-----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, TptVBoBMsrVflngTT4OPSa60N4OM8V4dCeh0+/V0xEnZdbijSlV+wnBGeBa1HMlW LedNW8IiDA0UW7OhgXBYMA== 0000947871-06-001689.txt : 20061107 0000947871-06-001689.hdr.sgml : 20061107 20061107161357 ACCESSION NUMBER: 0000947871-06-001689 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 20061106 FILED AS OF DATE: 20061107 DATE AS OF CHANGE: 20061107 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: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-18348 FILM NUMBER: 061194126 BUSINESS ADDRESS: STREET 1: 1400 CORPORATE CTR WY CITY: WELLINGTON STATE: FL ZIP: 33414 BUSINESS PHONE: 5617915000 MAIL ADDRESS: STREET 1: 1400 CORPORATE CENTER WAY STREET 2: 1400 CORPORATE CENTER WAY CITY: WELLINGTON STATE: FL ZIP: 33414 FORMER COMPANY: FORMER CONFORMED NAME: BE AVIONICS INC DATE OF NAME CHANGE: 19920608 10-Q 1 f10q_110306.txt QUARTERLY REPORT UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For The Quarterly Period Ended September 30, 2006 Commission File No. 0-18348 BE AEROSPACE, INC. (Exact name of registrant as specified in its charter) DELAWARE 06-1209796 (State of Incorporation) (I.R.S. Employer Identification No.) 1400 Corporate Center Way Wellington, Florida 33414 (Address of principal executive offices) (561) 791-5000 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES[X] NO[ ] Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (check one): Large accelerated filer [X] Accelerated filer [ ] Non-accelerated filer [ ] 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 78,358,171 shares were outstanding as of November 3, 2006. 1 BE AEROSPACE, INC. Form 10-Q for the Quarter Ended September 30, 2006 Table of Contents Page ---- Part I Financial Information Item 1. Condensed Consolidated Financial Statements (Unaudited) a) Condensed Consolidated Balance Sheets as of September 30, 2006 and December 31, 2005...............................3 b) Condensed Consolidated Statements of Earnings for the Three and Nine Months Ended September 30, 2006 and September 30, 2005...........................................4 c) Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2006 and September 30, 2005...........................................5 d) Notes to Condensed Consolidated Financial Statements...................................................6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.............................14 Item 3. Quantitative and Qualitative Disclosures About Market Risk............................................................27 Item 4. Controls and Procedures.........................................27 Part II Other Information Item 1. Legal Proceedings...............................................28 Item 1A. Risk Factors.....................................................28 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds........................................................28 Item 3. Defaults Upon Senior Securities.................................28 Item 4. Submission of Matters to a Vote of Security Holders.............28 Item 5. Other Information...............................................28 Item 6. Exhibits........................................................29 Signatures......................................................30 2 PART I - FINANCIAL INFORMATION ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS BE AEROSPACE, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (Dollars in Millions, Except Share Data)
September 30, December 31, 2006 2005 ---------------------- -------------------- ASSETS Current assets: Cash and cash equivalents $ 99.1 $ 356.0 Accounts receivable - trade, less allowance for doubtful 157.3 131.9 accounts ($4.5 at September 30, 2006 and $2.9 at December 31, 2005) Inventories, net 373.3 223.7 Deferred income taxes, net 17.5 17.5 Other current assets 14.9 15.1 ---------- ---------- Total current assets 662.1 744.2 ---------- ---------- Property and equipment, net 104.2 95.0 Goodwill 451.0 362.9 Identifiable intangible assets, net 156.5 139.9 Deferred income taxes, net 69.5 62.0 Other assets, net 21.1 22.5 ---------- ---------- $ 1,464.4 $ 1,426.5 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued liabilities $ 232.4 $ 169.3 Current maturities of long-term debt 4.6 1.5 ---------- ---------- Total current liabilities 237.0 170.8 ---------- ---------- Long-term debt, net of current maturities 549.2 677.4 Deferred income taxes, net 2.3 1.8 Other non-current liabilities 7.1 6.9 Commitments, contingencies and off-balance sheet arrangements (Note 6) 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; 78.2 million (September 30, 2006) and 74.3 million (December 31, 2005) shares issued and outstanding 0.8 0.7 Additional paid-in capital 921.4 894.0 Accumulated deficit (256.6) (320.4) Accumulated other comprehensive income (loss) 3.2 (4.7) ---------- ---------- Total stockholders' equity 668.8 569.6 ---------- ---------- $ 1,464.4 $ 1,426.5 ========== ==========
See accompanying notes to condensed consolidated financial statements. 3 BE AEROSPACE, INC. CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED) (In Millions, Except Per Share Data)
THREE MONTHS ENDED NINE MONTHS ENDED ------------------------------------- ----------------------------------- September 30, September 30, ------------------------------------- ----------------------------------- 2006 2005 2006 2005 ------------------------------------- ----------------------------------- Net sales $ 287.9 $ 217.1 $ 806.6 $ 621.2 Cost of sales 187.1 140.5 522.9 403.8 -------- --------- -------- -------- Gross profit 100.8 76.6 283.7 217.4 Gross profit percentage 35.0% 35.3% 35.2% 35.0% Operating expenses: Selling, general and administrative 39.7 34.0 116.1 97.8 Research, development and . engineering 22.2 17.2 62.3 50.2 -------- --------- -------- -------- Total operating expenses 61.9 51.2 178.4 148.0 -------- --------- -------- -------- Operating earnings 38.9 25.4 105.3 69.4 Operating earnings percentage 13.5% 11.7% 13.1% 11.2% Interest expense, net 9.7 14.8 27.9 44.9 Debt prepayment costs 17.0 -- 18.8 -- -------- --------- -------- -------- Earnings before income taxes 12.2 10.6 58.6 24.5 Income tax (benefit) provision (19.2) 0.6 (5.3) 2.0 -------- --------- -------- -------- Net earnings $ 31.4 $ 10.0 $ 63.9 $ 22.5 ======== ========= ======== ======== Net earnings per common share: Basic $ 0.40 $ 0.17 $ 0.83 $ 0.39 ======== ========= ======== ======== Diluted $ 0.40 $ 0.16 $ 0.82 $ 0.37 ======== ========= ======== ======== Weighted average common shares: Basic 77.7 58.2 76.8 57.4 Diluted 78.6 61.2 77.9 60.3
See accompanying notes to condensed consolidated financial statements. 4 BE AEROSPACE, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (Dollars in Millions) NINE MONTHS ENDED ---------------------------------------------- September 30, September 30, 2006 2005 -------------------- ---------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings $ 63.9 $ 22.5 Adjustments to reconcile net earnings to net cash flows provided by operating activities: Depreciation and amortization 21.4 21.7 Provision for doubtful accounts 1.6 0.5 Non-cash compensation 1.0 2.1 Deferred income taxes (10.0) -- Debt prepayment costs 18.8 -- Changes in operating assets and liabilities, net of effects from acquisitions: Accounts receivable (4.7) (35.3) Inventories (111.7) (26.8) Other current assets and other assets 4.7 (3.5) Payables, accruals and other liabilities 36.8 28.3 ------- ------- Net cash flows provided by operating activities 21.8 9.5 ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (15.9) (10.9) Acquisitions, net of cash acquired (145.3) -- Other, net -- 4.2 ------- ------- Net cash flows (used in) investing activities (161.2) (6.7) ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from common stock issued 25.2 10.0 Debt facility costs and tender offer costs (18.9) -- Proceeds from long-term debt 374.2 -- Principal payments on long-term debt (499.3) (0.3) Borrowings on line of credit 150.0 -- Repayments on line of credit (150.0) -- ------- ------- Net cash flows (used in) provided by financing activities (118.8) 9.7 ------- ------- Effect of foreign exchange rate changes on cash and cash equivalents 1.3 (1.5) ------- ------- Net (decrease) increase in cash and cash equivalents (256.9) 11.0 Cash and cash equivalents, beginning of period 356.0 76.3 ------- ------- Cash and cash equivalents, end of period $ 99.1 $ 87.3 ======= ======= Supplemental disclosures of cash flow information: Cash paid during period for: Interest, net $ 32.6 $ 39.0 Income taxes, net $ 2.0 $ 1.9
See accompanying notes to condensed consolidated financial statements. 5 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 condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and are unaudited pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. All adjustments which, in the opinion of management, are considered necessary for a fair presentation of the results of operations for the periods shown, are of a normal recurring nature and have been reflected in the condensed consolidated financial statements. The results of operations for the periods presented are not necessarily indicative of the results expected for the full fiscal year or for any future period. The information included in these condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and accompanying notes included in the BE Aerospace, Inc. (the "Company" or "B/E") Annual Report on Form 10-K for the fiscal year ended December 31, 2005. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts and related disclosures. Actual results could differ from those estimates. Note 2. Business Combinations --------------------- The Company completed two acquisitions during the quarter ended September 30, 2006. The acquisitions were accounted for as purchases under Statement of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations." The assets purchased and liabilities assumed for these acquisitions have been reflected in the accompanying balance sheet as of September 30, 2006. Results of operations for the acquisitions are included in the accompanying statement of earnings from the respective dates of acquisition. Draeger Aerospace GmbH On July 26, 2006, the Company acquired Draeger Aerospace GmbH (Draeger), from Cobham PLC of Dorset, England for approximately $78.0 in cash. Draeger manufactures components and integrated systems to supply chemical and gaseous oxygen systems for both civil and military aircraft. The integration of Draeger with the Company's existing oxygen systems business will provide for a broadening of our oxygen systems product line and an expansion of our customer base. The Company has not yet completed an allocation of the purchase price for Draeger. The estimated excess of the purchase price over the fair value of the identifiable net tangible assets acquired approximates $59.0 of which $23.0 has been allocated to intangible assets and $36.0 is included in goodwill. New York Fasteners Corp. On September 1, 2006, the Company acquired New York Fasteners Corp. (New York Fasteners), a privately-held company, for approximately $67.0 in cash. New York Fasteners is a distributor of aerospace fasteners and hardware primarily to the military sector. The integration of New York Fasteners into the Company's distribution segment is expected to create procurement and operations synergies and significantly expand the Company's overall penetration into the military sector. The Company has not yet completed an allocation of the purchase price for New York Fasteners. The estimated excess of the purchase price over the fair value of the identifiable net tangible assets acquired approximates $47.0 and is included in goodwill. 6 Consolidated proforma revenues, giving effect to the New York Fasteners and Draeger acquisitions as if they had occurred on January 1, 2006, for the three and nine month periods ended September 30, 2006 were approximately $301.9 and $867.0, respectively. Consolidated proforma revenues, giving effect to the New York Fasteners and Draeger acquisitions as if they had occurred on January 1, 2005, for the three and nine month periods ended September 30, 2005 were $236.0 and $658.1, respectively. The Draeger and New York Fasteners acquisitions did not materially impact the Company's operating earnings or net earnings for the periods presented. Note 3. Inventories ----------- Inventories are stated at the lower of cost or market. Cost is determined using FIFO or the weighted average cost method. Finished goods and work-in-process inventories include material, labor and manufacturing overhead costs. Inventories consist of the following:
September 30, 2006 December 31, 2005 ----------------------------- ---------------------------- Purchased materials and component parts $ 85.1 $ 59.8 Work-in-process 24.1 18.5 Finished goods (primarily aftermarket fasteners) 264.1 145.4 ------ ------ $373.3 $223.7 ====== ======
Note 4. Goodwill and Intangible Assets ------------------------------ In accordance with SFAS No. 142, "Goodwill and Other Intangible Assets," the Company has completed the fair value analysis for goodwill and other intangible assets as of December 31, 2005, and concluded that no impairment existed. As of September 30, 2006, the Company believed that no indicators of impairment existed. Aggregate amortization expense on identifiable intangible assets was approximately $2.6 and $2.5 for the three months ended September 30, 2006 and 2005, respectively, and $7.5 and $7.3 for the nine months ended September 30, 2006 and 2005, respectively. At September 30, 2006, based on preliminary estimates, approximately $23.0 of the Draeger purchase price has been allocated to identifiable intangible assets. Subject to the final allocation of the purchase price for the Draeger and New York Fasteners acquisitions, the Company expects to report amortization expense of approximately $11.0 in each of the next five fiscal years. Note 5. Long-Term Debt -------------- On July 26, 2006 and, as amended and restated, on August 24, 2006, the Company entered into a new senior secured credit facility (the "Senior Secured Credit Facility"), consisting of a five-year, $200.0 revolving credit facility and a six-year, $300.0 term loan. The Senior Secured Credit Facility also provides for the ability of the Company to add additional term loans in the amount of up to $75.0 upon satisfaction of certain customary conditions, including commitments from lenders. The Senior Secured Credit Facility replaced the Company's existing $50.0 revolving credit facility that it had entered into in February 2004. The Company completed a cash tender offer and consent solicitation for $174.9 aggregate principal amount of 8-1/2% senior notes using available cash on hand and from borrowings under the Senior Secured Credit Facility. The Company recorded a loss on extinguishment of $17.0 related to unamortized debt issue and facility costs and fees and expenses related to the repurchase of the 8-1/2% senior notes. Revolving credit borrowings under the Senior Secured Credit Facility would currently bear interest at an annual rate equal to the London interbank offered rate (LIBOR) plus 175 basis points. There are no borrowings outstanding on the revolver of the Senior Secured Credit Facility at September 30, 2006. Term loan borrowings under new senior secured credit facility bear interest at an annual rate equal to LIBOR plus 175 basis points (7.16% at September 30, 2006). The Senior Secured Credit Facility contains an interest coverage ratio (as defined therein) maintenance financial covenant that currently must be maintained at a level greater than 2.00 to 1 through December 31, 2006 and 2.25 to 1 through maturity of the term loan. The Senior Secured Credit Facility also contains a total leverage ratio covenant (as defined therein) which limits net debt to a 4.50 to 1 multiple of EBITDA (as defined therein) through December 31, 2006 and to 4.25 to 1 through maturity. The Senior Secured Credit Facility is collateralized by substantially all of the Company's assets and contains customary affirmative covenants, negative covenants and conditions precedent for borrowings, all of which were met as of September 30, 2006. 7 At September 30, 2006, long-term debt consisted principally of $300.0 borrowings under the Senior Secured Credit Facility and $250.0 8-7/8% senior subordinated notes due 2011. The $250 8-7/8% senior subordinated notes mature on May 1, 2011. The senior subordinated notes are unsecured senior subordinated obligations and are subordinated to all senior indebtedness. The 8-7/8% senior subordinated notes contain restrictive covenants, including limitations on future indebtedness, restricted payments, transactions with affiliates, liens, dividends, mergers and transfers of assets, all of which were met as of September 30, 2006. A breach of these covenants, or the covenants under the Company's Senior Secured credit facilities or any future bank credit facility, that continues beyond any grace period can constitute a default, which can limit the Company's ability to borrow and can give rise to a right of the lenders to terminate the applicable facility and/or require immediate repayment of any outstanding debt. The 8% senior subordinated notes due 2008 were senior unsecured obligations of the Company. In January 2006, the Company redeemed $250 of the 8% senior subordinated notes at a redemption price equal to 100% of the principal amount, together with the interest accrued through the redemption date, using the net proceeds of the December 2005 common stock offering. The Company recorded a loss on debt extinguishment of $1.8 related to unamortized debt issue costs and fees and expenses related to the redemption of the 8% senior subordinated notes. Note 6. Commitments, Contingencies and Off-Balance Sheet Arrangements ------------------------------------------------------------- Lease Commitments -- The Company finances its use of certain facilities and equipment under committed lease arrangements provided by various institutions. Since the terms of these arrangements meet the accounting definition of operating lease arrangements, the aggregate sum of future minimum lease payments is not reflected on the condensed consolidated balance sheet. At September 30, 2006, future minimum lease payments under these arrangements, the majority of which related to the long-term real estate leases, totaled $93.8. Indemnities, Commitments and Guarantees -- During its normal course of business, the Company has made certain indemnities, commitments and guarantees under which it may be required to make payments in relation to certain transactions. These indemnities include non-infringement of patents and intellectual property indemnities to the Company's customers in connection with the delivery, design, manufacture and sale of its products, indemnities to various lessors in connection with facility leases for certain claims arising from such facility or lease, and indemnities to other parties to certain acquisition agreements. The duration of these indemnities, commitments and guarantees varies, and in certain cases is indefinite. The Company believes that substantially all of these indemnities, commitments and guarantees provide for limitations on the maximum potential future payments the Company could be obligated to make. However, the Company is unable to estimate the maximum amount of liability related to its indemnities, commitments and guarantees because such liabilities are contingent upon the occurrence of events which are not reasonably determinable. Management believes that any liability for these indemnities, commitments and guarantees would not be material to the accompanying condensed consolidated financial statements. Accordingly, no significant amounts have been accrued for indemnities, commitments and guarantees. Product Warranty Costs - Estimated costs related to product warranties are accrued at the time products are sold. In estimating its future warranty obligations, the Company considers various relevant factors, including the Company's stated warranty policies and practices, the historical frequency of claims and the cost to replace or repair its products under warranty. The following table provides a reconciliation of the activity related to the Company's accrued warranty expense:
NINE MONTHS ENDED --------------------------------------------- September 30, September 30, 2006 2005 -------------------- -------------------- Beginning balance $ 14.3 $ 13.2 Accruals for warranties issued during the period 9.6 6.7 Settlements made (6.7) (6.2) -------------------- -------------------- Ending balance $ 17.2 $ 13.7 ==================== ====================
8 Note 7. Accounting for Stock-Based Compensation --------------------------------------- Effective January 1, 2006, the Company began accounting for share-based compensation arrangements in accordance with the provisions of Financial Accounting Standards Board (FASB) Statement No. 123(R), "Share-Based Payment" (SFAS 123(R)). Under SFAS 123(R), share-based compensation cost is measured on the date of grant, based on the fair value of the award, and is recognized over the requisite service period. The Company uses the Black-Scholes valuation method to measure fair value. The Black-Scholes valuation calculation requires the Company to estimate key assumptions such as expected term, volatility and forfeiture rates to determine the award's fair value. The estimate of these key assumptions is based on historical information and judgment regarding market factors and trends. The expected term of options granted is derived from historical data on employee exercise and post-vesting employment termination behavior. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve, with expected maturities similar to the expected term of the option, in effect at the time of grant. Expected volatility is based on both the implied volatilities from traded options on the Company's stock and historical volatility on the Company's stock measured over the expected life of the option. The Company previously applied Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees," and related Interpretations and provided the required pro forma disclosures of SFAS No. 123, "Accounting for Stock-Based Compensation" (SFAS 123). For options granted prior to January 1, 2006 and valued in accordance with SFAS 123, the expected volatility used to estimate the fair value of the options was based solely on the historical volatility on the Company's stock. The Company used the graded vested method for expense attribution and recognized options forfeitures as they occurred as allowed by SFAS 123. The Company adopted the fair value recognition provisions of SFAS 123(R) using the modified prospective transition method. Under the modified prospective transition method, prior periods are not restated for the effects of adopting SFAS 123(R). Commencing with the first quarter of fiscal year 2006, compensation cost includes all share-based payments granted subsequent to January 1, 2006, based on the grant date fair value estimated in accordance with the provisions of SFAS 123(R). No compensation cost has been recognized for share-based payments granted prior to January 1, 2006 as the vesting of all remaining unvested awards were accelerated in December 2005. The Black-Scholes option valuation model requires the input of highly subjective assumptions, including the expected life of the stock-based award and stock price volatility. The assumptions utilized represent management's best estimates, but these estimates involve inherent uncertainties and the application of management's judgment. As a result, if other assumptions had been used, the Company's recorded and pro forma stock-based compensation expense could have been materially different from that depicted below. In accordance with SFAS 123(R), the Company is required to estimate the expected forfeiture rate at the grant date and recognize expense for those shares expected to vest. The expected forfeiture rate is periodically updated to reflect actual forfeitures. No options were granted during the nine months ended September 30, 2006 and 49,500 options were granted during the nine months ended September 30, 2005. The following table illustrates the effects of options and employee purchase rights granted prior to September 30, 2005 on net income and earnings per share if the Company had applied the fair value recognition provisions of SFAS 123(R) in the first nine months of fiscal 2005.
THREE MONTHS ENDED NINE MONTHS ENDED September 30, 2005 September 30, 2005 ------------------ ------------------ As reported Net earnings $10.0 $ 22.5 Deduct: Share-based employee compensation, fair value method, net of related tax effects (1.6) (5.0) ------- -------- Pro forma net earnings $8.4 $17.5 ======= ======== Basic and diluted net earnings per share: Net earnings Per share - basic 9 As reported $ 0.17 $ 0.39 Pro forma $ 0.14 $ 0.30 Net earnings Per share - diluted As reported $ 0.16 $ 0.37 Pro forma $ 0.14 $ 0.29
Assumptions used to estimate the value of the options are as follows:
THREE MONTHS ENDED NINE MONTHS ENDED September 30, 2005 September 30, 2005 ------------------ ------------------ Options: Risk-free interest rate 4.0% 3.7% Dividend yield 0% 0% Volatility 67% 68% Expected life (years) 2.2 2.1
The Company has established a qualified Employee Stock Purchase Plan. Prior to January 1, 2006, the terms of this plan allowed for qualified employees (as defined) to participate in the purchase of designated shares of the Company's common stock at a price equal to the lower of 85% of the closing price at the beginning or end of each semi-annual stock purchase period. Subsequent to January 1, 2006, the purchase price is equal to 85% of the closing price at the end of each semi-annual stock purchase period. The value of employee purchase rights granted pursuant to the Company's Employee Stock Purchase Plan during the nine months ended September 30, 2005 was $5.74 per share. The fair value of those purchase rights represents the difference between the closing price of the Company's shares on June 30, 2005 and the purchase price of the shares. The following tables set forth options granted, exercised, forfeited and outstanding during the nine months ended September 30, 2006:
Options Weighted Average (in thousands) Price Per Share -------------- --------------- Outstanding at January 1, 2006 4,806 $8.83 Options granted -- -- Options exercised (3,250) $7.21 Options forfeited ( 6) $8.38 ------ Outstanding at September 30, 2006 1,550 $12.57 ====== Exercisable at September 30, 2006 1,550 $12.57 ======
Options Outstanding at September 30, 2006 -----------------------------------------
Weighted Average Options Exercise Price Weighted Average Range of Outstanding Outstanding and Remaining Exercise Price and Exercisable Exercisable Contractual Life -------------- --------------- ----------- ---------------- (in thousands) (years) $ 4.08 - $5.59 344 $ 5.12 6.72 6.59 - 9.70 238 7.32 5.45 10.42 - 10.42 363 10.42 8.15 10.59 - 20.81 358 15.58 4.73 21.50 - 30.25 247 26.82 3.49
10 The Company issues new shares of common stock upon exercise of stock options. During the nine months ended September 30, 2006, 3.3 million stock options were exercised with an aggregate intrinsic value of $56.5 determined as of the date of option exercise. The aggregate intrinsic value of outstanding options as of September 30, 2006 was $14.6. Prior to the adoption of SFAS 123(R), the Company presented all tax benefits resulting from the exercise of stock options as operating cash flows in the Statement of Cash Flows. SFAS 123(R) requires the cash flows resulting from the tax benefits from tax deductions in excess of deferred tax asset (hypothetical and actual) recorded for stock compensation costs (excess tax benefits) to be classified as financing cash flows. During the quarter ended September 30, 2006 the Company granted 510,460 shares of restricted stock with a fair market value at the date of grant date of $12.6. An additional grant of 7,960 shares was made on March 31, 2006, with a fair market value at the date of grant of $0.2. Compensation cost is being recognized on a straight-line basis over the four year cliff vesting period of the restricted shares and all shares are expected to vest. Share based compensation of $0.5 was recognized during the quarter ended September 30, 2006 related to these share grants. Unrecognized compensation related to these grants was $12.3 at September 30, 2006. Note 8. Segment Reporting ----------------- The Company is organized based on the products and services it offers. Following the acquisitions described in Note 2, the Company expanded its reportable segments from three reporting segments to five reporting segments: Seating Products, Interior Systems, Engineering Services, Distribution and Business Jet. Previously, the Company included the Seating Products, Interior Systems and Engineering Services segments in its Commercial Aircraft segment. The following prior period information has been restated to conform to the current period presentation. The Company evaluates segment performance based on segment operating earnings or loss. Each segment reports its results of operations and makes requests for capital expenditures and acquisition funding to the Company's chief operational decision-making group. This group is presently comprised of the Chairman and Chief Executive Officer, the President and Chief Operating Officer, and the Senior Vice President of Administration and Chief Financial Officer. Each operating segment has separate management teams and infrastructures dedicated to providing a full range of products and services to their customers. The following table presents net sales and operating earnings by business segment:
------------------------------------ -------------------------------------- THREE MONTHS ENDED NINE MONTHS ENDED ------------------------------------ -------------------------------------- September 30, September 30, September 30, September 30, 2006 2005 2006 2005 ------------------------------------ -------------------------------------- Net sales Seating Products $98.8 $74.4 $283.0 $207.6 Interior Systems 72.4 51.2 192.2 153.8 Engineering Services 17.7 15.0 49.5 43.2 Distribution 64.3 43.0 173.0 131.0 Business Jet 34.7 33.5 108.9 85.6 ------------------------------------ -------------------------------------- $287.9 $217.1 $806.6 $621.2 ==================================== ====================================== Operating Earnings Seating Products $11.3 $7.6 $26.8 $16.3 Interior Systems 13.8 8.3 36.1 26.0 Engineering Services 0.7 (1.9) 0.1 (5.1) Distribution 12.9 8.7 36.5 26.5 Business Jet 0.2 2.7 5.8 5.7 ------------------------------------ -------------------------------------- $38.9 $25.4 $105.3 $69.4 ==================================== ====================================== Interest Expense 9.7 14.8 27.9 44.9 Loss on Debt Extinguishment 17.0 -- 18.8 -- ------------------------------------ -------------------------------------- Earnings Before Income Taxes $12.2 $10.6 $58.6 $24.5 ==================================== ======================================
11 The following table presents capital expenditures by business segment:
------------------------------------ -------------------------------------- THREE MONTHS ENDED NINE MONTHS ENDED ------------------------------------ -------------------------------------- September 30, September 30, September 30, September 30, 2006 2005 2006 2005 ------------------------------------ -------------------------------------- Capital Expenditures Seating Products $1.8 $0.7 $5.7 $2.6 Interior Systems 1.3 0.9 3.8 2.5 Engineering Services 0.3 0.3 1.0 0.7 Distribution 0.6 0.8 1.9 1.9 Business Jet 1.1 1.1 3.5 3.2 ------------------------------------ -------------------------------------- $5.1 $3.8 $15.9 $10.9 ==================================== ======================================
The following tables present total assets by business segment: -------------------------------------- September 30, December 31, 2006 2005 -------------------------------------- Total Assets Seating Products $230.7 $223.0 Interior Systems 380.5 326.7 Engineering Services 117.1 169.1 Distribution 494.3 421.0 Business Jet 241.8 286.7 -------------------------------------- $1,464.4 $1,426.5 ====================================== Corporate assets (including cash and cash equivalents) of $201.3 and $462.1 at September 30, 2006 and December 31, 2005, respectively, have been allocated to the above segments based on each segment's respective percentage of total assets. Note 9. Net Earnings Per Common Share ----------------------------- Basic net earnings per common share is computed using the weighted average common shares outstanding during the period. Diluted net earnings per common share is computed by using the average share price during the period when calculating the dilutive effect of stock options and restricted shares. Shares outstanding for the periods presented were as follows:
THREE MONTHS ENDED NINE MONTHS ENDED ---------------------------------- ---------------------------------- September 30, September 30, September 30, September 30, 2006 2005 2006 2005 ---------------------------------- ---------------------------------- Net earnings $31.4 $10.0 $63.9 $22.5 ===== ===== ===== ===== Basic weighted average common shares 77.7 58.2 76.8 57.4 (in millions) Effect of dilutive stock options and stock purchases under the employee stock .6 3.0 1.0 2.9 purchase plan (in millions) Effect of restricted shares issued (in millions) .3 -- .1 -- ----- ----- ----- ----- Diluted weighted average common shares (in millions) 78.6 61.2 77.9 60.3 ===== ===== ===== ===== Basic net earnings per share $0.40 $0.17 $0.83 $0.39 ===== ===== ===== ===== Diluted net earnings per share $0.40 $0.16 $0.82 $0.37 ===== ===== ===== =====
12 Note 10. Comprehensive Earnings ---------------------- Comprehensive earnings is defined as all changes in a company's net assets except changes resulting from transactions with shareholders. It differs from net earnings in that certain items currently recorded to equity would be a part of comprehensive earnings. The following table sets forth the computation of comprehensive earnings for the periods presented:
THREE MONTHS ENDED NINE MONTHS ENDED ---------------------------------- ---------------------------------- September 30, September 30, September 30, September 30, 2006 2005 2006 2005 ---------------------------------- ---------------------------------- Net earnings $31.4 $10.0 $63.9 $22.5 Other comprehensive earnings: Foreign exchange translation adjustment (0.1) (1.5) 7.9 (11.2) ----- ---- ----- ----- Comprehensive earnings $31.3 $8.5 $71.8 $11.3 ===== ==== ===== =====
Note 11. Recent Accounting Pronouncements -------------------------------- In February 2006, the FASB issued SFAS No. 155, "Accounting for Certain Hybrid Financial Instruments - An Amendment of FASB Statements No. 133 and 140" (SFAS 155). SFAS 155 is effective for all financial instruments acquired or issued after the beginning of an entity's first fiscal year that begins after September 15, 2006. The adoption of SFAS 155 is not expected to have a material impact on the Company's financial statements. In July 2006, the FASB issued FASB Interpretation No. 48, "Accounting for Uncertainty in Income Taxes" (FIN 48) which clarifies the accounting for uncertainty in income taxes recognized in the financial statements in accordance with FASB Statement No. 109, "Accounting for Income Taxes". This pronouncement recommends a recognition threshold and measurement process for recording in the financial statements uncertain tax positions taken or expected to be taken in the Company's tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods and disclosure requirements for uncertain tax positions. The accounting provisions of FIN 48 will be effective for the Company beginning January 1, 2007. The Company is in the process of evaluating the effect, if any, the adoption of FIN 48 will have on its financial statements. In September 2006, the FASB issued SFAS No. 157 "Fair Value Measurements" (SFAS 157). SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007. The adoption of SFAS 157 is not expected to have a material impact on the Company's financial statements. In September 2006, the FASB issued SFAS No. 158, "Employers' Accounting for Defined Benefit Pension and Other Post Retirement Plans "(SFAS 158). SFAS 158 is effective for the end of the fiscal year ending after December 15, 2006. The adoption of SFAS 158 is not expected to have a material impact on the Company's financial statements. In September 2006, the SEC issued SAB No. 108, "Guidance re: the Use of a Cumulative Effect Adjustment to Correct Immaterial Misstatements" (SAB 108). Registrants are required to apply the provisions of SAB 108 no later than the annual financial statements for their first fiscal year ending after November 15, 2006. The application of SAB 108 is not expected to have a material impact on the Company's financial statements. [Remainder of page intentionally left blank] 13 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 September 30, 2006, as compared to our results of operations for the three months ended September 30, 2005. The discussion and analysis then addresses our results of operations for the nine months ended September 30, 2006, as compared to our results of operations for the nine months ended September 30, 2005. In addition, the discussion and analysis addresses our liquidity, financial condition and other matters for these periods. Based on our experience in the industry, we believe that we are the world's largest manufacturer of cabin interior products for commercial aircraft and for business jets and a leading aftermarket distributor of aerospace fasteners. We sell our manufactured products directly to virtually all of the world's major airlines and airframe manufacturers and a wide variety of business jet customers. In addition, based on our experience, we believe that we have achieved leading global market positions in each of our major product categories, which include: o commercial aircraft seats, including an extensive line of first class, business class, tourist class and regional aircraft seats; o 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; o both chemical and gaseous aircraft oxygen delivery, distribution and storage systems and protective breathing equipment; o business jet and general aviation interior products, including an extensive line of executive aircraft seats, direct and indirect overhead lighting systems, oxygen delivery systems, air valve systems, high-end furniture and cabinetry; and o a broad line of aerospace fasteners, covering over 140,000 stock keeping units (SKUs). We also design, develop and manufacture a broad range of cabin interior structures and provide comprehensive aircraft cabin interior reconfiguration and passenger-to-freighter conversion engineering services and component kits. We conduct our operations through strategic business units that have been aggregated under five reportable segments: Seating Products, Interior Systems, Engineering Services, Distribution and Business Jet. Net sales by reportable segment for the three and nine month periods ended September 30, 2006 and September 30, 2005 were as follows:
---------------------------------------- --------------------------------------- THREE MONTHS ENDED NINE MONTHS ENDED ---------------------------------------- --------------------------------------- September 30, September 30, September 30, September 30, 2006 2005 2006 2005 ---------------------------------------- --------------------------------------- Net % of Net Net % of Net Net % of Net Net % of Net Sales Sales Sales Sales Sales Sales Sales Sales ---------------------------------------- --------------------------------------- Seating Products $98.8 34.3% $74.4 34.3% $283.0 35.1% $207.6 33.4% Interior Systems 72.4 25.2% 51.2 23.6% 192.2 23.8% 153.8 24.8% Engineering 17.7 6.1% 15.0 6.9% 49.5 6.1% 43.2 7.0% Services Distribution 64.3 22.3% 43.0 19.8% 173.0 21.5% 131.0 21.0% Business Jet 34.7 12.1% 33.5 15.4% 108.9 13.5% 85.6 13.8% ---------------------------------------- --------------------------------------- $287.9 100.0% $217.1 100.0% $806.6 100.0% $621.2 100.0% ======================================== =======================================
14 Net sales by domestic and foreign operations for the three and nine month periods ended September 30, 2006 and September 30, 2005 were as follows:
THREE MONTHS ENDED NINE MONTHS ENDED ---------------------------------------- ------------------------------------ September 30, September 30, September 30, September 30, 2006 2005 2006 2005 ---------------------------------------- ------------------------------------ Domestic $190.2 $152.2 $527.9 $436.5 Foreign 97.7 64.9 278.7 184.7 ---------------------------------------- ------------------------------------ Total $287.9 $217.1 $806.6 $621.2 ======================================== ====================================
Net sales by geographic area (based on destination) for the three and nine month periods ended September 30, 2006 and September 30, 2005 were as follows:
THREE MONTHS ENDED NINE MONTHS ENDED ------------------------------------------ ------------------------------------------------ September 30, 2006 September 30, 2005 September 30, 2006 September 30, 2005 ------------------------------------------ ------------------------------------------------ Net % of Net % of Net % of Net % of Sales Net Sales Sales Net Sales Sales Net Sales Sales Net Sales ------------------------------------------ ------------------------------------------------ United States $126.4 43.9% $104.1 48.0% $342.7 42.5% $308.3 49.6% Europe 72.6 25.2% 45.6 21.0% 225.9 28.0% 142.9 23.0% Asia 59.2 20.6% 57.4 26.4% 172.2 21.3% 138.9 22.4% Rest of World 29.7 10.3% 10.0 4.6% 65.8 8.2% 31.1 5.0% ------------------------------------------ ------------------------------------------------ $287.9 100.0% $217.1 100.0% $806.6 100.0% $621.2 100.0% ========================================== ================================================
Between 1989 and 2001, we substantially expanded the size, scope and nature of our business through 24 acquisitions, for an aggregate purchase price of approximately $1 billion. During the 2001 through June 2006 period, we did not make any significant acquisitions. Until the third quarter of 2006, essentially all of our revenue growth since 2001 had been organic. During the third quarter of 2006, we acquired Draeger GmbH ("Draeger") and New York Fasteners Corp. ("New York Fasteners") for, in the aggregate, approximately $145 million in cash. Draeger manufactures components and integrated systems to supply oxygen systems for both civil and military aircraft, with well-established strengths in both chemical and gaseous oxygen systems. Draeger is the prime contractor for oxygen systems for the Eurofighter Typhoon, and provides maintenance and repair services for Germany's Air Force in-service oxygen systems. The integration of Draeger with our existing oxygen business will allow us to offer one of the broadest oxygen system product lines in the industry. New York Fasteners is a distributor of a wide variety of aerospace fasteners and hardware primarily to the military sector. The integration of New York Fasteners into our distribution segment is expected to significantly expand our overall penetration into the military sector. New product development is a strategic initiative for our Company. Our customers regularly request that we engage in new product development and enhancement activities. We believe that these activities will protect and enhance our leadership position. We believe our investments in research and development over the past several years have been the driving force behind our ongoing market share gains. Research, development and engineering spending have been approximately 7% - 8% of sales for the past several years and are expected to remain at approximately that level for the next year. We also believe in providing our businesses with the tools required to remain competitive. In that regard, we have invested, and will continue to invest, in property and equipment that enhances our productivity. Over the past three years, annual capital expenditures ranged from $11 - $17. Taking into consideration our record backlog, targeted capacity utilization levels, recent capital expenditure investments and current industry conditions, we anticipate increased capital expenditures of approximately $28 over the next twelve months. International airline competition for higher margin international travelers and improving worldwide industry conditions have resulted in increasing demand for our products and services, as demonstrated by bookings of approximately $360 during the third quarter of fiscal 2006. At September 30, 2006, backlog was in excess of $1,600, which represents an increase of approximately 60%, compared to our backlog at September 30, 2005. We expect continuing strong demand for the next several years as industry conditions continue to improve. As worldwide air traffic grows and airlines add capacity and upgrade the cabin interiors of existing active aircraft, we expect our aftermarket 15 activities to continue to grow. According to IATA, during the year ended December 31, 2005, the global airline industry expanded airline capacity by approximately 6% in response to an approximately 8% increase in global air traffic. In addition, as a result of the severity of the post-September 11, 2001 downturn, many carriers, particularly in the United States, have deferred interior maintenance and upgrades. The U.S. carriers have just begun the process of upgrading their international fleets and we believe there are substantial additional growth opportunities with domestic airlines for retrofit programs, particularly for the twin-aisle aircraft that service international routes. [Remainder of page intentionally left blank] 16 RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2006, AS COMPARED TO THE RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2005 (Dollars In Millions, Except Per Share Data) Sales for each of our segments are set forth in the following table:
NET SALES (dollars in millions) --------------------------------------------------------------------------------------- Three Months Ended September 30, --------------------------------------------------------------------------------------- Percent 2006 2005 Change Change --------------------------------------------------------------------------------------- Seating products $98.8 $74.4 $24.4 32.8% Interior systems 72.4 51.2 21.2 41.4% Engineering services 17.7 15.0 2.7 18.0% Distribution 64.3 43.0 21.3 49.5% Business jet 34.7 33.5 1.2 3.6% --------------------------------------------------------------------------------------- Total $287.9 $217.1 $70.8 32.6%
Net sales for the three months ended September 30, 2006 were $287.9, an increase of $70.8 or 32.6% as compared to the same period in the prior year. The increase in sales volume for the seating products, interior systems and engineering services segments was driven by a higher level of retrofit activity, demand created by new aircraft deliveries and market share gains. Interior systems segment's revenue growth rate, exclusive of the impact of the Draeger acquisition, was 22.7%. The distribution segment delivered revenue growth of 49.5% in the third quarter of 2006, primarily due to a broad-based increase in aftermarket demand for aerospace fasteners and continued market share gains. Distribution segment's revenue growth rate, exclusive of the impact of the New York Fasteners acquisition, was 35.5%. Business jet segment revenues increased by 3.6% in the third quarter of 2006, reflecting strong business jet deliveries, which was offset by a lower level of super first class revenues due primarily to delivery delays of Airbus' A380. The recent acquisitions of Draeger (interior systems) and New York Fasteners (distribution) accounted for approximately $16 of the consolidated revenue growth; revenue growth exclusive of these acquisitions during the current quarter was approximately 25.5%. Gross profit for the third quarter of 2006 of $100.8, or 35.0% of sales, increased by $24.2 or 31.6%, as compared to the same period last year. Third quarter 2006 gross margin decreased by 30 basis points as compared to the same period of the prior year. The decrease in gross margin was primarily due to the very poor absorption of overhead costs due to delays in Airbus A380 deliveries, which negatively impacted gross profit and gross margin by approximately $2.3 and 80 basis points, respectively. Gross margin for the current three-month period, exclusive of the Draeger and New York Fastener acquisitions, was 35.2%. Selling, general and administrative expenses in the third quarter of 2006 were $39.7, or 13.8% of sales, versus $34.0, or 15.7% of sales, in the same period in the prior year reflecting the higher level of selling, marketing and product support costs ($2.0), the recent acquisitions of Draeger and New York Fasteners ($1.6) and increased compensation, benefits and commissions ($2.6) associated with the 32.6% increase in revenues and the over 60% increase in backlog from September 30, 2005. Selling, general and administrative expenses as a percentage of sales decreased by 190 basis points reflecting the operating leverage in our business. Research, development and engineering expenses for the current quarter were $22.2, or 7.7% of sales, versus $17.2 or 7.9% of sales in the same period in the prior year and reflect the higher level of spending associated with customer specific engineering, as well as new product development activities (primarily at the seating products and interior systems segments). During the three months ended September 30, 17 2006 we applied for fourteen U.S. and foreign patents compared to nine during the same period in the prior year. Operating earnings for the third quarter of 2006 of $38.9 increased by $13.5, or 53.2%, as compared to the same period last year. The third quarter operating margin of 13.5% expanded by 180 basis points. The substantial increase in operating earnings was driven primarily by continued revenue growth ($70.8) earnings growth ($13.5) and margin expansion in the seating products, interior systems, engineering services and distribution segments. The consolidated 180 basis point expansion in operating margin was achieved despite very poor absorption of overhead costs due to delays in Airbus A380 deliveries, which negatively impacted business jet segment's operating results by approximately $2.3 and caused an 80 basis point reduction of consolidated operating margin. The following is a summary of operating earnings performance by segment:
OPERATING EARNINGS --------------------------------------------------------------------------------------- Three Months Ended September 30, ($ in millions) --------------------------------------------------------------------------------------- Percent 2006 2005 Change Change --------------------------------------------------------------------------------------- Seating products $11.3 $7.6 $3.7 48.7% Interior systems 13.8 8.3 5.5 66.3% Engineering services 0.7 (1.9) 2.6 NM Distribution 12.9 8.7 4.2 48.3% Business jet 0.2 2.7 (2.5) NM --------------------------------------------------------------------------------------- Total $38.9 $25.4 $13.5 53.2%
Operating earnings at the seating products segment of $11.3 in the third quarter of 2006 increased by $3.7, or 48.7%, versus the same period in the prior year. The seating products operating margin for the quarter expanded to 11.4%, a 120 basis point improvement over the same period in the prior year. Operating earnings at the interior systems segment of $13.8 in the third quarter of 2006 were $5.5, or 66.3%, greater than the same period in the prior year. The margin expansion in the seating products and interior systems segments was primarily the result of ongoing manufacturing efficiencies and operating leverage at the higher sales level. The engineering services segment generated operating earnings of $0.7, an improvement of $2.6 versus the same period in the prior year, reflecting the somewhat higher sales volume ($2.7), ongoing manufacturing efficiencies and product mix. The distribution segment generated record revenues of $64.3 in the third quarter of 2006, an increase of $21.3, or 49.5%, versus the same period in the prior year. Distribution segment operating earnings in the third quarter of 2006 were $12.9, which was 48.3% greater than the same period last year and represented a 20.1% operating margin. The business jet segment generated third quarter revenues of $34.7, an increase of 3.6% as compared to the third quarter of 2005. Operating earnings at the business jet segment during the quarter of $0.2 were $2.5 less than operating earnings in the same period last year. The lower level of operating earnings at the business jet segment resulted from very poor absorption of overhead costs due to delays in Airbus A380 deliveries, which negatively impacted the segment's operating results by approximately $2.3. Interest expense for the third quarter of 2006 was $9.7, $5.1 lower than interest expense recorded in the same period in the prior year, primarily due to the January 2006 redemption of the $250 of aggregate principal amount of senior subordinated notes due 2008. We also repurchased approximately $175.0 of senior notes and incurred $17.0 of debt prepayment costs during the three months ended September 30, 2006. Earnings before income tax benefit of $12.2 increased by $1.6, as compared to the prior year's pre-tax earnings of $10.6. The increase was due to the $13.5, or 53.2% increase in operating earnings and the $5.1 decrease in interest expense, offset by debt prepayment costs of $17.0. Exclusive of debt 18 prepayment charge earnings before income taxes would have been $29.2, an approximate tripling of pre-tax earnings as compared to the prior year. We recognized a significant portion of our U.K. deferred tax asset during the third quarter of 2006, resulting in a tax benefit of approximately $22.9. The deferred tax asset was recorded as a result of the improving financial performance and outlook for our U.K. operations. The income tax benefit for the current quarter was $19.2, reflecting income tax expense of $3.7 based upon 30% of earnings before income taxes, all of which was offset by the recognition of the deferred tax asset described above of $22.9. The 2006 effective tax rate of 30% differs from our expected worldwide tax rate of approximately 35% and reflects the financial statement benefit arising from the realization of our U.K. net operating loss carryforward during the third quarter of 2006. The 2005 effective tax rate of 5.7% differs from our expected worldwide tax rate of approximately 35% and reflects, for financial reporting purposes, the realization of the entire US and a portion of the foreign net operating loss carryforwards during 2005. At September 30, 2006, the Company had net operating loss carryforwards in the United States and United Kingdom of approximately $261 and $72, respectively, available to offset future taxable income. Net earnings for the third quarter of 2006 were $31.4 or $0.40 per diluted share based on approximately 78.6 fully diluted shares, versus net earnings of $10.0, or $0.16 per diluted share based on 61.2 diluted shares for the same period in the prior year. [Remainder of page intentionally left blank] 19 RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2006, AS COMPARED TO THE RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2005 (Dollars In Millions, Except Per Share Data) Sales for each of our segments are set forth in the following table:
NET SALES --------------------------------------------------------------------------------------- Nine Months Ended September 30, ($ in millions) --------------------------------------------------------------------------------------- Percent 2006 2005 Change Change --------------------------------------------------------------------------------------- Seating products $283.0 $207.6 $75.4 36.3% Interior systems 192.2 153.8 38.4 25.0% Engineering services 49.5 43.2 6.3 14.6% Distribution 173.0 131.0 42.0 32.1% Business jet 108.9 85.6 23.3 27.2% --------------------------------------------------------------------------------------- Total $806.6 $621.2 $185.4 29.8%
Net sales for the nine months ended September 30, 2006 were $806.6, an increase of $185.4, or 29.8%, as compared to the same period in the prior year. The increase in sales volume for the seating products, interior systems, and engineering services segments was driven by a higher level of retrofit activity, demand created by new aircraft deliveries, and market share gains. Interior systems segment's revenue growth rate exclusive of the impact of the Draeger acquisition was 18.4%. The distribution segment delivered revenue growth of 32.1% in 2006, primarily due to a broad-based increase in aftermarket demand for aerospace fasteners and continued market share gains. Distribution segment's revenue growth rate exclusive of the impact of the New York Fasteners acquisition was 27.2%. Business jet segment revenues increased by 27.2% in 2006, reflecting strong business jet deliveries, offset by a lower level of super first class revenues due primarily to A380 delivery delays. The recent acquisitions of Draeger (interior systems) and New York Fasteners (distribution) accounted for approximately $16 of the consolidated revenue growth; revenue growth during the nine months, exclusive of these acquisitions was approximately 27.3%. Gross profit during 2006 of $283.7, or 35.2%, of sales, increased by $66.3 or 30.5%, as compared to the same period last year. The 2006 gross margin increased by 20 basis points as compared to the same period of the prior year. The gross margin expansion was negatively impacted by very poor absorption of overhead costs due to delays in Airbus A380 deliveries, which reduced gross profit and gross margin by approximately $2.3 and 30 basis points, respectively. Selling, general and administrative expenses in 2006 was $116.1, or 14.4% of sales, versus $97.8 or 15.7% of sales in the same period in the prior year reflecting the higher level of selling, marketing and product support costs ($3.2), the recent acquisitions of Draeger and New York Fasteners ($1.6), and higher salaries, benefits, incentive compensation and commissions $(10.0) associated with the 29.8% increase in revenues and the over 60% increase in backlog from September 30, 2005. Selling, general and administrative expense for the nine months ended September 30, 2005 were reduced by $1.8 of net reimbursed legal fees in connection with the resolution of two legal matters. Selling, general and administrative expenses as a percentage of sales decreased by 130 basis points, reflecting the operating leverage in our business. Research, development and engineering expenses for the nine months were $62.3, or 7.7% of sales, versus $50.2 or 8.1% of sales in the same period in the prior year and reflect the higher level of spending associated with customer specific engineering, and new product development activities, (primarily at the seating products and interior systems segments). During the nine months ended September 30, 2006 we applied for fifty two U.S. and foreign patents versus seventeen during the same period in the prior year. 20 Operating earnings of $105.3 for the first nine months of 2006 were $35.9 or 51.7% greater than the same period last year, due to both the 29.8% revenue growth and a 190 basis point expansion in operating margin to 13.1% of sales. The substantial increase in operating earnings was driven primarily by continued revenue growth ($185.4), earnings growth ($35.9) and margin expansion in the seating products, interior systems, engineering services and business jet segments. The consolidated 190 basis point expansion in operating margin was in spite of very poor absorption of overhead costs due to delays in the A380 deliveries, which negatively impacted business jet segment's operating results by approximately $2.3 and caused a 25 basis point reduction of operating earnings. The following is a summary of operating earnings performance by segment:
OPERATING EARNINGS --------------------------------------------------------------------------------------- Nine Months Ended September 30, ($ in millions) --------------------------------------------------------------------------------------- Percent 2006 2005 Change Change --------------------------------------------------------------------------------------- Seating products $26.8 $16.3 $10.5 64.4% Interior systems 36.1 26.0 10.1 38.8% Engineering services 0.1 (5.1) 5.2 NM Distribution 36.5 26.5 10.0 37.7% Business jet 5.8 5.7 0.1 1.8% --------------------------------------------------------------------------------------- Total $105.3 $69.4 $35.9 51.7%
For the nine months ended September 30, 2006, seating products operating earnings of $26.8 increased by $10.5, or 64.4% as compared to the same period in the prior year, due to both a 36.3% increase in revenue and a 160 basis point expansion in operating margin to 9.5% of sales. Operating earnings at the interior systems segment of $36.1 increased by $10.1, or 38.8%, as compared to the same period in the prior year, due to both a 25.0% increase in revenue and a 190 basis point expansion in operating margin to 18.8% of sales. The margin expansion at both the seating products and interior systems segments was primarily due to ongoing manufacturing efficiencies and operating leverage at the higher sales volume. The operating results at the engineering services segment improved by $5.2 as compared to the same period in the prior year due to higher sales volume, better product mix and operational efficiencies. The distribution segment's operating earnings of $36.5 during the nine months ended September 30, 2006 increased by $10.0 or 37.7% on a 32.1% increase in sales, reflecting further operating efficiencies at the higher sales level. The operating margin at the distribution segment, exclusive of the New York Fastener acquisition, was 21.6%. The business jet segment's operating earnings were $5.8 in the current nine-month period, essentially unchanged from the prior year. Interest expense for the first nine months of 2006 was $27.9 and was $17.0 lower than interest expense recorded in the same period in the prior year, primarily due to the January 2006 redemption of our $250 of senior subordinated notes due 2008. We also repurchased approximately $175.0 of senior notes and incurred $18.8 of debt prepayment costs during the nine months ended September 30, 2006. Earnings before income taxes were $58.6, which reflected $18.8 of debt prepayment costs, compared to pre-tax earnings of $24.5 for the prior year. The large increase was due to the $35.9 or 51.7% increase in operating earnings and the $17.0 decrease in interest expense which was partially offset by $18.8 of debt prepayment costs. We recognized a significant portion of our U.K. deferred tax asset during 2006, resulting in a tax benefit of approximately $22.9. The deferred tax asset was recorded as a result of the improving financial performance and outlook for our U.K. operations. Income tax benefit for the current year was $5.3, reflecting income tax expenses of $17.6, based upon 30% of earnings before income taxes, all of which was offset by the recognition of our deferred tax asset described above of $22.9. The 2006 effective tax rate of 30% differs from our expected worldwide tax rate of approximately 35% and reflects the financial statement benefit arising from the realization of our U.K. net operating loss carryforward as actually 21 realized during the period. The 2005 effective tax rate of 4.7% differs from our expected worldwide tax rate of approximately 35% and reflects, for financial reporting purposes, the realization of both the US and U.K. net operating loss carryforward during 2005. At September 30, 2006 the Company had net operating loss carryforwards in the United States and United Kingdom of approximately $261 and $72, respectively, available to offset future taxable income. Net earnings for the nine months ended September 30, 2006 were $63.9, or $0.82 per diluted share based on approximately 77.9 million fully diluted shares, versus net earnings of $22.5, or $0.37 per diluted share based on 60.3 million diluted shares for the same period in the prior year. [Remainder of page intentionally left blank] 22 LIQUIDITY AND CAPITAL RESOURCES Current Financial Condition Our liquidity requirements consist of working capital needs, ongoing capital expenditures and payments of interest and principal on our indebtedness. Our primary requirements for working capital are directly related to the level of our operations. Working capital consists primarily of accounts receivable and inventories, which fluctuate with the sales of our products. Our working capital was $425.1 as of September 30, 2006, as compared to $573.4 as of December 31, 2005. The decrease in working capital from December 31, 2005 to September 30, 2006 was primarily due the redemption of the $250.0 aggregate principal amount of 8% subordinated notes in January 2006 with the net proceeds of an issuance of common stock in December 2005. Other factors impacting the change in working capital include an increased level of accounts receivable ($25.4) related to our recent revenue growth of 30%, a $149.6 increase in inventories, offset by a $63.1 increase in accounts payable. Nearly $75.0 of the inventory growth was due to investments to provide a broader range of products to a rapidly expanding customer base in our distribution business. The balance of the inventory growth was due to our 30% revenue growth, the outlook for future revenue growth, the recent Draeger acquisition as well as to support the 60% increase in our backlog. At September 30, 2006, there was $300.0 in term debt outstanding under the Senior Secured Credit Facility. As more fully described below, during the third quarter of 2006, in connection with the acquisitions of Draeger and New York Fasteners, we completed a tender offer for our 8 1/2% senior notes, established a new bank credit facility and amended our existing Amended Bank Credit Facility. There are no debt principal payments due on the remaining $.06 of 8 1/2% senior notes until 2010 and the $250.0 aggregate principal amount of 8 7/8% senior subordinated notes until 2011. Cash Flows At September 30, 2006, our cash and revolving credit facility available under our Senior Secured Credit Facility was $193.7 compared to $394.4 at December 31, 2005. Cash generated by operating activities was $21.8 for the nine months ended September 30, 2006, as compared to $9.5 in the same period in the prior year. The primary sources of cash during the nine months ended September 30, 2006 were net earnings of $85.3 (as adjusted for depreciation and amortization of $21.4) and a higher level of accounts payable and accrued liabilities arising from the higher revenue volume. These sources of cash were offset by the higher level of inventories ($111.7) discussed above. Capital Spending Our capital expenditures were $15.9 and $10.9 during the nine months ended September 30, 2006 and 2005, respectively. We anticipate capital expenditures of approximately $33 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 Bank Credit Facility. Between 1989 and 2001, we completed 24 acquisitions for an aggregate purchase price of approximately $1 billion. Following these acquisitions, we rationalized the businesses, reduced headcount by approximately 4,500 employees and eliminated 22 facilities. We have financed these acquisitions primarily through issuances of debt and equity securities. As discussed in Note 2, during the quarter ended September 30, 2006 we completed two acquisitions for $145 in cash. Outstanding Debt and Other Financing Arrangements Long-term debt at September 30, 2006 consisted principally of our 8 7/8% senior subordinated notes due 2011 and $300.0 of bank term debt. The $250 of 8 7/8% senior subordinated notes mature on May 11, 2011 and are unsecured senior subordinated obligations and are subordinated to all of our senior indebtedness. The 8 7/8% senior subordinated notes contain restrictive covenants, including limitations on future indebtedness, restricted payments, transactions with affiliates, liens, dividends, mergers and transfers of assets. A breach of these covenants, or the covenants under our current or any future bank credit facility, that continues beyond any grace period can constitute a default, which can limit our ability to borrow and can give rise to a right of the lenders to terminate the applicable bank credit facility and/or a right of the debt holders to require immediate repayment of any outstanding debt. 23 During the third quarter of 2006 we completed, a cash tender offer and consent solicitation for $174.9 aggregate principal amount of 8 1/2% senior notes using available cash on hand and from borrowings under the Senior Secured Credit Facility as described below. During the third quarter of 2006, we amended our existing senior secured credit facility, to provide us with a five-year, $200.0 revolving credit facility and a six-year, $300.0 term loan. The amended senior secured credit facility also provides us the ability to add additional term loans in the amount of up to $75.0 upon satisfaction of certain customary conditions and lender commitment. Proceeds from the term loan were used to repay borrowings under the revolving line of credit and to finance the acquisition of New York Fasteners. Revolving credit borrowings under the new senior secured credit facility will initially bear interest at an annual rate equal to the London interbank offered rate (LIBOR) plus 175 basis points, representing an initial interest rate of 7.2% as compared to 8.5% of the 8 1/2% senior notes repurchased in the tender offer. Term loan borrowings under the new senior secured credit facility bear interest at an annual rate equal to LIBOR plus 175 basis points, representing an initial interest rate of 7.2%. Contractual Obligations During the nine-month period ended September 30, 2006, we redeemed our 8% senior subordinated notes due 2008, repurchased our 8 1/2 % senior notes and amended our senior secured credit facility. The following chart reflects our known contractual obligations and commercial commitments as of September 30, 2006. 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 2006 2007 2008 2009 2010 Thereafter Total Long-term debt and other non-current liabilities $ -- $2.9 $4.1 $3.4 $3.4 $542.5 $556.3 Operating leases 4.1 15.2 13.9 9.8 8.1 42.7 93.8 Purchase obligations (1) 6.7 8.9 3.9 2.1 1.6 1.5 24.7 Future interest payment on outstanding debt (2) 14.0 44.5 44.4 44.4 44.3 44.3 235.9 ---------------------------------------------------------------------------------- Total $24.8 $71.5 $66.3 $59.7 $57.4 $631.0 $910.7 ================================================================================== Commercial Commitments Letters of Credit $6.3 $-- $-- $ -- $ -- $ -- $6.3 ==================================================================================
(1) 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 are undocumented except for 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 the total unconditional purchase obligations presented in this line item. (2) Interest payments include estimated amounts due on the $300.0 term loan based on the actual rate of interest at September 30, 2006. Actual interest payments will fluctuate based on the terms of the Senior Secured Credit Facility and market rate fluctuations. We believe that our cash flows, together with cash on hand, 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. 24 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 on our consolidated balance sheet. Future minimum lease payments under these arrangements aggregated $93.8 at September 30, 2006. Indemnities, Commitments and Guarantees During the normal course of business, we made 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 consolidated financial statements. Deferred Tax Assets We reversed a significant portion of our previously recorded valuation allowance on our U.S. deferred tax assets during the fourth quarter of 2005. The deferred tax asset was recorded as a result of our improving financial performance and outlook, as well as the $20.0 reduction in interest expense arising from the redemption of the $250.0 aggregate principal amount of 8% senior subordinated notes due 2008, which occurred in January 2006. During the quarter ended September 30, 2006 we reversed $22.9 of a valuation allowance which was recorded against our U.K. deferred tax asset. The deferred tax asset was recorded as a result of our improved performance and outlook for our U.K. operations. We maintained a valuation allowance of approximately $16.8 as of September 30, 2006 primarily related to our domestic capital loss carryforwards and our foreign operating loss carryforwards because of uncertainties that preclude us from determining that it is more likely than not that we will be able to generate sufficient taxable income to realize the tax benefits associated with such assets during the applicable carryforward periods. RECENT ACCOUNTING PRONOUNCEMENTS For a discussion of Recent Account Pronouncements, refer to Note 11 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. 25 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, 2005. There have been no changes to our critical accounting policies since December 31, 2005. 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 $42 billion in calendar years 2001 through 2005, including approximately $7.4 billion in 2005. The airline industry crisis also caused 22 airlines worldwide to declare bankruptcy or cease operations in the last four years. As a result of the foregoing, the domestic U.S. airlines sought to conserve cash in part by deferring or eliminating cabin interior refurbishment programs and deferring or canceling aircraft purchases. This, together with the reduction of new business jet production, caused a substantial contraction in our business during the 2001 through 2003 period. Although the global airline industry began to recover in late 2003 and conditions continue to improve, and the business jet industry is improving as well, additional events similar to those described above or other events could cause a deterioration of conditions in our industry or end the current business cycle. The rate at which the business jet industry recovers is dependent on corporate profits, the number of used jets on the market and other factors, which could slow the rate of recovery. FORWARD-LOOKING STATEMENTS This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 31E of the Securities Exchange Act of 1934. Forward-looking statements include all statements that do not relate solely to historical or current facts, including statements regarding 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, 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, the impact on our business from the September 11, 2001 terrorist attacks, SARS outbreak and war in Iraq 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. These forward-looking statements include risks and uncertainties, and our actual experience may differ materially from that 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, 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, conditions in the airline industry, conditions in the business jet industry, problems meeting customer delivery requirements, our success in winning new or expected refurbishment contracts from customers, capital expenditures, cash expenditures related to 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 or fluctuations in currency exchange rates. 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 26 be considered only after carefully reading the risk factors in our Annual Report on Form 10-K and this entire 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 September 30, 2006, we had no outstanding forward currency exchange contracts. In addition, we have not entered into any other derivative financial instruments. Interest Rates - At September 30, 2006, we had adjustable rate debt totaling $300.0 and fixed rate debt of $250.1. The weighted average interest rate for the adjustable and fixed rate debt was approximately 7.16% and 8.88%, respectively, at September 30, 2006. If interest rates on variable rate debt were to increase by 10% above current rates, the impact on our financial statements would be to reduce pretax income by approximately $2.2. We do not engage in transactions intended to hedge our exposure to changes in interest rates. As of September 30, 2006, 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 approximately $0.5. 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 September 30, 2006, 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. Internal Control over Financial Reporting There were no changes in our Company's internal control over financial reporting that occurred during the third quarter of 2006 that have materially affected, or are reasonably likely to materially affect, our Company's internal control over financial reporting. [Remainder of page intentionally left blank] 27 PART II - OTHER INFORMATION
Item 1. Legal Proceedings Not applicable. Item 1A. Risk Factors There have been no material changes in our risk factors from those discussed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2005. Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Not applicable. 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 Over the past year, the Compensation Committee of the Board of Directors, working together with its independent compensation consultant and management, has evaluated various alternatives for long term incentive compensation and has concluded that restricted stock is the most appropriate long term incentive for the Company at this time. The Board of Directors recently adopted a policy regarding the grant of restricted stock to management. Under this policy, to the extent annual equity awards are granted in a particular year, the committee will approve the grants at a meeting during the third or fourth quarter (including the employees who will receive grants and the dollar value of such grants) and the grants will be effective on November 15th of each year (or, if November 15th is not a business day, the first business day thereafter). On November 1, 2006, the compensation committee approved grants of restricted stock to approximately 185 of our managers pursuant to our 2005 Long Term Incentive Plan. These grants will be effective on November 15, 2006 provided that such individuals remain employed in good standing on such date. The restricted stock will be evidenced by our standard restricted stock award agreements approved by the committee on such date, forms of which are filed as exhibits 10.1,10.2 and 10.3 herewith. In particular, the restricted stock will vest in accordance with the following schedule: o 50% on the second anniversary of grant; o 25% on the third anniversary of grant; and o 25% on the fourth anniversary of grant. The Compensation Committee anticipates that these awards will serve as a long term incentive, and as such, are generally not expected to be awarded on an annual basis. In addition, in order to apply a more consistent approach to the vesting of restricted stock awards, on November 6, 2006, the Compensation Committee amended the vesting schedule of all outstanding restricted stock awards to conform with the above vesting schedule. Previously the outstanding restricted stock awards were scheduled to vest in full on the fourth anniversary of the date of grant. The awards that were amended include the grants to Messrs. Amin J. Khoury and Thomas P. McCaffrey on July 31, 2006, as described in our Current Report on Form 8-K dated August 3, 2006 and a grant to Werner Lieberherr for 18,340 shares on July 5, 2006. 28 Item 6. Exhibits Exhibit 3 Articles of Incorporation and Bylaws 3.1 Certificate of Amendment of the Restated Certificate of Incorporation* Exhibit 10 Material Contracts 10.1 Standard Form of Executive Restricted Stock Award Agreement* 10.2 Form of Restricted Stock Award Agreement for Thomas P. McCaffrey* 10.3 Form of Restricted Stock Award Agreement for Amin J. Khoury* 10.4 1994 Employee Stock Purchase Plan (Amended and Restated as of January 1, 2006)* 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*
_______________ *Filed herewith. 29 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. BE AEROSPACE, INC. Date: November 7, 2006 By: /s/ Amin J. Khoury ------------------------------------------ Amin J. Khoury Chairman and Chief Executive Officer Date: November 7, 2006 By: /s/ Thomas P. McCaffrey ------------------------------------------ Thomas P. McCaffrey Senior Vice President of Administration and Chief Financial Officer 30 EX-10.1 2 ex10-1_110306.txt FORM OF RESTRICTED STOCK AWARD AGREEMENT [STANDARD FORM OF RESTRICTED STOCK AWARD AGREEMENT] BE AEROSPACE, INC. 2005 LONG-TERM INCENTIVE PLAN RESTRICTED STOCK AWARD AGREEMENT THIS AWARD AGREEMENT (the "Award Agreement") is made effective as of ______________ (the "Date of Grant") between BE Aerospace, Inc., a Delaware corporation (the "Company"), and _________________ (the "Participant"). Capitalized terms not otherwise defined herein shall have the same meanings as in the BE Aerospace, Inc. 2005 Long-Term Incentive Plan (the "Plan"). WHEREAS, the Company desires to grant the Restricted Stock provided for herein to the Participant pursuant to the Plan and the terms and conditions set forth herein; NOW THEREFORE, in consideration of the mutual covenants hereinafter set forth, the parties agree as follows: 1. Grant of the Award. Subject to the provisions of this Award Agreement and the Plan, the Company hereby grants to the Participant, an aggregate of ________________ shares of restricted stock (the "Restricted Stock"), subject to adjustment as set forth in the Plan. 2. Incorporation of Plan. The Participant acknowledges receipt of the Plan, a copy of which is attached hereto and represents that he is familiar with its terms and provisions. This Award Agreement and the Restricted Stock shall be subject to the Plan, the terms of which are incorporated herein by reference, and in the event of any conflict or inconsistency between the Plan and this Award Agreement, the Plan shall govern. 3. Vesting Schedule. Unless previously vested or canceled in accordance with the provisions of the Plan or this Award Agreement, the shares of Restricted Stock shall vest and shall no longer be subject to cancellation pursuant to Section 4 or the transfer restrictions set forth in Section 7 as follows: fifty percent (50%) will vest on the second anniversary of the Date of Grant and twenty-five percent (25%) will vest on each of the third and fourth anniversaries of the Date of Grant. 4. Termination of Employment. In the event of the Participant's termination of employment with the Company prior to the vesting of all shares of Restricted Stock hereunder for any reason other than death or Disability, all unvested shares of Restricted Stock shall be cancelled immediately without consideration as of the date of such termination. 5. Death or Disability. If, prior to the vesting of all shares of Restricted Stock hereunder, the Participant's employment with the Company terminates due to death or Disability, all of the unvested shares of Restricted Stock shall vest immediately and shall no longer be subject to cancellation pursuant to Section 4 or the transfer restrictions set forth in Section 7. 6. Change in Control. Upon a Change in Control prior to the vesting of all shares of Restricted Stock hereunder, all of the unvested shares of Restricted Stock shall vest immediately and shall no longer be subject to cancellation pursuant to Section 4 or the transfer restrictions set forth in Section 7. 7. Nontransferability of Restricted Stock. Unless otherwise determined by the Committee, the Restricted Stock may not be transferred, pledged, alienated, assigned or otherwise attorned other than by last will and testament or by the laws of descent and distribution or pursuant to a domestic relations order, as the case may be; provided, however, that the Committee may, subject to such terms and conditions as it shall specify, permit the transfer of Restricted Stock for no consideration to a Permitted Transferee. Any shares of Restricted Stock transferred to a Permitted Transferee shall be further transferable only by last will and testament or the laws of descent and distribution or, for no consideration, to another Permitted Transferee of the Participant. 8. Rights as a Stockholder. The Participant shall have, with respect to the Restricted Stock, all the rights of a stockholder of the Company, including, if applicable, the right to vote the Restricted Stock and to receive any dividends or other distributions, subject to the restrictions set forth in the Plan and this Award Agreement. 9. Dividends and Distributions. Any cash, Common Stock or other securities of the Company or other consideration received by the Participant as a result of a distribution to holders of Restricted Stock or as a dividend on the Restricted Stock shall be subject to the same restrictions as the Restricted Stock, and all references to Restricted Stock hereunder shall be deemed to include such cash, Common Stock or other securities or consideration. 10. Legend on Certificates. The Committee may cause a legend or legends to be put on certificates representing the Common Stock underlying the Restricted Stock to make appropriate reference to such restrictions as the Committee may deem advisable under the Plan or as may be required by the rules, regulations, and other requirements of the Securities and Exchange Commission, any exchange that lists the Common Stock, and any applicable federal or state laws. 11. Conditions to Delivery of Common Stock Certificates. The Company shall not be required to deliver any certificate or certificates for shares of Common Stock pursuant to this Agreement prior to fulfillment of all of the following conditions: (a) The obtaining of any approval or other clearance from any state or federal governmental agency which the Committee determines to be necessary or advisable; and (b) The lapse of such reasonable period of time as the Committee may from time to time establish for reasons of administrative convenience. 12. Physical Custody. The Restricted Stock may be issued in certificate form or electronically in "book entry". The Secretary of the Company or such other representative as the Committee may appoint shall retain physical custody of each certificate representing Restricted Stock until all of the restrictions imposed under this Award Agreement with respect to the shares evidenced by such certificate expire or are removed. In no event shall the Participant 2 retain physical custody of any certificates representing unvested Restricted Stock assigned to Participant. 13. No Entitlements. (a) No Right to Continued Employment. This award is not an employment agreement, and nothing in this Award Agreement or the Plan shall (i) alter the Participant's status as an "at-will" employee of the Company, (ii) be construed as guaranteeing the Participant's employment by the Company or as giving the Participant any right to continue in the employ of the Company during any period (including without limitation the period between the Date of Grant and the applicable vesting date in accordance with Section 3) or (iii) be construed as giving the Participant any right to be reemployed by the Company following any termination of Employment. (b) No Right to Future Awards. This award of Restricted Stock and all other equity-based awards under the Plan are discretionary. This award does not confer on the Participant any right or entitlement to receive another award of Restricted Stock or any other equity-based award at any time in the future or in respect of any future period. (c) No Effect on Future Employment Compensation. The Company has made this award of Restricted Stock to the Participant in its sole discretion. This award does not confer on the Participant any right or entitlement to receive compensation in any specific amount for any future fiscal year, and does not diminish in any way the Company's discretion to determine the amount, if any, of the Participant's compensation. In addition, this award of Restricted Stock is not part of the Participant's base salary or wages and will not be taken into account in determining any other employment-related rights the Participant may have, such as rights to pension or severance pay. 14. Taxes and Withholding. No later than the date as of which an amount with respect to the Restricted Stock first becomes includable in the gross income of the Participant for applicable income tax purposes, the Participant shall pay to the Company or make arrangements satisfactory to the Committee regarding payment of any federal, state or local taxes of any kind required by law to be withheld with respect to such amount. Unless otherwise determined by the Committee, in accordance with rules and procedures established by the Committee, the minimum required withholding obligations may be settled in Common Stock, including Common Stock that is part of the award that gives rise to the withholding requirement. The obligations of the Company to deliver the certificates for shares of Common Stock under this Award Agreement shall be conditional upon such payment or arrangements and the Company shall, to the extent permitted by law, have the right to deduct any such taxes from any payment of any kind otherwise due to the Participant. 15. Section 83(b) Election. If, within 30 days of the Date of Grant, the Participant makes an election under Section 83(b) of the Code, or any successor section thereto, to be taxed with respect to all or any portion of the Restricted Stock as of the date of transfer of the Restricted Stock rather than as of the date or dates upon which the Participant would otherwise be taxable under Section 83(a) of the Code, the Participant shall deliver a copy of such 3 election to the Company immediately after filing such election with the Internal Revenue Service. 16. Securities Laws. In connection with the grant or vesting of the Restricted Stock the Participant will make or enter into such written representations, warranties and agreements as the Committee may reasonably request in order to comply with applicable securities laws or with this Award Agreement. 17. Miscellaneous Provisions. (a) Notices. Any notice necessary under this Award Agreement shall be addressed to the Company in care of its Secretary at the principal executive office of the Company and to the Participant at the address appearing in the records of the Company for the Participant or to either party at such other address as either party hereto may hereafter designate in writing to the other. Any such notice shall be deemed effective upon receipt thereof by the addressee. (b) Headings. The headings of sections and subsections are included solely for convenience of reference and shall not affect the meaning of the provisions of this Award Agreement. (c) Counterparts. This Award Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. (d) Entire Agreement. This Award Agreement and the Plan constitute the entire agreement between the parties hereto with regard to the subject matter hereof. They supersede all other agreements, representations or understandings (whether oral or written and whether express or implied) that relate to the subject matter hereof. (e) Amendments. The Board or the Committee shall have the power to alter, amend, modify or terminate the Plan or this Award Agreement at any time; provided, however, that no such termination, amendment or modification may adversely affect, in any material respect, the Participant's rights under this Award Agreement without the Participant's consent. Notwithstanding the foregoing, the Company shall have broad authority to amend this Award Agreement without the consent of the Participant to the extent it deems necessary or desirable (i) to comply with or take into account changes in or interpretations of, applicable tax laws, securities laws, employment laws, accounting rules and other applicable laws, rules and regulations, (ii) to ensure that the Restricted Stock is not subject to interest and penalties under Section 409A of the Code, (iii) to take into account unusual or nonrecurring events or market conditions, or (iv) to take into account significant acquisitions or dispositions of assets or other property by the Company. Any amendment, modification or termination shall, upon adoption, become and be binding on all persons affected thereby without requirement for consent or other action with respect thereto by any such person. The Committee shall give written notice to the Participant of any such amendment, modification or termination as promptly as practicable after the adoption thereof. The foregoing shall not restrict the ability of the Participant and the 4 Company by mutual consent to alter or amend the terms of the Restricted Stock in any manner that is consistent with the Plan and approved by the Committee. (f) Successor. Except as otherwise provided herein, this Award Agreement shall be binding upon and shall inure to the benefit of any successor or successors of the Company, and to any Permitted Transferee pursuant to Section 7. (g) Choice of Law. Except as to matters of federal law, this Award Agreement and all actions taken thereunder shall be governed by and construed in accordance with the laws of the State of Delaware (other than its conflict of law rules). IN WITNESS WHEREOF, the parties hereto have executed this Agreement. BE AEROSPACE, INC. By: ------------------------------------ Name: Amin Khoury Title: Chairman of the Board ELECTION UNDER SECTION 83(b) OF THE INTERNAL REVENUE CODE OF 1986 The undersigned taxpayer hereby elects, pursuant to Section 83(b) of the Internal Revenue Code of 1986, as amended, to include in gross income for 2006 the amount of any compensation taxable in connection with the taxpayer's receipt of the property described below: 1. The name, address, taxpayer identification number and taxable year of the undersigned are: TAXPAYER'S NAME: ------------------------------------ SPOUSE'S NAME: ------------------------------------ TAXPAYER'S SOCIAL SECURITY NO.: ------------------------------------ SPOUSE'S SOCIAL SECURITY NO.: ------------------------------------ TAXABLE YEAR: ------------------------------------ ADDRESS: ------------------------------------ ------------------------------------ 2. The property which is the subject of this election is shares of Common Stock of BE Aerospace, Inc. 3. The property was transferred to the undersigned on 4. The property is subject to the following restrictions: The shares of Common Stock are subject to cancellation if unvested as of the date of termination of service other than for death or disability and are nontransferable until vested. 5. The fair market value of the property at the time of transfer (determined without regard to any restriction other than a restriction which by its terms will never lapse) is: $ per share x ________ shares = $ _________. 6. The undersigned paid $ per share x ________ shares for the property transferred or a total of $ The undersigned has submitted a copy of this statement to the person for whom the services were performed in connection with the undersigned's receipt of the above-described property. The undersigned taxpayer is the person performing the services in connection with the transfer of said property. The undersigned will file this election with the Internal Revenue Service office to which he files his annual income tax return not later than 30 days after the date of transfer of the property. A copy of the election also will be furnished to the person for whom the services were 6 performed. Additionally, the undersigned will include a copy of the election with his income tax return for the taxable year in which the property is transferred. The undersigned understands that this election will also be effective as an election under ___________ law. Dated: ------------------------- -------------------------------------- Taxpayer The undersigned spouse of taxpayer joins in this election. Dated: ------------------------- -------------------------------------- Spouse of Taxpayer EX-10.2 3 ex10-2_110306.txt FORM OF RESTRICTED STOCK AWARD AGREEMENT [FORM OF RESTRICTED STOCK AWARD AGREEMENT FOR THOMAS P. McCAFFREY] BE AEROSPACE, INC. 2005 LONG-TERM INCENTIVE PLAN RESTRICTED STOCK AWARD AGREEMENT THIS AWARD AGREEMENT (the "Award Agreement") is made effective as of _______________ (the "Date of Grant") between BE Aerospace, Inc., a Delaware corporation (the "Company"), and Thomas P. McCaffrey (the "Participant"). Capitalized terms not otherwise defined herein shall have the same meanings as in the BE Aerospace, Inc. 2005 Long-Term Incentive Plan (the "Plan"). WHEREAS, the Company desires to grant the Restricted Stock provided for herein to the Participant pursuant to the Plan and the terms and conditions set forth herein; NOW THEREFORE, in consideration of the mutual covenants hereinafter set forth, the parties agree as follows: 1. Grant of the Award. Subject to the provisions of this Award Agreement and the Plan, the Company hereby grants to the Participant, an aggregate of _______ shares of restricted stock (the "Restricted Stock"), subject to adjustment as set forth in the Plan. 2. Incorporation of Plan. The Participant acknowledges receipt of the Plan, a copy of which is attached hereto and represents that he is familiar with its terms and provisions. This Award Agreement and the Restricted Stock shall be subject to the Plan, the terms of which are incorporated herein by reference, and in the event of any conflict or inconsistency between the Plan and this Award Agreement, the Plan shall govern. 3. Vesting Schedule. Unless previously vested or canceled in accordance with the provisions of the Plan or this Award Agreement, the shares of Restricted Stock shall vest and shall no longer be subject to cancellation pursuant to Section 4 or the transfer restrictions set forth in Section 7 as follows: fifty percent (50%) will vest on the second anniversary of the Date of Grant and twenty-five percent (25%) will vest on each of the third and fourth anniversaries of the Date of Grant; provided in each case that on such date the Participant is employed by the Company. 4. Termination by the Company for Cause; Resignation without Good Reason. In the event the Participant's employment is terminated by the Company for Cause or the Participant resigns his employment without Good Reason (each as defined in the employment agreement between the Company and the Participant dated July 31, 2006 (the "Employment Agreement")) all unvested shares of Restricted Stock shall be cancelled immediately without consideration as of the date of such termination. 5. Death; Incapacity; Termination by the Company without Cause; Resignation for Good Reason. If, prior to the vesting of all shares of Restricted Stock hereunder, the Participant's employment with the Company (i) terminates due to the participant's death or Incapacity (as defined in Section 5(c) of the Employment Agreement), (ii) is terminated by the Company without Cause (as defined in the Employment Agreement) or (iii) is terminated by the Executive for Good Reason as defined in the Employment Agreement), all of the unvested shares of Restricted Stock shall vest immediately and shall no longer be subject to cancellation pursuant to Section 4 or the transfer restrictions set forth in Section 7 of this Award Agreement. 6. Change in Control. Immediately prior to a Change in Control (as defined in the Employment Agreement), all of the shares of Restricted Stock (that have not yet vested pursuant to Sections 3 or 5 hereof) shall vest immediately and shall no longer be subject to cancellation pursuant to Section 4 or the transfer restrictions set forth in Section 7 of this Award Agreement. 7. Nontransferability of Restricted Stock. Unless otherwise determined by the Committee, the Restricted Stock may not be transferred, pledged, alienated, assigned or otherwise attorned other than by last will and testament or by the laws of descent and distribution or pursuant to a domestic relations order, as the case may be; provided, however, that the Committee may, subject to such terms and conditions as it shall specify, permit the transfer of Restricted Stock for no consideration to a Permitted Transferee. Any shares of Restricted Stock transferred to a Permitted Transferee shall be further transferable only by last will and testament or the laws of descent and distribution or, for no consideration, to another Permitted Transferee of the Participant. 8. Rights as a Stockholder. The Participant shall have, with respect to the Restricted Stock, all the rights of a stockholder of the Company, including, if applicable, the right to vote the Restricted Stock and to receive any dividends or other distributions, subject to the restrictions set forth in the Plan and this Award Agreement. 9. Dividends and Distributions. Any cash, Common Stock or other securities of the Company or other consideration received by the Participant as a result of a distribution to holders of Restricted Stock or as a dividend on the Restricted Stock shall be subject to the same restrictions as the Restricted Stock, and all references to Restricted Stock hereunder shall be deemed to include such cash, Common Stock or other securities or consideration. 10. Legend on Certificates. The Committee may cause a legend or legends to be put on certificates representing the Common Stock underlying the Restricted Stock to make appropriate reference to such restrictions as the Committee may deem advisable under the Plan or as may be required by the rules, regulations, and other requirements of the Securities and Exchange Commission, any exchange that lists the Common Stock, and any applicable federal or state laws. 11. Conditions to Delivery of Common Stock Certificates. The Company shall not be required to deliver any certificate or certificates for shares of Common Stock pursuant to this Agreement prior to fulfillment of all of the following conditions: (a) The obtaining of any approval or other clearance from any state or federal governmental agency which the Committee determines to be necessary or advisable; and (b) The lapse of such reasonable period of time as the Committee may from time to time establish for reasons of administrative convenience. 2 12. Physical Custody. The Restricted Stock may be issued in certificate form or electronically in "book entry". The Secretary of the Company or such other representative as the Committee may appoint shall retain physical custody of each certificate representing the Restricted Stock until all of the restrictions imposed under this Award Agreement with respect to the shares evidenced by such certificate expire or are removed. In no event shall the Participant retain physical custody of any certificates representing unvested Restricted Stock assigned to Participant. 13. No Entitlements. (a) No Right to Continued Employment. This award is not an employment agreement, and nothing in this Award Agreement or the Plan shall (i) alter the Participant's status as an "at-will" employee of the Company, (ii) be construed as guaranteeing the Participant's employment by the Company or as giving the Participant any right to continue in the employ of the Company during any period (including without limitation the period between the Date of Grant and the applicable vesting date in accordance with Section 3) or (iii) be construed as giving the Participant any right to be reemployed by the Company following any termination of Employment. (b) No Right to Future Awards. This award of Restricted Stock and all other equity-based awards under the Plan are discretionary. This award does not confer on the Participant any right or entitlement to receive another award of Restricted Stock or any other equity-based award at any time in the future or in respect of any future period. (c) No Effect on Future Employment Compensation. The Company has made this award of Restricted Stock to the Participant in its sole discretion. This award does not confer on the Participant any right or entitlement to receive compensation in any specific amount for any future fiscal year, and does not diminish in any way the Company's discretion to determine the amount, if any, of the Participant's compensation. In addition, this award of Restricted Stock is not part of the Participant's base salary or wages and will not be taken into account in determining any other employment-related rights the Participant may have, such as rights to pension or severance pay. 14. Taxes and Withholding. No later than the date as of which an amount with respect to the Restricted Stock first becomes includable in the gross income of the Participant for applicable income tax purposes, the Participant shall pay to the Company or make arrangements satisfactory to the Committee regarding payment of any federal, state or local taxes of any kind required by law to be withheld with respect to such amount. Unless otherwise determined by the Committee, in accordance with rules and procedures established by the Committee, the minimum required withholding obligations may be settled in Common Stock, including Common Stock that is part of the award that gives rise to the withholding requirement. The obligations of the Company to deliver the certificates for shares of Common Stock under this Award Agreement shall be conditional upon such payment or arrangements and the Company shall, to the extent permitted by law, have the right to deduct any such taxes from any payment of any kind otherwise due to the Participant. 3 15. Securities Laws. In connection with the grant or vesting of the Restricted Stock the Participant will make or enter into such written representations, warranties and agreements as the Committee may reasonably request in order to comply with applicable securities laws or with this Award Agreement. 16. Miscellaneous Provisions. (a) Notices. Any notice necessary under this Award Agreement shall be addressed to the Company in care of its Secretary at the principal executive office of the Company and to the Participant at the address appearing in the records of the Company for the Participant or to either party at such other address as either party hereto may hereafter designate in writing to the other. Any such notice shall be deemed effective upon receipt thereof by the addressee. (b) Headings. The headings of sections and subsections are included solely for convenience of reference and shall not affect the meaning of the provisions of this Award Agreement. (c) Counterparts. This Award Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. (d) Entire Agreement. This Award Agreement, the Employment Agreement and the Plan constitute the entire agreement between the parties hereto with regard to the subject matter hereof. They supersede all other agreements, representations or understandings (whether oral or written and whether express or implied) that relate to the subject matter hereof. (e) Amendments. The Board or the Committee shall have the power to alter, amend, modify or terminate the Plan or this Award Agreement at any time; provided, however, that no such termination, amendment or modification may adversely affect, in any material respect, the Participant's rights under this Award Agreement without the Participant's consent. Notwithstanding the foregoing, the Company shall have broad authority to amend this Award Agreement without the consent of the Participant to the extent it deems necessary or desirable (i) to comply with or take into account changes in or interpretations of, applicable tax laws, securities laws, employment laws, accounting rules and other applicable laws, rules and regulations, (ii) to ensure that the Restricted Stock is not subject to interest and penalties under Section 409A of the Code, (iii) to take into account unusual or nonrecurring events or market conditions, or (iv) to take into account significant acquisitions or dispositions of assets or other property by the Company. Any amendment, modification or termination shall, upon adoption, become and be binding on all persons affected thereby without requirement for consent or other action with respect thereto by any such person. The Committee shall give written notice to the Participant of any such amendment, modification or termination as promptly as practicable after the adoption thereof. The foregoing shall not restrict the ability of the Participant and the Company by mutual consent to alter or amend the terms of the Restricted Stock in any manner that is consistent with the Plan and approved by the Committee. 4 (f) Successor. Except as otherwise provided herein, this Award Agreement shall be binding upon and shall inure to the benefit of any successor or successors of the Company, and to any Permitted Transferee pursuant to Section 7. (g) Choice of Law. Except as to matters of federal law, this Award Agreement and all actions taken thereunder shall be governed by and construed in accordance with the laws of the State of Delaware (other than its conflict of law rules). IN WITNESS WHEREOF, the parties hereto have executed this Agreement. BE AEROSPACE, INC. By: ----------------------------------- Name: Amin Khoury Title: Chairman of the Board EX-10.3 4 ex10-3_110306.txt FORM OF RESTRICTED STOCK AWARD AGREEMENT [FORM OF RESTRICTED STOCK AWARD AGREEMENT FOR AMIN J. KHOURY] BE AEROSPACE, INC. 2005 LONG-TERM INCENTIVE PLAN RESTRICTED STOCK AWARD AGREEMENT THIS AWARD AGREEMENT (the "Award Agreement") is made effective as of _____________ (the "Date of Grant") between BE Aerospace, Inc., a Delaware corporation (the "Company"), and Amin J. Khoury (the "Participant"). Capitalized terms not otherwise defined herein shall have the same meanings as in the BE Aerospace, Inc. 2005 Long-Term Incentive Plan (the "Plan"). WHEREAS, the Company desires to grant the Restricted Stock provided for herein to the Participant pursuant to the Plan and the terms and conditions set forth herein; NOW THEREFORE, in consideration of the mutual covenants hereinafter set forth, the parties agree as follows: 1. Grant of the Award. Subject to the provisions of this Award Agreement and the Plan, the Company hereby grants to the Participant, an aggregate of _______ shares of restricted stock (the "Restricted Stock"), subject to adjustment as set forth in the Plan. 2. Incorporation of Plan. The Participant acknowledges receipt of the Plan, a copy of which is attached hereto and represents that he is familiar with its terms and provisions. This Award Agreement and the Restricted Stock shall be subject to the Plan, the terms of which are incorporated herein by reference, and in the event of any conflict or inconsistency between the Plan and this Award Agreement, the Plan shall govern. 3. Vesting Schedule. Unless previously vested or canceled in accordance with the provisions of the Plan or this Award Agreement, the shares of Restricted Stock shall vest and shall no longer be subject to cancellation pursuant to Section 4 or the transfer restrictions set forth in Section 7 as follows: fifty percent (50%) will vest on the second anniversary of the Date of Grant and twenty-five percent (25%) will vest on each of the third and fourth anniversaries of the Date of Grant; provided in each case that on such date the Participant is employed by the Company or rendering consulting services to the Company pursuant to Section 7.7 of the employment agreement between the Company and the Participant dated July 31, 2006 ( the "Employment Agreement"). 4. Resignation. In the event the Participant resigns his employment with the Company prior to the vesting of all shares of Restricted Stock hereunder, all unvested shares of Restricted Stock shall be cancelled immediately without consideration as of the date of such termination. 5. Death; Incapacity or Termination by the Company. If, prior to the vesting of all shares of Restricted Stock hereunder, the Participant's employment with the Company (i) terminates due to the participant's death or Incapacity (as defined in Section 7.3 of the Employment Agreement) or (ii) is terminated by the Company for any reason, all of the unvested shares of Restricted Stock shall vest immediately and shall no longer be subject to cancellation pursuant to Section 4 or the transfer restrictions set forth in Section 7 of this Award Agreement. 6. Change in Control. Immediately prior to a Change in Control (as defined in the Employment Agreement), all of the shares of Restricted Stock (that have not yet vested pursuant to Sections 3 or 5 hereof) shall vest immediately and shall no longer be subject to cancellation pursuant to Section 4 or the transfer restrictions set forth in Section 7 of this Award Agreement. 7. Nontransferability of Restricted Stock. Unless otherwise determined by the Committee, the Restricted Stock may not be transferred, pledged, alienated, assigned or otherwise attorned other than by last will and testament or by the laws of descent and distribution or pursuant to a domestic relations order, as the case may be; provided, however, that the Committee may, subject to such terms and conditions as it shall specify, permit the transfer of Restricted Stock for no consideration to a Permitted Transferee. Any shares of Restricted Stock transferred to a Permitted Transferee shall be further transferable only by last will and testament or the laws of descent and distribution or, for no consideration, to another Permitted Transferee of the Participant. 8. Rights as a Stockholder. The Participant shall have, with respect to the Restricted Stock, all the rights of a stockholder of the Company, including, if applicable, the right to vote the Restricted Stock and to receive any dividends or other distributions, subject to the restrictions set forth in the Plan and this Award Agreement. 9. Dividends and Distributions. Any cash, Common Stock or other securities of the Company or other consideration received by the Participant as a result of a distribution to holders of Restricted Stock or as a dividend on the Restricted Stock shall be subject to the same restrictions as the Restricted Stock, and all references to Restricted Stock hereunder shall be deemed to include such cash, Common Stock or other securities or consideration. 10. Legend on Certificates. The Committee may cause a legend or legends to be put on certificates representing the Common Stock underlying the Restricted Stock to make appropriate reference to such restrictions as the Committee may deem advisable under the Plan or as may be required by the rules, regulations, and other requirements of the Securities and Exchange Commission, any exchange that lists the Common Stock, and any applicable federal or state laws. 11. Conditions to Delivery of Common Stock Certificates. The Company shall not be required to deliver any certificate or certificates for shares of Common Stock pursuant to this Agreement prior to fulfillment of all of the following conditions: (a) The obtaining of any approval or other clearance from any state or federal governmental agency which the Committee determines to be necessary or advisable; and (b) The lapse of such reasonable period of time as the Committee may from time to time establish for reasons of administrative convenience. 2 12. Physical Custody. The Restricted Stock may be issued in certificate form or electronically in "book entry". The Secretary of the Company or such other representative as the Committee may appoint shall retain physical custody of each certificate representing the Restricted Stock until all of the restrictions imposed under this Award Agreement with respect to the shares evidenced by such certificate expire or are removed. In no event shall the Participant retain physical custody of any certificates representing unvested Restricted Stock assigned to Participant. 13. No Entitlements. (a) No Right to Continued Employment. This award is not an employment agreement, and nothing in this Award Agreement or the Plan shall (i) alter the Participant's status as an "at-will" employee of the Company, (ii) be construed as guaranteeing the Participant's employment by the Company or as giving the Participant any right to continue in the employ of the Company during any period (including without limitation the period between the Date of Grant and the applicable vesting date in accordance with Section 3) or (iii) be construed as giving the Participant any right to be reemployed by the Company following any termination of Employment. (b) No Right to Future Awards. This award of Restricted Stock and all other equity-based awards under the Plan are discretionary. This award does not confer on the Participant any right or entitlement to receive another award of Restricted Stock or any other equity-based award at any time in the future or in respect of any future period. (c) No Effect on Future Employment Compensation. The Company has made this award of Restricted Stock to the Participant in its sole discretion. This award does not confer on the Participant any right or entitlement to receive compensation in any specific amount for any future fiscal year, and does not diminish in any way the Company's discretion to determine the amount, if any, of the Participant's compensation. In addition, this award of Restricted Stock is not part of the Participant's base salary or wages and will not be taken into account in determining any other employment-related rights the Participant may have, such as rights to pension or severance pay. 14. Taxes and Withholding. No later than the date as of which an amount with respect to the Restricted Stock first becomes includable in the gross income of the Participant for applicable income tax purposes, the Participant shall pay to the Company or make arrangements satisfactory to the Committee regarding payment of any federal, state or local taxes of any kind required by law to be withheld with respect to such amount. Unless otherwise determined by the Committee, in accordance with rules and procedures established by the Committee, the minimum required withholding obligations may be settled in Common Stock, including Common Stock that is part of the award that gives rise to the withholding requirement. The obligations of the Company to deliver the certificates for shares of Common Stock under this Award Agreement shall be conditional upon such payment or arrangements and the Company shall, to the extent permitted by law, have the right to deduct any such taxes from any payment of any kind otherwise due to the Participant. 3 15. Securities Laws. In connection with the grant or vesting of the Restricted Stock the Participant will make or enter into such written representations, warranties and agreements as the Committee may reasonably request in order to comply with applicable securities laws or with this Award Agreement. 16. Miscellaneous Provisions. (a) Notices. Any notice necessary under this Award Agreement shall be addressed to the Company in care of its Secretary at the principal executive office of the Company and to the Participant at the address appearing in the records of the Company for the Participant or to either party at such other address as either party hereto may hereafter designate in writing to the other. Any such notice shall be deemed effective upon receipt thereof by the addressee. (b) Headings. The headings of sections and subsections are included solely for convenience of reference and shall not affect the meaning of the provisions of this Award Agreement. (c) Counterparts. This Award Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. (d) Entire Agreement. This Award Agreement, the Employment Agreement and the Plan constitute the entire agreement between the parties hereto with regard to the subject matter hereof. They supersede all other agreements, representations or understandings (whether oral or written and whether express or implied) that relate to the subject matter hereof. (e) Amendments. The Board or the Committee shall have the power to alter, amend, modify or terminate the Plan or this Award Agreement at any time; provided, however, that no such termination, amendment or modification may adversely affect, in any material respect, the Participant's rights under this Award Agreement without the Participant's consent. Notwithstanding the foregoing, the Company shall have broad authority to amend this Award Agreement without the consent of the Participant to the extent it deems necessary or desirable (i) to comply with or take into account changes in or interpretations of, applicable tax laws, securities laws, employment laws, accounting rules and other applicable laws, rules and regulations, (ii) to ensure that the Restricted Stock is not subject to interest and penalties under Section 409A of the Code, (iii) to take into account unusual or nonrecurring events or market conditions, or (iv) to take into account significant acquisitions or dispositions of assets or other property by the Company. Any amendment, modification or termination shall, upon adoption, become and be binding on all persons affected thereby without requirement for consent or other action with respect thereto by any such person. The Committee shall give written notice to the Participant of any such amendment, modification or termination as promptly as practicable after the adoption thereof. The foregoing shall not restrict the ability of the Participant and the Company by mutual consent to alter or amend the terms of the Restricted Stock in any manner that is consistent with the Plan and approved by the Committee. 4 (f) Successor. Except as otherwise provided herein, this Award Agreement shall be binding upon and shall inure to the benefit of any successor or successors of the Company, and to any Permitted Transferee pursuant to Section 7. (g) Choice of Law. Except as to matters of federal law, this Award Agreement and all actions taken thereunder shall be governed by and construed in accordance with the laws of the State of Delaware (other than its conflict of law rules). IN WITNESS WHEREOF, the parties hereto have executed this Agreement. BE AEROSPACE, INC. By: --------------------------------- Name: [----------------] Title: [---------------] 5 EX-10.4 5 ex10-4_110306.txt 1994 EMPLOYEE STOCK PURCHASE PLAN EXHIBIT 10.4 BE AEROSPACE, INC. 1994 Employee Stock Purchase Plan (Amended and Restated as of January 1,2006) SECTION 1. PURPOSE OF PLAN This document amends and restates the BE Aerospace, Inc. 1994 Employee Stock Purchase Plan (the "Plan") as of January 1,2006. The Plan is intended to provide a method by which eligible employees of BE Aerospace, Inc. ("BE Aerospace") and of such of BE Aerospace's subsidiaries as BE Aerospace's Board of Directors (the "Board of Directors") may from time to time designate (such subsidiaries, together with BE Aerospace, being hereinafter referred to as the "Company") may use voluntary, systematic payroll deductions to purchase shares of the Common Stock of BE Aerospace (the "Stock") and thereby acquire an interest in the future of the Company. For purposes of the Plan, a "subsidiary" is any corporation in which BE Aerospace owns, directly or indirectly, stock possessing 50% or more of the total combined voting power of all classes of stock. SECTION 2. OPTIONS TO PURCHASE STOCK Under the Plan, there is available an aggregate of not more than 3,500,000 shares of Stock (subject to adjustment as provided in Section 15) for sale pursuant to the exercise of options ("Options") granted under the Plan to employees of the Company ("Employees") who meet the eligibility requirements set forth in Section 3 hereof ("Eligible Employees"). The Stock to be delivered upon exercise of Options under the Plan may be either shares of authorized but unissued Stock or shares of reacquired Stock, as the Board of Directors may determine. SECTION 3. ELIGIBLE EMPLOYEES Except as otherwise provided below, each individual who is an Employee of the Company, who has a customary working schedule of at least 20 hours per week, and who has been an Employee for at least 90 days will be eligible to participate in the Plan. (a) Any Employee who immediately after the grant of an Option to him or her would (in accordance with the provisions of Sections 423 and 424(d) of the Internal Revenue Code of 1986, as amended (the "Code")) own stock possessing 5% or more of the total combined voting power or value of all classes of stock of the employer corporation or of its parent or subsidiary corporations, as defined in Section 424 of the Code, will not be eligible to receive an Option to purchase Stock pursuant to the Plan. 1 (b) No Employee will be granted an Option under the Plan which would permit his or her rights to purchase shares of Stock under all employee stock purchase plans of the Company and parent and subsidiary corporations to accrue at a rate which exceeds $25,000 in fair market value of such Stock (determined at the time the Option is granted) for each calendar year during which any such Option granted to such Employee is outstanding at any time, as provided in Sections 423 and 424(d) of the Code. SECTION 4. METHOD OF PARTICIPATION Each of the periods during which this Plan remains in effect is hereinafter referred to as an "Option Period". Option Periods shall be of six-month duration. Each Plan Year (January 1 through December 31) shall contain two Option Periods, one shall commence January 1 and terminate June 30 and the other shall commence July 1 and terminate December 31. Each person who is an Eligible Employee on the first day of an Option Period may elect to participate in the Plan by executing and delivering, at least fifteen days prior to such date, a payroll deduction authorization in accordance with Section 5. Such Employee will thereby become a participant ("Participant") for such Option Period and for each subsequent Option Period, subject to Section 5 below. SECTION 5. PAYROLL DEDUCTION The payroll deduction authorization will request withholding at a rate (in whole percentages) of not less than 2% nor more than 15% from the Participant's Compensation by means of equal payroll deductions over the Option Period. The payroll deduction authorization will remain in effect for consecutive subsequent Option Periods unless changed or revoked by the Participant pursuant to this Section 5. For purposes of the Plan, "Compensation" will mean all compensation paid to the Participant by the Company and currently includible in his or her income, including bonuses, commissions and other amounts includible in the definition of compensation provided in the Treasury Regulations promulgated under Section 415 of the Code, plus any amount that would be so included but for the fact that it was contributed to a qualified plan pursuant to an elective deferral under Section 401(k) of the Code or contributed under a salary reduction agreement pursuant to Section 125 of the Code, but not including payments under stock option plans and other employee benefit plans or any other amounts excluded from the definition of compensation provided in the Treasury Regulations under Section 415 of the Code. A Participant may reduce the withholding rate of his or her payroll deduction authorization by one or more whole percentage points (but not to below 2%) at any time during an Option Period by delivering written notice to the Company, such reduction to take effect prospectively as soon as practicable following receipt of such notice by the Company. A Participant may increase or reduce the withholding rate of his or her payroll deduction authorization for a future Option Period, or cease participation entirely for a future Option Period, by written notice delivered to the Company at least 15 days prior to the first day of the Option Period as to which the change is to be effective. All amounts withheld in accordance with a Participant's payroll deduction authorization will be credited to a withholding account for such Participant. SECTION 6. GRANT OF OPTIONS Each person who is a Participant on the first day of an Option Period will, as of such day, be granted an Option for such Period. Such Option will be for the number of whole shares (not in excess of the share 2 maximum as hereinafter defined) of Stock to be determined by dividing (i) the balance in the Participant's withholding account on the last day of the Option Period, by (ii) the purchase price per share of the Stock determined under Section 7. For purposes of the preceding sentence, the share maximum with respect to any Option for any Option Period shall be the largest whole number of shares which, when multiplied by the fair market value of a share of Stock at the beginning of the Option Period, produces a dollar amount of $12,500 or less. The number of shares of Stock receivable by each Participant upon exercise of his or her Option for an Option Period will be reduced, on a substantially proportionate basis, in the event that the number of shares then available under the Plan is otherwise insufficient. SECTION 7. PURCHASE PRICE The purchase price of Stock issued pursuant to the exercise of an Option will be 85% of the fair market value of the Stock at the time at which the Option is deemed exercised. Fair market value on any given day will mean the Closing Price of the Stock on such day (or, if there was no Closing Price on such day, the latest day prior thereto on which there was a Closing Price). The "Closing Price" of the Stock on any business day will be the last sale price as reported on the principal market on which the Stock is traded or, if no last sale is reported, then the mean between the highest bid and lowest asked prices on that day. A good faith determination by the Board of Directors as to fair market value shall be final and binding. SECTION 8. EXERCISE OF OPTIONS Each Employee who is a Participant in the Plan on the last day of an Option Period will be deemed to have exercised on the last day of the Option Period the Option granted to him or her for that Option Period. Upon such exercise, the balance of the Participant's withholding account will be applied to the purchase of the number of whole shares of Stock determined under Section 6 and as soon as practicable thereafter said shares will be issued to the Participant either in certificates or electronically in "book entry" form with the transfer agent. In the event that the balance of the Participant's withholding account following an Option Period is in excess of the total purchase price of the shares so issued, the balance of the account shall be returned to the Participant; provided, however, that if the balance left in the account consists solely of an amount equal to the value of a fractional share it will be retained in the withholding account and carried over to the next Option Period. The entire balance of the Participant's withholding account following the final Option Period shall be returned to the Participant. No fractional shares will be issued hereunder. Notwithstanding anything herein to the contrary, BE Aerospace's obligation to issue and deliver shares of Stock under the Plan is subject to the approval required of any governmental authority in connection with the authorization, issuance, sale or transfer of said shares, to any requirements of any national securities exchange applicable thereto, and to compliance by the Company with other applicable legal requirements in effect from time to time, including without limitation any applicable tax withholding requirements. SECTION 9. INTEREST No interest will be payable on withholding accounts. SECTION 10. CANCELLATION AND WITHDRAWAL A Participant who holds an Option under the Plan may at any time prior to exercise thereof under Section 8 cancel such Option as to all (but not less than all) the Shares subject or to be subject to such Option by written notice delivered to the Company. Upon such cancellation, the balance in his or her withholding 3 account will be returned to him or her. A Participant may terminate his or her payroll deduction authorization as of any date by written notice delivered to the Company and will thereby cease to be a Participant as of such date. Any Participant who voluntarily terminates his or her payroll deduction authorization prior to the last business day of an Option Period will be deemed to have canceled his or her Option. Any Participant who cancels an Option or terminates his or her payroll deduction authorization may, as of the beginning of a subsequent Option Period, again become a Participant in accordance with Section 4; provided, however, that any such Participant who is at the time subject to the provisions of Section 16 of the Securities Exchange Act of 1934, as amended (the "1934 Act"), may not again become a Participant until at least six months have elapsed after the date on which he or she ceased to be a Participant. SECTION 1 1. TERMINATION OF EMPLOYMENT; SALE TRANSACTION Subject to Section 12, upon the termination of a Participant's service with the Company for any reason, he or she will cease to be a Participant, and any Option held by such Participant under the Plan will be deemed canceled, the balance of his or her withholding account will be returned to him or her, and he or she will have no further rights under the Plan. Notwithstanding the foregoing, in the event that an Employee ceases to be a Participant either (a) as a result of the sale or other disposition by the Company of substantially all of the assets used by the business or division of the Company in which the Participant was employed, or (b) by reason of a sale or other disposition by the Company of its interest in a subsidiary or business by which the Participant was employed, such Employee will no longer be eligible to make any additional contributions as of the date of cessation of employment ("Cessation Date"); provided, however, that unless the Participant cancels the Option pursuant to Section 10 hereof, the balance of the Participant's withholding account shall be applied to the purchase of shares, in accordance with Section 8 hereof, on the last day of the Option Period immediately following his or her Cessation Date if and only if the last day of such Option Period occurs no later than ninety (90) days from his or her Cessation Date. If, however, the last day of the subsequent Option Period occurs more than ninety (90) days after the Participant's Cessation Date, then his or her withholding account will be returned to him or her, and he or she will have no further rights under the Plan. Notwithstanding the foregoing, in the event of the proposed dissolution or liquidation of the Company, the Option Period will terminate immediately prior to the consummation of such proposed action, unless otherwise provided by the Stock Option and Compensation Committee of the Board of Directors (the "Compensation Committee"). In the event of a proposed sale of all or substantially all of the Company's assets, or the merger of the Company with or into another corporation (each, a "Sale Transaction"), each option under the Plan shall be assumed or an equivalent option shall be substituted by such successor corporation or a parent or subsidiary of such successor corporation, unless the Compensation Committee determines, in the exercise of its sole discretion and in lieu of such assumption or substitution, to shorten the period that the Option will become exercised pursuant to Section 8 hereof (the "Original Exercise Period") then in progress by setting a new Exercise Date (the "New Exercise Date"). If the Compensation Committee shortens the Original Exercise Period then in progress in lieu of assumption or substitution in the event of a Sale Transaction, the Compensation Committee shall notify each Participant in writing, at least ten (10) days prior to the New Exercise Date, that the exercise date for such Participant's Option has been changed to the New Exercise Date, and that such participant's Option will be exercised automatically on the New Exercise Date, unless prior to such date the Participant has withdrawn from the Plan as provided in Section 10. For purposes of this Section 11, an Option granted under the Plan shall be deemed to have been assumed if, following the Sale Transaction, the Option confers the right to purchase, for each share of stock 4 subject to the Option immediately prior to the Sale Transaction, the consideration (whether stock, cash or other securities or property) received in the Sale Transaction by holders of Stock for each share of Stock held on the effective date of the Sale Transaction (and if such holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding shares of Stock); provided, however, that if the consideration received in the Sale Transaction was not solely common stock of the successor corporation or its parent (as defined in Section 424(e) of the Code), the Compensation Committee may, with the consent of the successor corporation and the Participant, provide for the consideration to be received upon exercise of the Option to be solely common stock of the successor corporation or its parent equal in fair market value to the per share consideration received by the holders of Stock in the Sale Transaction. SECTION 12. DEATH OF PARTICIPANT A Participant may file a written designation of beneficiary specifying who is to receive any Stock and/or cash credited to the Participant under the Plan in the event of the Participant's death, which designation will also provide for the election by the Participant of either (i) cancellation of the Participant's Option upon his or her death, as provided in Section 10 or (ii) application as of the last day of the Option Period of the balance of the deceased Participant's withholding account at the time of death to the exercise of his or her Option, pursuant to Section 8 of the Plan. In the absence of a valid election otherwise, the death of a Participant will be deemed to effect a cancellation of his or her Option. A designation of beneficiary and election may be changed by the Participant at any time, by written notice in a manner specified by the Compensation Committee. In the event of the death of a Participant and receipt by BE Aerospace of proof of the identity and existence at the Participant's death of a beneficiary validly designated by him or her under the Plan, BE Aerospace will deliver to such beneficiary such Stock and/or cash to which the beneficiary is entitled under the Plan. Where the Participant has elected option (ii) above but there is no surviving designated beneficiary, BE Aerospace will deliver such Stock and/or cash to the executor or administrator of the estate of the Participant. No beneficiary will, prior to the death of the Participant by whom he or she has been designated, acquire any interest in any Stock or cash credited to the Participant under the Plan. SECTION 13. PARTICIPANT'S RIGHTS NOT TRANSFERABLE All Participants will have the same rights and privileges under the Plan. Each Participant's rights and privileges under any Option may be exercisable during his or her lifetime only by him or her, and may not be sold, pledged, assigned, or transferred in any manner. In the event any Participant violates the terms of this Section, any Option held by him or her may be terminated by the Company and upon return to the Participant of the balance of his or her withholding account, all his or her rights under the Plan will terminate. SECTION 14. EMPLOYMENT RIGHTS Nothing contained in the provisions of the Plan will be construed to give to any Employee the right to be retained in the employ of the Company or to interfere with the right of the Company to discharge any Employee at any time. The loss of existing or potential profit in Options will not constitute an element of damages in the event of termination of employment for any reason, even if the termination is in violation of an obligation to the Participant. 5 SECTION 1 5. CHANGE IN CAPITALIZATION In the event of any change in the outstanding Stock of BE Aerospace by reason of a stock dividend, split-up, recapitalization, merger, consolidation, reorganization, or other capital change, after the effective date of this Plan, the aggregate number of shares available under the Plan, the number of shares under Options granted but not exercised, and the Option price will be appropriately adjusted. SECTION 16. ADMINISTRATION OF PLAN The Plan will be administered by the Compensation Committee, which will have the right to determine any questions which may arise regarding the interpretation and application of the provisions of the Plan and to make, administer, and interpret such rules and regulations as it deems necessary or advisable. The Compensation Committee's determinations hereunder shall be final and binding. SECTION 17. AMENDMENT AND TERMINATION OF PLAN BE Aerospace reserves the right at any time or times to amend the Plan to any extent and in any manner it may deem advisable by vote of the Board of Directors; provided, however, that any amendment relating to the aggregate number of shares which may be issued under the Plan (other than an adjustment provided for in Section 15) or to the Employees (or class of Employees) eligible to receive Options under the Plan will have no force or effect unless it is approved by the shareholders within twelve months before or after its adoption. Shareholder approval is also required to the extent necessary to comply with applicable laws, rules and regulations. The Plan will automatically terminate on December 31, 2013 (at the end of the second Option Period beginning in Plan Year 2013). The Plan may be earlier suspended or terminated by the Board of Directors, but no such suspension or termination will adversely affect the rights and privileges of holders of outstanding Options. The Plan will terminate in any case when all or substantially all the Stock reserved for the purposes of the Plan has been purchased. IN WITNESS WHEREOF, the Company has caused this Plan to be executed on its behalf as of the 1st day of January, 2006. BE AEROSPACE, INC. By: /s/ Jeffrey P. Holtzman ------------------------------- Name Jeffrey P. Holtzman Title: Vice President, Treasurer and Assistant Secretary 6 EX-31.1 6 ex31-1_110306.txt EXHIBIT 31.1 BE AEROSPACE, INC. EXHIBIT 31.1 CERTIFICATIONS I, Amin J. Khoury, certify that: 1. I have reviewed this quarterly report on Form 10-Q of BE Aerospace, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a. designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b. designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c. evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report, based on such evaluation; and d. disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a. all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: November 7, 2006 By: /s/ Amin J. Khoury --------------------------------- Amin J. Khoury Chief Executive Officer EX-31.2 7 ex31-2_110306.txt EXHIBIT 31.2 BE AEROSPACE, INC. EXHIBIT 31.2 CERTIFICATIONS I, Thomas P. McCaffrey, certify that: 1. I have reviewed this quarterly report on Form 10-Q of BE Aerospace, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a. designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b. designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c. evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report, based on such evaluation; and d. disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 6. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a. all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: November 7, 2006 By: /s/ Thomas P. McCaffrey -------------------------------------- Thomas P. McCaffrey Senior Vice President of Administration and Chief Financial Officer EX-32.1 8 ex32-1_110306.txt EXHIBIT 32.1 BE AEROSPACE, INC. EXHIBIT 32.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS REQUIRED BY SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of BE Aerospace, Inc. (the "Company") on Form 10-Q for the quarter ended September 30, 2006, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Amin J. Khoury, Chief Executive Officer of the Company, certify that to the best of my knowledge: 1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: November 7, 2006 By: /s/ Amin J. Khoury ------------------------------- Amin J. Khoury Chief Executive Officer EX-32.2 9 ex32-2_110306.txt EXHIBIT 32.2 BE AEROSPACE, INC. EXHIBIT 32.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS REQUIRED BY SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of BE Aerospace, Inc. (the "Company") on Form 10-Q for the quarter ended September 30, 2006, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Thomas P. McCaffrey, Senior Vice President of Administration and Chief Financial Officer of the Company, certify that to the best of my knowledge: 1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: November 7, 2006 By: /s/ Thomas P. McCaffrey -------------------------------------- Thomas P. McCaffrey Senior Vice President of Administration and Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----