Attached files
file | filename |
---|---|
EX-32.2 - EXHIBIT 32.2 - B/E AEROSPACE INC | a6092209ex322.htm |
EX-31.2 - EXHIBIT 31.2 - B/E AEROSPACE INC | a6092209ex312.htm |
EX-32.1 - EXHIBIT 32.1 - B/E AEROSPACE INC | a6092209ex321.htm |
EX-31.1 - EXHIBIT 31.1 - B/E AEROSPACE INC | a6092209ex311.htm |
EX-10.4 - EXHIBIT 10.4 - B/E AEROSPACE INC | a6092209ex10-4.htm |
EX-10.1 - EXHIBIT 10.1 - B/E AEROSPACE INC | a6092209ex10-1.htm |
EX-10.5 - EXHIBIT 10.5 - B/E AEROSPACE INC | a6092209ex10-5.htm |
EX-10.3 - EXHIBIT 10.3 - B/E AEROSPACE INC | a6092209ex10-3.htm |
EX-10.6 - EXHIBIT 10.6 - B/E AEROSPACE INC | a6092209ex10-6.htm |
EX-10.2 - EXHIBIT 10.2 - B/E AEROSPACE INC | a6092209ex10-2.htm |
EX-10.7 - EXHIBIT 10.7 - B/E AEROSPACE INC | a6092209ex10-7.htm |
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-Q
Quarterly
Report Pursuant to Section 13 or 15(d)
of the
Securities Exchange Act of 1934
For
The Quarterly Period Ended September 30, 2009
Commission
File No. 0-18348
BE
AEROSPACE, INC.
(Exact
name of registrant as specified in its charter)
DELAWARE
|
06-1209796
|
(State
of Incorporation)
|
(I.R.S.
Employer Identification
No.)
|
1400
Corporate Center Way
Wellington,
Florida 33414
(Address
of principal executive offices)
(561)
791-5000
(Registrant's
telephone number, including area code)
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. YES[X] NO[ ]
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).
YES [
] NO [ ]
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of “large accelerated filer”,
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act: Large accelerated filer [X] Accelerated filer
[ ] Non-accelerated filer (do not check if a smaller
reporting company) [ ] Smaller reporting company
[ ]
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). YES [ ] NO [X]
The
registrant has one class of common stock, $0.01 par value, of which 101,088,115
shares were outstanding as of November 3, 2009.
1
BE
AEROSPACE, INC.
Form
10-Q for the Quarter Ended September 30, 2009
Table
of Contents
Page
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3 | ||
4 | ||
5 | ||
6
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14 | ||
24
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24
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24
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25
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26
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2
CONDENSED
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(In
Millions, Except Share Data)
September
30,
|
December
31,
|
|||||||
2009
|
2008
|
|||||||
ASSETS
|
||||||||
Current
assets:
|
||||||||
Cash
and cash equivalents
|
$ | 165.8 | $ | 168.1 | ||||
Accounts
receivable – trade, less allowance for doubtful
|
||||||||
accounts
($9.1 at September 30, 2009 and $12.2 at December 31, 2008)
|
239.1 | 271.4 | ||||||
Inventories,
net
|
1,309.5 | 1,197.0 | ||||||
Deferred
income taxes, net
|
1.4 | 22.1 | ||||||
Other
current assets
|
24.5 | 24.8 | ||||||
Total
current assets
|
1,740.3 | 1,683.4 | ||||||
Property
and equipment, net of accumulated depreciation
|
||||||||
($177.4
at September 30, 2009 and $162.6 at December 31, 2008)
|
115.4 | 115.8 | ||||||
Goodwill
|
704.6 | 663.6 | ||||||
Identifiable
intangible assets, net of accumulated amortization
|
||||||||
($110.6
at September 30, 2009 and $119.9 at December 31, 2008)
|
342.1 | 356.0 | ||||||
Deferred
income taxes, net
|
35.3 | 49.2 | ||||||
Other
assets, net
|
48.8 | 62.1 | ||||||
$ | 2,986.5 | $ | 2,930.1 | |||||
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
||||||||
Current
liabilities:
|
||||||||
Accounts
payable
|
$ | 206.5 | $ | 274.5 | ||||
Accrued
liabilities
|
218.6 | 229.2 | ||||||
Current
maturities of long-term debt
|
5.5 | 6.0 | ||||||
Total
current liabilities
|
430.6 | 509.7 | ||||||
Long-term
debt, net of current maturities
|
1,113.2 | 1,117.2 | ||||||
Deferred
income taxes, net
|
7.0 | 5.4 | ||||||
Other
non-current liabilities
|
25.8 | 31.3 | ||||||
Commitments,
contingencies and off-balance sheet
|
||||||||
arrangements
(Note 8)
|
||||||||
Stockholders'
equity:
|
||||||||
Preferred
stock, $0.01 par value; 1.0 million shares
|
||||||||
authorized;
no shares outstanding
|
-- | -- | ||||||
Common
stock, $0.01 par value; 200.0 million shares
|
||||||||
authorized;
101.2 million shares issued and 101.1 million shares
|
||||||||
outstanding
as of September 30, 2009 and 101.1 million shares issued
and
|
||||||||
101.0
million shares outstanding as of December 31, 2008
|
1.0 | 1.0 | ||||||
Additional
paid-in capital
|
1,520.7 | 1,500.7 | ||||||
Accumulated
deficit
|
(80.4 | ) | (189.1 | ) | ||||
Accumulated
other comprehensive income
|
(29.1 | ) | (44.8 | ) | ||||
Common
stock held in treasury
|
(2.3 | ) | (1.3 | ) | ||||
Total
stockholders' equity
|
1,409.9 | 1,266.5 | ||||||
$ | 2,986.5 | $ | 2,930.1 |
See
accompanying notes to condensed consolidated financial
statements.
3
CONDENSED
CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
(In
Millions, Except Per Share Data)
THREE
MONTHS ENDED
|
NINE
MONTHS ENDED
|
|||||||||||||||
September
30,
|
September
30,
|
September
30,
|
September
30,
|
|||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Net
sales
|
$ | 459.8 | $ | 587.8 | $ | 1,458.3 | $ | 1,583.2 | ||||||||
Cost
of sales
|
297.7 | 394.4 | 954.2 | 1,040.9 | ||||||||||||
Selling,
general and administrative
|
65.2 | 58.6 | 205.3 | 176.6 | ||||||||||||
Research,
development and engineering
|
27.3 | 33.5 | 74.6 | 102.7 | ||||||||||||
Operating
earnings
|
69.6 | 101.3 | 224.2 | 263.0 | ||||||||||||
Operating
earnings, as percentage of net sales
|
15.1 | % | 17.2 | % | 15.4 | % | 16.6 | % | ||||||||
Interest
expense, net
|
22.7 | 19.8 | 67.7 | 24.9 | ||||||||||||
Debt
prepayment costs
|
-- | 3.6 | -- | 3.6 | ||||||||||||
|
||||||||||||||||
Earnings
before income taxes
|
46.9 | 77.9 | 156.5 | 234.5 | ||||||||||||
Income
taxes
|
10.8 | 26.1 | 47.8 | 80.3 | ||||||||||||
Net
earnings
|
$ | 36.1 | $ | 51.8 | $ | 108.7 | $ | 154.2 | ||||||||
Net
earnings per common share:
|
||||||||||||||||
Basic
|
$ | 0.37 | $ | 0.54 | $ | 1.10 | $ | 1.66 | ||||||||
Diluted
|
$ | 0.36 | $ | 0.54 | $ | 1.10 | $ | 1.65 | ||||||||
Weighted
average common shares:
|
||||||||||||||||
Basic
|
98.5 | 96.0 | 98.4 | 93.1 | ||||||||||||
Diluted
|
99.5 | 96.3 | 99.1 | 93.5 |
See
accompanying notes to condensed consolidated financial statements.
4
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In
Millions)
NINE
MONTHS ENDED
|
||||||||
September
30,
|
September
30,
|
|||||||
2009
|
2008
|
|||||||
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
||||||||
Net
earnings
|
$ | 108.7 | $ | 154.2 | ||||
Adjustments
to reconcile net earnings to net cash flows provided by
|
||||||||
operating
activities:
|
||||||||
Depreciation
and amortization
|
36.9 | 28.9 | ||||||
Provision
for doubtful accounts
|
(0.2 | ) | 2.0 | |||||
Non-cash
compensation
|
17.9 | 11.2 | ||||||
Deferred
income taxes
|
35.8 | 68.7 | ||||||
Debt
prepayment costs
|
-- | 3.6 | ||||||
Loss
on disposal of property and equipment
|
2.5 | 0.2 | ||||||
Changes
in operating assets and liabilities:
|
||||||||
Accounts
receivable
|
37.4 | (87.7 | ) | |||||
Inventories
|
(135.6 | ) | (165.6 | ) | ||||
Other
current assets and other assets
|
14.3 | (5.1 | ) | |||||
Payables,
accruals and other liabilities
|
(95.2 | ) | 35.6 | |||||
Net
cash provided by operating activities
|
22.5 | 46.0 | ||||||
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
||||||||
Capital
expenditures
|
(21.8 | ) | (20.7 | ) | ||||
Acquisitions,
net of cash acquired
|
-- | (912.2 | ) | |||||
Net
cash used in investing activities
|
(21.8 | ) | (932.9 | ) | ||||
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
||||||||
Proceeds
from common stock issued
|
0.8 | 1.0 | ||||||
Proceeds
from long-term debt
|
-- | 1,124.5 | ||||||
Principal
payments on long-term debt
|
(4.5 | ) | (151.4 | ) | ||||
Debt
origination and prepayment costs
|
-- | (50.2 | ) | |||||
Borrowings
on line of credit
|
-- | 40.0 | ||||||
Repayments
on line of credit
|
-- | (40.0 | ) | |||||
Net
cash (used in) provided by financing activities
|
(3.7 | ) | 923.9 | |||||
Effect
of foreign exchange rate changes on cash and cash
equivalents
|
0.7 | (3.0 | ) | |||||
Net
(decrease) increase in cash and cash equivalents
|
(2.3 | ) | 34.0 | |||||
Cash
and cash equivalents, beginning of period
|
168.1 | 81.6 | ||||||
Cash
and cash equivalents, end of period
|
$ | 165.8 | $ | 115.6 | ||||
Supplemental
disclosures of cash flow information:
|
||||||||
Cash
paid during period for:
|
||||||||
Interest
|
$ | 76.8 | $ | 9.2 | ||||
Income
taxes
|
3.6 | 4.5 | ||||||
Supplemental
schedule of non-cash activities:
|
||||||||
Common
stock issued in connection with acquisition
|
$ | -- | $ | 158.3 |
See
accompanying notes to condensed consolidated financial
statements.
5
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited
- In Millions, Except Per Share Data)
Note
1. Basis of
Presentation
The
accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States of America for interim financial information and pursuant to the
rules and regulations of the Securities and Exchange
Commission. Accordingly, they do not include all of the information
and footnotes required by accounting principles generally accepted in the United
States of America for complete financial statements. All adjustments
which, in the opinion of management, are considered necessary for a fair
presentation of the results of operations for the periods shown, are of a normal
recurring nature and have been reflected in the condensed consolidated financial
statements. The results of operations for the periods presented are
not necessarily indicative of the results expected for the full fiscal year or
for any future period. The information included in these condensed
consolidated financial statements should be read in conjunction with the
consolidated financial statements and accompanying notes included in the BE
Aerospace, Inc. (the “Company” or "B/E") Annual Report on Form 10-K for the
fiscal year ended December 31, 2008.
The
preparation of 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 and related
disclosures. Actual results could differ from those
estimates.
Note
2. Business
Combinations
On July
28, 2008, the Company acquired from Honeywell International Inc. (Honeywell) its
Consumables Solutions distribution business (HCS). The transaction was accounted
for as a purchase under Accounting Standards Codification (ASC) topic 805,
“Business Combinations”, formerly Statement of Financial Accounting Standards
(SFAS) No. 141, “Business Combinations” (SFAS 141). The assets purchased and
liabilities assumed in this acquisition have been reflected in the accompanying
consolidated balance sheets and results of operations for the acquisition are
included in the accompanying consolidated statement of earnings from the date of
acquisition.
The
Company completed the evaluation and allocation of the purchase price for the
HCS acquisition during the period ended June 30, 2009. The excess of the
purchase price over the fair value of identifiable net tangible assets acquired
was approximately $860, of which $250 was allocated to intangible assets and
$610 was allocated to goodwill. Approximately $407 of the allocated
goodwill and all of the $250 identifiable intangible assets are expected to be
amortizable and deductible for tax purposes.
In
connection with the HCS acquisition, the Company entered into a 30-year license
agreement (HCS License Agreement) to become Honeywell’s exclusive licensee with
respect to the sale to the global aerospace industry of Honeywell proprietary
fasteners, seals, bearings, gaskets and electrical components associated with
Honeywell’s engines, APUs, avionics, wheels and brakes. The Company
also entered into a supply agreement (Honeywell Supply Agreement), under which
it became the exclusive supplier of both Honeywell proprietary consumables and
standard consumables to support the internal manufacturing needs of Honeywell
Aerospace. Pricing under the contract is adjusted annually, beginning
in 2010, to reflect changes in market conditions. The HCS License Agreement, the
Honeywell Supply Agreement, along with the various acquired original equipment
manufacturer customer contracts and relationships, were valued at $250.0 and are
being amortized over their respective useful lives, ranging 8-30
years.
Consolidated
unaudited proforma results for the three and nine months ended September 30,
2008 presented below, reflect the impact of the HCS acquisition as if it had
occurred as of January 1, 2008.
6
THREE
MONTHS ENDED
|
NINE
MONTHS ENDED
|
|||||||||||||||
September
30,
|
September
30,
|
September
30,
|
September
30,
|
|||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Proforma
|
Proforma
|
|||||||||||||||
Net
sales
|
$ | 459.8 | $ | 628.7 | $ | 1,458.3 | $ | 1,928.9 | ||||||||
Net
earnings
|
36.1 | 52.9 | 108.7 | 154.0 | ||||||||||||
Net
earnings per diluted share
|
0.36 | 0.52 | 1.10 | 1.55 |
Note
3. New Accounting
Standards
Effective
July 1, 2009, the Financial Accounting Standards Board’s (FASB) ASC topic 105
“Generally Accepted Accounting Principles” (ASC 105), formerly SFAS
No. 168, The “FASB Accounting Standards Codification” and the Hierarchy of
Generally Accepted Accounting Principles became the single official source of
authoritative, nongovernmental generally accepted accounting principles (GAAP)
in the United States. The historical GAAP hierarchy was eliminated and the ASC
became the only level of authoritative GAAP, other than guidance issued by the
Securities and Exchange Commission. The Company’s accounting policies were not
affected by the conversion to the ASC; however, references to specific
accounting standards in the footnotes to our consolidated financial statements
have been changed to refer to the appropriate section of the ASC. In its current
quarter financial statements, the Company is providing references to both the
ASC and prior GAAP standards to assist in understanding the impacts of recently
adopted accounting literature.
ASC topic
855 “Subsequent Events” (ASC 855), previously SFAS No. 165 “Subsequent Events,”
establishes general standards of accounting for and disclosure of events that
occur after the balance sheet date, but before the financial statements are
issued or available to be issued (“subsequent events”). An entity is required to
disclose the date through which subsequent events have been evaluated and the
basis for that date. For public entities, this is the date the financial
statements are issued. ASC 855 does not apply to subsequent events or
transactions that are within the scope of other GAAP and did not result in
significant changes in the subsequent events reported by the Company. ASC 855
became effective for interim or annual periods ending after June 15, 2009
and did not impact the Company’s consolidated financial statements. The Company
evaluated for subsequent events through November 5, 2009, the issuance date
of these financial statements. No recognized or non-recognized subsequent events
were noted.
Note
4. Inventories
Inventories
are stated at the lower of cost or market. Cost is determined using FIFO or the
weighted average cost method. Finished goods and work-in-process
inventories include material, labor and manufacturing overhead costs. In
accordance with industry practice, costs in inventory include amounts relating
to long-term contracts with long production cycles and inventory items with long
procurement cycles, some of which are not expected to be realized within one
year. Inventories consist of the following:
September
30, 2009
|
December
31, 2008
|
|||||||
Purchased
materials and component parts
|
$ | 129.6 | $ | 150.8 | ||||
Work-in-process
|
28.6 | 36.8 | ||||||
Finished
goods (primarily consumables products)
|
1,151.3 | 1,009.4 | ||||||
$ | 1,309.5 | $ | 1,197.0 | |||||
Note
5. Goodwill and Intangible
Assets
In
accordance with ASC topic 350 “Intangibles-Goodwill and Other,” formerly SFAS
No. 142, "Goodwill and Other Intangible Assets,” the Company completed a fair
value analysis of goodwill and other intangible assets as of December 31, 2008,
and concluded that an impairment existed at that date. The fair value
of the reporting units for goodwill impairment testing were determined using
valuation techniques based on estimates, judgments and assumptions management
believes were appropriate in the circumstances. The sum of the fair
values of the reporting units were evaluated based on the Company’s market
capitalization determined using average share prices within a reasonable period
of time near December 31, 2008, plus an estimated control premium plus the fair
value of its debt obligations. The decrease in the current market
multiples and the Company’s market capitalization resulted in a decline in the
fair value of the reporting units as of December 31,
2008. Accordingly, the Company recorded a pre-tax impairment charge
related to goodwill of $369.3 and a pre-tax impairment charge of $20.7 related
to an intangible asset which was determined to have no future use. As
of September 30, 2009, management has concluded that no further indicators of
impairment existed.
7
The table
below sets forth the intangible assets by major asset class, all of which were
acquired through business purchase transactions:
September
30, 2009
|
||||||||||||||||
Net
|
||||||||||||||||
Useful
Life
|
Original
|
Accumulated
|
Book
|
|||||||||||||
(Years)
|
Cost
|
Amortization
|
Value
|
|||||||||||||
Acquired
technologies
|
10-40 | $ | 101.5 | $ | 35.8 | $ | 65.7 | |||||||||
Trademarks
and patents
|
1-20 | 28.9 | 18.9 | 10.0 | ||||||||||||
Technical
qualifications, plans
|
||||||||||||||||
and
drawings
|
18-30 | 23.4 | 14.7 | 8.7 | ||||||||||||
Replacement
parts annuity
|
||||||||||||||||
and
product approvals
|
18-30 | 23.4 | 15.3 | 8.1 | ||||||||||||
Customer
contracts and relationships
|
8-30 | 255.2 | 13.4 | 241.8 | ||||||||||||
Covenants
not to compete and
|
||||||||||||||||
other
identified intangibles
|
3-14 | 20.3 | 12.5 | 7.8 | ||||||||||||
$ | 452.7 | $ | 110.6 | $ | 342.1 |
Amortization
expense on identifiable intangible assets was approximately $5.2 and $4.3 for
the three month periods ended September 30, 2009 and 2008, respectively, and
$15.4 and $9.8 for the nine month periods ended September 30, 2009 and 2008,
respectively. The Company expects to report amortization expense of
approximately $20 in each of the next five fiscal years. The Company expenses
costs to renew or extend the term of a recognized intangible asset.
Note
6. Long-Term
Debt
As of September 30, 2009, long-term debt consisted of
$600.0 aggregate principal amount of the Company’s 8.5% Senior Notes due 2018
(Senior Notes) and $518.4 outstanding
under the six-year term loan facility, due July 2014, (Term Loan Facility) of
the Company’s senior secured credit facility (Credit
Agreement).
The Credit Agreement consists of (a) a $350.0
five-year revolving credit facility (Revolving Credit Facility) and (b) the Term
Loan Facility. Borrowings under the Revolving Credit Facility
bear interest at an annual rate equal to the London interbank offered rate
(LIBOR) (as defined) plus 275 basis points or Prime (as defined) plus 175 basis
points. As of September 30, 2009, the rate under the Revolving Credit Facility
was 5.75%. There were no amounts outstanding under the Revolving Credit Facility
as of September 30, 2009. Borrowings under the Term Loan Facility
bear interest at an annual rate equal to LIBOR (as defined) plus 275 basis
points or Prime (as defined) plus 175 basis points. As of September
30, 2009, the rate under the Term Loan Facility was 5.75%.
Letters of
credit outstanding under the Credit Agreement aggregated $15.3 at September 30,
2009.
The Credit
Agreement contains an interest coverage ratio financial covenant (as defined in
the Credit Agreement) that must be maintained at a level greater than 2.25 to 1
through December 31, 2009 and 2.50 to 1, thereafter. The Credit
Agreement also contains a total leverage ratio covenant (as defined in the
Credit Agreement) which limits net debt to a 4.25 to 1 multiple of EBITDA (as
defined in the Credit Agreement) through December 31, 2009 and 4.00 to 1
thereafter. The Credit Agreement is collateralized by substantially
all of the Company’s assets and contains customary affirmative covenants,
negative covenants and conditions precedent for borrowings, all of which were
met as of September 30, 2009.
8
Note 7. Fair Value
Measurements
The
Company adopted ASC topic 820, “Fair Value Measurements and Disclosures” (ASC
820), formerly SFAS No. 157 “Fair Value Measurements,” effective January 1,
2008. ASC 820 defines “fair value” as the price that would be
received for an asset or paid to transfer a liability (an exit price) in the
principal or most advantageous market for the asset or liability in an orderly
transaction between market participants on the measurement date. ASC
820 also describes three levels of inputs that may be used to measure fair
value:
Level 1 –
quoted prices in active markets for identical assets and
liabilities.
|
Level 2 –
observable inputs other than quoted prices in active markets for identical
assets and liabilities.
Level 3 –
unobservable inputs in which there is little or no market data available, which
require the reporting entity to develop its own assumptions.
The only
assets or liabilities of the Company to which ASC 820 applies are cash and cash
equivalents (which the Company classifies as Level 1 assets). There
was no difference between fair value of such assets and historical cost basis
set forth in the September 30, 2009 and December 31, 2008 balance
sheets.
The
carrying amounts of cash and cash equivalents, accounts receivable-trade and
accounts payable approximate fair values due to the short term nature of such
instruments. The carrying amount of indebtedness under the Term Loan Facility of
the Credit Agreement is a reasonable estimate of its fair value as interest is
based upon floating market rates. The fair value of the Senior Notes,
based on market prices for publicly-traded debt, was $615.0 as of September 30,
2009.
|
Note
8. Commitments, Contingencies
and Off-Balance Sheet Arrangements
Lease Commitments — The
Company finances its use of certain facilities and equipment under committed
lease arrangements provided by various institutions. Since the terms
of these arrangements meet the accounting definition of operating lease
arrangements, the aggregate sum of future minimum lease payments is not
reflected on the condensed consolidated balance sheet. At September
30, 2009, future minimum lease payments under these arrangements totaled
approximately $165.2 and the majority of which related to the long-term real
estate leases.
Indemnities, Commitments and
Guarantees — During its normal course of business, the Company has made
certain indemnities, commitments and guarantees under which it may be required
to make payments in relation to certain transactions. These
indemnities include non-infringement of patents and intellectual property
indemnities to the Company's customers in connection with the delivery, design,
manufacture and sale of its products, indemnities to various lessors in
connection with facility leases for certain claims arising from such facility or
lease, and indemnities to other parties to certain acquisition
agreements. The duration of these indemnities, commitments and
guarantees varies, and in certain cases is indefinite. The Company
believes that substantially all of these indemnities, commitments and guarantees
provide for limitations on the maximum potential future payments the Company
could be obligated to make. However, the Company is unable to estimate the
maximum amount of liability related to its indemnities, commitments and
guarantees because such liabilities are contingent upon the occurrence of events
which are not reasonably determinable. Management believes that any
liability for these indemnities, commitments and guarantees would not have a
material effect on the Company’s condensed consolidated financial
statements. Accordingly, no significant amounts have been accrued for
indemnities, commitments and guarantees.
9
Product Warranty Costs – Estimated costs related to
product warranties are accrued at the time products are sold. In estimating its
future warranty obligations, the Company considers various relevant factors,
including the Company's stated warranty policies and practices, the historical
frequency of claims and the cost to replace or repair its products under
warranty. The following table provides a reconciliation of the activity related
to the Company's accrued warranty expense:
NINE
MONTHS ENDED
|
||||||||
September
30,
|
September
30,
|
|||||||
2009
|
2008
|
|||||||
Beginning
balance
|
$ | 22.4 | $ | 20.6 | ||||
Accruals
for warranties issued during the period
|
18.6 | 22.9 | ||||||
Settlements
made
|
(17.4 | ) | (21.4 | ) | ||||
Ending
balance
|
$ | 23.6 | $ | 22.1 |
Note
9. Accounting for Stock-Based
Compensation
The
Company has a Long Term Incentive Plan (LTIP) under which the Company’s
Compensation Committee has the authority to grant stock options, stock
appreciation rights, restricted stock, restricted stock units or other forms of
equity.
Compensation
cost generally is being recognized on a straight-line basis over the vesting
period of the shares. Share-based compensation of $6.2 and $17.3 was
recognized during the three and nine month periods ended September 30, 2009,
respectively, related to these equity grants made pursuant to the LTIP in prior
periods. Unrecognized compensation expense related to equity grants,
including the estimated impact of any future forfeitures, was $41.6 at September
30, 2009.
The
Company has established a qualified Employee Stock Purchase Plan which allows
qualified employees (as defined in the Employee Stock Purchase Plan) to purchase
shares of the Company's common stock at a price equal to 85% of the closing
price at the end of each semi-annual stock purchase
period. Compensation cost for this plan was not material to any of
the periods presented.
Note
10. Segment
Reporting
The
Company is organized based on the products and services it
offers. The Company’s reportable segments are comprised of
consumables management, commercial aircraft and business jet.
The
Company evaluates segment performance based on segment operating earnings or
loss. Each
segment reports its results of operations and makes requests for capital
expenditures and acquisition funding to the Company’s chief operating
decision-making group. This group is presently comprised of the Chairman and
Chief Executive Officer, the President and Chief Operating Officer, and the
Senior Vice President 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 customers.
10
The
following table presents net sales and operating earnings by business
segment:
THREE
MONTHS ENDED
|
NINE
MONTHS ENDED
|
|||||||||||||||
September
30,
|
September
30,
|
September
30,
|
September
30,
|
|||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Net
sales
|
||||||||||||||||
Consumables
management
|
$ | 181.0 | $ | 219.2 | $ | 617.0 | $ | 464.8 | ||||||||
Commercial
aircraft
|
222.5 | 300.8 | 672.3 | 905.5 | ||||||||||||
Business
jet
|
56.3 | 67.8 | 169.0 | 212.9 | ||||||||||||
$ | 459.8 | $ | 587.8 | $ | 1,458.3 | $ | 1,583.2 | |||||||||
Operating
earnings (1)
|
||||||||||||||||
Consumables
management
|
$ | 33.5 | $ | 42.1 | $ | 116.7 | $ | 109.0 | ||||||||
Commercial
aircraft
|
29.8 | 49.4 | 89.9 | 124.5 | ||||||||||||
Business
jet
|
6.3 | 9.8 | 17.6 | 29.5 | ||||||||||||
$ | 69.6 | $ | 101.3 | $ | 224.2 | $ | 263.0 | |||||||||
Interest
expense
|
22.7 | 19.8 | 67.7 | 24.9 | ||||||||||||
Debt
prepayment costs
|
- | 3.6 | - | 3.6 | ||||||||||||
Earnings
before income taxes
|
$ | 46.9 | $ | 77.9 | $ | 156.5 | $ | 234.5 |
(1) Operating
earnings include an allocation of corporate general and administrative and
employee benefits costs based on the proportion of each segment’s sales and
number of employees, respectively.
The
following table presents capital expenditures by business segment:
THREE
MONTHS ENDED
|
NINE
MONTHS ENDED
|
|||||||||||||||
September
30,
|
September
30,
|
September
30,
|
September
30,
|
|||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Capital
expenditures
|
||||||||||||||||
Consumables
management
|
$ | 3.7 | $ | 1.7 | $ | 12.5 | $ | 3.7 | ||||||||
Commercial
aircraft
|
2.1 | 4.9 | 7.7 | 14.8 | ||||||||||||
Business
jet
|
0.4 | 0.8 | 1.6 | 2.2 | ||||||||||||
$ | 6.2 | $ | 7.4 | $ | 21.8 | $ | 20.7 |
The
following table presents goodwill by business segment:
September
30,
|
December
31,
|
|||||||
2009
|
2008
|
|||||||
Goodwill
|
||||||||
Consumables
management
|
$ | 452.4 | $ | 416.5 | ||||
Commercial
aircraft
|
163.5 | 158.5 | ||||||
Business
jet
|
88.7 | 88.6 | ||||||
$ | 704.6 | $ | 663.6 |
11
The
following table presents total assets by business segment:
September
30,
|
December
31,
|
|||||||
2009
|
2008
|
|||||||
Total
assets
(1)
|
||||||||
Consumables
management
|
$ | 1,870.9 | $ | 1,830.9 | ||||
Commercial
aircraft
|
822.9 | 827.6 | ||||||
Business
jet
|
292.7 | 271.6 | ||||||
$ | 2,986.5 | $ | 2,930.1 |
(1) Corporate
assets of $186.2 and $256.7 at September 30, 2009 and December 31, 2008,
respectively, have been allocated to the above segments based on each segment’s
respective percentage of total assets.
Note
11. Net Earnings Per Common
Share
Basic net
earnings per common share is computed using the weighted average common shares
outstanding during the period. Diluted net earnings per common share is computed
by using the weighted average common shares outstanding including the dilutive
effect of stock options, shares issued under the Employee Stock Purchase Plan
and restricted shares based on an average share price during the
period. For the three months ended September 30, 2009 and 2008 and
for the nine months ended September 30, 2009 and 2008, securities totaling
approximately 0.8 and 0.7, and 1.1 and 0.4, respectively, were excluded from the
determination of diluted earnings per common share because their effect would
have been anti-dilutive. The computation of basic and diluted earnings per share
for the three and nine months ended September 30, 2009 and 2008, respectively,
are as follows:
THREE
MONTHS ENDED
|
NINE
MONTHS ENDED
|
|||||||||||||||
September
30,
|
September
30,
|
September
30,
|
September
30,
|
|||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Net
earnings
|
$ | 36.1 | $ | 51.8 | $ | 108.7 | $ | 154.2 | ||||||||
Basic
weighted average common shares
|
98.5 | 96.0 | 98.4 | 93.1 | ||||||||||||
Effect
of dilutive stock options and
|
||||||||||||||||
employee
stock puchase plan shares
|
0.1 | 0.1 | 0.1 | 0.1 | ||||||||||||
Effect
of restricted shares issued
|
0.9 | 0.2 | 0.6 | 0.3 | ||||||||||||
Diluted
weighted average common shares
|
99.5 | 96.3 | 99.1 | 93.5 | ||||||||||||
Basic
net earnings per share
|
$ | 0.37 | $ | 0.54 | $ | 1.10 | $ | 1.66 | ||||||||
Diluted
net earnings per share
|
$ | 0.36 | $ | 0.54 | $ | 1.10 | $ | 1.65 |
Note
12. Comprehensive
Earnings
Comprehensive
earnings is defined as all changes in a company's net assets except changes
resulting from transactions with stockholders. It differs from net earnings in
that certain items currently recorded to equity would be a part of comprehensive
earnings.
The
following table sets forth the computation of comprehensive earnings for the
periods presented:
THREE
MONTHS ENDED
|
NINE
MONTHS ENDED
|
|||||||||||||||
September
30,
|
September
30,
|
September
30,
|
September
30,
|
|||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Net
earnings
|
$ | 36.1 | $ | 51.8 | $ | 108.7 | $ | 154.2 | ||||||||
Other
comprehensive earnings:
|
||||||||||||||||
Foreign
exchange translation
|
||||||||||||||||
adjustment
and other
|
2.6 | (43.3 | ) | 15.7 | (30.0 | ) | ||||||||||
Comprehensive
earnings
|
$ | 38.7 | $ | 8.5 | $ | 124.4 | $ | 124.2 |
12
Note
13. Accounting for Uncertainty
in Income Taxes
In
accordance with ASC topic 740 “Income Taxes,” formerly the FASB Interpretation
No. 48, “Accounting for Uncertainty in Income Taxes – an interpretation of FASB
Statement No. 109,” the Company recognizes the tax benefit from an uncertain tax
position only if it is more likely than not that the tax position will be
sustained on examination by the taxing authorities, based on the technical
merits of the position.
As of
September 30, 2009 and December 31, 2008, the Company had $14.2 and $12.5,
respectively, of net unrecognized tax benefits. This amount of
unrecognized tax benefits, if recognized, would affect the effective tax
rate.
The
Company classifies interest and penalties related to tax matters as a component
of income tax expense. As of September 30, 2009 and December 31, 2008, the
accrual related to interest and penalties was under $1.0.
The
Company is currently undergoing a U.S. federal income tax examination for fiscal
year 2006 as well as an examination in one of its non-U.S.
jurisdictions. With minor exceptions, the Company is currently open
to audit by the tax authorities for the four tax years ending December 31,
2008. The Company does not currently expect the audits will result in
any material adverse outcomes.
13
ITEM
2.
|
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(In
Millions, Except Per Share
Data)
|
OVERVIEW
The
following discussion and analysis addresses the results of our operations for
the three and nine months ended September 30, 2009, as compared to our results
of operations for the three and nine months ended September 30, 2008. In
addition, the discussion and analysis addresses our liquidity, financial
condition and other matters for these periods.
Based on
our experience in the industry, we believe that we are the world’s largest
manufacturer of cabin interior products for commercial aircraft and for business
jets, and the leading aftermarket distributor of aerospace fasteners and other
consumable products. We sell our manufactured products directly to virtually all
of the world’s major airlines and airframe manufacturers and a wide variety of
business jet customers. In addition, based on our experience, we believe that we
have achieved leading global market positions in each of our major product
categories, which include:
|
•
|
a
broad line of aerospace fasteners, covering over 275,000 stock keeping
units (SKUs) serving the commercial aircraft, business jet and military
and defense industries;
|
|
•
|
commercial
aircraft seats, including an extensive line of super first class, first
class, business class, tourist class and regional aircraft
seats;
|
|
•
|
a
full line of aircraft food and beverage preparation and storage equipment,
including coffeemakers, water boilers, beverage containers, refrigerators,
freezers, chillers and microwave, high heat, convection and steam
ovens;
|
|
•
|
both
chemical and gaseous aircraft oxygen delivery, distribution and storage
systems, protective breathing equipment and lighting products;
and
|
|
•
|
business
jet and general aviation interior products, including an extensive line of
executive aircraft seats, direct and indirect overhead lighting systems,
oxygen delivery systems, air valve systems, high-end furniture and
cabinetry.
|
We also
design, develop and manufacture a broad range of cabin interior structures and
provide comprehensive aircraft cabin interior reconfiguration and
passenger-to-freighter conversion engineering services and component
kits.
We conduct
our operations through strategic business units that have been aggregated under
three reportable segments: consumables management, commercial aircraft and
business jet.
Net sales
by reportable segment for the three and nine month periods ended September 30,
2009 and September 30, 2008, respectively, were as follows:
THREE
MONTHS ENDED
|
NINE
MONTHS ENDED
|
|||||||||||||||||||||||||||||||
September
30, 2009
|
September
30, 2008
|
September
30, 2009
|
September
30, 2008
|
|||||||||||||||||||||||||||||
Net
Sales
|
%
of
Net
Sales
|
Net
Sales
|
%
of
Net
Sales
|
Net
Sales
|
%
of
Net
Sales
|
Net
Sales
|
%
of
Net
Sales
|
|||||||||||||||||||||||||
Consumables
management
|
$ | 181.0 | 39.4 | % | $ | 219.2 | 37.3 | % | $ | 617.0 | 42.3 | % | $ | 464.8 | 29.4 | % | ||||||||||||||||
Commercial
aircraft
|
222.5 | 48.4 | % | 300.8 | 51.2 | % | 672.3 | 46.1 | % | 905.5 | 57.2 | % | ||||||||||||||||||||
Business
jet
|
56.3 | 12.2 | % | 67.8 | 11.5 | % | 169.0 | 11.6 | % | 212.9 | 13.4 | % | ||||||||||||||||||||
Total
|
$ | 459.8 | 100.0 | % | $ | 587.8 | 100.0 | % | $ | 1,458.3 | 100.0 | % | $ | 1,583.2 | 100.0 | % |
14
Net sales
by geographic area (based on destination) for the three and nine month periods
ended September 30, 2009 and September 30, 2008, respectively, were as
follows:
THREE
MONTHS ENDED
|
NINE
MONTHS ENDED
|
|||||||||||||||||||||||||||||||
September
30, 2009
|
September
30, 2008
|
September
30, 2009
|
September
30, 2008
|
|||||||||||||||||||||||||||||
Net
|
%
of
|
Net
|
%
of
|
Net
|
%
of
|
Net
|
%
of
|
|||||||||||||||||||||||||
Sales
|
Net
Sales
|
Sales
|
Net
Sales
|
Sales
|
Net
Sales
|
Sales
|
Net
Sales
|
|||||||||||||||||||||||||
United
States
|
$ | 220.9 | 48.0 | % | $ | 283.3 | 48.2 | % | $ | 725.5 | 49.8 | % | $ | 733.6 | 46.3 | % | ||||||||||||||||
Europe
|
109.3 | 23.8 | % | 143.5 | 24.4 | % | 335.7 | 23.0 | % | 368.4 | 23.3 | % | ||||||||||||||||||||
Asia,
Pacific Rim,
|
||||||||||||||||||||||||||||||||
Middle
East and
|
||||||||||||||||||||||||||||||||
Other
|
129.6 | 28.2 | % | 161.0 | 27.4 | % | 397.1 | 27.2 | % | 481.2 | 30.4 | % | ||||||||||||||||||||
Total
|
$ | 459.8 | 100.0 | % | $ | 587.8 | 100.0 | % | $ | 1,458.3 | 100.0 | % | $ | 1,583.2 | 100.0 | % |
Net sales
from our domestic and foreign operations for the three and nine month periods
ended September 30, 2009 and September 30, 2008, respectively, were as
follows:
THREE
MONTHS ENDED
|
NINE
MONTHS ENDED
|
|||||||||||||||
September
30, 2009
|
September
30, 2008
|
September
30, 2009
|
September
30, 2008
|
|||||||||||||
Domestic
|
$ | 332.8 | $ | 406.9 | $ | 1,054.2 | $ | 1,058.0 | ||||||||
Foreign
|
127.0 | 180.9 | 404.1 | 525.2 | ||||||||||||
Total
|
$ | 459.8 | $ | 587.8 | $ | 1,458.3 | $ | 1,583.2 |
In July
2008, we acquired Honeywell International Inc.’s Consumables Solutions
distribution business (HCS). The HCS business distributes aerospace
fasteners, bearings, seals, electrical components and other consumable parts and
supplies to aviation industry manufacturers, airlines, and aircraft repair and
overhaul facilities. The combination of HCS with our consumables
management segment (formerly our distribution segment) created the leading
global distributor and value added supply chain manager of aerospace and other
related consumable products. The combined business serves as a
distributor for every major aerospace fastener manufacturer in the
world.
New
product development is a strategic initiative for us. Our customers regularly
request that we engage in new product development and enhancement activities. We
believe these activities protect and enhance our leadership position. We believe
our investments in research and development over the past several years have
been a driving force behind our ongoing market share gains. Research,
development and engineering spending has been approximately 6% – 8% of sales for
the past several years but is expected to decline as a percentage of sales in
the future due to our recently implemented stringent cost initiatives and as a
result of the HCS acquisition.
We also
believe in providing our businesses with the tools required to remain
competitive. In that regard, we have invested, and intend to continue to invest,
in property and equipment that enhances our productivity. Over the past three
years, annual capital expenditures ranged from $24 - $32. We expect capital
expenditures of approximately $50 over the next twelve months. The increase in
capital expenditures is primarily related to investments needed to support the
$2,300 of awarded, but not included in our backlog, seller furnished equipment
programs. We expect to begin to deliver these seller furnished equipment
programs in 2011.
While the
global economic crisis appears to be abating, our global customers continue to
suffer from high fuel costs and weak demand for passenger travel which has
resulted in sharply lower yields for the global airline industry. International
passenger traffic has declined by approximately 5% from January 2009 to
September 2009 compared with the same period ending in 2008. The airlines have
incurred losses of approximately $6 billion globally during the first half of
this year and are forecast to lose approximately $11 billion for the full
year. International
cargo traffic, which began falling in June 2008, was down by more than 16% from
January 2009 to September 2009 compared with the same period in 2008. Air
freighters are currently being parked at unprecedented rates and demand for
passenger to freighter conversions is expected to be depressed for the
foreseeable future. The aforementioned losses experienced by, and
forecasted for, the global airline industry are causing our customers to
increase the number of parked aircraft and to further defer new aircraft
deliveries. In addition, due to the same fuel cost and passenger
demand factors discussed above, business jet manufacturers have significantly
reduced their delivery rates by, in some cases, up to 50%. We also
believe that major commercial airframe manufacturers may further reduce their
delivery rates in 2010. We have responded to these events by
initiating intensive cost reduction initiatives.
15
RESULTS
OF OPERATION
In order to
present our financial results on a more comparable basis, certain information in
the following discussion and analysis is presented after giving effect to the
HCS acquisition. Amounts presented as on a “proforma” basis have been
calculated as if the HCS acquisition had occurred on January 1,
2008.
THREE
MONTHS ENDED SEPTEMBER 30, 2009,
AS COMPARED TO THREE MONTHS
ENDED SEPTEMBER 30, 2008
Consolidated
Results
Net sales
in the third quarter of 2009 of $459.8 decreased by $128.0, or 21.8%, as
compared with the third quarter of the prior year. The decrease in
net sales was the result of the $38.2, or 17.4%, decrease in net sales at the
consumables management segment, a $78.3, or 26.0% decrease in net sales at the
commercial aircraft segment and a $11.5, or 17.0%, decrease in net sales at the
business jet segment. On a proforma basis, to include HCS (which was
acquired on July 28, 2008), in both periods, net sales declined $168.9, or
26.9%, as compared with the third quarter of 2008.
Cost of
sales for the current period was $297.7, or 64.7% of net sales, as compared to
$394.4, or 67.1% of net sales, in the third quarter of the prior
year. The 240 basis point decrease in cost of sales as a percentage
of sales was due to successful cost reduction activities, manufacturing
efficiencies, more efficient consumables management purchasing and initial
synergies arising from the integration of the HCS acquisition. On a proforma
basis, cost of sales in the third quarter of 2009 was $297.7, which was a
decrease of 360 basis points from $429.2, or 68.3% of net sales, in the third
quarter of 2008 as a result of successful cost reduction activities,
manufacturing efficiencies, more efficient consumables management purchasing and
initial synergies arising from the integration of the HCS business.
Selling,
general and administrative (SG&A) expenses for the third quarter of 2009
were $65.2, or 14.2% of net sales, as compared to $58.6, or 10.0% of net sales,
in the same period in 2008, primarily due to the completion of the HCS
acquisition on July 28, 2008, and a $9.0 net unfavorable foreign exchange impact
due to the U.S. dollar strengthening substantially as compared with the British
pound in the third quarter of 2008, offset by our cost reduction initiatives,
including a 22.5% reduction in headcount as compared with our headcount at June
30, 2008.
Research,
development and engineering expense for the third quarter of 2009 was $27.3, or
5.9% of net sales, as compared to $33.5, or 5.7% of net sales, in the same
period in 2008. The lower level of spending was primarily due to cost
initiatives at our commercial aircraft and business jet segments.
Operating
earnings for the third quarter of 2009 of $69.6 decreased $31.7, or 31.3%, as
compared to the same period in 2008, reflecting the $128.0 decrease in net
sales, the timing of the HCS acquisition and a $9.0 net negative foreign
exchange impact, offset by a 240 basis point reduction in cost of sales as a
percentage of net sales and our cost reduction initiatives. On a
proforma basis to include HCS in both periods, third quarter 2009 operating
earnings decreased $33.5, or 32.5% on the 26.9% decrease in revenues as compared
to the same period in 2008.
Interest
expense for the third quarter of 2009 of $22.7 was $2.9 higher than the interest
expense in the same period in the prior year due to the increase in long-term
debt incurred to finance the HCS acquisition in July 2008.
Earnings
before income taxes for the three months ended September 30, 2009 of $46.9
decreased by $31.0, or 39.8%, as compared to earnings before income taxes of
$77.9 in the same period in the prior year due to the $128.0 decrease in net
sales, a $31.7 decrease in operating earnings and a $2.9 increase in interest
expense. On a proforma basis to include HCS in both periods, earnings
before income taxes for the three months ended September 30, 2009 decreased by
$34.5, or 42.4%, as compared to proforma earnings before income taxes in the
prior year of $81.4. This decrease was primarily due to the 26.9%
decrease in net sales in the three months ended September 30, 2009 and other
factors described above.
16
Income
taxes in the third quarter of 2009 were $10.8, or 23.0% of earnings before
income taxes, as compared to $26.1, or 33.5% of earnings before income taxes, in
the third quarter of 2008. Income taxes as a percentage of earnings
before income taxes decreased in the current period primarily due to higher
research and development tax credits arising from tax reduction initiatives
completed in the current quarter.
Net
earnings for the third quarter of 2009 were $36.1, or $0.36 per diluted share,
as compared with net earnings of $51.8, or $0.54 per diluted share, in the
second quarter of 2008. Net earnings decreased by $15.7, or 30.3%, as compared
with the third quarter of the prior year as a result of the decrease in net
sales and other factors described above.
Segment
Results
The
following is a summary of net sales and operating earnings on as reported and
proforma basis by segment:
NET
SALES
|
||||||||||||||||
Three
Months Ended September 30,
|
||||||||||||||||
2009
|
2008
|
2008
|
%
Change
|
|||||||||||||
As
Reported
|
Proforma
|
Proforma
|
||||||||||||||
Consumables
management
|
$ | 181.0 | $ | 219.2 | $ | 260.1 | (30.4 | %) | ||||||||
Commercial
aircraft
|
222.5 | 300.8 | 300.8 | (26.0 | %) | |||||||||||
Business
jet
|
56.3 | 67.8 | 67.8 | (17.0 | %) | |||||||||||
Total
|
$ | 459.8 | $ | 587.8 | $ | 628.7 | (26.9 | %) |
OPERATING
EARNINGS
|
||||||||||||||||
Three
Months Ended September 30,
|
||||||||||||||||
2009
|
2008
|
2008
|
%
Change
|
|||||||||||||
As
Reported
|
Proforma
|
Proforma
|
||||||||||||||
Consumables
management
|
$ | 33.5 | $ | 42.1 | $ | 43.9 | (23.7 | %) | ||||||||
Commercial
aircraft
|
29.8 | 49.4 | 49.4 | (39.7 | %) | |||||||||||
Business
jet
|
6.3 | 9.8 | 9.8 | (35.7 | %) | |||||||||||
Total
|
$ | 69.6 | $ | 101.3 | $ | 103.1 | (32.5 | %) |
Consumables
management segment net sales during the third quarter of 2009 were $181.0, which
represented a $38.2, or 17.4%, decrease over the same quarter in the prior
year. On a proforma basis, consumables management segment net sales
in the third quarter of 2009 were lower by $79.1, or 30.4% than in third quarter
of 2008. The decline in net sales in the current quarter as compared
to the same period in the prior year was due to reduced activity at airline and
maintenance, repair and overhaul (MRO) facilities, reduced aircraft capacity, a
decrease in revenue passenger miles flown, and substantially reduced activity at
business jet manufacturers, all as compared to the same period in the prior
year. Consumables management segment operating earnings were $33.5, or 18.5% of
sales as compared with $42.1, or 19.2% of sales in the third quarter of 2008. On
a proforma basis, third quarter 2009 operating margin expanded 160 basis points
as compared 2008 operating earnings of $43.9, or 16.9% of sales reflecting more
efficient purchasing in the current period and initial synergies arising from
the HCS acquisition.
Commercial
aircraft segment net sales during the third quarter of 2009 of $222.5 decreased
$78.3, or 26.0%, reflecting retrofit program push outs, reduced activity at
airline and MRO maintenance facilities, reduced aircraft capacity and a decrease
in revenue passenger miles flown, all as compared to the same period in the
prior year. Third quarter 2009 operating earnings were $29.8, or 13.4% of net
sales as compared with the third quarter 2008 operating earnings of $49.4, or
16.4% of sales. The 300 basis point decrease in operating margin was primarily
due to a $78.3, or 26.0% lower level of sales and approximately $9.0 of net
unfavorable foreign exchange fluctuations in the third quarter of 2009 as
compared with the same period in 2008.
17
Business
jet segment third quarter 2009 net sales of $56.3 decreased by $11.5, or 17.0%
as compared to the same period in 2008. Operating earnings decreased by $3.5, or
35.7%, reflecting the decrease in net sales, an unfavorable mix of products and
the negative impact of reduced operating leverage in the current
period.
NINE
MONTHS ENDED SEPTEMBER 30, 2009,
AS COMPARED TO NINE MONTHS
ENDED SEPTEMBER 30, 2008
Consolidated
Results
Net sales
for the nine months ended September 30, 2009 of $1,458.3 decreased by $124.9, or
7.9%, as compared with the same period of the prior year. The
decrease in net sales was the result of a $233.2, or 25.8%, decrease in net
sales at the commercial aircraft segment and a $43.9, or 20.6%, decrease in net
sales at the business jet segment partially offset by a $152.2, or 32.7%,
increase in net sales at the consumables management segment due to the
acquisition of the HCS business in July of 2008. Proforma net sales declined by
$470.6, or 24.4%, as compared with the same period of the prior
year.
Cost of
sales for the nine months ended September 30, 2009 was $954.2, or 65.4% of net
sales, as compared to $1,040.9, or 65.7% of net sales in the same period in the
prior year. The decrease in cost of sales was primarily due to the
7.9% decrease in net sales. On a proforma basis, cost of sales in
2009 decreased by 290 basis points as a result of successful cost reduction
activities, manufacturing efficiencies, more efficient consumables management
purchasing and initial synergies arising from the integration of the HCS
business.
Selling,
general and administrative (SG&A) expenses for the nine months ended
September 30, 2009 were $205.3, or 14.1% of net sales, as compared to $176.6, or
11.2% of net sales, in the same period in 2008. The $28.7 increase in SG&A
expenses was primarily related to a $17.0 increase in the consumables management
segment SG&A due to the completion of the HCS acquisition on July 28, 2008,
(which includes acquisition, integration and transition (AIT) costs of $8.6 in
the 2009 period), and a $12.7 net negative foreign exchange impact, offset by
our cost reduction initiatives.
Research,
development and engineering expense for the nine months ended September 30, 2009
was $74.6, or 5.1% of net sales, as compared with $102.7, or 6.5%, of net sales
in the same period in 2008. The decrease in spending in 2009 is due
to cost initiatives in place at our commercial aircraft and business jet
segments. Research development and engineering expense as a
percentage of sales decreased due to a higher level of revenue at our
consumables management segment, which has no corresponding research, development
and engineering expense as well as the cost initiatives described
above.
Operating
earnings for the nine months ended September 30, 2009 of $224.2 decreased $38.8,
or 14.8% as compared to the same period in 2008, reflecting the $124.9 decrease
in net sales, the timing of the HCS acquisition, $12.7 net unfavorable foreign
exchange impact, and $10.0 of additional AIT costs during the 2009 period,
offset by a 30 basis point reduction in cost of sales as a percentage of net
sales and our cost reduction initiatives. On a proforma basis to
include HCS in both periods, operating earnings would have been $78.7, or 26.0%
lower than the prior year on a 24.4% decrease in net sales in the nine months
ended September 30, 2009.
Interest
expense for the nine months ended September 30, 2009 of $67.7 was $42.8 higher
than the interest expense in the same period in the prior year, primarily due to
the increase in long-term debt associated with the July 2008 HCS
acquisition.
Earnings
before income taxes for the nine months ended September 30, 2009 of $156.5
decreased by $78.0, or 33.3%, as compared to $234.5 in the same period in the
prior year due to a $38.8 decrease in operating earnings and $42.8 increase in
interest expense. On a proforma basis to include HCS in both periods,
earnings before income taxes for the nine months ended September 30, 2009 was
$156.5, which was a decrease of $80.5, or 34.0%, as compared to proforma
earnings before income taxes of $237.0 in the prior year. This
decrease was primarily due to the 24.4% decrease in net sales in the nine months
ended September 30, 2009.
18
Income
taxes were $47.8, or 30.5% of earnings before income taxes, as compared to
$80.3, or 34.2% of earnings before income taxes, in 2008. Income taxes as a
percentage of earnings before income taxes decreased in the current period
mainly as a result of higher research and development tax credits arising from
recently completed tax reduction initiatives.
|
Net
earnings for the nine months ended September 30, 2009 were $108.7, or
$1.10 per diluted share, as compared to $154.2, or $1.65 per diluted
share. Net earnings decreased by $45.5, or 29.5% as compared with the
prior year as a result of the decrease in net sales and other factors
described above.
|
Segment
Results
The
following is a summary of net sales and operating earnings on as reported and
proforma basis by segment:
NET
SALES
|
||||||||||||||||
Nine
Months Ended September 30,
|
||||||||||||||||
2009
|
2008
|
2008
|
%
Change
|
|||||||||||||
As
Reported
|
Proforma
|
Proforma
|
||||||||||||||
Consumables
management
|
$ | 617.0 | $ | 464.8 | $ | 810.5 | (23.9 | %) | ||||||||
Commercial
aircraft
|
672.3 | 905.5 | 905.5 | (25.8 | %) | |||||||||||
Business
jet
|
169.0 | 212.9 | 212.9 | (20.6 | %) | |||||||||||
Total
|
$ | 1,458.3 | $ | 1,583.2 | $ | 1,928.9 | (24.4 | %) |
OPERATING
EARNINGS
|
||||||||||||||||
Nine
Months Ended September 30,
|
||||||||||||||||
2009
|
2008
|
2008
|
%
Change
|
|||||||||||||
As
Reported
|
Proforma
|
Proforma
|
||||||||||||||
Consumables
management
|
$ | 116.7 | $ | 109.0 | $ | 148.9 | (21.6 | %) | ||||||||
Commercial
aircraft
|
89.9 | 124.5 | 124.5 | (27.8 | %) | |||||||||||
Business
jet
|
17.6 | 29.5 | 29.5 | (40.3 | %) | |||||||||||
Total
|
$ | 224.2 | $ | 263.0 | $ | 302.9 | (26.0 | %) |
Consumables
management net sales for nine months ended September 30, 2009 were $617.0, which
represented a $152.2, or 32.7% increase to the comparative prior year period due
to the HCS acquisition in July 2008. On a proforma basis, consumables
management net sales for the nine months ended September 30, 2009 were $193.5,
or 23.9% lower than in the same period of 2008. The decline in
consumables management segment net sales in the current period as compared to
the same period in the prior year was due to reduced activity at airline and MRO
maintenance facilities, reduced aircraft capacity, decrease in revenue passenger
miles flown and substantially reduced activity at business jet manufacturers,
all as compared to the same period in the prior year. Consumables management
segment operating earnings of $116.7 during the nine months ended September 30,
2009, increased by $7.7 as compared to the same period in 2008 due to the higher
level of net sales, partly offset by higher AIT costs ($13.6 during the nine
months ended September 30, 2009 as compared to $3.6 incurred in the same period
of 2008) and lower margins in the acquired HCS business.
Commercial
aircraft segment net sales for nine months ended September 30, 2009 of $672.3
decreased $233.2, or 25.8%, compared to the same period in the prior year,
reflecting retrofit program pushouts, reduced activity at airlines and MRO
maintenance facilities, reduced aircraft capacity and a decrease in revenue
passenger miles flown. Operating earnings in the 2009 period were $89.9, or
13.4% of net sales, as compared to $124.5, or 13.7% of net sales in the same
period in the prior year. The decrease in operating earnings was primarily
attributable to the 25.8% decrease in net sales and unfavorable foreign exchange
impact, partly offset by lower cost of sales as a percentage of net sales due to
cost reduction activities and manufacturing efficiencies in the current
period.
19
Business
jet segment net sales for nine months ended September 30, 2009 decreased by
$43.9, or 20.6%, to $169.0 as compared to the same period in 2008. Operating
earnings decreased by $11.9, or 40.3% to $17.6, reflecting the decrease in net
sales, an unfavorable mix of products, severance costs and the negative impact
of reduced operating leverage in the current period.
LIQUIDITY AND CAPITAL
RESOURCES
Current
Financial Condition
As of
September 30, 2009, our net debt-to-net-capital ratio was 40.3%. Net
debt was $952.9, which represented total debt of $1,118.7, less cash and cash
equivalents of $165.8. There were no borrowings outstanding under the
Revolving Credit Facility of our Credit Agreement and we have no debt maturities
until 2014. Cash on hand at September 30, 2009 increased by $19.4 as
compared with cash on hand at June 30, 2009, and increased by $50.2
as compared to September 30, 2008.
Working
capital as of September 30, 2009 was $1,309.7, an increase of $136.0 as compared
with working capital at December 31, 2008. At September 30, 2009, total current
assets increased by $56.9, total current liabilities decreased by $79.1 and
total stockholder’s equity increased by $143.4, all as compared to December 31,
2008. During 2009, we successfully completed our initiative to bring HCS
inventories in line with our stocking distribution model. This effort
was the primary driver behind the $112.5 increase in our net inventories during
the nine months ended September 30, 2009 and was the principal reason for the
related increase in working capital.
Cash
Flows
At
September 30, 2009, our cash and cash equivalents were $165.8 compared to $168.1
at December 31, 2008 and $115.6 at September 30, 2008. Cash generated
from operating activities was $22.5 for the nine months ended September 30,
2009, as compared to $46.0 in the same period in the prior year. The
primary source of cash from operations during the nine months ended September
30, 2009 were net earnings of $108.7, adjusted by depreciation and amortization
of $36.9, non-cash compensation of $17.9, a $35.8 decrease in deferred tax asset
and a $37.4 decrease in accounts receivable. Offsetting these sources
of cash were a higher level of inventories ($135.6) and the lower level accounts
payable and accrued liabilities ($95.2).
Capital
Spending
Our
capital expenditures were $21.8 and $20.7 during the nine months ended September
30, 2009 and 2008, respectively. We expect capital expenditures of
approximately $50 over the next twelve months. The increase in
capital expenditures is primarily related to investments needed to support the
$2,300 of awarded, but not included in our backlog, seller furnished equipment
programs that we expect will begin to deliver in 2011. We have, in the past,
generally funded our capital expenditures with cash from operations and funds
available to us under revolving bank credit facilities. We expect to fund future
capital expenditures from cash on hand, from operations and from funds available
to us under our Revolving Credit Facility of our Credit Agreement.
Outstanding
Debt and Other Financing Arrangements
Long-term
debt at September 30, 2009 consisted principally of $518.4 of term loan
borrowings under our Term Loan Facility of our Credit Agreement and $600.0
aggregate principal amount of 8.5% Senior Notes due 2018.
Borrowings
under our Term Loan Facility bear interest at an annual rate equal to LIBOR (as
defined) plus 275 basis points or Prime (as defined) plus 175 basis points,
which was 5.75% at September 30, 2009. Borrowings under our Revolving
Credit Facility would bear interest at an annual rate equal to, at the Company’s
option, LIBOR (as defined) plus 275 basis points or Prime (as defined) plus 175
basis points, which was 5.75% at September 30, 2009. There were no amounts
outstanding under the Revolving Credit Facility as of September 30,
2009.
20
We expect
to make a prepayment of $100.0 of our long-term debt in the fourth quarter of
2009 using our cash on hand.
Contractual
Obligations
During the
nine-month period ended September 30, 2009, there were no material changes in
our long-term debt. The following chart reflects our contractual
obligations, represented by operating leases, purchase obligations, and
commercial commitments as of September 30, 2009. Commercial
commitments include lines of credit, guarantees and other potential cash
outflows resulting from a contingent event that requires performance by us or
our subsidiaries pursuant to a funding commitment.
Contractual
Obligations (1)
|
2009
|
2010
|
2011
|
2012
|
2013
|
Thereafter
|
Total
|
|||||||||||||||||||||
Long-term
debt and other non-current liabilities
|
$ | 1.5 | $ | 5.8 | $ | 5.9 | $ | 5.9 | $ | 5.9 | $ | 1,105.3 | $ | 1,130.3 | ||||||||||||||
Operating
leases
|
6.7 | 24.0 | 19.7 | 17.5 | 15.4 | 81.9 | 165.2 | |||||||||||||||||||||
Purchase
obligations (2)
|
15.9 | 17.1 | 5.1 | 3.9 | 2.5 | 1.1 | 45.6 | |||||||||||||||||||||
Future
interest payment on outstanding debt (3)
|
8.4 | 82.2 | 81.9 | 81.6 | 81.3 | 71.8 | 407.2 | |||||||||||||||||||||
Total
|
$ | 32.5 | $ | 129.1 | $ | 112.6 | $ | 108.9 | $ | 105.1 | $ | 1,260.1 | $ | 1,748.3 | ||||||||||||||
Commercial
Commitments
|
||||||||||||||||||||||||||||
Letters
of credit
|
$ | 15.3 | $ | -- | $ | -- | $ | -- | $ | -- | $ | -- | $ | 15.3 |
(1)
|
Our
liability for unrecognized tax benefits of $14.2 at September 30, 2009 has
been omitted from the above table because we cannot determine with
certainty when this liability will be settled. It is reasonably
possible that the amount of liability for unrecognized tax benefits will
change in the next twelve months; however, we do not expect the change to
have a significant impact on our consolidated financial
statements.
|
(2)
|
Occasionally,
we enter into purchase commitments for production materials and other
items. We also enter into unconditional purchase obligations
with various vendors and suppliers of goods and services in the normal
course of operations through purchase orders, other documentation or with
an invoice. Such obligations are generally outstanding for
periods less than a year and are settled by cash payments upon delivery of
goods and services and are not reflected in purchase obligations in this
table.
|
(3)
|
Future
interest payments include estimated amounts due on the $518.4 aggregate
principal amount outstanding under our Term Loan Facility, based on the
actual rate of interest at September 30, 2009. Actual interest
payments will fluctuate based on LIBOR or Prime rate pursuant to the terms
of the Credit Agreement.
|
We believe
that our cash flows, together with cash on hand and the availability under the
Credit Agreement, provide us with the ability to fund our operations, make
planned capital expenditures and make scheduled debt service payments for at
least the next twelve months. However, such cash flows are dependent upon our
future operating performance, which, in turn, is subject to prevailing economic
conditions and to financial, business and other factors, including the
conditions of our markets, some of which are 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 such debt obligations, obtain
additional financing or sell assets. We cannot assure you that our business will
generate cash from operations or that we will be able to obtain financing from
other sources sufficient to satisfy our debt service or other
requirements.
Off-Balance
Sheet Arrangements
Lease
Arrangements
We finance
our use of certain equipment under committed lease arrangements provided by
various financial institutions. Since the terms of these arrangements meet the
accounting definition of operating lease arrangements, the aggregate sum of
future minimum lease payments is not reflected in our consolidated balance
sheet. Future minimum lease payments under these arrangements
aggregated approximately $165.2 at September 30, 2009.
21
Indemnities,
Commitments and Guarantees
During the
normal course of business, we have made, and we may continue to make, certain
indemnities, commitments and guarantees under which we may be required to make
payments in relation to certain transactions. These indemnities include
non-infringement of patents and intellectual property indemnities to our
customers in connection with the delivery, design, manufacture and sale of our
products, indemnities to various lessors in connection with facility leases for
certain claims arising from such facility or lease, and indemnities to other
parties to certain acquisition agreements. The duration of these indemnities,
commitments and guarantees varies, and in certain cases, is indefinite. We
believe that substantially all of our indemnities, commitments and guarantees
provide for limitations on the maximum potential future payments we could be
obligated to make. However, we are unable to estimate the maximum amount of
liability related to our indemnities, commitments and guarantees because such
liabilities are contingent upon the occurrence of events which are not
reasonably determinable. Management believes that any liability for these
indemnities, commitments and guarantees would not have a material adverse effect
to our accompanying condensed consolidated financial statements.
Deferred
Tax Assets
We
maintained a valuation allowance of approximately $6.9 as of September 30, 2009
primarily related to foreign tax credits and foreign net operating
losses.
Critical
Accounting Policies
Critical
accounting policies are defined as those that are reflective of significant
judgments and uncertainties, and potentially result in materially different
results under different assumptions and conditions. We believe that our critical
accounting policies are limited to those described in Note 1 to Notes to the
Consolidated Financial Statements included in our Annual Report on Form 10-K for
the fiscal year ended December 31, 2008. There have been no changes
to our critical accounting policies since December 31, 2008.
DEPENDENCE
UPON CONDITIONS IN THE AIRLINE INDUSTRY
For more
than the last twelve months, global financial markets have experienced extreme
volatility and disruption. Since September 2008, this volatility has reached
unprecedented levels as a result of a financial crisis affecting the banking
system and participants in the global financial markets. Concerns over the
tightening of the corporate credit markets, inflation, energy costs and the
dislocation of the residential and commercial real estate and mortgage markets
have contributed to the volatility in the global financial markets and, together
with the global financial crisis, have diminished expectations for global
economic conditions in the future. The airline and business jet
industries are particularly sensitive to changes in economic
conditions. In 2009, the airline industry has continued to park
aircraft, delay new aircraft purchases and delivery of new aircraft, deferred
retrofit programs and depleted existing inventories as was the case in 2008. We
expect the business jet industry will continue to be severely impacted by both
the recession and by declining corporate profits.
We expect,
based on current economic conditions, that air traffic will decline in 2009 as
compared with 2008, and air traffic for 2010 is not expected to show significant
growth over 2009. Declining air traffic has, and we expect will continue
to, negatively impact our customer base. A continued economic downturn would
likely continue to negatively impact the airline and business jet industries,
which could cause a significant negative impact on our future results of
operations.
22
FORWARD-LOOKING
STATEMENTS
This
report contains forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934. Forward-looking statements include, but are not limited to, all statements
that do not relate solely to historical or current facts, including statements
regarding the expected benefits derived in connection with the HCS acquisition,
implementation and expected benefits of lean manufacturing and continuous
improvement plans, our dealings with customers and partners, the consolidation
of facilities, reduction of our workforce, integration of acquired businesses,
ongoing capital expenditures, our ability to grow our business, the impact of
the large number of grounded aircraft on demand for our products and our
underlying assets, the adequacy of funds to meet our capital requirements, the
ability to refinance our indebtedness, if necessary, the reduction of debt, the
potential impact of new accounting pronouncements, and the impact on our
business of the recent decreases in passenger traffic and projected decreases in
passenger traffic and the size of the airline fleet. Such
forward-looking statements include risks and uncertainties and our actual
experience and results may differ materially from the experience and results
anticipated in such statements. Factors that might cause such a difference
include those discussed in our filings with the Securities and Exchange
Commission, under the heading "Risk Factors" in our Annual Report on Form 10-K,
for the fiscal year ended December 31, 2008 as well as future events that may
have the effect of reducing our available operating income and cash balances,
such as unexpected operating losses, the impact of rising fuel prices on our
airline customers, outbreaks in national or international hostilities, terrorist
attacks, prolonged health issues which reduce air travel demand (e.g., SARS,
Swine Flu), delays in, or unexpected costs associated with, the integration of
our acquired or recently consolidated businesses, including HCS, conditions in
the airline industry, conditions in the business jet industry, regulatory
developments, litigation costs, problems meeting customer delivery requirements,
our success in winning new or expected refurbishment contracts from customers,
capital expenditures, increased leverage, possible future acquisitions, facility
closures, product transition costs, labor disputes involving us, our significant
customers or airframe manufacturers, the possibility of a write-down of
intangible assets, delays or inefficiencies in the introduction of new products,
fluctuations in currency exchange rates or our inability to properly manage our
rapid growth.
Except as
required under the federal securities laws and rules and regulations of the SEC,
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 the risk factors and the other
information in our Annual Report on Form 10-K for the fiscal year ended December
31, 2008 and this entire quarterly report on Form 10-Q.
23
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 primarily in
U.S. dollars, and we purchase raw materials and component parts from foreign
vendors primarily in British pounds or euros. 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 euros.
From time
to time, we and our foreign subsidiaries may enter into foreign currency
exchange contracts to manage risk on transactions conducted in foreign
currencies. At September 30, 2009, we had no outstanding forward currency
exchange contracts. In addition, we have not entered into any other
derivative financial instruments.
Interest Rates – At September
30, 2009, we had adjustable rate debt with a value totaling
$518.4. The weighted average interest rates for the adjustable rate
debt was approximately 5.75% at September 30, 2009. If interest rates
on variable rate debt were to increase by 10% above current rates, our pretax
income would decline by approximately $3.0 on an annualized basis. We do not
engage in transactions intended to hedge our exposure to changes in interest
rates.
As of
September 30, 2009, 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 $0.1
on an annualized basis.
Disclosure
Controls and Procedures
The
Company carried out an evaluation, under the supervision and with the
participation of the Company’s management, including the Company’s Chief
Executive Officer and Chief Financial Officer, of the effectiveness, as of
September 30, 2009, of the design and operation of the Company’s disclosure
controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange
Act of 1934). Based upon that evaluation, the Chief Executive Officer
and Chief Financial Officer concluded that the Company’s disclosure controls and
procedures are effective in timely alerting them to material information
required to be included in the Company’s periodic filings with the Securities
and Exchange Commission and in ensuring that information required to be
disclosed by the Company in the reports that it files or submits under the
Exchange Act is recorded, processed, summarized and reported, within the time
periods specified, in the SEC’s rules and forms.
Internal
Control over Financial Reporting
There were
no changes in the Company’s internal control over financial reporting that
occurred during the third quarter of 2009 that have materially affected, or are
reasonably likely to materially affect, the Company’s internal control over
financial reporting.
On October
30, 2009, the Compensation Committee of the Board of Directors approved the
vesting schedule and performance-based vesting criteria applicable to future
grants of restricted stock and restricted stock units (collectively, “Restricted
Shares”) under the Company’s 2005 Long-Term Incentive Plan. Under the
approved terms, 75% of the Restricted Shares are time-based and will vest in
equal installments on the first, second and third anniversaries of the award
date.
The
remaining 25% of the Restricted Shares are performance based (the
“Performance-Based Shares”) and will vest on the fourth anniversary of the award
date subject to the Company achieving specified return on equity targets, on an
average basis, over the three full calendar years following the award
date. The return on equity targets will be established by the
Compensation Committee on an annual basis for each of the three calendar years
and vesting will be based upon the average level of achievement over the entire
three year period (the “Performance Target”). If the Company achieves
90% or more of the Performance Target, 100% of the Performance-Based Shares will
vest. If the Company achieves less than 80% of the Performance
Target, none of the Performance-Based Shares will vest. The number of
Performance-Based Shares vesting if the Company achieves between 80% and 90% of
the Performance Target will be determined by using linear
interpolation.
The
Compensation Committee also revised the vesting schedule and performance-based
vesting criteria for the Restricted Shares granted to certain key employees,
including each of the Company’s executive officers, on November 17, 2008, in
accordance with the above-described methodology. Previously, 75% of
such Restricted Shares were time-based and vested in equal installments on the
first through fourth anniversaries of the award date, and 25% of the Restricted
Shares were performance-based and vested on the first through fourth
anniversaries of the award date, subject to the Company achieving the targeted
earnings before income taxes goals for each respective annual
period. The Company has entered into amendments to the award
agreements with each affected employee.
Copies of
the forms of award agreements and amendments to award agreements are filed as
Exhibits 10.1 through 10.7 of this Form 10-Q.
24
10.1
Form of Amendment Agreement to Restricted Stock Award Agreement
(Insiders)
10.2
Form of Amendment Agreement to Restricted Stock Award Agreement
(Non-Insiders)
10.3
Standard Form of Restricted Stock Award Agreement
10.4
Standard Form of Restricted Stock Unit Award Agreement
10.5
Form of Restricted Stock Award Agreement (Amin J. Khoury)
10.6
Form of Restricted Stock Award Agreement (Thomas P. McCaffrey & Michael B.
Baughan)
10.7
Form of Restricted Stock Unit Award Agreement (Thomas P. McCaffrey & Michael
B. Baughan)
Exhibit 31
Rule 13a-14(a)/15d-14(a) Certifications
31.1
Certification of Chief Executive Officer
31.2
Certification of Chief Financial Officer
Exhibit 32
Section 1350 Certifications
32.1
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section
1350
32.2
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section
1350
25
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
BE
AEROSPACE, INC.
|
|||
Date:
November 5, 2009
|
By:
|
/s/
Amin J. Khoury
|
|
Amin
J. Khoury
|
|||
Chairman
and
|
|||
Chief
Executive Officer
|
|||
Date:
November 5, 2009
|
By:
|
/s/
Thomas P. McCaffrey
|
|
Thomas
P. McCaffrey
|
|||
Senior
Vice President and
|
|||
Chief
Financial Officer
|
26