-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, AU1E1fMTqm73n5uz/CfiTqYBsR3rKzhhxCLkI/Si4s9YbqwtncOBRCQ5veJ4yo33 6BDSodPkP2GjK7N6D4X9CA== 0000861361-98-000024.txt : 19981222 0000861361-98-000024.hdr.sgml : 19981222 ACCESSION NUMBER: 0000861361-98-000024 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19980530 FILED AS OF DATE: 19981221 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BE AEROSPACE INC CENTRAL INDEX KEY: 0000861361 STANDARD INDUSTRIAL CLASSIFICATION: PUBLIC BUILDING AND RELATED FURNITURE [2531] IRS NUMBER: 061209796 STATE OF INCORPORATION: DE FISCAL YEAR END: 0222 FILING VALUES: FORM TYPE: 10-Q/A SEC ACT: SEC FILE NUMBER: 000-18348 FILM NUMBER: 98772514 BUSINESS ADDRESS: STREET 1: 1400 CORPORATE CTR WY CITY: WELLINGTON STATE: FL ZIP: 33414 BUSINESS PHONE: 5617915000 MAIL ADDRESS: STREET 1: 1300 CORPORATE CENTER WAY STREET 2: 1300 CORPORATE CENTER WAY CITY: WELLINGTON STATE: FL ZIP: 33414 FORMER COMPANY: FORMER CONFORMED NAME: BE AVIONICS INC DATE OF NAME CHANGE: 19920608 10-Q/A 1 1ST QUARTER 10-Q AMENDED UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q/A Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended May 30, 1998 Commission File No. 0-18348 BE AEROSPACE, INC. (Exact name of registrant as specified in its charter) Delaware 06-1209796 (State of Incorporation) (I.R.S. Employer Identification No.) 1400 Corporate Center Way Wellington, Florida 33414 (Address of principal executive offices) (561) 791-5000 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES[X] NO[ ] The registrant has one class of common stock, $.01 par value, of which 24,447,963 shares were outstanding as of December 16, 1998. Item 1. Financial Statements CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (Dollars in thousands, except share data)
May 30, February 28, 1998 1998 (As restated, see Note 7.) ASSETS CURRENT ASSETS: Cash and cash equivalents $ 24,821 $ 164,685 Accounts receivable - trade, less allowance for doubtful accounts of $3,982 (May 30, 1998) and $2,190 (February 28, 1998) 99,565 87,931 Inventories, net 152,506 121,728 Other current assets 8,867 7,869 -------------- ------------- Total current assets 285,759 382,213 PROPERTY AND EQUIPMENT, net 120,543 103,821 INTANGIBLES AND OTHER ASSETS, net 332,881 195,723 ------------ ------------ $ 739,183 $ 681,757 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 45,764 $ 47,858 Accrued liabilities 57,936 38,566 Current portion of long-term debt 5,793 33,285 -------------- ------------ Total current liabilities 109,493 119,709 -------------- ------------ LONG-TERM DEBT 430,365 349,557 DEFERRED INCOME TAXES 1,130 1,207 OTHER LIABILITIES 25,528 14,509 STOCKHOLDERS' EQUITY: Preferred stock, $.01 par value; 1,000,000 shares authorized; no shares outstanding - - Common stock, $.01 par value; 50,000,000 shares authorized; 23,198,758 (May 30, 1998) and 22,891,918 (February 28, 1998) issued and outstanding 232 229 Additional paid-in capital 240,581 240,289 Accumulated deficit (64,599) (40,724) Cumulative foreign exchange translation adjustment (3,547) (3,019) --------------- ------------- Total stockholders' equity 172,667 196,775 ------------ ----------- $ 739,183 $ 681,757 ============ ============
See accompanying notes to condensed consolidated financial statements. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (Dollars in thousands, except per share data)
Three Months Ended ---------------------------------- May 30, May 31, 1998 1997 ---- ---- (As restated, see Note 7.) NET SALES $ 139,991 $ 113,846 COST OF SALES 88,111 72,783 ------------- ------------ GROSS PROFIT 51,880 41,063 OPERATING EXPENSES: Selling, general and administrative 17,999 12,903 Research, development and engineering 11,972 11,008 Amortization 4,033 2,853 In-process research and development and acquisition-related expenses 32,253 - ------------- ------------ Total operating expenses 66,257 26,764 ------------- ------------ OPERATING EARNINGS (LOSS) (14,377) 14,299 INTEREST EXPENSE, net 7,782 6,130 ------------- ------------ EARNINGS (LOSS) BEFORE INCOME TAXES (22,159) 8,169 INCOME TAXES 1,716 1,226 ------------- ------------ NET EARNINGS (LOSS) $ (23,875) $ 6,943 ============== ============ BASIC NET EARNINGS (LOSS) PER COMMON SHARE $ (1.03) $ .32 ============== ============ DILUTED NET EARNINGS (LOSS) PER COMMON SHARE $ (1.03) $ .30 ============== ============
See accompanying notes to condensed consolidated financial statements. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (Dollars in thousands)
Three Months Ended ---------------------------------- May 30, May 31, 1998 1997 ---- ---- (As restated, see Note 7.) CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings (loss) $ (23,875) $ 6,943 Adjustments to reconcile net earnings (loss) to net cash flows provided by operating activities: In-process research and development and acquisition- related expenses 32,253 - Depreciation and amortization 8,514 6,381 Deferred income taxes (70) (275) Non-cash employee benefit plan contributions 498 447 Changes in operating assets and liabilities, net of effects from acquisitions: Accounts receivable 7,102 6,516 Inventories (22,039) (5,023) Other current assets (1,001) (2,206) Accounts payable (3,833) (2,263) Accrued liabilities 5,003 (5,226) -------------- ------------- Net cash flows provided by operating activities 2,552 5,294 -------------- ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (8,811) (6,159) Change in intangible and other assets (3,733) (347) Acquisitions, net of cash acquired (186,271) - --------------- ------------ Net cash flows used in investing activities (198,815) (6,506) --------------- ------------- CASH FLOWS FROM FINANCING ACTIVITIES: Net borrowings (repayments) under bank credit facilities 80,121 (174) Proceeds from issuances of stock, net of expenses 3,652 1,403 Principal payments on long-term debt (27,492) - --------------- ------------ Net cash flows provided by financing activities 56,281 1,229 -------------- ------------ Effect of exchange rate changes on cash flows 118 57 -------------- ------------ Net (decrease) increase in cash and cash equivalents (139,864) 74 Cash and cash equivalents, beginning of period 164,685 44,149 -------------- ------------ Cash and cash equivalents, end of period $ 24,821 $ 44,223 ============== ============ Supplemental disclosures of cash flow information: Cash paid during period for: Interest $ 1,560 $ 6,327 Income taxes, net $ 537 $ 179 Schedule of non-cash transactions: Fair market value of assets acquired in acquisitions $ 205,617 - Cash paid for businesses acquired in acquisitions $ 186,986 - Liabilities assumed and accrued acquisition costs incurred in connection with business acquisitions $ 18,631 -
See accompanying notes to condensed consolidated financial statements. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS MAY 30, 1998 AND MAY 31, 1997 (UNAUDITED - DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) Note 1. Basis of Presentation The condensed consolidated financial statements of B/E Aerospace, Inc., its wholly-owned and majority-owned subsidiaries (the "Company" or "B/E") have been prepared by the Company and are unaudited pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information related to the Company's organization, significant accounting policies and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. In the opinion of management, these unaudited condensed consolidated financial statements reflect all material adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the results of operations and statements of financial position for the interim periods presented. These results are not necessarily indicative of a full year's results of operations. Although the Company believes that the disclosures provided are adequate to make the information presented not misleading, these unaudited interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K/A for the fiscal year ended February 28, 1998. Note 2. Fiscal 1999 Acquisitions On April 13, 1998, the Company completed its acquisition of Puritan Bennett Aero Systems Co. ("PBASCO") for approximately $69,700 in cash and the assumption of liabilities aggregating approximately $2,810. PBASCO is the leading manufacturer of commercial aircraft oxygen delivery systems and "WEMAC" air valve components and in addition supplies overhead lights and switches, crew masks and protective breathing devices for both commercial and general aviation aircraft. During the first quarter of fiscal 1999, the Company recorded a charge of $13,000 associated with the PBASCO transaction, for the acquisition of in-process research and development and acquisition-related expenses. On April 21, 1998, the Company acquired substantially all of the assets of Aircraft Modular Products ("AMP") for approximately $117,300 in cash and assumed certain liabilities aggregating approximately $2,840. AMP is a leading manufacturer of cabin interior products for general aviation (business jet) and commercial - type VIP aircraft, providing a broad line of products including seating, sidewalls, bulkheads, credenzas, closets, galley structures, lavatories, tables and sofas; along with related spare parts. During the first quarter of fiscal 1999, the Company recorded a charge of $19,253 associated with the AMP transaction, for the acquisition of in-process research and development and acquisition-related expenses. As a result of the acquisitions of PBASCO and AMP, the Company has recorded a charge of $32,253 for the write-off of acquired in-process research and development and acquisition-related expenses associated with the transactions. In-process research and development expenses arose from new product development projects that were in various stages of completion at the respective acquired enterprises at the date of acquisition. In-process research and development expenses for products under development at the date of acquisition that had not established technological feasibility and for which no alternative use was identified were written off. The in-process research and development projects have been valued based on expected net cash flows over the product life, costs to complete, the stage of completion of the projects, the result of which has been discounted to reflect the inherent risk associated with the completion of the projects, and the realization of the efforts expended. New product development projects underway at PBASCO at the date of acquisition included, among others, modular drop boxes, passenger and flight crew oxygen masks, oxygen regulators and generators, protective breathing equipment, on board oxygen generating systems, reading lights, passenger service units, external viewing systems for executive and commercial aircraft and cabin monitoring systems. In-process research and development and acquisition-related expenses associated with PBASCO were approximately $13,000. The Company has determined that these projects were approximately 28% complete at the date of acquisition, and estimates that the cost to complete these projects will aggregate approximately $11,800, and will be incurred over a four year period. New product development projects underway at AMP at the date of acquisition included, among others, executive aircraft interior products for the Bombardier Global Express, Boeing Business Jet, Airbus Corporate Jet, Cessna Citation 560XL, Cessna Citation 560 Ultra, Visionaire Vantage and Lear 60, as well as other specific executive aircraft seating products. In-process research and development and acquisition related expenses associated with AMP were approximately $19,253. The Company has determined that these projects were approximately 25% complete at the date of acquisition, and estimates that the cost to complete these projects will aggregate approximately $4,800, and will be incurred over a two year period. Uncertainties that could impede progress to a developed technology include (i) availability of financial resources to complete the development, (ii) regulatory approval (FAA, CAA, etc.) required for each product before it can be installed on an aircraft, (iii) continued economic feasibility of developed technologies, (iv) customer acceptance and (v) general competitive conditions in the industry. There can be no assurance that the in-process research and development projects will be successfully completed and commercially introduced. Note 3. Comprehensive Income In the first quarter of fiscal 1999, the Company adopted Statement of Financial Accounting Standards ("SFAS" or "Statement") No. 130, "Reporting Comprehensive Income," which establishes standards for the reporting and display of income. Comprehensive income is defined as all changes in a company's net assets except changes resulting from transactions with shareholders. It differs from net income in that certain items currently recorded to equity would be a part of comprehensive income. The following table sets forth the computation of comprehensive income for the periods presented:
THREE MONTHS ENDED ----------------------- May 30, May 31, 1998 1997 Net earnings (loss) $ (23,875) $ 6,943 Other comprehensive income: Foreign exchange translation adjustment (528) (368) ---------- --------- Comprehensive income (loss) $ (24,403) $ 6,575 =========== =========
Note 4. Segment Information In June 1997, the Financial Accounting Standards Board issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." SFAS No. 131 redefines how operating segments are determined and requires disclosure of certain financial and descriptive information about a company's operating segments. The Company believes the required segment information disclosure under SFAS No. 131 will be more comprehensive than previously provided, including expanded disclosure of income statement and balance sheet items. The Statement is effective for fiscal years beginning after December 15, 1997; however, application is not required for interim periods in the initial year of its application. The Company adopted the Statement effective March 1, 1998. Note 5. Long-Term Debt 8% Senior Subordinated Notes - In February 1998, the Company sold $250,000 of 8% Senior Subordinated Notes, priced to yield 8.02% (the "8% Notes"). In conjunction with the sale of the 8% Notes, the Company initiated a tender offer for its 9 3/4% Notes. The net proceeds from the offering of approximately $240,419 were used for the tender offer (which expired on February 25, 1998) in which approximately $101,808 of the 9 3/4% Notes were retired; the remaining $23,192 of the 9 3/4% Notes were redeemed on March 16, 1998. Credit Facilities - In April 1998, the Company amended its credit facilities with The Chase Manhattan Bank by increasing the aggregate principal amount that may be borrowed thereunder to $200,000 (the "Bank Credit Facility"). The Bank Credit Facility consists of a $100,000 revolving credit facility (of which $25,000 may be utilized for acquisitions) along with an acquisition facility of up to $100,000. The revolving credit facility expires in April 2004 and the acquisition facility is amortizable over five years beginning April 1999. The Bank Credit Facility is collateralized by the Company's accounts receivable, inventories and by substantially all of its other personal property. The Bank Credit Facility contains customary affirmative covenants, negative covenants and conditions of borrowing, all of which were met by the Company as of May 30, 1998. At May 30, 1998, indebtedness under the existing Bank Credit Facility consisted of letters of credit aggregating approximately $4,500 and outstanding borrowings under the acquisition facility aggregating $80,000 (bearing interest at LIBOR plus 1.50%, as defined). Note 6. Earnings (Loss) Per Share The following table sets forth the computation of basic and diluted earnings (loss) per share for the three months ended May 30, 1998 and May 31, 1997.
THREE MONTHS ENDED ------------------------------ May 30, May 31, 1998 1997 Numerator - Net earnings (loss) $ (23,875) $ 6,943 ============== ============= Denominator: Denominator for basic earnings (loss) per share - Weighted average shares 23,070 21,949 Effect of dilutive securities - Employee stock options - 118 ------------- ------------- Denominator for diluted earnings (loss) per share - Adjusted weighted average shares $ 23,070 23,067 ============= ============ Basic earnings (loss) per share $ (1.03) $ .32 ============= ============ Diluted earnings (loss) per share $ (1.03) $ .30 ============= ============
Note 7. Restatement Subsequent to the issuance of the Company's May 30, 1998 financial statements, the Company's management revised the amount of the purchase price allocated to in-process research and development relating to the acquisitions of PBASCO and AMP during April 1998 (see Note 2). As a result, the Company's financial statements for the three-month period ended May 30, 1998 have been restated to reduce the in-process research and development charge by $66,000 and to increase intangible assets by a like amount. The change had no impact on net cash flows provided by operations. The effect of the restatement on the accompanying financial statements is as follows:
May 30, 1998 May 30, 1998 As restated As previously reported ------------------------- ---------------------------- Intangibles and other assets, net 332,881 268,232 Total assets 739,183 674,534 Accrued liabilities 57,936 58,795 Total current liabilities 109,493 110,352 Accumulated deficit (64,599) (130,107) Total stockholders' equity 172,667 107,159 Total liabilities and stockholders' equity 739,183 674,534 Amortization 4,033 3,441 In-process research and development and acquisition-related expenses 32,253 98,253 Total operating expenses 66,257 131,665 Operating earnings (loss) (14,377) (79,785) Earnings (loss) before income taxes (22,159) (87,567) Income taxes 1,716 1,816 Net earnings (loss) (23,875) (89,383) Basic net earnings (loss) per common share (1.03) (3.87) Diluted net earnings (loss) per common share (1.03) (3.87)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) The following discussion and analysis addresses the results of the Company's operations for the three months ended May 30, 1998, as compared to the Company's results of operations for the three months ended May 31, 1997. The discussion and analysis then addresses the liquidity and financial condition of the Company. As discussed in the notes to the financial statements, the Company restated its May 30, 1998 financial statements to reduce the amount of the in-process research and development charge by $66,000 resulting from the acquisitions of PBASCO and AMP during April 1998 (see Note 2). On April 13, 1998, the Company completed its acquisition of Puritan Bennett Aero Systems Co. ("PBASCO") for approximately $69,700 in cash and the assumption of liabilities aggregating approximately $2,810. PBASCO is the leading manufacturer of commercial aircraft oxygen delivery systems and "WEMAC" air valve components and in addition supplies overhead lights and switches, crew masks and protective breathing devices for both commercial and general aviation aircraft. On April 21, 1998, the Company acquired substantially all of the assets of Aircraft Modular Products ("AMP") for approximately $117,300 in cash and assumed certain liabilities aggregating approximately $2,840. AMP is a leading manufacturer of cabin interior products for general aviation (business jet) and commercial - type VIP aircraft, providing a broad line of products including seating, sidewalls, bulkheads, credenzas, closets, galley structures, lavatories, tables and sofas; along with related spare parts. As a result of the acquisitions of PBASCO and AMP, the Company has recorded a charge of $32,253 for the write-off of acquired in-process research and development and acquisition-related expenses associated with these and other transactions. In-process research and development expenses arose from new product development projects that were in various stages of completion at the respective acquired enterprises at the dates of acquisitions. In-process research and development expenses for products under development at the date of acquisition that had not established technological feasibility and for which no alternative use was identified were written off. The in-process research and development projects have been valued based on expected net cash flows over the product life, costs to complete, the stage of completion of the projects, the result of which has been discounted to reflect the inherent risk associated with the completion of the projects, and the realization of the efforts expended. New product development projects underway at PBASCO at the date of acquisition included, among others, modular drop boxes, passenger and flight crew oxygen masks, oxygen regulators and generators, protective breathing equipment, on board oxygen generating systems, reading lights, passenger service units, external viewing systems for executive and commercial aircraft and cabin monitoring systems. In-process research and development and acquisition-related expenses associated with PBASCO were approximately $13,000. The Company has determined that these projects were approximately 28% complete at the date of acquisition, and estimates that the cost to complete these projects will aggregate approximately $11,800, and will be incurred over a four year period. New product development projects underway at AMP at the date of acquisition included, among others, executive aircraft interior products for the Bombardier Global Express, Boeing Business Jet, Airbus Corporate Jet, Cessna Citation 560XL, Cessna Citation 560 Ultra, Visionaire Vantage and Lear 60, as well as other specific executive aircraft seating products. In-process research and development and acquisition-related expenses associated with AMP were approximately $19,253. The Company has determined that these projects were approximately 25% complete at the date of acquisition, and estimates that the cost to complete these projects will aggregate approximately $4,800, and will be incurred over a two year period. Uncertainties that could impede progress to a developed technology include (i) availability of financial resources to complete the development, (ii) regulatory approval (FAA, CAA, etc.) required for each product before it can be installed on an aircraft, (iii) continued economic feasibility of developed technologies, (iv) customer acceptance and (v) general competitive conditions in the industry. There can be no assurance that the in-process research and development projects will be successfully completed and commercially introduced. The acquisition of PBASCO and AMP are collectively referred to as the "Acquisitions." The Acquisitions have been accounted for using purchase accounting. Recently, Rockwell Collins has entered the in-flight entertainment industry by purchasing Hughes Avicom, and in doing so has changed the competitive landscape for this line of business. The Company has evaluated the impact of the changing market conditions, and has determined that the long-term success of this line of business may be enhanced by teaming with a partner with substantial economic and technology resources. In connection therewith, the Company may monetize a portion, or if no suitable partner can be found, all of its investment in its in-flight entertainment business. THREE MONTHS ENDED MAY 30, 1998, AS COMPARED TO THE RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MAY 31, 1997 Net sales for the fiscal 1999 three-month period were $139,991, or $26,145 (23%) higher than sales of $113,846 for the comparable period in the prior year. Excluding the effect of the Acquisitions, revenues increased 11% over the prior year. Gross profit was $51,880 (37.1% of sales) for the three months ended May 30, 1998. This was $10,817, or 26%, greater than the comparable period in the prior year of $41,063, which represented 36.1% of sales. The increase in gross profit is attributable to the growth in revenues and the improved gross margins. Selling, general and administrative expenses were $17,999 (12.9% of sales) for the three months ended May 30, 1998. This was $5,096, or 39%, higher than the comparable period in the prior year of $12,903 (11.3% of sales). The increase in selling, general and administrative expenses was primarily due to inclusion of the relevant expenses of the acquired companies along with increases associated with internal growth. Research, development and engineering expense was $11,972 (8.6% of sales) for the three months ended May 30, 1998, an increase of $964 over the comparable period in the prior year. The increase in research, development and engineering expense in the current period is primarily attributable to on-going new product development activities. Amortization expense for the quarter ended May 30, 1998 of $4,033 was $1,180 greater than the amount recorded in the first quarter of fiscal 1998. Based on management's assumptions, a portion of the Acquisitions' purchase price was allocated to purchased research and development that had not reached technological feasibility and had no future alternative use. During the first quarter of fiscal 1999, the Company recorded a charge of $32,253 for the acquisition of in-process research and development and acquisition-related expenses. Due, in part, to the acquisition-related charges of $32,253 during the current quarter, the Company incurred an operating loss of $(14,377), as compared to operating earnings of $14,299 in the prior year. Operating earnings excluding the acquisition-related charges were $17,876. Interest expense, net was $7,782 for the three months ended May 30, 1998, or $1,652 greater than interest expense of $6,130 for the comparable period in the prior year and is due to the increase in the Company's long-term debt as compared to the prior year's comparable period. The loss before income taxes in the current quarter was $(22,159), (which includes in-process research and development and acquisition-related expenses of $32,253) as compared to earnings before incomes taxes of $8,169 in the prior year. Earnings before income taxes excluding the acquisition-related charges were $10,094. Income tax expense for the quarter ended May 30, 1998 was $1,716, as compared to $1,226 in the prior year's comparable period. The net loss for the quarter ended May 30, 1998 was $(23,875), or $(1.03) per share (diluted), as compared to net earnings of $6,943, or $.30 per share (diluted), for the comparable period in the prior year. LIQUIDITY AND CAPITAL RESOURCES The Company's liquidity requirements consist of working capital needs, ongoing capital expenditures and scheduled payments of interest on its indebtedness. B/E's primary requirements for working capital have been directly related to increased accounts receivable and inventory levels as a result of revenue growth. B/E's working capital was $176,266 as of May 30, 1998, as compared to $262,504 as of February 28,1998. At May 30, 1998, the Company's cash and cash equivalents were $24,821, as compared to $164,685 at February 28, 1998. Cash provided from operating activities was $2,552 for the three months ended May 30, 1998 and $5,294 for the three months ended May 31, 1997. The primary source of cash during the three months ended May 30, 1998 was net loss of $(23,875), non-cash charges for in-process research and development, depreciation, amortization and acquisition-related expenses of $40,767, decreases in accounts receivable of $7,102 and increases in accrued liabilities of $5,003, offset by a use of cash of $23,040 related to increases in inventories and other current assets and $3,833 related to net decreases in accounts payable. The primary use of cash during the quarter was $186,271 for the acquisition of PBASCO and AMP. The Company's capital expenditures were $8,811 and $6,159 during the three months ended May 30, 1998 and May 31, 1997, respectively. The increase in capital expenditures was primarily attributable to (i) the development of a new management information system to replace the Company's existing systems, many of which were inherited in acquisitions, and (ii) expenditures for plant modernization. The management information system is expected to be installed over 18 months and will be year 2000 compliant. The Company anticipates ongoing annual capital expenditures of approximately $35,000 for the next several years to be in line with the expanded growth in business and the recent acquisitions. In April 1998, the Company amended its credit facilities with The Chase Manhattan Bank by increasing the aggregate principal amount that may be borrowed thereunder to $200,000 (the "Bank Credit Facility"). The Bank Credit Facility consists of a $100,000 revolving credit facility (of which $25,000 may be used for acquisitions) along with an acquisition facility of up to $100,000. The revolving credit facility expires in April 2004 and the acquisition facility is amortizable over five years beginning April 1999. The Bank Credit Facility is collateralized by the Company's accounts receivable and inventories and by substantially all of its other personal property. The Bank Credit Facility contains customary affirmative covenants, negative covenants and conditions of borrowing, all of which were met by the Company as of May 30, 1998. At May 30, 1998, indebtedness under the existing Bank Credit Facility consisted of letters of credit aggregating approximately $4,500 and outstanding borrowings under the acquisition facility aggregating $80,000 (bearing interest at LIBOR plus 1.25%, as defined). In February 1998, the Company sold $250,000 of 8% Senior Subordinated Notes. In conjunction with the sale of the 8% Notes, the Company initiated a tender offer for $125,000 of 9 3/4% Senior Notes due 2003 (the "9 3/4% Notes"). The net proceeds from the offering of approximately $240,419 were used (i) for the tender offer (which expired on February 25, 1998) in which approximately $101,808 of the 9 3/4% Notes were retired, (ii) to call the the remaining 9 3/4% Notes on March 16, 1998, and (iii) together with the proceeds from the Bank Credit Facility, to fund the acquisitions of PBASCO and AMP. Long-term debt consists of the Bank Credit Facility, 9 7/8% Senior Subordinated Notes ("9 7/8% Notes") and 8% Notes. The 9 7/8% Notes and 8% Notes mature on February 1, 2006 and March 1, 2008, respectively. The Company believes that the cash flow from operations and availability under the Bank Credit Facility will provide adequate funds for its working capital needs, planned capital expenditures and debt service requirements through the term of the Bank Credit Facility. The Company believes that it will be able to refinance the Bank Credit Facility prior to its termination, although there can be no assurance that it will be able to do so. The Company's ability to fund its operations, make planned capital expenditures, make scheduled payments and refinance its indebtedness depends on its future operating performance and cash flow, which, in turn, are subject to prevailing economic conditions and to financial, business and other factors, some of which are beyond its control. DEFERRED TAX ASSETS The Company has established a valuation allowance related to the utilization of its deferred tax assets because of uncertainties that preclude it from determining that it is more likely than not that it will be able to generate taxable income to realize such assets during the operating loss carryforward period, which expires in 2012. Such uncertainties include recent cumulative losses by the Company, the highly cyclical nature of the industry in which it operates, economic conditions in Asia which is impacting the airframe manufacturers and the airlines, the Company's high degree of financial leverage and risks associated with the integration of acquisitions. The Company monitors these as well as other positive and negative factors that may arise in the future, as it assesses the necessity for a valuation allowance for its deferred tax assets. YEAR 2000 COSTS The "Year 2000" issue is the result of computer programs using two digits rather than four to define the applicable year. Because of this programming convention, software, hardware or firmware may recognize a date using "00" as the year 1900 rather than the year 2000. Use of non-Year 2000 compliant programs could result in system failures, miscalculations or errors causing disruptions of operations or other business problems, including, among others, a temporary inability to process transactions and invoices or engage in similar normal business activities. B/E Technology Initiatives Program - The Company has experienced substantial growth as a result of having completed 15 acquisitions since 1989. Essentially all of the acquired businesses were operating on a separate information system, using different hardware and software platforms. In fiscal 1997, the Company undertook to examine its systems, both pre-existing and acquired for Year 2000 compliance with a view to replacing non-compliant systems and creating an integrated Year 2000 compliant system. In addition, the Company has undertaken a comprehensive program to address the Year 2000 issue with respect to the following non-system areas: (i) network switching, (ii) the Company's non-information technology systems (such as buildings, plant, equipment and other infrastructure systems that may contain embedded microcontroller technology) and (iii) the status of major vendors, third party network service providers and other material service providers (insofar as they relate to the Company's business). As explained below, the Company's efforts to assess its systems as well as non-system areas related to Year 2000 compliance involve (i) a wide-ranging assessment of the Year 2000 problems that may affect the Company, (ii) the development of remedies to address the problems discovered in the assessment phase and (iii) testing of the remedies. Assessment Phase - The Company has identified substantially all of its major hardware and software platforms in use as well as the relevant non-system areas described above. The Company has determined its systems requirements on a company-wide basis and has begun the implementation of an enterprise resource planning ("ERP") system, which is intended to be a single system data base onto which all the Company's individual systems will be migrated. In relation thereto, the Company has signed contracts with substantially all of its significant hardware, software and other equipment vendors and third party network service providers related to Year 2000 compliance. Remediation and Testing Phase - In implementing the ERP system, the Company undertook and has completed a remediation and testing phase of all internal systems, LANs, WANs and PBXs. These phases were intended to address potential Year 2000 problems of the ERP system in relation to both information technology, non-information technology systems and then to demonstrate that the ERP software was Year 2000 compliant. ERP system software was selected and applications implemented by a team of internal users, outside system integrator specialists and ERP application experts. The ERP system was tested between June 1997 to 1998 by this team of experts. To date, four locations have been fully implemented on the ERP system. This Company-wide solution is being deployed to all other B/E sites in a manner that is designed to meet full implementation for all non-Year 2000 compliant sites by the year 2000. Program to Assess and Monitor Progress of Third Parties - As noted above, B/E has also undertaken an action plan to assess and monitor the progress of third party vendors in resolving Year 2000 issues. To date, the Company has (I) obtained guidance from outside counsel to ensure legal compliance, (ii) generated correspondence to each of its third party vendors to assess their Y2K readiness, (iii) contracted a `Vendor 2K' fully automated tracking program to track all correspondence to/from vendors to track timely responses via an automatic computer generated `trigger,' to provide an electronic folder for easy reference and retention and to specifically track internally identified `critical' vendors. The Company is also currently in the midst of developing an internal consolidated database of enterprise wide vendors. Future actions that the Company expects to take in connection with the monitoring of its third party vendors include a target mailing of correspondence to vendors scheduled for mid-January 1999. Replies from these vendors will be requested to be returned within 20 days. The Company intends to continue follow up with any vendors who indicate any material problems in their replies. The Company believes that the majority of the required compliance will be completed by the end of the first quarter of 1999. Contingency Plans - The Company has begun to analyze contingency plans to handle worse case Year 2000 scenarios that the Company believes reasonably could occur and, if necessary, intends to develop a timetable for completing such contingency plans. Costs Related to the Year 2000 Issue - Through May 30, 1998, the Company has incurred approximately $15,000 in costs related to the implementation of the ERP system. The Company currently estimates that total ERP implementation will cost approximately $30,000 and a portion of the costs have and will be capitalized to the extent permitted under generally accepted accounting principles. The Company expects that it will incur approximately $8,000 related to this program during calendar 1998 and an additional $7,000 during calendar 1999. Risks Related to the Year 2000 Issue - Although the Company's efforts to be Year 2000 compliant are intended to minimize the adverse effects of the Year 2000 issue on the Company's business and operations, the actual effects of the issue will not be known until 2000. Difficulties in implementing the ERP system or failure by the Company to fully implement the ERP system or the failure of its major vendors, third party network service providers, and other material service providers and customers to adequately address their respective Year 2000 issues in a timely manner would have a material adverse effect on the Company's business, results of operations, and financial condition. The Company's capital requirements may differ materially from the foregoing estimate as a result of regulatory, technological and competitive developments (including market developments and new opportunities) in the Company's industry. This report includes forward-looking statements that involve risks and uncertainties. The Company's actual experience may differ materially from that anticipated in such statements. Factors that might cause such a difference include, but are not limited to, those discussed in "Risk Factors" contained in Exhibit 99.1 of the Company's Annual Report on Form 10-K/A for the fiscal year ended February 28, 1998, and in the Company's Form S-3 dated September 11, 1998, Forms S-3/A dated September 28, 1998 and September 30, 1998 and Form S-4 dated November 20, 1998, as well as future events that have the effect of reducing the Company's available cash balances, such as unexpected operating losses, delays in the integration of the Company's acquired businesses, delivery of the Company's MDDS interactive video system, delays in the implementation of the Company's Year 2000 readiness program, customer delivery requirements, new or expected refurbishments or cash expenditures related to possible future acquisitions. Item 1. Legal Proceedings Not applicable. Item 2. Changes in Securities Recent Sales of Unregistered Securities In March 1998, pursuant to the terms of an Agreement and Plan of Reorganization and Merger dated March 27, 1998, by and among B/E, BE Acquisition Corp., Aerospace Interiors, Inc. ("ASI"), Gregory N. Fodell and the Shareholders of ASI listed therein (the "Merger Agreement"), B/E issued 201,895 shares of B/E Common Stock in exchange for all of the outstanding stock of ASI. The shares of Common Stock issued pursuant to the Merger Agreement were not registered under the Securities Act on the basis that it was a transaction by an issuer not involving any public offering, in accordance with Section 4(2) under the Securities Act. Item 3. Defaults Upon Senior Securities Not applicable. Item 4. Submission of Matters to a Vote of Security Holders Not applicable. Item 5. Other Information Discretionary authority will be granted to the designated persons in the Proxy Statement for the Annual Meeting of Stockholders to be held in 1999 as to all matters which B/E does not have notice on or prior to May 26, 1999. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 1. Exhibit 27. Financial Data Schedule for the three months ended May 30, 1998 2. Exhibit 10.1 Amended and Restated Employment Agreement dated as of May 29, 1998 between the Registrant and Amin J. Khoury 3. Exhibit 10.2 Amended and Restated Employment Agreement dated as of May 29, 1998 between the Registrant and Robert J. Khoury 4. Exhibit 10.3 Amended and Restated Employment Agreement dated as of May 29, 1998 between the Registrant and Paul E. Fulchino 5. Exhibit 10.4 Amended and Restated Employment Agreement dated as of May 29, 1998 between the Registrant and Thomas P. McCaffrey (b) Reports on Form 8-K 1. May 8, 1998 Acquisition of Aircraft Modular Products 2. April 27, 1998 Acquisition of Puritan-Bennett Aero Systems Co. 3. April 13, 1998 Press Release Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. BE AEROSPACE, INC. Date: December 18, 1998 /s/ Robert J. Khoury -------------------- By: Robert J. Khoury Vice Chairman and Chief Executive Officer Date: December 18, 1998 /s/ Thomas P. McCaffrey ----------------------- By: Thomas P. McCaffrey Corporate Senior Vice President of Administration and Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----