UNITED STATES
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SECURITIES AND EXCHANGE COMMISSION
Washington,WASHINGTON, D.C. 20549
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FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934 For the fiscal year ended June(FEE REQUIRED)
FOR THE FISCAL YEAR ENDED JUNE 30, 19971998
OR
[ ][_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 Commission File No.(NO FEE REQUIRED)
FOR THE TRANSITION PERIOD FROM _______________ TO _______________
COMMISSION FILE NUMBER 1-11474
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BREED TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
DelawareDELAWARE 22-2767118
(State or other jurisdiction of (I.R.S. Employer Identification No.)employer
incorporation or organization) identification no.)
5300 Old Tampa Highway
Lakeland, Florida 33811OLD TAMPA HIGHWAY 33807
LAKELAND, FLORIDA (Zip code)
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (941) 668-6000
Securities registered pursuant to Section 12(b)SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
Title of the Act:Each Class Name of each exchange
Title of each classEach Exchange on which registeredWhich Registered
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Common Stock, $.01 par value $.01 per share New York Stock Exchange
Securities registered pursuant to section 12(g) of the act:SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: None
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___YES X NO
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [X]
As of July 31, 1997, the approximate[_]
The aggregate market value of the voting and
non-voting stock held by non-affiliates of the
registrant was $263,834,000 basedas of September 21, 1998 (based on the last reported saleclosing price
per share of the Company's Common Stock as reported on the New York Stock Exchange ason such
date) was $130,343,185. As of such date, the close of business on July 31, 1997. There were
31,679,217registrant had 36,849,438 shares
of Common Stock outstanding as of July 31, 1997.
DOCUMENTS OR PARTS INCORPORATED BY REFERENCE
Form 10K Part into Which the
Document Document is Incorporated
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Proxy Statement Part III
relating to Registrant's Annual Meeting
of Stockholders to be held on November 20, 1997outstanding.
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INDEX TO FORM 10-K
BREED TECHNOLOGIES, INC.
PAGE REFERENCE
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PART I
Item 1. Business................................................... 2
Item 2. Properties................................................. 11
Item 3. Legal Proceedings.......................................... 12
Item 4. Submission of Matters to a Vote of Security Holders........ 13
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters........................................ 13
Item 6. Selected Financial Data.................................... 13
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations...................... 16
Item 7A. Quantitative and Qualitative Disclosures about Market Risk. 27
Item 8. Financial Statements and Supplementary Data................ 27
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure................... 27
PART III
Item 10. Directors and Executive Officers of the Registrant......... 28
Item 11. Executive Compensation..................................... 30
Item 12. Common Stock Ownership of Certain Beneficial
Owners and Management.................................... 34
Item 13. Certain Relationships and Related Transactions............. 36
PART IV
Item 14. Exhibits, Financial Statements Schedules
and Reports on Form 8-K................................. 37
PART I
Unless the context otherwise requires, (i) references herein to the "Company"
are to Breed Technologies, Inc. and its direct and indirect subsidiaries
(including SRS), (ii) references to "SRS" are to the safety restraint systems
business of AlliedSignal Inc. ("AlliedSignal") acquired by the Company on
October 30, 1997 (the "SRS Acquisition"), (iii) references to any "fiscal" year
of the Company refer to the Company's fiscal year ended or ending June 30 in
such year, and (iv) references to the "model year" of automobiles mean the
twelve-month period generally commencing on September 1 of the prior year,
although specific model years may vary by manufacturer and vehicle.
ITEM 1. BUSINESS
BREEDGENERAL
The Company is a worldwide leader in the design, development, manufacture and
sale of all of the components used in complete, integrated occupant protection
systems. Its principal products include sensors, electronics and related
software, airbag modules and inflators, seatbelt systems and steering wheels.
These products are used in over 400 vehicle models manufactured by over 45
automobile manufacturers ("OEMs"), including General Motors ("GM"), Fiat, Ford,
Chrysler, Suzuki and most of the other largest OEMs in the world. The Company
sells products to customers in over 14 countries worldwide and believes that it
is the largest independent supplier of steering wheels in the world and a
leading supplier of seatbelts.
The Company's goal is to become the leading worldwide supplier of complete,
integrated occupant protection systems, which consist of (i) sensors and
electronics (including crash and occupant protection sensors, electronics and
related software), (ii) airbag modules (consisting primarily of airbags and
inflators), (iii) seatbelt systems (including pretensioners and retractors) and
(iv) steering wheels. To accomplish this goal, the Company has significantly
expanded its business through the following eleven acquisitions since August
1994:
. May 1998--acquired HS Technik and Design, which develops advanced
technology for seatbelt systems, for $4.1 million in cash (which includes
$1.3 million subject to a hold-back agreement) and 129,144 shares of
Common Stock.
. October 1997--acquired SRS, the largest independent supplier of seatbelt
systems and the third largest independent supplier of airbag systems in
the United States, for $710.0 million in cash.
. February 1997--acquired Custom Trim, located in Canada and Mexico, which
produces leather wrapped steering wheels and other automotive leather
wrapped products, for approximately $70.0 million in cash.
. November 1996--acquired Artistic Analytical Methods, Inc., a designer of
advanced algorithm technology used in the interpretation of crash pulse
data, for $1.0 million in cash.
. October 1996--acquired the North American steering wheel operations
("USS") of Untied Technologies, which produces steering wheels, airbag
covers, horn pads and related molded products in the United States, Mexico
and England, for $154.0 million in cash.
. July 1996--acquired Gallino Plasturgia, S.r.l. ("Gallino"), a manufacturer
of steering wheels and plastic interior and exterior parts based in Italy,
for $74.0 million in cash and the assumption of $52.0 million of
liabilities.
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. May 1996--acquired Force Imaging Technologies, Inc. ("FIT"), a developer,
manufacturer and distributor of proprietary, high-profile, variable force
sensors, for $3.0 million in cash.
. April 1996--acquired MOMO S.p.A. and G. Holding, S.r.l. (collectively,
"MOMO"), an original equipment manufacturer and aftermarket supplier of
premium steering wheels and alloy road wheels, for $45.2 million in cash.
. April 1996--acquired Italtest, S.r.l. ("Italtest"), a European supplier of
printed circuit boards to automotive and commercial markets, for $1.8
million in cash.
. June 1995--acquired VTI Hamlin OY ("VTI"), a Finnish company that designs
and manufactures silicon capacitive micro-machined accelerometers and
angular rate and differential and absolute pressure sensors, for $1.7
million in cash and warrants to purchase 100,000 shares of Common Stock.
. August 1994--acquired Hamlin, Incorporated, a manufacturer of crash
sensors and reed switch products with operations in the United States,
Mexico and Europe, for 838,324 shares of Common Stock.
In addition, in December 1997 the Company and Siemens Aktiengesellschaft
("Siemens") agreed to form a joint venture, BSRS Restraint Systems International
G.m.b.H & Co. KG ("BSRS"), pursuant to a joint venture agreement. In connection
with BSRS, Siemens made a $115.0 million equity investment in the Company (the
"Company" or "BREED""Siemens Investment") designs, develops,
manufactures, the proceeds of which were used to finance a portion of
the purchase price of the SRS Acquisition. BSRS provides for the worldwide
research, development, engineering, assembly and sellsmarketing of integrated
occupant protection systems incorporating at least one component manufactured by
each of the Company and Siemens (a "JV System"). The Company expects that
components comprising JV Systems will continue to be produced separately by
Siemens and the Company but will be sold by BSRS under trade names owned by it.
The Company and Siemens completed formation of BSRS in June 1998.
INDUSTRY TRENDS
The Company's performance and growth have been, and are expected to continue
to be, directly related to certain trends within the automotive industry as well
as general economic conditions. As a result of increasing competition, OEMs
have sought to reduce costs, improve quality and reduce the time required to
develop new vehicle platforms. OEMs have reduced their supplier base by
awarding contracts to full-service suppliers that are able to supply complete
range of occupant safetyautomotive systems and othermodules on a global basis. The Company believes the
following are the primary trends in the automotive component supply industry:
SUPPLIER CONSOLIDATION. During the past several years, OEMs have
significantly consolidated their supplier bases to lower costs, improve
quality and accelerate new platform development. OEMs evaluate suppliers on
the basis of product quality, cost control, reliability of delivery, product
design capability, financial strength, new technology implementation, quality
and condition of facilities and overall management. Suppliers that obtain
superior ratings are preferred for sourcing new business.
SYSTEM/SUBSYSTEM SOURCING. OEMs are increasingly seeking full-service
suppliers capable of providing complete systems or subsystems rather than
suppliers that produce only individual components includingof such systems or
subsystems. A system is a group of component parts that operate together to
provide a specific engineering driven functionality whereas a subsystem is a
group of component parts that are assembled and shipped to the OEM for
installation in a vehicle as a unit. By outsourcing complete systems or
subsystems, OEMs are able to reduce their costs associated with
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the design and integration of different components and improve quality by
requiring suppliers to assemble and test major portions of the vehicle prior
to beginning production.
GLOBAL SOURCING. OEMs are positioning themselves to reach emerging
markets in a cost-effective manner by seeking to design and produce "world
cars" which can be designed in one vehicle center to a single global standard
but produced and sold in different geographic markets, thereby allowing OEMs
to reduce design costs and take advantage of low-cost manufacturing
locations. Consequently OEMs are increasingly seeking suppliers that have the
capability to design and manufacture their products in multiple geographic
markets.
PRODUCTS
The following table sets forth the percentage of net sales attributable to
each product category of the Company for the periods indicated(1):
PRO FORMA
FISCAL YEAR FISCAL YEAR
--------------------
1996 1997 1998 1998(2)
---- ---- ---- -----------
Electronics and sensors...... 70.1% 33.6% 14.9% 12.2%
Airbags and inflators........ 22.9 9.4 24.1 27.1
Steering wheels.............. 4.5 33.4 25.1 20.6
Seatbelt systems............. -- -- 23.1 29.5
Interiors and plastics....... -- 22.9 12.4 10.2
Other........................ 2.5 0.7 0.4 0.4
----- ----- ----- -----
Total........................ 100.0% 100.0% 100.0% 100.0%
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(1) For information regarding net sales, operating income and identifiable
assets attributable to the geographic regions in which the Company operates,
see Note 14 to Consolidated Financial Statements included elsewhere in this
Annual Report.
(2) Gives effect to the SRS Acquisition as if it occurred on July 1, 1997.
ELECTRONICS AND SENSOR PRODUCTS
The Company's principal electronics and sensor product lines consist of
proprietary electronic and electromechanical sensors airbag modules,
inflators, steering wheels,("EMS sensors"), as well as
relay and plastic exterior and interior components. The
Company's reed switch products. In response to OEMs' increased reliance upon
electronic sensing systems, the Company, in conjunction with Siemens, is
developing its own advanced electronic sensing devices. The most important of
these devices is the Restraints Control Module ("RCM")--the "brain" of the
intelligent occupant protection system being developed by the Company. The RCM
serves as both an electronic crash sensor (replacing multiple EMS sensors in
prior generation systems) and silicon micro sensor productsa diagnostic module. Future generations of RCMs
are also expected to interpret information received from occupant detection
sensors (which will identify occupant presence, size and location) and rollover
sensors, both of which are currently being developed by the Company, and in turn
initiate a tailored response utilizing variable output airbags and seatbelt
pretensioners.
The Company is also a leading producer of EMS sensors. These crash sensors
detect a change in velocity of the vehicle by, in the case of the Company's
patented "ball-in-tube" technology, the movement of a gold-plated ball through a
finely machined tube, which closes an electrical circuit causing the initiation
of the airbag. While the Company's production of EMS sensors has declined and is
expected to continue
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to decline due to the increased functionality of electronic sensors, the
research and modeling used to develop these devices is applicable to the newer
generation electronic sensing devices currently being developed by the Company.
In addition to crash and occupant detection, the Company's sensing devices can
be used in a wide
varietynumber of automotive as well as industrial sensor and switching applications.
Headquartered in Lakeland, Florida, BREED is one of the world's leading
suppliers of automotive occupant safety systems and steering wheels, providing
its global automotive customers with research and development, engineering and
manufacturing support through its global network of facilities in 13 countries.
BREED employs more than 11,100 people at its 57 facilities worldwide.
BREED has acquired nine companies in the past three years, five in the area of
electronic components and subassemblies and four in the area of steering wheels,
interior/exterior components and automotive accessories. Throughout the world,
BREED subsidiaries - A(2)M, BREED Italia, Custom Trim, Force Imaging, Gallino
Plasturgia, Hamlin, Italtest, MOMO, United Steering Systems and VTI Hamlin -
provide leading technologies to automotive, industrial and commercial markets.
Recent Developments
Recent acquisitions provide BREED with strategic vertical and horizontal
integration, and strengthen our position as a major global supplier of fully
integrated occupant safety systems. BREED completed several strategic
acquisitions in fiscal 1997, including:
o In July 1996, the steering wheel and plastic exterior and interior components
business of the Gallino Group.
o In October 1996, the steering wheel business of United Technologies
Automotive, renamed United Steering Systems, which provided additional patented
technologies and expanded BREED's customer base, and;
o In March 1997, Custom Trim Ltd., the automobile industry's primary supplier of
leather-wrapped steering wheels and shift knobs.
These acquisitions, combined with the Company's acquisition of MOMO, established
BREED as the world's largest supplier of steering wheels. This position enables
BREED to bid on global steering wheel contracts and provides an entry point for
bidding other global supply agreements in the area of occupant safety. To better
integrate these acquisitions, and to enhance customer support and focus product
development in the Company's core business, BREED restructured its business in
three product divisions during the year. The new structure reflects the
significant shift in BREED's product mix toward integrated occupant safety
systems. The new business units are Electronics/Sensors, Steering Wheels &
Interiors, and Air Bags/Inflators.
On August 27, 1997, BREED entered into an Asset Purchase Agreement with
AlliedSignal, Inc. to acquire its automotive safety restraint business.
AlliedSignal Safety Restraint Systems has annual sales in excess of $900 million
and employs 7,700 people in 14 plants in seven countries. It is the largest
supplier of seatbelts and third largest supplier of airbags in the United
States. Management believes that this strategic combination will make BREED an
even stronger global competitor in fully integrated occupant safety systems. The
transaction is expected to be completed following regulatory review, as well as
other legal requirements in various countries where these businesses operate.
Products
Electronic Products
The Company's principal electronic product line consists of its component
products, including sensors for airbag and non-airbag applications and other
reed switch and reed relay products.
In the airbag sensor market, the Company sells a range of electromechanical
(EMS) sensors, which are based on its proprietary technology. These EMS sensor
products include both ball-in-tube designs and reed switch designs which are
used in vehicles sold in Europe and North America. The Company has manufactured
and sold in excess of 90 million EMS sensors since 1987, and continues to
maintain a significant market position in EMS sensors. These sensors are used as
both complete sensing systems (typically two or three EMS sensors coupled with a
diagnostic module) and in conjunction with electronic sensors (typically one or
two EMS sensors per vehicle).
Many vehicle manufacturers are considering and/or commencing the use of
electronic sensing diagnostic systems (located in the occupant compartment of a
vehicle). Increased use of electronic sensing diagnostic systems will reduce the
use of EMS components in the crash sensing market. In response to this industry
trend, the Company has completed development, and
2
commenced marketing a series of electronic airbag sensing diagnostic modules
(SDM) which include electronic discriminating sensors, electromechanical safing
sensors and diagnostic circuitry. These SDM products are designed to meet
vehicle manufacturer requirements for passenger compartment electronic sensing.
Planned for this next model year is the 'next generation' BREED SDM, offering
greater functionality while reducing costs.
In order to maintain the Company's rigid cost and quality standards, BREED has
vertically integrated the next generation of electronic sensors through Hamlin,
VTI Hamlin and A2M (Enhanced Algorithm Capabilities). This enables the Company
to control sourcing for the most critical components of its SDM. In non-airbag
applications, the Company sells reed switch and silicon capacitive sensors for
use in an increasing number of automotive and non-automotive (e.g., industrial
and medical) products. Reed
switch sensor productsswitches are used to sense position or proximity in a wide range of commercial
equipment, (photocopysuch as photocopy machines, exercise equipment, security systems and
cellular phones, etc.).phones. They also have potential applications as seat position sensors
and seatbelt engagement sensors. These applications are part of intelligent
occupant protection systems. The Company'sCompany also has a full range of pressure
sensors and accelerometers which utilize its silicon micro machined sensor
technology. These products which include designscan be used to sensedetect acceleration pressure or
angular rate changes are used in automotiveand have a number of applications such asincluding rollover
sensing, electronically controlled suspension, antilockanti-lock braking, fuel vapor
recovery, and manifold absolute pressure products.
In April 1996products and monitoring refrigerant
pressure, combustion pressure, fuel levels and brake line and tire pressure.
The Company has recently developed the Tailorable Occupant Protection System
("TOPS"), which incorporates occupant-position sensors, weight sensors and seat-
buckle sensors. These sensing systems work together with the Company's passive
restraints, seatbelts, electronics and algorithms to determine the occupant's
size and position as well as the presence of a child safety seat. The Company
acquired Italtest. This company has high-quality
electronics manufacturing capabilities and is currently making sensing
diagnostic modules for BREED Italia'salso recently developed the dynamic occupant position test sled, which
utilizes sensors located in a vehicle instrument panel to determine if an
occupant will be placed out of position relative to the automobile's airbag,
systems.
In May 1996during pre-impact braking conditions. The test sled will work in conjunction
with the Company acquired Force Imaging Technologies, Inc. (FIT). This
company has a unique patented technology of variable force sensors that have
many applications, including multi-funtion steering wheel capabilities,Company's occupant sensing system to provide the maximum and
automated seat belt tensioning.
In November 1996 the Company acquired A2M. This company specializes in algorithm
development and signal processing techniques.
Airbag Systems and Components (Inflators, Modules and AMS)appropriate level of occupant protection during vehicular crashes.
AIRBAG AND INFLATOR PRODUCTS
The Company producesoffers airbags and inflators for driver-side, passenger-side and
side impact airbagside-impact systems used by OEMs in North America, Asia and Europe. The Company
offers a variety of inflators and modules, including sodium azide-based
pyrotechnic inflators and all-solid propellant, non-azide Eco-Safe/TM/ inflators
for driver-side applications, and a hybrid (combination solid and gas generant)
side-impact inflator. All of the Company's inflators can be tailored to provide
a variety of inflation levels to satisfy applications from depowered systems (to
address concerns for the safety of children and adults of small stature) to full
output systems. The Company has been supplying mechanically initiatedis vertically integrated and manufactures most of
the components used in airbag modules including airbag fabric, inflators and modules since 1989, electronically initiated inflatorsthe
airbag module cover.
The Eco-Safe/TM/ inflator represents the Company's newest generation of
environmentally friendly, compact inflators. In addition to the Company's thorax
and modules since 1994head/thorax Twin-Bag/TM/ side-impact module designs, the Company has in
development a head curtain airbag system that features both inflated and passenger side inflators and modules since 1995.non-
inflated surfaces working together to offer a wide side-protection area. For the
next generation intelligent occupant protection system, the Company is
developing variable mass flow deployment inflators. The Company offers
inflatorshas also been
addressing the need for useimproved side-impact protection and recently announced
the SoftPak/TM/ head/thorax module with a patented venting system and crescent
cushion fold. This technology is designed to improve the protection of occupants
who may not be in full size airbag systems (US requirement), its smaller
FacebagTM systems (European requirement) and side impact systems. These inflator
products include inflators using sodium azide-based propellants, hybrid
(compressed gas and propellant), "Eco-safe" non-sodium azide-based propellant,
and stored gas designs.
Steering Wheel/Leather Wrappinga standard seated position. The Company acquired Gallino (July 1, 1996)also offers a self-
contained all-mechanical driver-side airbag module and MOMO (April 15, 1996),steering wheel. The
entire system can be used to replace an existing steering wheel suppliers to OEMs in Europe, Asia andwith an airbag
equipped steering wheel system on a vehicle manufactured without a driver-side
airbag.
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SEATBELT SYSTEMS
As a result of the U.S. On October 25, 1996,SRS Acquisition, the Company acquireddesigns, develops and
manufactures complete seatbelt systems. Seatbelt systems include retractors,
buckles, seat-integrated belts, electric and mechanical height adjusters and
pyrotechnic and mechanical pretensioners, which are devices that remove slack
from a seatbelt system within milliseconds of a collision. The Company is a
vertically integrated manufacturer of the North Americanwebbing, metal and United Kingdomplastic components
and finishing of seatbelt systems.
The Company is a leader in the development of seatbelts that are integrated
into the seats of the vehicle, as opposed to being attached to the upper part of
the interior known as the "B-pillar." Seat-integrated belts offer comfort,
convenience and appearance benefits to drivers and passengers, while providing
styling and assembly benefits to OEMs.
STEERING WHEELS
The Company believes that it is the world's largest independent manufacturer
of steering wheel business
of United Technologies. This acquisition allows the Company to supplywheels, supplying steering wheels to OEMs in the United States, Canada, MexicoNorth America, Europe
and the United Kingdom. It
further enhances theAsia. The Company's ability to provide complete integrated airbagsteering wheel products range from high-end steering
wheels trimmed with higher quality wood and leather for luxury and high
performance automobiles to OEMs. Additionally,molded plastic steering wheels for lower-priced,
higher volume vehicles. The Company is vertically integrated and finishes the
Company acquired the stock of BTI
Investments, whose principal business is conducted under the trade name of
Custom Trim. It primarily providessteering wheels it produces with leather wrapping services for steering wheels
and other automotive accessories.
Customers
BREED's future success in the airbag business will depend in large part on its
ability to supply complete occupant protection systems (crash sensors, airbag
modules, steering wheels and integrated airbag/steering wheels) to meet the
changing requirements of automobile manufacturers.
Sales by the Company to Ford for fiscal 1995, 1996 and 1997 accounted for 37%,
33% and 25%, respectively, of the Company's total net sales for these periods.
Sales by the Company to GM and Delphi (including Delco) for fiscal 1995, 1996
and 1997 accounted for 40%, 26% and 13%, respectively, of the Company's total
net sales for these periods. Sales by the Company to the Fiat Group for fiscal
1996 and 1997 accounted for 14% and 32% , respectively, of the Company's sales.or wood finishing.
CUSTOMERS
The Company supplies its sensor products primarily to automotive OEMs in North
America, Europe and Asia. The Company's products are included in over 400
vehicle OEMs, such as
Ford, Fiat, Nissan, Mazda, and to Tier 1 suppliers, such as Delphi (through
Delco). Although the Company has multi-year EMS supply agreements with Ford and
Delphi (through Delco), these contracts do not commit such customers to purchase
any specified quantities of products from the Company, and each of the
agreements is subject to termination under certain conditions. Ford and GM are
replacing EMS sensors with electronic sensors; however, BREED's EMS sensors are
being used as auxiliary sensors in certain vehicles. BREED has expanded its
product lines to include down-sized EMS sensors, electronic SDMs and silicon
microsensors, as well as additional EMS sensors designed for use in SDMs. In
order to meet the demands of the increasing electronic sensor market, the
Company has micromachining manufacturing, electronic assembly capabilities and
algorithm technology. As the EMS sensor market shifts
3
to electronic, BREED is adversely affected since there can be no assurance that
these new products will achieve as broad a market position for the Company as it
achieved with its current EMS sensor products; however, additional product lines
including electronic sensing and steering wheels are favorably impacting BREED.
The Company supplies Fiat, Ford of Australia, Chrysler, Jaguar, Proton, and
Ssangyong with airbag modules, and Delphi, Mazda and Suzuki with inflators. The
Company has entered into a multi-year supply agreement with Fiat, Delphi, Proton
and Nihon Plast under which the Company supplies inflators and airbag modules;
these supply agreements are subject to termination under certain conditions.models manufactured by more than 45 OEMs. In addition the Company supplies Fiat electronic sensing diagnostic modules.
BREED has positioned itself through the acquisitions of MOMO, Gallino and United
Steering Systems as the world's largest supplier of steering wheels. The
Company's wood and leather steering wheels, light alloy wheels and other
high-end car accessories are sold primarily to OEMs such as Ferrari,
Lamborghini, Jaguar, Porsche, Honda, Fuji Heavy and Nissan. In addition,its OEM
customers, the
Company sells these products to the aftermarket through its distribution
centers. High-volume steering wheel customers include Ford, the Fiat Group,
Chrysler and Nissan. Ford has changed their agreement structure from long-term
agreements to Total Cost Management ("TCM") agreements. The major customers for
the Company's leather wrapping business are TRW, Delphi, Petri, Toyota Gosei and
Centoco.
The Company sells its reed switch and silicon sensor products to a
large number of manufacturers of equipment sold forboth automotive and non-automotive applications. Significantequipment. During
fiscal 1998, sales to Fiat, GM, Chrysler and Ford accounted for 20%, 19% 19%
and 16% of the Company's net sales, respectively. None of the Company's other
customers include Delphi (including Delco),
Morton/Autoliv, Siemens, Bosch, Temic, TRW, Xerox, SMP and Nordic Track, as well
as vehicleaccounted for more than 10% of the Company's net sales in fiscal 1998.
The Company's OEM customers including Mitsubishi, Toyotatypically award contracts to supply products for a
particular car model for the life of the model (which averages five years) (a
"program"). Such contracts are awarded two or three years prior to the start of
production of such model and GM.
Salesdo not require the OEM to purchase any specified
quantities of products. The Company also competes for new business to supply
products for successor models and Engineering Supportthus is subject to the risk that the OEM will
not select the Company to produce products for a successor model. Consequently,
the Company is required to bid for contracts on a continuous basis in order to
maintain stable revenues. Because the Company supplies products for a
broadcross-section of both new and mature models, the Company is not dependent
on sales attributable to a single program and thus generally the loss of any
single program should not have a material adverse effect on the Company's
results of operations. However, although the agreements with OEMs typically
extend for life of the model, such agreements may be terminable by the customer
during the term of the contract.
The Company warrants to its OEM customers that its products are free from
defects and that they meet certain OEM designated specifications. The OEMs in
turn offer product warranties to the purchasers of vehicles. In some instances
of common complaint, the automobile manufacturer will institute a vehicle recall
or will be required by a governmental agency to conduct a recall. As a result,
from time to time, the Company has received claims against it and requests for
payment from its OEM customers to remedy complaints made by the purchasers of
vehicles. There can be no assurance that the Company will not incur substantial
warranty or recall expense the future. Such complaints and the related expenses
could have a
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material adverse effect on the Company's relationship with its OEM customers and
on its financial condition and results of operations.
SALES AND ENGINEERING SUPPORT
The Company generally competes for new business at the beginning of the
development process for new vehicle models. The Company also competes for new
business upon the redesign of existing models by its customers or, in the case
of inflators and modules, as a replacement supplier for existing models.
OEM customers typically require early involvement of their suppliers in the
design and engineering aspects of product development. Automobile manufacturers
seek the Company's assistance in airbag sensor and system design and calibration so
that particular characteristics of each vehicle model are taken into account.
Through the lengthy vehicle design process, sensors and systems are repeatedly
evaluated by the Company has assumed engineering responsibility forin simulations and sled tests, culminating in the
developmenttesting of certain components of these sensor airbagfinished vehicles with installed prototype sensors and systems including the performance
testing necessary to
ensure compliance with the standards and specifications.specifications of the federal government
and manufacturers' safety requirements. The Company has dedicated certain of its
engineering staff to the support of its major customers.
SuppliersThe Company also supports its customers with its proprietary computer modeling
programs that simulate sensor and Raw Materialssystem performance using vehicle data supplied
by the customer. Using this software, the Company assists its customers in
determining calibration and installation location and adapting the Company's
products for use in the customer's vehicles. The Company's programs can also
provide customers with computer modeling of occupant motion and injury during a
simulated crash, crash pulse and inflator optimization and finite element
analysis of vehicle and component structures.
In December 1997, the Company and Siemens agreed to form BSRS. When fully
operational over the next several years, BSRS is expected to assume the sales
and marketing functions for both the Company's and Siemens' integrated occupant
protection systems and components. It is anticipated that all sales and
marketing and program management personnel relating to JV Systems and components
will be employed by BSRS (although initially certain sales and marketing
personnel will be leased by the Company to BSRS) and that billing and collection
activities will be handled by BSRS on a pass-through basis. Accordingly, the
Company expects its sales and marketing staff and related expenses to decrease
as BSRS begins to conduct the sales and marketing functions. The Company expects
that the Company and Siemens will be required to fund such expenses incurred by
BSRS. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Overview--BSRS".
SUPPLIERS AND RAW MATERIALS
The Company purchases many of the components for its products (including
certain plastic parts, certain stampings, magnets, inflators, precision steel balls,
contacts, certain electronic assemblies, certain wire harnesses, airbag doors/covers, printed
wire boards, certain ignitor assemblies, labels, aluminum propellant cups,
rubber/silicon seals, aluminum, leather) as finished components, and
purchases raw materials (including chemicals
for the production of inflator propellent, resin and hardener for potting
compound, impacted aluminum blanks, steel rod, raw stampings to be welded,
airbag fabric, and wire harness sub-components) from third parties pursuant to
supply agreements.
The Company has agreements to purchase most or all of its requirements for
certain components from single sources, typically when the tooling for such is
reimbursed by the OEM customer. Examples include certain plastic parts,
certain
stampings, magnets, contacts, certain electronic assemblies, certain wire
harnesses, airbag doors/covers, certaininflators, ignitor assemblies, aluminum
propellent cups and resin and hardener for the potting compound. The Company
believes that alternative sources for these single source items are available at
competitive prices. No significantThe Company has not experienced any interruptions in supply problems have been encountered
in recent years, and its relationships with its suppliers have generally been
good.
Patents, Trademarks and Licenses-7-
PROPRIETARY RIGHTS
The Company currently owns a significant number of355 United States patents and 505 foreign patents.
The Company has also trademarked eight names in the United States and related
foreign patents176 names
in certain countries, which expire on varying dates from 1997
through 2016. It also has trademarked several corporate icons.other countries. While the Company considers its patents and
trademarks to be valuable assets, it does not believe that its competitive
position is dependent on patent and/or trademark protection or that its operations
are dependent on any individual patent. The Company has granted licensesThere can be no assurance that the
protection offered by any patents will be adequate to specified portions ofprotect the Company's
technologyrights and interests in exchange for ongoing royalties and other payments. The Company's
licensees include Sensor Technology Co. Ltd., Tokai Rika and Oki. The Company
pays royalties to United Technologies Corporation in connection with the sale
and licensing of certain of the Company's EMS airbag sensor products.
Backlog
For automotive customers, the Company does not manufacture or ship products
until it has received a purchase order and material release which specifies the
quantity ordered and specific delivery dates. Generally these orders are shipped
within two weeks of receipt of the final material release. The Company's
non-automotive products are produced for stock based on sales forecasts and
historical demand. The backlog at June 30, 1997 is not significant.
4
Engineering Research and Developmentits technology.
RESEARCH AND DEVELOPMENT
The Company places significant emphasis on new product and technology
development and has increased its research and development activities in each of
the last three years. During fiscal 1995, 1996, 1997 and 1997,1998, engineering, research
and development expenses were approximately $18.5 million, $23.6 million, $36.1 million and $36.1$73.2 million,
respectively. The Company's research and development activities are currently
focused primarily on the development of new airbag sensor,intelligent occupant protection
systems, next-generation inflator and module products including integrated airbag,
steering wheels with multifunction membrane sensorstechnologies and enhancements or cost
improvements forto existing products. New airbag sensor products and technology
which are subjects of thisapplications engineering. When fully
operational over the next several years, BSRS is expected to assume the
research, development and engineering functions for both the Company's and
Siemens' integrated occupant protection systems. Accordingly, the Company
expects its research, development activity include a series of
electronic sensing diagnostic modules, down-sized spring-bias electromechanical
sensors, and side impactengineering staff and predictive sensing systems. New inflatorexpenses to decrease
as BSRS begins to conduct these research, development and module
products and technologies which are subjects of this research and development
activity include mechanically and electrically initiated passenger-side systems,
non-sodium azide-based products and side impact systems.engineering functions.
The Company also is
developing a new seriesexpects that the Company and Siemens will be required to fund all
such expenses incurred by BSRS. See "Management's Discussion and Analysis of
down-sized silicon capacitive sensors for
acceleration, pressureFinancial Condition and angular rate applications as well as membrane sensors
for accessory function and occupant detection systems. In addition, the company
is also working on developing micro machined and ultrasonic sensors for occupant
detection systems.
CompetitionResults of Operations--Overview--BSRS".
COMPETITION
The Company competes with independent suppliers and partially or fully
integrated manufacturers of steering wheels, airbag
sensors,occupant protection systems and theirother automotive
components. In addition, many of the Company's customers are integrated
manufacturers whichthat produce or could produce a substantial portion of their own
requirements for certain airbag components. Increased competition, pricing pressures
and the demands of OEMs have caused an industry-wide trend toward consolidation.
The Company competes primarily on the basis of its product quality, price,
reliability of delivery, product design capability and engineering support,
financial strength, new technology implementation, production capabilities and
production capabilities.
The Company principally competes forgeographic service area. In addition, the ability to introduce new steering wheel sensor, inflator and
leather wrapping business atproducts to
the beginning of the development of new vehicle
models. The Company also competes for new business upon the redesign of existing
models by its customers or,market has become an increasingly important factor in maintaining a
competitive position in the case of inflators and modules, as a
replacement supplier for existing models. The development of new models and
redesign of existing models generally begin three to five years and two to three
years, respectively, prior to the marketing of such models to the public.
Airbag Sensors
The Company's principal competitor in the market for electromechanical sensors
is TRW. The Company's sensors also compete with electronic sensors currently
offered or under development by competitors such as TRW, Robert Bosch GmbH
("Bosch"), Siemens, Morton/Autoliv, Temic, Nippondenso and Delphi (through
Delco) and the internal electronics divisions of Ford.
Inflators
The current market for airbag inflators is dominated by a small number of
companies, most of which have significant financial and other resources.market.
The Company's principal competitors in the saleintegrated occupant protection
system market are TRW, Autoliv, Delphi and Takata. These competitors produce
most of the components comprising their integrated systems. Further, these
companies have significant financial and other resources and are able to compete
as global suppliers. The Company's principal competitors in the market for
electronics and sensors are TRW, Bosch, Autoliv, Temic, Delphi (through Delco)
and Nippondenso and Ford Visteon. The Company's principal competitors in the
market for inflators and airbags are Autoliv/Morton,Autoliv, Takata, TRW, OEA and Takata,Tally, which
offer inflator products on a worldwide basis, and Temic, which offers inflator
products in Europe. In addition, a number of competitors,
including AlliedSignal, Inc., Magna, Morton/Autoliv and OEA Inc., have joint
ventures for the development and sale of alternative inflator technologies. The
Company's ability to compete effectively in the sale of inflator products may be
limited by pre-existing contractual relationships between its competitors and
certain automobile manufacturers.
Airbag Systems
The Company believes that its AMS systems are the only currently available
airbag system using mechanical sensing and initiation. In selling these systems,
the Company competes with independent suppliersfor sales of electrically initiated airbag
systems and components and, in Japan, the Company's licensees, STC and Tokai
Rika. The Company's competitors with respect to complete electrically initiated
airbag systems include TRW, Takata Inc., Morton/Autoliv, AlliedSignal, Inc.,
Morton, Magna, Temic and manufacturers of airbag components for customers
assembling their own airbag systems.
Reed Switch Products
The primary competition for the sale of reed switches are Phillips, N.V. and
Oki. In addition, there are a number of small regional reed switch producerssteering wheels in North
America Europe and Asia. For value-added reed switch products such as
position sensors, there are also several small regional competitors. For reed
relay products, the primary competitors are C.P. Claire and Coto-Wabash.
Silicon Sensor Products
There exists a significant number of competitors in the market for various kinds
of silicon microsensors, some of which have broad product offerings comparable
to or greater than those of the Company. These include such companies as Texas
Instruments, Inc., Motorola, Inc., Analog Devices, Inc., E.G.& G/IC Sensors,
Inc., Sensonor, and the internal operations of certain vehicle and equipment
manufacturers. However, the Company's sensor designs are proprietary and unique
to the
5
Company, and only a limited number of the Company's silicon sensor competitors
offer capacitive technology.
Steering Wheels and Road Wheels
The North American steering wheel operations competes on sales to OEMs with TRW, Petri,Autoliv, Centoco, ToyotaToyoda Gosei and Neaton. The European steering wheel companies
competeNeaton, and in OEM salesEurope with
Morton/Autoliv, Dalphi Metal, Delphi and Petri. The luxury steering wheels of the Company compete with NARDI. In Italy,Company's principal competitors for
road wheels include Fondmetal, OZ,sales of seatbelts are Autoliv, Takata and Speedline. Other competitors include
BBS and ATS in Germany, Boid in the United States, and Taneisha in Japan.
Government Regulations
Automotive RegulationsTRW.
-8-
GOVERNMENT REGULATION
AUTOMOTIVE REGULATIONS
Airbag systems installed in automobiles sold in the United States must comply
with government regulations.regulations, including those which require the installation of
passive restraint devices in all new cars, light trucks and vans. In order to
comply with these regulations, airbag systems must meet specifications intended
to ensure that certain types of injuries occurring as a result of specified
crash conditions fall within established severity levels. The Company's
customers are required to self-certify that airbag systems installed in vehicles
sold in the United States satisfy these requirements.
Environmental RegulationsENVIRONMENTAL REGULATIONS
The Company uses various hazardous and toxic substances in its manufacturing
processes including certain solvents and lubricants, as well as sodium azide and
other pyrotechnic materials. The Company's operations are subject to numerous
Federal,federal, state and local laws, regulations and permit requirements relating to
the handling, storage, disposal and transportation of certain of these
substances. The Company's foreign operations are also subject to various
environmental and transportation-related statutes and regulations. Generally,
these foreign requirements tend to be no more restrictive than those in effect
in the United
States.U.S. The Company believes that it is in substantial compliance in all material
respects with existing laws and regulations and has obtained or applied for theall
material permits necessary permits to conduct its business operations. Compliance by the Company with applicable
environmental laws has not had a material adverse effect on the Company's
financial condition or competitive position to date.business. Although no assurancesassurance can be
given, the Company does not believe that compliance with existing environmental
or other governmental laws or regulations will have a material adverse effect in the future.
Product Liabilityon
its results of operations or financial condition.
PRODUCT LIABILITY
The sale of airbag systems and components entailsthe Company's products entail an inherent risk of product
liability claims. Although the Company maintains product liability insurance
covering certain types of claims, the Company's policies are subject to
substantial deductibles and there can be no assurance that the coverage limits
of the Company's insurance policies will be adequate.adequate or that any particular loss
will be covered. Such insurance can be expensive and in the future may not be
available on acceptable terms, if at all. A successful claim brought against
the Company not covered by the Company's insurance or resulting in a recovery in
excess of its insurance coverage could have a material adverse effect on the
Company's financial condition and results of operations.
However, there are no lawsuits pending againstBACKLOG
The Company's automotive customers typically award contracts to supply
products for a particular car model for the life of the model (which averages
five years). Such contracts do not require the OEM to purchase any specified
quantities of products. With respect to these customers, the Company generally
does not manufacture or ship products until it has received a purchase order and
material release which specifies the quantity ordered and specific delivery
dates. Generally these orders are shipped within two weeks of receipt of the
final material release. With respect to the Company's non-automotive customers,
products are produced for stock based on sales forecasts and historical demand.
The backlog at June 30, 1998 was not material.
-9-
EMPLOYEES
As of June 30, 1998, the Company believes at this time, to be material. With regard to
the pending acquisition of AlliedSignal's Safety Restraint Systems Division, the
Company will not be responsible for any pending product liability matters.
Employees
As of September 1, 1997, the Company hashad approximately 11,100 full time16,300 full-time employees
worldwide. TheCertain of the Company's United StatesNorth American employees and most of its
overseas employees are unionized in two
locations, representing approximately 26% of the domestic workforce. The
Company's hourly employees in Mexico, Italy and Finland are represented by labor
unions.unionized. The Company has not experienced any
legalsignificant work stoppages during the past three years and considers its
relations with its employees to be good. Wages are negotiated underDuring the Company's Mexican union agreements inthree months ended December
of each year, with the full
contract negotiation every two years.
Executive Officers of the Registrant
Information regarding the Executive Officers of31, 1997, the Company are set forth as
follows:
Allen K. Breed 70 Chairmanbegan implementing its Repositioning Program (See
"Management's Discussion and Analysis of the BoardFinancial Condition and Results of
Directors
Johnnie Cordell Breed 53 Co-Chairman and Chief Executive Officer
Charles J. Speranzella, Jr. 41 Vice Chairman
Fred J. Musone 53 President, Chief Operating Officer
Robert M. Rapone 41 Executive Vice President,
Operations Worldwide
Frank J. Gnisci 47 Executive Vice President,
Chief Financial Officer
Arthur R. Schauffert, Jr. 46 Treasurer
Lizanne Guptill 42 Secretary
Mr. Breed, founder of-- Overview -- Repositioning Program" under Item 7 in this Annual
Report) pursuant to which the Company has been Chairman ofplans to reduce its global workforce by
25% (or approximately 4,900 employees). The Company currently expects the
Company sincereduction in its inception. Mr. Breed served as Chief Executive
6global workforce to be substantially completed by March 31,
1999.
-10-
Officer through August, 1997. Mr. Breed is also Chairman, President and owner of
BREED Corporation, a real estate holding Company. Mr. Breed is the husband of
Johnnie Cordell Breed.
Mrs. Breed was elected Co-Chairman of the Board and Chief Executive Officer of
the Company on August 27, 1997 and has been a director of the Company since its
inception. Mrs. Breed served as President and Chief Operating Officer from
September, 1995. Mrs. Breed also serves as Vice President of BREED Corporation.
In 1982, Mrs. Breed co-founded Transcor, Inc., a provider of transportation
travel services. She is currently the Secretary, Treasurer and sole stockholder
of Transcor, Inc. Mrs. Breed is the wife of Allen K. Breed.
On August 27, 1997, Mr. Speranzella was elected Vice Chairman of the Company.
Mr. Speranzella joined the Company as General Counsel and Assistant Secretary in
September, 1994. He became Managing Senior Vice President, General Counsel and
Assistant Secretary in February, 1995. Mr. Speranzella was elected Corporate
Secretary in May, 1995. He was promoted to Executive Vice President, General
Counsel and Secretary in July, 1995. Mr. Speranzella became President of BREED
European Holdings, Inc. in June 1996. From 1979 until joining the Company, he
held various senior positions at Matra Hachette's Fairchild Space and Defense
Corporation and Martin Marietta.
Mr. Musone joined the Company on September 2, 1997 as President and Chief
Operating Officer. Prior to joining the Company, Mr. Musone was President and
Chief Operating Officer of Morton International ASP/Autoliv, Inc., a
manufacturer of automotive safety products, since 1995. He held various
management positions with Federal Mogul Corporation from 1972 through 1995, the
most recent position being President of Worldwide Manufacturing Operations.
Mr. Rapone joined the Company as Executive Vice President, Operations Worldwide
on September 2, 1997. Since 1995, Mr. Rapone was Vice President of Operations
for Morton International ASP/Autoliv, Inc., a manufacturer of automotive safety
products. From 1989-1995, Mr. Rapone was employed by Federal Mogul Corporation,
serving most recently as Director of Connectivity. From 1983-1989, Mr. Rapone
was employed by Texas Instruments in various management positions.
Mr. Gnisci joined the Company as Executive Vice President, Chief Financial
Officer on September 8, 1997. Prior to joining the Company, Mr. Gnisci was Vice
President of Finance for Terex Corporation, a manufacturer of heavy duty
construction vehicles and equipment, since 1994. From 1991-1994, Mr. Gnisci was
Vice President of Finance for Babcock Industries, Inc., a manufacturer of
conveyor systems. Mr. Gnisci was employed by Gold Fields Mining Corporation from
1987-1991 as Vice President and Controller. From 1979-1987, Mr. Gnisci was
employed by Chicago Pneumatic Tool Company in various financial positions,
including Assistant Controller and Director of Corporate Audit.
Mr. Schauffert joined the Company in 1993 as Treasurer. Prior to that time, he
was Treasurer and Assistant Secretary of Moog Automotive, Inc. He joined Moog in
1988 from St. Joe Minerals Corporation, where he held various positions,
including Treasurer, from 1980 until 1987.
Ms. Guptill joined the Company in 1993 as a Legal Assistant to the General
Counsel, specializing in corporate and business law. Prior to joining the
Company, Ms. Guptill was a Legal Assistant with the Corporate Legal Department
of Marriott International, Inc. since 1990. Ms. Guptill was employed as a Legal
Assistant with the General Corporate division of Hayt, Hayt & Landau in Miami
from 1984 - 1990.
Financial Information About Foreign and Domestic Operations and Export Sales
The information required by this Item is contained in the Company's financial
statement footnote 9 under the heading "Information Related to Customers and
Operations in Different Geographic Areas" on page F-11 appearing elsewhere in
this report.
ITEM 2. PROPERTIES
As of June 30, 1998, the Company owns or leases manufacturing, sales and
engineering facilities located throughout the United States, Mexico, and Europe.
The Company's principal executive offices are located in Lakeland, Florida in
buildings owned by the Company. The Company believes that its existing
production capacity is adequate to service existing demand for the Company's
products. The Company considers its plants and equipment to be in good
condition. The Company believes that, if necessary, suitable additional or
alternative facilities would be available to accommodate the Company's needs on
commercially reasonable terms.
The following table provides, as of June 30, 1998, certain information
regarding the Company's significant facilities (in excess of 25,000 square
feet):
ApproximateLocation Type of
Location Square Footage Interest Description of Use
Name of Company
- -------- -------------- ------------------------ ------------------ ---------------
Lakeland, Florida 195,000FL............... Owned Corporate Headquarters BREED Technologies, Inc.Headquarters;
Manufacturing and
Engineering
Brownsville, Texas 51,000TX............ Owned Distribution and Administration
BREED Manufacturing of Texas, Inc.
Farmington Hills, Michigan 25,452MI....... Leased Technical Center: BREED Technologies, Inc.
Engineering,
Sales, Customer USS, Inc.
7
Support
and Research &
A2M
Development
Valle Hermoso, Mexico 139,000Hermosa, Mexico...... Owned Manufacturing
BREED Mexicana, S.A. de C.V.
Matamoros, Mexico 103,000Mexico.......... Owned Manufacturing
PEBAC
Grabill, Indiana 174,000IN................ Owned Manufacturing
USS, Inc.
Niles, Michigan 173,000 Leased Manufacturing USS, Inc.
Santa Catarina, Mexico 45,000 Leased Manufacturing USS, Inc.
Birmingham, England 150,000England........ Owned Manufacturing
USS, Clifford Ltd.
Lake Mills, Wisconsin 70,000 OwnedWI............. Leased Manufacturing, Sales and
Hamlin, Inc.
Engineering
Aqua Prieta, Mexico 34,000Mexico........ Owned Manufacturing
Hamlin, S.A. de C.V.
Diss, England 44,000 Owned Vacant-Facility is for sale Hamlin Electronics Europe, Ltd.
Diss, England 61,000England.............. Owned Manufacturing
H.E.E.L.
Torino, Italy 50,000Italy.............. Leased Manufacturing
BREED Italia, S.r.L.
Milan, Italy 57,000Tregnano, Italy............ Owned Manufacturing
Milan, Italy............... Leased Administrative, Sales and MOMO SpA
Engineering
Tregnago, Italy 371,000Design
Aszar, Hungary............. Owned Manufacturing
DUE LM Srl.
Torino, Italy 52,000Juarez, Mexico............. Owned Manufacturing
Gallino AG International
Torino, Italy 82,000Italy.............. Leased Manufacturing
Gallino RivaltaAqua Prieta, Mexico........ Leased Manufacturing
Torino, Italy 56,000Italy.............. Owned Manufacturing
Gallino San Benigno
Milano, Italy 50,000Carlisle, England.......... Leased Manufacturing
Gallino Macchi Renate 1
Milano, Italy 70,000Milan, Italy............... Leased Manufacturing
Gallino Macchi Renate 2
Torino, Italy 160,000Maryville, TN.............. Owned Manufacturing
Gallino Copiano
Milano, Italy 52,000Milan, Italy............... Leased Manufacturing
Gallino AutoAvio
Frosinone, Italy 113,000Greenville, AL............. Owned Manufacturing
Gallino A.P. Co.Torino, Italy.............. Owned Manufacturing
Knoxville, TN.............. Leased Manufacturing
Sterling Heights, MI....... Leased Administrative, Research & Development
Frosinone, Italy........... Owned Manufacturing
-11-
Location Type of Interest Description of Use
- -------- ---------------- ------------------
El Paso, TX................ Leased Manufacturing
Waterloo, Ontario, 100,000Canada.. Leased Manufacturing
Custom Trim Ltd.Knoxville, TN.............. Leased Warehouse
Matamoros, Mexico 120,000Mexico.......... Owned Manufacturing
Auto Trim de Mexico (ATM)
Tamaulipas, Mexico 40,000Mexico......... Leased Manufacturing Custom Trim de Mexico (CTM1)
ITEM 3. LEGAL PROCEEDINGS
ThereOn April 16, 1998, the Company was served with a complaint in the matter of
Takata Corporation ("Takata") v. AlliedSignal, Inc. and Breed Technologies,
Inc., (United States District Court, District of Delaware, case no. 98-94). The
original complaint alleged patent infringement on the part of the Company
relating to the production of two seatbelt retractors formerly manufactured by
AlliedSignal and now manufactured by the Company. The suit seeks monetary
damages and injunctive relief. Under the Asset Purchase Agreement relating to
the SRS Acquisition (the "APA"), AlliedSignal is required to indemnify the
Company (on a net after tax basis) against any monetary damages incurred by the
Company in connection with this lawsuit, including any reasonable royalties that
might be paid in respect of sales made through February 2000. The complaint was
subsequently amended to include allegations of infringement relating to four
additional products. The Company has counterclaimed that Takata is infringing a
patent owned by the Company. Under the APA, any liability for the additional
claims of Takata is to be shared equally with AlliedSignal, including any
reasonable royalties that might be paid in respect of sales made through April
2000. Both the Company and AlliedSignal are novigorously defending this matter.
While the outcome of this lawsuit cannot be predicated with certainty, based
upon currently available information, the Company does not believe that this
lawsuit will have a material pending legal proceedings,adverse effect on the Company's financial condition
or results of operations.
In addition, the Company is party to other than ordinary routine litigation incidental to its
business from time to time. The Company is not currently a party to any
litigation that the business,Company believes, if determined adversely to which the registrantCompany,
would have a material adverse effect on the Company's financial condition or
anyresults of its
subsidiaries is a party.operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the year ended June 30, 1997.
8
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
COMMON EQUITY
The Company's stockCommon Stock of the Company is traded on the New York Stock Exchange
under the symbol BDT. There"BDT." The table below sets forth the high and low sales prices
of the Common Stock during the periods indicated. The Company paid cash
dividends aggregating approximately $8.9 million ($0.28 per share) and
approximately $2.4 million ($0.07 per share) in fiscal 1997 and 1998,
respectively.
-12-
Price Range
----------------
High Low
------ ------
FISCAL 1997
First Quarter................... 27 7/8 18 1/2
Second Quarter.................. 28 1/2 22 5/8
Third Quarter................... 27 1/4 19 1/4
Fourth Quarter.................. 23 17 3/8
FISCAL 1998
First Quarter................... 24 1/2 18 1/4
Second Quarter.................. 25 3/8 17 3/4
Third Quarter................... 24 1/4 17 3/16
Fourth Quarter.................. 23 1/2 15
____________
As of September 21, 1998, there were 1,160 stockholdersapproximately 853 holders of
record of the Company's stock asCommon Stock .
Determinations to pay cash dividends are at the discretion of July
31, 1997. On August 31, 1994, the
Board of Directors declared a quarterly
dividend of 5 cents per share on its common stock, the first dividend since
becoming a public Company, in November 1992. Additional information required by
this Item is containedand the actual payment of any such cash
dividends in the future will depend upon the Company's financial statement footnote 10
"Quarterlyresults of operations,
earnings, capital requirements, contractual restrictions, and other factors
deemed relevant by the Company's Board. Under the Company's New Credit Facility
and Indenture (both as hereinafter defined), the Company's ability to pay
dividends is restricted, and the Company does not anticipate paying cash
dividends on the Common Stock in the foreseeable future. See "Management's
Discussion and Analysis of Financial Information (Unaudited)Condition and Results of Operations--
Liquidity and Capital Resources." on page F-12 appearing elsewhere
in this report.
ITEM 6. SELECTED FINANCIAL DATA
The selected consolidated financial data presentedset forth below for, and as
of and for the fiveend of, each of the years in the five-year period ended June 30, 1997, have been1998 are
derived from the consolidated financial statements of the Company, of which (i)
the financial statements have beenfor fiscal 1994 and 1995 were audited by KPMG Peat
Marwick LLP and (ii) the financial statements for fiscal 1996, 1997 and 1998
were audited by Ernst & Young LLP, independent certified public accountants.
SELECTED CONSOLIDATED FINANCIAL DATALLP. The following data should be read in
conjunction with the Consolidated Financial Statements and Notes thereto of the
Company and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included elsewhere in this Annual Report.
-13-
In thousands, except per share dataFISCAL YEAR
------------------------------------------------
1994 1995 1996 1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------1998
-------- ------- -------- -------- ---------
Operational Data(DOLLARS IN MILLIONS)
STATEMENT OF OPERATIONS DATA(1):
Net sales..................................................... $794,880 $431,689 $400,972 $324,673 $191,564sales............................................. $324.7 $401.0 $431.7 $794.9 $1,385.3
Cost of sales................................................. 631,283 277,044 244,551 206,828 133,869
- ------------------------------------------------------------------------------------------------------------------------------------sales(2)...................................... 206.8 244.6 277.1 631.3 1,201.4
------ ------ ------ ------ --------
Gross profit.................................................. 163,597 154,645 156,421 117,845 57,695profit.......................................... 117.9 156.4 154.6 163.6 183.9
Selling, general and administrative........................... 70,583 38,243 33,098 28,872 22,814administrative expenses.......... 28.9 33.1 38.2 70.6 78.6
Engineering, research and development.......................... 36,121 23,588 18,506 14,755 9,592development expenses........ 14.8 18.5 23.6 36.1 73.2
Repositioning Charge(3)............................... -- -- -- -- 177.0
Impairment Charge(4).................................. -- -- -- -- 82.5
R&D Write-Off(5)...................................... -- -- -- -- 77.5
Amortization of intangibles................................... 6,310 2,001 286intangibles........................... -- --
- ------------------------------------------------------------------------------------------------------------------------------------0.3 2.0 6.3 19.3
------ ------ ------ ------ --------
Operating income.............................................. 50,583 90,813 104,531 74,218 25,289income (loss)............................... 74.2 104.5 90.8 50.6 (324.2)
Interest income (expense), net................................ (24,460) (1,137) 704 529 (1,135)net........................ 0.5 0.7 (1.1) (24.5) (83.2)
Other income (expense), net................................... 3,524 8,662 4,898 (1,738) 3,484
- ------------------------------------------------------------------------------------------------------------------------------------net........................... (1.7) 4.9 8.6 3.5 (1.4)
------ ------ ------ ------ --------
Earnings (loss) before income taxes.................................. 29,647 98,338 110,133 73,009 27,638taxes, distributions
on Preferred Securities and extraordinary item....... 73.0 110.1 98.3 29.6 (408.8)
Income taxes.................................................. 14,800 35,300 37,800 28,386 9,334
- ------------------------------------------------------------------------------------------------------------------------------------taxes (benefit)................................ 28.4 37.8 35.3 14.8 (60.2)
Distributions on Preferred Securities................. -- -- -- -- 10.0
------ ------ ------ ------ --------
Earnings (loss) before extraordinary loss............. 44.6 72.3 63.0 14.8 (358.6)
Extraordinary loss, net of tax benefit................ -- -- -- -- 10.0
------ ------ ------ ------ --------
Net earnings..................................................earnings (loss)................................... $ 14,84744.6 $ 63,03872.3 $ 72,33363.0 $ 44,62314.8 $ 18,304
- ------------------------------------------------------------------------------------------------------------------------------------
Common Stock Data(368.6)
====== ====== ====== ====== ========
PER SHARE DATA:
Basic earnings (loss) per common share:
Earnings per share............................................(loss) before extraordinary loss........... $ .471.43 $ 2.30 $ 2.00 $ 2.300.47 $ (10.73)
Extraordinary loss.................................. -- -- -- -- (0.30)
------ ------ ------ ------ --------
Net earnings (loss)................................. $ 1.43 $ .62
Cash dividends................................................2.30 $ 8,8642.00 $ 7,5750.47 $ 6,292(11.03)
====== ====== ====== ====== ========
Diluted earnings (loss) per common share:
Earnings (loss) before extraordinary loss........... $ 1.43 $ 2.29 $ 1.99 $ 0.47 (10.73)
Extraordinary loss.................................. -- -- Dividends per share........................................... $ .28 $ .24 $ .20 -- -- Average shares outstanding.................................... 31,648 31,550 31,434 31,247 29,555
Balance Sheet Data
Current assets................................................ $315,524 $266,623 $131,975 $137,188(0.30)
------ ------ ------ ------ --------
Net earnings (loss)................................. $ 94,216
Current liabilities........................................... $362,728 $176,4521.43 $ 56,4882.29 $ 42,4981.99 $ 30,523
Working capital (deficiency).................................. $(47,204)0.47 $ 90,171(11.03)
====== ====== ====== ====== ========
OTHER DATA:
Capital expenditures.................................. $ 75,48723.6 $ 94,69069.3 $ 63,693
Current ratio................................................. .9 to 1 1.5 to 1 2.3 to 1 3.2 to 1 3.1 to 1
Property, plant and equipment, net............................ $276,450 $171,653 $127,57745.4 $ 66,63175.9 $ 51,106
Total assets.................................................. $877,153 $503,802 $278,698 $206,340 $147,503
Long-term debt................................................ $231,700 $ 42,123 $ 1,868 $ 11,126 $ 10,846
Stockholders' equity.......................................... $266,419 $275,080 $218,721 $151,248 $104,671
Other Data
Capital expenditures.......................................... $ 75,851 $ 45,370 $ 69,268 $ 23,601 $ 16,97867.8
Depreciation and amortization.................................amortization......................... 8.9 13.9 20.1 48.5 61.5
EBITDA(6)............................................. 83.1 118.4 110.9 99.1 102.7
Cash interest expense(7).............................. 1.1 0.8 2.7 26.8 68.9
Ratio of EBITDA to cash interest expense.............. 75.5x 148.0x 41.1x 3.7x 1.5x
Ratio of earnings to fixed charges(8)................. 52.3x 92.7x 33.8x 2.0x --
-14-
AS OF JUNE 30,
--------------------------------------------
1994 1995 1996 1997 1998
------ ------ ------ -------- ---------
BALANCE SHEET DATA:
Working capital................. $ 48,53494.7 $ 20,09175.5 $ 13,89590.2 $(47.2) $ 8,890 $ 7,484(13.9)
Total assets.................... 206.3 278.7 503.8 877.2 1,649.9
Total debt...................... 11.6 13.6 162.8 423.4 898.0
Preferred Securities............ -- -- -- -- 250.0
Total stockholders' equity...... 151.2 218.7 275.1 266.4 (11.8)
- -------------
(1) The Company has completed eleven acquisitions since August 1994.
Consequently, the results of operations of the Company have been
significantly impacted by the results of operations and the integration and
acquisition costs relating to these acquisitions and, accordingly,
comparisons of results of operations for fiscal 1996, 1997 and 1998 and are
not as meaningful as comparisons of results in prior periods.
(2) Includes the December COS Charge and June COS Charge (both as defined
herein). For a description of The December COS Charge and June COS Charge,
see "Management's Discussion and Analysis of Financial Condition and
Results of Operations --Overview--Repositioning Program--Other Special
Charges --December 1997" and --Special Charge --June 1998," respectively.
(3) For a discussion of the Repositioning Charge (as defined herein), see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Overview--Repositioning Program--Other Special Charges December
1997" and "--Special Charge--June 1998," respectively.
(4) For a discussion of the Impairment Charge, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Overview--
Impairment Program--Impairment Charge."
(5) For a discussion of the R&D Write-Off (as defined herein), see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Overview--Repositioning Program--Repositioning Charge."
(6) EBITDA represents operating income (loss) plus (i) depreciation and
amortization and (ii) the December 1997 Charges (as hereinafter defined).
EBITDA is presented because it is a widely accepted financial indicator of
a company's ability to service debt. EBITDA should not be considered as an
alternative measure of operating results or cash flow from operations (as
determined in accordance with generally accepted accounting principles).
(7) Cash interest expense reflects, for the applicable period, aggregate
interest expense during such period minus non-cash interest expense during
such period attributable to the amortization of deferred financing costs.
Non-cash interest expense was $16.9 million for fiscal 1998.
(8) For purposes of computing the ratio of earnings to fixed charges, earnings
consist of earnings before income taxes and extraordinary items plus fixed
charges. Fixed charges consist of interest expense, whether expensed or
capitalized, amortization of debt issuance costs and an estimated portion
of rental expense that is representative of the interest factor in such
rentals. Earnings were insufficient to cover fixed charges by $408.9
million for fiscal 1998. The ratio of earnings to fixed charges for fiscal
1998 reflects the December 1997 Charges (as hereinafter defined).
-15-
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
audited Consolidated Financial Statements and accompanying notesNotes thereto appearingof the Company included
elsewhere in this report.
9
Annual Report.
OVERVIEW
During fiscal 1997, BREED continuedthe past several years, OEMs have begun consolidating their supplier
base by awarding contracts to implement its strategic planfull-service suppliers that are able to repositionsupply
complete automotive systems and subsystems on a global basis. In response to
this trend, the Company has pursued strategic acquisitions and joint ventures
and internal product development programs that have enabled the Company to
evolve from predominantly the producer of a single product--EMS sensors--to a
leading manufacturer of all of the components required for complete, integrated
occupant protection systems. The Company believes that this capability
positions it to better respond to this trend.
The Company anticipates that the prices of automotive occupant protection
systems and components such as those sold by the Company will continue to
decline over the next several years as a world leader in fully integrated vehicle occupant
safety systemsresult of competitive pressures and automotive steering wheels. Three major acquisitions were
made during the year. In July 1996,OEM
requirements. The Company's future profitability, therefore, will depend, among
other things, on its ability to continue to reduce its per-unit costs and
maintain a cost structure, internally and with its suppliers, that will enable
it to offer competitive prices. There can be no assurance that the Company acquiredwill
be successful in doing so. Further, the Gallino group,automobile market is cyclical and
dependent on general economic conditions. Further, declines in car production
in the United States or in markets outside the Untied States could have a
material adverse effect on the Company's financial condition and results of
operations. In addition, most of the Company's customers are unionized and may,
from time to time, experience labor disruptions. Any disruption in production by
one or more of the Company's customers could have an Italian based manufactureradverse effect on the
Company's financial condition and results of steering wheels and plastic instrument panels and
bumpers. In October 1996,operations.
The recent results of operations of the Company acquired the steering wheel operations of
united technologies. The company, United Steering Systems (USS), produces
steering wheels, airbag covers, horn pads and related molded products in the
U.S., Mexico and England. Additionally, in February 1997, the Company acquired
the Custom Trim group. These operations, located in Canada and Mexico, produce
leather wrapped steering wheels and other automotive leather wrapped products.
the Company acquired MOMO, an original equipment manufacturer and aftermarket
supplier of luxury steering wheels and alloy wheels, in the fourth quarter of
fiscal 1996. The revenues and operating results of BREED werehave been significantly
impacted by the results of operations and the integration and acquisition costs
relatedrelating to the integrationacquisitions and, accordingly, comparisons of these acquired companiesresults of operations
for fiscal 1998, 1997 and as a result, comparison of 1997 to 1996 results are not as meaningful as comparisons of results
in prior years.periods.
REPOSITIONING PROGRAM
Overview. The rapid growth experienced by the Company and the demand of
integrating acquired businesses has out paced the development of the Company's
corporate infrastructure and systems. In addition, the Company believes that
its cost structures and working capital requirements have increased to
unacceptable levels. Consequently, during the first quarter of fiscal 1998,
management initiated a review of its global operations, cost structure and
balance sheet directed at reducing its operating expenses, manufacturing costs
and increasing productivity. This review focused on operational systems,
organizational structures, facility utilization, product offerings, inventory
valuation and other matters including, without limitation, the deterioration of
business conditions at certain acquired businesses. As a result of this review,
during the quarter ended December 31, 1997, the Company formulated a
repositioning plan (the "Repositioning Program") which is intended to: (i)
enhance the Company's competitiveness and productivity, (ii) reduce costs and
increase asset control and (iii) improve processes and systems.
The Repositioning Program consists primarily of a 25% planned reduction in
the Company's global workforce (or approximately 4,900 employees) through the
elimination of redundant and overlapping positions resulting from recent
acquisitions as well as reducing personnel required at USS and Custom Trim due
to deteriorating business conditions at such businesses, the consolidation of
the Company's
-16-
manufacturing, sales and engineering facilities primarily in North America and
Europe through the closing of approximately 50% (or 32) of its manufacturing
facilities and 33% (or 10) of its sales and engineering facilities (which
includes certain facilities being consolidated due to deteriorating business
conditions at USS and Custom Trim), and the disposal of certain non-core assets.
The Company expects the Repositioning Program to generate approximately $855
million in aggregate cumulative cost savings (which includes approximately $780
million of cash savings), which will be realized over the five-year period
ending June 30, 2002. As of June 30, 1998, actions taken by the Company in
connection with the Repositioning Program have resulted in approximately $70
million in annual cost savings to the Company. The Company believes that the
benefit of the cost savings during fiscal 1999 attributable to the Repositioning
Program will be offset in part due to deteriorating business conditions at USS
and Custom Trim.
Repositioning Charge. In connection with the Repositioning Program, the
Company recorded a $177.0 million charge during the three months ended December
31, 1997 (the "Repositioning Charge"), which included the following: (i) $30.8
million relating to planned work force reductions; (ii) $31.4 million relating
to proposed facility consolidations (not including any SRS facilities); (iii)
$10.6 million relating to the write-down of goodwill associated with the
disposal of long-lived assets; (iv) $41.3 million relating to the write-down to
net realizable value of certain long-lived assets in connection with the Gallino
Disposition (as defined herein); and (v) $62.9 million relating to the write-
down of impaired production and other equipment and the related goodwill and the
write-off of assets used to manufacture products being replaced by new
technologies.
The Impairment Charge. During the quarter ended December 31, 1997, the
Company recorded a $82.5 million impairment charge (the "Impairment Charge")
relating to the write-down of goodwill and other long-lived assets at USS due to
deteriorating business conditions, reflecting the Company's determination that a
material diminution in the value of USS had occurred. When the Company acquired
USS in October 1996, it was aware that USS's largest OEM customer (which
accounted for approximately 50% of USS's revenues) had awarded a significant
portion of its business (which related to one platform) to a competitor of USS,
signaling the OEM's intention to source steering wheels and airbag modules from
one supplier as a unit, instead of as separate components from two suppliers,
provided the supplier had an approved airbag module. However, the Company
believed it could recover this business by negotiating to supply the steering
wheel component to the competitor because the competitor, although it had an
approved airbag module, did not manufacture steering wheels. At the same time,
the Company worked to have its airbag module approved by the OEM to position it
to compete with respect to other platforms manufactured by that OEM, which would
put the Company in the position to source USS steering wheels for those
platforms.
The negotiations between the Company and USS's competitor ceased in April
1997. Thereafter, the Company continued to seek the OEM's approval of its airbag
module in an effort to bid for other business from the OEM despite the
designation of two of the Company's competitors by the OEM as preferred vendors
for airbag modules. The Company obtained the approval of a newly developed
inflator (a major component of the Company's airbag module) from the OEM on July
28, 1997, and the Company thus continued to believe that obtaining approval of
its airbag module was feasible. During the quarter ended December 31, 1997, the
Company determined that its efforts to be named as a preferred vendor of
integrated steering wheels would not be successful or would be materially
delayed. The Company concluded that, consequently, USS would likely experience a
material and continuing decline in the revenue from USS's existing contracts as
these contracts were completed and not replaced on a timely basis with new
business. In addition, the Company was informed by the OEM during such quarter
that sales volume on the existing platform would decrease by approximately 30%
from the sales volume projected with respect to such platform at the time the
Company acquired USS, and that the Company's revenue attributable to all
platforms for such OEM would be impacted by a 2 1/2% price decrease starting
January 1, 1998 as well as a yet to be determined price decrease starting
January 1, 1999.
-17-
Implementation of Repositioning Program. The Company began implementing the
Repositioning Program during the quarter ended December 31, 1997. As of June 30,
1998, the Company had reduced its net global workforce by approximately 2,700
employees and closed and/or sold 24 manufacturing facilities. During fiscal
1998, in connection with the proposed facility consolidations, the Company
identified assets to be disposed of including property, plant and equipment at
certain facilities worldwide. During fiscal 1998, the property, plant and
equipment at those facilities was determined to be impaired and was written down
from its aggregate carrying value of approximately $139.0 million to its
estimated fair market value of $34.8 million. The Company has not yet
reclassified the value of property, plant and equipment closed as a part of the
Repositioning Program to assets held for sale because the amounts are not
material. The Company has ceased recording depreciation for all facilities and
equipment that have been identified for disposal, including Gallino's non-
steering wheel business. The annual depreciation expense associated with these
assets is $13.6 million.
During fiscal 1998, the repositioning reserve was reduced by $224.7 million
as a result of cash and non-cash charges. The following table sets forth the
details and the cumulative activity relating to the Repositioning Charge and
Impairment Charge as of June 30, 1998:
RESERVE
CHARGE TAKEN AT CASH NON-CASH BALANCE AT
DECEMBER 31, REDUCTIONS REDUCTIONS JUNE 30,
----------- ---------- ---------- --------
1997 1998
---- ----
Headcount reductions $ 30.8 $14.9 $ -- $15.9
Facility consolidations 31.4 2.9 9.6 18.9
Goodwill write-down 10.6 -- 10.6 --
Impairment Charge 82.5 -- 82.5 --
Gallino write-down 41.3 -- 41.3 --
Impaired assets and equipment
write-down 62.9 -- 62.9 --
------ ----- ------ -----
Total $259.5 $17.8 $206.9 $34.8
====== ===== ====== =====
The Repositioning Program is expected to be substantially completed by March
31, 1999.
Disruption Charges. The December 1997 Charges do not include a provision for
disruption costs in accordance with generally accepted accounting principles
("GAAP"). Disruption costs are expenses incurred in connection with the closing
and consolidating of manufacturing, engineering and sales facilities. Disruption
costs include: (i) inefficiencies associated with consolidating manufacturing,
engineering and sales facilities; (ii) unabsorbed fixed overhead; (iii)
temporary increases in labor; (iv) premium freight and (v) excessive inventory
scrap. GAAP requires that disruption costs be expensed as incurred and included
in cost of sales. The Company incurred disruption costs of approximately $14.0
million during fiscal 1998 associated with closing and relocating manufacturing
facilities in connection with the Repositioning Program. These costs were
included in cost of sales.
OTHER SPECIAL CHARGES - DECEMBER 1997
In addition, during the quarter ended December 31, 1997, (i) in connection
with the purchase price allocation for the SRS Acquisition, the Company incurred
a $77.5 million charge relating to the write-off of in-process research and
development for acquired technology that has not been established as
technologically feasible (the "R&D Write-Off"), and (ii) the Company incurred a
$28.4 million charge against cost of sales for inventory and long-term contracts
relating to manufacturing processes that will be exited (the "December COS
Charge"). The $28.4 million charge included $15.5 million of expected losses
-18-
under a contract entered into in February 1996 (under which production began in
August 1997) with a European OEM to supply side impact airbag modules, which
had not been previously manufactured by the Company. This amount represented
estimated losses expected to be incurred over the five-year expected life of the
platform to which the contract related. These losses resulted from substantial
cost overruns due to significant additional testing requirements, design
engineering costs and production problems experienced in connection with that
contract. The contract has since been terminated effective January 1999. The
Repositioning Charge, the Impairment Charge, the R&D Write-Off and the December
COS Charge are referred to herein collectively as the "December 1997 Charges."
SPECIAL CHARGE - JUNE 1998
During the quarter ended June 30, 1998, the Company recorded a $21.7 million
special charge (the "June COS Charge") against cost of sales relating to
expected losses under 28 contracts (within nine different OEMS) acquired in
connection with the SRS Acquisition. These contracts are with nine different
OEMs and were under production as of the acquisition date. The June COS Charge
represented estimated losses expected to be incurred over the expected life of
the respective platforms to which the contracts related. The Company recorded
these losses during the quarter ended June 30, 1998 because it determined that
they were probable and reasonably estimable.
SHIFT IN HISTORICAL PRODUCT MIX AND PRODUCT MARGINS
Historically, a large percentage of the Company's net sales and gross profit
has been attributable to sales of EMS sensors. EMS sensors generally have higher
gross margins than other products sold by the Company. Beginning in fiscal 1996,
sales of EMS sensors to OEMs began to decline, reflecting OEMs' increased
reliance on electronic sensors sourced internally. The Company's product mix has
also been affected by recent acquisitions, which expanded product offerings
having lower gross margins, particularly steering wheels and plastic trim
components. In addition, the markets for automotive occupant protection systems
and components are highly competitive and the Company is experiencing, and
expects to continue to experience, downward pricing pressure for its products
which will in turn put pressure on gross margins. The following table sets forth
the percentage of net sales attributable to each product category for the
periods indicated(1):
PRO FORMA
FISCAL YEAR FISCAL YEAR
------------------------------
1996 1997 1998 1998(2)
------ ------ ------ -----------
Electronics and sensors...... 70.1% 33.6% 14.9% 12.2%
Airbags and inflators........ 22.9 9.4 24.1 27.1
Steering wheels.............. 4.5 33.4 25.1 20.6
Seatbelt systems............. -- -- 23.1 29.5
Interiors and plastics....... -- 22.9 12.4 10.2
Other........................ 2.5 0.7 0.4 0.4
----- ----- ----- -----
Total........................ 100.0% 100.0% 100.0% 100.0%
===== ===== ===== =====
- -------------
(1) Gives effect to the SRS Acquisition as if it occurred on July 1, 1997. For
information regarding net sales, operating income and identifiable assets
attributable to the geographic regions in which the Company operates, see
Note 14 to Consolidated Financial Statements included elsewhere in this
Annual Report.
(2) Gives effect to the SRS Acquisition as if it occurred on July 1, 1997.
-19-
INTERNATIONAL OPERATIONS
The Company operates primarily in North America and Europe. Net sales in North
America accounted for 75%, 48% and 60% of the Company's net sales in fiscal
1996, 1997 and 1998, respectively, and net sales in Europe accounted for 25%,
52% and 37% of the Company's net sales in fiscal 1996, 1997 and 1998,
respectively. The increase in net sales in Europe during fiscal 1997 was
primarily attributable to the acquisition of Gallino and MOMO. Operating income
attributable to North American operations was 97% and 92% in fiscal 1996 and
1997, respectively. Operating income attributable to European operations was 3%
and 8% in fiscal 1996 and 1997, respectively. Operating margin attributable to
both North American and European operations for fiscal 1998 was negative as a
result of the December 1997 Charges. In addition, operating margin attributable
to European operations is substantially lower than that generated by North
American operations primarily because European net sales consist of sales of a
higher proportion of low margin products, such as steering wheels, interiors and
plastics.
The Company expects that international sales will continue to account for a
significant portion of its business in the future. The Company's ability to
compete effectively outside the United States will depend on its ability to
develop the relationships and, if demand requires, additional facilities
necessary to service international customers. In addition, the Company's
financial results attributable to international sales may be affected by
fluctuations in currency exchange rates, increases in duty rates, difficulties
in obtaining export licenses, trade and tariff regulations, political
instability, difficulties or delays in collecting accounts receivable and
difficulties in staffing and managing international operations. Pro forma for
the SRS Acquisition, sales in Asia accounted for approximately 4.1% of the
Company's net sales for fiscal 1998. In recent months, certain Asian currencies
have been devalued significantly in relation to the U.S. dollar and financial
markets in Asia have experienced significant turmoil. There can be no assurance
that the Company's sales in Asia will not be materially adversely affected by
such developments
PRODUCT DEVELOPMENT
In response to OEMs' increased reliance upon electronic sensing systems, the
Company in conjunction with Siemens is developing its own advanced electronic
sensing systems. The Company's research and development activities are currently
focused primarily on the development of new intelligent occupant protection
systems, next generation inflator technologies and enhancements or cost
improvements for existing products. In addition, in December 1997 the Company
and Siemens agreed to form BSRS. When fully operational over the next several
years, BSRS is expected to assume the research, development and engineering
functions for both the Company's and Siemens' integrated occupant protection
systems as well as the sales and marketing activities with respect thereto.
BSRS
In December 1997, the Company and Siemens agreed to form BSRS, which provides
for the worldwide research, development, engineering, assembly and marketing of
integrated occupant protection systems. When fully operational over the next
several years, BSRS is expected to assume the sales and marketing, as well as
the research, development and engineering, functions for both the Company's and
Siemens' integrated occupant protection systems. The Company expects that
components comprising integrated occupant protection systems will continue to be
produced separately by Siemens and the Company but will be sold by BSRS under
trade names owned by it. Further it is anticipated that all sales and marketing
and program management personnel relating to integrated occupant protection
systems and components will be employed by BSRS (although initially certain
sales and marketing personnel will be leased by the Company to BSRS) and that
billing and collection activities will be handled by BSRS on a pass-through
basis. Accordingly, the Company expects its own sales and marketing expenses, as
well as
-20-
its research, development and engineering expenses, to decrease as BSRS begins
to conduct these functions. However, the Company will recognize its
proportionate share of such expenses incurred by BSRS as the Company's interest
in BSRS will be accounted for by the Company under the equity method of
accounting. The Company and Siemens will be required to fund any such expenses
incurred by BSRS to the extent revenues and external funding sources (such as
loans from the third parties) are insufficient to cover budgeted operating
expenses and capital expenditures. The Company does not anticipate that BSRS
will borrow amounts from unaffiliated third parties and, consequently, the
Company expects that the Company and Siemens will be required to fund all of the
operating expenses of BSRS. The Company and Siemens completed formation of BSRS
in June 1998.
In the event that the BSRS is terminated, there can be no assurance that the
Company will be able to rehire a sufficient number of such personnel and any
inability to do so could have a material adverse effect on the Company.
Further, all significant operating decisions regarding the joint venture must be
approved by Siemens and the Company. In the event of a deadlock regarding
material operating decisions, either party may sell their interest in the BSRS
to the other or the BSRS may be terminated. If the Company sells its interest
in the BSRS or the BSRS is otherwise terminated, the Company will likely no
longer have access to Siemens' expertise in sensors and electronics, which may
materially adversely affect the Company's ability to develop next generation,
intelligent, integrated occupant protection systems. Any failure to develop
such systems would adversely affect the Company's competitive position and could
have a material adverse effect on the Company's financial condition and results
of operations.
Pursuant to the joint venture agreement relating to BSRS, the Company and
Siemens are required to fund the operations of the BSRS pursuant to an operating
budget to be agreed upon by the parties. The New Credit Facility and the Notes
will restrict the amount that the Company can invest in the BSRS. The New
Credit Facility limits the Company's investments in the BSRS to $2.0 million in
fiscal 1998, $10.0 million in fiscal 1999 and 2000 and $15.0 million in each
year thereafter provided that the Company may make investments in the BSRS in
excess of the specified amounts beginning in fiscal 2000 and thereafter if,
after adding such specified amounts to consolidated fixed charges (as defined in
the New Credit Facility), the Company is in compliance with the covenants in the
New Credit Facility. Any inability to make sufficient investments in the BSRS
could have a material adverse effect on the operations of the BSRS.
OTHER DEVELOPMENTS
Custom Trim. During the quarter ended December 31, 1997, it became apparent
that a number of significant customers of Custom Trim intended to shift
suppliers or to internalize their leather wrapping functions. Consequently, the
Company concluded that it could expect a material decline in revenues from lost
business and price reductions aimed at retaining business attributable to Custom
Trim's historical business. The Company also concluded that it would not be
able to replace these customers with new customers in the foreseeable future.
Gallino Disposition. In July 1996, the Company acquired Gallino, a
manufacturer of steering wheels and plastic interior and exterior parts based in
Italy. During the quarter ended June 30, 1997, the Company committed to a plan
to dispose of the plastic interior and exterior parts business of Gallino (the
"Gallino Disposition"). The Company is currently in negotiations with two third
parties relating to the sale of substantially all of this business. Under both
proposals, the Company would retain at least a 10% interest in the business
subject to the Gallino Disposition.
-21-
RESULTS OF OPERATIONS
FISCAL 1998 COMPARED TO FISCAL 1997
Compared to 1996Net Sales. Net sales for fiscal 1998 increased by $36374% to $1,385.3 from $794.9
million for fiscal 1997. The increase in 1997 due to $435 million of net sales relatedwas primarily due to the
acquisitions made duringof USS in October, 1997, Custom Trim in February 1997 and SRS in
October 1997. These three acquisitions accounted for approximately $695.0
million of the year and the fourth quarter ofincrease in net sales. The increase in net sales in fiscal 1996. This increase1998
was partially offset by a $61$7.1 million reduction in net sales attributable to
the strike at General Motors (which began June 1998), decreased sales due to
deteriorating business conditions at USS and Custom Trim and a decrease in electromechanicalsales
of EMS sensors, inflators and airbag modules and steering wheel products. The
Company was impacted by the strike across all product categories. The Company
expects that decreased sales due to the GM strike and the usual shutdown of the
Company's European plants during August 1998 will materially adversely impact
net sales for the first quarter of fiscal 1999. The Company expects that net
sales attributable to USS and Custom Trim will continue to decline significantly
during fiscal 1999 due to the loss of business (and the failure to replace such
business on a timely basis with new business) and industry-wide pricing
pressures.
EMS sensor sales decreased 33% to $111.4 million in fiscal 1998 from $165.1
million for fiscal 1997. These decreases are due to lower demand as major
customers continued to shift from EMS to Electronic sensors that are sourced
internally. The company believes that the reduction in revenues for EMS sensors
will continue to decline in the foreseeable future.
Inflator and airbag modules sales (excluding SRS) decreased 6% to $68.8
million for fiscal 1998 from $74.3 million in fiscal 1997. The decrease was
primarily due to the planned phase-out of all mechanical airbag systems at
Chrysler and Fiat and the reduction of shipments of inflators and airbags to
customers in Asia due to the economic situation in Asia.
Cost of Sales. Cost of sales increased 90% to $1,201.4 million in fiscal 1998
from $631.3 million for fiscal 1997. The increase primarily reflected the
additional production costs of $597.4 million resulting from the acquisition of
USS and Custom Trim in fiscal 1997 and the acquisition of SRS in fiscal 1998.
In addition, the Company incurred approximately $14.0 million of disruption
costs associated with the closing, sale and/or relocation of 15 manufacturing
facilities in connection with the Repositioning Program and the ongoing
relocations of manufacturing facilities, as well as the $28.4 million December
COS Charge and $21.7 million June COS Charge, in the quarter ended December 31,
1997.
Gross Profit. Gross profit increased 12% to $183.9 million in fiscal 1998
from $163.6 million for fiscal 1997. As a major customer shifted to "in-house"
electronic sensors. Consolidatedpercentage of net sales, gross profit
decreased to 20.6% in 1997 from
35.8% in 1996. Gross profit on the sales of steering wheel products to original
equipment manufacturers are lowerfor fiscal 1998 was 13% as a percent of sales compared to margins on
the Company's sensor products and complete airbag systems. Additionally, plant
consolidation costs contributed to the21% for fiscal 1997. The decrease in
gross profit. Operatingmargin was primarily attributable to (i) a shift in product mix from high
margin EMS sensors to those of lower margin products, primarily steering wheels,
plastics and seatbelts acquired in recent acquisitions, (ii) disruption costs,
(iii) the December COS Charge and (iv) the June COS Charge. Excluding the
December COS Charge, the June COS Charge and disruption costs incurred during
fiscal 1998, gross profit would have been $248.0 million, or 18% of net sales,
for fiscal 1998.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 11% to $78.6 million in fiscal 1998 from $70.6
million. Selling, general and administrative expenses as a percentage of net
sales decreased to 6% in fiscal 1998 from 9% in fiscal 1997. Selling, general
and administrative expenses as a percentage of net sales decreased primarily as
a result of the acquisitionscost improvements associated with the reduction of headcount and
reduced spending associated with the Repositioning Program.
-22-
Research, Development and Engineering Expenses. Research, development and
engineering expenses increased 103% to increased
research$73.2 million for fiscal 1998 from $36.1
million for fiscal 1997. The increase was primarily due to costs associated
with acquired businesses in fiscal 1997 and development1998 of $40.0 million, an increase
in spending related tofor new product development and additional application engineering
costs associated with new program launches.
Operating Income (Loss). Operating income (loss) for non-azide/fiscal 1998 decreased
significantly from fiscal 1997 primarily due to the December 1997 Charges
aggregating $365.4 million included in cost of sales and operating expenses as
well as the $21.7 million June COS Charge and the impact of the General Motors
strike (which reduced sized inflators, electronic sensing (including occupant,
weightoperating income by $3.5 million). Cost of sales during
fiscal 1998 also reflected disruption costs of $14.0 million. Exclusive of the
effects of the December 1997 Charges, the June COS Charge General Motors strike
and horn) and side impact technology. Netdisruption costs, operating income would have been $80.4 million, or 6% of
net sales, for fiscal 1998, compared to $50.6 or 6% of net sales, for fiscal
1997.
Interest Expense. Interest expense during fiscal 1998 increased to $85.7
million from $26.8 million for fiscal 1997. The increase in interest expense
increased $23was primarily due to a $474.6 million primarilyincrease in average borrowings outstanding
during fiscal 1998 compared to fiscal 1997 as a result of borrowings usedthe acquisitions of
USS and Custom Trim in fiscal 1997 and SRS in fiscal 1998.
Income Taxes. The fiscal 1998 annual effective tax rate benefit was 14%.
This benefit reflected the impact of the December 1997 Charges (i) taken in
jurisdictions where the Company may not be able to finance recent acquisitionsrecognize the full income tax
benefit due to limitations imposed by Financial Accounting Standards Statement
No. 109 (SFAS 109) and (ii) no tax benefit or the write-down of goodwill
included in the December 1997 Charges. SFAS 109 states that a valuation
allowance is recognized if, it is more likely than not, some portion or all of
the deferred tax asset will not be realized.
Extraordinary Loss. In October 1997, the Company recorded an extraordinary
loss of $0.7 million net of an income tax benefit of $0.4 million for the write-
off of debt issuance costs relating to the existing debtprepayment of the acquired companies. Othertwo multi-currency
credit agreements. In April 1998, the Company recorded an extraordinary loss of
$9.2 million net of an income (expense),tax benefit of $5.0 million for the write-off of
debt issuance costs relating to the New Credit Facility.
FISCAL 1997 COMPARED TO FISCAL 1996
Net Sales. Net sales increased 84.1% to $794.9 million in fiscal 1997 from
$431.7 million in fiscal 1996 primarily due to the acquisitions made in the
fourth quarter of fiscal 1996 and during fiscal 1997. These acquisitions
accounted for approximately $435.0 million of year-over-year sales growth,
including approximately $260.0 million attributable to sales of steering wheels.
The increase in net sales was partially offset by a decline in sales of the
Company's EMS sensors and all-mechanical airbag systems.
EMS sensor sales decreased 26.8% to $165.1 million in fiscal 1997 from $225.6
million in fiscal 1996 as major OEM customers continued the shift to electronic
sensors sourced internally. This decline was partially offset by an increase in
the sale of auxiliary and safing sensors, which are components in electronic
sensor systems.
Inflator and airbag systems sales decreased 16.4% to $74.3 million in fiscal
1997 from $88.9 million in fiscal 1996, primarily due to a phase-out of all-
mechanical airbag systems at Fiat and Chrysler, partially offset by new program
launches for inflator products sourced to Delphi, Mazda and Suzuki.
Cost of Sales. Cost of sales increased 127.9% to $631.3 million in fiscal
1997 from $277.0 million in fiscal 1996. The increase primarily reflected (i)
additional costs of sales attributable to the acquisitions made in the fourth
quarter of fiscal 1996 and during fiscal 1997, (ii) an increase in fixed
manufacturing
-23-
costs, primarily depreciation, as a result of capacity expansion for the
Company's inflator products and (iii) charges of approximately $10.0 million
related to the closing in fiscal 1997 of three plants acquired in previous
acquisitions.
Gross Profit. Gross profit as a reductionpercentage of net sales decreased to 20.6% in
royaltyfiscal 1997 from 35.8% in fiscal 1996, reflecting the declining sales of high-
margin EMS sensors and a higher percentage of net sales (more than 50%) being
generated by lower margin products, primarily steering wheels, acquired in
recent acquisitions.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 84.8% to $70.6 million in fiscal 1997 from
$38.2 million in fiscal 1996, primarily reflecting costs associated with the
acquired businesses ($33.6 million), which was partially offset by reductions in
expenses associated with the existing business.
Research, Development and Engineering Expenses. Research, development and
engineering expenses increased 53.1% to $36.1 million in fiscal 1997 from $23.6
in fiscal 1996, reflecting costs associated with the acquired businesses ($8.0
million) and a significant increase in spending for new product development in
the existing business. New product development initiatives included non-azide
and reduced-sized inflators, hybrid side-impact inflators, and electronic
sensing, especially for intelligent systems.
Operating Income. Operating income was $50.6 million for fiscal 1997 compared
to $90.8 million for fiscal 1996. The decrease in operating income resulted
primarily from its Japanese
licencees.the declining sales of high margin EMS sensors being replaced
with lower margin products, primarily steering wheels, and an increase in
operating expenses associated with the recent acquisitions.
Interest Expense. Interest expense increased to $26.8 million in fiscal 1997
from $2.7 million in fiscal 1996. This increase reflected an increase in average
borrowings outstanding during fiscal 1997, which borrowings were used to finance
acquisitions and capital spending programs.
Income Taxes. The higher effective tax rate of 49.9% in fiscal 1997 compared
to 35.9% in fiscal 1996 was primarily due to the amortization of goodwill
without tax benefit and higher foreign tax rates. Fiscal 1996 also included a
benefit related to a reduction in taxes provided in prior years.
1996 Compared to 1995
The increase in net sales was due primarily to MOMO, acquired in April
1996, and to increases in sales of complete airbag systems. Unit sales for
airbag systems increased from 396,000 in 1995 to 700,000 in 1996, due primarily
to increased sales to Ford and Fiat. Emphasis on worldwide opportunities and
global expansion in 1996 resulted in international sales growth outpacing the
domestic growth rate. Significant contributions from operations outside the
United States as well as export activities underscored the Company's expanded
presence in international markets. The decrease in gross profit percent was
primarily due to a shift to a lower margin product mix and higher costs related
to new customer product launches. The increased engineering, research and
development expense was primarily related to the development and testing of
electronic sensors products, including occupant sensing and accelerometer
development; the next generation inflator family, including non-azide and
down-sized inflators; new side-impact products; and the development of
technologies related to modules, steering wheels, airbag material and associated
components. Other income (expense), net increased primarily as a result of
foreign currency exchange gains. The higher effective tax rate of 35.9% in 1995
compared to 34.3% in 1995 was primarily due to the absence of a current tax
benefit for losses of certain foreign entities.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided byWORKING CAPITAL AND CAPITAL EXPENDITURES
The Company's primary cash requirements are for working capital, servicing the
Company's indebtedness, capital expenditures and acquisitions. Management
believes that cash generated from operations together with borrowings available
under the New Credit Facility will be sufficient to meet the Company's working
capital, debt service and capital expenditure needs, as well as required
investments in BSRS, for at least the next twelve months. The Company's ability
to invest in BSRS is limited under the New Credit Facility and the Notes.
During fiscal 1998, cash flow from operating activities was a primary sourcedeficit of liquidity and
amounted$10.3
million compared with $89.4 million for fiscal 1997. The decrease in fiscal
1998 was primarily attributable to $89the net loss of $368.6 million in fiscal 1998
and the timing of cash flow from current assets and liabilities, such as
accounts receivable, inventory, accounts payable, accrued liabilities and income
taxes. This decrease was offset by non-cash items and accruals included in the
December 1997 $41Charges.
-24-
The Company had a working capital deficit of $13.9 million at June 30, 1998
compared to a deficit of $47.2 million at June 30, 1997 and working capital of
$90.2 million at June 30, 1996. The lower working capital deficit at June 30,
1998 compared to June 30, 1997 was attributable to a reduction in the amount of
current portion of long-term debt outstanding at June 30, 1998 compared to June
30, 1997. The decrease in working capital to a deficit of $47.2 million at June
30, 1997 from $90.2 million of working capital at June 30, 1996 and $69 million in 1995.
Cash provided by operations have been used primarilywas attributable
to the use of available cash as well as borrowings to finance the acquisitions
of Gallino, USS and Custom Trim.
In fiscal 1997 and fiscal 1998, the Company made capital expenditures provide working capital, support researchof $75.9
million and development
activities, and pay dividends. In 1997, the company invested $76$67.8 million, in
property, plant and equipmentrespectively, to expand capacity and tool new
products. Investments continue to be made in new equipment throughout the
Company to support productivity improvements, cost reduction programs and to add
capacity for existing and new products. WorkingThe Company estimates that capital
needs included higher levelsexpenditures during fiscal 1999 will aggregate approximately $75.0 million and
will be used to support productivity improvements, cost reduction programs,
reconfiguration of accounts receivablemanufacturing facilities relating to higher sales volume, and increased inventory
levels to support sales growththe Repositioning
Program and to maintain service levelsfinance new program launches.
Cash investments by the Company in BSRS during fiscal 1998 were not material.
The Company and Siemens are in the process of preparing a business plan and
budget for BSRS for fiscal 1998 and expect this process to be completed by
December 1998. Accordingly, the Company cannot currently estimate the amount of
cash investments that it will be required to make in BSRS during fiscal 1999.
ACQUISITIONS AND RELATED FINANCINGS
On October 30, 1997, the Company consummated its largest acquisition to date,
the SRS Acquisition, for an aggregate purchase price of $710.0 million in cash.
SRS is the largest independent supplier of seatbelt systems and the third
largest independent supplier of airbag systems in the United States and is a
leading supplier of seatbelts and airbag systems to OEMs worldwide.
The SRS Acquisition was financed with (i) borrowings under a $900.0 million
bridge credit facility relocations undertaken as part(the "Bridge Credit Facility"), (ii) the proceeds
received in connection with the issuance and sale of 4,883,227 Series A
Preference Shares to Siemens for an aggregate purchase price of $115.0 million
(Siemens converted 4,883,226 of its Series A Preference Shares into an equal
number of shares of Common Stock on January 20, 1998) and (iii) the proceeds
received in connection with the issuance and sale to Prudential Securities
Credit Corp., of $200.0 million of Series B Convertible Preferred Stock of the
Company's restructuring actions.
As discussedCompany (the "Series B Preferred'). On November 25, 1997, the Company sold
$257.7 million of its 6.50% Convertible Subordinated Debentures due 2027 (the
"Convertible Debentures") to BIT Capital Trust which, concurrently therewith,
sold $250.0 million aggregate liquidation amount of its 6.50% Convertible Trust
Preferred Securities (the "Preferred Securities") (which are fully and
unconditionally guaranteed by the Company) in note 12a private transaction under Rule
144A under the Securities Act of 1933 (the "Preferred Securities Offering").
The Company used the net proceeds received in connection with the Preferred
Securities Offering to redeem all of the outstanding Series B Preferred and for
general corporate purposes.
The Company used borrowings under the New Credit Facility, together with the
net proceeds received in connection with issuance and sale of the Notes, to
Consolidated Financial Statements, on
August 27, 1997repay in full all amounts outstanding under the Bridge Credit Facility as of
April 28, 1998.
-25-
On May 1, 1998, the Company acquired HS Technik and Design, which develops
advanced technology for seatbelt systems, for $4.1 million in cash (which
includes $1.3 million subject to a hold-back agreement) and 129,144 shares of
Common Stock of the Company. The Company financed the cash portion of the
purchase price for the acquisition with available cash.
NEW CREDIT FACILITY
On April 28, 1998, the Company entered into a new $675.0 million credit
facility (the "New Credit Facility"), which replaced the Bridge Credit Facility.
The New Credit Facility consists of (i) a $150.0 million revolving credit
facility and (ii) $525 million of term loans. At June 30, 1998, the Company had
an agreementaggregate of $507 million of borrowings outstanding under the New Credit
Facility, which bore interest at a weighted average rate of 7.9% per annum at
such date, and had aggregate borrowing availability thereunder of $137.6
million. The New Credit Facility is secured by a security interest in
substantially all of the real and personal property, tangible and intangible, of
the Company and its domestic subsidiaries as well as a pledge of all of the
stock of such domestic subsidiaries, a pledge of not less than 65% of the voting
stock and all of the non-voting common stock of each direct foreign subsidiary
of the Company and each direct foreign subsidiary of each domestic subsidiary of
the Company, and a pledge of all of the capital stock of any subsidiary of the
Company that is a borrower under the New Credit Facility. The New Credit
Facility matures at various times between the sixth and eighth anniversaries of
the Closing Date. The New Credit Facility is guaranteed by all of the domestic
subsidiaries.
Under the New Credit Facility, the Company is subject to acquirerestrictive covenants
that, among other things, restrict the worldwide
automotive occupant restraint systemsability of AlliedSignal Inc., for $710 millionthe Company to dispose of
assets, incur additional indebtedness, prepay other indebtedness, pay dividends,
repurchase or redeem capital stock, make certain investments or create new
subsidiaries, enter into sale and lease-back transactions, make certain
acquisitions, engage in cash.mergers or consolidations, create liens, make capital
expenditures, or engage in certain transactions with affiliates, and that
otherwise restrict corporate and business activities. Under the terms of the
New Credit Facility, the Company may not pay dividends or make other restricted
payments until the Company's consolidated leverage ratio is equal to or less
than 3.50 to 1.00 as of the end of the most recent four-quarter period. The
Company does not presently meet this standard and it is considering various methodsunclear when it will be
met. In addition, the Company is required to comply with specified financial
ratios and tests, including a minimum net worth test, a fixed charge coverage
ratio, an interest coverage ratio and a leverage ratio. At June 30, 1998, the
Company was in compliance with all covenants.
On June 26, 1998, the Company made a $18.0 million voluntary prepayment of financingits
outstanding term loan balances under the New Credit Facility. The debt
reduction resulting from the prepayment, fully satisfied the mandatory payment
of principal due in December 1998 and partially satisfied the payment due in
March 1999.
SENIOR SUBORDINATED NOTES
On April 28, 1998, the Company issued and sold $330 million of 9.25% Senior
Subordinated Notes (the "Notes") in a private transaction under Rule 144A under
the Securities Act of 1933. The Notes bear interest at 9.25% and mature on
April 15, 2008, unless previously redeemed. Interest on the Notes is payable
semi-annually on April 15 and October 15 of each year, commencing October 15,
1998. The Notes are redeemable, in whole or in part, at the option of the
Company at any time on or after April 15, 2003, at certain redemption prices
plus accrued and unpaid interest to the date of redemption. In addition, at any
time on or prior to April 15, 2001, the Company may redeem Notes with the net
proceeds of one or more equity offerings at a redemption price equal to 109.25%
of the principal amount thereof plus accrued and unpaid interest to the date of
redemption, provided that at least 65% of the aggregate principal amount of
Notes originally issued remains outstanding after each such redemption. Upon a
change of
-26-
control, the Company will be required to make an offer to repurchase all
outstanding Notes at price equal to 101% of the principal amount thereof plus
accrued and unpaid interest to the date of repurchase.
The Notes are general unsecured obligations of the Company, subordinated in
right of payment to all existing and future senior indebtedness (as defined in
the related Indenture) of the Company, including indebtedness incurred pursuant
to the New Credit Facility. The Notes rank pari passu in right of payment with
all future senior subordinated indebtedness of the Company, if any, and rank
senior in right of payment to all future subordinated indebtedness of the
Company, if any. The Notes are guaranteed, on a senior subordinated basis, by
the active domestic subsidiaries of the Company (the "Subsidiary Guarantors")
other than BTI Capital Trust and certain domestic subsidiaries owned by a
foreign subsidiary of the Company. The Notes are effectively subordinated in
right of payment to all indebtedness and other liabilities (including trade
payables) of the Company's subsidiaries that are not Subsidiary Guarantors. The
Indenture relating to the Notes contains certain covenants that, among other
things, restrict the Company and its Restricted Subsidiaries (as defined in the
Indenture) with respect to: the incurrence of additional bank borrowingsdebt; restricted
payments; assets sales; transactions with affiliates; dividend and the private placementother
payment restrictions affecting restricted subsidiaries; certain liens; and
certain consolidations, mergers or sales of equity and/or
debt securities.
10
assets.
SWAP AGREEMENTS AND OTHER HEDGING ARRANGEMENTS
The Company restructureduses interest rate swap agreements to help minimize its worldwide credit facilities during 1997
resultinginterest
rate exposures. Amounts to be paid or received under swap agreements are
recognized over the terms of the agreements as adjustments to interest expense.
The Company had entered into variable to fixed interest rate swap agreements in
the refinancingnotional amount of domestic and international debt with a
combination of short-term revolving credit lines and longer-term debt. The
Company has relationships with foreign and domestic banks that have provided
$450$35.0 million under two credit agreements, expiring through April 2002, to fund
fluctuations in working capital and acquisitions. Asas of June 30, 1997, $92
million was available for borrowing under1998. These agreements have
expiration dates between 1999 and 2005. Under these agreements, the facilities. Bank debt has been
used primarily to finance acquisitions. The Company
is actively seeking
acquisition candidates that complement or support the Company's core
competenciesreceived an average variable rate of 5.7% and depending upon the size and structurepaid an average fixed rate of such acquisitions,
additional financing may be required.
The Company has historically relied upon cash generated from operations and
bank credit lines to satisfy its capital needs and finance its growth. The
Company believes that cash from operations and available bank credit lines will
be sufficient to satisfy its working capital and capital expenditure needs for6.3%
on June 30, 1998. The Company also believes it can access additional financinghas variable to variable interest rate swap
agreements outstanding at June 30, 1998 with notional amounts of $275.0 million,
which effectively convert interest from a LIBOR basis to a broader index and equity
capitalcap
the Company's exposure to finance major transactions beyond its normal working capitalupward movement in rates at 6.0% through May 28, 2001
and capital expenditure requirements.
ACQUISITIONS
During 1997,afterwards at 7.5% through May 28, 2005. These agreements expire in 2005.
Under these agreements, the Company completed three acquisitions. In July 1996,received an average variable rate of 5.7%
and paid an average variable rate of 5.3% at June 30, 1998.
The Company also uses foreign currency derivative financial instruments to
offset the Gallino group, an Italian manufacturereffects of steering wheelsexchange rate changes on firm purchase commitments and
automotive
plastics interior and exterior parts, was acquired for $74 million in cash and
$52 million of debt and personnel-related liabilities. In October 1996,certain intercompany loan transactions. At June 30, 1998 the Company completedhad
outstanding foreign exchange contracts to buy $53.0 million Canadian dollars
maturing through October 1999 and a contract to sell $2.0 million British
pounds. See Note 6 to Consolidated Financial Statements included elsewhere in
this Annual Report.
SEASONALITY
The Company's quarterly operating results may vary significantly depending on
factors such as the acquisitiontiming of certain assetssignificant orders, the level of sales by
automobile manufacturers, disruptions caused by labor disputes and the assumptionseasonal
patterns of certain liabilitiesits customers, especially those located in Europe. A large portion
of the North American steering wheel operations of United
TechnologiesCompany's expenses are fixed and all of the outstanding shares of United Technologies
Automotive, U.K. for $154 million. The companies produce steering wheels, airbag
covers, horn pads and related molded products. In February 1997, the Company
acquired the Custom Trim group of companies for $70 million. The acquired
operations produce leather-wrapped steering wheels, shift knobs and boots,
injection molded levers and leather sewing of armrests, headrests and seating.
ENVIRONMENTAL MATTERS
The Company believes it is substantiallycannot be adjusted in compliance with all applicable
environmental laws and regulations and that the cost of maintaining compliance
with such laws and regulations will notresponse to a
shortfall in quarterly revenues. There can be material to its financial results.
DIVIDENDS
In 1997, the Company declared cash dividends of $.28 per share, or $8.9
million. These dividends represent 60 percent of net earnings in 1997 compared
to dividends representing 12 percent of net earnings in 1996. Debt covenants
permit the Company to continue paying dividends at the current rate providedno assurance that the Company demonstrateswill
operate profitably in any quarter.
YEAR 2000
The Year 2000 Issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of the Company's
computer programs or hardware that have date-sensitive software or embedded
chips may recognize a date using "00" as the year 1900 rather than the year
2000. This could result in a system failure or miscalculation causing
disruptions of operations,
-27-
including, among other things, a temporary inability to process transactions,
send invoices, or engage in similar normal business activities.
Based on recent assessments, the Company has determined that it will be
required to modify or replace portions of its software and hardware so that its
computer systems will properly utilize dates beyond December 31, 1999. These
assessments indicated that some of the Company's significant information
technology systems and operating equipment (i.e. production and manufacturing
systems) could be affected.
Affected operating equipment includes automated assembly lines and related
technologies used in various aspects of the manufacturing process. However,
based on a review of its product lines, the Company has determined that the
products it has sold and will continue to sell do not require remediation to be
Year 2000 complaint. Accordingly, the Company does not believe that the Year
2000 presents a material exposure as it relates to the Company's products. In
addition, the Company has gathered information about the Year 2000 compliance
status of its significant suppliers and subcontractors and continues to monitor
their compliance.
For its information technology exposures, the Company expects to complete
software reprogramming no later than December 31, 1998. Once software is
reprogrammed and replaced for a system, the Company begins testing and
implementation. These phases run concurrently for different systems. Completion
of the testing phase for all significant systems is expected by March 31, 1999,
with all remediated systems fully tested and implemented by June 30, 1999.
The remediation of operating equipment is significantly more difficult than
the remediation of the information technology systems because some of the
manufacturers of that equipment are no longer in business. Testing of this
equipment is also more difficult than the testing of the information technology
systems. Once testing is complete, the operating equipment is ready for
immediate use. The Company expects to complete its remediation efforts by March
31, 1999. Testing and implementation of affected equipment is expected to be
80% complete by June 30, 1999.
The Company is in the process of working with third party vendors to ensure
that the Company's systems that interface directly with third parties are Year
2000 compliant by December 31, 1999. The Company has completed its assessment
efforts. Testing of all material systems is expected no later than December 31,
1998. Implementation is expected to be completed by March 31, 1999. Each
vendor queried believed that its billing system would be Year 2000 compliant by
the end of 1999.
The Company has queried its important suppliers and customers that do not
share information systems with the minimum net worth covenant
prior to and followingCompany. To date, the declarationCompany is not aware
of any suppliers and customers Year 2000 issue that would materially impact the
Company's results of operations of financial condition. However, the Company has
no means of ensuring that suppliers and customers will be Year 2000 ready. The
inability of its external agents to complete their Year 2000 resolution process
in a timely fashion could materially impact the Company. The effect of non-
compliance by its suppliers and customers is not determinable.
The Company will utilize both internal and external resources to reprogram,
or replace, test, and implement the software and operating equipment for Year
2000 modifications. The total cost of the Year 2000 project is estimated at $7
million and is being funded with cash from operations. To date, the Company has
incurred approximately $1 million ($1 million expensed) relating to all phases
of the Year 2000 project. Of the total remaining project costs, the remaining
$6 million relates to repair of hardware and software and will be expensed as
incurred.
The Company plans to complete the Year 2000 modifications are based on
management's best estimates, which were derived utilizing numerous assumptions
of future events including the continued
-28-
availability of certain resources, and other factors. Estimates on the status of
completion and the expected completion dates are based on costs incurred to date
compared to total expected costs. However, there can be no guarantee that these
estimates will be achieved and actual results could differ materially from those
plans. Specific factors that might cause such dividends.
SAFE HARBOR STATEMENT
Except formaterial differences include, but
are not limited to, the historical information contained herein, certain matters
discussedavailability and cost of personnel trained in this area,
the ability to locate and correct all relevant computer codes, and similar
uncertainties.
FORWARD LOOKING STATEMENTS
Statements herein regarding estimated annual report are "forward-looking statements" as definedcost savings under the
Repositioning Program, anticipated capital expenditures, estimated investments
in BSRS and the Private Securities Litigation Reform Act of 1995, which involve risks and
uncertainties, and are subject to change based on various important factors. TheCompany's anticipated performance in future periods constitute
forward-looking statements in this document are intended to be subject towithin the safe harbor protection provided by Section 27Ameaning of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. For a discussion identifying
some important factorsSuch statements are subject to certain
risks and uncertainties that could cause actual resultsamounts to varydiffer materially
from those projected. With respect to estimated cost savings, management has
made assumptions regarding, among other things, the timing of plant closures,
the amount and timing of expected short-term operating losses and reductions in
fixed labor costs. The realization of annual cost savings is subject to certain
risks, including, among other things, the risks that expected operating losses
have been underestimated, expected cost reductions have been overestimated,
unexpected costs and expenses will be incurred and anticipated operating
efficiencies will not be achieved. Further, statements herein regarding the
Company's performance in future periods are subject to risks relating to, among
other things, difficulties in integrating acquired businesses, deterioration of
relationships with, or the forward-looking statements, such asloss of, material customers, the economic,
currency, regulatory, legal, technological,failure to obtain
business related to new and redesigned model introductions, possible significant
product liability claims, decreases in demand for the Company's products, and
adverse changes in general market and industry conditions (including, without
limitation, continued downward pricing pressure and competitive changespressures
associated with OEM's consolidation of their supplier base. Management believes
these forward looking statements are reasonable; however, undue reliance should
not be placed on such forward looking statements, which may
affect the Company's operations, products and markets, see the Company's
Securities and Exchange Commission filings.are based on current
expectations.
29-
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK.
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-30-
BREED TECHNOLOGIES, INC.
CONSOLIDATED FINANCIAL STATEMENTS
CONTENTS
Report of Independent Certified Public Accountants............... 1
Audited Financial Statements
Consolidated Balance Sheets...................................... 2
Consolidated Statements of Operations............................ 4
Consolidated Statements of Stockholders' Equity (Deficit)........ 5
Consolidated Statements of Cash Flows............................ 6
Notes to Consolidated Financial Statements....................... 8
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors and Stockholders
BREED Technologies, Inc.
We have audited the accompanying consolidated balance sheets of BREED
Technologies, Inc. and subsidiaries as of June 30, 1998 and 1997, and the
related consolidated statements of operations, stockholders' equity (deficit),
and cash flows for each of the three years in the period ended June 30, 1998.
These financial statements listedare the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audit. We did not audit the 1997 financial statements of MOMO S.p.A, a
wholly owned consolidated subsidiary acquired April 15, 1996, which statements
reflect total assets of $106,398,000 as of June 30, 1997 and net sales of
$73,093,000 for the year then ended. Those statements were audited by other
auditors whose report has been furnished to us, and our opinion, insofar as it
relates to data included for MOMO S.p.A., is based solely on the report of the
other auditors.
We conducted our audits in Item 14(a)(1)accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are included in this report
beginningfree of material
misstatement. An audit includes examining, on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
11
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information required by this Item is incorporated herein by reference toa test basis, evidence supporting
the information under the heading " Nominees for Election as Directors"amounts and disclosures in the Company's definitive Proxy Statementfinancial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the
consolidated financial statements referred to be usedabove present fairly, in connection withall
material respects, the Company's
1997 Annual Meetingconsolidated financial position of Stockholders, which has been filed with the Commission.
Information concerning executive officers of registrant are set forth in Item I
of this 10K.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated herein by reference to the
information under the heading "Compensation of Executive Officers" in the
Company's definitive Proxy Statement to be used in connection with the Company's
1997 Annual Meeting of Stockholders, which will be filed with the Commission.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated herein by reference to the
information under the heading "Stock Ownership of Certain Beneficial OwnersBREED Technologies,
Inc. and Management" in the Company's definitive Proxy Statement to be used in connection
with the Company's 1997 Annual Meeting of Stockholders, which has been filed
with the Commission.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated by reference to the
information under the heading "Certain Transactions" in the Company's definitive
Proxy Statement to be used in connection with the Company's 1997 Annual Meeting
of Stockholders, which has been filed with the Commission.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
(1) Financial Statements.
Consolidated Balance Sheetssubsidiaries at June 30, 19961998 and 1997, F-1
Consolidated Statementsand the consolidated results of
Earningstheir operations and their cash flows for each of the three years in the period
ended June 30, 1995, 1996 and 1997 F-2
Consolidated Statements of Stockholders' Equity
for the years ended June 30, 1995, 1996 and 1997 F-3
Consolidated Statements of Cash Flows for the years
ended June 30, 1995, 1996 and 1997 F-4
Notes to Consolidated Financial Statements F-5
Report of Certified Public Accountants F-12
(2) Financial statements schedules. None. The required information is
either not applicable or is included1998, in the financial statements
or notes thereto.
(3) Exhibits. The Exhibits listed in the Exhibit Index immediately
preceding such Exhibits are filed as part of this Annual Report
on Form 10-K
(b) Reports on Form 8-K filed during the last quarter of fiscal 1997: None
12conformity with generally accepted accounting
principles.
Ernst & Young
September 23, 1998,
Tampa, Florida
1
BREED TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
JuneJUNE 30,
In thousands1998 1997
1996
- ------------------------------------------------------------------------------------------------------------------------------------ASSETS (IN MILLIONS)
ASSETS
Current Assetsassets:
Cash and cash equivalents...............................................................................equivalents (Note 1) $ 18,70744.4 $ 95,83018.7
Accounts receivable, principally trade.................................................................. 207,951 110,656
Inventories............................................................................................. 75,347 52,890trade (Note 10) 275.3 208.0
Inventories (Note 1):
Raw materials 75.0 27.1
Work in progress 18.2 23.4
Finished goods 15.9 24.8
109.1 75.3
Income tax receivable 64.6 --
Deferred income taxes (Notes 1 and 4) 4.5 5.8
Prepaid expenses........................................................................................ 13,519 7,247
- ------------------------------------------------------------------------------------------------------------------------------------expenses and other 23.2 7.7
Total Current Assets...................................................................................... 315,524 266,623
- ------------------------------------------------------------------------------------------------------------------------------------current assets 521.1 315.5
Property, Plantplant and Equipment
Land.................................................................................................... 15,206 10,805
Buildings............................................................................................... 106,122 73,342equipment: (Note 1)
Land 17.4 15.2
Buildings 98.8 106.1
Machinery and equipment................................................................................. 212,542 126,947equipment 320.1 212.6
Construction in progress................................................................................ 28,013 14,417
- ------------------------------------------------------------------------------------------------------------------------------------
361,883 225,511progress 60.5 28.0
496.8 361.9
Less accumulated depreciation........................................................................... (85,433) (53,858)
- ------------------------------------------------------------------------------------------------------------------------------------
276,450 171,653
- ------------------------------------------------------------------------------------------------------------------------------------depreciation (131.6) (85.4)
365.2 276.5
Intangible Assets......................................................................................... 220,956 45,053assets, net (Note 1) 692.1 221.0
Net Assets Held For Sale.................................................................................. 52,620 --assets held-for-sale (Note 3) 29.0 52.6
Investments and Other Assets.............................................................................. 11,603 20,473
- ------------------------------------------------------------------------------------------------------------------------------------other assets 42.5 11.6
Total Assets.............................................................................................. $877,153 $503,802
====================================================================================================================================assets $1,649.9 $877.2
2
BREED TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS (CONTINUED)
JUNE 30,
1998 1997
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) (IN MILLIONS)
Current Liabilitiesliabilities:
Notes payable and current portion of
long-term debt..................................................... $191,744 $120,688debt (Note 5) $ 46.9 $191.7
Accounts payable........................................................................................ 121,505 33,940
Employee compensationpayable 254.9 121.5
Accrued expenses (Note 18) 233.2 49.5
Total current liabilities 535.0 362.7
Long-Term Debt (Notes 5 and benefits...................................................................... 16,818 13,844
Accrued expenses........................................................................................ 32,661 7,980
- ------------------------------------------------------------------------------------------------------------------------------------
Total Current Liabilities................................................................................. 362,728 176,452
Long-Term Debt............................................................................................ 231,700 42,1236) 851.1 231.7
Other Long-Term Liabilities............................................................................... 16,306 10,147
- ------------------------------------------------------------------------------------------------------------------------------------Liabilities 25.6 16.3
Total Liabilities......................................................................................... 610,734 228,722
- ------------------------------------------------------------------------------------------------------------------------------------
Stockholders' EquityLiabilities 1,411.7 610.7
Company Obligated Mandatorily Redeemable Convertible
Preferred Securities (Notes 6 and 11) 250.0 --
STOCKHOLDERS' EQUITY: (DEFICIT)
Common stock............................................................................................ 317 316stock, par value $0.01, authorized 75,000,000 shares 0.4 0.3
issued and outstanding 36,850,261 and 31,679,442 at
June 30, 1998 and 1997, respectively
Series A Preference Stock, par value $0.01, issued and
outstanding 1 share at June 30, 1998 (Note 13) -- --
Additional paid-in capital.............................................................................. 77,470 76,652capital 197.6 77.5
Warrants (Note 13) 1.9 --
Retained earnings....................................................................................... 207,964 201,981earnings (184.0) 208.0
Foreign currency translation adjustments................................................................ (18,843) (2,927)adjustments (Note 1) (27.4) (18.8)
Unearned compensation................................................................................... (489) (942)
- ------------------------------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity................................................................................ 266,419 275,080
- ------------------------------------------------------------------------------------------------------------------------------------
Total Liabilitiescompensation (0.3) (0.5)
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) (11.8) 266.5
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $1,649.9 $877.2
See notes to Consolidated Financial Statements.
3
BREED TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED JUNE 30,
1998 1997 1996
(IN MILLIONS, EXCEPT FOR SHARE DATA)
Net sales (Note 1) $1,385.3 $ 794.9 $ 431.7
Cost of sales (Note 15) 1,201.4 631.3 277.1
Gross profit 183.9 163.6 154.6
Selling, general and Stockholders' Equity................................................................ $877,153 $503,802
====================================================================================================================================administrative expenses 78.6 70.6 38.2
Research development and engineering expenses 73.2 36.1 23.6
Repositioning and impairment charges (Note 15) 259.5 -- --
In-process research and development expenses (Note 15) 77.5 -- --
Amortization of intangibles 19.3 6.3 2.0
Operating income (loss) (324.2) 50.6 90.8
Interest expense 85.7 26.8 2.7
Other income (expense), net (Note 18) 1.1 5.8 10.2
Earnings (loss) before income taxes, distributions on
Company obligated mandatorily redeemable convertible
preferred securities and extraordinary loss (408.8) 29.6 98.3
Income taxes (benefit) (Note 4) (60.2) 14.8 35.3
Distributions on Company obligated mandatorily
redeemable convertible preferred securities 10.0 -- --
Earnings (loss) before extraordinary loss (358.6) 14.8 63.0
Extraordinary loss, net of tax benefit 10.0 -- --
of $5.4 million (Note 16)
NET EARNINGS (LOSS) $ (368.6) $ 14.8 $ 63.0
EARNINGS PER SHARE (NOTES 1 AND 12):
BASIC:
Income (loss) before extraordinary items $ (10.73) $ 0.47 $ 2.00
Extraordinary loss (0.30) -- --
NET INCOME (LOSS) $ (11.03) $ 0.47 $ 2.00
DILUTED:
Income (loss) before extraordinary items $ (10.73) $ 0.46 $ 1.99
Extraordinary loss (0.30) -- --
NET INCOME (LOSS) $ (11.03) $ 0.46 $ 1.99
Shares used for computation:
Basic 33,407 31,648 31,550
Diluted 33,407 31,867 31,644
Cash dividends per share $ 0.07 $ 0.28 $ 0.24
See Notes to Consolidated Financial Statements
F-1Statements.
4
CONSOLIDATED STATEMENTS OF EARNINGS
Year ended June 30,
In thousands, except for per share data 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
Net Sales.................................................................................. $794,880 $431,689 $400,972
Cost of sales.............................................................................. 631,283 277,044 244,551
- ------------------------------------------------------------------------------------------------------------------------------------
Gross profit............................................................................... 163,597 154,645 156,421
- ------------------------------------------------------------------------------------------------------------------------------------
Selling, general and administrative........................................................ 70,583 38,243 33,098
Engineering, research and development...................................................... 36,121 23,588 18,506
Amortization of intangibles................................................................ 6,310 2,001 286
- ------------------------------------------------------------------------------------------------------------------------------------
Operating income........................................................................... 50,583 90,813 104,531
Interest income (expense), net............................................................. (24,460) (1,137) 704
Other income (expense), net................................................................ 3,524 8,662 4,898
- ------------------------------------------------------------------------------------------------------------------------------------
Earnings before income taxes............................................................... 29,647 98,338 110,133
Income taxes............................................................................... 14,800 35,300 37,800
- ------------------------------------------------------------------------------------------------------------------------------------
Net Earnings............................................................................... $ 14,847 $ 63,038 $ 72,333
====================================================================================================================================
Earnings per Share......................................................................... $ 0.47 $ 2.00 $ 2.30
====================================================================================================================================
Cash Dividends per Share................................................................... $ 0.28 $ 0.24 $ 0.20
====================================================================================================================================
Average Shares Outstanding................................................................. 31,648 31,550 31,434
====================================================================================================================================
See Notes to Consolidated Financial Statements
F-2
BREED TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
Foreign
Additional Currency
Common Stock Paid-In Retained Translation Unearned
In thousands, except for per share data Shares Amount Capital Earnings Adjustments Compensation
- ------------------------------------------------------------------------------------------------------------------------------------FOREIGN
SERIES A SERIES B ADDITIONAL CURRENCY
(IN MILLIONS, EXCEPT PER COMMON STOCK PREFERENCE PREFERENCE PAID-IN RETAINED TRANSLATION
SHARE DATA) SHARES AMOUNT STOCK STOCK CAPITAL WARRANTS EARNINGS ADJUSTMENTS
Balance at June 30, 1994........................ 31,342,033 $313 $71,395 $ 80,477 $ (937) $1995 31,515,390 0.3 -- -- 75.1 -- 146.5 (1.5)
Shares issued under
Stock Option Plans........ 52,024 1 686 --Plans 67,561 0.8 -- --
Shares sold under Employee
Stock
Purchase Plan............................... 51,843 -- 1,054 -- -- --Plan 60,906 - 1.0 - -
Shares terminated under
Stock Incentive
Plan, net of granted shares................. 69,490 1 1,927 -- -- (1,927)shares (17,200) - (0.4) - -
Compensation expense.......................... -- -- -- -- -- 296expense - - - - -
Tax benefit from exercise - - 0.2 - -
of stock options
Net earnings.................................. -- -- -- 72,333 -- --earnings - - - 63.1 -
Translation adjustments....................... -- -- -- -- (606) --adjustments - - - - -
Cash dividends--dividends-$.24 per share................ -- -- -- (6,292) -- --
- ------------------------------------------------------------------------------------------------------------------------------------- - (7.6) -
share
Balance at June 30, 1995........................ 31,515,390 315 75,062 146,518 (1,543) (1,631)1996 31,626,657 0.3 76.7 202.0 (2.9)
Shares issued under Stock
Option Plans........ 67,561 1 786 -- -- --Plans 38,695 0.5 - -
Shares sold under Employee
Stock
Purchase Plan............................... 60,906 -- 1,038 -- -- --Plan 27,082 - 0.5 - -
Shares terminated under
Stock Incentive
Plan, net of granted
shares................. (17,200) -- (459) -- -- 459shares (12,992) - (0.3) - -
Compensation expense.......................... -- -- -- -- -- 230expense - - - - -
Tax benefit from exercise
of stock options.... -- -- 225 -- -- --options - - 0.1 - -
Net earnings.................................. -- -- -- 63,038 -- --earnings - - - 14.8 -
Translation adjustments....................... -- -- -- -- (1,384) --adjustments - - - - (15.9)
Cash dividends--dividends-$.24 per
share................ -- -- -- (7,575) -- --share - ------------------------------------------------------------------------------------------------------------------------------------- - (8.8) -
Balance at June 30, 1996........................ 31,626,657 316 76,652 201,981 (2,927) (942)1997 31,679,442 $0.3 $ 77.5 $ 208.0 $(18.8)
UNEARNED TOTAL
(IN MILLIONS, EXCEPT PER COMPEN- STOCKHOLDERS'
SHARE DATA) SATION EQUITY (DEFICIT)
Balance at June 30, 1995 (1.6) 218.8
Shares issued under
Stock Option Plans........ 38,695 1 537 -- -- --Plans - 0.8
Shares sold under Employee
Stock
Purchase Plan............................... 27,082 -- 529 -- -- --Plan - 1.0
Shares terminated under
Stock Incentive
Plan, net of granted
shares................. (12,992) -- (364) -- -- 364shares 0.5 0.1
Compensation expense.......................... -- -- -- -- -- 89expense 0.2 0.2
Tax benefit from exercise
of stock options.... -- -- 116 -- -- --options - 0.2
Net earnings.................................. -- -- -- 14,847 -- --earnings - 63.1
Translation adjustments....................... -- -- -- -- (15,916) --adjustments - (1.4)
Cash dividends--dividends-$.28.24 per
share................ -- -- -- (8,864) -- --share - ------------------------------------------------------------------------------------------------------------------------------------(7.6)
Balance at June 30, 1997........................1996 (0.9) 275.2
Shares issued under Stock - 0.5
Option Plans
Shares sold under Employee
Stock
Purchase Plan - 0.5
Shares terminated under
Stock Incentive
Plan, net of granted 0.3 --
shares
Compensation expense 0.1 0.1
Tax benefit from exercise - 0.1
of stock options
Net earnings - 14.8
Translation adjustments - (15.9)
Cash dividends-$.24 per - (8.8)
share
Balance at June 30, 1997 $(0.5) 266.5
See Notes to Consolidated Financial Statements.
5
BREED TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
FOREIGN
SERIES A SERIES B ADDITIONAL CURRENCY
(IN MILLIONS, EXCEPT PER COMMON STOCK PREFERENCE PREFERENCE PAID-IN RETAINED TRANSLATION
SHARE DATA) SHARES AMOUNT STOCK STOCK CAPITAL WARRANTS EARNINGS ADJUSTMENTS
Balance at June 30, 1997 31,679,442 $317 $77,470 $207,964 $(18,843)$0.3 $ (489)
====================================================================================================================================77.5 $ 208.0 $(18.8)
Shares issued under 103,162 1.6
Stock Option Plans
Shares terminated under
Stock Incentive
Plan, net of granted (7,212) (0.2)
shares
Shares issued for
acquisition of HS
Technik and Design 129,144 2.8
Shares issued for
acquisition of
minority
interest in subsidiary 62,499 1.0
Net loss (368.6)
Issue Series A Preference 115.0
Stock
Issue Series B Preference
Stock,
(including fees) 200.0 (10.0)
Redemption of Series B (200.0)
Preference Stock
Fees associated with
Company obligated
mandatorily
redeemable
convertible
preferred (11.0)
securities
Warrants issued with 1.9
Credit Facility
Conversion of Series A 4,883,226 0.1 (115.0) 114.9
Preference Stock
Translation adjustments (8.6)
Cash dividends (2.4)
Balance at June 30, 1998 36,850,261 0.4 -- -- 197.6 1.9 (184.0) (27.4)
UNEARNED TOTAL
(IN MILLIONS, EXCEPT PER COMPEN- STOCKHOLDERS'
SHARE DATA) SATION EQUITY (DEFICIT)
Balance at June 30, 1997 $(0.5) 266.5
Shares issued under 1.6
Stock Option Plans
Shares terminated under
Stock Incentive
Plan, net of granted
shares .2 --
Shares issued for
acquisition of HS
Technik and Design 2.8
Shares issued for
acquisition of
minority
interest in subsidiary 1.0
Net loss (368.6)
Issue Series A Preference
Stock 115.0
Issue Series B Preference
Stock, 190.0
(including fees)
Redemption of Series B
Preference Stock (200.0)
Fees associated with
Company obligated
mandatorily
redeemable
convertible
preferred
securities (11.0)
Warrants issued with
Credit Facility 1.9
Conversion of Series A
Preference Stock --
Translation adjustments (8.6)
Cash dividends (2.4)
Balance at June 30, 1998 (0.3) (11.8)
Preferred stock: Authorized 5,000,000 shares, par value $.001 per share.
To date, none of these shares hashave been issued.
Common stock: Authorized 50,000,00075,000,000 shares, par value $.01 per share.
See Notes to Consolidated Financial Statements.
F-36
BREED TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended JuneYEAR ENDED JUNE 30,
In thousands1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
Cash Flows from Operating Activities(IN MILLIONS)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings............................................................................earnings (loss) $(368.6) $ 14,84714.8 $ 63,038 $ 72,33363.0
Adjustments:
Depreciation of plant and equipment................................................... 42,224 18,090 13,609equipment 42.2 42.2 18.1
Amortization of intangible assets..................................................... 6,310 2,001 286assets 19.3 6.3 2.0
Deferred income taxes................................................................. 1,157 1,665 (1,550)taxes 7.3 1.2 1.7
Loss (gain) from sale of assets....................................................... 634 (1,517) (1,349)assets 1.3 0.6 (1.5)
Compensation related to stock plan.................................................... 89 230 296plan -- 0.1 0.2
Non-cash items included in repositioning,
impairment and other special charges 211.4 -- --
Accrual for repositioning, impairment and other
special charges 98.2 -- --
Changes in operating assets and liabilities, net of
effects from acquisitions:
Accounts receivable................................................................. (16,284) (30,667) (5,473)
Inventories......................................................................... 2,234 (1,548) (6,526)receivable 31.8 (16.3) (30.7)
Inventories 2.4 2.2 (1.5)
Income tax receivable (64.6) -- --
Prepaid expenses.................................................................... (720) (717) (334)expenses and other (0.9) (0.7) (0.7)
Accounts payable.................................................................... 37,047 843 1,915payable 5.5 37.0 0.8
Accrued expenses.................................................................... (7,597) (9,215) (3,173)expenses 10.9 (7.6) (9.2)
Other assets and liabilities........................................................ 9,418 (1,000) (891)
- ------------------------------------------------------------------------------------------------------------------------------------liabilities 15.3 9.6 (1.0)
Net cash provided by (used in)operating activities............................................... 89,359 41,203 69,143
- ------------------------------------------------------------------------------------------------------------------------------------
Cash Flows from Investing Activitiesactivities (10.3) 89.4 41.2
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment.............................................. (75,851) (45,370) (69,268)equipment (67.8) (75.9) (45.4)
Sale (purchases) of short-term investments, net.........................................net -- 10,601 12,386-- 10.6
Cost of acquisitions, net of cash acquired.............................................. (291,922) (48,507) (6,941)acquired (716.9) (291.9) (48.5)
Deposit on Gallino acquisition..........................................................acquisition -- (10,299) -- (10.3)
Investment in and advances to affiliates................................................ (874)affiliates -- (6,376)(0.9) --
Proceeds from sale of assets............................................................ 1,382 2,742 1,349
- ------------------------------------------------------------------------------------------------------------------------------------assets 11.5 1.4 2.7
Net cash used in investing activities................................................... (367,265) (90,833) (68,850)
- ------------------------------------------------------------------------------------------------------------------------------------
Cash Flows from Financing Activitiesactivities (773.2) (367.3) (90.9)
See Notes to Consolidated Financial Statements.
7
BREED TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
YEAR ENDED JUNE 30,
1998 1997 1996
(IN MILLIONS)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from short-term borrowings..................................................... 577,688 86,957 5,486
RepaymentsBridge Loan Facility 800.0 -- --
Repayment of long-term debt and other borrowings....................................... (412,830) (6,356) (9,333)Bridge Loan Facility (800.0) -- --
Proceeds from long-term debt............................................................ 45,441 45,000New Credit Facility 525.0 -- --
Proceeds from Senior Subordinated Notes 330.0 -- --
Other borrowings (repayments), net (380.4) 210.3 125.6
Proceeds from Series A Preference Stock issuance 115.0 -- --
Proceeds from Series B Preference Stock issuance 200.0 -- --
Fees associated with Series B Preference Stock (10.0) -- --
Redemption of Series B Preference Stock (200.0) -- --
Proceeds from Company Obligated Mandatorily
Redeemable Convertible Preferred Securities,
less related fees 239.0 -- --
Cash dividends paid..................................................................... (8,861) (6,938) (4,715)paid (2.4) (8.9) (6.9)
Common stock issued--options and stock plans............................................. 1,182 2,050 1,741
- ------------------------------------------------------------------------------------------------------------------------------------plans 1.6 1.2 2.1
Net cash provided by (used in) financing activities..................................... 202,620 120,713 (6,821)activities 817.8 202.6 120.8
Effect of Exchange Rate Changesexchange rate changes on Cash................................................. (1,837) (1,608) (587)
- ------------------------------------------------------------------------------------------------------------------------------------cash (8.6) (1.8) (1.6)
Net increase (decrease) in cash and cash equivalents.................................... (77,123) 69,475 (7,115)equivalents 25.7 (77.1) 69.5
Cash and cash equivalents at beginning of year.......................................... 95,830 26,355 33,470
- ------------------------------------------------------------------------------------------------------------------------------------year 18.7 95.8 26.3
Cash and cash equivalents at end of year................................................year $ 18,70744.4 $ 95,83018.7 $ 26,355
====================================================================================================================================
Supplemental Disclosures of Cash Flow Information95.8
See Notes to Consolidated Financial Statements.
8
BREED TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
YEAR ENDED JUNE 30,
1998 1997 1996
(IN MILLIONS)
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest..............................................................................Interest $ 20,77678.2 $ 2,34720.8 $ 1,7942.3
Income taxes.......................................................................... 12,914 32,230 39,520taxes $ 21.5 $ 12.9 $ 32.2
Cost of Acquisitions:acquisitions (Note 2):
Working capital (deficiency), net of cash acquired....................................acquired $ (23,534)62.6 $ 125(23.5) $ 6,8240.1
Property, plant and equipment......................................................... (144,995) (18,021) (4,483)
Patents............................................................................... (16,000)equipment (139.5) (145.0) (18.0)
Identifiable intangible assets (263.9) (16.0) -- (5,272)
Cost in excess of net assets of businesses acquired................................... (158,073) (35,718) (3,634)acquired (372.0) (158.1) (35.7)
Other assets.......................................................................... (2,231) (3,066) (451)assets (12.5) (2.2) (3.1)
Long-term debt and other long-term liabilities........................................ 52,911 8,173 75
- ------------------------------------------------------------------------------------------------------------------------------------liabilities 8.4 52.9 8.2
Net cost of acquisitions.............................................................. $(291,922) $(48,507) $ (6,941)
====================================================================================================================================acquisitions $(716.9) $(291.9) $(48.5)
See Notes to Consolidated Financial Statements.
F-49
BREED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of ConsolidationPRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of BREED
Technologies, Inc. (the Company) and its wholly-andwholly and majority-owned subsidiaries.
All intercompany balances and transactions have been eliminated in
consolidation.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include short-term interest bearing securities with
maturities of three months or less when purchased.
REVENUE RECOGNITION AND SALES COMMITMENTS
The preparationCompany recognizes revenue when title and risk of financial statements in conformityloss transfers to its
customers, which is generally upon shipment of products to customers. The
Company generally enters into agreements with its customers at the beginning of
a given vehicle's life to produce products. Once such agreements are entered
into by the Company, fulfillment of the customers' purchasing requirements is
generally accepted accounting principles requires managementthe obligation of the Company for the entire production life of the
vehicle (which averages five years). In certain instances, the Company may be
committed under existing agreements to makesupply products to its customers at
selling prices that are not sufficient to cover the direct cost to produce such
products. In such situations, the Company records a liability for the estimated
future amount of such losses. Such losses are recognized at the time that the
loss is probable and reasonably estimable. Losses are estimated based upon
information available at the time of the estimate, including future production
volume estimates, length of the program and assumptions that affectselling price and production cost
information.
EARNINGS PER SHARE
In 1998, the Company adopted Statement of Financial Accounting Standard No. 128,
"Earnings per Share" (SFAS No. 128). SFAS No. 128 replaced the calculation of
primary and fully diluted earnings per share with basic and diluted earnings per
share. Unlike primary earnings per share, basic earnings per share excludes any
dilutive effects of options and convertible securities. Diluted earnings per
share is similar to the previously reported fully diluted earnings per share.
All earnings per share amounts reported infor all periods presented have been restated to
conform to SFAS No. 128 requirements. This charge did not have a material
impact on the financial statements and
accompanying notes. Actual results could differ from those estimates.
Inventoriescomputation of the earnings per share data.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined
primarily using the first-in, first-out method for inventories in North America
and primarily using the average cost method for inventories in Europe.
Property, Plant and EquipmentPROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Depreciation is computed
using the straight-line method applied to individual items based on estimated
useful lives of the assets which range from 5 to 40 years for buildings and
improvements, and 3 to 10 years for machinery, computer and office equipment.
Replacements and betterments that extend the lives of assets are capitalized,
while maintenance and repairs are expensed as incurred. Upon sale or retirement
of property and equipment, the related cost and accumulated depreciation are
removed and any gain or loss is recognized.
10
BREED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
INTANGIBLE ASSETS
Intangible Assetsassets consist of the following:
JUNE 30,
1998 1997
(IN MILLIONS)
Cost in excess of net assets of businesses acquired $526.1 $207.0
Patents 12.5 21.5
Developed technology 170.0 ---
Work force 10.3 ---
718.9 228.5
Accumulated amortization 26.8 7.5
Net intangible assets $692.1 $221.0
Cost in excess of net assets of businesses acquired (goodwill) is being
amortized on a straight-line basis over a period ofperiods ranging from 3 to 40 years and
is stated net of accumulated amortization of $6,247,000$18.7 million and $895,000$6.2 million at
June 30, 1998 and 1997, and
1996, respectively.
Goodwill is reevaluated when business events and
circumstances indicate thatThe Company assesses the recoverability of its intangible assets by determining
whether the net carrying amount may notvalue of the intangibles can be recoverable.
Reevaluation is based on projections ofrecovered through
undiscounted future cash flows. The amount of intangible impairment, if any, is
measured based on estimated discounted future cash flows. The assessment of the
recoverability of intangibles will be impacted if estimated future cash flows
are not achieved.
Patents, technology, and workforce are being amortized on a straight-line basis
over a period of 10 to 22 years and is stated at cost less accumulated
amortization of $1,271,000$8.1 million and $527,000$1.3 million at June 30, 19971998 and 1996,1997,
respectively. These items, which were acquired in connection with the
acquisition of VTI Hamlin OY (VTI)("VTI"), the North American steering wheel
operations ("USS") of United Technologies and USS acquisitions, as
discussedthe acquisition of SRS (as defined
in Note 3,2) are capitalized and amortized on a straight-line basis over the
average remaining life of the related patents.
Translationpatents and technology.
DEFERRED INCOME TAXES
Under the asset and liability method of Foreign Currencies and
Foreign Exchange Contracts
AllStatement of Financial Accounting
Standard No. 109 "Accounting for Income Taxes" (SFAS No. 109), deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases, operating loss
and tax credit carryforwards. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the balance sheetsyears in
which those temporary differences are expected to be recovered or settled.
Under Statement 109, the effect on deferred tax assets and liabilities due to a
change in tax rates is recognized in income in the period that includes the
enactment date.
STOCK-BASED COMPENSATION
In October 1995, the Financial Accounting Standard Board issued Statement of
Financial Accounting Standards No. 123 "Accounting for Stock-Based Compensation"
(SFAS No. 123). SFAS No. 123 established financial accounting and reporting
standards for stock-based compensation plans and transactions in which an entity
issues its equity instruments to acquire goods and services from nonemployees.
The Company has adopted the disclosure-only provisions of SFAS No. 123.
Accordingly, no compensation cost has been recognized for the stock option
plans.
FOREIGN CURRENCY TRANSLATIONS
The Company translates foreign subsidiaries
whose functional currency is other than thecurrencies into U.S. dollar are translated atdollars using year-end
exchange rates except stockholders' equity which is translated at
historical rates.for foreign assets and liabilities and weighted average rates for
foreign income and expenses. Translation gains and losses arising from the
conversion of the foreign balance sheets and income statements into U.S. dollars
are accumulatedreflected as a separate component
11
BREED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
of stockholders' equity. ForeignWith respect to operations in Mexico, the functional
currency transactionis the U.S. dollar, and any gains andor losses from translations are
included directly in income.
DERIVATIVE FINANCIAL INSTRUMENTS
The Company uses interest rate swap agreements to help minimize its interest
rate exposure. Amounts to be paid or received under swap agreements are
recognized over the terms of the agreements as adjustments to interest expense.
Amounts receivable or payable under the agreements are included in determining net earnings.receivables
or accrued expenses in the accompanying Consolidated Balance Sheets.
The Company also uses foreign currency derivative financial instruments to
offset the effects of exchange contracts to hedgerate changes on firm purchase commitments and
certain foreign
denominated payables and receivables and also to hedge firm sales and purchase
commitments. Realized and unrealized gainsintercompany loan transactions. Gains and losses on contracts
designated as hedges of intercompany transactions that are permanent in nature
are accrued as exchange rates change, and are recognized in stockholders' equity
as foreign currency translation adjustments. Gains and losses on contracts that
are not permanent in nature or are not designated as hedges are accrued as
exchange rates change and are recognized in income. Gains and losses on
contracts designated as hedges of identifiable foreign currency firm commitments
are deferred and recognized asincluded in the measurement of the related transactions are settled.foreign currency
transaction.
LONG-LIVED ASSET IMPAIRMENT
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 121 "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to be Disposed of" (FAS No. 121) which
became effective for fiscal years beginning after December 15, 1995 (fiscal 1997
for the Company). Impairment of long-lived assets, including intangibles
related to such assets, is recognized whenever events or changes in
circumstances indicate that the carrying amount of the asset, or related groups
of assets, may not be fully recoverable from estimated future cash flows and the
fair value of the related assets is less than their carrying value.
USE OF ESTIMATES
The Company does not enter
into foreign exchange contracts for trading purposes. At June 30, 1997,preparation of financial statements in conformity with generally accepted
accounting principles requires management to make certain estimates and
assumptions that affect the Company had outstanding Canadian contracts to buy $43 million, maturing through
January 1999reported amounts of assets and to sell $9 million, maturing through August 1997. At June 30,
1996,liabilities and
disclosure of contingent assets and liabilities at the Company had outstanding contracts to sell 10.5 million German marks,
maturing through June 1997.
Earnings Per Share
Earnings per share is computed by dividing net earnings bydate of financial
statements and the weighted
average sharesreported amounts of common stock outstandingrevenues and expenses during the
year. The effect on
earnings per share resultingreporting period. Actual results could differ from the assumed exercise of outstanding options is
not material.
F-5
Reclassificationsthose estimates.
RECLASSIFICATIONS
Certain amounts in the prior years' Consolidated Financial Statementsconsolidated financial statements and related
notes have been reclassified to conform to the current year's presentation.
2.IMPLEMENTATION OF NEW FINANCIAL INSTRUMENTS ANDACCOUNTING STANDARDS
In June 1997, The Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 130, "Reporting Comprehensive Income". The
statement must be adopted by the Company in the first quarter of fiscal 1999.
Under provisions of this statement, the Company will be required to include a
financial statement presentation of comprehensive income and its components to
conform to these new requirements. As a consequence of this change, certain
reclassifications will be necessary for previously reported amounts to achieve
the required presentation of comprehensive income. Required disclosures will not
affect the Company's financial position or results of operations.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 131, "Disclosure about Segments of an
Enterprise and Related Information". The statement must be adopted by the
Company on June 30, 1999. Under provisions of this statement, the Company will
be required to modify or expand the financial
12
BREED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
statement disclosures for operating segments, products and services, and
geographic areas. Required disclosures will not affect the Company's financial
position or results of operations.
In December 1997, The Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 132, "Employers' Disclosures about Pensions
and Other Postretirement Benefits" and is effective for the Company's 1999
fiscal year. The statement revises current disclosure requirements for
employers' pensions and other retiree benefits. Required disclosures will not
affect the Company's financial position or results of operations.
In June 1998, the Financial Accounting Standards Board issued Statement No. 133,
"Accounting for Derivative Instruments and Hedging Activities," (SFAS No. 133)
which is required to be adopted in years beginning after June 15, 1999. The
SFAS 133 permits early adoption as of the beginning of any fiscal quarter after
its issuance. SFAS No. 133 will require the Company to recognize all
derivatives on the balance sheet at fair value. Derivatives that are not hedges
must be adjusted to fair value through income. If the derivative is a hedge,
depending on the nature of the hedge, changes in the fair value of derivatives
will either be offset against the change in fair value of the hedged assets,
liabilities, or firm commitments through earnings or recognized in other
comprehensive income until the hedged item is recognized in earnings. The
ineffective portion of a derivative's change in fair value will be immediately
recognized in earnings. The Company has not yet determined what the effect of
SFAS No. 133 will be on the earnings and financial position of the Company.
CONCENTRATIONS OF CREDIT RISK
Financial instruments consist primarily of cash equivalents, short-term
investments, accounts receivable, accounts payable and bank debt. At June 30,
1997, the fair value of these financial instruments approximates the carrying
amount because of the short-term maturity of these items.
The Company has entered into various agreements with three majorsells to customers to secure certain long-term sales contracts, however these do not committhroughout the customers to purchase specific quantitiesUnited States and the world.
Credit evaluations of products from the Company. The
agreement with Ford expires at the end of the 1999 model year. The Company is in
the process of negotiating its long-term contract through the model year 2000
with Delco-GM. In addition, a long-term sales agreement with Fiat expires on
December 31, 1999. Sales bycustomers' financial conditions are performed
periodically, and the Company generally does not require collateral from its
customers.
Sales to Fiat, in 1997Delphi-GM, Chrysler and 1996, accounted for
32% and 14%Ford represented approximately 20%, 19%,
19%, 16%, respectively, of the Company's total net sales for such years. Sales by the
Company to Ford in 1997, 1996during fiscal 1998,
32%, 13%, 3% and 1995, accounted for 25%, 33% and 37%, respectively, of the Company's total net sales for such years. Sales by the Company to
Delco-GM induring
fiscal 1997, 1996 and 1995, accounted for 13%14%, 26%, 5% and 40%33%, respectively, of the Company's total net
sales for such years.during fiscal 1996.
Concentrations of credit risk with respect to trade accounts receivable are
limited due to the strong financial condition of the Company's customer base.
However, as ofAt June 30, 1997,1998, the Company's receivables from Fiat, Ford,Delphi-GM, Chrysler and
Delco-GMFord amounted to 38%29%, 8%, 12% and 8%12% respectively, of total trade accounts
receivable.
3.receivable balance.
2. ACQUISITIONS
During the three years ended June 30, 1997,1998, the Company made the acquisitions
set forth below. The Hamlin merger was accounted for as a pooling
of interests. All of the other acquisitions were accounted for byunder the purchase
method of accounting; accordingly,accounting. Accordingly, the purchased assets and liabilities have
been recorded at their estimated fair value at the date of acquisition, and the
consolidated financial statementsConsolidated Financial Statements include the operating results of each business
from the date of acquisition.
Fiscal 1995
HamlinFISCAL 1998
On August 31, 1994,October 30, 1997 the Company completed a merger with Hamlin,
Incorporated (Hamlin), a manufacturerthe acquisition of crash sensorscertain assets and
reed switch products,
with operations in the United States, Mexicoassumption of certain liabilities of SRS and Europe. The Company issued
838,324 shares of common stock for all100% of the outstanding commonshares
of capital stock of Hamlin. There were no adjustments necessary to conform the companies' methods of
accounting. There were no significant transactions between the companies prior
to the merger.
VTI
In June 1995, the Company acquired VTI,ICSRD Rucckhaltesysteme Fahrzeugsicherheit GmbH, a FinnishGerman
company, that designsBSRD Limited, an English company, AlliedSignal India, Inc., a Delaware
company, Sistemas AlliedSignal de Seguridad, S.A. de C.V., a Mexican company,
and manufactures silicon capacitive micro machined acceleration, angular rateAlliedSignal Cinturones de Seguridad, S.A. de C.V., a Mexican company
(collectively, "SRS"). SRS produces seatbelts and differential pressure sensors, for $1.7 millionairbags with principal
locations in cash. Additionally, the
Company issued stock warrants to certain of the former stockholders of VTI which
enable the holders to purchase up to 100,000 shares of common stock between
July 1, 1998Knoxville, Tennessee; Maryville, Tennessee; Greenville, Alabama;
St. Clair Shores, Michigan; Sterling Heights, Michigan; Douglas, Arizona;
Brownsville, Texas; El Paso, Texas; Aqua Prieta, Mexico; Juarez, Mexico; Valle
Hermosa, Mexico; Carlisle, England; Colleferro, Italy; Turin, Italy; Siena,
Italy; Arzano, Italy; and June 30, 2000, at a purchase price of $25.75 ($2 above the
market value of the Company's common stock at the date of acquisition).Barcelona, Spain. The purchase price exceededfor the SRS
acquisition was $710.0 million, which was financed with borrowings under the
Bridge Credit Facility (as defined in Note 5), the net proceeds from the
issuance and sale of Series B Preference Stock, and the net proceeds from the
issuance and sale of Series A Preference Shares to Siemens AG. The purchase
price exceed the fair value of the
13
BREED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
net assets acquired by approximately $4.5$372.0 million. The resulting goodwill is
being amortized on a straight-line basis over seven40 years.
ConcurrentThe SRS acquisition has been accounted for as a purchase for financial
accounting purposed in accordance with U.S. generally accepted accounting
principles. The purchase price for SRS was allocated to the assets acquired and
liabilities assumed based on the estimated fair values at the date of
acquisition as follows (in millions):
Cash purchase price $710.0
Less:
Estimated fair value of SRS net assets acquired less
assumed liabilities $301.8
Adjustment for planned closings of 8 facilities (13.0) 288.8
421.2
Involuntary employee termination costs for
approximately 2,187 employees 32.0
Acquisition costs 7.0
Other 10.2
Excess of purchase price over fair value of net assets
acquired $372.0
The allocation of purchase price to goodwill identifiable intangibles and
estimated lives are:
VALUE AMORTIZATION
ALLOCATED PERIOD IN YEARS
(IN MILLIONS)
Trained Workforce $ 10.3 10
Developed Technology 170.0 22
In-process research and
development 77.5 --
Goodwill 372.0 40
Independent appraisals have been used in establishing the fair market values.
The preliminary allocation of the purchase price was adjusted during the fourth
quarter of fiscal 1998 to reflect revised estimates of pre-acquisition
contingencies, liabilities and restructuring. The plant closings and involuntary
employee terminations accrued above are part of restructing this business is to
be substantially completed by March 31, 1999.
On May 1, 1998, the Company acquired, for $5.3 million in cash, technology rights to use awarded and pending
patents and related intellectual property.
Fiscal 1996
MOMO
On April 15, 1996,completed the Company acquiredacquisition of all of the outstanding
capital stock of HS Technik and Design ("HSTD"). HSTD is in the business of
developing advance technology for vehicle safety belt systems among other
automotive products. The purchase price for the HSTD acquisition was $4.1
million (which includes $1.3 million subject to a hold-back agreement) and
129,144 shares of MOMO S.p.A. And G. Holding, S.r.l. (collectively "MOMO"), an original equipment
manufacturercommon stock (valued at $2.8 million as of the acquisition
date). The cash portion of the purchase price was financed with borrowings
under the Company's New Credit Facility (as defined in Note 5). The allocation
of the purchase price is preliminary and aftermarket supplier of luxury steering wheels and alloy
wheels, for $45.2 million in cash.subject to change. The purchase price
exceeded the fair value of the net assets acquired by $31.1approximately $6.1 million.
The resulting goodwill is being amortizedauortized over 4013 years.
Italtest
On April 22, 1996, the Company acquired all of the outstanding shares of
Italtest S.r.l., an Italian manufacturer of printed circuit boards for the
automotive, computer and telecommunications markets for $1.8 million in cash.
The purchase price exceeded the fair value of the net assets acquired by $1.8
million. The resulting goodwill is being amortized over 10 years.
F-614
Force Imaging Technologies, Inc.
On May 31, 1996, the Company acquired all of the outstanding shares of
Force Imaging Technologies, Inc., a manufacturer of thin-profile variable force
sensors for multi-function automotive capabilities for $3 million in cash. The
purchase price exceeded the fair value of the net assets acquired by $2.8
million. The resulting goodwill is being amortized over 5 years.BREED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The pro forma unaudited results of operations for the years ended June 30, 19961998
and 1995,1997, assuming the purchase of the acquisitions had been consummated as of July 1, 1994,1997 and
1996, respectively, are as follows:
In thousands, except per share data 1996 1995
- --------------------------------------------------------------
Net sales........................... $493,845 $482,885
Net earnings........................ $ 59,768 $ 65,377
Net earnings per share.............. $ 1.89 $ 2.08
Fiscal
1998 1997
(IN MILLIONS, EXCEPT PER SHARE DATA)
Net sales $1,675.4 $1,765.4
Net earnings $ (391.8) $ 4.7
Net earnings per share - basic $ (11.73) $ 0.15
Net earnings per share - diluted $ (11.73) $ 0.13
FISCAL 1997
GallinoGALLINO
On July 1, 1996, the Company completed the acquisition of Gallino Plasturgia,
S.r.l. and affiliates ("Gallino") from IAO Industrie Riunite S.p.A. Gallino
manufactures steering wheels, instrument panels, bumpers and other plastic trim
components used in automotive original equipment and aftermarket applications.
The aggregate purchase price for the Gallino acquisition was $126 million comprised of cashand
consisted of $74 million in cash and liabilities$52 million of assumed of $52 million.liabilities. The
acquisition was financed throughwith borrowings onunder the Company's revolving credit
agreements. The purchase price exceeded the fair value of net assets acquired
by approximately $40 million. The resulting goodwill is being amortized on a
straight-line basis over 40 years.
United Steering Systems (USS)UNITED STEERING SYSTEMS
On October 25, 1996, the Company completed the acquisition of certain assets and
the assumption of certain liabilities of the "North American Steering
Wheels Operation" of United TechnologiesUSS and all of the shares of United
Technologies Automotive Clifford Limited. USS produces steering wheels, airbag
covers, horn pads and related molded products in the U.S., Mexico and England.
The purchase price was $154 million and was financed throughwith borrowings under the
Company's Revolving Credit Agreements.revolving credit agreements. The purchase price exceeded the fair
value of net assets acquired by approximately $75 million. The resulting
goodwill iswas being amortized on the straight-line basis over 40 years. Custom TrimIn
fiscal 1998, a portion of the goodwill was written-off as part of the impairment
charge (see Note 15).
CUSTOM TRIM
On February 25, 1997, the Company completed the acquisition of all of the
outstanding shares of capital stock of BTI Investments, Inc. ("BTI"), a holding
company that owned the Custom Trim group of companies,companies. The purchase price for
the BTI acquisition was $70 million.million and was financed with borrowings under the
Company's revolving credit agreements. Additionally, up to $5 million may be
paid on September 1, 2002, contingent upon BTI attaining certain operating
profit targets for each of the years subsequent to the acquisition date. The acquired
operations produceBTI
produces leather-wrapped steering wheels, shift knobs and shift boots, injection
molded levers and leather/vinyl cloth sewing of armrests, headrests and seating
in Canada and Mexico. The funds used by the Company to acquire BTI
were obtained from borrowings under the Company's Revolving Credit Agreements. The purchase price exceeded the fair market value of net
assets acquired by $48 million. The allocation of the purchase price is subject
to change pending completion of the Company's integration plans. The resulting
goodwill is being amortized on a straight-line basis over 40 years.
15
BREED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The pro forma unaudited results of operations for the years ended June 30, 1997
and 1996, assuming the purchase of the acquisitions had been consummated as of
July 1, 1996 and 1995, respectively, are as follows:
In thousands, except per share data 1997 1996
- --------------------------------------------------------------
Net sales........................... $901,058 $1,056,588
Net earnings........................ $ 20,965 $ 45,897
Net earnings per share.............. $ .66
1997 1996
(IN MILLIONS, EXCEPT PER SHARE DATA)
Net sales $901.1 $1,056.6
Net earnings $ 21.0 $ 45.9
Net earnings per share - basic $ 0.66 $ 1.45
Net earnings per share - diluted $ 0.66 $ 1.45
4.
FISCAL 1996
MOMO
On April 15, 1996, the Company acquired all of the outstanding shares of capital
stock of MOMO S.p.A. and G. Holding, S.r.l. (collectively, "MOMO"), an original
equipment manufacturer and aftermarket supplier of luxury steering wheels and
alloy wheels. The purchase price for the MOMO acquisition was for $45.2
million in cash and was financed with borrowings under the Company's revolving
credit agreements. The purchase price exceeded the fair value of the net assets
acquired by $31.1 million. The resulting goodwill is being amortized over 40
years.
ITALTEST
On April 22, 1996, the Company acquired all of the outstanding shares of
Italtest S.r.l. ("Italest"), an Italian manufacturer of printed circuit boards
for the automotive, computer and telecommunications markets. The purchase price
for the Italtest acquisition was $1.8 million in cash was financed with
borrowings under the Company's revolving credit agreements. The purchase price
exceeded the fair value of the net assets acquired by $1.8 million. The
resulting goodwill was being amortized over 10 years. In fiscal 1998, the
goodwill was written-off as part of the repositioning charge. (See Note 15)
FORCE IMAGING TECHNOLOGIES, INC.
On May 31, 1996, the Company acquired all of the outstanding shares of capital
stock of Force Imaging Technologies, Inc. ("FIT"), a manufacturer of thin-
profile variable force sensors for multifunction automotive capabilities. The
purchase price for the FIT acquisition was $3 million in cash and was financed
with borrowings under the Company's revolving credit agreements. The purchase
price exceeded the fair value of the net assets acquired by $2.8 million. The
resulting goodwill was being amortized over 5 years. In fiscal 1998, the
goodwill was written off as part of the repositioning charge. (See Note 15).
3. NET ASSETS HELD FOR SALE
The Company acquired Gallino in July 1996 primarily for the steering wheel
business. However, in order to acquire the steering wheel business it was
necessary to also acquire Gallino's instrument panel, bumper and other plastic
trim component business (non-steering(nonsteering wheel business). In 1997, the Company
evaluated whether the non-steeringnonsteering wheel business of Gallino could be integrated
into the core business of the Company.
During the fourth quarter of fiscal 1997, the Company committed to a plan to
dispose of Gallino's instrument panel, bumper and other plastic trim component
business (non-steering(nonsteering wheel business). In July 1997,The Company recorded the Company
signednonsteering
wheel business at its net realizable value based on amounts in a letter of
intentintent. In December 1997 when
16
BREED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
the transaction was not consummated the Company wrote down the carrying value
to sell approximately 65 percent of substantially all
of the estimated net assets of Gallino's non-steering wheel business.realizable value based on then current negotiations. The
Company is negotiating with other prospective buyers for the remaining
portion of Gallino's non-steeringnonsteering wheel
business.business for amounts in excess of net carrying value. For financial reporting
purposes, the assets and liabilities attributable to all of Gallino's
non-steeringnonsteering wheel business which are recorded at amounts approximating their
net realizable value, have been classified in the consolidated balance
sheet as "Net assets held for sale" and consist of the following atas of June 30,
1997:
F-7
In thousands
- -----------------------------------------------------------------
Current assets.................................... $ 42,221
Property, plant and equipment, net................ 62,739
Other noncurrent assets........................... 977
- -----------------------------------------------------------------
Total assets.................................... 105,937
- -----------------------------------------------------------------
Current liabilities............................... 31,661
Other liabilities................................. 21,656
- -----------------------------------------------------------------
Total liabilities............................... 53,317
Net assets held for sale.......................... $ 52,620
=================================================================
5.1998 (in millions):
Current assets $46.1
Property, plant and equipment, net 38.4
Other noncurrent assets 1.0
Total assets 85.5
Current liabilities 33.7
Other liabilities 22.8
Total liabilities 56.5
Net assets held for sale $29.0
4. INCOME TAXES
The components ofFor financial reporting purposes, earnings from continuing operations before
income taxes are as follows:
In thousands 1997 1996 1995
- -------------------------------------------------------------
Domestic....................... $23,699 $98,285 $107,521
Foreign........................ 5,948 53 2,612
- -------------------------------------------------------------
$29,647 $98,338 $110,133
=============================================================and distribution on the Preferred Securities (as defined in Note
11) includes the following components:
IN MILLIONS 1998 1997 1996
Domestic $(413.5) $23.7 $98.3
Italy 22.4 5.5 5.2
Other Foreign (17.7) 0.4 (5.2)
$(408.8) $29.6 $98.3
The components of income tax expensetaxes (benefit) are as follows:
In thousands
IN MILLIONS 1998 1997 1996
Current:
Federal $(65.9) $ 6.4 $30.8
Italy 3.7 3.0 1.3
Other Foreign 2.1 3.4 0.7
State 0.3 0.8 0.8
Total current (59.8) 13.6 33.6
Deferred:
Federal (4.3) 1.5 1.7
Italy (1.6) (0.3) --
Other Foreign 0.1 -- --
Total deferred (5.8) 1.2 1.7
Income taxes (benefit) $(65.6) $14.8 $35.3
Effective January 1, 1998, the corporate income tax rate in Italy decreased from
53% to 42%. The deferred income tax balances were adjusted to reflect this
revised rate. The current domestic benefit that has been recorded represents
the calculated Federal income tax refund the Company will receive as a result of
the carryback of the June 30, 1998 taxable loss to the tax years ending June 30,
1995 - -------------------------------------------------------------
Current
Federal...................... $ 6,442 $30,818 $ 37,214
Foreign...................... 6,434 2,001 750
State........................ 767 816 1,386
- -------------------------------------------------------------
Total current.............. 13,643 33,635 39,350through June 30, 1997.
17
BREED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Income tax expense (benefit) is included in the financial statements as follows:
IN MILLIONS 1998 1997 1996
Income taxes (benefit) $(60.2) $14.8 $35.3
Extraordinary item (5.4) -- --
Income taxes (benefit) $(65.6) $14.8 $35.3
18
BREED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The reconciliation of income tax from continuing operations (before
extraordinary item) computed at the US federal statutory tax rate to the
company's effective income tax provision is as follows:
IN MILLIONS 1998 1997 1996
Tax at U.S. statutory rate $(146.6) $10.3 $34.4
State taxes, net of Federal
tax benefit 0.2 0.5 0.5
Change in valuation allowance 105.4 1.8 2.2
Amortization of goodwill (1.8) 1.3 --
Foreign rate differential (4.2) 0.7 --
Reduction of taxes provided in
prior years (1.0) -- (1.2)
Gain on intercompany debt forgiveness (8.1)
Other (4.1) 0.2 (0.6)
$ (60.2) $14.8 $35.3
Deferred Federal...................... 1,501 1,665 (1,550)
Foreign...................... (344) -- --
- -------------------------------------------------------------
Total deferred............. 1,157 1,665 (1,550)
Income taxes................... $14,800 $35,300 $ 37,800
=============================================================income taxes reflect the net tax effects of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amounts used for income taxes. A provision for income taxes
has not been made for the undistributed earnings of foreign subsidiaries of
approximately $38.1 million at June 30, 1998 and $10 million at June 30, 1997,
which have been or are intended to be permanently reinvested in expanded foreign
business operations.
The provision for income taxes differs from the expected federal tax
provision as follows:
In thousands 1997 1996 1995
- ---------------------------------------------------------------
Tax at U.S. statutory rate...... $10,260 $34,418 $38,547
State taxes, net of Federal
tax benefit................... 498 530 900
Change in valuation allowance... 1,816 2,161 (2,115)
Amortization of goodwill, without
tax benefit................... 1,300 -- --
Foreign rate differential....... 677 -- --
Reduction of taxes provided in
prior years................... -- (1,154) --
Other........................... 249 (655) 468
- ---------------------------------------------------------------
$14,800 $35,300 $37,800
===============================================================
The temporary differences that give rise to significant portions of the deferred
tax assets and liabilities as of June 30, 19971998, and 1996,1997, respectively, are
presented below.
F-8
IN MILLIONS 1998 1997
Deferred tax assets:
Accrued Expenses-U.S. $ 3.0 $ 5.1
Accrued Expenses-Canada 1.0
Net Operating losses-Foreign 13.5 4.0
Other 0.2 1.0
Accrued Repositioning Expenses-Italy 23.6 --
Accrued Repositioning Expenses-U.S. 58.6 --
Amortization of Intangibles 20.2 --
Tax credit carryforwards 3.0 --
Valuation allowance (109.4) (4.0)
$ 13.7 $ 6.1
Deferred tax liabilities:
Depreciation (7.5) (2.3)
Amortization of Intangibles -- (0.6)
Fixed Asset basis differences-Italy (0.3) (5.0)
Other-U.S. (0.3) --
Other-Foreign (0.1) --
(8.2) (7.9)
Net deferred tax asset (liability) $ 5.5 $(1.8)
19
In thousandsBREED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED STATEMENTS (CONTINUED)
The net deferred income tax asset is reflected in the accompanying 1998 and 1997
1996
- ---------------------------------------------------------------
Deferredconsolidated balance sheets as a $4.5 million and $5.8 million current asset, a
$1.3 million and zero non-current asset (included in investments and other
assets), and a $0.3 million and $7.6 million non-current liability (included in
other long-term liabilities), respectively.
SFAS 109 requires a valuation allowance to reduce the deferred tax assets
Accrued expenses.................... $ 5,132 $ 1,842
Net operating losses................ 3,977 --
Other............................... 923 961
Valuation allowance................. (3,977) --
- ---------------------------------------------------------------
6,055 2,803
- ---------------------------------------------------------------
Deferred tax liabilities
Depreciation and amortization....... (7,845) (892)
Acquisition related asset
basis differences................. -- (2,544)
- --------------------------------------------------------------
(7,845) (3,436)
- --------------------------------------------------------------
$(1,790) $ (633)
==============================================================
Management has determined,reported if, based on the Company's history of domestic
taxable income and its expectationweight of the future,evidence, it is more likely than not
that domestic operating incomesome portion or all of the Company will likely be sufficient to fully recognize the net deferred tax assets.
Atassets will not be realized. For
the fiscal year ended June 30, 1997, the Company hasdetermined that a valuation
allowance of $4 million was necessary to reduce the deferred tax asset related
to the foreign net operating loss carryforwards, (NOLs) for tax purposes of $11.7 million of which $6.1 million expiresincurred predominately in the
United Kingdom and Finland, to $0. For the fiscal year 2006ended June 30, 1998, the
Company has determined that a valuation allowance of approximately $109 million
is necessary to reduce the deferred tax assets for approximately $72 million
attributable to the United States and $1.7approximately $37 million expiresattributable to
foreign operations. The need for a valuation allowance was addressed separately
for domestic and foreign purposes. For domestic purposes, the Company is in a
cumulative loss position and pursuant to SFAS No. 109, a valuation allowance was
recorded by the Company to offset the portion of the domestic deferred tax asset
which, upon reversal, could not be carried back against prior year 2007. The remaining NOLs have no
expiration date.taxable
income. For financial reportingforeign purposes, a valuation allowance of $4.0approximately $37 million
has been recognized to reduce theforeign deferred tax assets primarily related to
those
NOLs.
6.net operating loss carryforwards in Finland, Spain and the U.K. and
restructuring charges in Italy to zero.
At June 30, 1998, the Company's Finnish subsidiary had an operating loss
carryforward of approximately $21 million, which expires through the year 2008.
In addition, the Company's Italian subsidiaries have an operating loss of $5.6
million, which expires through the year 2001. The Company's subsidiary in the
U.K. had an operating loss of $17 million which can be carried forward
indefinitely. U.S. Federal tax credit carryforwards at June 30, 1998 totaled
approximately $3.0 million, which carry forward indefinitely.
5. DEBT
A summary of long-term debt follows: JUNE 30,
1998 1997
(IN MILLIONS)
Term Loan A, interest at 7.825%
installments due 1999 through 2004 $309.2 $ --
Term Loan B, interest at 8.075%
installments due 1999 through 2006 197.8 --
Senior Subordinated Notes, interest at
9.25%, due April 15, 2008 330.0 --
Multi-currency credit facility, weighted average
interest rate of 6.7%, installments due on April 29, 1998
and April 30, 2002 -- 358.0
Foreign short-term lines of credit, weighted average
interest rate of 6.8%, installments due various 30.4 27.3
Mortgages and equipment financing loans 30.6 38.1
Total debt 898.0 423.4
Less current maturities 46.9 191.7
Total long-term debt $851.1 $231.7
On April 28, 1998, the Company completed the refinancing of its Bridge Loan
Facility (as defined below) with borrowings under a $675 million long-term
senior credit facility ("New Credit Facility") and the net proceeds received in
connection with the issuance and sale of $330 million of 9.25% Senior
Subordinated Notes ("Notes").
20
BREED TECHNOLOGIES, INC.
NOTES PAYABLE AND LONG-TERM DEBTTO CONSOLIDATED STATEMENTS (CONTINUED)
New Credit Facility
The New Credit Facility entered into with NationsBank, as Agent and as Lender,
consists of (1) a revolving credit facility of up to $150.0 million (the
"Revolving Credit Facility") (which was not drawn at closing, except for
approximately $10.0 million of Letters of Credit), (2) a term loan in the
amount of $325.0 million ("Term Loan A") and (3) a term loan in the amount of
$200.0 million ("term Loan B", and together with Term Loan A, the "Term Loans").
The Revolving Credit Facility includes (a) a $25.0 million sublimit for the
issuance of standby letters of credit, (b) a $75.0 million sublimit for foreign
currency denominated borrowings and (c) a $20.0 million sublimit for swing line
loans to be provided by NationsBank ("Swing Line Loans"). All amounts
outstanding under the Revolving Credit Facility must be paid on the sixth
anniversary of the closing of the New Credit Facility. Term Loan A is payable
in quarterly installments, subject to annual amortization, based on an assumed
outstanding principle amount equal to $325.0 million, ranging from $27.5
million for fiscal 1999 to $97.5 million for fiscal 2004. Term Loan B is
payable in annual installments, subject to annual amortization, based on an
assumed outstanding principle amount equal to $200.0 million, ranging from $1.3
million for the fiscal year 1999 to $96.3 million for fiscal 2006. On June 26,
1998, the Company prepaid $18.0 million of Term Loan.
Interest accrues on the loans made under the Revolving Credit Facility (other
than Swing Line Loans) and on Term Loan A at either LIBOR plus a specified
margin ranging from 1.125% to 2.125%, or the base rate, which is the higher of
NationsBank's prime rate and the federal funds rate plus 0.50% (the "Base
Rate"), plus a specified margin ranging from 0.125% to 1.125%, at the Company's
option. Interest accrues on Term Loan B at either LIBOR plus a specified margin
ranging from 1.75% to 2.375%, or the Base Rate plus a specified margin ranging
from 0.75% to 1.375%, at the Company's option. Swing Line Loans will bear
interest at the Base Rate plus a specified margin ranging from 0.125% to 1.125%.
The applicable margins will be determined by reference to a leverage ratio of
the Company and its subsidiaries.
The New Credit Facility is secured by a security interest in substantially all
of the real and personal property, tangible and intangible, of the Company and
its domestic subsidiaries as well as a pledge of all of the stock of such
domestic subsidiaries, a pledge of not less than 65% of the voting stock and all
of the non-voting common stock of each direct foreign subsidiary of the Company
and each direct foreign subsidiary of each domestic subsidiary of the Company,
and a pledge of all of the capital stock of any subsidiary of the Company that
is a borrower under the New Credit Facility. The security interest, other than
the pledge of stock, will be released if the unsecured long-term indebtedness of
the Company has received certain minimum rating or the leverage ratio of the
Company and its subsidiaries has decreased below a certain threshold. The New
Credit Facility is guaranteed by all of the domestic subsidiaries of the
Company.
The New Credit Facility contains a number of significant covenants that, among
other things, restrict the ability of the Company to dispose of assets, incur
additional indebtedness, prepay other indebtedness, pay dividends, repurchase or
redeem capital stock, make certain investments or create new subsidiaries, enter
into sale and lease-back transactions, make certain acquisitions, engage in
mergers or consolidations, create liens, make capital expenditures, or engage in
certain transactions with affiliates, and that otherwise restrict corporate and
business activities. Under the terms of the New Credit Facility, the Company
may not pay dividends or make other restricted payments until the Company's
consolidated leverage ratio is equal to or less than 3.50 to 1.00 as of the end
of the most recent four-quarter period. The Company does not presently meet
this standard and it is unclear when it will be met. In addition, under the New
Credit Facility, the Company is required to comply with specified financial
ratios and tests, including a minimum net worth test, a fixed charge coverage
ratio, an interest coverage ratio and a leverage ratio.
The aggregate maturities of the New Credit Facility subsequent to June 30, 1998
during the next five years are as follows, in millions: 1999, $10.8; 2000,
$33.8; 2001, $38.8; 2002, $41.3; 2003, $91.3; thereafter $291.0.
Senior Subordinated Notes
21
BREED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED STATEMENTS (CONTINUED)
The Notes bear interest at 9.25% and mature on April 15, 2008, unless previously
redeemed. Interest on the Notes is payable semiannually on April 15 and October
15 of each year, commencing October 15, 1998. The Notes are redeemable, in
whole or in part, at the option of the Company at any time on or after April 15,
2003, at certain redemption prices, plus accrued and unpaid interest to the date
of redemption. In addition, at any time on or prior to April 15, 2001, the
Company may redeem Notes with the net proceeds of one or more equity offerings
at a redemption price equal to 109.25% of the principal amount thereof, plus
accrued and unpaid interest to the date of redemption, provided that at least
65% of the aggregate principal amount of Notes originally issued remains
outstanding after each such redemption. Upon a change of control, the Company
will be required to make an offer to repurchase all outstanding Notes at a price
equal to 101% of the principal amount thereof, plus accrued and unpaid interest
to the date of repurchase.
The Notes are general unsecured obligations of the Company, subordinated in
right of payment to all existing and future senior indebtedness (as defined in
the related Indenture) of the Company, including indebtedness incurred pursuant
to the New Credit Facility. The Notes rank pari passu in right of payment with
all future senior subordinated indebtedness of the Company, if any, and rank
senior in right of payment to all future subordinated indebtedness of the
Company, if any. The Notes are guaranteed, on a senior subordinated basis, by
the active domestic subsidiaries of the Company (the "Subsidiary Guarantors")
other than BTI Capital Trust and certain domestic subsidiaries owned by a
foreign subsidiary of the Company. The Notes are effectively subordinated in
right of payment to all indebtedness and other liabilities (including trade
payables) of the Company's subsidiaries that are not Subsidiary Guarantors.
Bridge Loan Facility
On October 30, 1997, the Company and NationsBank entered into a revolving and
term credit facility ("Bridge Loan Facility") pursuant to which the Company had
$900 million of aggregate borrowing availability. Borrowings under the Bridge
Loan Facility were used to repay in full borrowings outstanding under two
multicurrency credit agreements and to finance a portion of the purchase price
for the acquisition of SRS (see Note 2). The Bridge Loan Facility was replaced
by the New Credit Facility and Senior Subordinated Notes.
Old Loan Facility
During 1997, the Company replaced its $200 million unsecured domestic
credit agreement. The Company now maintainsentered into two multi-currencymulticurrency credit agreements
totaling $450 million that expirewould have expired on April 29, 1998 ($250 million)
and April 30, 2002 ($200 million). The amount outstanding underThis Old Loan Facility was replaced by the
new agreements at June 30,
1997, was $358 million of which $200 million is due April 30, 2002. The interest
rate under the agreements is at or below the prime rate or, at the Company's
option, LIBOR plus a margin. The weighted average interest rate on the
outstanding borrowings at June 30, 1997, was 6.7%. A commitment fee of between
.125% and .3% per year is paid on the unused portion of the commitment dependent
upon the Company's level of leverage as set forth in the agreements. Under the
terms of the agreements, the Company must maintain acceptable ratios, such as
leverage ratio, minimum net worth, and interest coverage ratio. At June 30,
1997, the Company was in compliance with all covenants.Bridge Loan Facility.
Other Debt
The Company's subsidiaries outside of the United States have short-term lines of
credit aggregating approximately $100 million from various banks worldwide.
Most of these arrangements are reviewed periodically for renewal. The
amounts outstanding under these lines of credit with banks at June 30, 1997 and
1996 were $27.3 million and $34.1 million, respectively. Interest
rates are generally based on the prevailing bank prime rate in the various
countries in which the Company has operations. Additionally, the subsidiaries
have outstanding mortgage and equipment financing loans amountingloans.
Issued letters of credit aggregated approximately $11.8 million at June 30,
1998.
6. FAIR VALUE OF FINANCIAL INSTRUMENTS
Due to $38.1their short maturity or their insignificance, the carrying amounts of
cash and cash equivalents, accounts and notes receivable, accounts payable,
accrued liabilities and short-term borrowings approximated their fair values at
June 30, 1998. The approximate fair value of the Company's $330 million of
Notes determined through reference to market yields was $323.8 million at June
30, 1998. The fair value of the Company's $250 million of Convertible
Debentures (as defined in Note 11) approximated $205.0 million at June 30, 1998.
22
BREED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED STATEMENTS (CONTINUED)
The Company had entered into variable to fixed interest rate swap agreements in
the notional amount of $35.0 million as of June 30, 1998. These agreements have
expiration dates between 1999 and 2005. Under these agreements, the Company
received an average variable rate of 5.7% and paid an average fixed rate of 6.3
% on June 30, 1998. The Company also has variable to variable interest rate
swap agreements outstanding at June 30, 1998 with notional amounts of $275.0
million, which effectively convert interest from a LIBOR basis to a broader
index and cap the Company's exposure to upward movement in rates at 6.0% through
May 28, 2001 and afterwards at 7.5% through May 28, 2005. These agreements
expire in 2005. Under these agreements, the Company received an average
variable rate of 5.7% and paid an average variable rate of 5.3% at June 30,
1998.
At June 30, 1998 the Company had outstanding foreign exchange contracts to buy
$53.0 million Canadian dollars maturing through October 1999 and a contract to
sell $2.0 million British pounds.
Exposure to market risk on interest rate and foreign currency financial
instruments result from fluctuations in interest and currency rates,
respectively, during the periods in which the contracts are outstanding. The
counterparties to the Company's interest rate swap agreements and currency
exchange contracts consist of a diversified group of major financial
institutions, each of which is rated investment grade or better. The Company is
exposed to credit risk to the extent of potential nonperformance by
counterparties on financial instruments. Any potential credit exposure does not
exceed the fair value as stated below; the Company believes the risk of
incurring losses due to credit risk is remote.
The cost to terminate the outstanding interest rate swaps as of June 30, 1998
was $7.8 million. Book value at June 30, 1998 was a $0.1 million receivable.
The cost to terminate outstanding foreign exchange contracts as of June 30, 1998
was approximately $2.4 million.
7. OTHER FINANCIAL DATAEMPLOYEE PENSION AND SAVINGS PLAN
The Company has a non-contributory defined benefit retirement plan (Plan) which
covers substantially all unionized employees in the United States who meet age
and service requirements. The Plan was primarily established for the pension
responsibilities assumed in the acquisition of SRS. The Plan provides defined
benefits that are based on years of credited service, average compensation and
the primary social security benefit.
The cost of pension benefits under the Plan is determined by an independent
actuarial firm using the "projected unit credit" actuarial cost method.
Currently payable contributions to the Plan are limited to amounts that are
currently deductible for income tax reporting purposes, and are included in
accrued expenses in the consolidated balance sheets. The assumptions used to
develop the projected benefit obligations and net periodic pension expense for
the Plan for 1998 were as follows:
Discount rate for obligations 7%
Future compensation increase rate 5%
Investment return assumptions 9%
Net pension expense for the year ended June 30, 1998 included the following
components (in millions):
Service Costs - benefits earned during the year $ 1.1
Interest Costs on projected benefit obligations 0.6
Actual return on plan assets (0.3)
Net amortization and deferral (0.3)
$ 1.1
23
BREED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED STATEMENTS (CONTINUED)
24
BREED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED STATEMENTS (CONTINUED)
The following table sets forth the Plan's funded status and amounts recognized
in the consolidated balance sheets at June 30, 1998 (in millions):
Actuarial present value of accumulated benefit
obligation, including vested benefits of $9.7
at June 30, 1998 $10.9
Projected benefit obligation $14.7
Less fair value of plan assets, primarily bonds, stocks
and cash equivalents 11.7
Projected benefit obligation in excess of plan assets 3.0
Unrecognized net gains/ (loss) (0.3)
$ 2.7
The Company maintains a 401(k) retirement plan which covers substantially all
full-time U.S. employees. Under the plan, the Company will match employee
contributions at rates which are determined annually by management. Employer
contributions for the years ended June 30, 1998, 1997, and 1996 amount to $2.0
million, $0.8 million and $0.9 million, respectively.
8. POST RETIREMENT HEALTH CARE BENEFITS
The Company provides to certain unionized employees health care benefits when
they retire. The employee may become eligible for these benefits if they reach
normal retirement age while working for the Company. The post retirement health
care benefits plan was established for the responsibilities assumed in the
acquisition of inventories consistSRS. Net periodic post retirement benefit cost was $0.3 million
in 1998.
The following table sets forth the funding status and amounts recognized in the
consolidated balance sheet at June 30, 1998 (in millions):
Accumulated post retirement benefit obligation (APBO):
Existing retirees $ --
Active employees 3.5
$ 3.5
A weighted average discount rate of 7% and a medical trend rate of 6% was used
in determining the following:
In thousands 1997 1996
- ---------------------------------------------------
Finished goods.................. $ 24,832 $19,439
Workactuarial present value of APBO. A 1% increase or decrease
in process................. 23,385 14,417
Raw materials................... 27,130 19,034
- ---------------------------------------------------
$ 75,347 $52,890
===================================================
Other income (expense), net consists of the following:
In thousands 1997 1996 1995
- ---------------------------------------------------------------
Foreign exchange gain (loss), net $ 2,161 $ 2,385 $ (352)
Gain (loss) on disposition of
property, plant and equipment. (634) 1,517 1,349
Royalty income.................. 93 3,976 3,483
Government grant................ 1,000 -- --
Other, net...................... 904 784 418
- ---------------------------------------------------------------
$ 3,524 $ 8,662 $4,898
===============================================================
F-9
8. EMPLOYEE BENEFITmedical trend rate would increase or decrease the APBO by approximately
$0.1 million.
9. STOCK OPTION PLANS
The Company's Omnibus Stock Plan provides for the granting of 2,500,0003.7 million shares
of Common Stockcommon stock for awards of options under the Company's 1992 Stock Option
Plan, the 1992 Employee Stock Purchase Plan, and the 1994 Stock Incentive Plan.
Under the 1992 Stock Option Plan, options to purchase up to 1,500,000 shares of
common stock may be granted to officers, employees and consultants to the
Company. The Company may grant options that are either qualified (Incentive
Stock Options)(incentive
stock options) or nonqualified under the Internal Revenue Code of 1986, as
amended. Options under the Plan
25
BREED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED STATEMENTS (CONTINUED)
will generally vest over a three-year period and the option term may not exceed
ten years. Total options granted under this plan amounted to 28,100 in 1998,
48,313 in 1997 and 45,000 in 1996.
The Company's 1992 Employee Stock Purchase Plan provides that eligible employees
may contribute up to 10% of their base earnings toward the semiannual purchase
of the Company's common stock, at a price equal to 85% of the lower of the
market value of the common stock on the first and last day of the applicable
period. There are limitations on the number of shares that can be purchased in
any period. As of November 1996, this plan has been discontinued. Total shares
issued under this plan were 27,082 in 1997 and 60,906 in 1996. Since the plan
is noncompensatory, no charges to operations have been recorded.
The 1994 Stock Incentive Plan permits the issuance of options of common stock in
the form of incentive stock options, nonstatutory stock options, stock
appreciation rights, performance shares, restricted stock or unrestricted stock
to selected employees of the Company. Options under the plan vest over a four-yearthree-
year period. Stock appreciation rights entitle recipients to receive an amount
determined in whole or in part by appreciation in the fair market value of the
stock between the date of the award and the date of exercise. Performance share
awards entitle recipients to acquire shares of stock upon attainment of
specified performance goals. Restricted stock awards entitle recipients to
acquire shares of stock, subject to the right of the Company to repurchase under
certain circumstances all or part of the shares at their purchase price (or to
require forfeiture of such shares if purchased at no cost) from the recipient.
Restricted shares vest over a five-year period. Unearned compensation,
representing the fair market value of the shares at the date of issuance, is
charged to earnings over the vesting period. Total options granted under this
plan amounted to 1,399,468 in 1998, 63,744 in 1997 and 648,873 in 1996. No
stock appreciation rights or performance shares were granted in 1998, 1997 or
1996.
In addition to the above plans, the Company's 1992 Director Stock Option Plan
provides for the grant of nonqualified stock options to the Company's
nonemployee directors. The total number of shares to be issued under this plan
may not exceed 50,000100,000 shares. Options granted under the 1992 Director Stock
Option Plan have an exercise price equal to the fair market value of the common
stock on the date of the grant and a term equal to ten years. Total options
granted under this plan amounted to 8,055 in 1998, 5,310 in 1997 and 14,600 in
1996.
Following is a summary of the option and warrant transactions for the years
1997 and 1996:
Shares Price
- ---------------------------------------------------------------------------
Balance at June 30, 1995.......... 622,028 $ 3.14 - $32 1/4
Granted......................... 708,473 16 3/4 - 20 3/8
Exercised....................... (67,561) 3.14 - 24
Canceled........................ (113,704) 12 - 28 3/8
- ---------------------------------------------------------------------------
Balance at June 30, 1996.......... 1,149,236 12 - 32 1/4
Granted......................... 117,367 21 3/8 - 28 1/4
Exercised....................... (38,695) 19 3/4 - 28
Canceled........................ (127,547) 16 3/4 - 28 5/8
- ---------------------------------------------------------------------------
Balance at June 30, 1997.......... 1,100,361 12 - 32 1/4
Exercisable at June 30, 1997...... 318,996 12 - 32 1/4
Shares reserved for future issuance 2,175,262
===========================================================================
The Company maintains a 401(k) retirement plan which covers substantially
all full-time U.S. employees. Under the plan, the Company will match employee
contributions at rates which are determined annually by management. Employer
contributions for the years ended June 30, 1997, 1996 and 1995 amountedPursuant to
$762,000, $911,000 and $669,000, respectively.
The Company adopted Statement of Financial Accounting StandardStandards No. 123
("SFAS 123"), "Accounting for
Stock-Based Compensation," in fiscal 1997, butCompensation" (SFAS No. 123), the Company has elected to continue to measure compensation cost usingaccount for
its stock option plan under the intrinsic value
method, in accordance withprovisions of APB Opinion NoNo. 25 ("APB 25"), "Accounting for
Stock Issued to Employees."
Accordingly, no compensation cost for stock options has been recognized. If compensation cost had been determined based onrecognized for the estimated
fair value of options granted in 1997 and 1996, consistent with the methodology
in SFAS 123,stock option
plans. The Company has evaluated the pro forma effects of SFAS No. 123 and as
such, net earnings, basic earnings per common share and diluted earnings per
common share would have been as follows:
JUNE 30,
1998 1997
(IN MILLIONS, EXCEPT PER SHARE DATA)
Net earnings (loss)
As reported $(368.6) $14.8
Pro forma (375.3) 14.2
Basic earnings (loss) per common share
As reported (11.03) 0.47
Pro forma (11.23) 0.45
Diluted earnings (loss) per common share
As reported (11.03) 0.47
Pro forma (11.23) 0.45
26
BREED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED STATEMENTS (CONTINUED)
Because SFAS No. 123 is applicable to options granted subsequent to December 31,
1994, and the options have a three to ten year vesting period, the pro forma
effect will not be fully reflected until fiscal 2006.
The fair value of each option was estimated on the date of grant using the
Black-Scholes option pricing model with the following assumptions:
JUNE 30,
1998 1997
Risk-free interest rate 5.43% 6.17%
Dividend yield -- 1.31%
Expected volatility 35.5% 52.0%
Expected life in years 10 10
27
BREED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
A summary of the status of the Company's stock option plans as of June 30, 1998,
1997 and 1996 and changes during the years ended on those dates.
1998 1997 1996
WTD. WTD.
SHARES AVG. SHARES AVG.
(IN THOUSANDS EXCEPT EXERCISE, PRICE SUBJECT TO EXERCISE SHARES SUBJECT WTD. AVG. SUBJECT TO EXERCISE
AND WEIGHTED AVERAGE FAIR VALUE) OPTIONS PRICE TO OPTIONS EXERCISE PRICE OPTIONS PRICE
Options outstanding at beginning of
year 1,100,361 18.043 1,149,236 17.824 622,028 17.436
Additional options granted 1,435,623 21.527 117,367 22.162 708,473 18.166
Options exercised 116,098 14.252 38,695 13.882 67,561 11.677
Options terminated, cancelled or
expired 424,532 20.930 127,547 19.225 113,704 21.037
Options outstanding at June 30 1,995,354 20.308 1,100,361 18.043 1,149,236 17.824
Options exercisable at June 30 820,228 19.638 318,996 15.874 240,649 13.851
Options price range at end of year 0 - 32.25 0 - 32.25 0 - 32.25
Options price range for exercised
shares 0 - 20.375 12 - 20.375 3.14 - 17.00
Weighted average fair value of options
granted during the year 12.32 13.30
28
BREED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following table summarizes information about stock options outstanding and
exercisable at June 30, 1998:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
WTD. AVG. WTD. AVG.
NO. OF OPTIONS WTD. AVG. CONTRACTUAL NO. OF EXERCISE
EXERCISE PRICE RANGE: OUTSTANDING EXERCISE PRICE LIFE (IN YRS.) OPTIONS PRICE
$ 0.0000 - $ 3.2250 19,016 $ 0.000 6.2 639 $ 0.000
$ 9.6751 - $12.9000 160,292 $ 12.00 4.2 160,292 $12.000
$12.9001 - $16.1250 3,000 $15.625 10.0 0 $ 0.000
$16.1251 - $19.3500 481,247 $17.306 7.9 173,523 $16.761
$19.3501 - $22.5750 1,058,330 $21.199 8.8 142,908 $20.796
$22.5751 - $25.8000 190,965 $23.890 4.6 274,101 $23.190
$25.8001 - $29.0250 77,854 $28.043 6.1 64,115 $28.041
$29.0281 - $32.2500 4,650 $32.250 6.4 4,650 $32.250
---------
1,995,354 820,228
========= =======
29
BREED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. COMMITMENTS
The Company owns most of its major facilities, but does lease certain office,
factory and warehouse space, data processing equipment and other equipment under
principally noncancelable operating losses. The future minimum lease payments
over the next five years under noncancelable operating leases at June 30, 1998
are as follows (in millions):
1999 $7.0
2000 $5.7
2001 $5.2
2002 $3.1
2003 $2.3
Total rental expense under cancelable and noncancelable operating leases were as
follows:
Year ended June 30, 1998 $10.8
Year ended June 30, 1997 $ 5.5
Year ended June 30, 1996 $ 3.0
11. COMPANY OBLIGATED MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED SECURITIES
In connection with the SRS acquisition, on October 30, 1997, the Company issued
and sold to Prudential Securities Credit Corp. ("PSCC") $200.0 million of Series
B Convertible Preference Stock of the Company (the "Series B Preference Stock").
On November 25, 1997, the Company issued and sold $250.0 million of 6.5%
Convertible Subordinated Debentures due 2027 (the "Convertible Debentures") of
the Company to BTI Capital Trust (the "Trust") which, concurrently therewith,
issued and sold $257.7 million aggregate liquidation amount of its 6.50% Company
Obligated Mandatorily Redeemable Convertible Trust Preferred Securities (the
"Preferred Securities") (which are fully and unconditionally guaranteed by the
Company) in a private transaction under Rule 144A under the Securities Act of
1933. The Company used the net earningsproceeds from the issuance and sale of the
Convertible Debentures to the Trust to redeem all of the outstanding Series B
Preference Stock in accordance with the terms thereof and for general corporate
purposes.
The Preferred Securities represent preferred undivided beneficial interests in
the assets of the Trust, which consist solely of the Convertible Debentures. The
Company owns all the common securities (the "Common Securities" and, together
with the Preferred Securities, the "Trust Securities") representing individual
undivided beneficial interests in the assets of the Trust, and, consequently,
the Trust is a wholly owned subsidiary of the Company.
Holders of the Preferred Securities are entitled to receive cumulative cash
distributions at an annual rate of 6.5% of the liquidation amount of $50 per
Preferred Security, accruing from, and including November 25, 1997 and payable
quarterly in arrears on February 15, May 15, August 15 and November 15 of each
year, commencing February 15, 1998 (the "Distributions"). Each Preferred
Security is convertible, at the option of the holder into shares of Common
Stock, at the rate of 2.1973 shares of Common Stock for each Preferred Security,
subject to adjustment in certain circumstances.
Each Convertible Debenture bears interest at the rate of 6.5% per annum from
November 25, 1997, payable quarterly in arrears on February 15, May 15, August
15 and November 15, commencing February 15, 1998. The Convertible Debentures are
redeemable by the Company in whole or in part, from time to time, on or after
November 25, 2000, or at any time, in whole or in part, in certain circumstances
upon the occurrence of certain specified tax events. If the
30
BREED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Company redeems any Convertible Debentures, the proceeds from such redemption
will be applied to redeem a like amount of Trust Securities. The Preferred
Securities will be redeemed upon maturity of the Convertible Debentures on
November 15, 2027. Upon the repayment of the Convertible Debentures, the
proceeds from such repayment will be applied to redeem a like amount of Trust
Securities.
The payment of Distributions out of moneys held by the Trust and payments on
liquidation of the Trust or the redemption of Preferred Securities are fully and
unconditionally guaranteed by the Company (the "Preferred Securities
Guarantee"). The Preferred Securities Guarantee covers payments of Distributions
and other payments on the Preferred Securities only if and to the extent that
the Company has made a payment of principal or other payments on the Convertible
Debentures held by the Trust as its sole assets.
The Company has the right to defer payments of interest on the Convertible
Debentures by extending the interest payment period on the Convertible
Debentures at any time (so long as no event of default has occurred and is
continuing under the Indenture applicable to the Convertible Debentures) for up
to 20 consecutive quarters (each, an "Extension Period"); provided that no such
Extension Period may extend beyond the maturity date of the Convertible
Debentures. If interest payments are so deferred, Distributions on the Preferred
Securities will continue to accrue with interest thereon (to the extent
permitted by applicable law) at an annual rate of 6.5% per annum, compounded
quarterly.
An event of default under the indenture relating to the Convertible Debentures
constitutes an event of default under the declaration relating to the Trust
Securities. Upon the occurrence of an event of default under the declaration,
until such event of default has been cured, waived or otherwise eliminated, the
institutional trustee will be deemed to be acting on behalf of the holders of
the Preferred Securities, and the holders of the Preferred Securities will have
the right to direct the institutional trustee with respect to certain matters
under the declaration and, therefore, the indenture. If the institutional
trustee fails to enforce its rights under the Convertible Debentures, any holder
of Preferred Securities may, to the fullest extent permitted by law, directly
institute a legal proceeding against the Company to enforce the institutional
trustee's rights under the Convertible Debentures without first instituting any
legal proceeding against the institutional trustee or any other person or
entity.
31
BREED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. EARNINGS PER SHARE
YEAR ENDED JUNE 30,
1998 1997 1996
(DOLLARS IN MILLIONS, EXCEPT SHARE DATA)
BASIC EARNINGS PER SHARE
Income (loss) before extraordinary items $(358.6) $ 14.8 $ 63.0
Extraordinary loss, net (10.0) -- --
Income (loss) applicable to common stock $(368.6) $ 14.8 $ 63.0
Weighted average common shares outstanding 33,407 31,648 31,550
Basic earnings per share:
Income (loss) before extraordinary items $(10.73) $ 0.47 $ 2.00
Extraordinary loss (0.30) -- --
Net (loss) income $(11.03) $ 0.47 $ 2.00
DILUTED EARNINGS PER SHARE
Income (loss) before extraordinary items $(358.6) $ 14.8 $ 63.0
Extraordinary loss, net (10.0) -- --
Income applicable to common stock $(368.6) $ 14.8 $ 63.0
Share computation:
Weighted average common shares outstanding 33,407 31,648 31,550
Effect of diluted securities:
Assumed exercise of stock options and warrants * 219 94
Series A Preference Stock * -- --
Company obligated mandatorily redeemable
convertible preferred securities * -- --
Weighted average common shares
outstanding as adjusted 33,407 31,867 31,644
Diluted earnings per share:
Income before extraordinary items $(10.73) $ 0.46 $ 1.99
Extraordinary items (0.30) -- --
Net income $(11.03) $ 0.46 $ 1.99
* Items not assumed in the computation because their effect is anti-dilutive
Each Company Obligated Mandatorily Redeemable Convertible Preferred Security is
convertible, at the option of the holder, into shares of the Company's common
stock, at a conversion rate of 2.1973 shares of common stock for each Preferred
Security, subject to adjustment in certain circumstances (see Note 11).
Options to purchase 1,098,416 shares of common stock at prices between $20.0625
and $32.25 per share were outstanding as of June 30, 1998 but were not included
in the computation of diluted earnings per share because the exercise prices
were greater than the average market price of the common shares and, therefore,
the effect would be anti-dilutive.
As part of the acquisition of VTI Hamlin OY (VTI) in June 1995, the Company
issued to certain of the former stockholders of VTI warrants to purchase up to
100,000 shares of common stock between July 1, 1998 and June 30,
32
BREED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2000, at an exercise price of $25.75 per share. The 100,000 warrants have not
been included in the computation of diluted earnings per share for the year
ended June 30, 1998 because the effect would be anti-dilutive.
In connection with the Bridge Loan Facility, the Company issued to NationsBank a
warrant to purchase 250,000 shares of common stock of the Company at an exercise
price of $23.125 per share. The 250,000 warrants have not been material.
F-10included in the
computation of diluted earnings per share for the year ended June 30, 1998
because the effect would be anti-dilutive.
13. CAPITAL STOCK
SERIES A PREFERENCE STOCK
On October 30, 1997, pursuant to a Stock Purchase Agreement dated October 14,
1997 (the "Stock Purchase Agreement"), Siemens acquired 4,883,227 Series A
Preference Shares for an aggregate purchase price of $115.0 million. Pursuant to
the Stock Purchase Agreement, the Company made certain customary representations
and warranties concerning its business, agreed to certain post-closing
covenants, including an agreement to provide Siemens with substantially
equivalent rights to those granted in the future to any stockholder acquiring an
equal or smaller percentage of voting interest in the Company as Siemens, agreed
to indemnify Siemens for breaches of covenants and granted Siemens certain anti-
dilution rights. The indemnification obligations of the Company are subject to
a $1.5 million deductible and a cap of $30.0 million. On January 20, 1998,
Siemens converted 4,883,226 of its Series A Preference Shares into an equal
number of shares of Common Stock. The Company also granted Siemens certain
demand and piggy-back registration rights that require the Company from time to
time, subject to certain limitations, to register Siemens' shares of Common
Stock for public sale. As of June 30, 1998, Siemens is the record holder of one
Series A Preference Share.
SERIES B PREFERENCE STOCK
On October 30, 1997, in connection with the acquisition of SRS, the Company
issued and sold $200.0 million Series B Preference Stock to PSCC. On November
25, 1997, the Company redeemed all of the outstanding Series B Preference Stock
with the net proceeds from the issuance and sale of the Convertible Debentures
to the Trust (see Note 11).
WARRANTS
In connection with the Bridge Credit Facility, pursuant to a Warrant Agreement
between NationsBank and the Company dated October 30, 1997, as amended March 2,
1998, the Company issued to NationsBank a warrant exercisable for 250,000 shares
of common stock of the Company at an exercise price of $23.125 per share (the
"NB Warrant"). The Warrant Agreement and the NB Warrant expire on October 30,
2000. NationsBank may elect to include the common stock subject to the Warrant
Agreement and NB Warrant in certain registration statements filed by the Company
under the Securities Act and also has certain demand registration rights until
October 30, 2002.
In connection with the Company's June 1995 acquisition of VTI, a Finnish company
that designs and manufactures silicon capacitive micro-machined accelerometers
and angular rate and differential and absolute pressure sensors, the Company
issued to the former stockholders of VTI warrants to purchase an aggregate of
100,000 shares of common stock for a purchase price of $25.75 per share. These
warrants are exercisable between July 1, 1998 and June 30, 2000. The Company
granted certain demand and incidental registration rights with respect to the
shares of common stock issuable upon the exercise of these warrants.
33
9.BREED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. INFORMATION RELATEDRELATING TO CUSTOMERS AND OPERATIONS IN DIFFERENT
GEOGRAPHIC AREAS
The Company operates in one principal industry segment: the design,
manufacture, and sale of components used in the manufacture of automotive
occupant safety systems--which represents more than 90% of consolidated net
sales. The following financial information relates to operations in
different geographic areas. Net sales to unaffiliated customers is based on
the location of Company's operating entity. Transfers between geographic
areas are recorded at amounts above cost and in accordance with the rules
and regulations of the respective governing tax authorities. Identifiable
assets of geographic areas are those assets used in the Company's
operations in each area. Corporate assets include cash and cash
equivalents, intangibles, long-term investments, and deferred income taxes.
In thousands 1997 1996 1995
- --------------------------------------------------------------------------------
Net sales to unaffiliated customers:
North America................. $379,270 $324,565 $345,640
Europe........................ 415,610 107,124 55,332
- --------------------------------------------------------------------------------
Total net sales................. $794,880 $431,689 $400,972
- --------------------------------------------------------------------------------
Transfers between geographic areas
(eliminated in consolidation):
North America................. $ 42,809 $ 51,057 $ 27,018
Europe........................ 35,043 21,832 22,689
- --------------------------------------------------------------------------------
Total transfers................. $ 77,852 $ 72,889 $ 49,707
- --------------------------------------------------------------------------------
Earnings before income taxes
Operating income:
North America................. $ 46,597 $ 90,372 $100,800
Europe........................ 3,986 2,442 4,017
Other income (expense), net..... (20,936) 7,525 5,602
- --------------------------------------------------------------------------------
Earnings before income taxes.... $ 29,647 $ 98,338 $110,133
- --------------------------------------------------------------------------------
Identifiable assets:
North America................. $447,076 $196,776 $185,574
Europe........................ 410,577 219,340 38,410
Corporate assets.............. 19,500 87,686 54,714
- --------------------------------------------------------------------------------
Total assets.................... $877,153 $503,802 $278,698
================================================================================
NET SALES OPERATING INCOME (LOSS)
YEAR ENDED JUNE 30, YEAR ENDED JUNE 30,
1998 1997 1996 1998 1997 1996
(IN MILLIONS) (IN MILLIONS)
North America $ 710.2 $379.3 $324.6 $ (164.5) $46.6 $88.4
Europe 675.1 415.6 107.1 (177.7) 4.0 2.4
Geographic totals $1,385.3 $794.9 $431.7 (324.2) 50.6 90.8
General corporate expenses
Interest expense 85.7 26.8 2.7
Other income (expense), net 1.1 5.8 10.2
Earnings (loss) before income taxes,
distributions
on Company Obligated Mandatorily
Redeemable Convertible Preferred Securities,
and extraordinary loss ($408.8) $29.6 $98.3
ASSETS
AS OF JUNE 30, 1998 1997 1996
(IN MILLIONS)
North America 1,050.4 $447.1 $196.8
Europe 511.4 410.6 219.3
Geographic totals 1,561.8 857.7 416.1
General corporate assets 88.1 19.5 87.7
Total assets $1,649.9 $877.2 $503.8
The Company also had foreign export sales from the United States
amounting to $34,559,000, $27,354,000$162.6 million, $27.4 million and $24,515,000$24.5 million for the
years ended June 30, 1998, 1997 and 1996, and 1995, respectively.
34
BREED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company operates its Mexican manufacturing facilities under the
"Maquiladora" program. Pursuant to this program, materials and components owned
by the Company are transferred to the Mexican subsidiaries where they are used
to produce finished goods. The finished goods are returned to the United States
and the Company reimburses the Mexican subsidiaries for their manufacturing
costs without any intended significant profit or loss of consequence.
Accordingly, the Mexican sales, transfers, and income amounts are excluded from
the above geographic area information.
10. COMMITMENTS15. REPOSITIONING, IMPAIRMENT AND CONTINGENCIESOTHER SPECIAL CHARGES
During the quarter ended December 31, 1997, the Company formulated a
repositioning program which is intended to: (i) enhance the Company's
competitiveness and productivity (ii) reduce costs and increase asset control
and (iii) improve processes and systems (the "Repositioning Program"). The
Repositioning Program consists primarily of a 25% planned reduction in the
Company's global workforce (or approximately 4,900 employees) through the
elimination of redundant and overlapping positions resulting from recent
acquisitions as well as reducing personnel required at USS and Custom Trim due
to deteriorating business conditions at such businesses, the consolidation of
the Company's manufacturing, sales and engineering facilities primarily in North
America and Europe through the closing of approximately 50% (or 32) of its
manufacturing facilities and 33% (or 10) of its sales and engineering facilities
(which includes certain facilities being consolidated due to deteriorating
business conditions at USS and Custom Trim) and the disposal of certain non-core
assets.
As of June 30, 1998, the Company had reduced its net global workforce by
approximately 2,700 employees and closed and/or sold 24 manufacturing
facilities. The Company expects that the Repositioning Program will be
substantially completed by March 31, 1999.
Repositioning Charge
In connection with the Repositioning Program, the Company recorded a $177.0
million charge during the three months ended December 31, 1997 (the
"Repositioning Charge"), which included the following; (i) $30.8 million
relating to planned work force reductions; (ii) $31.4 million relating to
proposed facility consolidation (not including any SRS facilities); (iii) $10.6
million relating to the write-down of goodwill associated with the disposal of
long-lived assets; (iv) $41.3 million relating to the write-down to net
realizable value of certain long-lived assets in connection with the Gallino
Disposition (as defined in Note 3); and (v) $62.9 million relating to the write-
down of impaired production and other equipment and the write-off of assets used
to manufacture products being replaced by new technologies.
USS Impairment
During the quarter ended December 31, 1997, the Company recorded a $82.5 million
charge relating to the write-down of goodwill and other long-lived assets at USS
due to deteriorating business conditions, reflecting the Company's determination
that a material diminution in the value of USS has occurred (USS Impairment).
When the Company acquired USS in October 1996, it was aware that USS's largest
OEM customer (which accounted for approximately 50% of USS revenues) had awarded
a significant portion of its business (which related to one platform) to a
competitor of USS, signaling the OEM's intention to source steering wheels and
airbag modules from one supplier as a unit, instead of as separate components
from two suppliers, provided the supplier had an approved airbag module.
However, the Company believed it could recover this business by negotiating to
supply the steering wheel component to the competitor because the competitor,
although it has an approved airbag module, did not manufacture steering wheels.
At the same time, the Company worked to have its airbag module approved by the
OEM to position it to compete with respect to other platforms manufactured by
that OEM, which would put the Company in the position to source USS steering
wheels for those platforms.
35
BREED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The negotiations between the Company and USS's competitor ceased in April 1997.
Thereafter, the Company continued to seek the OEM's approval of its airbag
module in an effort to bid for other business from the OEM despite the
designation of two of the Company's competitors by the OEM as preferred vendors
for airbag modules. The Company obtained the approval of a newly developed
inflator (a major component of the Company's airbag module) from the OEM on July
28, 1997, and the Company thus continued to believe that obtaining approval of
its airbag module was feasible. During the quarter ended December 31, 1997, the
Company determined that its efforts to be named as a preferred vendor of
integrated steering wheels would not be successful or would be materially
delayed. The Company concluded that, consequently, USS would likely experience
a material and continuing decline in the revenue from USS's existing contracts
as these contracts were completed and not replaced on a timely basis with new
business. In addition, the Company was informed by the OEM during such quarter
that sales volume on the existing platform would decrease by approximately 30%
from the sales volume projected with respect to such platform at the time the
Company acquired USS, and that the Company's revenue attributable to all
platforms for such OEM would be impacted by a 2 1/2% price decrease starting
January 1, 1998 as well as a yet to be determined price decrease starting
January 1, 1999.
During fiscal 1998, the repositioning and impairment reserve was reduced by
$224.7 million as a result of cash and non-cash charges. The following table
sets forth the details and the cumulative activity relating to the repositioning
and impairment charge as of June 30, 1998:
CHARGE TAKEN AT CASH NON-CASH RESERVE BALANCE
IN MILLIONS DECEMBER 31, 1997 REDUCTION REDUCTIONS AT JUNE 30, 1998
Headcount reductions $ 30.8 $14.9 $-- $15.9
Facility consolidations 31.4 -- 20.3 11.1
Goodwill write-down 10.6 -- 10.6 --
USS Impairment 82.5 -- 82.5 --
Gallino write-down 41.3 -- 41.3 --
Impaired assets and equipment write-
down 62.9 2.9 52.2 7.8
Total $259.5 $17.8 $206.9 $34.8
Other Special Charges
In addition, during the quarter ended December 31, 1997, (i) in connection with
the purchase price allocation for the SRS acquisition, the Company recorded a
$77.5 million charge relating to the write-off of in-process research and
development for acquired technology that has not been established as
technologically feasible, and (ii) the Company recorded a $28.4 million charge
against cost of sales for inventory and long-term contracts relating to
manufacturing processes that will be exited. The $28.4 million charge included
$15.5 million of expected losses under a contract entered into in February 1996
(under which production began in August 1997) with a European OEM to supply side
impact airbag modules, which had not been previously manufactured by the
Company. This amount represented estimated losses expected to be incurred over
the five-year expected life of the platform to which the contract related. These
losses resulted from substantial cost overruns due to significant additional
testing requirements, design engineering costs and production problems
experienced in connection with that contract. The contract has since been
terminated effective January 1999.
During the quarter ended June 30, 1998, the Company recorded a $21.7 million
special charge against cost of sales relating to expected losses under 28
contracts acquired in connection with the SRS Acquisition. These contracts are
with nine different OEMs. The charge represented estimated losses expected to
be incurred over the expected life of the respective platforms to which the
contracts related. The Company recorded these losses during the quarter ended
June 30, 1998 because it determined that they were probable and reasonably
estimable.
36
BREED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Gallino Disposition
In July 1996, the Company acquired Gallino, a manufacturer of steering wheels
and plastic interior and exterior parts based in Italy. During the quarter
ended June 30, 1997, the Company committed to a plan to dispose of the plastic
interior and exterior parts business acquired in connection with the acquisition
of Gallino (the "Gallino Disposition"). The Company is currently in negotiations
with two third parties relating to the sale of substantially all of this
business for amounts in excess of net carrying value. Under both of the current
proposals under consideration, the Company would retain at least a 10% interest
in the business subject to the Gallino Disposition.
16. EXTRAORDINARY LOSS
In October 1997, the Company had an extraordinary loss of various lawsuits,$0.7 million net of an
income tax benefit of $0.4 million for the write-off of debt issuance costs
relating to the two multi-currency credit agreements. In April 1998, the
Company had an extraordinary loss of $9.3 million net of an income tax benefit
of $5.4 million for the write-off of debt issuance costs relating to the Bridge
Credit Facility.
17. CONTINGENCIES
On April 16, 1998, the Company was served with a complaint in the matter of
Takata Corporation v. AlliedSignal, Inc. and BREED Technologies, Inc., (United
States District Court, District of Delaware, case no. 98-94). The original
complaint alleged patent infringement on the part of the Company relating to the
production of two seat belt retractors formerly manufactured by AlliedSignal and
now manufactured by the Company. The suit seeks monetary damages and injunctive
relief. Under the Asset Purchase Agreement relating to the SRS Acquisition (the
"Asset Purchase Agreement"), AlliedSignal is required to indemnify the Company
(on a net after tax basis) against any monetary damages incurred by the Company
in connection with this lawsuit, including any reasonable royalties that might
be paid in respect of sales made through February 2000. The complaint was
subsequently amended to include allegations of infringement relating to four
additional products. The Company has counterclaimed that Takata is infringing a
patent owned by the Company. Under the Asset Purchase Agreement, any liability
for the additional claims of Takata is to be shared equally with Allied Signal,
including any reasonable royalties that might be paid in respect of sales made
through April 2000. Both the Company and environmental
contingencies. InAlliedSignal are vigorously defending
the opinionmatter. While the outcome of management,this lawsuit cannot be predicated with
certainty, based upon currently available information, the expected liability resulting
from these matters is adequately covered by amounts accrued, andCompany does not
believe that this lawsuit will not have a material adverse effect on the Company's
consolidated financial positioncondition or
future results of operations.
F-11In addition, the Company is party to other litigation incidental to its business
from time to time. The Company is not currently a party to any litigation that
the Company believes, if determined adversely to the Company, would have a
material adverse effect on the Company's financial condition or results of
operations.
37
11.BREED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
18. OTHER FINANCIAL DATA
STATEMENT OF EARNINGS INFORMATION
Other income (expense), net consists of the following:
YEAR ENDED JUNE 30,
1998 1997 1996
(IN MILLIONS)
Foreign exchange gain (loss) $ 0.2 $ 2.2 $ 2.4
Gain (loss) on disposition of property, plant, and equip. (1.3) (0.6) 1.5
Royalty income -- 0.1 4.0
Government Grant -- 1.0 --
Equity income (loss) in investment 0.9 -- --
Other, net (1.2) 0.8 0.8
Interest income 2.5 2.3 1.5
$ 1.1 $ 5.8 $10.2
Grant
The Company earned and recorded as income in 1997 a grant from the Italian
Ministry of Labor and Social Security of $1.0 million for locating a plant
in southern Italy in 1994.
BALANCE SHEET INFORMATION
JUNE 30,
1998 1997
Accrued expenses: (IN MILLIONS)
Employee compensation $ 47.5 $16.8
Accrual for repositioning and other special charges 34.8 --
Accrual for closing facilities and severance relating to SRS 39.2 --
Acquisition related contracts 21.7 --
Other 90.0 32.7
$233.2 $49.5
19. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following tables set forth selected quarterly financial information.
First Second Third Fourth Total
In thousands, except per share data Quarter Quarter Quarter Quarter Year
- ------------------------------------------------------------------------------------------------------------------------------------FIRST SECOND THIRD FOURTH TOTAL
IN MILLIONS, EXCEPT PER SHARE DATA QUARTER QUARTER QUARTER QUARTER YEAR
1998
1997
Net sales................................. $158,671 $182,567 $209,409 $244,233 $794,880sales $195.2 $ 340.7 $431.7 $417.7 $1,385.3
Gross profit.............................. 41,648 36,690 37,955 47,304 163,597profit 28.3 28.2 74.9 52.5 183.9
Operating income.......................... 18,210 9,330 7,128 15,915 50,583income (loss) 1.2 (352.6) 23.6 3.6 (324.2)
Income (loss) before extraordinary loss (4.2) (334.2) (1.7) (18.5) (358.6)
Net earnings.............................. 7,846 3,150 1,501 2,350 14,847
Earningsearnings (loss) (4.2) (334.9) (1.7) (27.8) (368.6)
Basic earnings (loss) per share........................ .25 .10 .05 .07 .47share before extraordinary loss (0.13) (10.54) (0.05) (0.50) (10.73)
Diluted earnings (loss) per share before extraordinary loss (0.13) (10.54) (0.05) (0.50) (10.73)
Cash dividends per share.................. .07 .07 .07 .07 .28
Market price range........................ 18 1/2-27 7/8 22 5/8-28 1/2 19 1/4-27 1/4 17 3/8-23 17 3/8-28 1/2
1996share 0.07 -- -- -- 0.07
1997
Net sales.................................sales $158.7 $ 92,601 $105,655 $103,927 $129,506 $431,689182.6 $209.4 $244.2 $ 794.9
38
BREED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Gross profit.............................. 34,864 42,844 35,841 41,096 154,645profit 41.6 36.7 38.0 47.3 163.6
Operating income.......................... 19,446 26,854 19,671 24,842 90,813income 18.2 9.3 7.1 16.0 50.6
Net earnings.............................. 12,601 17,842 14,892 17,703 63,038
Earningsearnings 7.8 3.2 1.5 2.3 14.8
Basic earnings per share........................ .40 .57 .47 .56 2.00share 0.25 0.10 0.05 0.07 0.47
Diluted earnings per share 0.25 0.10 0.05 0.07 0.46
Cash dividends per share.................. .05 .05 .07 .07 .24
Market price range........................ 19 1/8-24 1/4 17-20 1/4 16 3/8-19 5/8 18 3/4-24 1/4 16 3/8-24 1/4
1995share 0.07 0.07 0.07 0.07 0.28
1996
Net sales.................................sales $ 87,35992.6 $ 99,001 $109,876 $104,736 $400,972105.7 $103.9 $129.5 $ 431.7
Gross profit.............................. 28,999 39,016 44,846 43,560 156,421profit 34.9 42.8 35.8 41.1 154.6
Operating income.......................... 17,538 26,488 31,759 28,746 104,531income 19.4 26.9 19.7 24.8 90.8
Net earnings.............................. 11,231 18,191 21,984 20,927 72,333
Earningsearnings 12.6 17.8 14.9 17.7 63.0
Basic earnings per share........................ .36 .58 .70 .66 2.30share 0.40 0.57 0.47 0.56 2.00
Diluted earnings per share 0.40 0.56 0.47 0.56 1.99
Cash dividends per share.................. .05 .05 .05 .05 .20
Market price range........................ 25 1/4-33 3/4 25 1/2-36 3/8 20 1/4-29 18 3/8-24 1/4 18 3/8-36 3/8share 0.05 0.05 0.07 0.07 0.24
Amounts do not total to the annual earnings per share because each quarter
and the year are calculated separately based on average outstanding shares
(basic) and average outstanding and equivalent shares (diluted) during the
periods.
The Company recognized a charge during the fourth quarter of fiscal 1998
relating to estimated losses on acquisition related contracts in accordance
with the Company's accounting policy for such contracts, which increased
the net loss by $20.0 million (see Note 15). In addition, the Company
recorded a reduction to the other special charges relating to the European
OEM supply contract (originally recorded in the second quarter of fiscal
1998), which decreased the net loss by approximately $2.4 million (see Note
15-- "Other Special Charges"). Also, an adjustment was recorded in the
fourth quarter of fiscal 1998 to conform certain accruals established, in
connection with the acquisition of SRS, to the current interpretation of
EITF 95-3, which increased the net loss by approximately $2.9 million.
In the second quarter of fiscal 1998, the Company recorded repositioning,
impairment and other special charges aggregating $365.4, and impairment
which include the following: (i) a $259.5 million charge for repositioning
(ii) $77.5 million charge to the write off of in-process research and
development and (iii) $28.4 million charge against cost of sales for
inventory and long term customer contracts.
The Company recognized a charge during the fourth quarter of fiscal 1997,
which decreased net income by $2.2 million. This charge increased income
tax expense to reflect an increase in the effective tax rate for the year
due to loss carryforwards in foreign countries that could not be utilized
as management had originally anticipated. This adjustment reduced fourth
quarter net income per share by $.07.
12. SUBSEQUENT EVENT
On August 27, 1997,$0.7.
20. FINANCIAL INFORMATION FOR SUBSIDIARY GUARANTORS AND NON-GUARANTOR
SUBSIDIARIES
The Company conducts a significant portion of its business through
subsidiaries. The Notes of the Company entered into an Asset Purchase Agreement
with Allied Signal, Inc. ("Allied"are guaranteed, jointly and
severally on a senior subordinated basis, by the domestic subsidiaries (the
"Subsidiary Guarantors") to acquire substantially all of the assetsCompany other than BTI Capital Trust. The
Company's foreign subsidiaries do not guarantee the Notes (the "Non-
Guarantor Subsidiaries"). The Notes are effectively subordinated in right
of payment to all indebtedness and certainother liabilities of Allied's worldwide automotive occupant restraint
products and systems (the "Division"). These products include seat belt and
airbag assemblies and components. The purchase price is $710 million in cash and
is subject to post-closing adjustments based on the net asset value(including trade
payables) of the Division as of the closing date. Consummation of the acquisition is subject to
several conditions, including clearance of the transaction by appropriate
government agencies, consent of certain customers, and customary conditions to
closing. Management is confident that the contingencies will be resolved
favorably. The Company is considering various methods of financing the
transaction, including additional bank borrowings and the private placement of
equity and/or debt securities. For the year ended December 31, 1996, the
Division had unaudited revenues of $951 million and unaudited operating income
of $86 million.
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
BREED Technologies, Inc.
We have audited the accompanying consolidatedNon-Guarantor Subsidiaries.
Presented below are condensed consolidating balance sheets of BREED
Technologies, Inc. and subsidiaries as of June 30,
1998, and 1997, condensed consolidating statements of earnings for the
years ended June 30, 1998, 1997 and 1996 and the
related consolidated statements of earnings, stockholders' equity, andcondensed consolidating cash
flows for the years then ended. Theseended June 30, 1998, 1997, 1996, for the Subsidiary
Guarantors, the Non-Guarantor Subsidiaries, Parent only, and the Company
consolidated. Separate financial statements for the Subsidiary Guarantors
are not presented based on management'' determination that they do not
provide additional information that is material to investors.
39
BREED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
BREED TECHNOLOGIES, INC. AND SUBSIDIARIES
JUNE 30, 1998
SUBSIDIARY NON-GUARANTOR
(IN MILLIONS) GUARANTORS SUBSIDIARIES PARENT ONLY ELIMINATIONS CONSOLIDATED
ASSETS
Cash and cash equivalents $ (22.9) $ 19.0 $ 48.3 $ -- $ 44.4
Accounts receivable, net 138.8 135.9 0.6 -- 275.3
Inventories 57.3 51.8 -- -- 109.1
Other current assets 527.5 72.1 67.4 (574.7) 92.3
Total current assets 700.7 278.8 116.3 (574.7) 521.1
Property, plant and equipment, net 203.1 129.5 32.6 365.2
Intangibles, net 431.1 257.8 3.2 -- 692.1
Other assets 25.0 73.4 1,015.4 (1,042.3) 71.5
Total assets $1,359.9 $739.5 $1,167.5 $(1,617.0) $1,649.9
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities:
Current portion of long-term debt -- $ 35.2 $ 11.7 $ 46.9
Accounts payable 84.9 158.9 11.1 254.9
Accrued expenses 229.0 235.4 346.6 (577.8) 233.2
Total current liabilities 313.9 429.5 369.4 -- 535.0
Long-term debt -- 25.8 825.3 851.0
Other long-term liabilities 10.5 16.1 (1.0) -- 25.7
Total liabilities 324.4 471.4 1,193.7 (577.8) 1,411.7
Company Obligated Mandatorily Redeemable
Convertible Preferred Securities -- -- 250.0 250.0
Stockholders' equity 1,035.5 268.1 (276.2) (1,039.2) (11.8)
Total liabilities and stockholders' equity $1,359.9 $739.5 $1,167.5 $(1,617.0) $1,649.9
40
BREED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
BREED TECHNOLOGIES, INC. AND SUBSIDIARIES
JUNE 30, 1997
SUBSIDIARY NON-GUARANTOR
(IN MILLIONS) GUARANTORS SUBSIDIARIES PARENT ONLY ELIMINATIONS CONSOLIDATED
ASSETS
Cash and cash equivalents $-- $ 20.0 $ (1.3) $-- $ 18.7
Accounts receivable, net 78.3 130.9 6.9 (8.1) 208.0
Inventories 16.3 45.2 14.1 (0.3) 75.3
Other current assets 135.1 18.7 42.6 (182.9) 13.5
Total current assets 229.7 214.8 62.3 (191.3) 315.5
Property, plant and equipment, net 105.5 109.6 53.2 8.2 276.5
Intangibles, net 91.0 123.5 6.5 -- 221.0
Assets held for sale -- 52.6 -- -- 52.6
Other assets 28.7 2.1 261.6 (280.8) 11.6
Total assets $454.9 $502.6 $383.6 $(463.9) $877.2
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities:
Current portion of long-term debt $-- $ 33.7 $158.0 $-- $191.7
Accounts payable 18.2 98.5 5.0 (0.2) 121.5
Accrued expenses 0.3 134.5 5.7 (91.0) 49.5
Total current liabilities 18.5 266.7 168.7 (91.2) 362.7
Long-term debt -- 31.7 200.0 -- 231.7
Other long-term liabilities 0.3 12.9 3.1 -- 16.3
Total liabilities 18.8 311.3 371.8 (91.2) 610.7
Stockholders' equity 436.1 191.3 11.8 (372.7) 266.5
Total liabilities and stockholders' equity $454.9 $502.6 $383.6 $(463.9) $877.2
41
BREED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
BREED TECHNOLOGIES, INC. AND SUBSIDIARIES
JUNE 30, 1998
SUBSIDIARY NON-GUARANTOR
(IN MILLIONS) GUARANTORS SUBSIDIARIES PARENT ONLY ELIMINATIONS CONSOLIDATED
Net sales $ 815.1 $ 685.4 $-- $(119.2) $1,385.3
Cost of goods sold 699.4 621.2 -- (119.2) 1,201.4
Gross profit 115.7 68.2 -- -- 183.9
Selling, general and administrative expenses 14.7 37.1 26.8 78.6
Engineering, research, and development 40.4 18.9 13.4 73.2
Repositioning charges 104.3 116.3 38.9 259.5
In process research and development 22.3 55.2 -- 77.5
expenses
Amortization of intangibles 19.4 1.1 1.0 19.3
Operating income (loss) (85.9) (158.2) (80.1) -- (324.2)
Interest income (expense), net 0 (6.8) (76.4) (83.2)
Other income (expense), net (25.4) 25.4 (1.4) (1.4)
Earnings (loss) before income taxes,
distributions on Company Obligated
Mandatorily Redeemable Preferred
Securities (113.2) (139.6) (157.9) -- (408.8)
Income Tax (benefit) (20.7) 3.2 (36.3) (60.2)
Distributions on Company Obligated
Mandatory Redeemable Convertible
Preferred Securities -- 10.0 10.0
Earnings (loss) before extraordinary loss (90.6) (136.4) (131.6) -- (358.6)
Extraordinary loss, net of tax benefit of $5.4 -- -- 10.0 -- 10.0
million
Net earnings (loss) $ (90.6) $(136.4) $(141.6) -- $ (368.6)
42
BREED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
BREED TECHNOLOGIES, INC. AND SUBSIDIARIES
JUNE 30, 1997
SUBSIDIARY NON-GUARANTOR
(IN MILLIONS) GUARANTORS SUBSIDIARIES PARENT ONLY ELIMINATIONS CONSOLIDATED
Net sales $386.2 $453.9 $-- $(45.2) $794.9
Cost of goods sold 269.3 395.7 11.3 (45.0) 631.3
Gross profit 116.9 58.2 (11.3) (0.2) 163.6
Selling, general and administrative expenses 7.3 37.9 25.3 0.1 70.6
Engineering, research, and development 5.3 5.3 25.5 -- 36.1
Amortization of intangibles 1.1 4.9 0.4 (0.1) 6.3
Operating income 103.2 10.1 (62.5) (0.2) 50.6
Interest income (expense), net (0.3) (7.0) (17.2) -- (24.5)
Other income (expense), net 1.5 2.0 (0.4) 0.4 3.5
Earnings (loss) before income taxes 104.4 5.1 (80.1) 0.2 29.6
Income tax (benefit) 37.9 6.1 (29.2) -- 14.8
Net earnings (loss) $ 66.5 $ (1.0) $(50.9) $ 0.2 $ 14.8
BREED TECHNOLOGIES, INC. AND SUBSIDIARIES
JUNE 30, 1996
SUBSIDIARY NON-GUARANTOR
(IN MILLIONS) GUARANTORS SUBSIDIARIES PARENT ONLY ELIMINATIONS CONSOLIDATED
Net sales $363.7 $107.1 $-- $(39.1) $431.7
Cost of goods sold 205.0 94.2 17.4 (39.5) 277.1
Gross profit 158.7 12.9 (17.4) 0.4 154.6
Selling, general and administrative expenses 10.9 7.1 20.2 -- 38.2
Engineering, research, and development 0.4 2.6 20.6 -- 23.6
Amortization of intangibles 0.6 1.4 -- -- 2.0
Operating income 146.8 1.8 (58.2) 0.4 90.8
Interest income (expense), net 0.2 (2.3) 0.7 0.3 (1.1)
Other income (expense), net 7.6 0.8 0.5 (0.3) 8.6
Earnings (loss) before income taxes 154.6 0.3 (57.0) 0.4 98.3
Income tax (benefit) 53.6 2.2 (20.5) -- 35.3
Net earnings (loss) $101.0 $ (1.9) $(36.5) $ 0.4 $ 63.0
43
BREED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
BREED TECHNOLOGIES, INC. AND SUBSIDIARIES
JUNE 30, 1998
SUBSIDIARY NON-GUARANTOR
(IN MILLIONS) GUARANTORS SUBSIDIARIES PARENT ONLY ELIMINATIONS CONSOLIDATED
Cash flows from operating activities:
Net earnings/ (loss) $ (90.6) $(136.4) $(141.6) $-- $(368.6)
Adjustments to reconcile net cash use in
Operating activities:
Depreciation and amortization 30.8 25.2 5.5 61.5
Other adjustments 132.9 122.6 41.0 296.5
Changes in operating assets and liabilities (83.2) 37.1 46.4 (0.3)
Net cash (used in) provided by operating
activities (10.1) 48.5 (48.7) -- (10.3)
Cash flows from investing activities:
Capital expenditures (20.0) (40.7) (7.1) (67.8)
Cost of acquisitions, net of cash acquired -- -- (716.9) (716.9)
Proceeds from sale of assets and equipment 7.2 4.3 -- 11.5
Net cash used in investing activities (12.8) (36.4) (724.0) (773.2)
Cash flows from financing activities:
Net change in debt -- (4.5) 479.1 474.6
Net change in equity -- -- 343.2 343.2
Net cash provided by (used in)
financing activities -- (4.5) 822.5 817.8
Effects of exchange rate changes on cash -- (8.6) -- (8.6)
Increase (decrease) in cash and cash equivalents $ (22.9) (1.0) 49.6 25.7
Cash and cash equivalents at beginning of year -- 20.0 (1.3) $ 18.7
Cash and cash equivalents at end of year $ (22.9) $ 19.0 $ 48.3 $ 44.4
44
BREED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
BREED TECHNOLOGIES, INC. AND SUBSIDIARIES
JUNE 30, 1997
SUBSIDIARY NON-GUARANTOR
(IN MILLIONS) GUARANTORS SUBSIDIARIES PARENT ONLY ELIMINATIONS CONSOLIDATED
Cash flows from operating activities:
Net earnings/ (loss) $ 66.5 $ (1.0) $ (50.9) $ 0.2 $ 14.8
Adjustments to reconcile net cash use in
Operating activities:
Depreciation and amortization 21.9 20.1 6.5 48.5
Other adjustments 0.6 1.3 1.9
Changes in operating assets and liabilities (54.4) 144.7 (65.9) (0.2) 24.2
Net cash (used in) provided by operating
activities 34.6 163.8 (109.0) -- 89.4
Cash flows from investing activities:
Capital expenditures (35.6) (35.3) (5.0) (75.9)
Cost of acquisitions, net of cash acquired -- (140.7) (151.2) (291.9)
Investment in and advances to affiliates -- -- (0.9) (0.9)
Proceeds from sale of assets and equipment 0.8 0.6 -- -- 1.4
Net cash used in investing activities (34.8) (175.4) (157.1) -- (367.3)
Cash flows from financing activities:
Net change in debt -- (8.8) 219.1 210.3
Net change in equity -- -- (7.7) (7.7)
Net cash provided by (used in)
financing activities -- (8.8) 211.4 202.6
Effects of exchange rate changes on cash (1.8) -- (1.8)
Decrease in cash and cash equivalents (0.2) (22.2) (54.7) (77.1)
Cash and cash equivalents at beginning of year 0.2 42.2 53.4 -- 95.8
Cash and cash equivalents at end of year $ -- $ 20.0 $ (1.3) $ 18.7
45
BREED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
BREED TECHNOLOGIES, INC. AND SUBSIDIARIES
JUNE 30, 1996
(IN MILLIONS) SUBSIDIARY NON-GUARANTOR
GUARANTORS SUBSIDIARIES PARENT ONLY ELIMINATIONS CONSOLIDATED
Cash flows from operating activities:
Net earnings/ (loss) $101.0 $ (1.9) $(36.5) $ 0.4 $ 63.0
Adjustments to reconcile net cash use in
operating activities:
Depreciation and amortization 13.5 1.3 5.3 20.1
Other adjustments (0.6) 1.0 0.4
Changes in operating assets and liabilities (74.1) 83.4 (51.2) (0.4) (42.3)
Net cash (used in) provided by operating
activities 39.8 82.8 (81.4) -- 41.2
Cash flows from investing activities:
Capital expenditures (42.2) (13.1) 9.9 (45.4)
Sale of short-term investments -- -- 10.6 10.6
Cost of acquisitions, net of cash acquired -- (45.5) (3.0) (48.5)
Deposit on Gallino acquisition -- -- (10.3) (10.3)
Proceeds from sale of assets and equipment 1.7 -- 1.0 -- 2.7
Net cash used in investing activities (40.5) (58.6) 8.2 (90.9)
Cash flows from financing activities:
Net change in debt -- 17.3 108.3 125.6
Net change in equity -- -- (4.9) (4.9)
Net cash provided by (used in)
financing activities -- 17.3 103.4 120.7
Effects of exchange rate changes on cash -- (1.6) -- (1.6)
Increase in cash and cash equivalents (0.7) 40.0 30.2 69.5
Cash and cash equivalents at beginning of year 0.9 2.2 23.2 -- 26.3
Cash and cash equivalents at end of year $ 0.2 $ 42.2 $ 53.4 $ 95.8
46
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information regarding the responsibilitydirectors
and executive officers of the Company as of September 28, 1998:
NAME AGE POSITION
---- --- --------
Johnnie Cordell Breed........ 54 Chairman of the Board of Directors and Chief
Executive Officer
Charles J. Speranzella, Jr... 42 Vice Chairman, President, Chief Operating Officer
Robert M. Rapone............. 41 Executive Vice President, Operations Worldwide
Frank J. Gnisci.............. 47 Executive Vice President and Chief Financial Officer
Robert J. Saltarelli......... 44 Treasurer
Lizanne Guptill.............. 44 Secretary
Allen K. Breed............... 71 Director
Larry W. McCurdy(2).......... 62 Director
Robert W. Shower(1).......... 61 Director
Alberto Negro(2)............. 59 Director
Dr.-Ing. Franz Wressnigg(1).. 54 Director
__________________
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
Johnnie Cordell Breed was elected Chairman of the Board of Directors in
March 1998 and Chief Executive Officer in August 1997 and has been a director of
the Company since its inception in 1987. From August 1997 to March 1998, Mrs.
Breed served as Co-Chairman of the Board of Directors. She served as President
and Chief Operating Officer of the Company from September 1995 until August 1997
and as Vice Chairman from 1987 through August 1995. In 1982, Mrs. Breed co-
founded Transcor, Inc., a provider of transportation travel services. She is
currently the Secretary, Treasurer and sole stockholder of Transcor, Inc. Mrs.
Breed is a trustee of Columbia College of South Carolina. Mrs. Breed is the wife
of Allen K. Breed.
Charles J. Speranzella, Jr. was elected President and Chief Operating
Officer of the Company in June 1998, a director in October 1997 and Vice
Chairman in August 1997. He joined the Company as General Counsel and Assistant
Secretary in September 1994. He served as Managing Senior Vice President,
General Counsel and Assistant Secretary from February 1995 until July 1995. Mr.
Speranzella also served as President of BREED European Holdings, Inc. from June
1996 until January 1997 and Executive Vice President, Operations Worldwide from
January 1997 until September 1997. Mr. Speranzella was elected Corporate
Secretary in May 1995 and became Executive Vice President, General Counsel and
Secretary in July 1995. From 1979 until joining the Company, he held various
senior positions at Matra Hachette's Fairchild Space and Defense Corporation and
Martin Marietta.
-31-
Robert M. Rapone joined the Company as Executive Vice President, Operations
Worldwide in September 1997. From 1995 to 1997, Mr. Rapone was Vice President of
Operations for Morton ASP (later Autoliv) one of the largest independent
suppliers of airbag and seatbelt systems in the world. From 1989 to 1995, Mr.
Rapone was employed by Federal Mogul, most recently as Director of Connectivity.
Frank J. Gnisci joined the Company as Executive Vice President and Chief
Financial Officer in September 1997. From 1994 to 1997, Mr. Gnisci served as
Vice President of Finance for Terex Corporation, a manufacturer of heavy
construction vehicles and equipment. From 1991 to 1994, Mr. Gnisci was Vice
President of Finance for Babcock Industries, Inc., a manufacturer of conveyor
systems. Mr. Gnisci was Vice President and Controller of Gold Fields Mining
Corporation from 1987 to 1991.
Robert J. Saltarelli joined the Company as Treasurer in November 1997. From
1995 to 1997 Mr. Saltarelli served as Director of International and Corporate
Finance for Tupperware Corporation. From 1992 to 1995, Mr. Saltarelli was
Director of International Finance for W.R. Grace & Co., a chemical healthcare
company. Mr. Saltaralli served as Assistant Treasurer of Melville Corporation,
a specialty retailer, from 1990 to 1992.
Lizanne Guptill joined the Company in 1993 as legal assistant to the General
Counsel, specializing in corporate and business law. Prior to joining the
Company, Ms. Guptill was a Legal Assistant with the Corporate Legal Department
of Marriott International, Inc. since 1990. Ms. Guptill was employed as a Legal
Assistant with the General Corporate Division of Hayt, Hayt & Landau in Miami
from 1984 to 1990.
Allen K. Breed, founder of the Company, was elected Chairman Emeritus of the
Board of Directors of the Company in March 1998. From August 1997 to March 1998,
Mr. Breed served as Co-Chairman of the Board of Directors. Mr. Breed was
Chairman of the Board of Directors and Chief Executive Officer from the
Company's inception in 1987 until August 1997. Mr. Breed is the husband of
Johnnie Cordell Breed.
Larry W. McCurdy was elected a director of the Company in September 1992.
Since July 1998, Mr. McCurdy was President of DANA Automotive Aftermarket Group.
From Since March 1997 to July 1998, Mr. McCurdy has served as Chairman,
President and Chief Executive Officer of Echlin, Inc., an automotive components
supplier ("Echlin"). From 1985 until March 1997, Mr. McCurdy served as President
and Chief Executive Officer of Moog Automotive, Inc., a manufacturer of
automotive aftermarket products (Moog Automotive, Inc. was sold to Cooper
Industries, Inc. in October 1992). From 1983 to 1985, Mr. McCurdy served as
President and Chief Operating Officer of Echlin. Prior to 1983, Mr. McCurdy held
various senior management positions with Tenneco Inc. Mr. McCurdy is a director
of Lear Seating Corporation and Mohawk Industries, Inc. and serves as a trustee
of Milliken University.
Robert W. Shower was elected a director of the Company in October 1997. From
1992 through his retirement in July 1996, Mr. Shower served as an officer and
director of Seagull Energy Corporation, an oil and gas exploration and
production company ("Seagull"). While at Seagull, Mr. Shower served as a Senior
Vice President from 1992 to 1994, as Chief Financial Officer from 1992 to 1996,
as an Executive Vice President from 1994 to 1996, and as a director from May
1992 through July 1996. Prior to joining Seagull, Mr. Shower served as Senior
Vice President, Corporate Development for Albert Fisher, Inc., a fruit and
vegetable distribution company, from 1991 until 1992. Mr. Shower currently
serves as a director of Lear Seating Corporation, Highlands Insurance Group,
Edge Petroleum Corporation and Nuevo Energy Corporation.
Alberto Negro was elected a director of the Company in November 1997. Mr.
Negro retired as Chief Executive Officer of Fiat Auto USA, Inc. in June 1997
after 29 years of service with Fiat. Mr. Negro also served as Chairman of SAE
Overseas Meeting Group, a society of automotive engineers, and served on the
Executive Committee of recent IBEC and Convergence Conferences from 1995 to
1997.
-32-
Dr.-Ing. Franz Wressnigg was elected a director of the Company in November
1997. Mr. Wressnigg has served as the Group President of Siemens Automotive, an
automotive parts manufacturer, since 1993. Previously he served as a member of
the Board of Directors of Siemens Austria, Vienna from 1989 until 1993 and in
various other management positions with Siemens since 1967. Dr. Wressnigg is the
designee of Siemens to serve on the Board of Directors pursuant to the
Stockholders Agreement described below.
Pursuant to the Stockholders Agreement entered into in connection with the
Siemens Investment, Mrs. Breed and her husband, who beneficially own an
aggregate of approximately 47% of the outstanding Common Stock as of March 15,
1998, have agreed to vote their shares to elect a designee of Siemens to the
Board of Directors. Siemens designated Dr. Wressnigg to be this director and he
was elected a director of the Company at the Company's annual stockholders'
meeting held on November 20, 1997. The holders of Series A Preference Shares
(initially Siemens) also have the right, voting as a class, to elect one
director of the Company under certain circumstances.
Executive officers of the Company are elected by the Board of Directors on an
annual basis and serve at the discretion of the Board of Directors.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under Section 16(a) of the Securities Exchange Act of 1934, all executive
officers, directors and persons that beneficially own more than 10% of the
Common Stock of the Company are required to file reports regarding the ownership
of such Common Stock, options and stock appreciation rights and any changes in
that ownership with the Securities and Exchange Commission. Specific due dates
for these reports have been established, and the Company is required to report
in the Proxy Statement any failure to comply therewith during the fiscal year
ended June 30, 1998. Based solely upon a review of the copies of such reports
furnished to the Company and certain representations of such persons, the
Company believes that all of these filing requirements were satisfied.
DIRECTOR COMPENSATION
As compensation for serving on the Board of Directors, members of the Board of
Directors who are not employees of the Company are paid $5,000 for attendance at
each Board meeting, $1,250 for participation in each telephonic Board meeting,
$1,000 for each committee meeting and $2,000 for serving as chairman of any
committee of the Board. These fees are in addition to participation in the
Company's 1992 Directors Stock Option Plan (the "1992 Director Plan").
Under the 1992 Director Plan, directors of the Company who are not employees
of the Company or any subsidiary are eligible to receive non-qualified options
to purchase shares of Common Stock of the Company. Under the 1992 Director
Plan, options are automatically granted to eligible directors after their
election on the date of each annual meeting of stockholders. The number of
shares of Common Stock covered by each director's options is determined by
dividing $50,000 by the fair market value of the Company's management. Our responsibility isCommon Stock on the
date of grant. Such options vest on the first anniversary of the date of grant
(or, if earlier, the day prior to expressthe first annual meeting of stockholders of
the Company following the date of grant). The exercise price of options granted
under the 1992 Director Plan equal the fair market value of the Common Stock on
the date of grant. On November 20, 1997, options to purchase 2,685 shares of
Common Stock at an opinion on these financial statements based on our audits. Weexercise price of $18.625 per share were granted to each of
Messrs. McCurdy, Negro and Shower.
-33-
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth certain information concerning the compensation
earned by the Chief Executive Officer of the Company and each of the four other
most highly compensated executive officers of the Company (collectively, the
"Named Executive Officers") during fiscal 1996, 1997 and 1998.
SUMMARY COMPENSATION TABLE
LONG TERM
ANNUAL COMPENSATION (1) COMPENSATION
---------------------------------------------------------- ------------
AWARDS
------------
SECURITIES
UNDERLYING ALL OTHER
FISCAL OTHER ANNUAL OPTIONS/SARS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS($) (2) COMPENSATION ($) (3) (#) (4) ($) (5)
- ------------------------------- ------ ---------- ------------ -------------------- ------------ ------------
Johnnie Cordell Breed.......... 1998 414,299 0 27,341 0 4,500
Chief Executive Officer 1997 331,749 287,950 17,115 0 4,500
1996 283,032 220,000 44,376 0 4,500
Charles J. Speranzella, Jr..... 1998 303,195 0 25,339 458,804 4,500
Vice Chairman, President 1997 210,784 115,000 58,881 7,485 4,500
and Chief Operating Officer 1996 198,672 43,125 74,461 90,607 40,661
Robert M. Rapone(6)............ 1998 236,550 0 75,005 400,000 4,500
Executive Vice President, 4,500
Worldwide Operations 4,500
Frank J. Gnisci(6)............. 1998 157,706 0 27,459 75,000 3,000
Executive Vice President
and Chief Financial Officer
Allen K. Breed................. 1998 342,119 0 3,419 0 4,500
Former Chief Executive 1997 456,404 456,404 32,064 0 4,500
Officer 1996 455,812 441,000 36,466 0 4,500
Fred J. Musone(7).............. 1998 315,393 0 33,906 0 4,500
Former President and
Chief Operating Officer
___________________
(1) The aggregate amount of perquisites and other personal benefits, if
any, did not auditexceed the financial statementslesser of MOMO S.p.A.,$50,000 or 10% of the total annual
salary and bonus reported for each Named Executive Officer and has
therefore been omitted.
(2) Amounts in this column represent bonuses earned under the Company's
employee incentive program for the respective fiscal years. Amounts
earned in any fiscal year are payable in the following fiscal year.
(3) Amounts in this column represent the value of certain executive
benefits provided by the Company.
(4) The Company does not have a wholly-owned subsidiary acquired April
15, 1996, which statements reflect total assetslong-term compensation program that
includes long-term incentive payouts. However, the 1994 Stock
Incentive Plan, adopted by the stockholders on November 17, 1994,
provides participants under the Plan performance-based compensation in
the form of $106,398,000incentive stock options or restricted stock awards.
(5) Amounts shown in this column represent the Company's contributions
under its tax-qualified and tax-deferred 401(k) savings plan, taxes
paid by the Company, and income realized from the
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exercise of incentive stock options. The Company's 401(k) matching
contribution was $4,500 to each of Messrs. Breed, Speranzella, Rapone,
Gnisci and Mrs. Breed.
(6) Joined the Company in September 1997.
(7) Mr. Musone joined the Company in September 1997 and resigned as
President and Chief Operating Officer of the Company as of June 19,
1998.
OPTION GRANTS TABLE
The table below sets forth certain information relating to options granted
during fiscal 1998 to each Named Executive Officer. No stock appreciation
rights were granted to the executive officers during fiscal 1998.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS(1)
-----------------------------------------------------
POTENTIAL REALIZABLE
NUMBER OF % OF TOTAL VALUE
SECURITIES OPTIONS AT ASSUMED ANNUAL RATES
UNDERLYING GRANTED TO OF STOCK PRICE
OPTIONS EMPLOYEES EXERCISE APPRECIATION FOR OPTION
GRANTED IN FISCAL PRICE PER EXPIRATION TERM ($)
-------------------------
(#)(1) YEAR SHARE ($) DATE 5% 10%
----------- ------------ ---------- ----------- --------- ------------
Johnnie C. Breed............. -- -- -- -- -- --
Charles J. Speranzella, Jr... 8,804 0.68 24.06 09/01/2007 133,215 337,593
400,000 31.11 21.25 05/20/2007 5,345,604 13,546,811
50,000 3.89 19.1875 05/20/2008 603,346 1,528,997
Robert M. Rapone............. 400,000 31.11 21.25 09/01/2007 5,345,604 13,546,811
Frank J. Gnisci.............. 25,000 1.94 21.25 05/20/2008 334,100 846,676
50,000 3.89 19.1875 603,346 1,528,997
Allen K. Breed............... -- -- -- -- -- --
Fred J. Musone............... -- -- -- -- -- --
______________
(1) All of the options are options to purchase Common Stock of the Company
granted under the 1994 Stock Incentive Plan.
-35-
AGGREGATED OPTIONS TABLE
The table below sets forth certain information with respect to options held
at the end of fiscal 1998 by each Named Executive Officer. No options were
exercised during fiscal 1998.
AGGREGATED OPTION/SAR EXERCISES IN
LAST FISCAL YEAR AND FISCAL YEAR-END OPTION/SAR VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT FISCAL OPTIONS/SARS AT
YEAR-END (#) FISCAL YEAR-END ($)
(EXERCISABLE/ UNEXERCISABLE) (EXERCISABLE/
UNEXERCISABLE)(1)
---------------------------- --------------------
Johnnie C. Breed............. -- --
Charles J. Speranzella, Jr... 44,148/521,081 --
Robert M. Rapone............. 0/400,000 --
Frank J. Gnisci.............. 0/75,000 --
Allen K. Breed............... -- --
Fred J. Musone............... -- --
_____________
(1) Value based on the last price per share ($15.3125) of the Company's Common
Stock on June 30, 1998, as reported on the New York Stock Exchange
Composite Tape, less exercise price.
EMPLOYMENT AGREEMENTS
The Company is party to employment agreements with Charles J. Speranzella,
Jr. and Robert M. Rapone, which were entered into on October 27, 1997 and
net sales of $73,093,000September 2, 1997, respectively (the "Employment Agreements"). Each Employment
Agreement provides for the employee to devote his full business time and
attention to the Company, and terminates four years after its inception unless
earlier terminated as described below.
Mr. Speranzella's employment agreement (the "Speranzella Agreement")
provides that he will serve as the Vice Chairman of the Board of Directors of
the Company. The Speranzella Agreement provides for an annual base salary of
$375,000 per year which may be increased at the discretion of the Board of
Directors, as well as an annual bonus of up to 50% of his base salary which may
be paid to Mr. Speranzella in the discretion of the Board of Directors.
Mr. Rapone's employment agreement (the "Rapone Agreement") provides that he
will serve as the Executive Vice President of Worldwide Operations. The Rapone
Agreement provides for an annual base salary of $300,000 per year, which may be
increased at the discretion of the Board of Directors, as well as an annual
bonus of up to 45% of his base salary in the discretion of the Board of
Directors. Each Employment Agreement also provides for reimbursement of
reasonable business expenses, an automobile allowance, health insurance and, in
the case of Mr. Rapone, payment of relocation expenses.
Under the provisions of the Employment Agreements, both Mr. Speranzella and
Mr. Rapone have been granted options to purchase 400,000 shares of Common Stock
of the Company at $21.25 per share (the "Incentive Options"). The Incentive
Options vest over a three year period based upon the price of the Company's
Common Stock reaching certain targeted levels. Additionally, the Employment
Agreements provide that Mr. Speranzella and Mr. Rapone are to receive on each of
the first, second and third anniversaries of their Employment Agreements options
to purchase 100,000 shares of Common Stock at the market price of the Company's
common stock on the date of the grant (the "Annual Options"). Each of the
Annual Options vest one year from the date of the grant.
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The Employment Agreements are terminable upon the death or disability of
the employee, by the Company for "Cause" (as defined in the Employment
Agreements), by the Company without Cause, by the employee in the event that the
employee's base salary or responsibilities are reduced by the Company ("Changed
Circumstances"), by the employee on the occurrence of a change in control (as
defined in the Employment Agreements). Each Employment Agreement provides that,
in the event the employee's employment is terminated without Cause, for a change
in control or for Changed Circumstances (all as defined in the Employment
Agreements), such employee is to be paid as severance all base salary (exclusive
of bonus), auto allowance, health and welfare benefits and 401k company
contributions through the end of the Employment Agreement term. If the employee
is terminated as a result of a change in control, the employee is to be paid an
amount equal to three times his annual base salary in effect at the time of
termination, plus an amount equal to three times the amount of the highest
annual bonus awarded to the employee during the three immediately preceding
years as well as other allowances as discussed in the preceding sentence. The
Employment Agreements also subject the employees to non-compete, non-
solicitation and confidentiality restrictions.
During the past fiscal year, the Company was also party to an employment
agreement with Fred J. Musone which was entered into on September 2, 1997 (the
"Musone Agreement") which provided for Mr. Musone to be retained by the Company
as its the President and Chief Operating Officer. On June 18, 1998 the Company
and Mr. Musone amended the Musone Agreement whereby Mr. Musone resigned from the
Company and received from the Company: (i) a severance allowance of $986,524
payable in three installments through January 2, 1999, and (ii) continuing
health and welfare benefits payable by the Company for 24 months following the
date of resignation. Mr. Musone is subject to continuing non-compete, non-
solicitation and confidentiality restrictions.
The Company is party to a severance agreement with Frank J. Gnisci dated
August 12, 1997 (the "Severance Agreement"). Under the terms of the Severance
Agreement, if the Company terminates Mr. Gnisci employment for any reason other
than cause (as defined in the Severance Agreement) or substantially reduces Mr.
Gnisci's annual base salary or job functions, Mr. Gnisci is entitled to receive
from the Company a continuation of his then ended. Those statements were
auditedcurrent annual base salary and
certain health and insurance benefits for a period of up to twelve months. If
during the twelve month period Mr. Gnisci accepts employment with an annual base
salary less than the annual base salary paid to him by the Company, the Company
is obligated to pay to Mr. Gnisci the difference between such salary levels. In
the event Mr. Gnisci accepts employment with an annual base salary in excess of
that paid to him by the Company, the Company is not obligated to make any
further severance payments to Mr. Gnisci.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee are Messrs. McCurdy and Negro. No
executive officer of the Company has served as a director or member of the
Compensation Committee (or other auditorscommittee serving an equivalent function) of
any other entity, one of whose reportexecutive officers served as a director of or
member of the Compensation Committee of the Company.
-37-
ITEM 12. COMMON STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock of the Company as of September 15, 1998, (i) by
each person who is known to the Company to beneficially own more than 5% of the
outstanding shares of the Common Stock, (ii) by each executive officer of the
Company, (iii) by each director of the Company and (iv) by all directors and
executive officers of the Company as a group.
BENEFICIAL OWNERSHIP
OF COMMON STOCK
-----------------------------
NUMBER PERCENTAGE
NAME OF BENEFICIAL OWNER(1) OF SHARES(2) OF CLASS(3)
- -------------------------------------------- -----------------------------
EXECUTIVE OFFICERS AND DIRECTORS:
Johnnie Cordell Breed.......................................... 8,477,850 (4) 23.01
Charles J. Speranzella, Jr..................................... 58,244 (5) *
Robert Rapone.................................................. -- (6) --
Frank Gnisci................................................... 5,000 (7) *
Allen K. Breed................................................. 8,617,552 (8) 23.39
Larry W. McCurdy............................................... 13,349 (9) *
Alberto Negro.................................................. 1,000 *
Robert Shower.................................................. 2,000 *
Dr. -Ing. Franz Wressnigg...................................... -- --
All executive officers and directors as a group (11 persons)... 17,174,995 (10) 46.61
OTHER 5% STOCKHOLDERS:
A. Breed, Ltd.................................................. 8,477,750 (11) 23.01
J. Breed, Ltd.................................................. 8,477,750 (11) 23.01
Capital Research and Management Company........................ 2,647,980 (12) 7.19
FMR Corp....................................................... 3,422,030 (13) 9.29
Pioneer Management Corporation................................. 3,109,400 (14) 8.44
Siemens Aktiengesellschaft..................................... 4,883,227 (15) 13.25
_______________
* Less than 1%.
(1) The business address for Mr. and Mrs. Breed is 5300 Old Tampa Highway,
Lakeland, Florida 33811.
(2) Under the rules of the Securities and Exchange Commission, a person is
deemed to beneficially own securities if he or she has been furnishedor shares the
power to us,vote or dispose, or to direct the vote or disposition, of
such securities or has the right to acquire such beneficial ownership
within 60 days. Under these rules, more than one person may be deemed
to beneficially own the same securities and our
opinion, insofara person may be deemed to
beneficially own securities as it relates to data includedwhich he or she has no pecuniary
interest. Unless otherwise indicated, each person or entity named in
the table has sole voting and investment power with respect to all
shares of Common Stock listed as beneficially owned by such person or
entity.
(3) In calculating the percentage ownership for MOMO S.p.A.a given individual or
group, the number of shares of Common Stock outstanding includes
unissued shares subject to options, warrants, rights or other
-38-
conversion privileges exercisable on or before November 14, 1998
held by such individual or group, but are not deemed outstanding by
any other person or group.
(4) Includes 8,477,750 shares held by J. Breed, Ltd., a Texas limited
partnership. J. Breed, Inc., a Texas corporation, is the general
partner of J. Breed, Ltd. Mrs. Breed is the sole stockholder and
director of J. Breed, Inc. and, consequently, is deemed to
beneficially own all of the shares of Common Stock held by J. Breed,
Ltd. Also includes 100 shares of Common Stock held as a joint tenant
with Mrs. Breed's spouse.
(5) Includes 56,864 shares of Common Stock which may be acquired upon
the exercise of stock options that are or will become exercisable on
or before November 14, 1998. Excludes 400,000 shares of Common Stock
that may be acquired pursuant to stock options exercisable if the
trading price of the Common Stock exceeds certain specified levels.
(6) Excludes 400,000 shares of Common Stock that may be acquired
pursuant to stock options exercisable if the trading price of the
Common Stock exceeds certain specified levels.
(7) Includes 5,000 shares of Common Stock which may be acquired upon the
exercise of stock options that are or will become exercisable on or
before November 14, 1998.
(8) Includes 8,477,750 shares of Common Stock held by A. Breed, Ltd., a
Texas limited partnership. A. Breed, Inc., a Texas corporation, is
the general partner of A. Breed, Ltd. Mr. Breed is the sole
stockholder and director of A. Breed, Inc. and, accordingly, is
deemed to beneficially own all of the shares of Common Stock held by
A. Breed, Ltd. Also includes 100 shares of Common Stock held as a
joint tenant with Mr. Breed's spouse and 139,702 shares held by the
Breed Charitable Foundation. Mr. Breed is a trustee of the Breed
Charitable Foundation and shares the power to vote and dispose of
the Common Stock beneficially owned by the Foundation.
(9) Includes 13,349 shares of Common Stock which may be acquired upon
the exercise of stock options that are or will become exercisable on
or before November 14, 1998.
(10) Includes 17,174,995 shares of Common Stock which may be acquired by
executive officers and directors upon the exercise of stock options
which are or will become exercisable on or prior to November 14,
1998.
(11) A. Breed, Ltd. and J. Breed, Ltd. are both located at 1366 Winding
Way, Cave Rock Estates, Nevada 89413.
(12) This information is based solely
on a Schedule 13G filed with the
reportSecurities and Exchange Commission on July 9, 1998. Capital Research
and Management Company's address is 333 South Hope Street, Los
Angeles, CA 90071.
(13) Excludes 80,000 shares of Common Stock beneficially owned by
Fidelity International Limited ("FIL"). Prior to June 30, 1980, FIL
was a wholly owned subsidiary of Fidelity Management & Research
Company, which is a wholly owned subsidiary of FMR Corp. On June 30,
1980, Fidelity Management & Research Company distributed all of the
outstanding shares of FIL as a dividend to the shareholders of FMR
Corp. FMR Corp. does not have the power to vote or dispose of these
80,000 shares and has taken the position that it does not
beneficially own such shares. This information is based on Amendment
No. 1 to Schedule 13G filed with the Securities and Exchange
Commission on March 10, 1998. FMR Corp.'s address is 82 Devonshire
Street, Boston, MA 02109.
(14) This information is based on Amendment No. 2 to Schedule 13G filed
with the Securities and Exchange Commission on January 5, 1998.
Pioneering Management Corporation's address is 60 State Street,
Boston, MA 02109.
(15) Includes One Series A preferred Share, which is convertible into one
share of Common Stock. Siemens Aktiengesellschaft is located at
Wittelsbacherplatz 2, D-80333, Munich, Germany.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Since November 1992, the Company has engaged the services of Transcor, Inc.
("Transcor") to support its travel requirements. Transcor has provided the
Company with airline tickets, computer services, ticket stock and car and hotel
rentals. Johnnie Cordell Breed is the sole stockholder of Transcor.
-39-
During fiscal 1998, Transcor received gross commissions of $72,303 based on
transactions placed by Transcor on behalf of the Company for $1,450,081 of
business. In addition, pursuant to the terms of a travel management agreement,
the Company is entitled to share in a portion of Transcor's revenues derived
from the Company. The Company incurs no cost or fees in connection with this
arrangement. The Company believes that the terms of its relationship with
Transcor are as favorable as those that were available through other auditors.travel
companies.
-40-
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial Statements.
The following Consolidated Financial Statements of the Company and its
consolidated financial statementssubsidiaries and the Report of BREED Technologies, Inc. and subsidiariesthe Independent Auditors,
included in the Registrant's Annual Report to Shareholders for the year
ended June 30, 1995, were
audited by other auditors whose report dated July 21, 1995, expressed an
unqualified opinion on those statements.
We conducted our auditsare included in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are freePart II, Item 8.
Report of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, based on our audits and the reportIndependent Certified Public Accountants.
Consolidated Statements of other auditors, the
1997 and 1996 consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of BREED
Technologies, Inc. and subsidiaries at June 30, 1997 and 1996, and the
consolidated results of their operations and their cash flowsOperations for the years then
ended in conformity with generally accepted accounting principles.
/s/Ernst & Young LLP
July 31,June 30,
1998, 1997 exceptand 1996.
Consolidated Balance Sheets as of June 30, 1998, 1997 and 1996.
Consolidated Statements of Shareholders' Equity for Note 12,
asthe years ended
June 30, 1998, 1997 and 1996.
Consolidated Statements of Cash Flows for the years ended June 30,
1998, 1997 and 1996.
Notes to which the date is August 27, 1997
Tampa, Florida
F-12
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d)Consolidated Financial Statements.
2. Financial Statement Schedules 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.
BREED TECHNOLOGIES, INC.
Date: September 25, 1997 By: /s/ Charles J. Speranzella, Jr.
Charles J. Speranzella, Jr.
Vice Chairman
Pursuant to the requirement of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
/s/ Allen K. Breed Chairman of the Board of September 25, 1997
- -------------------------- Directors
Allen K. Breed
/s/ Johnnie Cordell Breed Co-Chairman and Chief Executive September 25, 1997
------------------------- Officer (Principal Executive
Johnnie Cordell Breed Officer)
/s/ Frank J. Gnisci Executive Vice President September 25, 1997
- -------------------------- and Chief Financial Officer
Frank J. Gnisci (Principal Financial Officer)
/s/ Thomas F. Dugan Corporate Controller September 25, 1997
- -------------------------- (Principal Accounting Officer)
Thomas F. Dugan
/s/ Peter A. Lewis Director September 25, 1997
- --------------------------
Peter A. Lewis
/s/ Larry W. McCurdy Director September 25, 1997
- --------------------------
Larry W. McCurdy
Company.
None.
3. Exhibits.
EXHIBIT
INDEXNUMBER
------
2.1 Agreement and Plan of Merger dated August 3, 1994 relating to Hamlin,
Inc. (filed as Exhibit 3 to the Company's Form 8-K, filed September 15,
1994 and incorporated herein by reference)
2.2 Stock Purchase Agreement - MOMO S.p.A. and G. Holding S.r.l.,
dated March 29, 1996, and Stock Purchase Agreement - LANEBROOK
LTD., dated March 29, 1996 (filed as(incorporated herein by reference to
Exhibits 2.1 and 2.2 to the Company's Form 8-K/A filed on June 28,
1996, and incorporated herein by reference)
2.3 Stock Purchase Agreement, dated April 22, 1996, between the Company and
Alberto Zucchelli and Andrea Zucchelli for the acquisition of Italtest
S.r.l. and Italtest Due S.r.l. (filed as Exhibit 2.3 to the Company's
Form 10K filed on September 23, 1996, and incorporated herein by
reference)
2.4 Stock Purchase Agreement, dated May 31, 1996, between the Company and
Felt Products Mfg. Co. for the acquisition of Force Imaging Technologies,
Inc. (filed as Exhibit 2.4 to the Company's Form 10K filed on September
23, 1996, and incorporated herein by reference)
2.51996)
2.2 Master Agreement, dated July 1, 1996, related to the "Gallino
Group" acquisition.
2.6acquisition (incorporated herein by reference to Exhibit
2.5 to the Company's 10-K filed on September 29, 1997)
2.3 Amended and Restated Purchase Agreement, dated as of October 25,
1996, among UT Automotive, Inc., United Technologies Automotive
Systems, Inc., United Technologies Automotive Systems de Mexico
A.A. de C.V., IPCO, Inc. and BREEDBreed Technologies, Inc.
(filed as an(incorporated herein by reference to the Exhibit to the Company's
Form 8K dated November 7, 1996, and incorporated herein by reference)
2.78-K/A filed March 25, 1997)
2.4 Stock Purchase Agreement, dated January 3, 1997, as amended
February 25, 1997, between BREED Technologies, Inc.the Company and BTI Investments, Inc.
(filed(incorporated herein by reference to the Exhibit to the Company's
Form 8-K filed March 10, 1997)
2.5 Asset Purchase Agreement, dated as of August 27, 1997, among
AlliedSignal Inc. (and certain subsidiaries identified in the
Agreement) and the Company (and
-41-
certain subsidiaries identified in the Agreement) (incorporated herein
by reference to an Exhibit to the Company's Form 8K8-K filed on November
14, 1997)
2.6 Amendment, dated March 5,October 3, 1997, to the Asset Purchase Agreement,
dated as of August 27, 1997, by and incorporatedbetween AlliedSignal Inc., a
Delaware corporation, the Company and the other parties thereto
(incorporated herein by reference)reference to an Exhibit to the Company's Form
8-K filed on November 14, 1997)
3.1 Second Restated Certificate of Incorporation of the Company
(filed as(incorporated herein by reference to Exhibit 4.1 to the Company's
Registration Statement on Form S-8 (File No. 33-54988) (the "Form S-8") and incorporated herein by reference)
3.2 Amended and Restated By-Laws of the Company (filed as(incorporated herein by
reference to Exhibit 3.3 to the Company's Registration Statement on
Form S-1 (File No. 33-5186833-51868) (the Form"Form S-1") and incorporated herein by reference))
4.1 Specimen Certificate of Common Stock of the Company (filed as(incorporated
herein by reference to Exhibit 4.1 to the Form S-1 and incorporatedS-1)
4.2 Form of Preferred Securities (incorporated herein by reference)
4.2 Descriptionreference to
Exhibit 4.3 to the Company's Registration Statement on Form S-3 (file
no. 33-48231)).
4.3 Form of Capital Stock (contained inConvertible Debentures (incorporated herein by reference to
Exhibit 4.4 to the Second Restated
Certificate of Incorporation ofCompany's Registration Statement on Form S-3 (file
no. 33-48231)).
4.4 Registration Rights Agreement, dated April 28, 1998, among the
Company, filedNations BancMontgomery Securities, LLC and Prudential
Securities Incorporated (incorporated herein by reference to Exhibit
4.2 to the Company's Registration Statement on Form S-4 (File No. 333-
57671))
4.5 Amended and Restated Declaration of Trust, dated as of November 25,
1997, between the Company, as Sponsor, Wilmington Trust Company, as
Delaware Trustee and Institutional Trustee, and Charles J.
Speranzella, Jr., Fred J. Musone, and Frank J. Gnisci, as Regular
Trustees (incorporated herein by reference to Exhibit 4.1 to the
Company's Registration Statement on Form S-8S-3 (File No. 333-48231))
4.6 Indenture, dated as of November 25, 1997, between the Company and
incorporatedWilmington Trust Company, as Indenture Trustee (incorporated herein by
reference)reference to Exhibit 4.2 to the Company's Registration Statement on
Form S-3 (File No. 333-48231))
4.7 Common Securities Guarantee Agreement, dated as of November 25, 1997,
by the Company, as Guarantor (incorporated herein by reference to
Exhibit 4.5 to the Company's Registration Statement on Form S-3 (File
No. 333-48231))
4.8 Preferred Securities Guarantee Agreement, dated as of November 25,
1997, between the Company, as Guarantor, and Wilmington Trust Company,
as Preferred Guarantee Trustee (incorporated herein by reference to
Exhibit 4.6 to the Company's Registration Statement on Form S-3 (File
No. 333-48231))
-42-
4.9 Amendment No. 1 to Warrant Agreement, dated March 2, 1998, between the
Company and NationsBank, N.A. (incorporated herein by reference to
Exhibit 4.9 to the Company's Registration Statement on Form S-3 (File
No. 333-48231))
4.10 Indenture, dated as of April 28, 1998, among the Company, the
Subsidiary Guarantors named therein and IBJ Schroder Bank & Trust
Company, as Trustee (incorporated herein by reference to Exhibit 4.8
to the Company's Registration Statement on Form S-3 (File No. 333-
48231))
4.11 Amended and Restated Credit Agreement, dated as of April 28, 1998, by
and among the Company, certain subsidiaries of the Company designated
as Borrowers therein, NationsBank, National Association and certain
other financial institutions named therein as Lenders, and
NationsBank, National Association, as Agent for the Lenders
(incorporated herein by reference to Exhibit 4.9 to the Company's
Registration Statement on Form S-3 (File No. 333-48231))
4.12 Registration Rights Agreement, dated November 25, 1997, by and among
the Company, BTI Capital Trust, and Prudential Securities Incorporated
and Furman Selz LLC (incorporated herein by reference to Exhibit 4.12
to the Company's Registration Statement on Form S-3 (File No. 333-
48231))
10.1 Company's 1992 Stock Option Plan (filed as(incorporated herein by reference to
Exhibit 10.12 to the Form S-1
and incorporated herein by reference)S-1)
10.2 Company's 1992 Director Stock Option Plan (filed as(incorporated herein by
reference to Exhibit 10.13 to the Form S-1 and incorporated herein by reference)S-1)
10.3 Company's 1992 Employee Stock Purchase Plan, as amended (filed as(incorporated
herein by reference to Exhibit 28 to the Company's Registration
Statement on Form S-8 and incorporated herein by reference)(File No. 33-54988))
10.4 Company's Employees' Retirement Savings Plan (filed as(incorporated herein by
reference to Exhibit 10.15 to the Form S-1 and incorporated herein by reference)S-1)
10.5 Company's Employee Incentive Program (filed as(incorporated herein by reference
to Exhibit 10.16 to the Form S-1 and incorporated herein by reference)S-1)
10.6 Company's 1994 Stock Incentive Plan filed with(incorporated herein by reference
to the Company's Registration Statement on Form S-8 (File No. 333-
22723))
10.7 Stock Purchase Agreement, dated as of October 14, 1997, by and between
the Company and Siemens Aktiengesellschaft, a company organized under
the laws of the Federal Republic of Germany (incorporated herein by
reference to Exhibit 10.1 to the Company's Quarterly Report on Form
10-Q for the quarter ended December 31, 1997 filed February 25, 1997
10.7 Five-Year Credit12, 1998)
10.8 Make-Whole Agreement, and 364 day credit agreement dated Aprilas of October 30, 1997, by and First Amendmentsbetween the
Company and Siemens Aktiengesellschaft, a company organized under the
laws of the Federal Republic of Germany (incorporated herein by
reference to Five-Year CreditExhibit 10.1.1 to the Company's Form Quarterly Report on
Form 10-Q for the quarter ended December 31, 1997 filed February 12,
1998)
-43-
10.9 Registration Rights Agreement, dated as of October 30, 1997,
between the Company and 364 day
credit agreementSiemens Aktiengesellschaft, a company
organized under the laws of the Federal Republic of Germany
(incorporated herein by reference to Exhibit 10.1.2 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
December 31, 1997 filed February 12, 1998)
10.10 Stockholders Agreement, dated June 28,as of October 30, 1997, among
First Union National Bank of
Florida (Administrative Agent), The Chase Manhattan Bank
(Documentation Agent)the Company and certain other financial institution lenders.
21of its subsidiaries (incorporated
herein by reference to Exhibit 10.1.3 to the Company's
Quarterly Report on Form 10-Q for the quarter ended December
31, 1997 filed February 12, 1998)
10.11 Warrant Agreement, dated as of October 30, 1997, between
NationsBank, N.A. and the Company (incorporated herein by
reference to Exhibit 10.3 to the Company's Quarterly Report on
Form 10-Q for the quarter ended December 31, 1997 filed
February 12, 1998)
10.12 Joint Venture Agreement, dated as of December 24, 1997,
between Siemens Aktiengesellschaft and the Company
(incorporated herein by reference to Exhibit 10.4 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
December 31, 1997 filed February 12, 1998)
12.1 Computation of Ratio of Earnings to Fixed Charges
12.1 Computation of Ratio of Earnings to Combined Fixed Charges and
Preferred Stock Dividends
21. Subsidiaries of the Company
23.1 Consent of KPMG Peat Marwick LLP, Independent Auditors
23.2 Consent of Ernst & Young LLP, Independent Auditors
23.3 Opinion of KPMG Peat Marwick LLP, Tampa, Independent Auditors
23.4 Opinion of23.2 Consent KPMG Peat Marwick LLP, Milan, Independent Auditors
27 Financial Data Schedule
99 Report of KPMG Peat Marwick LLP, Milan, Independent Auditors
(b) Reports on Form 8-K
The following reports have been filed on Form 8-K with the Securities and
Exchange Commission during the last quarter of fiscal 1998: (a) the Company's
Current Report on Form 8-K filed on May 12, 1998, making "forward-looking
statements" to avail the Company to the corresponding safe-harbor in the
Securities Act of 1933 and the Securities Exchange Act of 1934, (b) the
Company's Current Report on Form 8-K filed on June 15, 1998, (i) amending
certain earnings per share information and selected financial history and (ii)
filing Management's Discussion and Analysis of the Company with respect to SRS
and Unaudited Pro Forma Condensed Consolidated Financial Statements of the
Company as Exhibit 99.1 thereto, (c) the Company's Current Report on Form 8-K
filed on June 24, 1998, announcing the resignation of Mr. Fred Musone on June
19, 1998 as President, Chief Operating Officer and member of the Board of
Directors of the Company and the succession of Mr. Charles S. Speranzella as
President and Chief Operating Officer, (d) the Company's Current Report on Form
8-K filed on August 31, 1998 announcing a delay in the release of the Company's
earnings for the quarter and year ended June 30, 1998, (e) the Company's Current
Report of Form 8-K on September 4, 1998 announcing certain information regarding
previously recorded repositioning and other special charges and other business
developments,
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(f) the Company's Current Report on Form 8-K on September 18, 1998 announcing
the resolution of certain outstanding items with the Securities and Exchange
Commission and (g) the Company's Current Report on Form 8-K on September 21,
1998 announcing the Company will restate its financial statements for the second
quarter ended December 31, 1997 and the third quarter ended March 31, 1998 to
take into account changes in the repositioning and other special charges.
(c) See Item 14(a)(3) and separate Exhibit Index attached hereto.
(d) Not applicable.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
BREED TECHNOLOGIES, INC.
By: /s/ Johnnie Cordell Breed
--------------------------
Johnnie Cordell Breed
Chairman of the Board of Directors and
Chief Executive Officer
Date: August 25, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
PRINCIPAL EXECUTIVE OFFICER AND DIRECTOR:
/s/ Johnnie Cordell Breed
- ------------------------------------------
Johnnie Cordell Breed
Chairman of the Board of Directors and
Chief Executive Officer
Date: August 25, 1998
PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER:
/s/ Frank J. Gnisci
- ------------------------------------------
Frank J. Gnisci
Executive Vice President
and Chief Financial Officer
Date: August 25, 1998
DIRECTORS:
/s/ Charles J. Speranzella, Jr.
- ------------------------------------------
Charles J. Speranzella, Jr.
Date: August 25, 1998
/s/ Larry W. McCurdy
- ------------------------------------------
Larry W. McCurdy
Date: August 25, 1998
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/s/ Robert W. Shower
- ---------------------------------------
Robert W. Shower
Date: August 25, 1998
/s/ Alberto Negro
- --------------------------------------
Alberto Negro
Date: August 25, 1998
/s/ Dr. Ing. Franz Wressnigg
- --------------------------------------
Dr. Ing. Franz Wressnigg
Date: August 25, 1998
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EXHIBITS
EXHIBIT
NUMBER
- ------
2.1 Stock Purchase Agreement - MOMO S.p.A. and G. Holding S.r.l., dated
March 29, 1996, and Stock Purchase Agreement - LANEBROOK LTD., dated
March 29, 1996 (incorporated herein by reference to Exhibits 2.1 and
2.2 to the Company's Form 8-K/A filed on June 28, 1996)
2.2 Master Agreement, dated July 1, 1996, related to the "Gallino Group"
acquisition (incorporated herein by reference to Exhibit 2.5 to the
Company's 10-K filed on September 29, 1997)
2.3 Amended and Restated Purchase Agreement, dated as of October 25, 1996,
among UT Automotive, Inc., United Technologies Automotive Systems,
Inc., United Technologies Automotive Systems de Mexico A.A. de C.V.,
IPCO, Inc. and Breed Technologies, Inc. (incorporated herein by
reference to the Exhibit to the Company's Form 8-K/A filed March 25,
1997)
2.4 Stock Purchase Agreement, dated January 3, 1997, as amended February
25, 1997, between the Company and BTI Investments, Inc. (incorporated
herein by reference to the Exhibit to the Company's Form 8-K filed
March 10, 1997)
2.5 Asset Purchase Agreement, dated as of August 27, 1997, among
AlliedSignal Inc. (and certain subsidiaries identified in the
Agreement) and the Company (and certain subsidiaries identified in the
Agreement) (incorporated herein by reference to an Exhibit to the
Company's Form 8-K filed on November 14, 1997)
2.6 Amendment, dated October 3, 1997, to the Asset Purchase Agreement,
dated as of August 27, 1997, by and between AlliedSignal Inc., a
Delaware corporation, the Company and the other parties thereto
(incorporated herein by reference to an Exhibit to the Company's Form
8-K filed on November 14, 1997)
3.1 Second Restated Certificate of Incorporation of the Company
(incorporated herein by reference to Exhibit 4.1 to the Company's
Registration Statement on Form S-8 (File No. 33-54988))
3.2 Amended and Restated By-Laws of the Company (incorporated herein by
reference to Exhibit 3.3 to the Company's Registration Statement on
Form S-1 (File No. 33-51868) (the "Form S-1"))
4.1 Specimen Certificate of Common Stock of the Company (incorporated
herein by reference to Exhibit 4.1 to the Form S-1)
4.2 Form of Preferred Securities (incorporated herein by reference to
Exhibit 4.3 to the Company's Registration Statement on Form S-3 (file
no. 33- 48231)).
4.3 Form of Convertible Debentures (incorporated herein by reference to
Exhibit 4.4 to the Company's Registration Statement on Form S-3 (file
no. 33-48231)).
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4.4 Registration Rights Agreement, dated April 28, 1998, among the
Company, Nations BancMontgomery Securities, LLC and Prudential
Securities Incorporated (incorporated herein by reference to Exhibit
4.2 to the Company's Registration Statement on Form S-4 (File No.
333-57671))
4.5 Amended and Restated Declaration of Trust, dated as of November 25,
1997, between the Company, as Sponsor, Wilmington Trust Company, as
Delaware Trustee and Institutional Trustee, and Charles J.
Speranzella, Jr., Fred J. Musone, and Frank J. Gnisci, as Regular
Trustees (incorporated herein by reference to Exhibit 4.1 to the
Company's Registration Statement on Form S-3 (File No. 333-48231))
4.6 Indenture, dated as of November 25, 1997, between the Company and
Wilmington Trust Company, as Indenture Trustee (incorporated herein by
reference to Exhibit 4.2 to the Company's Registration Statement on
Form S-3 (File No. 333-48231))
4.7 Common Securities Guarantee Agreement, dated as of November 25, 1997,
by the Company, as Guarantor (incorporated herein by reference to
Exhibit 4.5 to the Company's Registration Statement on Form S-3 (File
No. 333-48231))
4.8 Preferred Securities Guarantee Agreement, dated as of November 25,
1997, between the Company, as Guarantor, and Wilmington Trust Company,
as Preferred Guarantee Trustee (incorporated herein by reference to
Exhibit 4.6 to the Company's Registration Statement on Form S-3 (File
No. 333-48231))
4.9 Amendment No. 1 to Warrant Agreement, dated March 2, 1998, between the
Company and NationsBank, N.A. (incorporated herein by reference to
Exhibit 4.9 to the Company's Registration Statement on Form S-3 (File
No. 333-48231))
4.10 Indenture, dated as of April 28, 1998, among the Company, the
Subsidiary Guarantors named therein and IBJ Schroder Bank & Trust
Company, as Trustee (incorporated herein by reference to Exhibit 4.8
to the Company's Registration Statement on Form S-3 (File No. 333-
48231))
4.11 Amended and Restated Credit Agreement, dated as of April 28, 1998, by
and among the Company, certain subsidiaries of the Company designated
as Borrowers therein, NationsBank, National Association and certain
other financial institutions named therein as Lenders, and
NationsBank, National Association, as Agent for the Lenders
(incorporated herein by reference to Exhibit 4.9 to the Company's
Registration Statement on Form S-3 (File No. 333-48231))
4.12 Registration Rights Agreement, dated November 25, 1997, by and among
the Company, BTI Capital Trust, and Prudential Securities Incorporated
and Furman Selz LLC (incorporated herein by reference to Exhibit 4.12
to the Company's Registration Statement on Form S-3 (File No. 333-
48231))
10.1 Company's 1992 Stock Option Plan (incorporated herein by reference to
Exhibit 10.12 to the Form S-1)
10.2 Company's 1992 Director Stock Option Plan (incorporated herein by
reference to Exhibit 10.13 to the Form S-1)
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10.3 Company's 1992 Employee Stock Purchase Plan, as amended (incorporated
herein by reference to Exhibit 28 to the Company's Registration
Statement on Form S-8 (File No. 33-54988))
10.4 Company's Employees' Retirement Savings Plan (incorporated herein by
reference to Exhibit 10.15 to the Form S-1)
10.5 Company's Employee Incentive Program (incorporated herein by reference
to Exhibit 10.16 to the Form S-1)
10.6 Company's 1994 Stock Incentive Plan (incorporated herein by reference
to the Company's Registration Statement on Form S-8 (File No. 333-
22723))
10.7 Stock Purchase Agreement, dated as of October 14, 1997, by and between
the Company and Siemens Aktiengesellschaft, a company organized under
the laws of the Federal Republic of Germany (incorporated herein by
reference to Exhibit 10.1 to the Company's Quarterly Report on Form
10-Q for the quarter ended December 31, 1997 filed February 12, 1998)
10.8 Make-Whole Agreement, dated as of October 30, 1997, by and between the
Company and Siemens Aktiengesellschaft, a company organized under the
laws of the Federal Republic of Germany (incorporated herein by
reference to Exhibit 10.1.1 to the Company's Form Quarterly Report on
Form 10-Q for the quarter ended December 31, 1997 filed February 12,
1998)
10.9 Registration Rights Agreement, dated as of October 30, 1997, between
the Company and Siemens Aktiengesellschaft, a company organized under
the laws of the Federal Republic of Germany (incorporated herein by
reference to Exhibit 10.1.2 to the Company's Quarterly Report on Form
10-Q for the quarter ended December 31, 1997 filed February 12, 1998)
10.10 Stockholders Agreement, dated as of October 30, 1997, among the
Company and certain of its subsidiaries (incorporated herein by
reference to Exhibit 10.1.3 to the Company's Quarterly Report on Form
10-Q for the quarter ended December 31, 1997 filed February 12, 1998)
10.11 Warrant Agreement, dated as of October 30, 1997, between NationsBank,
N.A. and the Company (incorporated herein by reference to Exhibit 10.3
to the Company's Quarterly Report on Form 10-Q for the quarter ended
December 31, 1997 filed February 12, 1998)
10.12 Joint Venture Agreement, dated as of December 24, 1997, between
Siemens Aktiengesellschaft and the Company (incorporated herein by
reference to Exhibit 10.4 to the Company's Quarterly Report on Form
10-Q for the quarter ended December 31, 1997 filed February 12, 1998)
12.1 Computation of Ratio of Earnings to Fixed Charges
12.1 Computation of Ratio of Earnings to Combined Fixed Charges and
Preferred Stock Dividends
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21. Subsidiaries of the Company
23.1 Consent of Ernst & Young LLP, Independent Auditors
23.2 Opinion of KPMG S.p.A., Independent Auditors
27 Financial Data Schedule
99 Report of KPMG S.p.A., Independent Auditors
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