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 March 31, 2009
Commission
File No. 0-18348
BE
AEROSPACE, INC.
(Exact
name of registrant as specified in its charter)
DELAWARE
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06-1209796
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(State
of Incorporation)
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(I.R.S.
Employer Identification
No.)
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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 [X] NO [ ]
The
registrant has one class of common stock, $0.01 par value, of which 101,031,633
shares were outstanding as of May 5, 2009.
BE
AEROSPACE, INC.
Form
10-Q for the Quarter Ended March 31, 2009
Table
of Contents
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Page
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3
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4
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5
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6
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14
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21
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22
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23
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24
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PART I - FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
BE
AEROSPACE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(In
Millions, Except Share Data)
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March
31,
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December
31,
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2009
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2008
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ASSETS
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Current
assets:
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Cash
and cash equivalents
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$
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115.3
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$
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168.1
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Accounts
receivable – trade, less allowance for doubtful
accounts ($12.2 at
March 31, 2009 and December 31, 2008)
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297.3
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271.4
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Inventories,
net
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1,246.7
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1,197.0
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Deferred
income taxes, net
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8.0
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22.1
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Other
current assets
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21.1
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24.8
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Total
current assets
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1,688.4
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1,683.4
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Property
and equipment, net of accumulated depreciation
($167.9 at March 31,
2009 and $162.6 at December 31, 2008)
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117.8
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115.8
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Goodwill
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687.3
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663.6
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Identifiable
intangible assets, net of accumulated amortization
($123.9 at March 31,
2009 and $119.9 at December 31, 2008)
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349.9
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356.0
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Deferred
income taxes, net
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49.7
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49.2
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Other
assets, net
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61.5
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62.1
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$
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2,954.6
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$
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2,930.1
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LIABILITIES
AND STOCKHOLDERS’ EQUITY
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Current
liabilities:
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Accounts
payable
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$
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283.1
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$
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274.5
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Accrued
liabilities
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216.2
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229.2
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Current
maturities of long-term debt
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6.0
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6.0
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Total
current liabilities
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505.3
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509.7
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Long-term
debt, net of current maturities
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1,115.8
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1,117.2
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Deferred
income taxes, net
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5.6
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5.4
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Other
non-current liabilities
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28.3
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31.3
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Commitments,
contingencies and off-balance sheet arrangements (Note 8)
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Stockholders'
equity:
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Preferred
stock, $0.01 par value; 1.0 million shares
authorized;
no shares outstanding
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--
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--
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Common
stock, $0.01 par value; 200.0 million shares
authorized; 101.1
million shares issued and 101.0 million shares
outstanding as of
March 31, 2009 and December 31, 2008
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1.0
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1.0
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Additional
paid-in capital
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1,505.8
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1,500.7
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Accumulated
deficit
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(151.2
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(189.1
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Accumulated
other comprehensive income
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(54.7
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(44.8
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Less:
0.1 million shares of common stock held in treasury,
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(1.3
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(1.3
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Total
stockholders' equity
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1,299.6
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1,266.5
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$
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2,954.6
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$
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2,930.1
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See
accompanying notes to condensed consolidated financial statements.
BE
AEROSPACE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
(In
Millions, Except Per Share Data)
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THREE
MONTHS ENDED
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March
31,
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March
31,
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2009
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2008
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Net
sales
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$
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523.7
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$
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473.2
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Cost
of sales
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347.0
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304.1
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Selling,
general and administrative
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72.0
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56.3
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Research,
development and
engineering
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24.0
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35.4
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Operating
earnings
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80.7
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77.4
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Operating
earnings percentage
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15.4
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%
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16.4
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%
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Interest
expense, net
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22.5
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2.8
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Earnings
before income taxes
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58.2
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74.6
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Income
taxes
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20.3
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26.1
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Net
earnings
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$
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37.9
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$
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48.5
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Net
earnings per common share:
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Basic
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$
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0.39
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$
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0.53
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Diluted
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$
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0.38
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$
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0.53
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Weighted
average common shares:
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Basic
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98.3
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91.6
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Diluted
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98.6
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92.0
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See
accompanying notes to condensed consolidated financial statements.
BE
AEROSPACE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In
Millions)
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THREE
MONTHS ENDED
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March
31,
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March
31,
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2009
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2008
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CASH
FLOWS FROM OPERATING ACTIVITIES:
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Net
earnings
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$
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37.9
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$
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48.5
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Adjustments
to reconcile net earnings to net cash flows used in
operating
activities:
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Depreciation
and amortization
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11.8
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9.1
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Provision
for doubtful accounts
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0.4
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0.4
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Non-cash
compensation
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5.3
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3.7
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Deferred
income taxes
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13.7
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21.9
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Changes
in operating assets and liabilities:
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Accounts
receivable
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(28.8
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(60.2
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Inventories
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(79.9
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(46.2
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Other
current assets and other assets
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3.9
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2.1
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Payables,
accruals and other liabilities
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(3.8
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(14.2
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Net
cash used in operating activities
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(39.5
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(34.9
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CASH
FLOWS FROM INVESTING ACTIVITIES:
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Capital
expenditures
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(10.0
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(8.5
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Net
cash used in investing activities
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(10.0
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(8.5
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CASH
FLOWS FROM FINANCING ACTIVITIES:
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Proceeds
from common stock issued
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--
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0.2
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Principal
payments on long-term debt
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(1.4
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)
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(0.2
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Borrowings
on line of credit
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--
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22.0
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Repayments
on line of credit
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--
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(22.0
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Net
cash used in financing activities
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(1.4
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)
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0.0
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Effect
of foreign exchange rate changes on cash and cash
equivalents
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(1.9
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)
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2.2
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Net
decrease in cash and cash equivalents
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(52.8
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)
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(41.2
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)
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Cash
and cash equivalents, beginning of period
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168.1
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81.6
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Cash
and cash equivalents, end of period
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$
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115.3
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$
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40.4
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Supplemental
disclosures of cash flow information:
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Cash
paid during period for:
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Interest,
net
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$
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35.5
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$
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2.6
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Income
taxes, net
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6.5
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2.6
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See
accompanying notes to condensed consolidated financial statements.
BE
AEROSPACE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited
- Dollars In Millions, Except Share and 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 Statement of Financial Accounting Standards (SFAS) No.
141, “Business Combinations” (SFAS 141). The assets purchased and
liabilities assumed for 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
purchase price of $1,073.7 consisted of $903.1 in cash plus six million shares
of the Company’s common stock valued at $158.3, or $26.38 per share plus
transaction fees and expenses of $12.3. For financial reporting
purposes, the share price was based on the closing price of the Company’s common
stock two business days before, including and after the measurement date (July
24, 2008). The HCS acquisition has been accounted for using the purchase method
of accounting and has been included in the Company’s consolidated financial
statements since July 28, 2008.
The
HCS business distributes consumables parts and supplies to aviation industry
manufacturers, airlines, and aircraft repair and overhaul
facilities. The combination of HCS with our consumables management
segment positioned us as the premier global distributor and value-added provider
of aerospace fasteners and other consumable products, thereby allowing the
Company to alter its business mix, such that approximately one-half of its
business is related to non-discretionary consumables and spares demand. The
combined business serves as a distributor for every major aerospace fastener
manufacturer in the world.
The
estimated excess of the purchase price over the fair value of identifiable net
tangible assets acquired was $851.7, of which $250.0 was allocated to intangible
assets and $601.7 was allocated to goodwill. Approximately $399.0 of
the goodwill amount and all of the identifiable intangible assets of $250.0 are
expected to be amortizable and deductible for tax purposes.
The
Company has substantially completed the evaluation and allocation of the
purchase price for the HCS acquisition; however, certain remaining matters,
primarily inventories, are still being reviewed by management. During the three
months ended March 31, 2009, the Company adjusted a portion of the purchase
price allocation by a non-cash adjustment, which decreased inventories and
increased goodwill by approximately $28.0. The Company does not believe that the
final allocation will materially modify the preliminary purchase price
allocation.
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, APU’s, avionics, wheels and brakes. The Company
also entered into the 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.
Included
in accounts payable and accrued liabilities at the date of acquisition were
$71.5 related to unfavorable customer contracts assumed in connection with the
HCS acquisition which were priced below market and a portion of which were
generating gross margin losses. The accrual for unfavorable contracts was
determined by the Company through a study of product pricing as of the
acquisition date for similar type contracts and products and a forecast of sales
through the remaining contract term which was based on historical sales levels
as adjusted for expected changes in demand under market conditions that existed
as of the acquisition date. The unfavorable contracts have durations of up to
three years. To the extent that the profitability of these contracts is improved
either through contract renegotiations, cost decreases, or price increases,
these effects will be reflected when realized, and to the extent that the
profitability on these contracts is not improved, the accrual will be amortized
until the termination of the contracts.
Consolidated
unaudited proforma results for the three months ended March 31, 2008 presented
below, reflect the impact of the HCS acquisition if it had occurred as of
January 1, 2008. Consolidated unaudited 2008 proforma results exclude goodwill
and intangible asset impairment charges.
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|
2009
|
|
|
2008
|
|
|
|
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|
|
Proforma
|
|
Net
sales
|
|
$
|
523.7
|
|
|
$
|
620.6
|
|
Operating
earnings
|
|
|
80.7
|
|
|
|
93.0
|
|
Net
earnings
|
|
|
37.9
|
|
|
|
45.8
|
|
Note
3.
New Accounting
Standards
In April
2008, the Financial Accounting Standards Board (FASB) issued SFAS No. 142-3,
“Determination of the Useful Life of Intangible Assets” (SFAS 142-3). SFAS 142-3
amends the factors that should be considered in developing renewal or extension
assumptions used to determine the useful life of a recognized intangible asset
under SFAS 142. The intent of SFAS 142-3 is to improve the
consistency between the useful life of a recognized intangible asset under SFAS
142, the period of expected cash flows used to measure the fair value of the
asset under SFAS No.141 (revised 2007), “Business Combinations” (SFAS 141(R))
and other U.S. generally accepted accounting principles. SFAS 142-3
was effective for financial statements issued for interim periods and fiscal
years beginning after December 15, 2008. The adoption of SFAS 142-3
did not have a material impact on the consolidated financial statements of the
Company.
In
December 2007, the FASB issued SFAS 141(R) and SFAS No. 160, “Noncontrolling
Interests in Consolidated Financial Statements, an amendment of ARB No. 51”
(SFAS 160). SFAS 141(R) will change how business acquisitions are
accounted for and SFAS 160 will change the accounting and reporting for minority
interests, which will be recharacterized as noncontrolling interests and
classified as a component of equity. Purchase price adjustments for
acquisitions consummated before the effective date of SFAS 141(R) will be
recognized under
SFAS 141,
with the
exception of certain tax adjustments. SFAS 141(R) and SFAS 160 were effective
for fiscal years beginning on or after December 15, 2008 (January 1, 2009 for
the Company). The adoption of SFAS 141(R) and SFAS 160 did not have a
material impact on the Company’s consolidated financial statements.
In
September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”
(SFAS 157). SFAS 157 defines fair value, establishes a framework for
measuring fair value in generally accepted accounting principles, and expands
disclosures about fair value measurements. SFAS 157 applies under other
accounting pronouncements that require or permit fair value measurements.
SFAS 157 indicates that, among other things, a fair value measurement
assumes that the transaction to sell an asset or transfer a liability occurs in
the principal market for the asset or liability or, in the absence of a
principal market, the most advantageous market for the asset or liability. The
Company adopted SFAS 157 in the fiscal year 2008.
The adoption of this
statement did not have a material impact on the Company’s consolidated financial
statements. In February 2008, the FASB issued FASB Staff Position SFAS No.
157-2, “Effective Date of FASB Statement No. 157,” (SFAS 157-2)
which delayed the
effective date of SFAS 157 for all non-financial assets and liabilities, except
those that are recognized or disclosed at fair value in the financial statements
on a recurring basis, until January 1, 2009. The implementation of the
deferred portions of SFAS 157 did not have a material impact on the consolidated
financial statements. In October 2008, the FASB Issued FSP No. 157-3,
“Determining the Fair Value of a Financial Asset When the Market for That Asset
Is Not Active” (FSP 157-3). FSP 157-3 clarifies the application of
FASB Statement No. 157, “Fair Value Measures,” in a market that is not active
and provides an example to illustrate key considerations in determining the fair
value of a financial asset when the market for that financial asset is not
active. FSP 157-3 is effective upon issuance. The adoption
of this standard did not have a material impact on the
Company’s consolidated financial statements.
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:
|
|
March
31,
2009
|
|
|
December
31,
2008
|
|
Purchased
materials and component parts
|
|
$
|
138.8
|
|
|
$
|
150.8
|
|
Work-in-process
|
|
|
36.8
|
|
|
|
36.8
|
|
Finished
goods (primarily aftermarket fasteners)
|
|
|
1,071.1
|
|
|
|
1,009.4
|
|
|
|
$
|
1,246.7
|
|
|
$
|
1,197.0
|
|
Note
5.
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, 2008, and concluded that an impairment
existed. Adverse equity market conditions caused a decrease in
current market multiples, including the Company’s fiscal year end market
capitalization at December 31, 2008. 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
million. As of March 31, 2009, in the opinion of management, no further
indicators of impairment existed.
The table
below sets forth the intangible assets by major asset class, all of which were
acquired through business purchase transactions:
|
|
|
|
|
March
31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
|
|
|
|
Useful
Life
|
|
|
Original
|
|
|
Accumulated
|
|
|
Book
|
|
|
|
(Years)
|
|
|
Cost
|
|
|
Amortization
|
|
|
Value
|
|
Acquired
technologies
|
|
|
10-40
|
|
|
$
|
100.3
|
|
|
$
|
33.9
|
|
|
$
|
66.4
|
|
Trademarks
and patents
|
|
|
1-20
|
|
|
|
27.8
|
|
|
|
17.4
|
|
|
|
10.4
|
|
Technical
qualifications, plans
and
drawings
|
|
|
18-30
|
|
|
|
30.1
|
|
|
|
20.9
|
|
|
|
9.2
|
|
Replacement
parts annuity
and
product approvals
|
|
|
18-30
|
|
|
|
38.9
|
|
|
|
30.2
|
|
|
|
8.7
|
|
Customer
contracts and relationships
|
|
|
8-30
|
|
|
|
255.2
|
|
|
|
8.0
|
|
|
|
247.2
|
|
Covenants
not to compete and
other
identified intangibles
|
|
|
3-14
|
|
|
|
21.5
|
|
|
|
13.5
|
|
|
|
8.0
|
|
|
|
|
|
|
|
$
|
473.8
|
|
|
$
|
123.9
|
|
|
$
|
349.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
expense on identifiable intangible assets was approximately $5.0 and $2.7 for
the three month periods ended March 31, 2009 and 2008,
respectively. The Company expects to report amortization expense of
approximately $20.0 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 March 31, 2009
,
long-term debt
consisted of $600.0 aggregate principal amount of the Company’s 8½% Senior Notes
due 2018 (the Senior Notes)
and $521.1
outstanding under the six-year, $525.0 term loan facility (the Term Loan
facility) of the Company’s senior secured credit facility (the Credit
Agreement).
The
Credit Agreement consists of (a) a five-year,
$350.0 revolving credit facility (the 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) plus 225-300 basis points or prime (as defined) plus 125-200 basis
points. As of March 31, 2009, the rate under the Revolving Credit Facility was
5.5%. There were no amounts outstanding under the Revolving Credit Facility as
of March 31, 2009.
Borrowings
under the Term Loan Facility bear interest at an annual rate equal to LIBOR plus
250-275 basis points or prime (as defined) plus 150-175 basis
points. As of March 31, 2009, the rate under the Term Loan Facility
was 5.5%.
Letters of
credit outstanding under the Credit Agreement aggregated $25.5 at March 31,
2009.
The Credit
Agreement contains an interest coverage ratio financial covenant (as defined in
the Credit Agreement) that currently 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 March 31, 2009.
Note
7.
Fair Value
Measurements
As
described in Note 3, “New Accounting Standards”, the Company adopted SFAS 157
effective January 1, 2008. SFAS 157 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. SFAS 157 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 SFAS 157 applies are cash and cash
equivalents (which the Company classifies as Level 1 investments); there was no
difference between fair value of such assets and historical cost basis set forth
in the March 31, 2009 and December 31, 2008 balance sheets.
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 March 31,
2009, future minimum lease payments under these arrangements totaled
approximately $165.8; 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.
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:
|
|
THREE
MONTHS ENDED
|
|
|
|
March
31,
|
|
|
March
31,
|
|
|
|
2009
|
|
|
2008
|
|
Beginning
balance
|
|
$
|
22.4
|
|
|
$
|
20.6
|
|
Accruals
for warranties issued
during the period
|
|
|
8.3
|
|
|
|
6.8
|
|
Settlements
made
|
|
|
(5.6
|
)
|
|
|
(7.0
|
)
|
Ending
balance
|
|
$
|
25.1
|
|
|
$
|
20.4
|
|
Note
9.
Accounting for Stock-Based
Compensation
The
Company has a Long Term Incentive Plan (LTIP) under which the Company’s
Compensation Committee may grant stock options, stock appreciation rights,
restricted stock, restricted stock units or other forms of equity based or
equity related awards.
During the
three month periods ended March 31, 2009 and 2008, the Company granted 89,972
and 21,592 shares, respectively, of restricted stock with an average fair market
value at the date of grant of $9.49 and $38.90,
respectively. Compensation cost is being recognized on a
straight-line basis over the four-year vesting period of the
shares. Share-based compensation of $5.1 and $3.5 was recognized
during the three month periods ended March 31, 2009 and 2008, respectively,
related to these share grants and restricted shares granted in prior
periods. Unrecognized compensation expense related to share grants,
including the estimated impact of any future forfeitures, was $47.5 at March 31,
2009.
No
compensation cost was recognized for stock options during the three month
periods ended March 31, 2009 and 2008 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 $0.2 and $0.2 was
recognized during the fiscal quarters ended March 31, 2009 and 2008,
respectively.
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.
The
following table presents net sales and operating earnings by business
segment:
|
|
THREE
MONTHS ENDED
|
|
|
|
March
31,
|
|
|
March
31,
|
|
|
|
2009
|
|
|
2008
|
|
Net
sales
|
|
|
|
|
|
|
Consumables
management
|
|
$
|
239.4
|
|
|
$
|
122.0
|
|
Commercial
aircraft
|
|
|
225.9
|
|
|
|
278.5
|
|
Business
jet
|
|
|
58.4
|
|
|
|
72.7
|
|
|
|
$
|
523.7
|
|
|
$
|
473.2
|
|
|
|
|
|
|
|
|
|
|
Operating
earnings
(1)
|
|
|
|
|
|
|
|
|
Consumables
management
|
|
$
|
47.4
|
|
|
$
|
35.3
|
|
Commercial
aircraft
|
|
|
28.5
|
|
|
|
31.5
|
|
Business
jet
|
|
|
4.8
|
|
|
|
10.6
|
|
|
|
$
|
80.7
|
|
|
$
|
77.4
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
22.5
|
|
|
|
2.8
|
|
Earnings
before income taxes
|
|
$
|
58.2
|
|
|
$
|
74.6
|
|
(1)
Operating earnings includes an allocation of corporate general and
administrative and employee benefits costs based on the proportion of each
segment’s number of sales and employees, respectively.
The
following table presents capital expenditures by business segment:
|
|
THREE
MONTHS ENDED
|
|
|
|
March
31,
|
|
|
March
31,
|
|
|
|
2009
|
|
|
2008
|
|
Capital
expenditures
|
|
|
|
|
|
|
Consumables
management
|
|
$
|
6.1
|
|
|
$
|
1.1
|
|
Commercial
aircraft
|
|
|
3.1
|
|
|
|
6.9
|
|
Business
jet
|
|
|
0.8
|
|
|
|
0.5
|
|
|
|
$
|
10.0
|
|
|
$
|
8.5
|
|
The
following table presents total assets by business segment:
|
|
March
31,
|
|
|
December
31,
|
|
|
|
2009
|
|
|
2008
|
|
Total
assets
(1)
|
|
|
|
|
|
|
Consumables
management
|
|
$
|
1,886.7
|
|
|
$
|
1,830.9
|
|
Commercial
aircraft
|
|
|
787.5
|
|
|
|
827.6
|
|
Business
jet
|
|
|
280.4
|
|
|
|
271.6
|
|
|
|
$
|
2,954.6
|
|
|
$
|
2,930.1
|
|
(1)
Corporate
assets of $205.2 and $256.7 at March 31, 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 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. For the three months ended March 31, 2009 and
2008, securities totaling approximately 1.4 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 months ended March 31, 2009 and 2008 is as
follows:
|
|
THREE
MONTHS ENDED
|
|
|
|
March
31,
|
|
|
March
31,
|
|
|
|
2009
|
|
|
2008
|
|
Net
earnings
|
|
$
|
37.9
|
|
|
$
|
48.5
|
|
Basic
weighted average common shares (in millions)
|
|
|
98.3
|
|
|
|
91.6
|
|
Effect
of dilutive stock options and
employee
stock puchase plan shares (in millions)
|
|
|
0.1
|
|
|
|
0.1
|
|
Effect
of restricted shares issued (in millions)
|
|
|
0.2
|
|
|
|
0.3
|
|
Diluted
weighted average common shares (in millions)
|
|
|
98.6
|
|
|
|
92.0
|
|
|
|
|
|
|
|
|
|
|
Basic
net earnings per share
|
|
$
|
0.39
|
|
|
$
|
0.53
|
|
Diluted
net earnings per share
|
|
$
|
0.38
|
|
|
$
|
0.53
|
|
Note
12.
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
|
|
|
|
March
31,
|
|
|
March
31,
|
|
|
|
2009
|
|
|
2008
|
|
Net
earnings
|
|
$
|
37.9
|
|
|
$
|
48.5
|
|
Other
comprehensive earnings:
|
|
|
|
|
|
|
|
|
Foreign
exchange translation adjustment and other
|
|
|
(9.9
|
)
|
|
|
13.2
|
|
Comprehensive
earnings
|
|
$
|
28.0
|
|
|
$
|
61.7
|
|
Note
13.
Accounting for
Uncertainty in Income Taxes
In
accordance with 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
March 31, 2009 and December 31, 2008, the Company had $12.8 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 March 31, 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.
BE AEROSPACE,
INC.
ITEM
2.
|
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 March 31, 2009, as compared to our results of operations
for the three months ended March 31, 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 month periods ended March 31, 2009 and March
31, 2008 were as follows:
|
|
THREE
MONTHS ENDED
|
|
|
|
March
31, 2009
|
|
|
March
31, 2008
|
|
|
|
Net
Sales
|
|
|
%
of
Net
Sales
|
|
Net
Sales
|
|
|
%
of
Net
Sales
|
|
Consumables
management
|
|
$
|
239.4
|
|
|
|
45.7
|
%
|
|
$
|
122.0
|
|
|
|
25.8
|
%
|
Commercial
aircraft
|
|
|
225.9
|
|
|
|
43.1
|
%
|
|
|
278.5
|
|
|
|
58.8
|
%
|
Business
jet
|
|
|
58.4
|
|
|
|
11.2
|
%
|
|
|
72.7
|
|
|
|
15.4
|
%
|
|
|
$
|
523.7
|
|
|
|
100.0
|
%
|
|
$
|
473.2
|
|
|
|
100.0
|
%
|
Net sales
by geographic area (based on destination) for the three month periods ended
March 31, 2009 and March 31, 2008 were as follows:
|
|
THREE
MONTHS ENDED
|
|
|
|
March
31, 2009
|
|
|
March
31, 2008
|
|
|
|
Net
|
|
|
%
of
|
|
|
Net
|
|
|
%
of
|
|
|
|
Sales
|
|
|
Net
Sales
|
|
|
Sales
|
|
|
Net
Sales
|
|
United
States
|
|
$
|
267.7
|
|
|
|
51.1
|
%
|
|
$
|
217.8
|
|
|
|
46.0
|
%
|
Europe
|
|
|
129.5
|
|
|
|
24.7
|
%
|
|
|
108.3
|
|
|
|
22.9
|
%
|
Asia,
Pacific Rim,
Middle
East and
Other
|
|
|
126.5
|
|
|
|
24.2
|
%
|
|
|
147.1
|
|
|
|
31.1
|
%
|
Total
|
|
$
|
523.7
|
|
|
|
100.0
|
%
|
|
$
|
473.2
|
|
|
|
100.0
|
%
|
Net sales
from our domestic and foreign operations for the three month periods ended March
31, 2009 and March 31, 2008 were as follows:
|
|
THREE
MONTHS ENDED
|
|
|
|
March
31,
2009
|
|
|
March
31,
2008
|
|
Domestic
|
|
$
|
385.3
|
|
|
$
|
318.3
|
|
Foreign
|
|
|
138.4
|
|
|
|
154.9
|
|
Total
|
|
$
|
523.7
|
|
|
$
|
473.2
|
|
During the
third quarter of 2008, we acquired Honeywell’s Consumable Solutions distribution
business (HCS). The HCS business distributes consumables parts and
supplies to aviation industry manufacturers, airlines, and aircraft repair and
overhaul facilities. The combination of HCS with the Company’s
consumables management (formerly distribution) segment created the leading
global distributor and value added supply chain manager of aerospace hardware
and other 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 the 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. Taking into
consideration our record backlog, targeted capacity utilization levels, recent
capital expenditure investments and current industry conditions, we anticipate
capital expenditures of approximately $40.0 over the next twelve
months.
International
passenger traffic declined by more than 10% in February 2009 compared with
February 2008, and the International Air Transport Association (IATA) now
expects passenger traffic to fall by an unprecedented 6% for the 2009
year. International cargo traffic, which began falling in June 2008,
took a further steep decline of 23% in the latest three-month period compared to
the same period a year ago. Air freighters are now being parked at unprecedented
rates and demand for passenger to freighter conversions is expected to be soft
for the foreseeable future. The resulting lower yields for the global
airline industry are causing our customers to increase the number of parked
aircraft and to further defer new aircraft deliveries. In addition,
due to the factors discussed above, business jet manufacturers have slashed
their delivery rates, in some cases, by up to 40%. We also believe
the major commercial airframe manufacturers will further reduce their delivery
rates in 2010. We have responded to this new further downdraft in
conditions by initiating further cost reduction efforts.
RESULTS OF
OPERATIONS
In order
to present our financial results on a more comparable basis, certain information
in the discussion and analysis which follows includes proforma amounts to give
effect to the acquisition of HCS as if it occurred at the beginning of
2008.
The
following is a summary of net sales by segment:
|
|
NET
SALES
|
|
|
|
Three
Months Ended March 31,
|
|
|
|
($
in millions)
|
|
|
|
2009
|
|
|
2008
|
|
|
2008
|
|
|
Percent
|
|
|
|
|
|
|
As
Reported
|
|
|
Proforma
|
|
|
Change
|
|
Consumables
management
|
|
$
|
239.4
|
|
|
$
|
122.0
|
|
|
$
|
269.4
|
|
|
|
(11.1
|
)%
|
Commercial
aircraft
|
|
|
225.9
|
|
|
|
278.5
|
|
|
|
278.5
|
|
|
|
(18.9
|
)%
|
Business
jet
|
|
|
58.4
|
|
|
|
72.7
|
|
|
|
72.7
|
|
|
|
(19.7
|
)%
|
Total
|
|
$
|
523.7
|
|
|
$
|
473.2
|
|
|
$
|
620.6
|
|
|
|
(15.6
|
)%
|
Net sales
for the first quarter of $523.7 increased by $50.5, or 10.7% as compared with
the first quarter of the prior year. The $50.5 increase in
consolidated revenues was the result of the $117.4, or 96.2%, increase in
revenues at the consumables management segment (formerly our distribution
segment) due to the HCS acquisition, partially offset by a $52.6, or 18.9%
decrease in revenues at the commercial aircraft segment and a $14.3, or 19.7%
decrease in revenues at the business jet segment. Proforma revenues
(including the HCS acquisition in both periods) declined 15.6% as compared with
the first quarter of 2008.
Cost of
sales for the current period were $347.0 or 66.3% of sales, as compared with
cost of sales of $304.1 or 64.3% of sales in the first quarter of the prior
year. The 200 basis point increase in cost of sales is due to the
acquisition of HCS in July 2008 which had a higher cost of sales than our
business, offset by improved manufacturing efficiencies and successful cost
reduction activities, more efficient consumables management purchasing in the
current period and initial synergies arising from the HCS
acquisition.
Selling,
general and administrative (SG&A) expenses for the first quarter of 2009
were $72.0 or 13.7% of sales as compared with SG&A of $56.3, or 11.9% of
sales in the same period in 2008. SG&A expenses increased by
$15.7, or 27.9% due to the acquisition of HCS and due to approximately $3.8 of
unfavorable foreign exchange expenses due to the strengthening of the British
pound during the quarter. SG&A expenses are expected to decline
significantly in 2010 as we complete the integration of HCS and the elimination
of duplicative and redundant costs and expenses.
Research,
development and engineering expense for the first quarter of 2009 was $24.0 or
4.6% of sales as compared with $35.4 or 7.5% of sales in the same period in
2008. The lower level of spending is primarily due to cost
initiatives in place at our commercial aircraft segment and inclusion of HCS in
2009.
Operating
earnings of $80.7 increased $3.3 or 4.3% as compared with the same period in
2008 as a result of including HCS in the current year
period. Including the HCS acquisition in both periods, first quarter
2009 operating earnings of $80.7 decreased 13.2% as compared with first quarter
2008 proforma operating earnings of $93.0.
Interest
expense for the first quarter of 2009 of $22.5 was $19.7 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 HCS acquisition in July
2008.
Earnings
before income taxes for the three months ended March 31, 2009 of $58.2 decreased
by $16.4 or 22.0%, as compared to the same period in the prior year as a result
of the $19.7 increase in interest expense which was only partially offset by the
$3.3 increase in operating earnings.
Income
taxes in the first quarter of 2009 were $20.3 or 34.9% of earnings before income
taxes as compared to $26.1 or 35.0% of earnings before income taxes in the first
quarter of 2008.
Net
earnings for the first quarter of 2009 were $37.9, or $0.38 per diluted share,
as compared with net earnings of $48.5, or $0.53 per diluted share, in the first
quarter of 2008. Net earnings decreased by $10.6, or 21.9%, as compared with the
first quarter of the prior year. Earnings per diluted share decreased
by 28.3%, or $0.15 per diluted share, as compared with the first quarter of the
prior year.
The
following is a summary of operating earnings by segment:
|
|
OPERATING
EARNINGS
|
|
|
|
Three
Months Ended March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2008
|
|
|
Percent
|
|
|
|
|
|
|
As
Reported
|
|
|
Proforma
|
|
|
Change
|
|
Consumables
management
|
|
$
|
47.4
|
|
|
$
|
35.3
|
|
|
$
|
50.9
|
|
|
|
(6.9
|
)%
|
Commercial
aircraft
|
|
|
28.5
|
|
|
|
31.5
|
|
|
|
31.5
|
|
|
|
(9.5
|
)%
|
Business
jet
|
|
|
4.8
|
|
|
|
10.6
|
|
|
|
10.6
|
|
|
|
(54.7
|
)%
|
Total
|
|
$
|
80.7
|
|
|
$
|
77.4
|
|
|
$
|
93.0
|
|
|
|
(13.2
|
)%
|
Consumables
management revenues were $239.4 or 96.2% higher than revenues of $122.0 in the
first quarter of the prior year. Including the HCS acquisition in
both periods, consumables management revenues of $239.4 were $30.0 or 11.1%
lower than 2008 proforma revenues of $269.4. Consumables management
segment operating earnings, which include $3.7 of costs associated with
acquisition, integration and transition related to the HCS acquisition (AIT
costs), were $47.4. First quarter 2009 proforma operating earnings,
adjusted to exclude acquisition, integration and transition (AIT) costs were
$51.1 (21.3% of net sales) as compared with 2008 operating earnings of $35.3
(28.9% of net sales) and as further compared with 2008 proforma operating
earnings of $50.9 (18.9% of sales). Operating margin expanded 240
basis points as compared with proforma operating margin primarily due to lower
margins in the HCS business in the prior year, more efficient purchasing in the
current period and initial synergies arising from the HCS
acquisition.
Commercial
aircraft segment revenues of $225.9 decreased 18.9% reflecting retrofit program
pushouts and lower spares revenues. Spares revenues in the current
period declined significantly due to reduced air travel, reduced fleet capacity
and airline cash conservation measures. Operating earnings in the
2009 period were $28.5, or 12.6% of sales, an increase of 130 basis points as
compared with the same period in the prior year, reflecting improved
manufacturing efficiencies and successful cost reduction activities, partially
offset by an unfavorable mix due to the substantially lower level of spares
revenues.
Business
jet segment revenues decreased by $14.3, or 19.7% to $58.4 and operating
earnings decreased by $5.8 or 54.7%, reflecting the negative impact
of reduced operating leverage and an unfavorable mix of products sold in the
2009 period as compared to the same period in 2008.
LIQUIDITY AND CAPITAL
RESOURCES
Current
Financial Condition
As of
March 31, 2009, the Company’s net debt-to-net-capital ratio was
43.6%. Net debt was $1,006.5, which represents total debt of $
1,121.8, less cash and cash equivalents of $115.3. There were no
borrowings outstanding under the $350 Revolving Credit Facility and we have no
debt maturities until 2014. Standard & Poor’s recently affirmed
our BBB- corporate credit rating and Moody’s Investor Services recently assigned
the Company a SGL 1 liquidity rating.
Working
capital as of March 31, 2009 was $1,183.1, up $9.4 as compared with working
capital at December 31, 2008. During the first quarter of 2009 the
Company successfully completed its initiative to bring HCS inventories in line
with B/E Aerospace’s stocking distribution model. The investments in
inventories at the consumables management segment was the principal reason for
the increase in working capital.
Cash
Flows
At March
31, 2009, our cash and cash equivalents were $115.3 compared to $168.1 at
December 31, 2008. Cash used in operating activities was $39.5 for
the three months ended March 31, 2009, as compared to $34.9 in the same period
in the prior year. The primary source of cash from operations during
the three months ended March 31, 2009 was net earnings of $37.9. This
source of cash was offset by the higher level of accounts receivable ($28.8) and
inventories ($79.9) and the lower level of payables and accruals
($3.8).
Capital
Spending
Our
capital expenditures were $10.0 and $8.5 during the three months ended March 31,
2009 and 2008, respectively. We anticipate capital expenditures of
approximately $40.0 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
Long-term
debt at March 31, 2009 consisted principally of $521.1 of term loan borrowings
under our Term Loan Facility, and $600.0 aggregate principal amount of 8½%
Senior Notes due 2018.
Borrowings
under our Term Loan Facility bear interest at an annual rate equal to LIBOR plus
250 -275 basis points or prime (as defined) plus 150-175 basis points (5.5% at
March 31, 2009). Borrowings under the our Revolving Credit Facility,
if any, would bear interest at an annual rate equal to, at the Company’s option,
LIBOR plus 225-300 basis points or prime (as defined) plus 125-200 basis points.
There were no amounts outstanding under the Revolving Credit Facility as of
March 31, 2009, the rate was 5.5%.
Contractual
Obligations
The
following chart reflects our contractual obligations and commercial commitments
as of March 31, 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
|
|
$
|
6.0
|
|
|
$
|
9.4
|
|
|
$
|
5.8
|
|
|
$
|
5.8
|
|
|
$
|
5.8
|
|
|
$
|
1,104.5
|
|
|
$
|
1,137.3
|
|
Operating
leases
|
|
|
19.7
|
|
|
|
21.8
|
|
|
|
17.6
|
|
|
|
15.5
|
|
|
|
14.3
|
|
|
|
76.9
|
|
|
|
165.8
|
|
Purchase
obligations
(2)
|
|
|
34.9
|
|
|
|
14.9
|
|
|
|
5.1
|
|
|
|
3.8
|
|
|
|
2.4
|
|
|
|
2.1
|
|
|
|
63.2
|
|
Future
interest payment on outstanding debt
(3)
|
|
|
48.4
|
|
|
|
80.9
|
|
|
|
80.7
|
|
|
|
80.4
|
|
|
|
80.1
|
|
|
|
70.9
|
|
|
|
441.4
|
|
Total
|
|
|
109.0
|
|
|
|
127.0
|
|
|
|
109.2
|
|
|
|
105.5
|
|
|
|
102.6
|
|
|
|
1,254.4
|
|
|
|
1,807.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
Commitments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Letters
of credit
|
|
|
25.5
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
25.5
|
|
(1)
|
Our
liability for unrecognized tax benefits of $12.8 at March 31, 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, which are reflected in the table above. 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 or other documentation or just 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.
|
(3)
|
Interest
payments include estimated amounts due on the $521.1 outstanding under our
Term Loan Facility, based on the actual rate of interest at March 31,
2009. Actual interest payments will fluctuate based on LIBOR
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 $165.8 at March 31, 2009.
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 be material to our
accompanying condensed consolidated financial statements.
Deferred
Tax Assets
We
maintained a valuation allowance of approximately $6.9 as of March 31, 2009
primarily related to foreign tax credits and foreign net operating
losses.
RECENT
ACCOUNTING PRONOUNCEMENTS
For a
discussion of New Accounting Standards and Recent Accounting Pronouncements,
refer to Note 3 of our Condensed Consolidated Financial Statements included in
Part 1, Item 1 of this report.
Critical
Accounting Policies
The
discussion and analysis of our financial condition and results of operations is
based upon our consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States of
America. The preparation of these financial statements requires us to make
estimates and judgments that affect the reported amount of assets and
liabilities, revenues and expenses, and related disclosure of contingent assets
and liabilities at the date of our financial statements. Actual results may
differ from these estimates under different assumptions or
conditions.
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
The
September 11, 2001 terrorist attacks, SARS and the onset of the Iraq war
severely impacted conditions in the airline industry. According to industry
sources, in the aftermath of the attacks most major U.S. and a number of
international carriers substantially reduced their flight schedules, parked or
retired portions of their fleets, reduced their workforces and implemented other
cost reduction initiatives. U.S. airlines further responded by decreasing
domestic airfares. As a result of the decline in both traffic and airfares
following the September 11, 2001 terrorist attacks and their aftermath, as
well as other factors, such as increases in fuel costs and heightened
competition from low-cost carriers, the world airline industry lost a total of
approximately $34 billion in calendar years 2001 through 2008. The airline
industry crisis also caused 47 airlines in the U.S. to declare bankruptcy or
cease operations in the last seven years.
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 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 we saw in 2008. We also expect the business jet industry to
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
significantly in 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.
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 increases in passenger traffic and projected increases 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),
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,
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.
ITEM
3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are
exposed to a variety of risks, including foreign currency fluctuations and
changes in interest rates affecting the cost of our variable-rate
debt.
Foreign Currency
- We have
direct operations in Europe that receive revenues from customers 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 March 31, 2009, we had no outstanding forward currency exchange
contracts. In addition, we have not entered into any other derivative
financial instruments.
Interest Rates
– At March 31,
2009, we had adjustable rate debt totaling $521.1. The weighted
average interest rates for the adjustable rate debt was approximately 5.5% at
March 31, 2009. If interest rates on variable rate debt were to
increase by 10% above current rates, our pretax income would decline by
approximately $2.9. We do not engage in transactions intended to hedge our
exposure to changes in interest rates.
As of
March 31, 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 less
than $0.1.
ITEM
4.
CONTROLS
AND PROCEDURES
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 March
31, 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 first quarter of 2009 that have materially affected, or are
reasonably likely to materially affect, the Company’s internal control over
financial reporting.
PART II – OTHER INFORMATION
Item
6.
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Exhibits
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Exhibit
31
Rule 13a-14(a)/15d-14(a) Certifications
|
|
|
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31.1
Certification of Chief Executive Officer
|
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31.2
Certification of Chief Financial
Officer
|
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Exhibit
32
Section
1350 Certifications
|
|
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32.1
Certification of Chief Executive Officer pursuant to 18
U.S.C. Section 1350
|
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32.2
Certification of Chief Financial Officer pursuant to 18
U.S.C. Section
1350
|
SIGNATURES
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.
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BE
AEROSPACE, INC.
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Date:
May 7, 2009
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By:
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/s/
Amin J. Khoury
|
|
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Amin
J. Khoury
|
|
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Chairman
and
|
|
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Chief
Executive Officer
|
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Date:
May 7, 2009
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By:
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/s/
Thomas P. McCaffrey
|
|
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Thomas
P. McCaffrey
|
|
|
Senior
Vice President and
|
|
|
Chief
Financial Officer
|
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