BEAV B/E Aerospace, Inc.

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, 2010

Commission File No. 0-18348

BE AEROSPACE, INC.

(Exact name of registrant as specified in its charter)

 

1400 Corporate Center Way

Wellington, Florida  33414

(Address of principal executive offices)

(561) 791-5000

(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES[X] NO[ ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T ( § 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES [ ]  NO [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act: Large accelerated filer [X]   Accelerated filer [  ]  Non-accelerated filer (do not check if a smaller reporting company) [  ] Smaller reporting company [  ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES [ ]  NO [X]

The registrant has one class of common stock, $0.01 par value, of which 102,211,289 shares were outstanding as of April 30, 2010.

		Page
Part I	Financial Information
Item 1.	Financial Statements (Unaudited)
	Condensed Consolidated Balance Sheets
	as of March 31, 2010 and December 31, 2009	3
	Condensed Consolidated Statements of Earnings for the
	Three Months Ended March 31, 2010 and March 31, 2009	4
	Condensed Consolidated Statements of Cash Flows for the
	Three Months Ended March 31, 2010 and March 31, 2009	5
	Notes to Condensed Consolidated Financial Statements	6
Item 2.	Management's Discussion and Analysis of Financial Condition
	and Results of Operations	12
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	18
Item 4.	Controls and Procedures	19
Part II	Other Information
Item 6.	Exhibits	20
Signatures		21

		March 31,				December 31,
		2010				2009
ASSETS
Current assets:
Cash and cash equivalents		$	153.9			$	120.1
Accounts receivable – trade, less allowance for doubtful
accounts ($6.6 at March 31, 2010 and $7.4 at December 31, 2009)			264.6				222.5
Inventories, net			1,262.0				1,247.4
Deferred income taxes, net			0.3				12.1
Other current assets			25.2				20.5
Total current assets			1,706.0				1,622.6
Property and equipment, net of accumulated depreciation
($185.6 at March 31, 2010 and $181.5 at December 31, 2009)			119.2				114.3
Goodwill			691.9				703.2
Identifiable intangible assets, net			331.3				337.4
Deferred income taxes, net			18.1				15.3
Other assets, net			43.9				47.3
		$	2,910.4			$	2,840.1
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	184.9			$	142.7
Accrued liabilities			206.5				192.8
Current maturities of long-term debt			-				0.2
Total current liabilities			391.4				335.7
Long-term debt, net of current maturities			1,018.4				1,018.5
Deferred income taxes, net			8.3				7.1
Other non-current liabilities			29.2				31.3
Commitments, contingencies and off-balance sheet
arrangements (Note 7)
Stockholders' equity:
Preferred stock, $0.01 par value; 1.0 million shares
authorized; no shares outstanding			--				--
Common stock, $0.01 par value; 200.0 million shares
authorized; 102.4 million shares issued and 102.2 million shares
outstanding as of March 31, 2010 and December 31, 2009			1.0				1.0
Additional paid-in capital			1,531.7				1,525.1
Accumulated deficit			(13.3	)			(47.1	)
Accumulated other comprehensive loss			(56.3	)			(31.5	)
Total stockholders' equity			1,463.1				1,447.5
		$	2,910.4			$	2,840.1

See accompanying notes to condensed consolidated financial statements.

BE AEROSPACE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)

(In Millions, Except Per Share Data)

		THREE MONTHS ENDED
		March 31,				March 31,
		2010				2009
Revenues		$	463.5			$	523.7
Cost of sales			295.7				347.0
Selling, general and administrative			68.7				72.0
Research, development and engineering			27.1				24.0
Operating earnings			72.0				80.7
Operating earnings, as percentage
of revenues			15.5	%			15.4	%
Interest expense, net			20.8				22.5
Earnings before income taxes			51.2				58.2
Income taxes			17.4				20.3
Net earnings		$	33.8			$	37.9
Net earnings per common share:
Basic		$	0.34			$	0.39
Diluted		$	0.34			$	0.38
Weighted average common shares:
Basic			99.5				98.3
Diluted			100.5				98.6

		THREE MONTHS ENDED
		March 31,				March 31,
		2010				2009
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings		$	33.8			$	37.9
Adjustments to reconcile net earnings to net cash flows provided by
(used in) operating activities:
Depreciation and amortization			12.5				11.8
Other			0.7				0.4
Non-cash compensation			6.9				5.3
Deferred income taxes			16.1				13.7
Changes in operating assets and liabilities:
Accounts receivable			(45.8	)			(28.8	)
Inventories			(26.0	)			(79.9	)
Other current assets and other assets			(1.7	)			3.9
Payables, accruals and other liabilities			51.0				(3.8	)
Net cash provided by (used in) operating activities			47.5				(39.5	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures			(9.3	)			(10.0	)
Net cash used in investing activities			(9.3	)			(10.0	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt			(0.2	)			(1.4	)
Net cash used in financing activities			(0.2	)			(1.4	)
Effect of foreign exchange rate changes on cash and cash equivalents			(4.2	)			(1.9	)
Net increase (decrease) in cash and cash equivalents			33.8				(52.8	)
Cash and cash equivalents, beginning of period			120.1				168.1
Cash and cash equivalents, end of period		$	153.9			$	115.3
Supplemental disclosures of cash flow information:
Cash paid during period for:
Interest		$	6.3			$	35.5
Income taxes			2.8				6.5

		March 31, 2010				December 31, 2009
Purchased materials and component parts		$	120.7			$	112.9
Work-in-process			22.7				25.1
Finished goods (primarily consumables products)			1,118.6				1,109.4
		$	1,262.0			$	1,247.4

Note 4.

Goodwill and Intangible Assets

The table below sets forth the intangible assets by major asset class, all of which were acquired through business purchase transactions:

 

Amortization expense on identifiable intangible assets was approximately $5.2 and $5.0 for the three month periods ended March 31, 2010 and 2009, respectively. The Company expects to report amortization expense of approximately $20 in each of the next five fiscal years. The Company expenses costs to renew or extend the term of a recognized intangible asset.

Note 5.

Long-Term Debt

As of March 31, 2010, long-term debt consisted of $600.0 aggregate principal amount of the Company’s 8.5% Senior Notes due 2018 (Senior Notes) and $418.4 outstanding under the six-year term loan facility, due July 2014, (Term Loan Facility) of the Company’s senior secured credit facility (Credit Agreement).

The Credit Agreement consists of (a) a $350.0 five-year revolving credit facility (Revolving Credit Facility) and (b) the Term Loan Facility.   Borrowings under the Revolving Credit Facility and Term Loan Facility bear interest at an annual rate equal to the London interbank offered rate (LIBOR) (as defined in the Credit Agreement) plus 275 basis points or Prime (as defined in the Credit Agreement) plus 175 basis points. As of March 31, 2010, the rate under the Revolving Credit Facility was 5.75%. There were no amounts outstanding under the Revolving Credit Facility as of March 31, 2010.  As of March 31, 2010, the rate under the Term Loan Facility was 5.75%.

Letters of credit outstanding under the Credit Agreement aggregated $4.6 at March 31, 2010.

The Credit Agreement contains an interest coverage ratio financial covenant (as defined in the Credit Agreement) that must be maintained at a level greater than 2.50 to 1.  The Credit Agreement also contains a total leverage ratio covenant (as defined in the Credit Agreement) which limits net debt to a 4.00 to 1 multiple of EBITDA (as defined in the Credit Agreement).  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 the covenants in the Credit Agreement were met as of March 31, 2010.

 

Note 6.

Fair Value Measurements

 

All financial instruments are carried at amounts that approximate estimated fair value. The fair value is the price at which an asset could be exchanged in a current transaction between knowledgeable, willing parties. Assets measured at fair value are categorized based upon the lowest level of significant input to the valuations.

 

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 carrying amounts of cash and cash equivalents (which the Company classifies as Level 1 assets), accounts receivable-trade, and accounts payable represent their respective fair values due to their short term nature.  The carrying amount of the Company’s term debt is a reasonable estimate of its fair value as interest is based upon floating market rates. The fair value of the Company’s 8.5% Senior Notes, based on market prices for publicly traded debt, was $640.5 and $636.0 as of March 31, 2010, and December 31, 2009, respectively.

Note 7.

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, 2010, future minimum lease payments under these arrangements totaled approximately $150.0; 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.

Note 8.

Accounting for Stock-Based Compensation

The Company has a Long Term Incentive Plan (LTIP) under which the Company’s Compensation Committee has the authority to grant stock options, stock appreciation rights, restricted stock, restricted stock units or other forms of equity.

Compensation cost generally is being recognized on a straight-line basis over the vesting period of the shares.  Share-based compensation of $6.6 and $5.1 was recognized during the three month period ended March 31, 2010 and 2009, respectively, related to the equity grants made pursuant to the LTIP.  Unrecognized compensation expense related to equity grants, including the estimated impact of any future forfeitures, was $47.1 at March 31, 2010.

 The Company has established a qualified Employee Stock Purchase Plan which allows qualified employees (as defined in the Employee Stock Purchase Plan) to purchase shares of the Company's common stock at a price equal to 85% of the closing price at the end of each semi-annual stock purchase period.  Compensation cost for this plan was not material to any of the periods presented.

Note 9.

Segment Reporting

The Company is organized based on the products and services it offers.  The Company’s reportable segments, which are also its operating segments, are comprised of consumables management, commercial aircraft and business jet.

The Company evaluates segment performance based on segment operating earnings or losses.

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 respective customers.

The following table presents revenues and operating earnings by business segment:

 

(1)	Operating earnings include an allocation of corporate general and administrative and employee benefits costs based on the proportion of each segment’s revenues and number of employees, respectively.

 

The following table presents capital expenditures by business segment:

		THREE MONTHS ENDED
		March 31,				March 31,
		2010				2009
Capital expenditures
Consumables management		$	1.9			$	6.1
Commercial aircraft			7.0				3.1
Business jet			0.4				0.8
		$	9.3			$	10.0

		March 31,				December 31,
		2010				2009
Goodwill
Consumables management		$	446.2			$	452.4
Commercial aircraft			157.0				162.1
Business jet			88.7				88.7
		$	691.9			$	703.2

The following table presents total assets by business segment:

		March 31,				December 31,
		2010				2009
Total assets (2)
Consumables management		$	1,857.3			$	1,808.9
Commercial aircraft			769.3				762.9
Business jet			283.8				268.3
		$	2,910.4			$	2,840.1

(2)	Corporate assets of $170.0 and $144.6 at March 31, 2010 and December 31, 2009, respectively, have been allocated to the above segments based on each segment’s respective percentage of total assets.

 

Note 10.

Net Earnings Per Common Share

Basic net earnings per common share is computed using the weighted average common shares outstanding during the period. Diluted net earnings per common share is computed by using the weighted average common shares outstanding including the dilutive effect of stock options, shares issued under the Employee Stock Purchase Plan and restricted shares based on an average share price during the period.  For the three months ended March 31, 2010 and 2009, securities totaling approximately 0.6 and 1.4, 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, 2010 and 2009, respectively, are as follows:

 

Note 11.

Comprehensive Earnings

Comprehensive earnings is defined as all changes in a company's net assets except changes resulting from transactions with stockholders. It differs from net earnings in that certain items currently recorded to equity would be a part of comprehensive earnings.

		THREE MONTHS ENDED
		March 31,				March 31,
		2010				2009
Net earnings		$	33.8			$	37.9
Other comprehensive loss:
Foreign exchange translation
adjustment and other			(24.8	)			(9.9	)
Comprehensive earnings		$	9.0			$	28.0

Note 12.

Accounting for Uncertainty in Income Taxes

In accordance with FASB ASC 740 Income Taxes , 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, 2010 and December 31, 2009, the Company had $16.1 and $15.9, 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, 2010 and December 31, 2009, 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.  With minor exceptions, the Company is currently open to audit by the tax authorities for the four tax years ending December 31, 2009.  The Company does not currently expect the results of these audits to have a material adverse affect on our financial results or financial position.

		THREE MONTHS ENDED
		March 31, 2010								March 31, 2009
		Revenues				% of Revenues				Revenues				% of Revenues
Consumables management		$	186.1				40.2	%		$	239.4				45.7	%
Commercial aircraft			230.1				49.6	%			225.9				43.1	%
Business jet			47.3				10.2	%			58.4				11.2	%
Total		$	463.5				100.0	%		$	523.7				100.0	%

		THREE MONTHS ENDED
		March 31, 2010								March 31, 2009
						% of								% of
		Revenues				Revenues				Revenues				Revenues
United States		$	238.1				51.4	%		$	267.7				51.1	%
Europe			107.8				23.2	%			129.5				24.7	%
Asia, Pacific Rim,
Middle East and
Other			117.6				25.4	%			126.5				24.2	%
Total		$	463.5				100.0	%		$	523.7				100.0	%

Revenues from our domestic and foreign operations for the three month periods ended March 31, 2010 and March 31, 2009, respectively, were as follows:

		THREE MONTHS ENDED
		March 31, 2010				March 31, 2009
Domestic		$	337.7			$	385.3
Foreign			125.8				138.4
Total		$	463.5			$	523.7

 

		REVENUES
		Three Months Ended March 31,
										Percent
		2010				2009				Change
Consumables management		$	186.1			$	239.4				(22.3	)%
Commercial aircraft			230.1				225.9				1.9	%
Business jet			47.3				58.4				(19.0	)%
Total		$	463.5			$	523.7				(11.5	)%

		OPERATING EARNINGS
		Three Months Ended March 31,
										Percentage
		2010				2009				Change
Consumables management		$	36.8			$	47.4				(22.4	)%
Commercial aircraft			33.8				28.5				18.6	%
Business jet			1.4				4.8				(70.8	)%
Total		$	72.0			$	80.7				(10.8	)%

 

Contractual Obligations		2010				2011				2012				2013				2014				Thereafter				Total
Long-term debt and other non-current liabilities (1)		$	-			$	0.6			$	0.2			$	0.4			$	419.0			$	611.3				1,031.5
Operating leases			18.4				21.1				18.0				15.5				14.2				62.8				150.0
Purchase obligations (2)			24.8				7.6				5.6				2.2				1.7				1.7				43.6
Future interest payment on outstanding debt (3)			44.8				76.7				76.7				76.7				65.9				178.5				519.3
Total		$	88.0			$	106.0			$	100.5			$	94.8			$	500.8			$	854.3			$	1,744.4
Commercial Commitments
Letters of credit		$	4.6			$	--			$	--			$	--			$	--			$	--			$	4.6

(1)

Our liability for unrecognized tax benefits of $16.1 at March 31, 2010 has been omitted from the above table because we cannot determine with certainty when this liability will be settled.  It is reasonably possible that the amount of liability for unrecognized tax benefits will change in the next twelve months; however, we do not expect the change to have a significant impact on our consolidated financial statements.

 

 

(2)

Occasionally, we enter into purchase commitments for production materials and other items.  We also enter into unconditional purchase obligations with various vendors and suppliers of goods and services in the normal course of operations through purchase orders, other documentation or with an invoice.  Such obligations are generally outstanding for periods less than a year and are settled by cash payments upon delivery of goods and services and are not reflected in purchase obligations in this table.

(3)

Future interest payments include amounts due under our Senior Notes and estimated amounts due on the $418.4 aggregate principal amount outstanding under our Term Loan Facility, based on the actual rate of interest at March 31, 2010.  Actual interest payments will fluctuate based on LIBOR or Prime rate pursuant to the terms of the Credit Agreement.

We believe that our cash flows, together with cash on hand and the availability under the Credit Agreement, provide us with the ability to fund our operations, make planned capital expenditures and make scheduled debt service payments for at least the next twelve months. However, such cash flows are dependent upon our future operating performance, which, in turn, is subject to prevailing economic conditions and to financial, business and other factors, including the conditions of our markets, some of which are beyond our control. If, in the future, we cannot generate sufficient cash from operations to meet our debt service obligations, we will need to refinance such debt obligations, obtain additional financing or sell assets. We cannot assure you that our business will generate cash from operations or that we will be able to obtain financing from other sources sufficient to satisfy our debt service or other requirements.

Off-Balance Sheet Arrangements

Lease Arrangements

We finance our use of certain equipment under committed lease arrangements provided by various financial institutions. Since the terms of these arrangements meet the accounting definition of operating lease arrangements, the aggregate sum of future minimum lease payments is not reflected in our consolidated balance sheet.  Future minimum lease payments under these arrangements aggregated approximately $150.0 at March 31, 2010.

Indemnities, Commitments and Guarantees

During the normal course of business, we have made, and we may continue to make, certain indemnities, commitments and guarantees under which we may be required to make payments in relation to certain transactions. These indemnities include non-infringement of patents and intellectual property indemnities to our customers in connection with the delivery, design, manufacture and sale of our products, indemnities to various lessors in connection with facility leases for certain claims arising from such facility or lease, and indemnities to other parties to certain acquisition agreements. The duration of these indemnities, commitments and guarantees varies, and in certain cases, is indefinite. We believe that substantially all of our indemnities, commitments and guarantees provide for limitations on the maximum potential future payments we could be obligated to make. However, we are unable to estimate the maximum amount of liability related to our indemnities, commitments and guarantees because such liabilities are contingent upon the occurrence of events which are not reasonably determinable. Management believes that any liability for these indemnities, commitments and guarantees would not have a material adverse effect to our accompanying condensed consolidated financial statements.

Deferred Tax Assets

We maintained a valuation allowance of approximately $10.5 as of March 31, 2010 primarily related to foreign tax credits and foreign net operating losses.

Critical Accounting Policies

Critical accounting policies are defined as those that are reflective of significant judgments and uncertainties, and potentially result in materially different results under different assumptions and conditions. We believe that our critical accounting policies are limited to those described in Note 1 to Notes to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2009.  There have been no changes to our critical accounting policies since December 31, 2009.

FORWARD-LOOKING STATEMENTS

This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements include, but are not limited to, all statements that do not relate solely to historical or current facts, including statements regarding the expected benefits derived in connection with the HCS acquisition, implementation and expected benefits of lean manufacturing and continuous improvement plans, our dealings with customers and partners, the consolidation of facilities, reduction of our workforce, integration of acquired businesses, ongoing capital expenditures, our ability to grow our business, the impact of the large number of grounded aircraft on demand for our products and our underlying assets, the adequacy of funds to meet our capital requirements, the ability to refinance our indebtedness, if necessary, the reduction of debt, the potential impact of new accounting pronouncements, and the impact on our business of the recent decreases in passenger traffic and expected decreases in passenger traffic and the size of the airline fleet.  Such forward-looking statements include risks and uncertainties and our actual experience and results may differ materially from the experience and results anticipated in such statements. Factors that might cause such a difference include those discussed in our filings with the Securities and Exchange Commission, under the heading "Risk Factors" in our Annual Report on Form 10-K, for the fiscal year ended December 31, 2009 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, natural disaster or other environmental occurrences terrorist attacks, prolonged health issues which reduce air travel demand (e.g., SARS, Swine Flu, Icelandic volcano eruptions), delays in, or unexpected costs associated with, the integration of our acquired or recently consolidated businesses, including HCS, conditions in the airline industry, conditions in the business jet industry, regulatory developments, litigation costs, problems meeting customer delivery requirements, our success in winning new or expected refurbishment contracts from customers, capital expenditures, increased leverage, possible future acquisitions, facility closures, product transition costs, labor disputes involving us, our significant customers or airframe manufacturers, the possibility of a write-down of intangible assets, delays or inefficiencies in the introduction of new products, fluctuations in currency exchange rates or our inability to properly manage our rapid growth.

 

Except as required under the federal securities laws and rules and regulations of the SEC, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. You are cautioned not to unduly rely on such forward-looking statements when evaluating the information presented herein. These statements should be considered only after carefully reading the risk factors and the other information in our Annual Report on Form 10-K for the fiscal year ended December 31, 2009 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, 2010, 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, 2010, we had adjustable rate debt with a value totaling $418.4.  The weighted average interest rates for the adjustable rate debt was approximately 5.75% at March 31, 2010.  If interest rates on variable rate debt were to increase by 10% above current rates, our pretax income would decline by approximately $2.4 on an annualized basis. We do not engage in transactions intended to hedge our exposure to changes in interest rates.

  As of March 31, 2010, 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 on an annualized basis.

 

 

Disclosure Controls and Procedures

The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company’s reports under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including the Company’s Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. 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, 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), as of March 31, 2010.  Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective.

       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 2010 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.	Exhibits
	Exhibit 31 - Rule 13a-14(a)/15d-14(a) Certifications
	31.1  Certification of Chief Executive Officer
	31.2  Certification of Chief Financial Officer
	Exhibit 32 - Section 1350 Certifications
	32.1  Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350
	32.2  Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350

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