(Unaudited
- Dollars In Millions, Except Share and Per Share Data)
Note
1.
Basis
of Presentation
The
accompanying 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 are unaudited 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, 2006.
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
The
Company completed two acquisitions during the third quarter of
2006. The acquisitions were accounted for as purchases under
Statement of Financial Accounting Standards (“SFAS”) No. 141, “Business
Combinations.” The assets purchased and liabilities assumed for these
acquisitions have been reflected in the accompanying condensed consolidated
balance sheets. Results of operations for the acquisitions are
included in the accompanying condensed consolidated statement of earnings
for
the quarter and nine month periods ended September 30, 2007.
Draeger
Aerospace GmbH
|
In
July 2006, the Company acquired Draeger Aerospace GmbH (Draeger)
from
Cobham PLC of Dorset, England. The cash purchase price was
approximately $79.4.
|
|
Draeger
manufactures components and integrated systems to supply chemical
and
gaseous oxygen systems for both civil and military
aircraft. The integration of Draeger into the Company’s
interior systems segment and with the Company’s existing oxygen systems
business has broadened the Company’s oxygen systems product line and
expanded its customer base.
|
|
The
Company completed the allocation of the purchase price for Draeger
during
2007. The excess of the purchase price over the fair value of
the identifiable net tangible assets acquired approximated $65.0
of which
$13.7 has been allocated to intangible assets and $51.3 is included
in
goodwill. This goodwill is not deductible for tax
purposes.
|
New
York Fasteners Corp.
|
In
September 2006, the Company acquired New York Fasteners Corp. (New
York
Fasteners), a privately-held company. The cash purchase price
was approximately $67.3.
|
|
New
York Fasteners is a distributor of aerospace fasteners and hardware
primarily to the military sector. The integration of New York
Fasteners into the Company’s distribution segment is expected to create
procurement and operational synergies and expand the Company’s overall
penetration into the military
sector.
|
|
The
Company completed the allocation of the purchase price for New
York
Fasteners during 2007. The excess of the purchase price over
the fair value of the identifiable net tangible assets acquired
approximated $48.3 of which $5.5 has been allocated to intangible
assets
and $42.8 is included in goodwill. This goodwill is deductible
for tax
purposes.
|
|
Consolidated
proforma revenues, net earnings and net earnings per share giving
effect
to the Draeger and New York Fasteners acquisitions, as if they
had
occurred on January 1, 2006, were approximately $301.5, $30.3 and
$0.39
for the three month period ended September 30, 2006, respectively,
and
$868.4, $62.8 and $0.81 for the nine month period ended September
30,
2006, respectively.
|
Note
3.
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.
Inventories consist of the following:
|
|
September
30, 2007
|
|
|
December
31, 2006
|
|
Purchased
materials and component parts
|
|
$
|
147.0
|
|
|
$
|
96.8
|
|
Work-in-process
|
|
|
30.1
|
|
|
|
21.7
|
|
Finished
goods (primarily aftermarket fasteners)
|
|
|
418.8
|
|
|
|
302.4
|
|
|
|
$
|
595.9
|
|
|
$
|
420.9
|
|
Note
4.
Goodwill
and Intangible Assets
In
accordance with SFAS No. 142, "Goodwill and Other Intangible Assets”, the
Company has completed the fair value analysis for goodwill and other intangible
assets as of December 31, 2006, and concluded that no impairment
existed. As of September 30, 2007, the Company believed that no
indicators of impairment existed. Aggregate amortization expense on
identifiable intangible assets was approximately $2.6 and $2.6 for the three
months ended September 30, 2007 and 2006, respectively and $8.4 and $7.5
for the
nine months ended September 30, 2007 and 2006, respectively. The
Company expects to report amortization expense of approximately $12 to $13
in
each of the next five fiscal years.
Note
5.
Long-Term
Debt
In
July
2006 and, as amended and restated on August 24, 2006, the Company entered
into a
new senior secured credit facility (the “Senior Secured Credit Facility”),
consisting of a five-year $200.0 revolving credit facility and a six-year
$300.0
term loan. The Senior Secured Credit Facility also provides for the
ability of the Company to add additional term loan borrowings in the amount
of
up to $75.0 upon satisfaction of certain customary conditions, including
commitments from lenders.
Revolving
credit facility borrowings under the Senior Secured Credit Facility would
currently bear interest at an annual rate equal to the London interbank offered
rate (LIBOR) plus 125 basis points. There were no borrowings
outstanding on the revolving credit facility of the Senior Secured Credit
Facility at September 30, 2007. Term loan borrowings under the Senior
Secured Credit Facility bear interest at an annual rate equal to LIBOR plus
175
basis points (7.16% at September 30, 2007).
The
Senior
Secured Credit Facility contains an interest coverage ratio (as defined therein)
maintenance financial covenant that currently must be maintained at a level
greater than 2.25 to 1 through maturity of the term loan. The Senior
Secured Credit Facility also contains a total leverage ratio covenant (as
defined therein) which limits net debt to a 4.25 to 1 multiple of EBITDA
(as
defined therein) through maturity. The Senior Secured Credit Facility
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, 2007.
At
September 30, 2007, long-term debt consisted principally of $150.0 borrowings
under the Senior Secured Credit Facility. In April 2007, the Company
prepaid $100.0 of term loan borrowings under its Senior Secured Credit Facility
and, on May 1, 2007, the Company redeemed its $250.0 aggregate principal
amount
of 8-7/8% senior subordinated notes due 2011 with the proceeds of the Company’s
March 2007 common stock offering. Debt prepayment costs of $11.0 were
recorded during the second quarter of 2007 related to the debt prepayment
and
redemption. The Company expects interest expense to decrease by
approximately $20.0 during 2007 as a result of this prepayment and
redemption.
Note
6.
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, 2007, future minimum lease payments
under these arrangements totaled approximately $137.3; 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 be material to the
accompanying condensed consolidated financial
statements. Accordingly, no significant amounts have been accrued for
indemnities, commitments and guarantees.
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,
|
|
|
|
2007
|
|
|
2006
|
|
Beginning
balance
|
|
$
|
18.4
|
|
|
$
|
14.3
|
|
Accruals
for warranties issued
|
|
|
|
|
|
|
|
|
during
the period
|
|
|
13.2
|
|
|
|
9.6
|
|
Settlements
made
|
|
|
(12.4
|
)
|
|
|
(6.7
|
)
|
Ending
balance
|
|
$
|
19.2
|
|
|
$
|
17.2
|
|
Note
7.
Accounting
for Stock-Based Compensation
Effective
January 1, 2006, the Company began accounting for share-based compensation
arrangements in accordance with the provisions of Financial Accounting Standards
Board (FASB) Statement No. 123(R), “Share-Based Payment” (SFAS
123(R)). Under SFAS 123(R), share-based compensation cost is measured
on the date of grant, based on the fair value of the award, and is recognized
over the requisite service period.
No
compensation cost was recognized for stock options during the three and nine
month periods ended September 30, 2007 and 2006 since no options were granted
or
vested during either period.
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 of $0.1 was recognized during
each of the three months ended September 30, 2007 and 2006, and $0.3 was
recognized for each of the nine months ended September 30, 2007 and
2006.
During
the
quarter and nine months ended September 30, 2007, the Company granted 8,401
and
42,672 shares, respectively, of restricted stock with an average fair market
value at the date of grant of $43.09 and $34.96,
respectively. Compensation cost is being recognized on a
straight-line basis over the four-year vesting period of the
shares. Share-based compensation of $2.5 and $7.4 was recognized
during the three and nine month periods ended September 30, 2007 related
to
these share grants and restricted shares granted in prior
periods. Share-based compensation of $0.5 and $0.5 was recognized
during the three and nine month periods ended September 30, 2006 related
to
restricted shares. Unrecognized compensation expense related to share
grants, including the estimated impact of any future forfeiture, was $27.0
at
September 30, 2007.
Note
8.
|
Segment
Reporting
|
The
Company is organized based on the products and services it
offers. The Company’s reportable segments are comprised of: Seating,
Interior Systems, Distribution, Business Jet and Engineering
Services.
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 operational
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.
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,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
Net
sales
|
|
|
|
|
|
|
|
|
|
|
|
|
Seating
|
|
$
|
164.7
|
|
|
$
|
98.8
|
|
|
$
|
454.5
|
|
|
$
|
283.0
|
|
Interior
Systems
|
|
|
89.7
|
|
|
|
72.4
|
|
|
|
256.4
|
|
|
|
192.2
|
|
Distribution
|
|
|
93.3
|
|
|
|
64.3
|
|
|
|
286.5
|
|
|
|
173.0
|
|
Business
Jet
|
|
|
47.7
|
|
|
|
34.7
|
|
|
|
136.3
|
|
|
|
108.9
|
|
Engineering
Services
|
|
|
32.8
|
|
|
|
17.7
|
|
|
|
80.5
|
|
|
|
49.5
|
|
|
|
$
|
428.2
|
|
|
$
|
287.9
|
|
|
$
|
1,214.2
|
|
|
$
|
806.6
|
|
Operating
Earnings
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Seating
|
|
$
|
18.6
|
|
|
$
|
11.3
|
|
|
$
|
52.3
|
|
|
$
|
26.8
|
|
Interior
Systems
|
|
|
17.7
|
|
|
|
13.8
|
|
|
|
47.8
|
|
|
|
36.1
|
|
Distribution
|
|
|
21.4
|
|
|
|
12.9
|
|
|
|
62.9
|
|
|
|
36.5
|
|
Business
Jet
|
|
|
3.7
|
|
|
|
0.2
|
|
|
|
12.6
|
|
|
|
5.8
|
|
Engineering
Services
|
|
|
1.8
|
|
|
|
0.7
|
|
|
|
3.5
|
|
|
|
0.1
|
|
|
|
$
|
63.2
|
|
|
$
|
38.9
|
|
|
$
|
179.1
|
|
|
$
|
105.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
Expense
|
|
$
|
3.1
|
|
|
$
|
9.7
|
|
|
$
|
17.8
|
|
|
$
|
27.9
|
|
Debt
Prepayment Costs
|
|
|
--
|
|
|
|
17.0
|
|
|
|
11.0
|
|
|
|
18.8
|
|
Earnings
Before Income Taxes
|
|
$
|
60.1
|
|
|
$
|
12.2
|
|
|
$
|
150.3
|
|
|
$
|
58.6
|
|
(1)
Operating
earnings includes an allocation of corporate IT costs, employee benefits
and
general and administrative costs based on the proportion of each segments’
system users, number of employees and sales, respectively.
The
following table presents capital expenditures by business segment:
|
|
THREE
MONTHS ENDED
|
|
|
NINE
MONTHS ENDED
|
|
|
|
September
30,
|
|
|
September
30,
|
|
|
September
30,
|
|
|
September
30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
Capital
Expenditures
|
|
|
|
|
|
|
|
|
|
|
|
|
Seating
|
|
$
|
2.5
|
|
|
$
|
1.8
|
|
|
$
|
7.1
|
|
|
$
|
5.7
|
|
Interior
Systems
|
|
|
2.2
|
|
|
|
1.3
|
|
|
|
6.8
|
|
|
|
3.8
|
|
Distribution
|
|
|
0.5
|
|
|
|
0.6
|
|
|
|
2.6
|
|
|
|
1.9
|
|
Business
Jet
|
|
|
1.3
|
|
|
|
1.1
|
|
|
|
3.8
|
|
|
|
3.5
|
|
Engineering
Services
|
|
|
0.5
|
|
|
|
0.3
|
|
|
|
1.4
|
|
|
|
1.0
|
|
|
|
$
|
7.0
|
|
|
$
|
5.1
|
|
|
$
|
21.7
|
|
|
$
|
15.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
following tables present total assets by business segment:
|
|
September
30,
|
|
|
December
31,
|
|
|
|
2007
|
|
|
2006
|
|
Total
Assets
(1)
|
|
|
|
|
|
|
Seating
|
|
$
|
357.9
|
|
|
$
|
266.1
|
|
Interior
Systems
|
|
|
413.1
|
|
|
|
374.7
|
|
Distribution
|
|
|
541.7
|
|
|
|
492.9
|
|
Business
Jet
|
|
|
239.9
|
|
|
|
251.6
|
|
Engineering
Services
|
|
|
152.1
|
|
|
|
112.4
|
|
|
|
$
|
1,704.7
|
|
|
$
|
1,497.7
|
|
|
|
|
|
|
|
|
|
|
(1) Corporate
assets (including cash and cash equivalents) of $107.7 and $117.7
at
September 30, 2007 and December 31, 2006,
respectively,
have been
allocated
to the above
segments
based
on
each
segment’s
respective
percentage
of
total
assets.
|
Note
9.
|
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 average share price during the period when calculating the dilutive
effect of stock options, shares issued under the Employee Stock Purchase
Plan
and restricted shares. Shares outstanding for the periods presented were
as
follows:
|
|
THREE
MONTHS ENDED
|
|
|
NINE
MONTHS ENDED
|
|
|
|
September
30,
|
|
|
September
30,
|
|
|
September
30,
|
|
|
September
30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
Net
earnings
|
|
$
|
44.5
|
|
|
$
|
31.4
|
|
|
$
|
105.0
|
|
|
$
|
63.9
|
|
Basic
weighted average common shares (in millions)
|
|
|
91.2
|
|
|
|
77.7
|
|
|
|
87.0
|
|
|
|
76.8
|
|
Effect
of dilutive stock options and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
employee
stock puchase plan shares (in millions)
|
|
|
0.2
|
|
|
|
0.6
|
|
|
|
0.3
|
|
|
|
1.0
|
|
Effect
of restricted shares issued (in millions)
|
|
|
0.5
|
|
|
|
0.3
|
|
|
|
0.4
|
|
|
|
0.1
|
|
Diluted
weighted average common shares (in millions)
|
|
|
91.9
|
|
|
|
78.6
|
|
|
|
87.7
|
|
|
|
77.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
net earnings per share
|
|
$
|
0.49
|
|
|
$
|
0.40
|
|
|
$
|
1.21
|
|
|
$
|
0.83
|
|
Diluted
net earnings per share
|
|
$
|
0.48
|
|
|
$
|
0.40
|
|
|
$
|
1.20
|
|
|
$
|
0.82
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note
10.
Comprehensive
Earnings
Comprehensive
earnings is defined as all changes in a company's net assets except changes
resulting from transactions with shareholders. 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,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
Net
earnings
|
|
$
|
44.5
|
|
|
$
|
31.4
|
|
|
$
|
105.0
|
|
|
$
|
63.9
|
|
Other
comprehensive earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
exchange translation adjustment and other
|
|
|
9.7
|
|
|
|
(0.1
|
)
|
|
|
16.1
|
|
|
|
7.9
|
|
Comprehensive
earnings
|
|
$
|
54.2
|
|
|
$
|
31.3
|
|
|
$
|
121.1
|
|
|
$
|
71.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note
11.
Accounting for Uncertainty in Income Taxes
The
Company adopted the provisions of FASB Interpretation No. 48, “Accounting for
Uncertainty in Income Taxes”, on January 1, 2007. Upon the adoption,
the liability for unrecognized tax benefits at January 1, 2007 was $4.9,
which
was accounted for as a $2.3 increase to accumulated deficit, a $2.3 increase
in
long term deferred tax assets, and a $0.3 reduction in income taxes
payable. The net amount of the unrecognized tax benefits, if
recognized, would affect the Company’s effective tax rate.
During
the
three and nine month periods ended September 30, 2007, as a result of the
finalization of a tax credit study related to prior periods and other tax
planning initiatives, the Company’s liability for unrecognized tax benefits
increased by $1.6 and $4.1, respectively to $9.0. It is reasonably
possible that the amount of liability for unrecognized tax benefits will
change
in the next twelve months; however, the Company does not expect the change
to
have a significant impact on the Company’s consolidated financial
statements.
The
Company’s tax expense during the three and nine month periods ended September
30, 2007 reflects approximately $5.8 of tax benefits associated with a
non-recurring tax planning initiative that was finalized during the third
quarter of 2007.
The
Company is not currently undergoing any income tax examinations in the U.S.
federal, state or non-U.S. jurisdictions in which the Company
operates. With minor exceptions, the Company is currently open to
audit by the tax authorities for the tax years ending December 31, 2003 through
December 31, 2006.
The
Company classifies interest and penalties related to income taxes as income
tax
expense. The amount included in the Company’s liability for
unrecognized tax benefits for interest and penalties as of the date of adoption
was under $1.0 and this amount did not materially change as of September
30,
2007.
Note
12.
|
Recent
Accounting Pronouncements
|
In
September 2006, the FASB issued SFAS No. 157 “Fair Value Measurements” (SFAS
157). SFAS 157 is effective for financial statements issued for
fiscal years beginning after November 15, 2007. The adoption of SFAS
157 is not expected to have a material impact on the Company’s consolidated
financial statements.
In
September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined
Benefit Pension and Other Postretirement Plans” (SFAS 158) which requires the
recognition of the over-funded or under-funded status of single-employer
defined
benefit pension plans and other postretirement plans in the financial statements
at a company’s year end and recognition of changes in the funded status through
comprehensive income in the year in which the changes occur. SFAS 158
was effective as of December 31, 2006. The adoption of SFAS 158 did
not have a material impact on the Company’s consolidated financial
statements.
In
February 2007, the FASB issued SFAS No. 159 “The Fair Value Option for Financial
Assets and Financial Liabilities, Including an Amendment of FASB Statement
No.
115” (SFAS 159). SFAS 159 allows companies to measure at fair value
most financial assets and liabilities that are currently required to be measured
in a different manner, such as based on their carrying amount. SFAS
159 is effective for fiscal years beginning after November 15,
2007. The adoption of SFAS 159 is not expected to have a material
impact on the Company’s consolidated financial statements.
[Remainder
of page intentionally left blank]
BE
AEROSPACE, INC.
|
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS
(Dollars
In Millions, Except As Noted And Per Share
Data)
|
OVERVIEW
The
following discussion and analysis addresses the results of our operations
for
the three months ended September 30, 2007, as compared to our results of
operations for the three months ended September 30, 2006. The discussion
and
analysis also addresses our results of operations for the nine months ended
September 30, 2007, as compared to our results of operations for the nine
months
ended September 30, 2006. 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 a leading aftermarket distributor of aerospace fasteners. 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:
|
•
|
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 microwaves, high heat convection and steam
ovens;
|
|
•
|
both
chemical and gaseous aircraft oxygen delivery, distribution and
storage
systems, protective breathing equipment and lighting
products;
|
|
•
|
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; and
|
|
•
|
a
broad line of aerospace fasteners, covering over 200,000 stock
keeping
units (SKUs) serving the commercial aircraft, business jet and
military
and defense industries.
|
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
five reportable segments: Seating, Interior Systems, Distribution, Business
Jet
and Engineering Services.
[Remainder
of page intentionally left blank]
Net
sales
by reportable segment for the three and nine month periods ended September
30,
2007 and September 30, 2006 were as follows:
|
|
THREE
MONTHS ENDED
|
|
|
NINE
MONTHS ENDED
|
|
|
|
September
30, 2007
|
|
|
September
30, 2006
|
|
|
September
30, 2007
|
|
|
September
30, 2006
|
|
|
|
Net
|
|
|
%
of
|
|
|
Net
|
|
|
%
of
|
|
|
Net
|
|
|
%
of
|
|
|
Net
|
|
|
%
of
|
|
|
|
Sales
|
|
|
Net
Sales
|
|
|
Sales
|
|
|
Net
Sales
|
|
|
Sales
|
|
|
Net
Sales
|
|
|
Sales
|
|
|
Net
Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Seating
|
|
$
|
164.7
|
|
|
|
38.5
|
%
|
|
$
|
98.8
|
|
|
|
34.3
|
%
|
|
$
|
454.5
|
|
|
|
37.4
|
%
|
|
$
|
283.0
|
|
|
|
35.1
|
%
|
Interior
Systems
|
|
|
89.7
|
|
|
|
20.9
|
%
|
|
|
72.4
|
|
|
|
25.1
|
%
|
|
|
256.4
|
|
|
|
21.1
|
%
|
|
|
192.2
|
|
|
|
23.8
|
%
|
Distribution
|
|
|
93.3
|
|
|
|
21.8
|
%
|
|
|
64.3
|
|
|
|
22.3
|
%
|
|
|
286.5
|
|
|
|
23.6
|
%
|
|
|
173.0
|
|
|
|
21.5
|
%
|
Business
Jet
|
|
|
47.7
|
|
|
|
11.1
|
%
|
|
|
34.7
|
|
|
|
12.1
|
%
|
|
|
136.3
|
|
|
|
11.2
|
%
|
|
|
108.9
|
|
|
|
13.5
|
%
|
Engineering
Services
|
|
|
32.8
|
|
|
|
7.7
|
%
|
|
|
17.7
|
|
|
|
6.2
|
%
|
|
|
80.5
|
|
|
|
6.7
|
%
|
|
|
49.5
|
|
|
|
6.1
|
%
|
|
|
$
|
428.2
|
|
|
|
100.0
|
%
|
|
$
|
287.9
|
|
|
|
100.0
|
%
|
|
$
|
1,214.2
|
|
|
|
100.0
|
%
|
|
$
|
806.6
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
by geographic area (based on destination) for the three and nine month periods
ended September 30, 2007 and September 30, 2006 were as follows:
|
|
THREE
MONTHS ENDED
|
|
|
NINE
MONTHS ENDED
|
|
|
|
September
30, 2007
|
|
|
September
30, 2006
|
|
|
September
30, 2007
|
|
|
September
30, 2006
|
|
|
|
Net
|
|
|
%
of
|
|
|
Net
|
|
|
%
of
|
|
|
Net
|
|
|
%
of
|
|
|
Net
|
|
|
%
of
|
|
|
|
Sales
|
|
|
Net
Sales
|
|
|
Sales
|
|
|
Net
Sales
|
|
|
Sales
|
|
|
Net
Sales
|
|
|
Sales
|
|
|
Net
Sales
|
|
United
States
|
|
$
|
192.5
|
|
|
|
45.0
|
%
|
|
$
|
126.4
|
|
|
|
43.9
|
%
|
|
$
|
531.6
|
|
|
|
43.8
|
%
|
|
$
|
342.7
|
|
|
|
42.5
|
%
|
Europe
|
|
|
112.8
|
|
|
|
26.3
|
%
|
|
|
72.6
|
|
|
|
25.2
|
%
|
|
|
360.9
|
|
|
|
29.7
|
%
|
|
|
225.9
|
|
|
|
28.0
|
%
|
Asia
|
|
|
91.7
|
|
|
|
21.4
|
%
|
|
|
59.2
|
|
|
|
20.6
|
%
|
|
|
236.0
|
|
|
|
19.4
|
%
|
|
|
172.2
|
|
|
|
21.3
|
%
|
Rest
of World
|
|
|
31.2
|
|
|
|
7.3
|
%
|
|
|
29.7
|
|
|
|
10.3
|
%
|
|
|
85.7
|
|
|
|
7.1
|
%
|
|
|
65.8
|
|
|
|
8.2
|
%
|
|
|
$
|
428.2
|
|
|
|
100.0
|
%
|
|
$
|
287.9
|
|
|
|
100.0
|
%
|
|
$
|
1,214.2
|
|
|
|
100.0
|
%
|
|
$
|
806.6
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
from our domestic and foreign operations for the three and nine month periods
ended September 30, 2007 and September 30, 2006 were as follows:
|
|
THREE
MONTHS ENDED
|
|
|
NINE
MONTHS ENDED
|
|
|
|
September
30, 2007
|
|
|
September
30, 2006
|
|
|
September
30, 2007
|
|
|
September
30, 2006
|
|
Domestic
|
|
$
|
252.9
|
|
|
$
|
190.2
|
|
|
$
|
738.6
|
|
|
$
|
527.9
|
|
Foreign
|
|
|
175.3
|
|
|
|
97.7
|
|
|
|
475.6
|
|
|
|
278.7
|
|
Total
|
|
$
|
428.2
|
|
|
$
|
287.9
|
|
|
$
|
1,214.2
|
|
|
$
|
806.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 that these activities will protect and enhance our leadership position.
We believe our investments in research and development over the past several
years have been the driving force behind our ongoing market share gains.
Research, development and engineering spending have been approximately 7%
- 8%
of sales for the past several years and are expected to remain at approximately
that level for the next year.
We
also
believe in providing our businesses with the tools required to remain
competitive. In that regard, we have invested, and will continue to invest,
in
property and equipment that enhances our productivity. Over the past three
years, annual capital expenditures ranged from $14 - $24. Taking into
consideration our record backlog, targeted capacity utilization levels, recent
capital expenditure investments and current industry conditions, we anticipate
capital expenditures of approximately $35 over the next twelve
months.
International
airline competition for
higher margin international travelers and improving worldwide industry
conditions have resulted in strong demand for our products and services,
as
demonstrated by bookings of approximately $550 during the third quarter of
fiscal 2007. At September 30, 2007, backlog was approximately $2.0
billion, which represents an increase of approximately 25%, compared to our
backlog at September 30, 2006. We expect continuing strong demand for
the next several years as industry conditions continue to improve. As
worldwide air traffic grows and airlines add capacity and upgrade the cabin
interiors of existing active aircraft, we expect our aftermarket activities
to
continue to grow. According to IATA, during the year ended December 31, 2006,
the global airline industry expanded airline capacity by approximately 4.6%
in
response to an approximately 5.9% increase in global air traffic. In addition,
as a result of the severity of the post-September 11, 2001 downturn, many
carriers, particularly in the United States, have deferred interior
refurbishments for a number of years. The U.S. carriers have just begun the
process of upgrading their international fleets and we believe there are
substantial additional growth opportunities with domestic airlines for retrofit
programs, particularly for the twin-aisle aircraft that service international
routes.
[Remainder
of page intentionally left blank]
THREE
MONTHS ENDED SEPTEMBER 30, 2007,
AS
COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 2006
(All
Dollar Amounts in Millions Except Per Share Data)
The
following is a summary of net sales by segment:
|
|
NET
SALES
|
|
|
|
Three
Months Ended September 30,
|
|
|
|
($
in millions)
|
|
|
|
|
|
|
|
|
|
Percent
|
|
|
|
2007
|
|
|
2006
|
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
Seating
|
|
$
|
164.7
|
|
|
$
|
98.8
|
|
|
|
66.7
|
%
|
Interior
Systems
|
|
|
89.7
|
|
|
|
72.4
|
|
|
|
23.9
|
%
|
Distribution
|
|
|
93.3
|
|
|
|
64.3
|
|
|
|
45.1
|
%
|
Business
Jet
|
|
|
47.7
|
|
|
|
34.7
|
|
|
|
37.5
|
%
|
Engineering
Services
|
|
|
32.8
|
|
|
|
17.7
|
|
|
|
85.3
|
%
|
Total
|
|
$
|
428.2
|
|
|
$
|
287.9
|
|
|
|
48.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
for the three months ended September 30, 2007 were $428.2, an increase of
$140.3, or 48.7% as compared to the prior year.
The
66.7% increase in revenue at the
seating segment reflects significant market share gains and was driven by
a
substantially higher level of aftermarket, retrofit and refurbishment activity,
as well as demand created by new aircraft deliveries. The interior
systems segment revenue growth of 23.9% reflects both higher aftermarket
demand
as well as the higher level of new aircraft deliveries.
The
distribution segment revenue growth
of 45.1% reflects a significant expansion in product line, a broad-based
increase in aftermarket demand for aerospace fasteners, a channel shift from
OEM’s to subcontractors, which tend to acquire fasteners from distributors, and
continued market share gains.
Business
jet segment revenue increased
by $13.0 or 37.5%, reflecting the higher level of new business jet deliveries
and higher super first class revenues. Engineering services segment
revenue growth of $15.1 million or 85.3% reflects the higher level of
engineering design, program management and certification
activities.
Cost
of
sales for the current period of $281.5, or 65.7% of net sales, increased
by
$94.4 compared to $187.1, or 65.0% of net sales in the prior
year. The $94.4 increase in cost of sales was primarily due to the
48.7% increase in net sales. Cost of sales as a percentage of net
sales increased by 70 basis points in the current quarter primarily due to
the
85.3% increase in engineering services segment revenue and due to product
mix
and learning curve costs on two programs at the seating segment.
Selling,
general and administrative expenses were $48.4, or 11.3% of net sales, as
compared to $39.7, or 13.8% of sales in the prior year. The $8.7 year
over year increase reflects the higher level of selling, marketing and product
support costs ($2.2), and commissions, compensation and benefits ($3.1) to
support the 48.7% increase in revenues and the approximately 25% increase
in
backlog. The 250 basis point decline in the selling, general and
administrative expenses as a percentage of net sales reflects the operating
leverage of our business.
Research,
development and engineering expense was $35.1, or 8.2% of net sales, as compared
to $22.2, or 7.7% of net sales in the year ago period. The $12.9
increase in spending was primarily due to a high level of certification efforts
related to a number of new products, including products for the new Boeing
787
Dreamliner aircraft. Research, development and engineering expenses are expected
to moderate over the next several quarters and to decrease significantly
as a
percentage of sales during 2008.
Operating
earnings for the current period were $63.2, or 14.8% of net sales increasing
by
$24.3 or 62.5% on the 48.7% increase in net sales. The 14.8%
operating margin was 130 basis points higher than the same period last year
and
primarily was due to a 280 basis point increase in the operating margin for
the
distribution segment, a 720 basis point increase in the operating margin
for the
business jet segment and a 60 basis point improvement in the operating margin
for the interior systems segment.
Interest
expense for the period was $3.1. Interest expense was lower than the
prior year as a result of the redemption of our $250 of 8-7/8 % senior
subordinated notes due 2011 and the prepayment of $100 of bank term debt
during
the second quarter of 2007.
Earnings
before income taxes for the
three months ended September 30, 2007 of $60.1 increased by $47.9, or 392.6%,
as
compared to the same in the period prior year. This nearly five-fold
increase was the result of the $24.3, or 62.5% increase in operating earnings,
a
$6.6, or 68% reduction in interest expense following a prepayment of
approximately $350.0 of long term debt during 2007, and due to $17.0 prepayment
costs in the 2006 period compared to none in the current three month
period.
Income
taxes were $15.6 or 26.0% of earnings before income taxes for the current
quarter and
reflected
the results of our ongoing tax planning initiatives. The lower than
expected tax expense during the period reflects approximately $5.8 of tax
benefits associated with a non-recurring tax planning initiative that was
finalized during the third quarter.
We
recognized $22.9 of our U.K.
deferred tax asset during 2006, resulting in a consolidated tax benefit of
($19.2) for the three months ended September 30, 2006. As a result,
income taxes for the current three month period were $34.8 greater than the
same
period in the prior year.
Net
earnings for the current three
month period were $44.5, or $0.48 per diluted share versus net earnings of
$31.4, or $0.40 per diluted share in the third quarter of 2006. The
increase in net earnings was the result of the $47.9, or nearly five-fold
increase in earnings before income taxes described above, offset by the $34.8
increase in income taxes described above.
The
following is a summary of operating earnings by segment:
|
|
OPERATING
EARNINGS
|
|
|
|
Three
Months Ended September 30,
|
|
|
|
($
in millions)
|
|
|
|
|
|
|
|
|
|
Percent
|
|
|
|
2007
|
|
|
2006
|
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
Seating
|
|
$
|
18.6
|
|
|
$
|
11.3
|
|
|
|
64.6
|
%
|
Interior
Systems
|
|
|
17.7
|
|
|
|
13.8
|
|
|
|
28.3
|
%
|
Distribution
|
|
|
21.4
|
|
|
|
12.9
|
|
|
|
65.9
|
%
|
Business
Jet
|
|
|
3.7
|
|
|
|
0.2
|
|
|
|
1750.0
|
%
|
Engineering
Services
|
|
|
1.8
|
|
|
|
0.7
|
|
|
|
157.1
|
%
|
Total
|
|
$
|
63.2
|
|
|
$
|
38.9
|
|
|
|
62.5
|
%
|
Operating
earnings at the seating segment of $18.6, in the third quarter of 2007 increased
by $7.3, or 64.6%, compared with the same period in the prior
year. The seating segment operating margin of 11.3% decreased by 10
basis points compared with the same period in the prior year’s third quarter
primarily as a result of poor product mix during the quarter and learning
curve
costs on two new programs.
Operating
earnings at the interior
systems segment of $17.7 increased by $3.9, or 28.3% compared with the same
period in the prior year. The interior systems segment operating
margin of 19.7% expanded by 60 basis points despite the negative impact of
the
Draeger acquisition and integration costs related thereto.
Distribution
segment operating earnings
in the third quarter were $21.4, which was 65.9% greater than the same period
last year and represented a 22.9% operating margin. The distribution segment
operating margin expanded by 280 basis points as compared to the third quarter
of 2006 reflecting the now substantially completed integration of the NYF
acquisition.
During
the third quarter, operating
earnings at the business jet segment increased by $3.5 compared to the same
period in the prior year as a result of the 37.5% increase in revenue and
the
720 basis point improvement in operating margin, which reflects improvements
in
both manufacturing efficiencies and operating leverage. Operating earnings
at
the engineering services segment increased by $1.1 compared with the prior
year,
as this segment continued its transition from a cost center to a profit
contributor.
[Remainder
of page intentionally left blank]
NINE
MONTHS ENDED SEPTEMBER 30, 2007,
AS
COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 2006
(All
Dollar Amounts in Millions Except Per Share Data)
The
following is a summary of net sales by segment:
|
|
NET
SALES
|
|
|
|
Nine
Months Ended Sepember 30,
|
|
|
|
($
in millions)
|
|
|
|
|
|
|
|
|
|
Percent
|
|
|
|
2007
|
|
|
2006
|
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
Seating
|
|
$
|
454.5
|
|
|
$
|
283.0
|
|
|
|
60.6
|
%
|
Interior
Systems
|
|
|
256.4
|
|
|
|
192.2
|
|
|
|
33.4
|
%
|
Distribution
|
|
|
286.5
|
|
|
|
173.0
|
|
|
|
65.6
|
%
|
Business
Jet
|
|
|
136.3
|
|
|
|
108.9
|
|
|
|
25.2
|
%
|
Engineering
Services
|
|
|
80.5
|
|
|
|
49.5
|
|
|
|
62.6
|
%
|
Total
|
|
$
|
1,214.2
|
|
|
$
|
806.6
|
|
|
|
50.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales for the nine months ended
September 30, 2007 were $1,214.2, an increase of $407.6, or 50.5% as compared
to
the prior year.
The
60.6% increase in revenue for the
seating segment reflects significant market share gains and was driven by
a
substantially higher level of aftermarket, retrofit and refurbishment activity,
as well as demand created by new aircraft deliveries. The interior
systems segment revenue growth of 33.4% reflected the higher level of new
aircraft deliveries as well as substantial aftermarket revenue
growth. The interior systems segment organic revenue growth rate,
presented as if the Draeger acquisition occurred on January 1, 2006, was
21.9%.
The
distribution segment revenue growth
of 65.6% reflects a significant expansion in product line, a broad-based
increase in aftermarket demand for aerospace fasteners, a channel shift from
OEM’s to subcontractors, which tend to acquire fasteners from distributors, and
continued market share gains. Organic revenue growth rate for the
distribution segment, presented as if the New York Fasteners acquisition
occurred on January 1, 2006 was 32.3%.
Business
jet segment revenue increased
by $27.4 or 25.2%, reflecting the higher level of new business jet deliveries
and higher super first class revenues. Engineering services segment
revenue growth of $31.0 or 62.6% reflects the higher level of engineering
design, program management and certification activities.
Cost
of
sales for the current period of $792.6, or 65.3% of net sales, increased
by
$269.7 compared to $522.9, or 64.8% of net sales in the prior
year. The $269.7 increase in cost of sales was primarily due to the
50.5% increase in net sales. Cost of sales as a percentage of net
sales increased by 50 basis points during the current year period primarily
due
to the higher level of engineering services segment revenues, which has gross
margins which are lower than the corporate average, and due to product
mix.
Selling,
general and administrative expenses were $149.9, or 12.3% of net sales, as
compared to $116.1, or 14.4% of sales in the prior year. The $33.8
year over year increase reflects the higher level of selling, marketing and
product support costs ($10.2), and commissions, compensation and benefits
($14.0) to support the 50.5% increase in revenues and the approximately 25%
increase in backlog. The 210 basis point decline in selling, general
and administrative expenses as a percentage of net sales reflects the operating
leverage of our business.
Research,
development and engineering expense was $92.6, or 7.6% of net sales, as compared
to $62.3, or 7.7% of net sales in the year ago period. The $30.3
increase in spending was primarily due to a high level of certification
activities related to a number of new products including products for the
new
Boeing 787 Dreamliner aircraft.
The
following is a summary of operating earnings by segment:
|
|
OPERATING
EARNINGS
|
|
|
|
Nine
Months Ended September 30,
|
|
|
|
($
in millions)
|
|
|
|
|
|
|
|
|
|
Percent
|
|
|
|
2007
|
|
|
2006
|
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
Seating
|
|
$
|
52.3
|
|
|
$
|
26.8
|
|
|
|
95.1
|
%
|
Interior
Systems
|
|
|
47.8
|
|
|
|
36.1
|
|
|
|
32.4
|
%
|
Distribution
|
|
|
62.9
|
|
|
|
36.5
|
|
|
|
72.3
|
%
|
Business
Jet
|
|
|
12.6
|
|
|
|
5.8
|
|
|
|
117.2
|
%
|
Engineering
Services
|
|
|
3.5
|
|
|
|
0.1
|
|
|
|
3400.0
|
%
|
Total
|
|
$
|
179.1
|
|
|
$
|
105.3
|
|
|
|
70.1
|
%
|
Operating
earnings for the current period were $179.1 or 14.8% of net sales and increased
by $73.8 or 70.1% on the 50.5% increase in net sales. The 14.8%
operating margin was 170 basis points higher than the same period last year
and
primarily was due to a 200 basis point increase in the operating margin at
the
seating segment, a 390 basis point increase for the business jet segment
and a
20 basis point decrease in the operating margin for the interior systems
segment.
Seating
segment operating earnings of $52.3 increased by $25.5, or 95.1%, due to
both a
60.6% increase in revenue and a 200 basis point expansion in operating margin.
Operating earnings at the interior systems segment of $47.8 increased by
$11.7,
or 32.4%, as compared to the same period in the prior year primarily due
to a
33.4% increase in revenue.
Distribution
segment operating earnings of $62.9 increased by $26.4, or 72.3%, due to
a 65.6%
increase in revenue. Operating margin for the distribution segment
(22.0% of sales) was negatively impacted by the acquisition, and integration
activities associated with the NYF acquisition.
The
business jet segment operating earnings were $12.6, an increase of $6.8,
or
117.2%, compared with the prior year reflecting a solid improvement in operating
performance. Operating earnings at the engineering services segment
improved by $3.4 due to the increase in revenue and an improved mix of
programs.
Interest
expense for the period was $17.8. Interest expense was lower than the
prior year as a result of the redemption of our $250 of 8-7/8% senior
subordinated notes due 2011 and the prepayment of $100 of bank term debt
during
the second quarter of 2007.
Earnings
before income taxes for the
nine months ended September 30, 2007 of $150.3 increased by $91.7, or 156.5%,
as
compared to the same period in the prior year. This nearly tripling
of earnings before income taxes was the result of the $73.8, or 70.1% increase
in operating earnings, a $10.1, or 36.2% reduction in interest expense following
the prepayment of approximately $350 of long-term debt during 2007, and $18.8
debt prepayment costs in the 2006 period versus $11.0 in the current nine
month
period.
Income
taxes were $45.3 or 30.1% of
earnings before income taxes for the current nine month period and reflected
the
results of our ongoing tax planning initiatives. The lower than
expected tax expense during the period reflects approximately $5.8 of tax
benefits associated with a non-recurring tax planning initiative that was
finalized during the third quarter. We recognized U.K. deferred tax
asset during 2006, resulting in a consolidated tax benefit of ($5.3) for
the
nine months ended September 30, 2006. As a result, income taxes for
the current nine month period were $50.6 greater than the same period in
the
prior year.
Net
earnings for the current nine month
period were $105.0, or $1.20 per diluted share versus net earnings of $63.9,
or
$0.82 per diluted share in the 2006 period. The increase in net
earnings was the result of the $91.7, or near tripling of earnings before
income
taxes described above, offset by the $50.6 increase in income taxes described
above.
LIQUIDITY
AND CAPITAL RESOURCES
Current
Financial Condition
Our
liquidity requirements consist of working capital needs, ongoing capital
expenditures and payments of interest and principal on our indebtedness.
Our
primary requirements for working capital are directly related to the level
of
our operations. Working capital at September 30, 2007 was $647.6, an
increase of $191.6 as compared with working capital of $456.0 at December
31,
2006. This 42.0% increase in working capital was a result of both the 50.5%
increase in net sales and a substantial investment in inventories associated
with product line expansion in the distribution segment. At September
30, 2007, there was $150.0 of term loan borrowings outstanding under our
senior
secured credit facility, which consists of a $200.0 revolving credit facility
and a $300.0 term loan (Senior Secured Credit Facility). There were
no borrowings under the revolving credit facility component of our Senior
Secured Credit Facility. We redeemed the $250.0 aggregate principal
amount of 8-7/8% senior subordinated notes due 2011 in full on May 1,
2007.
Cash
Flows
At
September 30, 2007, our cash and available borrowings under the revolving
credit
facility of our Senior Secured Credit Facility was $227.2 compared to $260.5
at
December 31, 2006. Cash used in operating activities was $18.3 for
the nine months ended September 30, 2007, as compared to $21.8 of cash generated
from operations in the same period in the prior year. The primary
sources of cash from operations during the nine months ended September 30,
2007
were net earnings of $105.0 and a higher level of accounts payable and accrued
liabilities arising from the higher revenue volume. The primary
source of cash from financing activities during the nine months ended September
30, 2007 was $380.6 from the common stock offering in the first
quarter. These sources of cash were offset by the higher level of
accounts receivable ($45.9) and inventories ($169.5) discussed
above.
Capital
Spending
Our
capital expenditures were $21.7 and $15.9 during the nine months ended September
30, 2007 and 2006, respectively. We anticipate capital expenditures
of approximately $35 for the next twelve months. 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 bank
credit facilities. We expect to fund future capital expenditures from cash
on
hand, from operations and from funds available to us under our senior secured
credit facility.
Outstanding
Debt and Other Financing Arrangements
We
redeemed $250 aggregate principal amount of 8-7/8% senior subordinated notes
due
2011 in full on May 1, 2007. In addition, in April 2007, we prepaid
$100 of term loan borrowings under our Senior Secured Credit
Facility.
Long-term
debt at September 30, 2007 consisted principally of $150.0 of term loan
borrowings under our Senior Secured Credit Facility.
Term
loan
borrowings under the Senior Secured Credit Facility bear interest at an annual
rate equal to LIBOR plus 175 basis points (7.16% at September 30,
2007). Revolving credit borrowings under the Senior Secured Credit
Facility, if any, will initially bear interest at an annual rate equal to
LIBOR
plus 125 basis points (estimated at 6.5% at September 30, 2007).
Contractual
Obligations
During
the nine-month period ended September 30, 2007 we redeemed our 8-7/8% senior
subordinated notes due 2011, and our 8-1/2% senior subordinated notes due
2010
and prepaid $100 of term loan borrowings under our Senior Secured Credit
Facility. The following chart reflects our contractual obligations and
commercial commitments as of September 30, 2007. 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)
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
Thereafter
|
|
|
Total
|
|
Long-term
debt and other non-current liabilities
|
|
$
|
--
|
|
|
$
|
1.6
|
|
|
$
|
1.0
|
|
|
$
|
1.9
|
|
|
$
|
1.9
|
|
|
$
|
155.1
|
|
|
$
|
161.5
|
|
Operating
leases
|
|
|
5.0
|
|
|
|
19.5
|
|
|
|
13.6
|
|
|
|
10.8
|
|
|
|
9.6
|
|
|
|
78.8
|
|
|
|
137.3
|
|
Purchase
obligations
(2)
|
|
|
15.1
|
|
|
|
23.1
|
|
|
|
5.1
|
|
|
|
2.1
|
|
|
|
1.6
|
|
|
|
1.8
|
|
|
|
48.8
|
|
Future
interest payment on outstanding debt
(3)
|
|
|
5.7
|
|
|
|
11.6
|
|
|
|
11.5
|
|
|
|
11.4
|
|
|
|
11.1
|
|
|
|
7.0
|
|
|
|
58.3
|
|
Total
|
|
$
|
25.8
|
|
|
$
|
55.8
|
|
|
$
|
31.2
|
|
|
$
|
26.2
|
|
|
$
|
24.2
|
|
|
$
|
242.7
|
|
|
$
|
405.9
|
|
Commercial
Commitments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Letters
of Credit
|
|
$
|
24.0
|
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
24.0
|
|