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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 24, 2001
[ ] 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 06-1209796
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
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 $732,100,993 on May 21,
2001 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 21, 2001
was 32,063,231 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Certain sections of the registrant's Proxy Statement to be filed with the
Commission in connection with the 2001 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 .........36
ITEM 8. Consolidated Financial Statements and Supplementary Data ...........36
ITEM 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure ...............................................36
PART III
ITEM 10. Directors and Executive Officers of the Registrant .................37
ITEM 11. Executive Compensation .............................................40
ITEM 12. Security Ownership of Certain Beneficial Owners and Management......40
ITEM 13. Certain Relationships and Related Transactions......................40
PART IV
ITEM 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K ...41
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
General
We are the world's largest manufacturer of cabin interior products for
commercial and general aviation aircraft and for business jets. 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 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;
o a full line of airline food and beverage preparation and storage equipment,
including coffeemakers, water boilers, beverage containers, refrigerators,
freezers, chillers and ovens;
o both chemical and gaseous commercial aircraft oxygen delivery systems; and
o business jet and general aviation interior products, including an extensive
line of executive aircraft seats, indirect overhead lighting systems,
oxygen, safety and air valve products.
In addition, we design, develop and manufacture a broad range of cabin
interior structures such as galleys and crew rests, and provide comprehensive
aircraft cabin interior reconfiguration and passenger to freighter conversion
engineering services and component kits.
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 20
acquisitions, including four acquisitions during fiscal 2001, for an aggregate
purchase price of approximately $770 million in order to position ourselves as
the preferred global supplier to our customers.
Recent Acquisitions
Effective February 24, 2001 we completed the acquisition of four companies
that specialize in manufacturing precision-machined components and assemblies
for the aerospace industry. We acquired these businesses, Alson Industries,
Inc., T.L. Windust Machine, Inc., DMGI, Inc. and Maynard Precision, Inc. by
issuing to the former stockholders approximately 2.9 million shares of our
common stock, and paying them $5.3 million in cash. We also assumed or repaid
indebtedness of the acquired companies of approximately $11.8 million, for an
aggregate purchase price of approximately $70.1 million. The aggregate purchase
price includes $3.5 million of consideration, represented by 187,500 shares of
our common stock that was funded into an escrow account. The payment of this
consideration is contingent upon the business of one of the companies achieving
specified operating targets during fiscal 2002. Any proceeds from the sale of
these escrow shares in excess of the earnings incentive of $3.5 million will be
paid to us.
The terms of the acquisition agreements together provide for the selling
stockholders to receive net proceeds from the resale of their shares equal to a
total of approximately $53.1 million. These stockholders received the proceeds
from the sale of their shares pursuant to an underwritten offering on May 16,
2001.
We believe that these acquisitions will enable us to achieve a number of
important strategic objectives, including:
Positioning the company to become the outsourcing partner of choice in the
rapidly-growing business of converting passenger airliners to freighters.
Industry experts indicate that the size of the worldwide freighter fleet will
nearly double over the next twenty years, adding almost 2,600 aircraft. Industry
sources also estimate that more than 70 percent of that increase is expected to
come from converting commercial passenger jets to use as freighters. The cost to
purchase a new freighter is significantly greater than the cost to convert an
existing aircraft. The substantially lower capital cost of a converted aircraft
permits the development of economically viable alternatives to the current fleet
of aging freighter aircraft. We benefit substantially from the increase in
passenger to freighter conversions since we derive significant revenue from our
engineering design and certification services as well as the manufacture and
assembly of conversion kits. We have a highly skilled engineering services group
which is focused on engineering design, certification and program management of
aircraft reconfiguration and passenger to freighter conversions. As a result of
our recent acquisitions, we also have the capability to manufacture a broad
range of structural components, connectors and fasteners. We believe that these
acquisitions, coupled with our existing capabilities in the reconfiguration and
passenger to freighter conversion business, will position us to become an
outsourcing partner of choice in this important growth area.
Broadening and improving our manufacturing capabilities company-wide. We
believe these acquisitions are a significant step in establishing
manufacturing as a point of differentiation from our competitors. Each of
the newly-acquired businesses has earned very high ratings for quality and
on-time delivery. One of the acquired businesses is the only precision
machining company in the world that holds The Boeing Company's Gold
supplier performance rating, another of the acquired businesses has earned
Boeing's Silver supplier performance rating and a third has earned Boeing's
Bronze supplier performance rating. Among the approximately 20,000
suppliers to Boeing, less than one tenth of one percent have Gold ratings,
only one percent have ratings of Silver or better and only four percent
have ratings of Bronze or better. We intend to adopt the best practices
from these new businesses throughout our company. We believe that the
adoption of the best practices of these acquired businesses will assist us
in more efficiently designing products for manufacturing, reducing our
total manufacturing cycle times, improving quality and lowering costs.
Participating in the growth opportunity created by major aircraft original
equipment manufacturers' outsourcing strategies. The major aerospace
manufacturers are increasingly focusing on their areas of core competency
-- design, assembly, marketing and finance. As a result, the industry is in
the beginning stages of a widespread and accelerating movement toward
outsourcing the manufacturing of components and subassemblies. Original
equipment manufacturers are concentrating this outsourcing with a smaller
group of larger suppliers, aggressively paring down their supplier bases
and demanding from them superb quality and advanced manufacturing
practices. These industry trends, coupled with the performance rating
systems in place at Boeing and Airbus Industries, are placing significant
pressure on smaller suppliers to team up with larger entities. We believe
there is a significant growth opportunity for properly positioned and
larger, well-capitalized suppliers, like us, to capture increasingly larger
amounts of manufacturing and assembly work that will be outsourced to a
shrinking supplier base. As a result of these outsourcing and consolidation
trends, we expect the component manufacturing and assembly business to grow
at a faster rate than the overall aerospace industry, and we plan to be one
of the companies that benefits from this growth.
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 $2.8 billion during fiscal 2001.
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. 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 useful life of an aircraft.
The various product and service categories in which we currently
participate include:*
Commercial Aircraft Products
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 2001 was in
excess of $715 million. Including us, there are approximately ten
companies worldwide that supply aircraft seats.
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.
Cabin Interior Structures. This product category includes 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, heating, ventilation and air conditioning and lavatory and
sleep compartments. We are the worldwide leader in the design,
certification and manufacture of crew rest compartments. This product
category also includes 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 an 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.
Business Jet Products
This product category includes 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 are the industry's leading manufacturer with a broad
product line, and have the capability to provide complete interior
packages, including all design services, all interior components and
program management services for executive aircraft interiors.
Engineering Services
This product category includes providing engineering design,
integration, installation and certification services to the airline
industry. 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 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. We also
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 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) commercial aircraft
products, (2) business jet products, (3) engineering services and (4) in-flight
entertainment segments of the commercial airline and general aviation industry.
Following the sale of our controlling interest in the IFE business, we operated
in three segments - (1) commercial aircraft products, (2) business jet products
and (3) engineering services. Revenues for similar classes of products or
services within these business segments for the fiscal years ended February
2001, 2000 and 1999 are presented below:
Year Ended
(in thousands)
------------ --- -------------- -- -------------
Feb 24, Feb. 26, Feb. 27,
2001 2000 1999
---- ---- ----
Commercial aircraft products:
Seating products $288,035 $324,878 $296,482
Interior systems products 151,633 144,832 137,966
Cabin interior structures 71,614 110,026 94,544
------------ -------------- -------------
------------ -------------- -------------
511,282 579,736 528,992
Business jet products 86,182 81,096 64,856
Engineering services 68,980 62,517 28,700
In-flight entertainment - - 78,777
------------
------------ -------------- -------------
Total Revenues $666,444 $723,349 $701,325
============ ============== =============
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 strong
profitability, debt and equity financings and a closely managed fleet expansion.
Recently, however, increases in fuel prices and the softening of the global
economy have negatively impacted airline profitability. Should the airline
industry suffer a severe downturn, discretionary airline spending, including for
new aircraft and cabin interior refurbishments and upgrades, would be more
closely monitored or even reduced, which could have a material adverse effect on
our business results of operations and financial condition. Other factors
expected to affect the cabin interior products industry are the following:
Existing Installed Base. Existing installed product base
typically generates 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 approximately
12,500 aircraft as of January 2001, including 3,470 aircraft with
fewer than 120 seats, 6,470 aircraft with between 120 and 240
seats and 2,540 aircraft with more than 240 seats. Further, based
on industry sources, we estimate that there are currently over
10,600 business jets 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 as of
February 24, 2001.
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 2000 Current Market Outlook published by the Boeing
Commercial Airplane Group, or the Boeing Report, is projected to
grow at a compounded average rate of 4.8% per year by 2019,
increasing annual revenue passenger miles from approximately 2.0
trillion in 1999 to approximately 5.0 trillion by 2019. According
to the Airbus Industrie Global Market Forecast published in July
2000, 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
1.85 million passenger seats at the end of 1999 to approximately
4.17 million passenger seats at the end of 2019.
Rapidly Growing Passenger to Freighter Conversion Business.
Industry sources project that air cargo traffic will grow by six
percent to seven percent annually over the next twenty years,
approximately double the forecasted economic growth rate.
Industry experts indicate that the size of the worldwide
freighter fleet will nearly double over the next twenty years,
with more than 2,600 aircraft being added, taking retirements
into account. Industry sources also estimate that almost 70
percent of that increase is expected to come from converting
commercial passenger jets to use as freighters.
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 1073 during calendar 1999 including regional jets. New
aircraft deliveries (including regional jets) declined to 1043
aircraft in 2000. According to the Airline Monitor published in
February 2001, new deliveries (including regional jets) are
expected to increase to 1259 aircraft in 2001, with average
annual new aircraft deliveries (including regional jets) of 1110
during 2002 through 2005. Annual deliveries over the five-year
period ending calendar 2005 are expected to be 2.0 times to 2.9
times greater than the lowest level during the last cycle, which
ended in 1995.
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, business jet
aircraft deliveries amounted to 744 units in calendar 1999 and
758 units in calendar 2000. Industry sources indicate that
approximately 6,437 business jets will be built between 2000 and
2009 with a value of more than $78 billion.
Wide-body Aircraft Deliveries. The trend towards wide-body
aircraft is significant to us because wide-body aircraft require
almost five 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 17% of all new
commercial aircraft delivered in 2000, and are expected to
increase to 18% of new deliveries in 2003 and 21% of new
deliveries in 2004. In addition, according to the Airline Monitor
average annual deliveries of wide-body aircraft during calendar
2001 to 2004 are expected to be approximately 23% greater than
actual deliveries of such aircraft during calendar 2000.
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 2000 cups of coffee and 400
glasses of wine on a single flight.
Original Equipment Manufacturers Outsourcing Opportunity. The
industry is in the beginning stages of a widespread and
accelerating movement toward outsourcing the manufacturing of
components and subassemblies. Original equipment manufacturers
are concentrating this outsourcing with a smaller group of larger
suppliers, aggressively paring down their supplier bases and
demanding from them superb quality and advanced manufacturing
practices. As a result of these outsourcing and consolidation
trends, we expect the component manufacturing and assembly
business to grow at a faster rate than the overall aerospace
industry.
New Product Development. The aircraft cabin interior products
companies are engaged in intensive development and marketing
efforts for new products. 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:
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 customer
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 organization in
the cabin interior products industry, currently comprised of
approximately 618 engineers. We believe our research and
development 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. Our acquisition strategy is subject
to a number of risks including increasing leverage, the
application of restrictive covenants in connection with
additional debt incurred for any further acquisitions, the costs
of integrating any acquired companies and the creation of
significant goodwill.
Large Installed Base. We believe our large installed base of
products, estimated to be approximately $6.3 billion as of
February 24, 2001 (valued at replacement prices), is a strategic
strength. The airlines tend to purchase spare parts and retrofits
and refurbishment programs from the supplier of the original
equipment. As a result, we expect our large installed base to
generate continued retrofit, refurbishment and spare parts
revenue as airlines continue to maintain, evolve and reconfigure
their aircraft cabin interiors.
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 60% of our revenues for
the year ended February 24, 2001 were derived from these aftermarket
activities. A significant portion of our revenues and operating earnings
during fiscal 2001 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 758 units in calendar 2000. Industry sources indicate
that executive jet aircraft deliveries should be approximately 709 in
calendar 2001. 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, are expected to be a significant contributors to new
general aviation aircraft deliveries going forward. Industry sources
indicate that approximately 6,437 business jets will be built between 2000
and 2001 with a value of more than $78 billion, and that the number of
larger business jets, as described above, as a percentage of total business
jet deliveries will increase from 27% in calendar year 2000 to 31% in
calendar year 2001. 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 10,600 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;
o pursuing the highest level of quality in every facet of our
operations, from the factory floor to customer support;
o aggressively pursuing initiatives of continuous improvement of our
manufacturing operations to reduce cycle time, lower cost, improve
quality and expand our margins;
o pursuing a worldwide marketing and product support approach focused by
airline and general aviation airframe manufacturer and encompassing
our entire product line; and
o pursuing selective strategic acquisitions.
In addition, due to our recent acquisitions, we have expanded our business
strategies to better position ourselves to participate in the large and rapidly
growing business of aircraft reconfiguration and passenger to freighter
conversion, and also to capitalize on two significant trends in the aerospace
industry:
o major original equipment manufacturers are shrinking their supplier
base, and
o major original equipment manufacturers are accelerating the
outsourcing of components and sub-assemblies.
Products and Services
Commercial Aircraft Products
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
24, 2001 we had an aggregate installed base of approximately 1.2 million
aircraft seats valued at replacement prices of approximately $2.7 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 leg rests, 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 United States and worldwide markets. Our
Silhouette(TM) 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 leading 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 24, 2001 we had an aggregate installed base of such equipment,
valued at replacement prices, in excess of $970 million.
Coffee Makers. We are the leading manufacturer of aircraft coffee makers.
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 Combi(TM) unit which will both
brew coffee and boil water for tea while utilizing 25% less electrical
power than traditional 5,000-watt water boilers. We also manufacture a
cappuccino/espresso maker.
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.
Cabin Interior Structures
We are a leader in designing and manufacturing galley structures and crew
rest compartments. We estimate that as of February 24, 2001, we had an installed
base of such equipment, valued at replacement prices, of approximately $866
million.
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, heating, ventilation and
air conditioning and 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.
Business Jet Products
We entered the market for business jet 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 24, 2001 we had an
aggregate installed base of such equipment, valued at replacement prices, of
approximately $1.4 billion.
Engineering Services
Our engineering services operation is a leader in providing design,
integration, installation and certification services associated with the
reconfiguration of commercial aircraft cabin interiors and converting commercial
aircraft to freighters. We estimate that as of February 24, 2001, we had an
installed base of such equipment, valued at replacement prices, of approximately
$381 million.
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.
Engineering Design, Integration, Installation and Certification Services.
We are 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.
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 $49 million, $54 million and $56 million for the years
ended February 24, 2001, February 26, 2000 and February 27, 1999. We employed
approximately 618 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. As of February 24,
2001, our sales and marketing organization consisted of 110 persons, along with
31 independent sales representatives. Our sales to non-U.S. airlines were
approximately $280 million for the fiscal year ended February 24, 2001, $311
million for the fiscal year ended February 26, 2000 and $298 million for the
fiscal year ended February 27, 1999, or approximately 42%, 43% and 42%,
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 68% of the purchases of products
manufactured by our company during the fiscal year ended February 24, 2001.
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 Federal Aviation Administration 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 in-flight
entertainment of a contract.
During fiscal 2001, approximately 86% of our total revenues were derived
from the airlines compared with 82% in fiscal 2000. Approximately 60% of our
revenues during fiscal 2001 and 61% of our revenues during fiscal 2000 were from
refurbishment, spares and upgrade programs. During the year ended February 24,
2001, and for the year ended February 26, 2000, no single customer accounted for
10% of total revenues. During the year ended February 27, 1999, one customer
accounted for approximately 13% 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 24, 2001 was approximately $600
million, as compared with a backlog of $500 million on November 25, 2000, a low
of $450 million on August 26, 2000 and $470 million on February 26, 2000. Of our
backlog at February 24, 2001, approximately 66% is deliverable by the end of
fiscal 2002; 62% of our total backlog is with North American carriers,
approximately 10% is with European carriers and approximately 19% is with Asian
carriers.
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
in the rapidly growing passenger to freighter conversion business include Boeing
Airplane Services, Elbe Flugzeugwerko GMBH, a division of EADS, Israel Aircraft
Industries, Pemco World Air Services and Aeronavili. Our principal competitors
for other product and service offerings in our flight services and engineering
services include 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 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 Federal Aviation Administration component
certificates and perform component repairs at a number of our U.S. facilities
under Federal Aviation Administration repair station licenses. We also hold an
approval issued by the UK Civil Aviation Authority to design, manufacture,
inspect and test aircraft seating products in Leighton Buzzard, England and in
Kilkeel, Northern Ireland and 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 Federal Aviation Administration adopted Technical
Standard Order C127, or 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 Federal Aviation Administration 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 Federal Aviation Administration'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
Our operations are subject to extensive and changing federal, state and
foreign laws and regulations establishing health and environmental quality
standards, including those governing discharges and pollutants into the air and
water and the management and disposal of hazardous substances and wastes. We may
be subject to liability or penalties for violations of those standards. We are
also subject to laws and regulations, such as the Federal Superfund law and
similar state statutes, 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 environmental
laws and regulations. However, we could become 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 relating to
our facilities or operations.
Patents
We currently hold 97 United States patents and 47 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 24, 2001, we had approximately 4,300 employees.
Approximately 69.2% of these employees are engaged in manufacturing, 14.4% in
engineering, research and development and 16.4% in sales, marketing, product
support and general administration. Approximately 18% of our worldwide employees
are represented by unions. A labor contract representing 301 U.S. employees
expires on May 4, 2003. The labor contract with the only other domestic union,
which represents approximately 2% of our employees, also runs through the year
2003. We consider our employee relations to be good.
ITEM 2. PROPERTIES
As of February 24, 2001, we had 20 principal facilities, comprising an
aggregate of approximately 1.7 million square feet of space. The following table
describes the principal facilities and indicates the location, function,
approximate size and ownership status of each location.
- -------------------------------------- ----------------------------------------------- ------------- ---------------
Facility
Size
Location Products and Function (Sq. Feet) Ownership
- -------------------------------------- ----------------------------------------------- ------------- ---------------
Corporate
- -------------------------------------- ----------------------------------------------- ------------- ---------------
Wellington, Florida Corporate headquarters, marketing and sales, 17,700 Owned
customer service and product support,
finance, human resources, legal
- -------------------------------------- ----------------------------------------------- ------------- ---------------
Seating Products
- -------------------------------------- ----------------------------------------------- ------------- ---------------
Litchfield, Connecticut........... Manufacturing and warehousing, customer
service and product support, research and 147,700 Owned
development, finance and administration
Winston-Salem, North Carolina..... Manufacturing and warehousing, customer
service and product support, research and 264,800 Owned
development, finance
Leighton Buzzard, England......... Manufacturing and warehousing, customer
service and product support, finance 114,000 Owned
Kilkeel, Northern Ireland......... Manufacturing and warehousing, customer 100,500 Owned
service and product support, finance
- -------------------------------------- ----------------------------------------------- ------------- ---------------
Interior Systems Products
- -------------------------------------- ----------------------------------------------- ------------- ---------------
Delray Beach, Florida............. Manufacturing and warehousing, research and 52,000 Owned
development, finance and administration
Anaheim, California............... Manufacturing and warehousing, research and
development, finance 98,000 Leased
Lenexa, Kansas.................... Manufacturing and warehousing, customer
service and product support, finance 80,000 Owned
Nieuwegein, The Netherlands....... Manufacturing and warehousing, research and
development, finance 39,000 Leased
- -------------------------------------- ----------------------------------------------- ------------- ---------------
Cabin Interior Structures
- -------------------------------------- ----------------------------------------------- ------------- ---------------
Jacksonville, Florida............. Manufacturing and warehousing, research and
development, customer service and product 75,000 Owned
support, finance
Dafen, Wales...................... Manufacturing and warehousing, research and
development, customer service and product 80,000 Owned
support, finance
Long Beach, California............ Manufacturing and warehousing 34,000 Owned
Fontana, California............... Manufacturing and warehousing 23,000 Leased
Compton, California............... Manufacturing and warehousing 58,202 Leased
Gardenia, California.............. Manufacturing and warehousing 33,576 Leased
Vista, California................. Manufacturing and warehousing 25,000 Leased
- -------------------------------------- ----------------------------------------------- ------------- ---------------
- -------------------------------------- ----------------------------------------------- ------------- ---------------
Facility
Size
Location Products and Function (Sq. Feet) Ownership
- -------------------------------------- ----------------------------------------------- ------------- ---------------
Business Jet Products
- -------------------------------------- ----------------------------------------------- ------------- ---------------
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
development, customer service and product 132,600 Owned
support, finance
- -------------------------------------- ----------------------------------------------- ------------- ---------------
Engineering Services
- -------------------------------------- ----------------------------------------------- ------------- ---------------
Arlington, Washington............. Manufacturing and warehousing, research and
development, customer service and product 130,200 Leased
support, finance and administration
- -------------------------------------- ----------------------------------------------- ------------- ---------------
We believe that our facilities are suitable for their present intended
purposes and adequate for our present and anticipated level of operations.
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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.
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 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
Fiscal Year Ended February 24, 2001
First Quarter 9 5 7/8
Second Quarter 16 3/8 6 3/8
Third Quarter 17 1/4 11 13/16
Fourth Quarter 23 15/16 13 1/16
On May 16, 2001, as part of a 5,750,000 share offering, we completed the
sale of approximately 2.8 million primary shares of common stock at $19.50 per
share. As described in "Recent Acquisitions" in Item 1, approximately 2.9
million shares of our common stock were issued to the former owners of the four
companies acquired effective February 24, 2001. These shares were sold on behalf
of the former owners as part of the offering, for which they received
approximately $53.1 million. We received approximately $50.3 million, net of
estimated offering costs, from the sale of the 2.8 million shares by us.
Following this offering we had 32,063,231 shares outstanding. On May 21, 2001
the closing price of our common stock as reported by Nasdaq was $23.06 per
share. As of such date, we had 832 shareholders of record, and we estimate that
there are approximately 15,500 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 8 7/8%, 8% and 9 1/2% Senior Subordinated Notes
were issued, permit the declaration or payment of cash dividends only in certain
circumstances described therein.
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ITEM 6. SELECTED FINANCIAL DATA
(In thousands, except per share data)
During fiscal 1999, we acquired Aerospace Interiors, Inc., Puritan-Bennett
Aero Systems Co., substantially all of the assets of Aircraft Modular Products,
Aerospace Lighting Corporation and SMR Aerospace, Inc., and its affiliates.
Effective as of February 24, 2001, we acquired Alson Industries, Inc., T.L.
Windust Machine, Inc., Maynard Precision, Inc. and DMGI, Inc. ("2001
Acquisitions"). The financial data as of and for the fiscal years ended February
24, 2001, February 26, 2000, February 27, 1999, February 28, 1998 and February
22, 1997 have been derived from financial statements which have been audited by
our independent auditors. The following financial information is qualified by
reference to, and should be read in conjunction with, our historical financial
statements, including notes thereto, which are included elsewhere in this Form
10-K.
Year Ended
-----------------------------------------------------------------
---------- ------------ ---------------- ---------- -------------
Feb. 24, Feb. 26, Feb. 27, Feb. 28, Feb. 22,
2001 (a) 2000(c) 1999(d),(e) 1998(f) 1997
---- ---- ---- ---- ----
Statements of Operations Data:
Net sales............................... $666,444 $723,349 $701,325 $487,999 $412,379
Cost of sales........................... 416,626 543,682 522,875 309,094 270,557
------- ------- -------- ------- --------
Gross profit............................ 249,818 179,667 178,450 178,905 141,822
Operating expenses:
Selling, general and administrative... 92,541 94,891 83,648 58,622 51,734
Research, development and engineering. 48,898 54,004 56,207 45,685 37,083
Amortization.......................... 23,408 24,076 22,498 11,265 10,607
Acquisition and initial public offering 8,276
costs
Transaction gain, expenses and other expenses -- -- 53,854 4,664 --
-------- -------- -------- -------- --------
Operating earnings (loss)............... 76,695 6,696 (37,757) 58,669 42,398
Equity in losses of unconsolidated subsidiary -- 1,289 -- -- --
Interest expense, net................... 54,170 52,921 41,696 22,765 27,167
-------- -------- -------- -------- --------
Earnings (loss) before income taxes and
extraordinary item.................... 22,525 (47,514) (79,453) 35,904 15,231
Income taxes ........................... 2,253 3,283 3,900 5,386 1,522
-------- -------- -------- -------- --------
Earnings (loss) before extraordinary item 20,272 (50,797) (83,353) 30,518 13,709
Extraordinary item...................... -- -- -- 8,956 --
-------- -------- -------- -------- --------
Net earnings (loss)................................... $ 20,272 $(50,797) $(83,353) $ 21,562 $ 13,709
======== ======== ======== ======== ========
Basic earnings (loss) per share:
Earnings (loss) before extraordinary item $ .80 $ (2.05) $ (3.36) $ 1.36 (f) $ .77
Extraordinary item...................... -- -- -- (.40) --
-------- ----------- -------- -------- --------
Net earnings (loss)..................... $ 0.80 $ (2.05) (3.36) $ .96 $ .77
======== ======== ======== ======== ========
Weighted average common shares.......... 25,359 24,764 24,814 22,442 17,692
Diluted earnings (loss) per share:
Earnings (loss) before extraordinary item $ .78 $ (2.05) $ (3.36) $ 1.30 $ .72
Extraordinary item...................... -- -- -- (.38) --
-------- ----------- -------- -------- --------
Net earnings (loss)..................... $ 0.78 $ (2.05) $ (3.36) .92 .72
======== ======== ======== ======== ========
Weighted average common shares.......... 25,889 24,764 24,814 23,430 19,097
Balance Sheet Data (end of period):
Working capital......................... $174,897(b) $129,913 $143,423 $262,504 $122,174
Intangible and other assets net (g)..... 433,379 425,836 451,954 195,723 189,882
Total assets............................ 935,995 881,789 904,299 681,757 491,089
Long-term debt.......................... 603,812 618,202 583,715 349,557 225,402
Stockholders' equity.................... 135,274(b) 64,497 115,873 196,775 165,761
SELECTED FINANCIAL DATA (continued)
Footnotes to Table
(a) Our operating results during fiscal 2001 were negatively impacted by
costs related to recently completed acquisitions and costs
attributable to the termination of a proposed initial public offering
by our subsidiary Advanced Thermal Sciences. The aggregate impact of
these items on our results was $8,276. Excluding such costs for the
year ended February 24, 2001, our operating earnings were $84,971 and
net earnings were $27,720.
(b) On April 17, 2001 we sold $250,000 of 8 7/8% senior subordinated notes
in a private offering. The net proceeds less estimated debt issue
costs from the sale of these notes were approximately $242,800.
Approximately $66,700 of the net proceeds were used to repay the
Company's bank credit facility, which was terminated. On April 17,
2001 we issued a notice to call the 9 7/8% notes at a price of
approximately $104,900 (including a call premium of approximately
$4,900). On May 16, 2001 we completed a 5,750,000 share offering of
our common stock at $19.50 per share. The former owners of the 2001
Acquisitions received approximately $53.1 million from the sale of the
2.9 million shares we issued to them as part of the 2001 Acquisitions.
We received approximately $50.3 million, net of estimated offering
costs, from the sale of approximately 2.8 million shares by us.
(c) Our operating results during fiscal 2000 were negatively impacted due
to operational problems in our seating operations. These problems,
which have since been resolved, arose due to a misalignment between
our manufacturing processes, our newly installed Enterprise Resource
Planning, or ERP, system and our product and service line
rationalization. The aggregate impact of these problems on our results
for the year ended February 26, 2000 was $94,375. Substantially all of
these costs have been included as a component of cost of sales.
Excluding such costs and charges for the year ended February 26, 2000
our gross profit was $263,340, our gross margin was 36.4%, our
operating earnings were $101,071 and our net earnings were $40,578.
(d) As a result of acquisitions in 1999, 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 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 sale of our in-flight entertainment business.
During fiscal 1999, we implemented a restructuring plan. In connection
therewith we closed 7 plants and we reduced the size of our workforce
by approximately 1,000. As a result, we incurred $87,825 of cost which
included both the restructuring referred to above and the
rationalization of related product lines and the introduction of new
products. Excluding such costs and expenses for the year ended
February 27, 1999, our gross profit was $266,275, our operating
earnings were $103,922 and our net earnings were $51,648.
(e) During fiscal 1999, we acquired Aerospace Interiors, Inc.,
Puritan-Bennett Aero Systems Co., Aircraft Modular Products, Aerospace
Lighting Corporation and SMR Aerospace, Inc. and its affiliates. The
results of such acquisitions are included in our historical financial
data from the date of acquisition.
(f) In fiscal 1998, we settled a long-running dispute with the U.S.
Government over export sales between 1992 and 1995 to Iran Air. We
recorded a charge of $4,664 in fiscal 1998 related to fines, civil
penalties and associated legal fees arising from the settlement. 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 due
2003.
(g) Intangible and other assets consist of goodwill and other identified
intangible assets associated with our acquisitions. Goodwill and other
identified assets are amortized on a straight-line basis over their
estimated useful lives, which range from 3-30 years. See also "Risk
Factors - Our total assets include substantial intangible assets. The
write-off of a significant portion of unamortized intangible assets
would negatively affect our results of operations."
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
We are the world's largest manufacturer of cabin interior products for
commercial and general aviation aircraft and for business jets. 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 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;
o a full line of airline food and beverage preparation and storage
equipment, including coffeemakers, water boilers, beverage containers,
refrigerators, freezers, chillers and ovens;
o both chemical and gaseous commercial aircraft oxygen delivery systems;
and
o business jet and general aviation interior products, including an
extensive line of executive aircraft seats, indirect overhead lighting
systems, oxygen, safety and air valve products.
In addition, we design, develop and manufacture a broad range of cabin
interior structures such as galleys and crew rests, and provide comprehensive
aircraft cabin interior reconfiguration and passenger to freighter conversion
engineering services and related component kits.
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 $6.3 billion as of February 24,
2001 (valued at replacement prices), gives us a significant advantage over our
competitors in obtaining orders both for spare parts and for refurbishment
programs, principally due to the tendency of the airlines to purchase equipment
for such programs from the original supplier.
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 20
acquisitions, including four acquisitions during fiscal 2001, for an aggregate
purchase price of approximately $770 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 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 consolidating these operations,
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.
During fiscal 2000, we restructured our seating products operations and
decided to discontinue certain product and service offerings. This product line
rationalization eliminated two additional facilities bringing the total number
of facilities down to 14 from 31. It also resulted in a headcount reduction of
approximately 700. The total cost of this product and service line
rationalization was approximately $34 million.
All of the aforementioned initiatives to integrate, rationalize and
restructure the businesses acquired prior to fiscal 2001 had an aggregate cost
of approximately $180 million and have already been expensed and paid for. 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 techniques 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.
We accomplished a number of initiatives during fiscal 2001, which, together
with the actions taken above and the strategic acquisitions discussed below,
should positively impact our future performance and help us achieve, we believe,
based on our current expectations, higher sales and operating earnings in fiscal
2002 as compared to fiscal 2001.
Effective February 24, 2001 we completed the acquisition of four companies
that specialize in manufacturing precision-machined components and assemblies
for the aerospace industry. We acquired these businesses, Alson Industries,
Inc., T.L. Windust Machine, Inc. DMGI, Inc. and Maynard Precision, Inc., by
issuing to the former stockholders a total of approximately 2.9 million shares
of our common stock, paying them a total of $5.3 million in cash and assuming or
repaying indebtedness of the acquired companies totaling approximately $11.8
million. This consideration represents an aggregate purchase price of
approximately $70.1 million. The aggregate purchase price includes approximately
$3.5 million of consideration, for which 187,500 shares of our common stock was
funded into an escrow account. The payment of the approximately $3.5 million is
contingent upon the business of one of the companies achieving specified
operating targets during the year ending February 2002. Any proceeds from the
sale of these shares in excess of the earned incentive will be paid to us. Each
of these transactions has been accounted for using the purchase method of
accounting.
During fiscal 2002, through May 16, 2001, we completed the acquisition of
one additional company, Nelson Aero Space Inc., which is involved in the
manufacture and distribution of fittings for the aerospace industry, for
approximately $20 million in cash.
Beginning in 1994, the airlines experienced a turnaround in operating
results, leading the domestic airline industry to a period of strong aggregate
operating earnings. Airline company balance sheets were substantially
strengthened and their liquidity enhanced as a result of this profitability,
debt and equity financings and closely managed fleet expansion. Since 2000,
however, increases in fuel prices, the softening of the global economy and labor
unrest have negatively impacted airline profitability.
During the latter part of fiscal 1999 and throughout fiscal 2000, our
seating operations 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. Penalties
and out of sequence charges were imposed by our customers and the airframe
manufacturers as a result of our late deliveries as provided for under the terms
of our various contracts with these parties. These problems also 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.
New product development is a strategic tool for our company. Our customers
regularly request that we engage in new product development and enhancement
activities. We believe that these activities, if properly focused and managed,
will protect and enhance our leadership position. Engineering, research and
development spending as a percentage of sales have been approximately 7% for the
past several years, and is expected to remain at that level for the foreseeable
future.
We also believe in providing our businesses with the tools required to
remain competitive. In that regard, we have, and will continue to invest in
property and equipment that enhances our productivity. Over the past several
years, annual capital expenditures, exclusive of our new information technology
system, were approximately $19 million. Going forward and taking into
consideration the recent acquisitions, we expect that annual capital
expenditures will be approximately $24 million.
All dollar amounts in the following discussion and analysis are presented
in thousands of dollars, except per share amounts.
Year Ended February 24, 2001 Compared with Year Ended February 26, 2000
Net sales for fiscal 2001 were $666,444, a decrease of $56,905, or 7.9% as
compared to the prior year. The year over year decrease in sales is primarily
attributable to lower shipments of seating products and galley structures, as
well as decisions made in the prior year to discontinue certain low-margin
products and services. The decreased sales of seating and galley structures are
consistent with the 11% reduction in new aircraft deliveries in calendar 2000 as
compared to calendar 1999, and also reflect last year's problems in our seating
business, which have since been resolved.
Our backlog was approximately $600,000 as of February 24, 2001. Our backlog
at the end of the prior year was approximately $470,000. Backlog increased
substantially in the last six months of fiscal 2001, from a fiscal 2001 low of
about $450 million as of August 2000. The higher backlog since August 2000
reflects organic growth of 17% and overall growth of 33% over the six-month
period. Approximately $398,000, or 66%, of our backlog at February 2001 is
deliverable by the end of fiscal 2002.
Improved gross and operating profit margins were key contributors to B/E's
improved financial performance for fiscal 2001 compared to fiscal 2000. Gross
profit was $249,818 (37.5% of net sales) for fiscal 2001. Gross profit was
$70,151 higher than fiscal 2000 gross profit of $179,667 (24.8% of net sales),
reflecting a gross margin improvement of 1,270 basis points compared to fiscal
2000. The previous year's gross margin was adversely impacted by manufacturing
problems in the seating operations. The current year's gross margin improvement
was due to two principal factors: the turnaround in our seating business and the
success of our continuous improvement initiatives. Aided by our information
technology investments, these initiatives are enabling us to substantially
improve both quality and productivity and reduce costs, particularly in our
manufacturing operations.
Selling, general and administrative expenses were $92,541 (13.9% of net
sales) for fiscal 2001, which was $2,350 less than the prior-year amount of
$94,891 (13.1% of net sales).
Research, development and engineering expenses were $48,898 (7.3% of net
sales) for fiscal 2001, a decrease of $5,106 compared to $54,004 (7.5% of net
sales) for the previous year. The decrease is primarily due to substantially
lower spending in our seating and galley operations.
Amortization expense for fiscal 2001 was $23,408 (3.5% of net sales) as
compared to $24,076 (3.3% of net sales) in the prior year.
Operating earnings were $84,971 (12.7% of net sales) for fiscal 2001,
excluding $8,276 of costs related to the four recent acquisitions and the
termination of Advanced Thermal Sciences' (a wholly-owned subsidiary) initial
public offering. Including such costs, operating earnings were $76,695 (11.5% of
net sales) during fiscal 2001, as compared to $6,696 (0.9% of net sales) in the
prior year.
Interest expense, net was $54,170 during fiscal 2001, or $1,249 greater
than interest expense of $52,921 for the prior year. The increase is primarily
due to higher interest rates on the Company's bank borrowings.
Earnings before income taxes in the current year were $30,801 excluding the
acquisition-related and IPO costs. Including such costs, earnings before income
taxes were $22,525 for fiscal 2001 compared to a loss of $(47,514) in the
previous year.
Income tax expense for fiscal 2001 was $2,253 as compared to $3,283 in the
prior year.
B/E's net earnings for fiscal 2001 were $27,720, excluding the
acquisition-related and IPO costs. Including such costs, net earnings were
$20,272, or $0.80 per share (basic) and $0.78 (diluted), as compared to a net
loss of $(50,797) or $(2.05) per share (basic and diluted) in the previous year.
Year Ended February 26, 2000 Compared to 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
revenues from our in-flight entertainment business, in fiscal 2000 and fiscal
1999 was approximately 7.4% and 13.5%, respectively, whereas revenue growth on a
pro forma basis for fiscal 2000 and 1999, giving effect to our acquisitions in
fiscal 1999 and excluding revenues from our in-flight entertainment business for
both periods, was approximately 4.1% in 2000 and 14.1% in 1999. Our backlog was
approximately $470,000 as of February 26, 2000 and approximately $640,000 as of
February 26, 1999.
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 have now
resolved the operating problems in our seating business.
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% of net sales. The decrease in gross
profit before special costs and charges is primarily attributable to the mix of
products sold during the year.
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.
Selling, general and administrative expenses were $94,891 (13.1% of net
sales) for fiscal 2000, which was $11,243, or 13.4%, 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 our acquisitions in 1999.
A portion of the purchase price for our acquisitions in 1999 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 our acquisitions in 1999.
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.
Liquidity and Capital Resources
Our liquidity requirements consist of working capital needs, on-going
capital expenditures and payments of interest and principal on our indebtedness.
Our primary requirements for working capital have been related to the reduction
of accrued liabilities, including interest, accrued penalties incurred in
connection with the fiscal 2000 seating manufacturing problems, incentive
compensation, warranty obligations and accrued severance. Our working capital
was $174,897 as of February 24, 2001, as compared to $129,913 as of February 26,
2000 and $143,423 as of February 27, 1999.
At February 24, 2001, our cash and cash equivalents were $60,271, as
compared to $37,363 at February 26, 2000. Cash provided from operating
activities was $57,860 for fiscal 2001 and was $16,886 for fiscal 2000. For the
fiscal year ended February 26, 2000, accounts receivable decreased over the
prior fiscal year balance, while sales increased over the prior fiscal year
level. During fiscal 2001 and 2000, we completed significant corporate wide
improvements in our billing and collection processes. We believe these are the
primary reasons for the reduction in accounts receivable at the end of fiscal
2001 and 2000. Based on these factors and the current economic conditions in our
industry, we currently do not expect to significantly adjust our bad debt
reserves, although this could change in the future should conditions change. The
primary source of cash during fiscal 2001 was net earnings, depreciation and
amortization of $63,027, other non-cash expenses of $2,559, a decrease in
accounts receivable of $6,043, a decrease in other current assets of $1,789
offset by a use of cash for inventories of $6,427 and payables and accruals of
$9,131. During fiscal 2001, the provision for excess and obsolete inventories
increased by an incremental $7,000, which was partially offset by a $6,500
decrease in accrued warranties related to a favorable resolution of a customer's
claim.
We hold a promissory note from Thomson -- CSF Holding Corporation, a
subsidiary of The Thales Group (a publicly traded French company with over
$9,000,000 in sales). We are currently involved in a dispute with Thales over
certain terms of the purchase and sale agreement. Thomson -- CSF Holding
Corporation failed to make a $15,700 payment when due in October 2000. These
obligations to us are guaranteed by Thomson -- CSF Sextant, Inc. We have
initiated arbitration against Thales and Thomson and expect that this matter
will be resolved during fiscal 2002.
Our capital expenditures were $17,133 and $33,169 during fiscal 2001 and
fiscal 2000, respectively. The year over year decrease in capital expenditures
is primarily attributable to significant expenditures in the prior year for
management information system enhancements, expenditures for plant modernization
and for acquisitions completed during fiscal 1999. We anticipate on-going annual
capital expenditures of approximately $24,000 for the next several years. We
have no material commitments for capital expenditures. We have, in the past,
generally funded our capital expenditures from cash from operations and funds
available to us under our bank credit facility. We expect to fund future capital
expenditures from cash on hand and from operations and, if we are able to
refinance our bank credit facility, funds available to us under such new
facility. In addition, since 1989, we have completed 20 acquisitions for an
aggregate purchase price of $770,000. We have financed these acquisitions
primarily through issuances of debt and equity securities, including our 9 7/8%
notes, our 8% notes and our 9 1/2% notes.
Included in these acquisitions were the four businesses recently acquired
and effective as of February 24, 2001. We acquired Alson Industries, Inc., T.L.
Windust Machine, Inc., DMGI, Inc. and Maynard Precision, Inc. by issuing to the
former stockholders a total of approximately 2.9 million shares of our common
stock, paying them a total of approximately $5,260 in cash and assuming or
repaying indebtedness of the acquired companies totaling approximately $11,793.
Of these funds, $10,000 were obtained from our bank credit facility, which has
since been repaid and terminated as described below, and the balance came from
our cash on hand. This consideration represents an aggregate purchase price of
approximately $70,126. The aggregate purchase price includes $3,500 of
consideration, represented by 187,500 shares of our common stock, that were
funded into an escrow account. The payment of this consideration is contingent
upon the business of one of the companies, T.L. Windust, achieving specified
operating targets during the year ending February 2002. The sellers of T.L.
Windust have the opportunity to receive additional purchase price considerations
up to a limit of $3,500. The additional funds are due based upon a calculation
of T.L. Windust's sales and earnings before interest, taxes, depreciation and
amortization, or EBITDA, for fiscal year 2002 exceeding a minimum threshold. If
T.L. Windust's EBITDA exceeds $1,183, the full $3,500 is due and payable. If a
lower amount is earned, only a portion of the $3,500 is due and payable. Any
proceeds from the sale of these escrow shares in excess of the earnings
incentive of approximately $3,500 will be paid to us.
Each of these transactions has been accounted for using the purchase method
of accounting. The terms of the acquisition agreements for the acquired
businesses provide certain registration rights and together provide that the
former stockholders of the companies we acquired will receive net proceeds from
the resale of their 2.9 million shares equal to a total of approximately
$53,073. Any proceeds in excess of the approximately $53,073 will be for our
benefit and if the net proceeds to the former stockholders are less than
approximately $53,073, we will pay the former stockholders the difference from
our available funds. In the event that the shares are not sold within 180 days
of the closing of the acquisitions, we are obligated to repurchase these shares
and pay approximately $53,073 in cash to the former stockholders. We may also
repurchase these shares at any time from the former stockholders for an amount
equal to approximately $53,073 in cash.
On April 17, 2001 we sold $250 million of 8 7/8% senior subordinated notes
due 2011 in a private offering. The net proceeds less estimated debt issue costs
received by us from the sale of the notes were approximately $242.8 million.
Approximately $105.0 million of proceeds were or will be used to redeem our 9
7/8% senior subordinated notes due 2006 and approximately $66.7 million of
proceeds were used to repay balances outstanding under our bank credit facility,
which was then terminated. The remainder of the net proceeds will be used for
general corporate purposes, including potential future acquisitions.
We repaid and cancelled our bank facility on April 17, 2001 upon the
settlement of the sale of the $250 million of 8 7/8% senior subordinated notes
in our recent debt offering. We intend to replace our existing bank credit
facility with a new credit facility as soon as reasonably practicable. We are
currently in the process of arranging a new bank credit facility. When the
credit agreement becomes effective, we do not expect to immediately incur any
additional debt.
On April 17, 2001 we called for redemption of all our 9 7/8% senior
subordinated notes on May 17, 2001. We will redeem the notes at a redemption
price equal to 104.97 percent of the principal amount, together with the accrued
interest to the redemption date. We deposited with the trustee on April 17, 2001
funds in an amount sufficient to redeem the 9 7/8% senior subordinated notes on
the redemption date. Upon deposit of these funds, the indenture governing the 9
7/8% senior subordinated notes was discharged.
Long-term debt consists principally of our newly issued 8 7/8% senior
subordinated notes, our 8% senior subordinated notes and 9 1/2% senior
subordinated notes. The $250,000 of 8 7/8% notes mature on May 1, 2011, the
$250,000 of 8% notes mature on March 1, 2008 and the $200,000 of 9 1/2% notes
mature on November 1, 2008. The notes are unsecured senior subordinated
obligations and are subordinated to all of our senior indebtedness. Each of the
8 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 24, 2001. The maturities of our long term debt, on a
pro forma basis showing the effect of our recent debt offering, are as follows:
Year ending February,
2002 $ 626
2003 850
2004 733
2005 623
2006 188
Thereafter 699,938
-------
Total $702,958
========
B/E Aerospace (UK) Limited, one of our subsidiaries, has a revolving line
of credit agreement aggregating approximately $7.3 million. This credit
agreement is collateralized by accounts receivable and inventory of B/E
Aerospace (UK) Limited and guaranteed by us. There were no borrowings
outstanding under the credit agreement as of February 24, 2001.
Inventum, another of our subsidiaries, has a revolving line of credit
agreement for approximately $1 million. This credit agreement is collateralized
by substantially all of the assets of Inventum. There were no borrowings
outstanding under the credit agreement as of February 24, 2001.
We believe that the cash flow from operations and the net proceeds of our
recent debt offering will provide adequate funds for our working capital needs,
planned capital expenditures and debt service requirements for the foreseeable
future. We believe that we will be able to replace our bank credit facility,
which was recently terminated, 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 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 assets during the Federal operating loss carryforward period,
which begins to expire in 2012. These uncertainties include recent cumulative
losses incurred by us, the highly cyclical nature of the industry in which we
operate, economic conditions in Asia which has impacted the airframe
manufacturers and the airlines, the impact of rising fuel prices on our airline
customers, the impact of labor disputes involving our airline customers, our
high degree of financial leverage, risks associated with the implementation of
our integrated management information system, risks associated with our seat
manufacturing operations and risks associated with the integration of
acquisitions. 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.
New Accounting Pronouncements
In March 2000, the Financial Accounting Standards Board ("FASB") issued
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation -- an interpretation of APB Opinion No. 25" ("FIN 44"). FIN 44
clarifies the application of Accounting Principles Board ("APB") Opinion No. 25
and among other issues clarifies the following: the definition of an employee
for purposes of applying APB Opinion No. 25; the criteria for determining
whether a plan qualifies as a non-compensatory plan; the accounting consequence
of various modifications to the terms of previously fixed stock options or
awards; and the accounting for an exchange of stock compensation awards in a
business combination. FIN 44 is effective July 1, 2000, but certain conclusions
in FIN 44 cover specific events that occurred after either December 15, 1998 or
January 12, 2000. FIN 44 did not have a material impact on our financial
position or results of operations.
In December 1999, the SEC staff issued Staff Accounting Bulletin ("SAB")
No. 101, Revenue Recognition in Financial Statements. SAB 101 summarizes the SEC
staff's views in applying generally accepted accounting principles to revenue
recognition in financial statements. SAB 101 became effective for our fourth
quarter beginning November 26, 2000. Its implementation did not have a material
effect on our revenue recognition policy.
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 will adopt SFAS No. 133 at the
beginning of fiscal 2002. The Company does not currently hold derivatives or
engage in hedging activities; therefore, the effects of adopting SFAS No. 133
are not expected to be material.
Risk Factors
We are directly dependent upon the conditions in the airline industry and a
severe and prolonged downturn could negatively impact our results of operations
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 by
delaying purchases of new aircraft. This led to a significant contraction in the
commercial aircraft cabin interior products industry and a decline in our
business and profitability. Since 2000, increases in fuel prices, the softening
of the global economy and labor unrest have negatively impacted airline
profitability. A number of airlines have announced that they expect these trends
to continue in calendar year 2001. Should the airline industry suffer a severe
and prolonged downturn which adversely affects their profitability,
discretionary airline spending, including for new aircraft and cabin interior
refurbishments and upgrades, would be more closely monitored or even reduced. In
addition, any prolonged labor unrest experienced by any of our major customers
could lead to a delay in their scheduled refurbishment and upgrade programs.
Lower capital spending by the airlines or delays in scheduled programs could
lead to reduced orders of our products and services and, as a result, our
business and profitability could suffer. Our business and profitability have
historically been adversely affected by downturns in the airline industry.
Our substantial indebtedness could limit our ability to obtain additional
financing and will require that a significant portion of our cash flow be used
for debt service
We have substantial indebtedness and, as a result, significant debt service
obligations. As of February 24, 2001, we had approximately $609,700 aggregate
amount of indebtedness outstanding, representing approximately 81.8% of total
capitalization. As of February 24, 2001, after giving pro forma effect to our
recent debt offering and the application of the net proceeds therefrom, our
indebtedness would have aggregated approximately $703,000, including short and
long-term debt of our subsidiaries of $3,400, representing approximately 81.1%
of total capitalization. We could incur substantial additional indebtedness in
the future. We intend to replace our bank credit facility, which we terminated
in connection with our recent debt offering, as soon as reasonably practicable.
We have no principal maturities on our outstanding indebtedness prior to 2008
(other than principal maturities of our subsidiaries aggregating $3,400). Our
annual debt service payment obligations consisting of cash payments of interest,
giving pro forma effect to our recent debt offering, are expected to be
approximately $61,200.
The degree of our leverage and, as a result, significant debt service
obligations, could have significant consequences to purchasers or holders of our
shares of common stock, including:
o limiting our ability to obtain additional financing to fund our growth
strategy, working capital requirements, capital expenditures,
acquisitions, debt service requirements or other general corporate
requirements;
o limiting our ability to use operating cash flow in other areas of our
business because we must dedicate a substantial portion of those funds
to fund debt service obligations;
o increasing our vulnerability to adverse economic and industry
conditions; and
o if we are able to replace our bank credit facility, increasing our
exposure to interest rate increases because borrowings under a new
bank credit facility will likely be at variable interest rates.
We may not be able to generate the necessary amount of cash to service our
indebtedness, which may require us to refinance our debt, obtain additional
financing or sell assets
Our ability to satisfy our debt service 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 meet our debt service obligations, we will need to refinance, obtain
additional financing or sell assets. Our business may not generate cash flow,
and we may not be able to obtain funding, sufficient to satisfy our debt service
requirements.
We have significant financial and operating restrictions in our debt
instruments that may have an adverse affect on our operations
The indentures governing our outstanding notes contain numerous financial
and operating covenants that limit our ability to incur additional indebtedness,
to create liens or other encumbrances, to make certain payments and investments,
including dividend payments and to sell or otherwise dispose of assets and merge
or consolidate with other entities. Agreements governing future indebtedness
could also contain significant financial and operating restrictions. We intend
to replace our bank credit facility, which was cancelled on April 17, 2001, with
a new credit facility as soon as reasonably practicable. We expect any new
credit facility to contain customary affirmative and negative covenants. A
failure to comply with the obligations contained in any current or future
agreements governing our indebtedness, including our indentures, could result in
an event of default under our bank credit facilities, or such indentures, which
could permit acceleration of the related debt and acceleration of debt under
other instruments that may contain cross-acceleration or cross-default
provisions. We are not certain whether we would have, or be able to obtain,
sufficient funds to make these accelerated payments.
The airline industry is heavily regulated and failure to comply with
applicable laws could reduce our sales, or require us to incur additional costs
to achieve compliance, which could reduce our results of operations
The Federal Aviation Administration 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, such as the U.K. Civil
Aviation Authority and the Japanese Civil Aviation Board, 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 the
subject product or service would be prohibited by law until such license is
obtained or renewed. In addition, designing new products to meet existing
regulatory requirements and retrofitting installed products to comply with new
regulatory requirements can be both expensive and time consuming.
From time to time the FAA proposes new regulations. These new regulations
generally cause an increase in costs to comply with these regulations; when the
FAA first enacted Technical Standard Order C127, all seating companies were
required to meet these new rules. Compliance with this rule required industry
participants to spend millions of dollars on engineering, plant and equipment to
comply with the regulation. A number of smaller seating companies decided that
they did not have the resources, financial or otherwise, to comply with these
rules and they either sold their businesses or ceased operations.
To the extent the FAA implements rule changes in the future, we may incur
additional costs to achieve compliance.
The airline industry is subject to extensive health and environmental
regulation, any violation of which could subject us to significant liabilities
and penalties
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 or to which we have
sent hazardous substances or wastes for treatment, recycling or disposal. We may
be subject to future liabilities or obligations as a result of new or more
stringent interpretations of existing laws and regulations. In addition, we may
have liabilities or obligations in the future if we discover any environmental
contamination or liability at any of our facilities, or at facilities we may
acquire.
We compete with a number of established companies, some of which have
significantly greater financial, technological and marketing resources than we
do and we may not be able to compete effectively with these companies
We compete with numerous established companies. Some of these companies,
particularly in the passenger to freighter conversion business, have
significantly greater financial, technological and marketing resources than we
do. Our ability to be an effective competitor 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, and in
avoiding product obsolescence. Our ability to maintain or expand our market
position in the rapidly growing passenger to freighter conversion business will
depend on our success in being selected to convert specific aircraft, our
ability to maintain and enhance our engineering design, our certification and
program management capabilities and our ability to effectively use our recent
acquisitions to manufacture a broader range of structural components, connectors
and fasteners used in this business.
If we are unable to manufacture quality products and to deliver our
products on time, we may be subject to increased costs or loss of customers or
orders, which could reduce our results of operations
During the latter part of fiscal 1999 and throughout fiscal 2000, we
experienced significant operating inefficiencies in our seating programs which
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. In addition, as a
result of our late customer deliveries, certain airlines diverted their seating
programs to other manufacturers. To the extent we suffer any of these
inefficiencies or shortcomings in the future we will likely experience
significant penalties and loss of customers.
Our acquisition strategy may be less successful than we expect and
therefore, our growth may be limited
We intend to consider future acquisitions. We intend to consider future
strategic acquisitions, some of which could be material to us and which may
include companies that are substantially equivalent or larger in size compared
to us. We continually explore and conduct discussions with many third parties
regarding possible acquisitions. As of the date of this prospectus, we have no
acquisition agreements to acquire any business or assets. Our ability to
continue to achieve our goals may depend upon our ability to identify and
successfully acquire attractive companies, to effectively integrate such
companies, achieve cost efficiencies and to manage these businesses as part of
our company.
We will have to integrate any acquisitions into our business. The
difficulties of combining the operations, technologies and personnel of
companies we acquire, including those we acquired effective February 24, 2001,
into our company include:
o coordinating and integrating geographically separated organizations;
and
o integrating personnel with diverse business backgrounds.
We may not be able to effectively manage or integrate the acquired
companies. Further, we may not be successful in implementing appropriate
operational, financial and management systems and controls to achieve the
benefits expected to result from these acquisitions. Our efforts to integrate
these businesses could be affected by a number of factors beyond our control,
such as regulatory developments, general economic conditions, increased
competition and the loss of certain customers resulting from the acquisitions.
In addition, the process of integrating these businesses could cause an
interruption of, or loss of momentum in, the activities of our existing business
and the loss of key personnel and customers. The diversion of management's
attention and any delays or difficulties encountered in connection with the
transition and integration of these businesses could have a material adverse
effect on our business and results of operations. Further, the benefits that we
anticipate from these acquisitions may not develop.
We will have to finance any future acquisitions. Depending upon the
acquisition opportunities available, we may need to raise additional funds or
arrange for additional bank financing. We may seek such additional funds through
public offerings or private placements of debt or equity securities or bank
loans. We also intend to replace our existing bank credit facility with a new
facility as soon as reasonably practicable. Issuance of additional equity
securities by us could result in substantial dilution to stockholders. The
incurrence of additional indebtedness by us could have adverse consequences to
stockholders as described above. 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
which may have a material adverse effect on our business, results of operations
and financial condition.
There are risks inherent in international operations that could have a
material adverse effect on our business operations
Our operations are primarily in the United States, with approximately 24%
of our sales during fiscal 2001 coming from our foreign operations in the United
Kingdom and the Netherlands. While the majority of our operations is based
domestically, each of our facilities sells to airlines all over the world. As a
result, 40% or more of our consolidated sales for the past three fiscal years
were to airlines located outside the United States. 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.
At February 24, 2001, we reported a cumulative foreign currency translation
amount of $(21,915) in stockholders' equity as a result of foreign currency
adjustments, and we may 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. If in the future a substantial majority of our sales were
not denominated in the currency of the country of product origin, we could face
increased currency risk. Also, changes in the value of the U.S. dollar or other
currencies could result in fluctuations in foreign currency translation amounts
or the U.S. dollar value of transactions and, as a result, our net earnings
could be adversely affected. Our largest foreign currency exposure results from
activity in Dutch guilders and British pounds.
We may engage in hedging transactions in the future to manage or reduce our
foreign exchange risk. However, our attempts to manage our foreign currency
exchange risk may not be successful and, as a result, our results of operations
and financial condition could be adversely affected.
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. Due to our foreign
operations we could be subject to such factors in the future and the impact of
any such events that may occur in the future could subject us to additional
costs or loss of sales, which could adversely affect our operating results.
Our total assets include substantial intangible assets. The write-off of a
significant portion of unamortized intangible assets would negatively affect our
results of operations.
Our total assets reflect substantial intangible assets. At February 24,
2001, intangibles and other assets, net, represent approximately 46.3% of total
assets and 320.4% of stockholders' equity. Intangible assets consist of goodwill
and other identified intangible assets associated with our acquisitions,
representing the excess of cost over the fair value of tangible assets we have
acquired since 1989. We may not be able to realize the value of these assets.
Goodwill and other intangible assets are amortized on a straight-line basis over
their estimated useful lives, ranging from 3 to 30 years. At each balance sheet
date, we assess whether there has been an 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, an
impairment is deemed to have occurred. In this event, the amount is written down
accordingly. Under current accounting rules, this would result in a charge of
operating earnings. Any determination requiring the write-off of a significant
portion of unamortized intangible assets would negatively affect our results of
operations and total capitalization, which could be material. As of February 24,
2001, we have determined that no impairment existed.
Risks Associated with our Capital Stock
Provisions in our charter documents may discourage potential acquisitions
of our company, even those which the holders of a majority of our common stock
may favor
Our restated certificate of incorporation and by-laws contain provisions
that may have the effect of discouraging a third party from making an
acquisition of us by means of a tender offer, proxy contest or otherwise. Our
restated certificate of incorporation and by-laws:
o classify the board of directors into three classes, with directors of
each class serving for a staggered three-year period;
o provide that directors may be removed only for cause and only upon the
approval of the holders of at least two-thirds of the voting power of our shares
entitled to vote generally in the election of such directors;
o require at least two-thirds of the voting power of our shares entitled to
vote generally in the election of directors to alter, amend or repeal the
provisions relating to the classified board and removal of directors described
above;
o permit the board of directors to fill vacancies and newly created
directorships on the board;
o restrict the ability of stockholders to call special meetings; and
o contain advance notice requirements for stockholder proposals.
Such provisions would make the removal of incumbent directors more
difficult and time-consuming and may have the effect of discouraging a tender
offer or other takeover attempt not previously approved by the board of
directors.
Our board of directors has declared a dividend of one preferred share
purchase right for each share of common stock outstanding. A right will also be
attached to each share of common stock subsequently issued. The rights will have
certain anti-takeover effects. If triggered, the rights would cause substantial
dilution to a person or group of persons that acquires more than 15.0% of our
common stock on terms not approved by our board of directors. The rights could
discourage or make more difficult a merger, tender offer or other similar
transaction.
Under our restated certificate of incorporation, our board of directors
also has the authority to issue preferred stock in one or more series and to fix
the powers, preferences and rights of any such series without stockholder
approval. The board of directors could, therefore, issue, without stockholder
approval, preferred stock with voting and other rights that could adversely
affect the voting power of the holders of common stock and could make it more
difficult for a third party to gain control of us. In addition, under certain
circumstances, Section 203 of the Delaware General Corporation Law makes it more
difficult for an "interested stockholder", or generally a 15% stockholder, to
effect various business combinations with a corporation for a three-year period.
You may not receive cash dividends on our shares
We have never paid a cash dividend and do not plan to pay cash dividends on
our common stock in the foreseeable future. We intend to retain our earnings to
finance the development and expansion of our business and to repay indebtedness.
Also, our ability to declare and pay cash dividends on our common stock is
restricted by covenants in our outstanding notes. We also intend to replace our
bank credit facility with a new credit facility as soon as reasonably
practicable. We expect any new credit facility to contain customary covenants,
which may include covenants restricting our ability to declare and pay cash
dividends.
If the price of our common stock continues to fluctuate significantly, you
could lose all or a part of your investment
Since the beginning of fiscal 2001, the closing price of our common stock
has ranged from a low of $5.875 to a high of $25.875. The price of our common
stock is subject to sudden and material increases and decreases, and decreases
could adversely affect investments in our common stock. The price of our common
stock could fluctuate widely in response to:
o our quarterly operating results;
o changes in earnings estimates by securities analysts;
o changes in our business;
o changes in the market's perception of our business;
o changes in the businesses, earnings estimates or market perceptions of
our competitors or customers;
o changes in general market or economic conditions; and
o changes in the legislative or regulatory environment.
In addition, the stock market has experienced extreme price and volume
fluctuations in recent years that have significantly affected the quoted prices
of the securities of many companies, including companies in our industry. The
changes often appear to occur without regard to specific operating performance.
The price of our common stock could fluctuate based upon factors that have
little or nothing to do with our company and these fluctuations could materially
reduce our stock price.
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. Forward-looking statements include all statements that do not relate
solely to historical or current facts, and can be identified by the use of words
such as "could," "may," "believe," "will," "expect," "project," "estimate,"
"intend," "anticipate," "plan," "continue," "predict," "expectations" or other
similar words. These statements, including statements regarding our future
financial performance and other projections of measures of future financial
performance of our company, are based on our current plans and expectations and
involve risks and uncertainties that could cause actual future events or results
to be different from those described in or implied by such statements. While we
believe these forward-looking statements to be reasonable, projections are
necessarily speculative in nature, and it can be expected that one or more of
the estimates on which the projections were based may vary significantly from
actual results, which variations may be material and adverse. As a result,
because these statements are based on expectations as to future performance and
events and are not statements of fact, actual events or results may differ
materially from those projected. Factors that might cause such a difference
include those discussed in our filings with the Securities and Exchange
Commission, including but not limited to our most recently proxy statement, Form
10-K, as amended, and Form 10-Q's, as amended, and under the heading "Risk
Factors" in this Form 10-K 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.
We undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
You are cautioned not to unduly rely on such forward-looking statements when
evaluating the information presented herein. These statements should be
considered only after carefully reading this entire Form 10-K and the documents
incorporated herein by reference.
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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 24, 2001, 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 24, 2001, we had adjustable rate debt of
$56,700 and fixed rate debt of $549,564. The weighted average interest rate
for the adjustable and fixed rate debt was approximately 9.04% and 8.89%,
respectively, at February 24, 2001. Our adjustable rate debt was repaid on
April 17, 2001. We do not engage in transactions intended to hedge our
exposure to changes in interest rates.
As of February 24, 2001, 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 $341.
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 April 20, 2001. Officers of our company are elected
annually by the Board of Directors.
Title Age Position
Amin J. Khoury...................... 62 Chairman of the Board
Robert J. Khoury.................... 59 President, Chief Executive Officer and Director
Thomas P. McCaffrey................. 47 Corporate Senior Vice President of Administration, Chief Financial Officer
and Assistant Secretary
Edmund J. Moriarty.................. 57 Corporate Vice President-Law, General Counsel and Secretary
Jeffrey P. Holtzman................. 45 Vice President-Finance and Treasurer
Stephen R. Swisher.................. 42 Vice President and Controller
Michael B. Baughan................. 42 Group Vice President and General Manager, Seating Products
Roman G. Ptakowski.................. 52 Group Vice President and General Manager, Interior Systems
Scott A. Smith...................... 46 Group Vice President and General Manager, Flight Structures
Jim C. Cowart....................... 49 Director *,**
Richard G. Hamermesh................ 53 Director*
Brian H. Rowe....................... 69 Director**
Jonathan M. Schofield............... 60 Director*
- --------
* 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 Jonathan
M. Schofield) 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., a leading supplier of integrated
automation solutions for the global semiconductor, data storage and flat panel
display manufacturing industries. Mr. Khoury is the brother of Robert J. Khoury.
We entered into an employment agreement with Mr. Khoury extending through the
latter of May 28, 2003 or three years from any date of which the term is being
determined.
Robert J. Khoury has been a Director since July 1987. Mr. Khoury was
elected President 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 the latter of May 28,
2003 or three years from any date of which the term is being determined.
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 the latter of May 28, 2003 or
three years from any date of which the term is being determined.
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.
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 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 Flight
Structures since February 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.
Jonathan M. Schofield has been a Director since April 2, 2001. Mr.
Schofield recently retired from Airbus Industrie of North America, Inc. after
having served as its Chairman and Chief Executive Officer since December 1992.
From 1989 until he joined Airbus, Mr. Schofield was President of United
Technologies Corporation. Mr. Schofield is Chairman of the Board of Overseers
for the University of Connecticut's School of Business Administration, and
presently sits on the Boards of Aviall, Inc., SS&C Technologies, Inc., Altair
Avionics and Blue Stone Capital Partners, Inc.
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.
[Remainder of this page intentionally left blank]
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 Statements (See page F-1)
Independent Auditors' Report.
Consolidated Balance Sheets, February 24, 2001 and February 26, 2000.
Consolidated Statements of Operations and Comprehensive Income (Loss)
for the Years Ended February 24, 2001, February 26, 2000 and February
27, 1999.
Consolidated Statements of Stockholders' Equity for the Years Ended
February 24, 2001, February 26, 2000 and February 27, 1999.
Consolidated Statements of Cash Flows for the Years Ended February 24,
2001, February 26, 2000 and February 27, 1999.
Notes to Consolidated Financial Statements for the Years Ended February
24, 2001, February 26, 2000 and February 27, 1999.
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 24, 2001.
(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)
10.34 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)
10.44 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*
- -----------------------
* 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
President and Chief Executive Officer
Dated: May 21, 2001
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Form 10-K has been signed on May 21, 2001 by the following persons on behalf of
the registrant in the capacities indicated.
Signature Title
/s/ Chairman
- ---------------------------------------
Amin J. Khoury
/s/ President and Chief Executive Officer
- ---------------------------------------
Robert J. Khoury
Corporate Senior Vice President
/s/ of Administration, Chief Financial
- --------------------------------------- Officer and Assistant Secretary
Thomas P. McCaffrey (principal financial
and accounting officer)
/s/ Director
- ---------------------------------------
Jim C. Cowart
/s/ Director
- ---------------------------------------
Richard G. Hamermesh
/s/ Director
- ---------------------------------------
Brian H. Rowe
/s/ Director
- ---------------------------------------
Jonathan M. Schofield
ITEM 8. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
Page
Independent Auditors' Report F-2
Financial Statements:
Consolidated Balance Sheets, February 24, 2001 and February 26, 2000 F-3
Consolidated Statements of Operations and Comprehensive F-4
Income (Loss) for the Years Ended February 24, 2001, February 26, 2000
and February 27, 1999
Consolidated Statements of Stockholders' Equity for the Years Ended F-5
February 24, 2001, February 26, 2000 and February 27, 1999
Consolidated Statements of Cash Flows for the Years Ended F-6
February 24, 2001, February 26, 2000 and February 27, 1999
Notes to Consolidated Financial Statements for the Years Ended F-7
February 24, 2001, February 26, 2000 and February 27, 1999
Financial Statement Schedule:
Schedule II - Valuation and Qualifying Accounts for the Years Ended F-25
February 24, 2001, February 26, 2000 and February 27, 1999
[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 24, 2001 and February 26, 2000,
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 24, 2001. Our audits also included the financial
statement schedule on page F-25. These financial statements and financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits.
We conducted our audits in accordance with 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 24, 2001 and February 26, 2000, and the results of
their operations and their cash flows for each of the three fiscal years in the
period ended February 24, 2001, in conformity with accounting principles
generally accepted in the United 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 2, 2001, except
Note 18, as to which the
date is May 16, 2001.
CONSOLIDATED BALANCE SHEETS, FEBRUARY 24, 2001 AND FEBRUARY 26, 2000 (In
thousands, except share data)
ASSETS 2001 2000
- ------ ---- ----
Current Assets:
Cash and cash equivalents $ 60,271 $ 37,363
Accounts receivable - trade, less allowance for doubtful
accounts of $2,619 (2001) and $3,883 (2000) 99,673 103,719
Inventories, net 135,005 127,230
Other current assets 50,150 35,291
-------- --------
Total current assets 345,099 303,603
-------- --------
Property and equipment, net 157,517 152,350
Intangibles and other assets, net 433,379 425,836
-------- --------
$935,995 $881,789
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current Liabilities:
Accounts payable $ 64,671 $ 60,824
Accrued liabilities 99,685 109,143
Current portion of long-term debt 5,846 3,723
-------- ---------
Total current liabilities 170,202 173,690
-------- --------
Long-term debt (Note 18) 603,812 618,202
Other liabilities 26,707 25,400
Commitments and contingencies (Note 11) - -
Stockholders' Equity:
Preferred stock, $0.01 par value; 1,000,000 shares
authorized; no shares outstanding - -
Common stock, $0.01 par value; 50,000,000 shares
authorized; 28,460,583 (2001) and 24,931,307 (2000)
shares issued and outstanding 285 249
Additional paid-in capital 311,506 249,682
Accumulated deficit (154,602) (174,874)
Accumulated other comprehensive loss (21,915) (10,560)
-------- --------
Total stockholders' equity 135,274 64,497
-------- --------
$935,995 $881,789
======== ========
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) FOR THE
YEARS ENDED FEBRURY 24, 2001, FEBRUARY 26, 2000 AND FEBRUARY 27, 1999 (In
thousands, except per share data)
Year Ended
----------------------------------------------------
February 24, February 26, February 27,
2001 2000 1999
---- ---- ----
Net sales $666,444 $723,349 $701,325
Cost of sales (Note 3) 416,626 543,682 522,875
-------- -------- --------
Gross profit 249,818 179,667 178,450
Operating expenses:
Selling, general and administrative 92,541 94,891 83,648
Research, development and engineering 48,898 54,004 56,207
Amortization of intangible assets 23,408 24,076 22,498
Acquisition and initial public offering costs 8,276 - -
Transaction gain, expenses and other expenses - - 53,854
-------- -------- --------
Total operating expenses 173,123 172,971 216,207
-------- -------- --------
Operating earnings (loss) 76,695 6,696 (37,757)
Equity in losses of unconsolidated subsidiary - 1,289 -
Interest expense, net 54,170 52,921 41,696
-------- -------- --------
Earnings (loss) before income taxes 22,525 (47,514) (79,453)
Income taxes 2,253 3,283 3,900
-------- -------- --------
Net earnings (loss) 20,272 (50,797) (83,353)
-------- -------- --------
Other comprehensive income (loss):
Foreign exchange translation adjustment (11,355) (4,455) (3,086)
-------- -------- --------
Comprehensive income (loss) $ 8,917 $(55,252) $(86,439)
======== ======== ========
Basic earnings (loss) per share $ 0.80 $ (2.05) $ (3.36)
======== ======== ========
Weighted average common shares 25,359 24,764 24,814
======== ======== ========
Diluted earnings (loss) per share $ 0.78 $ (2.05) $ (3.36)
======== ======== ========
Weighted average common shares 25,889 24,764 24,814
======== ======== ========
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED FEBRUARY 24, 2001, FEBRUARY 26, 2000 AND FEBRUARY 27, 1999
(in thousands)
Accumulated
Common Stock Additional Other Total
------------------- Paid-in Accumulated Comprehensive Stockholders'
Shares Amount Capital Deficit Loss Equity
------ ------ ------- ----------- ------------- ------
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 (Note 2) 4,000 40 117,960 - - 118,000
Repurchase of stock in
conjunction with acquisition
(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 - - 1,336
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
Sale of stock under
employee stock purchase plan 284 3 2,140 - - 2,143
Exercise of stock options 600 6 6,362 - - 6,368
Employee benefit plan
matching contribution 188 2 1,932 - - 1,934
Issuance of stock in conjunction
with acquisitions 2,458 25 51,390 - - 51,415
Net earnings - - - 20,272 - 20,272
Foreign currency translation
adjustment - - - - (11,355) (11,355)
------ ------- -------- --------- -------- --------
Balance, February 24, 2001 28,461 $ 285 $311,506 $(154,602) $(21,915) $135,274
====== ======= ======== ========= ======== ========
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED FEBRUARY 24, 2001, FEBRUARY 26, 2000 AND FEBRUARY 27, 1999
(Dollars in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES: 2001 2000 1999
---- ---- ----
Net earnings (loss) $20,272 $(50,797) $(83,353)
Adjustments to reconcile net earnings (loss) to
net cash flows provided by operating activities:
Transaction gain, expenses - - 79,155
Gain on sale of 51% interest in subsidiary - - (25,301)
Depreciation and amortization 42,755 42,237 40,690
Provision for accounts receivable 625 2,008 721
Deferred income taxes - 1,054 (277)
Non-cash employee benefit plan contributions 1,934 2,098 2,301
Changes in operating assets and liabilities, net of effects from
acquisitions:
Accounts receivable 6,043 34,440 (22,128)
Inventories (6,427) (8,764) (10,935)
Other current assets 1,789 (10,146) (5,514)
Payables, accruals and current taxes (9,131) 4,756 39,856
------- ------- --------
Net cash flows provided by operating activities 57,860 16,886 15,215
------- ------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (17,133) (33,169) (37,465)
Change in intangibles and other assets (873) (16,250) (19,429)
Acquisitions, net of cash acquired - - (231,690)
Net proceeds on sale of 51% interest in subsidiary - - 61,735
------- ------- --------
Net cash flows used in investing activities (18,006) (49,419) (226,849)
------- ------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (repayments) borrowings under revolving lines of credit (24,516) 28,924 36,267
Proceeds from issuance of stock, net of expenses 8,511 1,759 6,000
Principal payments on long-term debt - - (31,714)
Repurchase of common stock originally issued
in conjunction with acquisition of SMR Aerospace - - (118,000)
Proceeds from long-term debt - - 194,137
------- ------- --------
Net cash flows (used in) provided by financing activities (16,005) 30,683 86,690
------- ------- --------
Effect of exchange rate changes on cash flows (941) (287) (241)
------- ------- --------
Net increase (decrease) in cash and cash equivalents 22,908 (2,137) (125,185)
Cash and cash equivalents, beginning of year 37,363 39,500 164,685
------- ------- --------
Cash and cash equivalents, end of year $60,271 $37,363 $ 39,500
======= ======= ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during year for:
Interest, net $56,154 $51,745 $ 27,994
Income taxes, net 2,883 4,902 4,570
Interest capitalized in computer equipment and software 325 1,474 2,088
SUPPLEMENTAL SCHEDULE OF NON-CASH ACTIVITIES:
Stock issued in connection with acquisitions 51,415 - -
Liabilities assumed and accrued acquisition
costs incurred in connection with the
acquisitions 14,485 - -
Reclassification of Sextant Note from long-term
other asset to other current asset 15,675 - -
See notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED FEBRUARY 24, 2001, FEBRUARY 26, 2000 AND FEBRUARY 27, 1999
(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 is 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 and passage of title or, if required, upon
acceptance by the customer. Service revenues are recorded when services are
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 an other than temporary 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, an other than temporary impairment is deemed to have occurred. In this
event, the asset is written down accordingly. As of February 24, 2001,
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 24, 2001, management determined that no such impairment
existed.
Research and Development - Research and development expenditures are
expensed as incurred.
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 Pronouncements
In March 2000, the Financial Accounting Standards Board ("FASB") issued
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation -- an interpretation of APB Opinion No. 25" ("FIN 44"). FIN 44
clarifies the application of Accounting Principles Board ("APB") Opinion No. 25
and among other issues clarifies the following: the definition of an employee
for purposes of applying APB Opinion No. 25; the criteria for determining
whether a plan qualifies as a non-compensatory plan; the accounting consequence
of various modifications to the terms of previously fixed stock options or
awards; and the accounting for an exchange of stock compensation awards in a
business combination. FIN 44 is effective July 1, 2000, but certain conclusions
in FIN 44 cover specific events that occurred after either December 15, 1998 or
January 12, 2000. FIN 44 did not have a material impact on our financial
position or results of operations.
In December 1999, the SEC staff issued Staff Accounting Bulletin ("SAB")
No. 101, Revenue Recognition in Financial Statements. SAB 101 summarizes the SEC
staff's views in applying generally accepted accounting principles to revenue
recognition in financial statements. SAB 101 became effective for our fourth
quarter beginning November 26, 2000. Its implementation did not have a material
effect on our revenue recognition policy.
In June 1998, 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 will adopt SFAS No. 133 at the beginning of fiscal 2002. The Company
does not currently hold derivatives or engage in hedging activities; therefore,
the effects of adopting SFAS No. 133 are not expected to be material.
Reclassifications - Certain reclassifications have been made to the prior
year financial statements to conform to the February 24, 2001 presentation.
2. ACQUISITIONS AND DISPOSITIONS
The Company has completed a number of acquisitions and dispositions. The
following is a summary of these transactions:
2001 Acquisitions
- -----------------
Effective February 24, 2001, the Company acquired four companies, Alson
Industries, Inc., T.L. Windust Machine, Inc., DMGI, Inc. and Maynard Precision,
Inc. (the "2001 Acquisitions"). These businesses specialize in manufacturing
precision-machined components and assemblies for the aerospace industry. The
2001 Acquisitions were completed by issuing to the former stockholders a total
of approximately 2.9 million shares of B/E common stock, paying them a total of
approximately $5,260 in cash and assuming or repaying indebtedness of
approximately $11,793. The consideration represents an aggregate purchase price
of approximately $70,126. The aggregate purchase price includes approximately
$3,500 of consideration, represented by 187,500 shares of B/E common stock, that
was funded into an escrow account. The payment of this consideration is
contingent upon one of the acquired businesses achieving specified operating
targets for fiscal 2002. Each of these transactions has been accounted for using
purchase accounting. The assets purchased and liabilities assumed have been
reflected in the accompanying balance sheet as of February 24, 2001. The
operating results for the 2001 Acquisitions will be reflected in the Company's
results beginning in fiscal 2002.
The Company has not yet completed the evaluation and allocation of the
purchase price for the 2001 acquisitions as the appraisals associated with the
identification and valuation of certain intangible assets are not yet complete.
The Company does not believe that the appraisals will materially modify the
preliminary purchase price allocation. The excess of the purchase prices over
the fair value of the identifiable net assets acquired aggregated approximately
$56,500. Goodwill will be amortized over 30 years using the straight-line
method.
The aggregate purchase price for the 2001 Acquisitions has been allocated
based on management's estimates as follows:
Accounts receivable $ 4,900
Inventories 5,800
Other current assets 600
Property and equipment 10,600
Intangible assets and other 56,500
---------
$ 78,400
The Company recorded costs and expenses associated with the 2001
Acquisitions of approximately $5,800. The costs for the 2001 acquisitions
include costs associated with consolidation and integration of existing
facilities including lease termination costs and the impairment of property and
equipment, and retention benefits to existing employees in accordance with EITF
94-3 and SFAS 121. These costs, along with approximately $2,500 of costs and
expenses attributable to the termination of the initial public offering of a
subsidiary, Advanced Thermal Sciences, have been presented as acquisition and
initial public offering costs in the accompanying Consolidated Statements of
Operations for the year ended February 24, 2001.
1999 Acquisitions
- -----------------
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:
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, contemporaneously with the acquisition,
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).
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).
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).
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 PBASCO, AMP, SMR and CF Taylor acquisitions were accounted for as
purchases, and accordingly, the assets purchased and liabilities assumed have
been reflected in the accompanying consolidated balance sheet as of February 26,
2000. The operating results of these acquisitions have been included in the
consolidated financial statements of the Company since the date of the
acquisition. The aggregate purchase price for these acquisitions was allocated
to the net assets acquired based on appraisals and management's estimates as
follows:
Accounts receivable $ 37,700
Inventories 31,345
Other current assets 3,100
Property, plant and equipment 19,900
Intangible and other assets 253,500
Purchased in-process research and development and
acquisition-related expenses 79,155
-----------
$424,700
===========
The excess of the purchase prices over the fair values of the identifiable
net assets acquired are being amortized over 30 years using the straight-line
method.
Other Acquisitions
- ------------------
During fiscal 1999, the Company acquired all of the issued and outstanding
shares of Aerospace Interiors, Inc. and Aircraft Lighting Corporation 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.
Disposition
- -----------
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 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, (the "IFE obligations") 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. The IFE obligations are guaranteed by Thomson-CSF, a
parent company of Sextant Avionique, S.A.. Sextant is in a dispute with the
Company over the terms of the IFE Sale and did not make the October 5, 2000
payment when due. The Company has initiated arbitration proceedings to compel
payment. Sextant has counterclaimed against the Company, claiming various
breaches of the IFE Sale agreements. The Company expects that this will be
resolved during fiscal 2002. Management believes that the dispute will be
resolved and the outstanding amount due will be allocated in fiscal 2002.
Pro Forma Information
- ---------------------
The following pro forma unaudited financial data is presented to illustrate
the estimated effects of the 2001 and 1999 Acquisitions and the IFE sale as if
these transactions had occurred as of the beginning of each fiscal year
presented.
2001 2000 1999
------------- ------------- -------------
Net sales $705,468 $723,349 $689,816
Net earnings (loss) 24,513 (49,508) (32,728)
Diluted earnings (loss) per share $ .86 $ (2.00) $ (1.32)
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 was $87,825, which was charged to cost of sales, of which $62,497
is related to North American facilities. The cost of the restructuring included
charges for various impaired Seating Products assets aggregating $61,089, which
consisted of inventories, demonstration equipment and production equipment
having a carrying value of $51,589, $7,600 and $1,900, respectively. All of the
impaired assets were physically disposed of during the subsequent fiscal year.
New product introduction costs were expensed as incurred and aggregated $21,787.
In addition, the restructuring program resulted in severance and related
separation costs, lease termination and other costs of $4,949.
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 accrued during the
year ended February 27, 1999:
Original Utilized in Balance at Utilized in Balance at
Accrual 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.
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:
2001 2000
---- ----
Raw materials and component parts $ 54,558 $ 59,322
Work-in-process 39,335 36,556
Finished goods 41,112 31,352
-------- --------
$135,005 $127,230
======== ========
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 (or the lesser of the term of the lease as to leasehold
improvements, as appropriate). Property and equipment consist of the following:
Years 2001 2000
----- ---- ----
Land, buildings and improvements 10-30 $ 60,154 $ 62,783
Machinery 3-13 57,292 49,626
Tooling 3-10 32,097 28,213
Computer equipment and software 4-15 77,495 71,608
Furniture and equipment 2-10 7,186 6,850
---------- ---------
234,224 219,080
Less accumulated depreciation and amortization (76,707) (66,730)
--------- -----------
$157,517 $152,350
======== ========
7. INTANGIBLES AND OTHER ASSETS
Intangibles and other assets consist of the following:
Straight-line
Amortization
Period (Years) 2001 2000
-------------- ---- ----
Goodwill and other intangible assets
arising from acquisitions 3-30 $506,381 $459,175
Debt issue costs (Note 18) 5-10 23,842 23,842
Other assets 18,896 28,355
Due from Sextant (Note 2) - 15,675
-------- --------
549,119 527,047
Less accumulated amortization (115,740) (101,211)
-------- --------
$433,379 $425,836
======== ========
8. ACCRUED LIABILITIES
Accrued liabilities consist of the following: 2001 2000
---- ----
Other accrued liabilities $36,846 $ 33,876
Accrued salaries, vacation and related benefits 28,439 30,016
Accrued interest 17,148 17,808
Accrued acquisition expenses 7,320 4,514
Accrued product warranties 9,932 22,929
------- --------
$99,685 $109,143
======= ========
9. LONG-TERM DEBT
Long-term debt consists of the following: 2001 2000
---- ----
9 7/8% Senior Subordinated Notes $100,000 $100,000
8% Senior Subordinated Notes 249,564 249,502
9 1/2% Senior Subordinated Notes 200,000 200,000
Chase Manhattan Bank Credit Facility 56,700 72,300
Other long-term debt 3,394 123
-------- --------
609,658 621,925
Less current portion of long-term debt (5,846) (3,723)
-------- --------
$603,812 $618,202
======== ========
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% 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. The
Company has refinanced the 9 7/8% Notes on a long term basis in connection with
its recent debt offering. (See Note 18)
8% Senior Subordinated Notes
The 8% Senior Subordinated 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
The 9 1/2% Senior Subordinated Notes (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 on 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 24, 2001.
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 $29,700. 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 24, 2001, indebtedness under the existing Bank
Credit Facility consisted of revolving credit facility outstanding borrowings of
$27,000 (bearing interest at LIBOR plus 2.5%, or approximately 8.8%) letters of
credit aggregating approximately $4,619 and outstanding borrowings under the
acquisition facility aggregating $29,700 (bearing interest at LIBOR plus 2.5%,
or approximately 9.2% as of February 24, 2001). 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). 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 24, 2001. The Company has repaid
its indebtedness under the Bank Credit Facility in connection with its recent
debt offering. (See Note 18)
B/E Aerospace (UK) Limited, one of our subsidiaries, has a revolving line
of credit agreement aggregating approximately $7.3 million. This credit
agreement is collateralized by accounts receivable and inventory of B/E
Aerospace (UK) Limited and guaranteed by the Company. There were no borrowings
outstanding under the credit agreement as of February 24, 2001.
Maturities of long-term debt are as follows:
Fiscal year ending in February:
2002 $ 5,846
2003 9,787
2004 12,910
2005 30,801
2006 100,125
Thereafter 450,189
---------
$609,658
========
Interest expense amounted to $57,857, $54,860 and $44,794 for the years
ended February 24, 2001, February 26, 2000 and February 27, 1999, respectively.
10. INCOME TAXES
Income tax expense consists of the following:
2001 2000 1999
---- ---- ----
Current:
Federal $ 1,315 $ - $ 1,004
State - - -
Foreign 938 2,229 5,157
------ -------- ---------
2,253 2,229 6,161
Deferred:
Federal 8,268 (19,296) (25,731)
State 2,484 (1,595) (8,169)
Foreign 1,146 660 (4,828)
-------- -------- ----------
11,898 (20,231) (38,728)
Change in valuation allowance (11,898) 21,285 36,467
-------- -------- --------
$ 2,253 $ 3,283 $ 3,900
======== ======== ========
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:
2001 2000 1999
---- ---- ----
Statutory U.S. federal income tax expense (benefit) $ 7,884 $(16,630) $(27,809)
Operating loss (with) without tax benefit (10,923) 16,827 25,940
Goodwill amortization 3,253 2,529 1,507
Foreign tax rate differential 1,315 124 2,514
Meals and entertainment 340 268 177
Officer's life insurance 332 387 277
Other, net 52 (222) 1,294
-------- -------- --------
$ 2,253 $ 3,283 $ 3,900
======== ======== ========
The tax effects of temporary differences and carryforwards that give rise
to deferred income tax assets and liabilities consist of the following:
2001 2000 1999
---- ---- ----
Inventory reserves $ 6,267 $ 6,161 $ 9,770
Acquisition accruals (6,409) (4,467) (2,190)
Warranty accruals 3,501 7,956 1,832
Accrued liabilities 10,588 9,202 4,412
Other 1,499 1,123 1,551
-------- -------- --------
Net current deferred income tax asset 15,446 19,975 15,375
-------- -------- --------
Intangible assets (11,149) (12,680) (11,926)
Depreciation (11,815) (3,701) (2,085)
Net operating loss carryforward 48,333 51,270 21,853
Research credit carryforward 7,052 4,578 4,157
Deferred compensation 11,271 9,911 8,605
Research and development expense 20,867 22,550 24,232
Software development costs (5,429) (5,429) (4,739)
Deferred gain on IFE Sale - - 6,600
Investment in Sextant - - 4,351
Other 974 974 794
-------- -------- --------
Net noncurrent deferred income tax asset 60,104 67,473 51,842
-------- -------- --------
Valuation allowance (75,550) (87,448) (66,163)
-------- -------- --------
Net deferred tax assets (liabilities) $ - $ - $ 1,054
======== ======== ========
The Company established a valuation allowance of $75,550, as of February
24, 2001 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 impacting the airframe
manufacturers and the airlines, the Company's high degree of financial leverage,
risks associated with new product introductions 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 24, 2001, the Company had federal, state and foreign net
operating loss carryforwards of $113,128, $82,723 and $4,157, respectively,
which begin to expire in 2012, 2002 and indefinite carryforward, respectively.
Approximately $24,000 of the Company's net operating loss carryforward is
related to the exercise of stock options and will be credited to additional
paid-in capital rather than income tax expense when utilized.
As of February 24, 2001, the Company had federal research tax credit and
alternative minimum tax credit carryfowards of $7,052 and $974, respectively,
which begin to expire in 2007, and indefinite carryforward, respectively.
The Company has not provided for any residual U.S. income taxes on the
approximately $14,341 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 Company's federal tax returns for the years ended February 22, 1997,
February 28, 1998 and February 27, 1999 are currently under examination by the
Internal Revenue Service. Management believes that the resolution of this
examination will 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 2001, 2000 and 1999 was
approximately $12,340, $13,587 and $13,423, respectively. Future payments under
operating leases with terms currently greater than one year are as follows:
Fiscal year ending in February:
2002 $11,135
2003 8,470
2004 5,090
2005 2,755
2006 2,298
Thereafter 8,578
---------
$38,326
=========
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 $745 per year through a three year
period ending from any date after which it is measured, 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 $685 per year through a three year period ending from any date
after which it is measured, 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 $345 per year through a three year period ending from any date
after which it is measured, 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).
Deferred compensation for these three officers has been accrued as provided
for under the above mentioned employment agreements, aggregated $19,308 as of
February 24, 2001, $17,091 as of February 26, 2000 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
$3,203 expiring on various dates through the year 2002.
12. EMPLOYEE RETIREMENT PLANS
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 $1,934, $2,098 and $2,301 for the
years ended February 24, 2001, February 26, 2000 and February 27, 1999,
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 $239, $299 and $231 in fiscal 2001, 2000 and 1999, 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 24, 2001, February 26,
2000 and February 27, 1999:
2001 2000 1999
---- ---- ----
Numerator - Net earnings (loss) $20,272 $(50,797) $(83,353)
======= ======== ========
Denominator:
Denominator for basic earnings (loss) per share - 25,359 24,764 24,814
Weighted average shares
Effect of dilutive securities -
Employee stock options 530 - -
------ ------ ------
Denominator for diluted earnings (loss) per
share - 25,889 24,764 24,814
====== ====== ======
Adjusted weighted average shares
Basic net earnings (loss) per share $0.80 $(2.05) $(3.36)
===== ======= =======
Diluted net earnings (loss) per share $0.78 $(2.05) $(3.36)
===== ======= =======
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 24, 2001
-----------------
Option Price Weighted Average
Options Per Share Price Per Share
------- --------- ---------------
Outstanding, beginning of period 5,807,701 $6.94 - $31.50 $18.03
Options granted 1,231,000 6.94 - 16.00 12.05
Options exercised (600,077) 6.94 - 19.00 10.61
Options forfeited (383,003) 6.94 - 29.88 19.98
---------
Outstanding, end of period 6,055,621 6.94 - 31.50 17.30
=========
Exercisable at end of year 3,793,136 $6.94 - $31.50 $19.54
=========
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
=========
At February 24, 2001, options were available for grant under each of the
Company's Option Plans.
Options Outstanding
at February 24, 2001
- ------------------------------------------------------------------------------------------------------------------------------------
Weighted Weighted Average Weighted
Range of Options Average Remaining Options Average
Exercise Price Outstanding Exercise Contractual Life Exercisable Exercise Price
-------------- ----------- --------- ----------------- ----------- --------------
(years)
$ 6.94 - $8.38 344,625 $ 7.53 5.30 222,750 $ 7.86
8.44 - 8.44 921,302 8.44 8.94 370,606 8.44
8.50 - 16.44 1,240,396 12.05 8.46 415,150 11.69
17.75 - 17.75 929,225 17.75 8.35 449,427 17.75
19.00 - 20.81 1,238,823 20.17 6.89 1,043,578 20.05
21.50 - 31.50 1,381,250 27.47 6.69 1,291,625 27.47
--------- ---------
6,055,621 3,793,136
========= =========
The estimated fair value of options granted during fiscal 2001, fiscal 2000
and fiscal 1999 was $7.80 per share, $10.70 per share and $13.93 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 years
ended February 24, 2001, February 26, 2000 and February 27, 1999 would have been
reduced to the pro forma amounts indicated in the following table:
2001 2000 1999
---- ---- ----
As reported
Net earnings (loss) $20,272 $(50,797) $(83,353)
Diluted net earnings (loss) per share 0.78 (2.05) (3.36)
Pro forma
Net earnings (loss) $ 5,698 $(69,570) $(98,477)
Diluted net earnings (loss) per share .22 (2.81) (3.97)
Weighted average
Weighted average and pro forma
weighted average common shares 25,889 24,764 24,814
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 2001, 2000 and 1999: risk-free
interest rates of 6.1%, 5.5% and 5.0%, expected dividend yields of 0.0%;
expected lives of 3.5 years, 3.5 years and 3.5 years; and expected volatility of
70%, 114% and 73%, 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 284,017 and 106,530 shares
of common stock during fiscal 2001 and 2000 pursuant to this plan at an average
price per share of $7.54 and $12.54, respectively.
15. SEGMENT REPORTING
The Company is organized based on the products and services it offers.
Under this organizational structure, the Company has three reportable segments:
Commercial Aircraft Products, Business Jet Products and Engineering Services.
The Company's Commercial Aircraft Products segment consists of 15 operating
units while the Business Jet and Engineering Services segments consist of three
and one operating units, respectively.
Each segment reports its results of operations and makes requests for
capital expenditures and acquisition funding to the Company's chief operational
decision-making group. This group is presently comprised of the Chairman, the
President and the Chief Executive Officer, and the Corporate Senior Vice
President of Administration and Chief Financial Officer. Each operating segment
has separate management teams and infrastructures dedicated to providing a full
range of products and services to their commercial and general aviation
customers. 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 2001
----------------------------------------------------------------------------------
Commercial
Aircraft Business Engineering In-Flight
Products Jet Products Services Entertainment Consolidated
----------------- ----------------- --------------- --------------- --------------
Net sales $511,282 $ 86,182 $ 68,980 - $666,444
Operating earnings 50,849 14,157 11,689 - 76,695
Total assets 634,424 196,246 105,325 - 935,995
Capital expenditures 12,232 4,590 311 - 17,133
Depreciation and amortization 29,033 9,369 4,353 - 42,755
FISCAL 2000
----------------------------------------------------------------------------------
Commercial
Aircraft Business Engineering In-Flight
Products Jet Products Services Entertainment Consolidated
----------------- ----------------- --------------- --------------- --------------
Net sales $579,736 $ 81,096 $ 62,517 - $723,349
Operating earnings (11,282) 13,188 4,790 - 6,696
Total assets 584,205 192,929 104,655 - 881,789
Capital expenditures 30,383 1,952 834 - 33,169
Depreciation and amortization 28,622 9,489 4,126 - 42,237
FISCAL 1999
----------------------------------------------------------------------------------
Commercial
Aircraft Business Engineering In-Flight
Products Jet Products Services Entertainment Consolidated
---------------- ----------------- --------------- --------------- --------------
Net sales $528,992 $ 64,856 $28,700 $78,777 $701,325
Operating earnings (23,238)* (40,344)* 5,415 * 20,410** (37,757)
Total assets 606,741 239,056 58,502 - 904,299
Capital expenditures 31,965 2,673 769 2,058 37,465
Depreciation and amortization 25,970 8,250 1,284 5,186 40,690
* Includes $16,615 and $55,000 of expenses associated with purchased
in-process research and development and acquisition-related expenses
allocated to Commercial Aircraft Products and Business Jet Products,
respectively.
** Includes gain on sale of In-Flight Entertainment of $25,301 and expenses of
$7,540 associated with purchased in-process research and development.
Through February 27, 1999, we operated in the (1) commercial aircraft
products, (2) business jet products, (3) engineering services and (4) in-flight
entertainment segments of the commercial airline and general aviation industry.
Following the sale of our controlling interest in the IFE business, we operated
in three segments - (1) commercial aircraft products, (2) business jet products
and (3) engineering services. Revenues for similar classes of products or
services within these business segments for the fiscal years ended February
2001, 2000 and 1999 are presented below:
Year Ended
(in thousands)
------------------------------------------------
Feb 24, Feb. 26, Feb. 27,
2001 2000 1999
---- ---- ----
Commercial aircraft products:
Seating products $288,035 $324,878 $296,482
Interior systems products 151,633 144,832 137,966
Cabin interior structures 71,614 110,026 94,544
-------- -------- --------
511,282 579,736 528,992
Business jet products 86,182 81,096 64,856
Engineering services 68,980 62,517 28,700
In-flight entertainment - - 78,777
-------- -------- --------
Total Revenues $666,444 $723,349 $701,325
======== ======== ========
The Company operated principally in two geographic areas, the United States
and Europe (primarily the United Kingdom), during the years ended February 24,
2001, February 26, 2000 and February 27, 1999. 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 24, 2001, February 26, 2000 and February 27, 1999 and
identifiable assets as of February 24, 2001, February 26, 2000 and February 27,
1999 by geographic area:
2001 2000 1999
---- ---- ----
Net Sales:
United States $503,811 $510,728 $511,063
Europe 162,633 212,621 190,262
-------- -------- --------
Total: $666,444 $723,349 $701,325
======== ======== ========
Operating Earnings (Loss):
United States $ 65,411 $ (3,143) $(43,613)
Europe 11,284 9,839 5,856
-------- --------- --------
Total: $ 76,695 $ 6,696 $(37,757)
======== ========= ========
Identifiable Assets:
United States $756,667 $704,392 $726,056
Europe 179,328 177,397 178,243
--------- --------- ---------
Total: $935,995 $881,789 $904,299
======== ======== ========
Export sales from the United States to customers in foreign countries
amounted to approximately $160,815, $188,530 and $174,659 in fiscal 2001, 2000
and 1999, respectively. Net sales to all customers in foreign countries amounted
to $279,830, $311,160 and $297,474 in fiscal 2001, 2000 and 1999, respectively.
Net sales to Europe amounted to 22%, 26% and 22% in fiscal 2001, 2000 and 1999,
respectively. Net sales to Asia amounted to 10%, 11% and 12% in fiscal 2001,
2000 and 1999, 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 2001 and 2000. During the
year ended February 27, 1999, one customer accounted for approximately 13% of
the Company's net sales.
16. FAIR VALUE INFORMATION
The following disclosure of the estimated fair value of financial
instruments at February 24, 2001 and February 26, 2000 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 24, 2001 and February 26, 2000, the Company's 9 7/8% Notes
had a carrying value of $100,000 and a fair value of $102,750 and $95,250,
respectively. At February 24, 2001 and February 26, 2000, the Company's 8% Notes
had carrying values of $249,564 and $249,502 and fair values of $245,197 and
$213,324, respectively. At February 24, 2001 and February 26, 2000, the
Company's 9 1/2% Notes had a carrying value of $200,000 and fair values of
$207,500 and $185,000, respectively.
The fair value information presented herein is based on pertinent
information available to management as of February 24, 2001. 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 2001 and 2000 are as
follows:
Year Ended February 24, 2001
--------------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
Net sales $169,125 $164,116 $167,410 $165,793
Gross profit 61,553 60,758 63,548 63,959
Net earnings 4,438 4,729 7,919 3,186
Basic net earnings per share .18 .19 .31 .12
Diluted net earnings per share .18 .19 .30 .12
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)
18. SUBSEQUENT EVENTS
On April 17, 2001 the Company sold $250,000 of 8 7/8% senior subordinated
notes due 2011 in a private offering. The net proceeds less estimated debt issue
costs from the sale of the notes were approximately $242,800. Approximately
$66,700 of proceeds were used to repay the Bank Credit Facility, which was
terminated. On April 17, 2001, the Company issued a notice to call the $100,000
9 7/8% Senior Subordinated Notes due 2006.
The early extinguishments of the 9 7/8% senior subordinated notes, the
related call payment of $4.9 million and the early termination of the revolver,
will result in a $9.3 million extraordinary charge, net of tax, during April
2001.
On May 8, 2001, the Company entered into an agreement to acquire the
outstanding common stock of Nelson Aerospace, Inc. for approximately $20
million. The transaction will be accounted for under the purchase method of
accounting.
On May 16, 2001 the Company completed a 5,750,000 share offering of our
common stock at $19.50 per share. The estimated net proceeds from this offering
was approximately $106.2 million. Approximately $53.1 million was paid to the
former owners of the 2001 Acquisitions. The Company received approximately $50.3
million, net of estimated offering costs, from the sale of the 2,847,000 shares
of stock it issued in connection with this offering. Following this offering the
Company had 32,063,231 shares outstanding.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED FEBRUARY 24, 2001, FEBRUARY 26, 2000 AND FEBRUARY 27, 1999
(Dollars in thousands)
BALANCE BALANCE
AT BEGINNING AT END
OF YEAR EXPENSES OTHER DEDUCTIONS OF YEAR
-------- -------- ------ ---------- -------
DEDUCTED FROM ASSETS:
- ---------------------
Allowance for doubtful accounts:
2001 $3,883 $ 625 $(409) (3) $1,480 $2,619
2000 2,633 2,008 (103) 655 3,883
1999 2,190 721 110 388 2,633
Reserve for obsolete inventories:
2001 $16,512 $13,584 $ 650 (3) $14,675 $16,071
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
(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.
(3) Balances associated with the 2001 acquisitions.
EXHIBIT 21.1
LIST OF SUBSIDIARIES
BE Aerospace, Inc.
BE Aerospace (USA), Inc.
BE Aerospace Netherlands BV
Royal Inventum, BV
BE Aerospace (Sales & Services) BV
BE Aerospace Holdings (UK) Limited
BE Aerospace Services, Ltd.
Flight Equipment and Engineering Limited
BE Aerospace (UK) Limited
AFI Holdings Ltd.
Fort Hill Aircraft Ltd.
C.F. Taylor (B/E) UK Limited
C.F. Taylor (Wales) Ltd.
B/E Aerospace Services, Inc.
Advanced Thermal Sciences Corporation
Acurex Corporation
BE Aerospace International Ltd.
Nordskog Industries, Inc.
Burns Aerospace Europe (SARL)
B/E Oxygen Systems Company
BE Intellectual Property, Inc.
Aerospace Lighting Corporation
SMR Technologies, Inc.
Flight Structures, Inc.
BE Aerospace Canada, Inc.
B/E Aerospace (Canada) Company
BE Aerospace (France) SARL
BE Aerospace El Salvador, Inc.
BE Aerospace Australia, Inc.
IFE Sales, LLC
T. L. Windust Machine, Inc.
DMGI, Inc.
Alson Industries, Inc.
B/E Aerospace Machined Products, Inc.
Maynard Precision, Inc.
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement Nos.
333-89145, 333-30578, 333-14037, 33-48119, 33-72194 and 33-82894 on Form S-8 of
BE Aerospace, Inc. of our report dated April 2, 2001 (except Note 18 as to which
the date is May 16, 2001), appearing in this Annual Report on Form 10-K of BE
Aerospace, Inc. for the year ended February 24, 2001.
DELOITTE & TOUCHE LLP
Costa Mesa, California
May 21, 2001