J.P. Morgan
Aviation & Transportation Conference March 10, 2009
Many Parts. One Partner.
Company Overview
Amin Khoury – Founder, Chairman and Chief Executive Officer 2
B/E Aerospace – Company Overview Largest global manufacturer of aircraft cabin interior products for both commercial airliners and business jets
Company Company Overview Overview
Largest global distributor of aerospace fasteners and consumables 2008 revenues of $2.1 billion up 26%, operating earnings* of $354 million up 43%, and net earnings* of $201 million up 36% versus 2007 Strong balance sheet, excellent liquidity, and no debt maturities until 2014 Equity market capitalization of ~$700 million Market share leadership in all major product categories
Market Market Leadership Leadership
Largest installed base in the industry (~$7.3 billion) Largest sales, customer service and R&D organizations in the industry ~50% of sales from nondiscretionary consumables and spares ~55% of sales to International customers
*excludes ~$390 million goodwill impairment charge (~$300 million, net of tax)
3
Exceptional Performance 2005 – 2008 ($ in millions except EPS amounts)
Revenue
Operating Earnings1 +26% $2,110
EPS1,2
+43% $354
+49% $1,678
+67% $247
+34% $1,128
+57% $148
+28% $2.12 +110% $1.66
16.8%
14.7%
+103% $0.79
$844 $94
2005
2006
2007
2008
13.1%
11.1%
$0.39
2008 2005 2006 2007 Operating Margin %
2005
2006
2007
2008
Operating margin expanded 570 bps 1
For 2008 excludes ~$390 million goodwill impairment charge (~$300 million, net of tax) ² 2005 and 2006 EPS adjusted using 2007 effective tax of 31.5%
4
Strategic Transformation 2009
Post 9/11/01
~50% of sales or ~$1BN derived from nondiscretionary consumables and spares
Consumables revenues were about $100MM or ~15% of sales
Well diversified global backlog ~$2.9BN; U.S. airlines < 10% of total backlog
U.S. centric customer base highly dependent on retrofit business; US airlines ~60% of backlog; total backlog as of 12/31/02 ~$450MM
Significant SFE business; unbooked backlog of ~$2.3BN
100% BFE business; No unbooked SFE backlog
Strong capital structure and liquidity: leverage ratio of ~2.1x, $350MM undrawn revolver, ~$170 MM of cash, no maturities until 2014, net debt to net cap ~43%
Levered balance sheet and weak liquidity
More than $200 million derived from military sales
No military sales
5
Expectations For 2009 Continued margin expansion driven by non-discretionary demand for consumables and spares Aggressively reducing costs to size business with changes in expected global demand Reasoned expectation that demand for consumables and spares will return once end users deplete existing safety stocks After September 11, 2001 – Aftermarket consumables demand returned after ~2 quarters – Spares demand returned after ~10 quarters A strong and growing military business
6
Longer Term Well Positioned: More Explosive Earnings Growth and Cash Flow Generation than Last Up-Cycle Size, strategic position, and composition of consumables business Roll-out of Supplier Furnished Equipment (“SFE”) for new commercial airliners and business jets Pent-up demand for cabin interior equipment for new-build and aftermarket wide-body aircraft Proven ability to expand operating margins, significant operating leverage HCS integration expected to be completed by approximately first quarter of 2010
7
Strategic Business Transformation Nearly 50% of business is non-discretionary consumables Record backlog (booked and unbooked) in excess of ~$5 billion with excellent and growing positions on several new aircraft platforms Market leadership in nearly every product category Expanding margins Healthy financial position – excellent liquidity
B/E Aerospace is a different company
8
Non-Discretionary Demand: Consumables and Spares World’s leading distributor of aerospace fasteners and consumables Customers include major OEMs, military and aftermarket customers (airlines, MROs, FBOs) Stock ~275,000 consumable part numbers Ship in excess of 8,000 orders daily to more than 1,700 customers, worldwide Authorized distributor for more than 150 manufacturers ~60% of orders shipped within 24 hours Significant spare parts business to airlines and MROs Supports $7.3BN installed base: seating, beverage makers, ovens, lighting, refrigeration equipment and oxygen storage, distribution and delivery systems 9
New Aircraft Long-Term “SFE” Contracts in Excess of ~$2.3 billion
Oxygen/PSU B787
LED Lighting
Vacuum Waste Management Systems
A350 XWB Galley
Pulse Oxygen A350 XWB
10
Backlog Supports Future Growth Record backlog of ~$2.9 billion as of 12/31/08. (Excludes more than ~$2.3 billion of unbooked SFE awards) 2008 bookings of $2.2 billion (1.1:1 book-to-bill) Growing portion of backlog associated with new delivery wide-body aircraft is extending backlog tail New aircraft types for both commercial and business jet supports future revenue outlook. Strategic focus on OEM direct or SFE
Backlog is Well Disbursed Geographically US Domestic Airlines 9% North America
Europe 24%
36%
31% Emerging Markets, Asia, Pacific Rim & Middle East
11
Highly Variable Cost Structure Aggressively resizing business Started in second half of 2008, workforce reduced ~12% at 12/31/08 2009 cost reduction efforts ongoing Supply chain management: global sourcing yielding solid cost savings $35 million reduction in direct material costs in 2008 Average low cost country (LCC) savings >~30% Targeting more than a doubling of LCC spend in 2009 Operational excellence/lean: driving margin expansion Continuously improving methods and operating processes Productivity successes in 2008: Kilkeel (main cabin seats) up ~32%; Lenexa (crew face masks) up ~38%; Nieuwegein (ovens) up ~20% 12
Consumables Management Segment Fasteners
Seals
Solid Rivets Blind Fasteners Shear Pins Washers Panel Fasteners Clamps Lock Nuts and Inserts Fittings MS Screws Engine Products
Carbon-Faced Seals Gaskets Metal O-Rings Packings Seals Teflon O-Rings
Bearings
Electrical
Airframe Control Journal Bushings Spherical Bushings Ball Bearings Ceramic Hybrid Bearings Rod Ends Needle Bearings Thrust Bearings Roller Bearings MS, NS, NAS, AS, AN Bearings
Wire Wiring Accessories Terminals Connectors Connector Accessories Electrical Components Lighting Products
13
Consumables Management Excellent Performance 2005 – 2008 Revenues ($ in millions)
Operating Earnings¹ +85%
+80%
$159
$697
+70%
+54%
22.7%
$86
$387
22.1% +45% $252
+44% $50
$174
$35 20.0% 20.1%
2005
2006
2007
2008
2005
2006
2007
2008
Operating Margin (%)
Synergies from the HCS acquisition are expected to drive further margin expansion beginning in the latter part of 2009 1
For 2008 excludes goodwill impairment charge
14
Combined Consumables Management Profile Leading supplier to virtually all major airlines, aerospace OEMs and MROs Distributor for every major fastener manufacturer in the world Largest global distribution footprint, including leading positions in high-growth emerging markets Expanding “inventory stocking” business model, resulting in lower procurement costs to support both daily transactions and long-term agreements 2008 Proforma Revenues Consumables Management proforma: $1.05BN
43%
B/E Aerospace 2008 Proforma: $2.4BN
*Excludes goodwill impairment charge
2008 Proforma Operating Earnings* Consumables Management proforma: $199MM Operating Margin 19%
50%
B/E Aerospace 2008 Proforma: $401MM
15
Largest Value Added Service Provider Worldwide Airlines
Commercial OEMs
Business Aviation
MROs
Military
16
Integration Update Customer Contract Optimization
Reduction of Operating Expenses
~$85 million
Product Cost
Pricing Leverage
Integration and synergies are ahead of plan; ~$85 million in synergies expected to be achieved by first full year following completion of integration 17
Significant Integration Accomplishments Rebranding underway “Consumables Management” Customers are very pleased with B/E Aerospace service quality A number of major customer accounts successfully integrated to consumables management IT system Closed India call center and Mexicali purchasing and sales office Consolidated and relocated facilities in Hamburg, Shanghai and Toulouse ~140 person headcount reduction by December 31, 2008 Roanoke to Miami inventory transfer accelerated by one year to ~December 31, 2009 QA and IT programming approved by FAA 18
Commercial Aircraft Segment Seating Systems
First and business class lie-flat seat/beds Main cabin and regional Premium economy / specialty Interior Systems
Beverage makers, water boilers Ovens – steam, convection, high heat, microwave Galley refrigeration systems, chillers Passenger and crew oxygen systems Cabin lighting Structures & Integration
Interior structures (galleys, stowage) Crew rest compartments Aircraft cabin modification / integration Global Customer Support
Aftermarket parts and support
19
Commercial Aircraft Segment Excellent Performance 2005 – 2008 ($ in millions)
Revenues
+51% $1,098
Operating Earnings¹ +4% $1,139
+60% $142
13.9%
+75% $89
+33% $729
+11.3% $158
12.9% $550
12.2% $51 9.3%
2005
2006
2007
2008
2005
2006 2007 Operating Margin %
2008 E
Operating margin expanded 460 bps 1
For 2008 excludes goodwill impairment charge
20
Business Jet Segment Executive Aircraft Seating Lighting Systems Full Spectrum Digital LED Lighting Reading Lights Mood Lighting
Oxygen Systems Passenger & Crew Storage, Distribution, Delivery
Super First Class Environments
21
Business Jet Segment Excellent Performance 2005 – 2008 ($ in millions)
Revenues
Operating Earnings +89% $37.3
+42% $274 +30% $193
+110% $19.7
+23% $148
13.6%
10.2%
$120
$7.8 6.5%
2005
2006
2007
2008
2005
+21% $9.4 6.4%
2006 2007 Operating Margin %
2008
Operating margin expanded 710 bps 22
Market Share Leadership Estimated Market Share
Distribution Segment Leading global distributor of aerospace fasteners and consumables
Leader
Commercial Aircraft Segment Seating products
~45%
Coffee makers, refrigeration and ovens
>50%
Oxygen delivery, fresh-air and protective breathing equipment
>50%
Cabin reconfiguration, crew rests and engineering services
Leader
Business Jet Segment Business jet seating and interior lighting
>50%
Oxygen delivery, fresh-air and protective breathing equipment
>50%
Super First Class suites
>50%
B/E Aerospace is a market leader across all of its major product segments
23
Financial Overview
Tom McCaffrey – Senior Vice President and Chief Financial Officer 24
2008 Financial Performance Revenue ($ in millions)
Distribution Commercial Aircraft Business Jet Total
2008 $ 697.3 1,138.7 274.0 $ 2,110.0
2007 $ 386.5 1,098.1 193.1 $ 1,677.7
Percent Change 80.4% 3.7% 41.9% 25.8%
Operating Earnings¹ ($ in millions)
Distribution Commercial Aircraft Business Jet Total
2008 $ 158.5 158.0 37.3 $ 353.8
¹ For 2008 excludes goodwill impairment charge
Margin 22.7% 13.9% 13.6% 16.8%
2007 $ 85.5 141.8 19.7 $ 247.0
Margin 22.1% 12.9% 10.2% 14.7%
Percent Change 85.4% 11.4% 89.3% 43.2%
25
Strong Liquidity Position: December 31, 2008 Cash on hand over $168 million No debt maturities until 2014 Undrawn $350 million revolver Net debt to net capital ratio 43% Significant covenant coverage Leverage ratio: 2.1x vs. 4.25x covenant Interest coverage: 5.7x vs. 2.25x covenant
Healthy balance sheet
26
2009 Financial Guidance 2009 revenues expected to be ~$2.25 billion. 2009 EPS expected to be ~$2.00, excluding AIT costs of ~$0.10. Expect to invest ~$75 million in distribution segment inventories to facilitate the transition of the HCS business to the company’s inventory stocking business model and ~$40 million in capital expenditures. Expect to end year with cash balance in excess of $250 million. First quarter 2009 earnings and cash flow are expected to be weak. Expect first quarter 2009 adjusted EPS of ~$0.40, excluding AIT costs. Expect second, third and fourth quarters of 2009 to have both higher revenues and better product mix than the first quarter resulting in higher earnings and cash flows in final three quarters.
27
Reconciliation of Non-GAAP Financial Measures B/E Aerospace, Inc. RECONCILIATION OF NON-GAAP FINANCIAL MEASURES (In Millions) RECONCILIATION OF NET EARNINGS
Adjusted net earnings before estimated goodwill impairment charge Acquisition, integration and transition costs Severance costs Debt prepayment costs Income taxes on debt prepayment costs and acquisition, integration and transition costs (using the effective tax rate of 31.5% for quarter and 33.6% for year) Net earnings before estimated goodwill impairment charge
Year Ended December 31, 2008 $ 210.8 (9.7) (2.0) (3.6) 5.1
200.6
Estimated pre-tax goodwill impairment charge
(390.0)
Income taxes on estimated goodwill impairment charge (using an effective tax rate of 23.1%)
90.0
Net loss
$
(99.4)
Adjusted net earnings per share (basic and diluted) before estimated goodwill impairment charge
$
2.22
Net earnings per share (basic and diluted) before estimated goodwill impairment charge
$
2.12
Net loss per share (basic and diluted)
$
(1.05)
RECONCILIATION OF OPERATING EARNINGS
Operating earnings, as reported Estimated goodwill impairment charge Acquisition, integration and transition costs Severance costs Operating earnings, as adjusted
Year Ended December 31, 2008 $ (36.2) 390.0 9.7 2.0 $ 365.5
28
Reconciliation of Non-GAAP Financial Measures
(In millions except per share data)
Net earnings as reported Income taxes (using the 2007 31.5% effective tax rate in 2005 and 2006 periods) Net earnings (using the 2007 31.5% effective tax rate in 2005 and 2006 periods)
Year Ended December 31, 2007 2006 2005 $ 147.3 $ 85.6 $ 84.6 -
23.9
61.1
$
147.3
$
61.7
$
23.5
Net earnings per fully diluted share
$
1.66
$
0.79
$
0.39
Net earnings per fully diluted share as reported
$
1.66 88.8
$
1.10 78.0
$
1.39 60.8
Weighted average diluted shares
29
B/E Aerospace: Safe Harbor Statement These materials contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such forward-looking statements include, but are not limited to, B/E Aerospace’s financial guidance and industry expectations for the next several years and the expected benefits from the HCS acquisition. Such forward-looking statements involve risks and uncertainties. B/E Aerospace’s actual experience and results may differ materially from the experience and results anticipated in such statements. Factors that might cause such a difference include changes in market and industry conditions and those discussed in B/E Aerospace’s filings with the Securities and Exchange Commission, which include its Proxy Statement, Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K. For more information, see the section entitled “Forward-Looking Statements” contained in B/E Aerospace’s Annual Report on Form 10-K and in other filings. The forward-looking statements included in these materials are made only as of today’s date and, except as required by federal securities laws, we do not have any obligation to publicly update or revise any forward-looking statements to reflect subsequent events or circumstances.
30
Many Parts. One Partner.
