significant competitive
advantages in serving our 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 our sales opportunities and increasing the
convenience and value of the service provided to our customers.
TECHNOLOGICAL LEADERSHIP/NEW PRODUCT DEVELOPMENT. We believe that we are a
technological leader in our industry, with what we believe is the largest
research and development ("R&D") organization in the cabin interior
products industry, currently comprised of approximately 500 engineers. We
believe our 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 facilities
and personnel, including engineering, manufacturing and marketing
activities, as well as rationalizing product lines. See "The Company."
GROWTH OPPORTUNITIES
We believe that we have benefited from three major growth trends in the
aerospace industry.
INCREASE IN REFURBISHMENT AND UPGRADE ORDERS. Our substantial installed
base provides significant on-going revenues from replacements, upgrades,
repairs and the sale of spare parts. Approximately 61% of our revenues for
the year ended February 26, 2000 were derived from these aftermarket
activities. A significant portion of our revenues and operating earnings
during fiscal 2000 were derived from refurbishment and upgrade programs. We
believe that we are well positioned to continue to benefit as a result of
the airlines' improved financial condition and liquidity and the need to
refurbish and upgrade cabin interiors. See "Recent Industry Conditions."
EXPANSION OF WORLDWIDE FLEET AND SHIFT TOWARD WIDE-BODY AIRCRAFT.
Airlines have been taking delivery of a large number of new aircraft due to
high load factors and the projected growth in air travel. See "Recent
Industry Conditions."
BUSINESS JET AND VIP AIRCRAFT FLEET EXPANSION AND RELATED RETROFIT
OPPORTUNITIES. General aviation and VIP airframe manufacturers have
experienced growth in new aircraft deliveries similar to that which
recently occurred in the commercial aircraft industry. According to
industry sources, executive jet aircraft deliveries amounted to 343 units
in calendar 1996 and 661 units in calendar 1999. Industry sources indicate
that executive jet aircraft deliveries should be approximately 595 in
calendar 2000. Several new aircraft models, and larger business jets,
including the Cessna Citation Excel, the Boeing Business Jet, Bombardier
Challenger and Global Express, Gulfstream V, the Falcon 900 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 new
general aviation aircraft deliveries going forward. Industry sources
indicate that deliveries of business jets from calendar 2001-2004 are
expected to range from approximately 520 to 570, and that the number of
larger business jets, as described above, as a percentage of total business
jet deliveries will increase from 23% in calendar year 1999 to 27% in
calendar year 2000. This is important to our company because the
typical cost of cabin interior products manufactured for a Cessna Citation
is approximately $162,500; whereas the same contents for a larger business
jet, such as the Boeing Business Jet could range up to approximately
$1,365,200. Advances in engine technology and avionics and the emergence of
fractional ownership of executive aircraft are also 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 that we are well positioned to benefit from the retrofit
opportunities due to:
o 15-year average age of the executive jet fleet,
o operators who have historically reupholstered their seats may be more
inclined to replace these seats with lighter weight, more modern and
16G-compliant seating models and
o belief that we are 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:
o 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,
o pursuing a worldwide marketing approach focused by airline and general
aviation airframe manufacturers and encompassing our entire product
line,
o pursuing the highest level of quality in every facet of our operations
from the factory floor to customer support,
o remaining the technological leader in our industry,
o enhancing our position in the growing upgrade maintenance, inspection
and repair services market and
o 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, footrests, reading lights,
head/neck supports, oxygen masks and telephones. We estimate that as of February
26, 2000 we had an aggregate installed base of approximately 1.2 million
aircraft seats valued at replacement prices of approximately $2.5 billion.
FIRST AND BUSINESS CLASSES. Based upon major airlines' program selection
and orders on hand, we are the leading worldwide manufacturer of
premium-class seats. Our new line of international first class sleeper
seats incorporate full electric actuation, electric ottoman, privacy panels
and side-wall mounted tables. Our recently released business class seats
incorporate features from over 25 years of seating design. The premium
business class seats include electrical or mechanical actuation, PC power
ports, telephones, translating legrests, adjustable lumbar cushions, 4-way
adjustable headrests and fiber-optic reading lights. The first and business
class products are substantially more expensive than tourist class seats
due to these luxury appointments.
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 the flexibility to adjust the ratio of business class to tourist
class seats for a given aircraft configuration. This seat is increasing in
popularity in the European market.
TOURIST CLASS. We are a leading worldwide manufacturer of tourist class
seats and believe we offer the broadest such product line in the industry.
We have designed tourist class seats which incorporate features not
previously utilized in that class, such as laptop power ports and a number
of premium comfort features such as footrests, headrests and adjustable
lumbar systems.
COMMUTER (REGIONAL JET) SEATS. We are the leading manufacturer of regional
aircraft seating in both the U.S. and worldwide markets. Our SilhouetteTM
Composite seats are similar to commercial jet seats in comfort and
performance but typically do not have as many added comfort features.
Consequently, they are lighter weight and require less maintenance.
SPARES. Aircraft seats require regularly scheduled maintenance in the
course of normal passenger use. Airlines depend on seat manufacturers and
secondary suppliers to provide spare parts and kit upgrade programs. As a
result, a significant market exists for spare parts.
INTERIOR SYSTEMS PRODUCTS
We are 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 26, 2000 we have an aggregate installed base of
such equipment, valued at replacement prices, in excess of $900 million.
COFFEE MAKERS. We are 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, and a
CombiTM 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.
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. We are 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 overhead passenger
service units with either chemical or gaseous oxygen equipment. Our oxygen
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 Aircraft Modular Products, Inc. ("AMP") in April 1998. By
combining AMP's presence in the general aviation and VIP aircraft cabin interior
products industry with that of our Puritan-Bennett Aero Systems Co. ("PBASCO")
and Aircraft Lighting Corporation ("ALC") product lines, which we acquired
during fiscal 1999, 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. We are the preferred supplier of seating products
and direct and indirect lighting systems of essentially every general aviation
airframe manufacturer. We estimate that as of February 26, 2000 we have an
aggregate installed base of such equipment, valued at replacement prices, of
approximately $1.4 billion.
FLIGHT STRUCTURES AND ENGINEERING SERVICES
Our Flight Structures and Engineering Services operation 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 designing and manufacturing
galley structures and crew rest compartments. We estimate that as of February
26, 2000, we had an installed base of such equipment, valued at replacement
prices, of approximately $1.1 billion.
ENGINEERING DESIGN, INTEGRATION, INSTALLATION AND CERTIFICATION SERVICES.
Through the acquisition of SMR Aerospace, Inc. in August 1998, we 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.
PASSENGER TO FREIGHTER CONVERSIONS. We are a leading supplier of structural
design and integration services, including airframe modifications for
passenger-to-freighter conversions. We are the leading provider of Boeing
767 passenger to freighter conversions and have 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. We provide a variety of galley
structures, closets and class dividers, emphasizing sophisticated and
higher value-added galleys for wide-body aircraft. We also manufacture
lavatories for commercial and freighter aircraft.
GLOBAL CUSTOMER SERVICE AND PRODUCT SUPPORT
We are an active participant in the markets for aftermarket parts and specialty
kits, interior services and product support. We believe that our broad and
integrated product line, global manufacturing, on-site technical support, and
strong customer relationships uniquely position us to become the premier
value-added supplier in the interior market.
AFTERMARKET PARTS AND UPGRADE KITS. We offer a complete range of spare
parts and upgrade/specialty kits for all of our products. Through control
of intellectual property, on-going value engineering and quality
enhancements of our engineering drawings, timely updates of component
maintenance manuals and strong cooperation with worldwide airline
regulatory bodies, we are uniquely positioned to quickly offer our
customers high quality aftermarket spare parts and upgrade kits.
INTERIOR SERVICES. We offer a comprehensive range of services that allow
our airline customers to outsource routine maintenance services and focus
on their core operational requirements. The spectrum of services includes
refurbishment and/or repair of B/E products, on-board surveys regarding
status and product installations, remanufacturing of used equipment to
extend the product life cycle, and inventory management services.
PRODUCT SUPPORT. We provide airlines a unique and high level of on-sight
support through our extensive, worldwide field engineering team. We can
respond quickly and work directly with our customer's engineering
department. On-line technology is used to assist all parties in improved
and timely communication. Through on-sight surveys, we can ensure spare
parts are manufactured before they are required by the airlines for their
routinely scheduled maintenance checks.
RESEARCH, DEVELOPMENT AND ENGINEERING
We work closely with commercial airlines to improve existing products and
identify customers' emerging needs. Our expenditures in research, development
and engineering totaled $54 million, $56 million and $46 million for the
years ended February 26, 2000, February 27, 1999 and February 28, 1998,
respectively. We currently employ approximately 500 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
We market and sell our 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. We have a sales and
marketing organization of 110 persons, along with 32 independent sales
representatives. Our sales to non-U.S. airlines were $311 million, $298 million
and $233 million, for the years ended February 26, 2000, February 27, 1999 and
February 28, 1998, respectively, or approximately 43%, 42% and 48%,
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 customer service, product support and price. We believe
that our large installed base, our timely responsiveness in connection with the
custom design, manufacture, delivery and after-sales customer service and
product support of our 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 almost 70% of the purchases of products
manufactured by our company during fiscal 2000. 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 our
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 which address 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 we are 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.
Our program management approach requires that a program manager is
assigned to 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
contract profitability. 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 a contract.
During fiscal 2000, approximately 82% of our total revenues were derived
from the airlines compared with 81% in fiscal 1999. Approximately 61% of our
revenues during fiscal 2000 and 56% of our revenues during fiscal 1999 were
from refurbishment, spares and upgrade programs. During the year ended February
26, 2000, no single customer accounted for 10% of total revenues. During the
years ended February 27, 1999 and February 28, 1998, one customer accounted for
approximately 13% and 18%, respectively, of our total revenues, and no other
customer accounted for more than 10% of such revenues. The portion of our
revenues attributable to particular airlines varies from year to year because
of airlines' scheduled purchases of new aircraft and for retrofit and
refurbishment programs for their existing aircraft.
BACKLOG
We estimate that our backlog at February 26, 2000 was approximately $470
million, compared with a backlog of $640 million and $450 million on February
27, 1999 and February 28, 1998, respectively (as adjusted to exclude backlog
from our In-Flight Entertainment business in which we sold a 51% interest in
February 1999 and the remaining 49% interest in October 1999). Of our backlog
at February 26, 2000, approximately 59% is deliverable by the end of fiscal
2001; 68% of our total backlog is with North American carriers, approximately
17% is with European carriers and approximately 12%, or $58 million, is with
Asian carriers. Of such Asian carrier backlog, $34 million is deliverable in
fiscal 2001. Approximately $17 million of the total Asian carrier backlog was
with Japan Airlines, Singapore Airlines and Cathay Pacific, three of the
largest Asian airlines. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
CUSTOMER SERVICE
We believe that our customers place a high value on customer service and
product support and that such service is a critical factor in our industry. The
key elements of such service include:
o rapid response to requests for engineering designs, proposal requests and
technical specifications,
o flexibility with respect to customized features,
o on-time delivery,
o immediate availability of spare parts for a broad range of products and
o 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. We
generally establish 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. 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.
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 the airlines' increasing demands on 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, JAMCO, Scott Aviation and Intertechnique. Our principal competitors
for Flight Structures and Engineering Services products are TIMCO, JAMCO, Britax
PLC and Driessen Aircraft Interior Systems. The market for general aviation
products and services is highly fragmented, consisting of numerous competitors,
the largest of which is Decrane Aircraft Holdings.
MANUFACTURING AND RAW MATERIALS
Our 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 that are purchased from outside vendors. We maintain
state-of-the-art facilities, and we have an on-going strategic manufacturing
improvement plan utilizing lean manufacturing processes. 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. We also hold 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 engineering services
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.
In March 1992, the FAA adopted Technical Standard Order C127 ("TSO 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. We have developed 32 different
seat models that meet these new seat safety regulations, have successfully
completed thousands of tests to comply with TSO C127 and, based on our installed
base of 16G seats, are the recognized industry leader in this area.
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 that we currently or formerly owned or operated or to which we send
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.
PATENTS
We currently hold 88 United States patents and 45 international patents,
covering a variety of products. 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 26, 2000, we had approximately 4,500 employees.
Approximately 73% of these employees are engaged in manufacturing, 11% in
engineering, research and development and 16% in sales, marketing, product
support and general administration. Approximately 16% of our worldwide employees
are represented by unions. We are currently in the process of completing
negotiations with one of our two domestic unions which represents 7% of our
employees. This contract is expected to cover a period of three or four years.
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.
ITEM 2. PROPERTIES
As of February 26, 2000, we had 14 principal facilities, comprising an
aggregate of approximately 1.4 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.
Facility
Size
Location Products and Function (Sq. Feet) Ownership
-------- --------------------- ---------- ---------
CORPORATE
Wellington, Florida Corporate headquarters, marketing and sales,
customer service and product support,
finance, human resources, legal 17,700 Owned
SEATING PRODUCTS
Litchfield, Connecticut Manufacturing and warehousing, customer 147,700 Owned
service and product support, research and
development, finance and administration
Winston-Salem, North Carolina Manufacturing and warehousing, customer 264,800 Owned
service and product support, research and
development, finance and administration
Leighton Buzzard, England Manufacturing and warehousing, customer 114,000 Owned
service and product support, finance
Kilkeel, Northern Ireland Manufacturing and warehousing, customer 38,500 Owned
service and product support, finance
INTERIOR SYSTEMS
Delray Beach, Florida Manufacturing and warehousing, research and 52,000 Owned
development, finance and administration
Anaheim, California Manufacturing and warehousing, research and 98,000 Leased
development, finance
Lenexa, Kansas Manufacturing and warehousing, customer 80,000 Owned
service and product support, finance
Nieuwegein, The Netherlands Manufacturing and warehousing, research and 39,000 Leased
development, finance
GENERAL AVIATION AND VIP PRODUCTS
Ft. Lauderdale, Florida Marketing and sales, finance and administration 7,000 Leased
Miami, Florida Manufacturing and warehousing, research and 106,300 Leased
development, finance 52,400 Owned
Holbrook, New York Manufacturing and warehousing, research and 20,100 Leased
development, finance
Fenwick, West Virginia Manufacturing and warehousing, research and 132,600 Owned
development, customer service and product
support, finance
GLOBAL CUSTOMER SERVICE AND PRODUCT SUPPORT
Various service centers in North
America and Europe Upgrade, maintenance, inspection and repair 160,900 Leased
FLIGHT STRUCTURES AND ENGINEERING SERVICES
Arlington, Washington Manufacturing and warehousing, research and
development, customer service and product
support, finance and administration 130,200 Leased
Jacksonville, Florida Manufacturing and warehousing, research and
development, customer service and product
support, finance 75,000 Owned
Dafen, Wales Manufacturing and warehousing, research and
development, customer service and product
support, finance 80,000 Owned
We believe that our facilities are suitable for their present intended purposes
and adequate for our present and anticipated level of operations. We believe
that our fiscal 1999 restructuring plan and fiscal 2000 product and service line
rationalization, together with continued airline profitability, should result in
improvement in the degree of utilization of our facilities.
ITEM 3. LEGAL PROCEEDINGS
We are 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, we 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 our
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, we plead guilty to a violation of the International
Economic Emergency Powers Act and were 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, 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 Seating Products operations. 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 by our
Seating Products operations. As part of the plea agreement that was negotiated
with the Office of the United States Attorney for the District of Connecticut,
we are 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, we must refrain from violating any federal laws.
We have 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 Form 10-K, we
did not submit any matters to a vote of security holders, through the
solicitation of proxies or otherwise.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our 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.
High Low
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
Fiscal Year Ended February 26, 2000
First Quarter 21 1/8 13 1/2
Second Quarter 22 1/4 16 1/2
Third Quarter 18 3/16 5 3/4
Fourth Quarter 9 7/8 6 3/8
On May 1, 2000 the closing price of our common stock as reported by Nasdaq
was $7 5/16 per share. As of such date, we had 1,076 shareholders of record, and
we estimate that there are approximately 16,000 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 Board of Directors intends,
for the foreseeable future, to retain any earnings to reduce indebtedness and
finance our future growth, but expects to review our dividend policy regularly.
The Indentures pursuant to which our 9 7/8%, 8% and 9 1/2% Senior Subordinated
Notes were issued and the terms of our credit facilities permit the declaration
or payment of cash dividends only in certain circumstances described therein.
[Remainder of page intentionally left blank]
ITEM 6. SELECTED FINANCIAL DATA
(In thousands, except per share data)
On January 24, 1996, we acquired all of the stock of Burns Aerospace
Corporation. During fiscal 1999, we completed the following acquisitions: (1) On
March 27, 1998, we acquired all of the stock of Aerospace Interiors; (2) on
April 13, 1998, we acquired all of the stock of PBASCO; (3) on April 21, 1998,
we acquired all of the stock of AMP; (4) on July 30, 1998, we acquired all of
the stock of ALC; (5) on August 7, 1998, we acquired all of the stock of SMR;
and (6) on September 3, 1998, we acquired all of the galley equipment business
assets of CF Taylor. We sold a 51% interest in our In-Flight Entertainment
business on February 25, 1999 and completed the sale of our remaining 49% equity
interest on October 5, 1999. The financial data as of and for the fiscal years
ended February 26, 2000, February 27, 1999, February 28, 1998, February 22, 1997
and February 24, 1996 have been derived from financial statements that have been
audited by our independent auditors. The following financial information is
qualified by reference to, and should be read in conjunction with, our financial
statements, including notes thereto, and "Management's Discussion and Analysis
of Financial Condition and Results of Operations" included elsewhere in this
Form 10-K.
Year Ended
-----------------------------------------------------------------------
Feb. 26, Feb. 27, Feb. 28, Feb. 22, Feb. 24,
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
Statements of Operations Data:
Net sales............................... $ 723,349 $ 701,325 $ 487,999 $ 412,379 $ 232,582
Cost of sales........................... 543,682(a) 522,875 (c) 309,094 270,557 160,031
-------- -------- -------- -------- -------
Gross profit............................ 179,667 178,450 178,905 141,822 72,551
Operating expenses:
Selling, general and administrative... 94,891(a) 83,648 58,622 51,734 42,000
Research, development and engineering. 54,004(a) 56,207 45,685 37,083 58,327(h)
Amortization.......................... 24,076 22,498 11,265 10,607 9,499
Transaction gain, expenses and other expenses -- 53,854 (d) 4,664(f) -- 4,170(i)
-------- -------- -------- -------- --------
Operating earnings (loss)............... 6,696(b) (37,757)(e) 58,669 42,398 (41,445)
Equity in losses of unconsolidated subsidiary 1,289 -- -- -- --
Interest expense, net................... 52,921 41,696 22,765 27,167 18,636
-------- -------- -------- -------- --------
Earnings (loss) before income taxes,
extraordinary item and cumulative effect of
accounting change...................... (47,514) (79,453) 35,904 15,231 (60,081)
Income taxes ........................... 3,283 3,900 5,386 1,522 --
--------- -------- -------- -------- --------
Earnings (loss) before extraordinary item and
cumulative effect of accounting change (50,797) (83,353) 30,518 13,709 (60,081)
Extraordinary item...................... -- -- 8,956(g) -- --
-------- --------- -------- -------- --------
Earnings (loss) before cumulative effect of
accounting change......................... (50,797) (83,353) 21,562 13,709 (60,081)
Cumulative effect of accounting change.. -- -- -- -- (23,332)(h)
-------- -------- -------- -------- --------
Net earnings (loss)..................... $(50,797)(b) $(83,353)(e) $ 21,562 $ 13,709 $(83,413)
======== ======== ======== ======== ========
Basic earnings (loss) per share:
Earnings (loss) before extraordinary item
and cumulative effect of change in
accounting principle................... $ (2.05)(b) $ (3.36)(e) $ 1.36 $ .77 $ (3.71)
Extraordinary item...................... -- -- (.40)(g) -- --
Cumulative effect of accounting change.. -- -- -- -- (1.44)(h)
-------- --------- ------- -------- --------
Net earnings (loss)..................... $ (2.05) $ (3.36) $ .96 $ .77 $ (5.15)
======== ======== ======== ======== ========
Weighted average common shares.......... 24,764 24,814 22,442 17,692 16,185
Diluted earnings (loss) per share:
Earnings (loss) before extraordinary item and
cumulative effect of change in accounting principle $ (2.05)(b) $ (3.36)(e) $ 1.30 $ .72 $ (3.71)
Extraordinary item...................... -- -- (.38)(g) -- --
Cumulative effect of accounting change.. -- -- -- -- (1.44)(h)
-------- -------- -------- -------- --------
Net earnings (loss)..................... $ (2.05) $ (3.36) $ .92 $ .72 $ (5.15)
======== ======== ======== ======== ========
Weighted average common shares (diluted basis) 24,764 24,814 23,430 19,097 16,185
Balance Sheet Data (end of period):
Working capital......................... $129,913 $143,423 $262,504 $122,174 $ 41,824
Total assets............................ 881,789 904,299 681,757 491,089 433,586
Long-term debt.......................... 618,202 583,715 349,557 225,402 273,192
Stockholders' equity.................... 64,497 115,873 196,775 165,761 44,157
SELECTED FINANCIAL DATA (continued)
Footnotes to Table
(a) During fiscal 2000, we announced a consolidation of our facilities and
rationalization of our workforce and product offerings resulting in a
charge of approximately $34,300. During fiscal 2000, our seating
operations experienced manufacturing and other inefficiencies of
approximately $24,000 primarily due to a misalignment of manufacturing
processes with its newly implemented ERP system. We agreed to customer
concessions aggregating approximately $36,100 related to our late
deliveries and quality problems encountered during the period in which
we suffered from inefficiencies related to new product introductions and
ERP implementation problems. The above costs and charges aggregated
$94,375, of which $83,673 was charged to cost of sales, $6,500 was
charged to selling, general and administrative expenses and $4,202 was
charged to research, development and engineering expenses.
(b) Excluding the fiscal 2000 costs and charges discussed in footnote (a)
above, operating earnings, net earnings and diluted earnings per share
(including adding back the $3,000 tax credit recognized in the fourth
quarter) were $101,071, $40,578 and $1.62, respectively.
(c) During fiscal 1999, we 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, our 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."
(d) As a result of the 1999 Acquisitions, we recorded a charge of $79,155 for
the write-off of acquired in-process research and development and
acquisition-related expenses. We also sold a 51% interest in our
In-Flight Entertainment business ("IFE Sale"), as a result of which we
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.
(e) Excluding the non-operational impact of the fiscal 1999 matters described
above, operating earnings, net earnings and diluted earnings per share
(based upon a 17% tax rate) were $103,922, $50,817 and $2.03,
respectively.
(f) In fiscal 1998, we resolved a long-running dispute with the U.S.
Government over export sales between 1992 and 1995 to Iran Air. We
recorded a charge of $4,664 in fiscal 1998 related to fines, civil
penalties and associated legal fees arising from the settlement. See
"Legal Proceedings."
(g) We 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 our 9 3/4% Senior Notes.
(h) In fiscal 1996, we changed our 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, we have charged such
costs 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, we recorded a charge to
earnings of $23,332.
(i) In fiscal 1996, in conjunction with our rationalization of our seating
business and as a result of the Burns acquisition, we recorded a charge
to earnings of $4,170 related to costs associated with the integration
and consolidation of our European seating operations.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Our company 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. We
believe that we have achieved leading global market positions in each of our
major product categories, which include aircraft seats, food and beverage
preparation and storage equipment, galley and other interior structures, oxygen
delivery systems and lighting systems. In addition, we provide design,
integration, installation and certification services, offering our 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. We also provide upgrade, maintenance and repair services for our
airline customers around the world.
Our 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. We believe
our large installed base of products, estimated to be approximately $6 billion
as of February 26, 2000 (valued at replacement prices), gives us a significant
advantage over our 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.
Between 1989 and February 2000, we acquired fifteen companies and
integrated the acquisitions by eliminating 17 operating facilities,
rationalizing our product lines and consolidating personnel at the acquired
businesses, resulting in headcount reductions of over 3,000 employees. The
worldwide rationalization of facilities, headcounts and product lines will
continue to aid us 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. In conjunction with these efforts, we have also implemented
a company-wide information technology system, a company-wide engineering system
and initiated lean manufacturing in our remaining facilities. Common management
information and engineering systems, lean manufacturing processes across all
operations, coupled with a rationalized product offering are expected to provide
the company with the ongoing benefit of a generally lower cost structure, and
expanding gross and operating margins. The aggregate cost of the fifteen
acquisitions completed since 1989, including integration, product line
rationalization, restructuring and related costs was approximately $860 million.
We sold a 51% interest in our In-Flight Entertainment ("IFE") business in fiscal
1999 and completed the sale of our remaining 49% equity interest in fiscal 2000.
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 though 1998. Airline company
balance sheets have been substantially strengthened and their liquidity enhanced
as a result of this 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 profitability of the airline industry to-date. However,
should fuel prices continue at or above the current level for a prolonged
period, the airline industry's profitability may be impacted and discretionary
airline spending will be more closely monitored or even reduced.
During the latter part of fiscal 1999 and throughout fiscal 2000, our
seating operations have negatively impacted our operating results. The operating
inefficiencies resulted in delayed deliveries to customers, increased re-work of
seating products, claims for warranty, penalties, out of sequence charges,
substantial increases in air freight and other expedite-related costs. Late
customer deliveries have resulted in certain airlines diverting seating programs
to other manufacturers and the deferrals of other seating programs. We believe
we have now resolved the problems we encountered in our seating operations.
Our business strategy is to maintain our market leadership position
through various initiatives, including new product development. In fiscal 2000,
research, development and engineering expenses totaled $54,004, or 7.5% of net
sales, versus 8.0% of net sales in fiscal 1999.
The following discussion and analysis addresses the results of our
operations for the year ended February 26, 2000, as compared to our results of
operations for the year ended February 27, 1999. The discussion and analysis
then addresses the results of our operations for the year ended February 27,
1999 as compared to our results of operations for the year ended February 28,
1998. The discussion and analysis then addresses our liquidity, financial
condition and other matters. All dollar amounts are presented in thousands of
dollars, except per share amounts.
YEAR ENDED FEBRUARY 26, 2000 COMPARED WITH YEAR ENDED FEBRUARY 27, 1999
Net sales for fiscal 2000 were $723,349, an increase of approximately
$22,024, or 3.1% over the prior year. Organic revenue growth, exclusive of IFE,
in fiscal 2000 and fiscal 1999 was approximately 5.6% and 13.7%, respectively,
whereas revenue growth on a pro forma basis for fiscal 2000 and 1999, giving
effect to the 1999 Acquisitions and excluding IFE for both periods, was
approximately 4.1% and 15.5%, respectively. Of our backlog of approximately
$470,000 as of February 26, 2000, approximately $279,000 is deliverable by the
end of fiscal 2001. Our backlog at February 27, 1999 aggregated approximately
$640,000.
Gross profit for fiscal 2000 was $179,667. Gross profit for fiscal 2000
before the special costs and charges described below was $263,340 (36.4% of net
sales). This was 1% less than the prior year of $266,275 (calculated on a
comparable basis), which represented 38.0% of net sales. The decrease in gross
profit before special costs and charges is primarily attributable to the mix of
product sales during the year.
During the latter part of fiscal 1999 and throughout fiscal 2000, our
operating results were negatively impacted by our seating operations. These
operating problems resulted in delayed deliveries to customers, increased
re-work of seating products, claims for warranty, penalties, out of sequence
charges, substantial increases in air freight and other expedite-related costs.
Late customer deliveries resulted in certain airlines diverting seating programs
to other manufacturers and the deferral of other seating programs. We believe we
have now resolved the operating problems in our seating business.
During fiscal 2000, we incurred $36,076 of costs in our seating
operations associated with claims for penalties, out of sequence charges,
warranties and substantial increases in air freight and other expedite-related
costs. In addition, we incurred approximately $24,000 of manufacturing and
engineering inefficiencies, of which $16,300 has been included as a component of
cost of sales, $3,700 has been included as a component of selling, general and
administrative expenses and $4,000 has been included as a component of research,
development and engineering expenses. Also, during fiscal 2000, we completed a
review of our businesses and decided to discontinue certain product and service
offerings. This product line rationalization will reduce the number of
facilities by two and is expected to result in a headcount reduction of
approximately 700. The total cost of this product and service line
rationalization was $34,299. Approximately $31,297 of the rationalization costs
are included in cost of sales, with the balance of $3,002 charged to operating
expenses.
The aggregate impact of these operating inefficiencies, penalties, and
product line rationalization costs was to increase cost of sales and operating
expenses by $94,375 during fiscal 2000. Future margin expansion will largely
depend upon the success of our seating business in four areas: achieving planned
efficiencies for recently-introduced products, optimizing manufacturing
processes with the new management information system, successfully implementing
lean manufacturing techniques and rationalizing facilities and personnel. While
our manufacturing productivity and efficiency has improved recently, there can
be no assurance that the rate of these improvements will continue.
Selling, general and administrative expenses were $94,891 (13.1% of net
sales) for fiscal 2000, which was $11,243, or 13%, greater than the comparable
period in the prior year of $83,648 (11.9% of net sales). Severance and other
facility consolidation costs associated with the charges described above,
together with increased operating expenses at our seating products operations
and increased management information system training costs and related expenses
were the principal reasons for the increase.
Research, development and engineering expenses were $54,004 (7.5% of net
sales) during fiscal 2000, a decrease of $2,203 over the prior year.
Amortization expense for fiscal 2000 of $24,076 was $1,578 greater than
the amount recorded in the prior year, and is due to the 1999 Acquisitions.
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, we recorded a charge of $79,155 for the
write-off of acquired in-process research and development and other
acquisition-related expenses.
We generated operating earnings of $6,696 (0.9% of net sales) during
fiscal 2000, as compared to an operating loss of $(37,757) in the prior year.
Equity in losses of unconsolidated subsidiary of $1,289 represents our
share of the losses generated by Sextant In-Flight Systems through October 5,
1999, at which time we sold our remaining 49% interest.
Interest expense, net was $52,921 during fiscal 2000, or $11,225 greater
than interest expense of $41,696 for the prior year, and is due to the increase
in our long-term debt used, in part, to finance the 1999 Acquisitions.
The loss before income taxes in the current year was $(47,514) (which
includes $94,375 of costs and charges primarily related to our Seating Products
operations) as compared to the loss before income taxes in the prior year of
$(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). Earnings before income taxes excluding the above-mentioned costs and
expenses were $46,861 for fiscal 2000 compared to $62,226 in the prior year.
Income tax expense for fiscal 2000 was $3,283 as compared to $3,900 in the prior
year.
The net loss for fiscal 2000 was $(50,797), or $(2.05) per share (basic
and diluted), as compared to a net loss of $(83,353), or $(3.36) per share
(basic and diluted), in fiscal 1999.
YEAR ENDED FEBRUARY 27, 1999 COMPARED TO 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
1999 and fiscal 1998 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 our Seating Products operations.
Gross profit for fiscal 1999 before the special costs and charges
described above was $266,275 (38.0% of net sales). This was $87,370, or 49%,
greater than the comparable period in the prior year of $178,905, which
represented 36.7% of net sales. The primary reasons for the improvement in gross
margins include: (1) a company-wide re-engineering program that 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 we commenced a restructuring plan designed to lower our cost
structure and improve our long-term competitive position. The cost of the
restructuring, along with costs associated with new product introductions, was
$87,825. We 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 net sales.
Selling, general and administrative expenses were $83,648 (11.9% of net
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 net 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 net
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.
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, we 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, we 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 were deferred as of February 25, 1999, and are included
in other liabilities in the accompanying financial statements as of February 27,
1999. We recorded a gain on this transaction of approximately $25,301, which has
been reflected as a component of transaction gain, expenses and other expense in
the accompanying financial statements.
We 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 net 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 our 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 (basic and 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.
We 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 our 9 3/4% Notes.
The net loss for fiscal 1999 was $(83,353), or $(3.36) per share (basic
and diluted), as compared to net earnings of $21,562, or $0.92 per share
(diluted), in fiscal 1998.
LIQUIDITY AND CAPITAL RESOURCES
Our liquidity requirements consist of working capital needs, ongoing
capital expenditures and scheduled payments of interest and principal on
indebtedness. Our primary requirements for working capital have been directly
related to increased inventory levels as a result of revenue growth. Our working
capital was $129,913 as of February 26, 2000, as compared to $143,423 as of
February 27, 1999.
At February 26, 2000, cash and cash equivalents were $37,363, as compared
to $39,500 at February 27, 1999. Cash provided from operating activities was
$16,886 for fiscal 2000. The primary source of cash during fiscal 1999 was
non-cash charges for depreciation and amortization of $42,237, a decrease in
accounts receivable of $36,448 and an increase in payables, accruals and current
taxes of $4,756, offset by a use of cash of $18,910 related to increases in
inventories and other current assets.
Our capital expenditures were $33,169 and $37,465 during fiscal 2000 and
1999, respectively. Our capital expenditure spending over the past two years was
primarily attributable to:
o acquisitions completed during fiscal 1999,
o the purchase of previously leased facilities,
o the development of a new management information system to replace our
existing systems, many of which were inherited in acquisitions and
o expenditures for plant modernization.
We anticipate on-going annual capital expenditures of approximately
$23,000 for the next several years.
We have 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 $33,300. The revolving credit facility expires in April 2004 and the
acquisition facility is amortizable over five years beginning in August 1999.
The Bank Credit Facility is collateralized by our accounts receivable,
inventories and by substantially all of our other personal property.
Indebtedness under the existing Bank Credit Facility consisted of revolving
credit facility outstanding borrowings of $39,000 (bearing interest at LIBOR
plus 1.75%, or approximately 7.8%), letters of credit aggregating approximately
$2,319 and outstanding borrowings under the acquisition facility aggregating
$33,300 (bearing interest at LIBOR plus 1.5%, or approximately 7.9%) as of
February 26, 2000. The Bank Credit Facility was amended on December 21, 1999 and
contains customary affirmative covenants, negative covenants and conditions of
borrowing, all of which were met as of February 26, 2000.
In January 1996, we sold $100,000 of 9 7/8% Senior Subordinated Notes
(the "9 7/8% Notes"). In February 1998, we sold $250,000 of 8% Senior
Subordinated Notes (the "8% Notes"). In conjunction with the sale of the 8%
Notes, we 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 sale of the 8% Notes of
approximately $240,419 were used:
o for the tender offer (which expired on February 25, 1998) in which
approximately $101,800 of the 9 3/4% Notes were retired,
o to call the remaining 9 3/4% Notes on March 16, 1998 and
o together with the proceeds from the Bank Credit Facility, to partially
fund the 1999 Acquisitions.
We 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 November 1998, we 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 our obligations related
to the SMR acquisition and to repay a portion of our 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,
including limitations on future indebtedness, restricted payments, transactions
with affiliates, liens, dividends, mergers and transfers of assets, all of which
were met by us as of February 26, 2000.
We believe that the cash flow from operations and availability under the
Bank Credit Facility will provide adequate funds for our working capital needs,
planned capital expenditures and debt service requirements through the term of
the Bank Credit Facility. We believe that we will be able to refinance the Bank
Credit Facility prior to its termination, although there can be no assurance
that we will be able to do so. Our ability to fund our operations, make planned
capital expenditures, make scheduled payments and refinance our indebtedness
depends on our 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 our control.
DEFERRED TAX ASSETS
We have established a valuation allowance related to the utilization of
our deferred tax assets because of uncertainties that preclude us from
determining that it is more likely than not that we will be able to generate
taxable income to realize such asset during the federal operating loss
carryforward period, which begins to expire in 2012. Such uncertainties include
cumulative losses incurred by us during both of the past two years, the highly
cyclical nature of the industry in which we operate, economic conditions in
Asia that are impacting the airframe manufacturers and the airlines, our high
degree of financial leverage, risks associated with new product introductions,
recent increases in the costs of fuel and its impact on our airline customers,
remediation of our Seating Products operating problems and risks associated
with the integration of our acquired businesses. We monitor these uncertainties
as well as other positive and negative factors that may arise in the future, as
we assess the necessity for a valuation allowance for our deferred tax assets.
YEAR 2000 COSTS
We have successfully addressed the year 2000 ("Y2K") problem. Our
achievement was accomplished through focus and execution in the following areas:
o Assessment
o Remediation and Testing
o Program to Assess and Monitor Progress of Third Parties
A Y2K compliant Enterprise Resource Planning ("ERP") application was
implemented in nine of our facilities, including our largest operating
facilities. We also upgraded our remaining sites' ERP applications to Y2K
certified releases, as well as shop floor microchip enhanced equipment. In all
cases at every facility there were no material issues resulting from Y2K.
We also contacted all vendors and compiled an electronic file of
correspondence tracking and measuring vendor Y2K compliance capabilities. There
have been no material Y2K related issues related to delivery of product from our
vendors.
We ensured our communications infrastructure including, but not limited
to, hubs, routers, personal computers, desktop software, frame relay, PBX's,
T1's, vendors and servers, were Y2K ready. No interruption of business resulted
from Y2K issues.
We checked and replaced all potential problems with our facilities'
environmental items such as HVAC, elevators and security systems. There have
been no facility issues related to Y2K issues.
Through February 26, 2000, we incurred approximately $39,179 associated
with the implementation of our ERP system. A portion of these costs have been
capitalized to the extent permitted under accounting principles generally
accepted in the United States of America. We do not expect future costs related
to the year 2000 to be material. We will continue to monitor our critical
computer applications throughout the year 2000 to ensure that any latent year
2000 matters that may arise are promptly addressed.
NEW ACCOUNTING PRONOUNCEMENT
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, Accounting for Derivative
Instruments and Hedging Activities, which we are required to adopt effective in
our fiscal year 2002. SFAS No. 133, as amended, will require us to record all
derivatives on the balance sheet at fair value. We do not currently engage in
hedging activities and will continue to evaluate the effect of adopting SFAS
No. 133. We will adopt SFAS No. 133 in our fiscal year 2002.
RISK FACTORS
INDUSTRY CONDITIONS
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 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 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 will be 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. Of our $470,000 of backlog at February 26, 2000, approximately
$279,000 is deliverable by the end of fiscal 2001. Of the total backlog at
February 26, 2000, we had approximately $58,000 with Asian carriers. Of such
Asian carrier backlog, approximately $17,000 is with Japan Airlines, Singapore
Airlines and Cathay Pacific. Although not all carriers have been affected by the
current economic events in the Pacific Rim, certain carriers, including
non-Asian carriers that have substantial Asian routes, could cancel or defer
their existing orders. In addition, in December 1998, Boeing announced that in
light of the continued economic conditions in Asia, it would be reducing
production of a number of aircraft types, including particularly wide-body
aircraft that require almost four times the dollar content for our products as
compared to narrow-body aircraft.
SEATING PRODUCTS OPERATIONS
During the latter part of fiscal 1999 and throughout fiscal 2000, our
seating operations negatively impacted operating results. The operating
inefficiencies resulted in delayed deliveries to customers, increased re-work of
seating products, claims for warranty, penalties, out of sequence charges,
substantial increases in air freight and other expedite-related costs. Late
customer deliveries have resulted in certain airlines diverting seating programs
to other manufacturers and the deferrals of other seating programs.
The aggregate impact of these operating inefficiencies, penalties, and
product line rationalization costs was to increase cost of sales and operating
expenses by $94,375 during fiscal 2000. We believe we have addressed the
problems we identified through a number of current initiatives. Future margin
expansion will largely depend on the success of our seating business in four
areas:
o achieving planned efficiencies for recently-introduced products,
o optimizing manufacturing processes with the new management information
system,
o successfully implementing lean manufacturing techniques and
o rationalizing facilities and personnel.
While our manufacturing productivity and efficiencies have improved
recently, there can be no assurance that the rate of these improvements will
continue or that we will not discover other inefficiencies in our seating
operations.
SIGNIFICANT INDEBTEDNESS AND INTEREST PAYMENT OBLIGATIONS
We have substantial indebtedness and, as a result, significant debt
service obligations. As of February 26, 2000, indebtedness outstanding was
$621,925 and represented 90% 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 Facility 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 Facility, the indentures governing
the 9 7/8% Notes, the 8% Notes, the 9 1/2% 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.
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 "Business-Introduction." 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 Form 10-K, 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."
We have recorded $459,175 of intangible assets in connection with these
acquisitions, with a net book value of $364,483 as of February 26, 2000. These
intangible assets are being amortized on a straight-line basis over their
estimated useful lives. However, at each balance sheet date, we assess whether
there has been a permanent impairment in the value of intangible assets. If the
carrying value of the intangible assets exceeds the estimated undiscounted
future cash flows from operating activities of the related business, a permanent
impairment is deemed to have occurred. In this event, intangible assets are
written down accordingly. While as of February 26, 2000, we have not determined
that an impairment exists, we could in the future determine that such an
impairment is appropriate in connection with intangible assets recorded in
connection with these acquired businesses.
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.
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
Regulation."
RISKS INHERENT IN INTERNATIONAL OPERATIONS
Our foreign operations accounted for 29% of net sales for fiscal 2000,
compared with 27% of net sales for fiscal 1999 and 25% for fiscal 1998. 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 in stockholders' equity of $(10,560) at February 26,
2000, compared with $(6,105) 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-Regulation."
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 ("EU") member states of their respective currencies to
the "Euro" as legal currency beginning 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. We may, however, 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.
Forward-Looking Statements
This Form 10-K 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. 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," as well as future events that may
have the effect of reducing our available operating income and cash balances,
such as:
o unexpected operating losses,
o the impact of rising fuel prices on our airline customers,
o delays in, or unexpected costs associated with, the integration of our
acquired businesses,
o conditions in the airline industry,
o problems meeting customer delivery requirements,
o new or expected refurbishments,
o capital expenditures,
o cash expenditures related to possible future acquisitions,
o further remediation of our Seating Products operating problems,
o labor disputes involving us, our significant customers or airframe
manufacturers,
o the possibility of a write-down of intangible assets,
o delays or inefficiencies in the introduction of new products or
o fluctuations in currency exchange rates.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to a variety of risks, including foreign currency
fluctuations and changes in interest rates affecting the cost of our
variable-rate debt.
FOREIGN CURRENCY - We have 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, we are 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 26, 2000, we had no
outstanding forward currency exchange contracts. We did not enter into any
other derivative financial instruments.
Directly and through our subsidiaries, we sell to various customers in the
European Union which adopted the Euro as their legal currency beginning
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. Our information systems are
capable of processing transactions in Euros. We do not expect costs in
connection with the Euro conversion to be material.
INTEREST RATES - At February 26, 2000, we had adjustable rate debt of
$72,423 and fixed rate debt of $549,502. The weighted average interest
rate for the adjustable and fixed rate debt was approximately 7.85% and
8.89%, respectively, at February 26, 2000. If interest rates were to
increase by 10% above current rates, the estimated impact on our financial
statements would be to reduce pretax income by approximately $569. We do
not engage in transactions intended to hedge our exposure to changes in
interest rates.
As of February 26, 2000, we 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%, we estimate interest income would increase or
decrease by approximately $215.
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this section is set forth beginning from page
F-1 of this Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth information regarding our directors and
executive officers as of May 1, 2000. Officers of our company are elected
annually by the Board of Directors.
Title Age Position
Amin J. Khoury...................... 61 Chairman of the Board
Robert J. Khoury.................... 58 Vice Chairman of the Board, Chief Executive Officer and Director
Thomas P. McCaffrey................. 46 Corporate Senior Vice President of Administration, Chief Financial Officer
and Assistant Secretary
Edmund J. Moriarty.................. 56 Corporate Vice President-Law, General Counsel and Secretary
Jeffrey P. Holtzman................. 44 Vice President-Finance, Treasurer and Assistant Secretary
Stephen R. Swisher.................. 41 Vice President and Controller
Marco C. Lanza...................... 43 Executive Vice President and General Manager, General Aviation/VIP Products
and Flight Structures and Engineering Services
Michael B. Baughan................. 41 Group Vice President and General Manager, Seating Products
Roman G. Ptakowski.................. 51 Group Vice President and General Manager, Interior Systems
Scott A. Smith...................... 45 Group Vice President and General Manager, Global Customer Service and Product
Support and Marketing and Sales
Jim C. Cowart....................... 48 Director*
Richard G. Hamermesh................ 52 Director*
Brian H. Rowe....................... 68 Director**
Hansjoerg Wyss...................... 64 Director**
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* Member, Audit Committee
** Member, Stock Option and Compensation Committee
Our 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 two Class I Directors (Brian H.
Rowe and Jim C. Cowart), 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 expire at the end of each
respective three year term and upon the election and qualification of successor
directors at annual meetings of stockholders held at the end of each fiscal
year. Our executive officers 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 our Chairman of the Board 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. We entered into an employment
agreement with Mr. Khoury extending through May 28, 2003.
ROBERT J. KHOURY has been a Director 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 our 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. We entered
into an employment agreement with Mr. Khoury 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. We entered into an employment
agreement with Mr. McCaffrey extending through May 28, 2003.
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 Vice President-Finance and Treasurer since
August 1999. Mr. Holtzman has been a Vice President since November 1996 and
Treasurer since September 1993. 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.
STEPHEN R. SWISHER has been Vice President and Controller since August
1999. Mr. Swisher has been Controller since 1996 and served as Director of
Finance from 1994 to 1996. Prior to 1994, Mr. Swisher held various positions,
including Manager of Division Accounting at Burger King Corporation and Audit
Manager with Deloitte & Touche LLP.
MARCO C. LANZA has been the Executive Vice President and General Manager,
General Aviation/VIP Products and Flight Structures and Engineering Services
since December 1999. From January 1994 through December 1999, Mr. Lanza was
Executive Vice President, Marketing and Product Development. From March 1992
through January 1994, Mr. Lanza was Vice President and General Manager of our
In-Flight Entertainment business. From 1987 through February 1992, Mr. Lanza was
our Vice President, Marketing and Product Development. We entered into an
Employment Agreement with Mr. Lanza extending through December 31, 2002.
MICHAEL B. BAUGHAN has been Group Vice President and General Manager of
Seating Products since May 1999. From September 1994 to May 1999, Mr. Baughan
was Vice President, Sales and Marketing for Seating Products. 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.
ROMAN G. PTAKOWSKI has been the Group Vice President and General Manager of
Interior Systems since December 1997. From September 1995 through December 1997,
Mr. Ptakowski was Vice President, Sales and Marketing for Galley Products. 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.
SCOTT A. SMITH has been Group Vice President and General Manager of
Global Customer Service and Product Support since February 1999 and Vice
President of the Global Marketing and Sales since December 1999. From April 1998
to February 1999, Mr. Smith was the Vice President and General Manager of the
In-Flight Entertainment business sold to a wholly-owned subsidiary of Sextant
Avionique, S.A. 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 that developed IBM's first PC Server and advanced desktop,
Staff Assistant to the Chairman of the Board and Director of Visual Subsystems
Group.
JIM C. COWART has been a Director since November 1989. Mr. Cowart is
currently an independent investor and a principal of Cowart & Co. LLC and EOS
Capital, Inc., private capital firms that we retain from time to time 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 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 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, which provides outsourced, integration, billing and
customer management services; and December 1998 - Dynatech Corporation, a test
equipment and communication systems.
HANSJOERG WYSS has been a Director since August 1989. He is currently
Chairman and Chief Executive Officer of Synthes-Stratec, Inc., a publicly
traded company that is the world's leading manufacturer 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 has served as the Chairman of Synthes, the world's
leading orthopedic trauma company, 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.
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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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Form 10-K:
1. Consolidated Financial Statement (See page F-1)
Independent Auditors' Report.
Consolidated Balance Sheets, February 26, 2000 and February 27, 1999.
Consolidated Statements of Operations and Comprehensive Income (Loss)
for the Years Ended February 26, 2000, February 27, 1999 and February
28, 1998.
Consolidated Statements of Stockholders' Equity for the Years Ended
February 26, 2000, February 27, 1999 and February 28, 1998.
Consolidated Statements of Cash Flows for the Years Ended February 26,
2000, February 27, 1999 and February 28, 1998.
Notes to Consolidated Financial Statements for the Years Ended February
26, 2000, February 27, 1999 and February 28, 1998.
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 and registration statements were filed during the
quarter ended February 26, 2000.
1. Form S-8 related to registration of shares, filed on February 16, 2000.
(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.
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 Bennett Corporation (10)
10.8 Acquisition Agreement dated July 21, 1998 among the Registrant and
Sellers named therein (16)
10.8a Amendment No. 1 to the Chase Manhattan Bank credit facility (24)
10.8b Amendment No. 2 to the Chase Manhattan Bank credit facility (24)
10.8c Agreement with Thomson-CSF Sextant, Inc. for the sale of a 49%
interest in the Company's In-Flight Entertainment business (24)
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)
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)
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 (20)
10.47 B/E Aerospace, Inc. Savings Plan Financial Statements for the
years ended December 31, 1998 and 1997 and Independent Auditors'
Report (20)
10.48 Supplemental Executive Money Purchase Retirement Plan (21)
10.49 First Amendment to the Supplemental Executive Money Purchase
Retirement Plan (21)
10.50 Supplemental Executive Deferred Compensation Plan III (21)
10.51 Amendment to the Amended and Restated 1989 Stock Option
Plan(22)
10.52 Amended and Restated 1989 Stock Option Plan (23)
10.53 1996 Stock Option Plan (23)
10.54 1994 Employee Stock Purchase Plan (25)
10.55 1996 Stock Option Plan (25)
10.56 Amendment No. 2 to Employment Agreement dated September 30, 1999
between the Registrant and Amin J. Khoury*
10.57 Amendment No. 2 to Employment Agreement dated September 30, 1999
between the Registrant and Robert J. Khoury*
10.58 Amendment No. 2 to Employment Agreement dated September 30, 1999
between the Registrant and Thomas P. McCaffrey*
10.59 B/E Aerospace, Inc. 1994 Employee Stock Purchase Plan Financial
Statements for the years ended February 26, 2000 and
February 28, 1999 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 Financial Data Schedule for the year ended February 26, 2000*
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* 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.
(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.
(20) Incorporated by reference to the Company's Annual Report on Form 10-K for
the Fiscal Year ended February 27, 1999, filed with the Commission on May
28, 1999.
(21) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended May 29, 1999, filed with the Commission on July 9,
1999.
(22) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended August 28, 1999, filed with the Commission on
September 28, 1999.
(23) Incorporated by reference to the Company's Registration Statement on
Form S-8 (No. 333-89145), filed with the Commission on October 15, 1999.
(24) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended November 27, 1999, filed with the Commission on
January 7, 2000.
(25) Incorporated by reference to the Company's Registration Statement on
Form S-8 (No. 333-30578), filed with the Commission on February 16, 2000.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this Form 10-K 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 1, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this Form
10-K has been signed on May 1, 2000 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/ 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
Page
Independent Auditors' Report F-2
Financial Statements:
Consolidated Balance Sheets, February 26, 2000 and February 27, 1999 F-3
Consolidated Statements of Operations and Comprehensive Income (Loss) for the F-4
Years Ended February 26, 2000, February 27, 1999 and February 28, 1998
Consolidated Statements of Stockholders' Equity for the Years Ended February F-5
26, 2000, February 27, 1999 and February 28, 1998
Consolidated Statements of Cash Flows for the Years Ended February 26, 2000, F-6
February 27, 1999 and February 28, 1998
Notes to Consolidated Financial Statements for the Years Ended February 26, F-7
2000, February 27, 1999 and February 28, 1998
Financial Statement Schedule:
Schedule II - Valuation and Qualifying Accounts for the Years Ended February F-24
26, 2000, February 27, 1999 and February 28, 1998
[Remainder of page intentionally left blank]
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 26, 2000 and February 27, 1999,
and the related consolidated statements of operations and comprehensive income
(loss), stockholders' equity, and cash flows for each of the three fiscal years
in the period ended February 26, 2000. Our audits also included the financial
statement schedule on page F-24. 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 auditing standards generally
accepted in the United States of America. 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 26, 2000 and February 27, 1999, and the results of
their operations and their cash flows for each of the three fiscal years in the
period ended February 26, 2000, in conformity with accounting principles
generally accepted in the Unites States of America. Also, in our opinion, such
financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.
DELOITTE & TOUCHE LLP
Costa Mesa, California
April 7, 2000
CONSOLIDATED BALANCE SHEETS, FEBRUARY 26, 2000 AND FEBRUARY 27, 1999
(in thousands, except share data)
ASSETS 2000 1999
- ------ ---- ----
Current Assets:
Cash and cash equivalents $ 37,363 $ 39,500
Accounts receivable - trade, less allowance for doubtful
accounts of $3,883 (2000) and $2,633 (1999) 103,719 140,782
Inventories, net 127,230 119,247
Other current assets 35,291 14,086
--------- ---------
Total current assets 303,603 313,615
--------- ---------
Property and equipment, net 152,350 138,730
Intangibles and other assets, net 425,836 451,954
--------- ---------
$ 881,789 $ 904,299
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 60,824 $ 63,211
Accrued liabilities 109,143 97,065
Current portion of long-term debt 3,723 9,916
--------- ---------
Total current liabilities 173,690 170,192
--------- ---------
Long-term debt 618,202 583,715
Other liabilities 25,400 34,519
Commitments and contingencies (Note 11) - -
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; 24,931,307 (2000) and 24,602,915 (1999)
shares issued and outstanding 249 246
Additional paid-in capital 249,682 245,809
Accumulated deficit (174,874) (124,077)
Accumulated other comprehensive loss (10,560) (6,105)
---------- ----------
Total stockholders' equity 64,497 115,873
---------- ----------
$ 881,789 $ 904,299
========== ==========
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
FOR THE YEARS ENDED FEBRURY 26, 2000, FEBRUARY 27, 1999 AND FEBRUARY 28, 1998
(in thousands, except per share data)
Year Ended
------------------------------------------------------------------------
February 26, February 27, February 28,
2000 1999 1998
---- ---- ----
Net sales $ 723,349 $ 701,325 $ 487,999
Cost of sales (Note 3) 543,682 522,875 309,094
--------- --------- ---------
Gross profit 179,667 178,450 178,905
Operating Expenses:
Selling, general and administrative 94,891 83,648 58,622
Research, development and engineering 54,004 56,207 45,685
Amortization of intangible assets 24,076 22,498 11,265
Transaction gain, expenses and other expenses (Note 4) - 53,854 4,664
-------- -------- --------
Total operating expenses 172,971 216,207 120,236
-------- -------- --------
Operating earnings (loss) 6,696 (37,757) 58,669
Equity in losses of unconsolidated subsidiary 1,289 - -
Interest expense, net 52,921 41,696 22,765
-------- -------- ---------
Earnings (loss) before income taxes and
extraordinary item (47,514) (79,453) 35,904
Income taxes 3,283 3,900 5,386
--------- --------- ---------
Earnings (loss) before extraordinary item (50,797) (83,353) 30,518
Extraordinary item - - 8,956
--------- --------- ---------
Net earnings (loss) $ (50,797) $ (83,353) $ 21,562
Other comprehensive income (loss):
Foreign exchange translation adjustment (4,455) (3,086) (2,137)
--------- --------- ---------
Comprehensive income (loss) $ (55,252) $ (86,439) $ 19,425
========= ========= =========
Basic earnings (loss) per share:
Earnings (loss) before extraordinary item $ (2.05) $ (3.36) $ 1.36
Extraordinary item - - (.40)
--------- --------- ---------
Net earnings (loss) $ (2.05) $ (3.36) $ .96
========= ========= =========
Weighted average common shares 24,764 24,814 22,442
Diluted earnings (loss) per share:
Earnings (loss) before extraordinary item $ (2.05) $ (3.36) $ 1.30
Extraordinary item - - (.38)
--------- --------- ---------
Net earnings (loss) $ (2.05) $ (3.36) $ .92
========= ========= =========
Weighted average common shares 24,764 24,814 23,430
========= ========= =========
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED FEBRUARY 26, 2000, FEBRUARY 27, 1999 AND FEBRUARY 28, 1998
(in thousands)
Accumulated
Common Stock Additional Other Total
------------ Paid-In Retained Comprehensive Stockholders'
Shares Amount Capital Deficit Loss Equity
------ ------ ------- -------- ---- ------------
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
Sale of stock under
employee stock purchase plan 107 1 1,335 - -
Exercise of stock options 49 - 442 - - 442
Employee benefit plan
matching contribution 172 2 2,096 - - 2,098
Net loss - - - (50,797) - (50,797)
Foreign currency translation
adjustment - - - - (4,455) (4,455)
------- ------- --------- -------- -------- --------
Balance, February 26, 2000 24,931 $ 249 $249,682 $(174,874) $(10,560) $ 64,497
======= ======= ========= ========= ======== ========
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED FEBRUARY 26, 2000, FEBRUARY 27, 1999 AND FEBRUARY 28, 1998
(Dollars in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES: 2000 1999 1998
---- ---- ----
Net earnings (loss) $ (50,797) $ (83,353) $ 21,562
Adjustments to reconcile net earnings (loss) to
net cash flows provided by operating activities:
Acquisition-related expenses - 79,155 -
Gain on sale of 51% interest in subsidiary - (25,301) -
Extraordinary item - - 8,956
Depreciation and amortization 42,237 40,690 24,160
Deferred income taxes 1,054 (277) (460)
Non-cash employee benefit plan contributions 2,098 2,301 1,677
Changes in operating assets and liabilities, net of effects from
acquisitions:
Accounts receivable 36,448 (21,407) (14,665)
Inventories (8,764) (10,935) (28,597)
Other current assets (10,146) (5,514) (5,141)
Payables, accruals and current taxes 4,756 39,856 2,106
-------- --------- --------
Net cash flows provided by operating activities 16,886 15,215 9,598
-------- --------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (33,169) (37,465) (28,923)
Change in intangibles and other assets (16,250) (19,429) (15,686)
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 (49,419) (226,849) (44,609)
-------- --------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under revolving lines of credit 28,924 36,267 5,450
Proceeds from issuance of stock, net of expenses 1,759 6,000 11,611
Principal payments on long-term debt - (31,714) (101,808)
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 30,683 86,690 155,672
------- --------- ---------
Effect of exchange rate changes on cash flows (287) (241) (125)
------- --------- ---------
Net increase (decrease) in cash and cash equivalents (2,137) (125,185) 120,536
Cash and cash equivalents, beginning of year 39,500 164,685 44,149
------- --------- ---------
Cash and cash equivalents, end of year $37,363 $ 39,500 $ 164,685
======= ========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during year for:
Interest, net $51,745 $ 27,994 $ 25,065
Income taxes, net 4,902 4,570 5,012
Interest capitalized in computer equipment and software 1,474 2,088 467
See notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED FEBRUARY 26, 2000, FEBRUARY 27, 1999 AND FEBRUARY 28, 1998
(in thousands, except per share data)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Basis of Presentation - BE Aerospace, Inc. and its
wholly-owned subsidiaries (the "Company" or "B/E") 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. The accompanying financial statements are
prepared in accordance with accounting principles generally accepted in the
United States of America.
Consolidation - The accompanying consolidated financial statements include
the accounts of BE 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. The Company's fiscal year ends on the last Saturday in
February.
Use of Estimates - The preparation of the consolidated financial statements
in conformity with accounting principles generally accepted in the United States
of America 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. A valuation allowance related to a deferred
tax asset is recorded when it's more likely than not that some portion or all of
the deferred tax asset will not be realized.
Revenue Recognition - Sales of assembled products and equipment are
recorded on the date of shipment or, if required, upon acceptance by the
customer. Service revenues are recorded when performed. Revenues and costs under
certain long-term contracts are recognized using contract accounting under the
percentage-of-completion method. 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.
Warranty Costs - Estimated costs related to product warranties are accrued
at the time products are sold.
Cash Equivalents - The Company considers all highly liquid debt instruments
purchased with an original maturity of three months or less to be cash
equivalents.
Intangible Assets - Intangible assets consist of goodwill and other
identified intangible assets associated with the Company's acquisitions.
Goodwill and other identified intangible assets are amortized on a straight-line
basis over their estimated useful lives. At each balance sheet date, management
assesses whether there has been a permanent impairment in the value of
intangible assets. If the carrying value of the asset exceeds the estimated
undiscounted future cash flows from operating activities of the related
business, a permanent impairment is deemed to have occurred. In this event, the
asset is written down accordingly. As of February 26, 2000, management
determined that no impairment existed.
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 are reviewed for events or
changes in circumstances that indicate that their carrying value may not be
recoverable. At February 26, 2000, management determined that no such impairment
existed.
Research and Development - Research and development expenditures are
expensed as incurred.
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 of subsidiaries
located outside the United States are translated into U.S. dollars at the rates
of exchange in effect at the balance sheet dates. Revenue 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 2002. SFAS No. 133, as amended, will require the
Company to record all derivatives on the balance sheet at fair value. The
Company does not currently engage 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 2002.
Reclassifications - Certain reclassifications have been made to the prior
year financial statements to conform to the February 26, 2000 presentation.
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).
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 26, 2000 and 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 was allocated to the net
assets acquired based on appraisals and management's estimates as follows:
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
-------
$78,000
=======
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 26, 2000 and 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 was allocated to the net assets acquired
based on appraisals and management's estimates as follows:
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
========
SMR Aerospace, Inc.
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, Inc. to purchase the minority equity interest in such subsidiary held
by the Employee Stock Ownership Plan. 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 26, 2000 and 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 was allocated to the net assets acquired
based on appraisals and management's estimates as follows:
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 epxenses 46,900
---------
$ 174,100
=========
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 "CF 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. CF 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 26, 2000 and February 27,
1999. The operating results of CF 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 was allocated to the net
assets acquired based on appraisals and management's estimates as follows:
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
========
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, S.A. (the "IFE
Sale"). The Company sold its 51% interest in IFE for $62,000 in cash. Terms of
the purchase agreement provided 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. The Company used substantially all of
the proceeds from the IFE Sale to repay a portion of its bank line of credit. On
October 5, 1999, the Company completed the sale of its remaining 49% equity
interest in IFE to Sextant and this sale did not result in a significant gain.
Total consideration for 100% of its equity interest in IFE, intra-entity
obligations and for the provision of marketing, product and technical consulting
services will range from a minimum of $93,600 up to $123,300 (inclusive of the
$62,000 received in February 1999 for the sale of a 51% interest in IFE). Terms
of the agreement provide for the Company to receive payments of $15,675 on
October 5, 2000 and 2001, which are included in other current assets and
intangibles and other assets, net, in the accompanying financial statements as
of February 26, 2000. A third and final payment will be based on the actual
sales and booking performances over the period from March 1, 1999 to December
31, 2001.
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 fiscal year presented.
2000 1999 1998
------------- ------------- --------------
Net sales $723,349 $ 689,816 $597,182
Net earnings (loss) (49,508) (32,728) 9,983
Diluted earnings (loss) per share $ (2.00) $ (1.32) $ 0.43
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.
Pretax cash outlays were not significant during fiscal 1999, and were
approximately $4,900 during fiscal 2000. Cash requirements were funded from
operations. The Company identified seven facilities, four domestic and three in
Europe, for consolidation. The consolidation activities were substantially
complete by the end of the fiscal year 2000.
The assets impacted by this program included 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 engineering
design and development, costs in excess of standard costs at budgeted
manufacturing levels and related expenditures.
The following table summarizes the restructuring costs:
Utilized in Balance at Utilized in
Original Fiscal 1999 Feb. 27, 1999 Fiscal 2000 Feb. 26, 2000
----------------------------------------------------------------------------
Severance, lease termination and other costs $ 4,949 $ 651 $ 4,298 $ 4,298 -
Impaired inventories, property and equipment 61,089 41,178 19,911 19,911 -
----------- ------------- ---------------- ---------------- ----------------
$66,038 $41,829 $ 24,209 $ 24,209 -
=========== ============= ================ ================ ================
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,
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 de-icing 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%-95% complete at February 26, 2000 and estimates
that the cost to complete these projects will aggregate approximately $4,522 and
will be incurred over a two-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
financial statements for the year ended February 27, 1999. The sale of the
Company's 49% equity interest in IFE to Sextant on October 5, 1999 did not
result in a significant gain.
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, the Company applied for and were 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:
2000 1999
---- ----
Raw materials and component parts $ 59,322 $ 44,352
Work-in-process 36,556 47,383
Finished goods 31,352 27,512
--------- ---------
$ 127,230 $119,247
========= =========
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:
Years 2000 1999
----- ---- ----
Land, buildings and improvements 10-30 $ 62,783 $ 56,943
Machinery 3-13 49,626 57,692
Tooling 3-10 28,213 26,313
Computer equipment and software 4-15 71,608 45,777
Furniture and equipment 2-10 6,850 7,098
-------- --------
219,080 193,823
Less accumulated depreciation and amortization (66,730) (55,093)
-------- ---------
$152,350 $ 138,730
======== =========
7. INTANGIBLES AND OTHER ASSETS
Intangibles and other assets consist of the following:
Straight-line
Amortization
Period (Years) 2000 1999
-------------- ---- ----
Goodwill 30 $ 197,736 $ 195,956
Developed technologies 16-17 104,770 103,945
Product technology, production plans and drawings 7-20 55,614 56,163
Replacement parts annuity 20 23,942 24,188
Product approvals and technical manuals 20 23,812 23,677
Trademarks and patents 20 23,017 23,380
Covenants not-to-compete 3-14 11,883 11,694
Other intangible assets 5-20 11,401 12,192
Assembled workforce 10 7,000 7,000
Debt issue costs 5-10 23,842 23,507
Other assets 28,355 17,660
Due from Sextant 15,675 28,025
---------- ---------
527,047 527,387
Less accumulated amortization (101,211) (75,433)
---------- ---------
$ 425,836 $ 451,954
========== =========
8. ACCRUED LIABILITIES
Accrued liabilities consist of the following: 2000 1999
---- ----
Other accrued liabilities $ 33,876 $ 34,953
Accrued salaries, vacation and related benefits 30,016 24,555
Accrued interest 17,808 17,232
Accrued acquisition expenses 4,514 11,703
Accrued product warranties 22,929 8,306
Accrued income taxes - 316
---------- ---------
$ 109,143 $ 97,065
========== =========
9. LONG-TERM DEBT
Long-term debt consists of the following:
2000 1999
---- ----
9 7/8% Senior Subordinated Notes $ 100,000 $ 100,000
8% Senior Subordinated Notes 249,502 249,440
9 1/2% Senior Subordinated Notes 200,000 200,000
Chase Manhattan Bank Credit Facility 72,300 43,216
Other long-term debt 123 975
---------- ----------
621,925 593,631
Less current portion of long-term debt (3,723) (9,916)
---------- ----------
$ 618,202 $ 583,715
========== ==========
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.
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"). 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
previously issued 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, including limitations on future indebtedness, restricted payments,
transactions with affiliates, liens, dividends, mergers and transfers of assets,
all of which were met by the Company as of February 26, 2000.
Credit Facilities
The Company maintains 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 $33,300. 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 26, 2000, indebtedness under the existing Bank
Credit Facility consisted of revolving credit facility outstanding borrowings of
$39,000 (bearing interest at LIBOR plus 1.75%, or approximately 7.8%), letters
of credit aggregating approximately $2,319 and outstanding borrowing under the
acquisition facility aggregating $33,300 (bearing interest at LIBOR plus 1.5%,
or approximately 7.9% as of February 26, 2000). 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 1.5%,
or approximately 6.5% as of February 27, 1999). The Bank Credit Facility, which
was most recently amended on December 21, 1999, contains customary affirmative
covenants, negative covenants and conditions of borrowing (such as interest
coverage and leverage ratios), all of which were met by the Company as of
February 26, 2000. Maturities of long-term debt are as follows:
Fiscal year ending in February:
2001 $ 3,723
2002 5,220
2003 9,000
2004 12,240
2005 42,240
Thereafter 549,502
---------
$ 621,925
=========
Interest expense amounted to $54,860, $44,794 and $25,834 for the years
ended February 26, 2000, February 27, 1999 and February 28, 1998, respectively.
10. INCOME TAXES
Income tax expense consists of the following:
2000 1999 1998
---- ---- ----
Current:
Federal $ - $ 1,004 $ (920)
State - - -
Foreign 2,229 5,157 6,766
---------- ---------- --------
2,229 6,161 5,846
Deferred:
Federal (19,296) (25,731) (3,666)
State (1,595) (8,169) (716)
Foreign 660 (4,828) (460)
---------- ---------- ---------
(20,231) (38,728) (4,842)
Change in valuation allowance 21,285 36,467 4,382
---------- ---------- ---------
$ 3,283 $ 3,900 $ 5,386
========== ========== =========
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:
2000 1999 1998
---- ---- ----
Statutory U.S. federal income tax expense (benefit) $ (16,630) $ (27,809) $ 9,432
Operating loss (with)/without tax benefit 16,827 25,940 (6,114)
Foreign tax rate differential 124 2,514 1,309
Goodwill amortization 2,529 1,507 537
Penalties - - 1,050
Other, net 433 1,748 (828)
--------- ---------- ---------
$ 3,283 $ 3,900 $ 5,386
========= ========== =========
The tax effects of temporary differences and carryforwards that give rise
to deferred income tax assets and liabilities consist of the following:
2000 1999 1998
---- ---- ----
Inventory reserves $ 6,161 $ 9,770 $ 3,987
Acquisition reserves (4,467) (2,190) (1,220)
Warranty reserves 7,956 1,832 2,440
Accrued liabilities 9,202 4,412 1,751
Other 1,123 1,551 1,761
--------- ---------- ----------
Net current deferred income tax asset 19,975 15,375 8,719
--------- ---------- ----------
Intangible assets (12,680) (11,926) (12,576)
Depreciation (3,701) (2,085) (1,853)
Net operating loss carryforward 51,270 21,853 27,462
Research credit carryforward 4,578 4,157 3,285
Deferred compensation 9,911 8,605 888
Research and development expense 22,550 24,232 -
Software development costs (5,429) (4,739) -
Deferred gain on IFE Sale - 6,600 -
Investment in Sextant - 4,351 -
Other 974 794 410
--------- ---------- ----------
Net noncurrent deferred income tax asset 67,473 51,842 17,616
--------- ---------- ----------
Valuation allowance (87,448) (66,163) (27,542)
--------- ---------- ----------
Net deferred tax assets (liabilities) $ - $ 1,054 $ (1,207)
========= ========== ==========
The Company established a valuation allowance of $87,448 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 the Company 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 the impact of changing fuel prices on the Company's customers, recent
cumulative losses, 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, remediation of its Seating
Products operating problems, 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 against its deferred tax assets.
As of February 26, 2000, the Company had approximately $115,627 of federal
operating loss carryforwards, which expire at various dates beginning in 2012,
federal research credit carryforwards of $4,578, which expire at various dates
beginning in 2007, and alternative minimum tax credit carryforwards of $974,
which have no expiration date. Approximately $20,000 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 $368 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 complete. The
finalization of this examination did not have a material adverse effect on
either the Company's results of operations or financial position.
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 July 2009. Rent expense for fiscal 2000, 1999 and 1998 was
approximately $13,587, $13,423 and $8,848, respectively. Future payments under
operating leases with terms currently greater than one year are as follows:
Fiscal year ending in February:
2001 $11,961
2002 9,122
2003 6,261
2004 2,792
2005 1,976
Thereafter 5,937
-------
$38,049
=======
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 three key officers of the Company. One of the agreements
provides for an officer to earn a minimum of $675 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 $625 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 $303 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).
Such deferred compensation has been accrued as provided for under the above
mentioned employment agreements, aggregated $17,091 as of February 26, 2000,
$15,318 as of February 27, 1999 and is included in other liabilities in the
accompanying financial statements. The Company has funded this obligation
through corporate-owned life insurance policies and other investments, all of
which are maintained in an irrevocable rabbi trust. In addition, the Company has
employment agreements with certain other key members of management that provide
for aggregate minimum annual base compensation of $4,867 expiring on various
dates through the year 2001.
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 and other investments
associated with these plans 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 and is generally funded in
Company stock. Total expense for the plan was $2,098, $2,301 and $1,677 related
to this plan for the years ended February 26, 2000, February 27, 1999 and
February 28, 1998, 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 cash match and earnings on deferrals. Deferred compensation
expense was $299, $231 and $163 in fiscal 2000, 1999 and 1998, respectively.
13. STOCKHOLDERS' EQUITY
Earnings (Loss) Per Share. Basic earnings per common share 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 below).
The following table sets forth the computation of basic and diluted net
earnings (loss) per share for the years ended February 26, 2000, February 27,
1999 and February 28, 1998:
2000 1999 1998
---- ---- ----
Numerator - Net earnings (loss) $(50,797) $(83,353) $21,562
========= ========= =======
Denominator:
Denominator for basic earnings (loss) per share -
Weighted average shares 24,764 28,814 22,442
Effect of dilutive securities -
Employee stock options - - 988
-------- -------- -------
Denominator for diluted earnings (loss) per share -
Adjusted weighted average shares 24,764 28,814 23,430
======== ======== =======
Basic net earnings (loss) per share $(2.05) $(3.36) $ .96
====== ====== =======
Diluted net earnings (loss) per share $(2.05) $(3.36) $ .92
====== ====== =======
Stock Option Plans. The Company has various stock option plans, including
the Amended and Restated 1989 Stock Option Plan, the 1991 Directors Stock Option
Plan, the 1992 Share Option Scheme and the Amended and Restated 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
vest 25% on the date of grant and 25% per year thereafter.
The following tables set forth options granted, canceled, forfeited and
outstanding:
FEBRUARY 26, 2000
Option Price Weighted Average
Options Per Share Price Per Share
------- ------------ ---------------
Outstanding, beginning of period 3,999,151 $ 7.00 - $ 31.50 $21.42
Options granted 2,335,200 7.00 - 17.75 12.93
Options exercised (48,950) 7.63 - 20.81 8.93
Options forfeited (477,700) 16.13 - 29.88 22.57
---------
Outstanding, end of period 5,807,701 7.00 - 31.50 18.00
=========
Exercisable at end of year 3,203,835 $ 7.00 - $ 31.50 $19.13
=========
FEBRUARY 27, 1999
Option Price Weighted Average
Options Per Share Price Per Share
------- ------------ ---------------
Outstanding, beginning of period 2,931,501 $ 7.00 - 31.50 $20.17
Options granted 1,453,500 16.44 - 29.50 22.41
Options exercised (292,100) 7.38 - 29.88 13.12
Options forfeited (93,750) 16.13 - 29.88 25.97
---------
Outstanding, end of period 3,999,151 7.00 - 31.50 21.42
=========
Exercisable at end of year 2,004,531 $ 7.00 - $ 31.50 $19.49
=========
FEBRUARY 28, 1998
Option Price Weighted Average
Options Per Share Price Per Share
------- ------------ ----------------
Outstanding, beginning of period 2,447,425 $ 0.81 - $ 24.93 $12.56
Options granted 1,394,250 21.50 - 31.50 27.71
Options exercised (852,174) 0.81 - 29.88 9.74
Options forfeited (58,000) 7.63 - 29.88 12.49
---------
Outstanding, end of period 2,931,501 7.00 - 31.50 20.17
=========
Exercisable at end of year 1,317,503 $ 7.00 - $ 31.50 $16.16
=========
At February 26, 2000, options were available for grant under of the
Company's Option Plans.
OPTIONS OUTSTANDING
AT FEBRUARY 26, 2000
- --------------------------------------------------------------------------------------------------------------------
Weighted Average
Remaining
Range of Options Weighted Average Contractual Life Options Weighted Average
Exercise Price Outstanding Exercise Price (years) Exercisable Exercise Price
-------------- ----------- --------------- -------------- --------------- ------------------
$ 7.00 - $ 8.50 1,482,900 $ 8.33 8.71 586,978 $ 8.21
$ 8.63 - $ 19.00 1,943,551 $ 16.77 7.90 1,116,728 $ 16.20
$ 20.81 - $ 28.13 1,555,750 $ 22.48 8.17 894,003 $ 22.53
$ 28.88 - $ 31.50 825,500 $ 29.84 7.55 606,126 $ 29.86
--------- ---------
5,807,701 3,203,835
========= =========
The estimated fair value of options granted during fiscal 2000, fiscal
1999 and fiscal 1998 was $10.70 per share, $13.93 per share and $13.56 per
share, respectively. The Company applies Accounting Principles Board 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 (loss) and net earnings (loss) per share for
the year ended February 26, 2000, February 27, 1999 and February 28, 1998
would have been reduced to the pro forma amounts indicated in the following
table:
2000 1999 1998
---- ---- ----
As reported
Net earnings (loss) $(50,797) $(83,353) $21,562
Diluted net earnings (loss) per share (2.05) (3.36) 0.92
Pro forma
Net earnings (loss) $(69,570) $(98,477) $13,232
Diluted net earnings (loss) per share (2.81) (3.97) 0.56
Weighted Average
Weighted average and pro forma
weighted average common shares 24,764 24,814 23,430
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 fiscal 2000, 1999 and 1998: risk-free
interest rates of 5.5%, 5.0% and 7.0%; expected dividend yields of 0.0%;
expected lives of 3.5 years, 3.5 years and 3 years; and expected volatility of
114%, 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 pro
forma adjustments shown above 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 106,530 and 151,654 shares
of common stock during fiscal 2000 and 1999 pursuant to this plan at an average
price per share of $12.54 and $14.30, respectively.
15. 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 operation 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") is comprised of four lines of business: Seating
Products, Interior Systems, Flight Structures and Engineering Services 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. Customers are supported by a single worldwide after-sale service
organization. As described in Note 2, the Company sold a 51% interest in IFE on
February 25, 1999 and its remaining 49% interest in IFE on October 5, 1999. IFE
was a separate, reportable segment.
The following table presents net sales and other financial information by
business segment:
FISCAL 2000
-----------
Aircraft Cabin Interior In-Flight
Products and Services Entertainment Total
----------------------- ------------- --------
Net sales $723,349 - $723,349
Gross profit 179,667 - 179,667
Operating earnings 6,696 - 6,696
Depreciation and amortization 42,237 - 42,237
Equity in earnings of unconsolidated subsidiary 1,289 - 1,289
Interest expense, net 52,921 - 52,921
Working capital 129,913 - 129,913
Total assets 881,789 - 881,789
Capital expenditures 33,169 - 33,169
FISCAL 1999
-----------
Aircraft Cabin Interior In-Flight
Products and Services Entertainment Total
----------------------- ------------- --------
Net sales $622,548 $ 78,777 $701,325
Gross profit 146,472 31,978 178,450
Operating loss (35,403) (2,354) (37,757)
Depreciation and amortization 35,505 5,185 40,690
Interest expense, net 37,543 4,153 41,696
Working capital 143,423 - 143,423
Total assets 904,299 - 904,299
Capital expenditures 36,309 1,156 37,465
FISCAL 1998
-----------
Aircraft Cabin Interior In-Flight
Products and Services Entertainment Total
----------------------- ------------- --------
Net sales $406,905 $ 81,094 $487,999
Gross profit 136,020 42,885 178,905
Operating earnings 47,250 11,419 58,669
Depreciation and amortization 21,129 3,031 24,160
Interest expense, net 21,840 925 22,765
Working capital 240,463 22,041 262,504
Total assets 622,551 59,206 681,757
Capital expenditures 24,654 4,269 28,923
Through February 27, 1999, the Company operated 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
its controlling interest in the IFE business, the Company operated a single
segment -- Aircraft Cabin Interior Products and Services. Revenues for similar
classes of products or services within these business segments for the fiscal
years ended February 2000, 1999 and 1998 are presented below:
Year Ended
------------------------------------------------------------
Feb. 26, 2000 Feb. 27, 1999 Feb. 28, 1998
------------- ------------- -------------
Seating products $ 324,878 $296,482 $252,091
Interior systems products 144,832 137,966 93,107
Flight structures and engineering services 122,051 85,876 32,896
Business jet and VIP products 81,096 64,856 -
Global customer service, product support and other 50,492 37,368 28,811
In-flight entertainment products - 78,777 81,094
---------------- ------------------ ------------------
Total Revenues $723,349 $701,325 $487,999
================ ================== ==================
The Company operated principally in two geographic areas, the United States
and Europe (primarily the United Kingdom), during the years ended February 26,
2000, February 27, 1999 and February 28, 1998. 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 (loss)for the
years ended February 26, 2000, February 27, 1999 and February 28, 1998 and
identifiable assets as of February 26, 2000, February 27, 1999 and February 28,
1998 by geographic area:
Net Sales:
2000 1999 1998
---- ---- ----
United States $ 510,728 $ 511,063 $365,957
Europe 212,621 190,262 122,042
--------- --------- --------
Total: $ 723,349 $ 701,325 $487,999
========= ========= ========
Operating Earnings (Loss):
United States $ (3,143) $ (43,613) $ 39,128
Europe 9,839 5,856 19,541
--------- --------- --------
Total: $ 6,696 $ (37,757) $ 58,669
========= ========= ========
Identifiable Assets:
United States $ 704,392 $ 726,056 $541,675
Europe 177,397 178,243 140,082
--------- --------- --------
Total: $ 881,789 $ 904,299 $681,757
========= ========= ========
Export sales from the United States to customers in foreign countries
amounted to approximately $188,530, $174,659 and $132,831 in fiscal 2000, 1999
and 1998, respectively. Net sales to all customers in foreign countries
amounted to $311,160, $297,474 and $232,691 in fiscal 2000, 1999 and 1998,
respectively. Net sales to Europe amounted to 26%, 22% and 23% in fiscal 2000,
1999 and 1998, respectively. Net sales to Asia amounted to 11%, 12% and 18% in
fiscal 2000, 1999 and 1998, respectively. Major customers (i.e., customers
representing more than 10% of net sales) change from year to year depending on
the level of refurbishment activity and/or the level of new aircraft purchases
by such customers. There were no major customers in fiscal 2000. During the
years ended February 27, 1999 and February 28, 1998, one customer accounted for
approximately 13% and 18% of the Company's net sales, respectively.
16. FAIR VALUE INFORMATION
The following disclosure of the estimated fair value of financial
instruments at February 26, 2000 and February 27, 1999 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 26, 2000 and February 27, 1999, the Company's 9 7/8% Notes
had a carrying value of $100,000 and a fair value of $95,250 and $104,500,
respectively. At February 26, 2000 and February 27, 1999, the Company's 8% Notes
had carrying values of $249,502 and $249,440 and fair values of $213,324 and
$241,957, respectively. At February 26, 2000 and February 27, 1999, the
Company's 9 1/2% Notes had a carrying value of $200,000 and fair values of
$185,000 and $209,000, respectively.
The fair value information presented herein is based on pertinent
information available to management as of February 26, 2000. 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.
17. SELECTED QUARTERLY DATA (Unaudited)
Summarized quarterly financial data for fiscal 2000 are as follows:
Year Ended February 26, 2000
--------------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
Net sales $ 185,032 $ 191,895 $ 164,578 $ 181,844
Gross profit (loss) 66,587 70,337 (2,008) 44,751
Net earnings (loss) 11,415 13,720 (66,038) (9,894)
Basic net earnings (loss) per share .46 .56 (2.66) (.40)
Diluted net earnings (loss) per share .46 .55 (2.66) (.40)
Summarized quarterly financial data for fiscal 1999 are as follows:
Year Ended February 27, 1999
------------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
------ ------- ------- -------
Net sales $ 139,991 $156,352 $195,751 $209,231
Gross profit (loss) 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)
[Remainder of page intentionally left blank]
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED FEBRUARY 26, 2000, FEBRUARY 27, 1999 AND FEBRUARY 28, 1998
(Dollars in thousands)
BALANCE BALANCE
AT BEGINNING AT END
OF YEAR EXPENSES OTHER DEDUCTIONS OF YEAR
-------- -------- ------ ---------- -------
DEDUCTED FROM ASSETS:
- ---------------------
Allowance for doubtful accounts:
2000 $2,633 $ 2,008 $ 103 $ 655 $ 3,883
1999 2,190 721 110 388 2,633
1998 4,864 481 - 3,155 2,190
Reserve for obsolete inventories:
2000 $21,150 $11,417 (1) $2,230 $13,825 (1) $16,512
1999 10,489 37,138 (2) 1,826 28,303 (2) 21,150
1998 8,282 9,973 - 7,766 10,489
(1) During fiscal 2000, the Company recorded a charge associated with the
rationalization of its product offerings and disposal of a substantial
portion of such inventories.
(2) 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.