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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
For the quarterly period ended: MarchDecember 31, 1997
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Commission File No. 1-11474
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BREED TECHNOLOGIES, INC.
(Exact name of registrant as specified in charter)
Delaware 22-2767118
(State of Incorporation) I.R.S.(I.R.S. Employer Identification No.)
5300 Old Tampa Highway Lakeland, Florida 33811
(Address of principal executive offices) (Zip Code)
(941) 668-6000
(Registrant's telephone number, including area code)
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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 __.
As of April 18, 1997, 31,659,683February 12, 1998, 31,712,608 shares of the registrant's common
stock, par value $.01 per share, were outstanding.
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INDEX
PART I. FINANCIAL INFORMATION Page
Item 1. Financial Statements
Consolidated Condensed Balance Sheets - MarchDecember 31, 1997
(Unaudited)and June 30, 1996 .............................................11997 .......... 1
Consolidated Condensed Statements of Earnings (Unaudited)
Three and ninesix months ended MarchDecember 31, 1997 and 1996........................21996 3
Consolidated Condensed Statements of Cash Flows (Unaudited)
NineSix months ended MarchDecember 31, 1997 and 1996 .................................3..... 4
Consolidated Statement of Stockholders Equity (Unaudited).. 5
Notes to Consolidated Condensed Financial Statements
(Unaudited) ...............................................................4..................................... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations .......................................5................ 12
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders............ 16
Item 6. Exhibits and Reports on Form 8-K ......................................6.............................. 17
Signatures ....................................................................7............................................................ 18
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Breed Technologies, Inc.
Consolidated Condensed Balance Sheets
In Millions, except per share data
Consolidated Condensed Balance Sheets (Unaudited)
March 31, 1997 and June 30, 1996
In thousands
MarchDecember 31, June 30,
1997 1996
-------- -------1997
(Unaudited)
ASSETS
Current AssetsAssets:
Cash and cash equivalents $ 18,05732.3 $ 95,83018.7
Accounts receivable, 227,012 110,656principally trade 287.1 208.0
Inventories:
Raw materials 56.1 24.8
Work in process 30.3 23.4
Finished goods 34.9 27.1
--------- ----------
Total Inventories 88,437 52,890121.3 75.3
--------- ----------
Prepaid expenses 7,119 7,247and other current assets 61.9 13.5
--------- -------------------
Total Current Assets 340,625 266,623
Net property,502.6 315.5
Property, plant and equipment, 359,772 171,653net 347.4 276.5
Intangibles, 176,895 45,053
Investments and othernet 744.9 221.0
Net assets 20,621 20,473held for sale 22.2 52.6
Other assets 48.3 11.6
--------- -------------------
Total Assets $897,913 $503,802$ 1,665.4 $ 877.2
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Short-term borrowings $288,290 $120,688
Accounts payable 119,616 33,940
Accrued expenses 47,946 21,824
--------- ---------
Total Current Liabilities 455,852 176,452
Long-term debt 137,110 42,123
Other long-term liabilities 30,197 10,147
--------- ---------
Total Liabilities 623,159 228,722
--------- ---------
Stockholders' Equity
Common stock 317 316
Additional paid-in capital 77,194 76,652
Retained earnings 207,827 201,981
Other (10,584) (3,869)
---------- --------
Total Stockholders' Equity 274,754 275,080
--------- ---------
Total Liabilities and Stockholders' Equity $897,913 $503,802
========= ===================
See Notes to Consolidated Condensed Financial Statements.
Breed Technologies, Inc.
Consolidated Condensed Balance Sheets
In Millions, except per share data
Consolidated Condensed StatementsDecember 31, June 30,
1997 1997
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable and current portion of Earnings (Unaudited) Threelong-term debt (Note 3) $ 819.0 $ 191.7
Accounts payable 262.4 121.5
Accrued expenses 240.9 49.5
--------- ----------
Total Current Liabilities 1322.3 362.7
--------- ----------
Long-term debt 31.9 231.7
Other long-term liabilities 29.8 16.3
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Total Liabilities 1384.0 610.7
--------- ----------
Company obligated mandatorily redeemable convertible preferred
securities (Note 5) 250.0 ---
Stockholders' Equity:
Common stock, par value $0.01, authorized 50,000,000 shares, issued and
nine months
ended Marchoutstanding 31,712,608 and 31,679,442 shares at
December 31, 1997 and 1996
In thousands,June 30, 1997, respectively 0.3 0.3
Series A Preference Stock par value $0.001, authorized 5,000,000
shares, issued and outstanding 4,883,227 shares at December
31, 1997 (Note 4) 115.0 ---
Additional paid-in capital 78.0 77.5
Warrants (Note 3) 1.9 ---
Retained earnings (139.3) 208.0
Foreign currency translation adjustments (24.2) (18.8)
Unearned compensation (0.3) (0.5)
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Total Stockholders' Equity 31.4 266.5
--------- ----------
Total Liabilities and Stockholders' Equity $ 1,665.4 $ 877.2
========= ==========
See Notes to Consolidated Condensed Financial Statements.
Breed Technologies, Inc.
Consolidated Condensed Statements of Operations (Unaudited) In millions, except
earnings per share Three Months Ended NineSix Months Ended
MarchDecember 31, MarchDecember 31,
------------------------ ---------------------------------------------- ---------------------
1997 1996 1997 1996
Net sales $ 209,409340.7 $ 103,927182.6 $ 550,646535.9 $ 302,183341.2
Cost of sales 171,454 68,086 433,908 188,635
----------- ---------- ---------- ----------(Note 6) 312.9 145.9 479.7 262.4
--------- -------- --------- ---------
Gross profit 37,955 35,841 116,738 113,548
----------- ---------- ---------- ----------27.8 36.7 56.2 78.8
Operating expenses:
Selling, general and administrative 19,089 9,880 51,272 28,877expenses 21.3 16.7 37.6 32.2
Research, development and engineering expenses 18.6 9.9 27.5 17.8
Repositioning charges (Note 6) 244.0 --- 244.0 ---
In-process research and development expenses 9,498 5,744 27,317 17,338(Note 6) 77.5 --- 77.5 ---
Amortization of intangibles 2,240 546 4,318 1,362
----------- ---------- ---------- ----------4.0 0.8 6.0 2.1
--------- -------- --------- ---------
Total operating expenses 30,827 16,170 82,907 47,577
----------- ---------- ---------- ----------365.4 27.4 392.6 52.1
--------- -------- --------- ---------
Operating income 7,128 19,671 33,831 65,971(loss) (337.6) 9.3 (336.4) 26.7
Interest income (expense), net (6,076) 106 (16,192) 228expense 27.1 6.7 35.4 11.1
Other income (expense), net 1,449 3,815 2,958 6,536
----------- ---------- ---------- ----------0.4 2.3 (0.1) 2.5
--------- -------- --------- ---------
Earnings (loss) before income taxes, 2,501 23,592 20,597 72,735distributions on Company
obligation mandatorily redeemable convertible preferred
securities and extraordinary item (364.3) 4.9 (371.9) 18.1
Income taxes 1,000 8,700 8,100 27,400
----------- ---------- ---------- ----------(benefit) (Note 7) (46.5) 1.8 (49.9) 7.1
Distributions on Company obligation mandatorily
redeemable convertible preferred securities (Note 5) 1.4 --- 1.4 ---
--------- -------- --------- ---------
Earnings (loss) before extraordinary loss (319.2) 3.1 (323.4) 11.0
Extraordinary loss, net of tax benefit of $0.4 million (0.7) --- (0.7) ---
--------- -------- --------- ---------
Net earnings (loss) $(319.9) $ 1,5013.1 $(324.1) $ 14,89211.0
========= ======== ========= ========
Basic earning (loss) per common share (Note 8):
Earnings (loss) before extraordinary loss $(10.07) $ 12,4970.10 $(10.20) $ 45,335
=========== ========== ========== ==========0.35
Extraordinary loss (0.02) --- (0.02) ---
--------- -------- --------- ---------
Net earnings (loss) $(10.09) $ 0.10 $(10.22) $ 0.35
========= ======== ========= =========
Diluted earnings (loss) per common share:
Earnings per share(loss) before extraordinary loss $(10.07) $ .050.10 $(10.20) $ .470.34
Extraordinary loss (0.02) --- (0.02) ---
--------- -------- --------- ---------
Net earnings (loss) - assuming dilution $(10.09) $ .400.10 $(10.22) $ 1.44
=========== ========== ========== ==========
Average shares outstanding 31,661 31,556 31,643 31,533
=========== ========== ========== ==========0.34
========= ======== ========= =========
See Notes to Consolidated Condensed Financial Statements.
Breed Technologies, Inc.
Consolidated Condensed Statements of Cash Flows (Unaudited)
In millions
Consolidated Condensed Statements of Cash Flows (Unaudited)
Nine months ended MarchSix Months Ended December 31
1997 and 1996
In thousands---------------------------------
1997 1996
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Cash Flows from Operating ActivitiesActivities:
Net earnings (loss) $ 12,497 $ 45,335(324.1) $11.0
Adjustments to reconcile net earnings to net cash provided by (used in)
operating activities:
Depreciation and amortization 34,063 13,79227.1 21.5
Non-cash items included in repositioning and other special charges 195.9 ---
Accrual for repositioning and other special charges 76.5 ---
Changes in working capital items 14,029 (37,211)
Other (12,818) (254)and other 3.6 39.9
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Net cash provided by (used in) operating activities 47,771 21,662(21.0) 72.4
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Cash Flows from Investing ActivitiesActivities:
Cost of acquisition, net of cash acquired (266,997) ---(Note 2) (710.0) (211.0)
Purchases of property, plant and equipment (61,396) (32,400)
Sales(23.4) (41.7)
Proceeds from sale of short-term investments, net 117 6,046assets 2.6 ---
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Net cash used in investing activities (328,276) (26,354)(730.8) (252.7)
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Cash Flows from Financing Activities
Dividends paid (6,644) (4,729)Activities:
Proceeds from (repayments(repayment of) debt, net 215,890 (1,386)427.5 119.0
Proceeds from Series A Preference Stock options exercised 542 424issuance 115.0 ---
Proceeds from Series B Preference Stock issuance 200.0 ---
Fees associated with Series B Preference Stock issunce (10.0) ---
Redemption of Series B Preference Stock issuance (200.0) ---
Proceeds from Company obligated mandatorily redeemable
convertible preferred securities, less relatedees 239.0 ---
Cash dividends paid (2.2) (4.4)
Proceeds from common stock issued 0.7 0.6
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Net cash provided by (used in) financing activities 209,788 (5,691)activies 770.0 115.2
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Effect of exchange rate changes on cash (7,056) (1,116)(4.6) (0.5)
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Net decreaseincrease/(decrease) in cash and cash equivalents (77,773) (11,499)eqvalents 13.6 (65.6)
Cash and cash equivalents at beginning of period 95,830 26,355oferiod 18.7 95.8
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Cash and cash equivalents at end of period $ 18,05732.3 $ 14,85630.2
============= =====================
Cost of Acquisition:
Working capital, net of cash acquired $ (40,738)39.5 $ ---(44.2)
Property, plant and equipment (162,936) ---(140.3) (151.2)
Cost in excess of net assets acquired (121,061)(683.3) (72.9)
Intangibles-write-off of in-process research and development costs 77.5 ---
Investments and other assets (19,119) ---(11.8) (19.0)
Long-term debt 33,910 --- 33.9
Other long-term liabilities 42,947 ---8.4 42.4
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Net cost of acquisition $ (266,997)(710.0) $ ---(211.0)
============= ====================
See Notes to Consolidated Condensed Financial Statements.
Breed Technologies, Inc.
Consolidated Statement of Stockholders Equity (Unaudited)
In Millions, except per share data
Series A Series B Additional
Common Stock Preference Preference Paid-In Retained
Shares Amount Stock Stock Capital Warrants Earnings
---------------------------- ------------- ------------- ------------- ------------ ------------
Balance at June 30, 1997 31,679,442 $ 0.3 --- --- $ 77.5 --- $ 208.0
Net loss (324.1)
Translation adjustments
Issue Series A Preference
Stock, (Note 4) 115.0
Issue Series B Preference
Stock, (including fees), 200.0 (10.0)
(Note 5)
Redemption of Series B
Preference Stock, (Note 5) (200.0)
Fees associated with
Company obligated
mandatorily redeemable
convertible preferred
securities (11.0)
Warrants issued with Credit
Facility, (Note 3) 1.9
Shares issued under Stock
Option Plans 39,692 0.7
Shares terminated under Stock
Incentive Plan, net of granted
Shares (6,526) (0.2)
Cash dividends (2.2)
--------------- ----------- ------------- ------------- ------------- ------------ ------------
Balance at December 31, 1997 31,712,608 $ 0.3 $ 115.0 --- $ 78.0 $ 1.9 $ (139.3)
=============== =========== ============= ============= ============= ============ ============
Foreign
Currency
Translation Unearned
Adjustments Compensation Total
--------------- ----------------- ----------
Balance at June 30, 1997 $ (18.8) $ (0.5) $ 266.5
Net Loss (324.1)
Translation adjustments (5.4) (5.4)
Issue Series A Preference
Stock, (Note 4) 115.0
Issue Series B Preference
Stock, (including fees),
(Note 5) 190.0
Redemption of Series B
Preference Stock, (Note 5) (200.0)
Fees associated with
Company obligated
mandatorily redeemable
convertible preferred
securities (11.0)
Warrants issued with Credit
Facility, (Note 3) 1.9
Shares issued under Stock
Option Plans 0.2 0.9
Shares terminated under Stock
Incentive Plan, net of granted
Shares (0.2)
Cash dividends (2.2)
--------------- ----------------- ----------
Balance at December 31, 1997 $ (24.2) $ (0.3) $ 31.4
=============== ================= ==========
Notes to Consolidated Condensed Financial Statements
(Unaudited)
Note 1 - Basis of Presentation
The accompanying unaudited consolidated condensed financial statements of
Breed Technologies, Inc. (the "Company"or "Breed") have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and notes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments which include(consisting of normal recurring
accruals,accruals) considered necessary for a fair presentation of the financial
position, results of operations and cash flows at March 31, 1997, and all
periods presented have been included in the accompanying consolidated condensed
financial statements.included.
Operating results for the ninethree and six months ended MarchDecember 31, 1997 are not
necessarily indicative of the results that may be expected for the year ending
June 30, 1997. Certain amounts1998. The consolidated financial statements include the accounts of
Breed and all majority owned subsidiaries. All significant intercompany accounts
and transactions have been eliminated. For further information, refer to the
consolidated financial statements and notes thereto included in the prior year's Consolidated
Condensed Financial Statements have been reclassified to conform toCompany's
Annual Report on Form 10-K for the current
year's presentation.year ended June 30, 1997.
Note 2 - Acquisition 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. The
aggregate purchase price for all shares and assets acquired was approximately
$131 million, comprised of cash of $79 million and liabilities assumed of $52
million. The acquisition, which was financed through borrowings on the Company's
revolving credit agreements, will be accounted for as a purchase. Gallino
manufactures steering wheels, instrument panels, bumpers and other plastic trim
components used in automotive original equipment and aftermarket applications.
Gallino has annual revenues of approximately $250 million.
On October 25, 1996,30, 1997 the Company completed the
acquisition of certain assets and the assumption of certain liabilities of the
"North American Steering Wheels
Operation""Safety Restraints Systems" business unit of United TechnologiesAlliedSignal, Inc. and 100% of the
outstanding shares of United
Technologies Automotive Clifford Limited.capital stock of ICSRD Rueckhaltesysteme
Fahrzeugsicherheit GmbH, a German company, BSRD Limited, an English company,
AlliedSignal India, Inc., a Delaware company, Sistemas AlliedSignal de
Seguridad, S.A. de C.V., a Mexican company, and AlliedSignal Cinturones de
Seguridad, S.A. de C.V., a Mexican company (collectively, "SRS"). The
acquisition was made pursuant to the Asset Purchase Agreement ("Agreement")
dated August 27, 1997 among AlliedSignal, Inc. (and certain subsidiaries
identified in the Agreement) and Breed (and certain subsidiaries identified in
the Agreement).
SRS produces seatbelts and airbags with principal locations in Knoxville,
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 Hermoso, Mexico;
Carlisle, England; Colleferro, Italy; Turin, Italy; Siena, Italy; Arzano, Italy;
and Barcelona, Spain.
The purchase price for the SRS acquisition was $710.0 million, which was
financed with borrowings under a revolving and term credit facility, the net
proceeds from the issuance and sale of Series B Preference Securities (as
defined in Note 5) and the net proceeds from the issuance and sale of Series A
Preference Shares to Siemens AG.
The allocation of the purchase price is preliminary and subject to change.
In addition, the purchase price is subject to post-closing adjustments based on
the net book value of the acquired business, retained cash considerationbalances, if any, and
any amounts paid with respect to certain intercompany obligations. The initial
purchase price shall be increased or decreased by the amount by which the net
book value of approximately $153.5 million included paymentSRS as of $17.4the closing date is greater than or less than,
respectively, $175.3 million. The Company has submitted to AlliedSignal, Inc. a
post closing purchase price adjustment in accordance with the terms of the
agreement. The final adjustment will be determined in accordance with the terms
of the Agreement.
The pro forma unaudited results of operations for the six months ended
December 31, 1997 and 1996, assuming the acquisition of SRS had been consummated
as of July 1, 1996, are as follows:
Six Months Ended
December 31,
In millions, except per share data 1997 1996
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Net sales $ 813.5 $ 852.3
Net loss $ (389.9) $ (13.5)
Net loss per share - basic and diluted $ (12.30) $ (0.43)
Note 3 - Borrowings
On October 30, 1997, in connection with the acquisition of SRS, the Company
and NationsBank entered into a new revolving and term credit facility ("Credit
Facility") pursuant to which the Company has $900 million of Clifford
intercompany financing.aggregate borrowing
availability. At December 31, 1997, the Company had an aggregate of $810 million
of borrowings outstanding under the Credit Facility (including approximately
$10.0 million of letters of credit) and the weighted average interest rate on
such borrowings was approximately 8.76% per annum.
The funds usedcredit facility consists of a $600 million term loan and a $300 million
revolver (with $75 million multicurrency and $25 million letter of credit
sublimits). Both credit facilities have a 366 day term which expire on October
31, 1998. Borrowings under the Credit Facility bear interest at a per annum rate
equal to, at the election of the Company, either (i) the higher of the Federal
Funds Rate plus 0.5% or the NationsBank prime rate plus, in either case, an
additional margin ranging from 2.0% to 5.0% based on the length of time the
Credit Facility is in existence, or (ii) a rate based on the prevailing
interbank offered rate plus an additional margin ranging from 3.0% to 6.0% based
on the length of time the Credit Facility is in existence. The letter of credit
fee ranges from 3.0% to 6.0% and, when there is more than one Lender, an
additional 0.125% for the issuing bank. The Company is also required to pay a
quarterly unused facility fee. In addition, the Company paid a commitment fee,
upon the execution of the Credit Facility, equal to 3% of the aggregate
available borrowings under the Credit Facility ($27 million). The Credit
Facility has a 1.5% take-out fee ($13.5 million), subject to certain conditions,
which is payable upon repayment in full of all amounts outstanding under the
Credit Facility.
The Credit Facility is secured by (i) a security interest in all of the
personal property and assets (including inventory, accounts receivable,
intellectual property, mortgages on all real property owned by the Company and
the assets acquired pursuant to the SRS acquisition) of the Company and certain
subsidiaries, (ii) a stock pledge by the Company and certain subsidiaries of
their stock in certain domestic subsidiaries and at least 65% of the voting
stock and 100% of the non- voting stock of foreign subsidiaries, (iii) a pledge
of the common stock owned by A. Breed, L.P., a Texas limited partnership and J.
Breed, L.P., a Texas limited partnership, (iv) an assignment of certain leases
for facilities of the Company and certain subsidiaries, (v) a pledge and
subordination of intercompany notes, (vi) an assignment of certain partnership
interests, and (vii) an assignment of a trademark licensing agreement. The
Credit Facility is guaranteed by certain of the Company's subsidiaries.
The Credit Facility requires compliance with certain covenants by the
Company and its subsidiaries, including, among other things: (i) maintenance of
certain financial ratios and compliance with certain financial tests and
limitations; (ii) limitations on the payment of dividends, incurrence of
additional indebtedness and granting of certain liens; and (iii) restrictions on
mergers, acquisitions, and investments. At December 31, 1997, the Company was in
compliance with all covenants.
In connection with the Credit Facility, the Company also entered into a
warrant agreement with NationsBank providing for the acquisitionissuance by the Company of
a warrant to purchase common stock. The warrant is exercisable for 250,000
common shares at an exercise price of $23.125 per share. The warrants were
obtained from borrowingsvalued at $1.9 million using the Black- Shoals model as recommended by Financial
Accounting Standards Statement No. 123. The number of shares for which the
warrant is exercisable may be increased to a maximum of 3,000,000 shares if the
Company fails to fulfill certain obligations prior to July 26, 1998. The
exercise price for such additional shares shall be the market price of the
common stock on the day such warrant shares become exercisable. The warrant
agreement and the warrant expire on October 30, 2000. NationsBank may elect that
the warrant shares be included in certain registration statements filed by the
Company under the Company's Revolving Credit Agreements.Securities Act for the sale of common stock of the Company
and, until October 30, 2002, may demand that the Company register the warrant
shares on Form S-3.
Note 4-Siemens Investment Joint Venture Agreement
On December 24, 1997, the Company and Siemens Aktiengesellschaft (A.G.),
Automotive Systems Group ("Siemens") signed an agreement forming a joint venture
for the worldwide research, development, engineering, assembly and marketing of
motor vehicle occupant safety restraint systems.
The acquired operations whichjoint venture will be called United Steeringowned effectively 50% by both the Company and
Siemens. Siemens will contribute to the joint venture its shares in the existing
Passive Restraint Systems Inc. (USS)
produces steering wheels, airbag covers, horn pads("PARS") GmbH. PARS operates crash test facilities and
related molded products.
USS isdevelops occupant safety systems. It will serve as a center for the design,
engineering,simulation, testing and sales of integrated occupant safety systems
in Europe. Breed will form a company with its headquarters and facilities
located in Grabill, Indiana; Monterrey, Mexico;Michigan and Birmingham, England.
USSwill contribute various assets which are comparable to
those existing at PARS. This new entity will act in the same capacity as PARS in
North America. Breed will then contribute its ownership interest in the new
company to the joint venture.
The joint venture will be governed by a partners' committee consisting of
three representatives from each of the Company and Siemens. The joint venture
will operate pursuant to an operating budget approved by the partners' committee
and subject to annual review. No expenditures in excess of budgeted amounts may
be made without consent of the partners' committee. The parties will provide
funding to the joint venture to the extent revenues and external funding sources
are inadequate to cover budgeted operating expenses and capital expenditures.
Neither party can be compelled to provide funding for operating expenses and
capital expenditures above budgeted amounts.
Any technology generated by the joint venture (either by itself or with one
of the parties) will belong jointly to Siemens and the Company. Each party will
be responsible for warranties and liabilities, including recall actions, arising
from its components marketed by the joint venture to customers.
The term of the joint venture is not fixed. However, it is subject to the
right of either party to terminate the joint venture with six month prior
written notice, or sooner upon mutual agreement, after the sixth anniversary
date of the formation of the joint venture.
Stock Purchase Agreement and the Preference Shares. Pursuant to the Stock
Purchase Agreement, on October 30, 1997, Siemens acquired 4,883,227 Series A
Preference Shares for an aggregate purchase price of $115 million. Pursuant to
the Stock Purchase Agreement, the Company agreed to indemnify Siemens for
breaches of representations, warranties, and covenants for a period of up to 18
months. The indemnification obligations of the Company are subject to a $1.5
million deductible and a cap of $30 million.
Each Series A Preference Share represents one one-thousandth (1/1000th) of
a share of 1997 Series A Convertible Non- Voting Preferred Stock of the Company
and, subject to adjustment, each Series A Preference Share is convertible into
one share of common stock. Except for voting rights required by law, and except
for the right to elect as a class one director of the Company during the period
that begins on the date when any Series A Preference Shares are converted into
Common Stock and ends on the date of the termination of the stockholders
agreement, the holders of shares of Series A Preference Shares do not have
voting rights. All other rights of the holders of Series A Preference Shares are
equal to the right of the holders of common stock and are shared ratably on an
as-converted basis.
On January 20, 1998, Siemens converted 4,883,226 of its Series A Preference
Shares into 4,883,226 shares of common stock.
The Make-Whole Agreement. In connection with the Siemens Investment, the
Company entered into a Make-Whole Agreement (the "Make-Whole Agreement") with
Siemens. Under the Make-Whole Agreement, within 30 days after a "Triggering
Event," Siemens will have the right to require the Company, at the Company's
election to either (i) repurchase the Series A Preference Shares purchased
pursuant to the Stock Purchase Agreement (and any shares issuable
with respect to such shares) for a purchase price equal to $115 million
plus $15,753 per day for each day between December 15, 1997 and the exercise of
the right (the"Make-Whole Price"), or (ii) if the net proceeds from the bona
fide sale of such shares by Siemens to a third party financial institution does
not equal the Make-Whole Price, to issue to Siemens such number of shares
(subject to certain limits) the net proceeds from the sale of which would equal
the amount of the deficit. Under the Make-Whole Agreement, a "Triggering Event"
includes (a) the parties shall have been unable, after diligent and good faith
efforts, to obtain the governmental approvals required with respect to the
formation of the Siemens Joint Venture; or (b) the formation of the Siemens
Joint Venture shall not have been completed by June 30, 1998. The Make-Whole
Agreement terminates if (1) prior to Siemens' delivery of a notice that it has
annual revenuesentered into an agreement to sell its shares to a third party financial
institution as described above, Siemens sells or otherwise transfers any of approximately $150 million.the
securities subject to the Make-Whole Agreement to any person other than a direct
or indirect subsidiary of Siemens or (2) Siemens has not delivered such a notice
by the later to occur of (x) July 31, 1998, or (y) 45 days after a Triggering
Event.
Registration Rights Agreement. In connection with the Siemens Investment,
the Company entered into a Registration Rights Agreement (the "Registration
Rights Agreement") with Siemens. Pursuant to the Registration Rights Agreement
with Siemens, Siemens shall have the right, after June 1, 1998 and before the
tenth anniversary of the date of the Registration Rights Agreement with Siemens,
to require the Company to file up to three registration statements under the
Securities Act to register any shares of common stock owned by Siemens for sale
to the public, subject to certain limitations.The Company is required to pay all
expenses (other than discounts and commissions) in connection with such demand
registrations. In addition, if the Company elects to register securities under
the Securities Act of 1933 for its account or for the account of other
stockholders, Siemens shall have the right to register its shares under any such
registration statement, subject to certain limitations.
Note 5-Convertible Trust Preferred Securities
In connection with the SRS acquisition, on October 30, 1997, the Company
issued and sold to Prudential Securities Credit Corp. ("PSCC") $200 million of
Series B Convertible Preference Stock of the Company (the "Series B Preference
Securities"). On FebruaryNovember 25, 1997, the Company issued and sold $250.0 million
of 6.50% Convertible Subordinated Debentures due 2027 (the "Convertible
Debentures") of the Company to BTI Capital Trust which, concurrently therewith,
issued and sold $250.0 million aggregate liquidation amount of its 6.50% Company
Obligated Mandatorily Redeemable Convertible Trust Preferred Securities (the
"Preferred Securities") (which are guaranteed by the Company) in a private
transaction under Rule 144A under the Securities Act of 1933. The Company used
the net proceeds from the issuance and sale of the Convertible Debentures to BTI
Capital Trust to redeem all of the outstanding Series B Preference Securities in
accordance with the terms thereof and for general corporate purposes.
Holders of the Preferred Securities are entitled to receive cumulative cash
distributions at an annual rate of 6.50% of the liquidation amount of $50 per
Preferred Security accruing from, and including November 25, 1997 and payable
quarterly in arrears commencing February 15, 1998. The Company has the right at
any time and from time to time to defer payments for a period not exceeding 20
consecutive quarters.
Each Preferred Security is convertible on or after January 25, 1998, 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. The Trust has the right to redeem the
Preferred Securities on or after November 25, 2000, in whole or in part, from
time to time, subject to certain conditions. The Preferred Securities do not
have any voting rights and rank pari passu with the common stock.
Note 6-Repositioning and Other Special Charges
Over the past three years the Company has grown rapidly through various
strategic acquisitions, increased market penetration in existing and new markets
and internally developed new products. The rapid growth experienced by the
Company and the demand of integrating acquired businesses out paced the
development of the Company's corporate infrastructure and systems. In the first
quarter of the fiscal year, 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 and organizational
structures and systems, facilities utilization, product offerings, inventory
valuation and other matters. As a result, in the second quarter ended December
31, 1997, the Company recorded $349.9 million before taxes ($318.4 after taxes)
of repositioning charges (which aggregated $244.0 million) and other special
charges (which aggregated $105.9 million), which are intended to have the
following objectives: (i) enhance the Company's competitiveness and
productivity, (ii) reduce costs and increase asset control and (iii) improve
processes and systems. It is anticipated that approximately $73.4 million of
these costs will result in cash outlays. The repositioning plan is expected to
be substantially completed within the next 12 to 18 months.
Repositioning Charges- The repositioning charge taken in the second quarter
ending December 31, 1997, was primarily focused on facility utilization,
operational systems and organizational structures. The repositioning charge
included (i) approximately $30.8 million relating to an approximately 25%
reduction of the Company's global work force (or 4,900 employees) by eliminating
redundant and overlapping positions resulting from recent acquisitions; (ii)
approximately $31.4 million relating to the consolidation of the Company's
manufacturing, sales and engineering facilities in North America and Europe
through the elimination of approximately 50% (or 32) and 33% (or 10) of such
facilities, respectively; (iii) $77.6 million relating to the write-down of
goodwill associated with the disposal of long-lived assets; (iv) approximately
$41.3 million relating to the write-down to net realizable value of certain
long-lived assets relating to businesses being divested; and (v) approximately
$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.
Other Special Charges - With the acquisition of SRS (Note 2), the Company
conducted an evaluation and review of the assets acquired. As a result of such
review, the Company recorded a $77.5 million charge related to the write-off of
in- process research and development for acquired technology that has not been
established as technologically feasible. The Company also reviewed its
inventories for slow-moving and excess items in light of the SRS acquisition and
planned realignment of its manufacturing operations. The Company also
reevaluated its customer contracts relating to products lines that will be
discontinued. As a result, the Company recorded a $28.4 million charge for
inventory and long-term contracts relating to manufacturing processes that will
be exited (which is reflected as a charge to cost of sales).
Note 7 - IncomeTaxes
The estimated fiscal 1998 annual effective tax rate has been revised from a
45% benefit estimated in the first quarter of fiscal 1998 to a 13% benefit. This
change is primarily the result of: (i) the impact of certain repositioning and
other special charges (see Note 6) taken in jurisdictions where the Company may
not be able to recognize the full income tax benefit and (ii) no tax benefit on
write-down of goodwill included in the repositioning charge. Financial
Accounting Standards Statement No. 109 states that a valuation allowance is
recognized if, it is more likely than not, that some portion or all of the
deferred tax asset will not be realized. Because of limitations on the
utilization of net operating losses from foreign jurisdictions, a valuation
allowance for a portion of the deferred income tax benefit related to the
repositioning and the other special charges has been recorded.
Note 8 - Earning per Share
The following table sets forth the computation of the numerator and
denominator of the basic and diluted per share calculations:
Three Months Ended Six Months Ended
December 31, December 31,
----------------------------- ----------------------------
1997 1996 1997 1996
Numerator:
Net earnings (loss) $ (319.9) $ 3.1 $ (324.1) $ 11.0
------------- ------------- ------------- ------------
Numerator for basic earnings per
share-income available to common
stockholders (319.9) 3.1 (324.1) 11.0
------------- ------------- ------------- ------------
Effect of dilutive securities:
Company obligated mandatorily
redeemable convertible preferred
securities , net of tax benefit * --- * ---
------------- ------------- ------------- ------------
Numerator for diluted earnings per
share-income available to
common stockholders after
assumed conversions $ (319.9) $ 3.1 $ (324.1) $ 11.0
------------- ------------- ------------- ------------
Denominator:
Denominator for basic earnings per
share- weighted-average shares 31,705,492 31,640,199 31,693,537 31,633,894
------------- ------------- ------------- ------------
Effect of dilutive securities:
Employee stock options * 372,006 * 326,871
Series A Preference Stock * --- * ---
Company obligated mandatorily * --- * ---
redeemable convertible preferred
securities
------------- ------------- ------------- ------------
Dilutive potential common shares --- 372,006 --- 326,871
------------- ------------- ------------- ------------
Denominator for diluted earnings per
share- adjusted weighted-average
shares and assumed conversions 31,705,492 32,012,205 31,693,537 31,960,765
============= ============= ============= ============
* Items not assumed in the computation because their effect is antidilutive.
For additional disclosures regarding the outstanding Series A Preference
Stock see Note 4, and the Company obligated mandatorily redeemable convertible
preferred securities, see Note 5.
Options to purchase 1,755,489 shares of common stock at prices between
$20.375 and $32.25 per share were outstanding as of December 31, 1997 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 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, 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 three and six month periods
ended December 31, 1997 because the effect would be anti dilutive.
In connection with its Credit Facility, the Company issued to NationsBank a
warrant to purchase 250,000 shares of common stock of BTI
Investments, Inc.the Company at an exercise
price of $23.125 per share. The 250,000 warrants have not been included in the
computation of diluted earnings per share for the three and six months ended
December 31, 1997 because the effect would be anti-dilutive.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
General
Over the past three years the Company has grown from a single technology,
single market company with gross revenues of approximately $400 million to a
global provider of state-of-the-art occupant safety systems solutions with gross
revenues on a pro forma basis of approximately $1.8 billion. This growth was
attained principally through various strategic acquisitions, increased market
penetration in existing and new markets and internally developed new products.
The rapid growth experienced by the Company and the demand of integrating
acquired businesses out paced the development of the Company's corporate
infrastructure and systems. In addition, cost structures and working capital
requirements increased to unacceptable levels. In the first quarter of the
fiscal year, 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 and organizational structures and systems, facilities utilization,
product offerings, inventory valuation and other matters. As a result, in the
second quarter ended December 31, 1997, the Company recorded $349.9 million
before taxes ($318.4 after taxes) of repositioning and other special charges
which are intended to have the following objectives: (i) enhance the Company's
competitiveness and productivity, (ii) reduce costs and increase asset control
and (iii) improve processes and systems. It is anticipated that approximately
$73.4 million of these costs will result in cash outlays.
The repositioning plan is expected to be substantially completed within the
next 12 to 18 months, and the Company believes the provisions recorded are
adequate to cover the costs associated with the plan. The Company expects the
repositioning program to generate approximately $855 million of total cost
savings, which will be phased in through fiscal 2002. Of the $855 million in
cost savings, $780 million will be cash savings primarily related to salary and
benefit expense that will not be incurred in future years due to the anticipated
reduction in the Company's global workforce and the consolidation of
manufacturing, sales and engineering facilities.
Repositioning Charges- The repositioning charge taken in the second quarter
ending December 31, 1997, was primarily focused on facility utilization,
operational systems and organizational structures. The repositioning charge
included (i) approximately $30.8 million relating to an approximately 25%
reduction of the Company's global work force (or 4,900 employees) by eliminating
redundant and overlapping positions resulting from recent acquisitions; (ii)
approximately $31.4 million relating to the consolidation of the Company's
manufacturing, sales and engineering facilities in North America and Europe
through the elimination of approximately 50% (or 32) and 33% (or 10) of such
facilities, respectively; (iii) $77.6 million relating to the write-down of
goodwill associated with the disposal of long-lived assets; (iv) approximately
$41.3 million relating to the write-down to net realizable value of certain
long-lived assets relating to businesses being divested; and (v) approximately
$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.
During the quarter ended December 31, 1997, the Company started to
implement its repositioning plan. Net headcount was reduced by 725 people during
the quarter ended December 31, 1997, primarily in North America. Also, the
Company closed three manufacturing facilities and announced the closure of an
additional facility and the relocation of a major portion of a Canadian facility
to Mexico.
Other Special Charges - With the acquisition of SRS, the Company conducted
an evaluation and review of the assets acquired. As a result of such review, the
Company recorded a $77.5 million charge related to the write-off of in-process
research and development for acquired technology that has not been established
as technologically feasible. The Company also reviewed its inventories for
slow-moving and excess items in light of the SRS acquisition and planned
realignment of its manufacturing operations. The Company also reevaluated its
customer contracts relating to products
lines that will be discontinued. As a result, the Company recorded a $28.4
million charge for inventory and long-term contracts relating to manufacturing
processes that will be exited (which is reflected as a charge to cost of sales).
The repositioning and other special charges recorded in the quarter ended
December 31, 1997 do not include a provision for disruption costs in accordance
with Generally Accepted Accounting Principles ("BTI"GAAP"). Disruption costs are
expenses incurred in connection with the closing and consolidating of
manufacturing, engineering and sales facilities. Disruption costs include; (1)
inefficiencies associated with consolidating manufacturing, engineering and
sales facilities; (2) unabsorbed fixed overhead; (3) temporary increases in
factory labor; (4) premium freight and (5) excessive inventory scrap. GAAP
require that disruption costs be expensed as incurred and included in cost of
sales. The Company incurred disruption costs of approximately $2.8 million and
$4.5 million for the quarter and six months ended December 31, 1997,
respectively, associated with the closing of three manufacturing facilities and
the ongoing relocation of a holding company which ownsNorth America facility to Mexico.
Three and Six Months Ended December 31, 1997 (FY98) Compared to Three and
Six Months Ended December 31, 1996 (FY97)
Net sales for the quarter and six months ended December 31, 1997 were
$340.7 million and $535.9 million, respectively, an increase of $158.1 million
or 87%, and $194.7 million or 57%, respectively, from the comparable periods of
the prior year. The increase in net sales was primarily due to growth from the
acquisition of United Steering Systems (USS) on October 25, 1996, Custom Trim groupon
February 25, 1997, and SRS on October 30, 1997. These three acquisitions
accounted for approximately $177.0 million and $235.2 million of companies.the increase in
net sales for the three and six months ended December 31, 1997, respectively.
The purchase priceincreases were partially offset by a decline in sales of EMS sensors and
inflator and airbag systems products.
EMS sensor sales for the quarter and six months ended December 31, 1997
were $28.1 million and $54.7 million, a decrease of 23% and 32%, respectively,
from the comparable prior year periods. These decreases are primarily due to
lower demand as major customers continue to shift from EMS to electronic sensors
that are sourced internally.
Inflator and airbag module sales decreased 18% and 37% to $18.7 million and
$35.3 million, respectively, for the quarter and six months ended December 31,
1997 as compared to the comparable prior year periods. The decrease was
$70primarily due to the planned phase-out of all mechanical airbag systems at
Chrysler and Fiat, and the reduction of shipments into Asia of all inflators and
airbags.
Net sales for the quarter ended December 31, 1997, increased 75% to $340.7
million from $195.2 million in cash, subject to any post
closing audit adjustments. Additionally, up to $5,000,000 may be paid onthe first quarter ended September 1, 2002, contingent upon BTI attaining certain operating profit
targets for each of the years subsequent30, 1997. The
quarter over quarter increase in net sales was primarily attributable to the
acquisition date. The funds used
byof SRS on October 30, 1997. Excluding the Companyacquisition of SRS, net
sales for the quarter ended December 31, 1997 would have increased 4% over the
quarter ended September 30, 1997.
Cost of sales for the quarter and six months ended December 31, 1997 were
$312.9 and $479.7, respectively, as compared to acquire BTI were obtained from borrowings under the Company's
Revolving Credit Agreements. The acquired operations which will be called Custom
Trim Ltd. produces leather-wrapped steering wheels, shift knobs and shift boots,
injection molded levers and leather/vinyl cloth sewing of armrests, headrests
and seating. Custom Trim has annual revenues of approximately $100$145.9 million and has manufacturing locations in Canada$262.4
million, respectively, for the quarter and Mexico.
For all acquisitionssix months ended December 31, 1996.
The increase primarily reflected the purchase price adjustments have not been finalized. The
purchase price allocations are preliminaryadditional production costs of $151.0
million and subject to further adjustments.
Note 3 - Inventories
The components of inventory (in thousands) consist of$203.7 million for the following:
Marchquarter and six months ended December 31,
June 30,
1997, 1996
Finished Goods $30,602 $19,439
Work-in-process 22,188 14,417
Raw Materials 35,647 19,034
------------- -----------
Total $88,437 $52,890
============= ===========
Note 4 - Borrowings
On April 29, 1997, the Company closed on a $450 million Revolving Credit
Facility consisting of a $250 million 364-Day Credit Agreement and a $200
million Five-Year Credit Agreement. A portion of the proceedsresulting from the facility
was used to retire the Company's former lineacquisitions of credit, which amounted to $345
million at March 31, 1997.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Quarterly Report on Form 10-Q contains forward-looking statements that
involve a number of risks and uncertainties. When used in this Quarterly Report
on Form 10-Q the words "believes," "anticipated" and similar expressions are
intended to identify forward-looking statements. There are a number of factors
that could cause the Company's actual results to differ materially from those
forecasted or projected in such forward-looking statements. Readers are
cautioned not to place undue reliance on these forward-looking statements which
speak only as of the date hereof. The Company undertakes no obligations to
publicly release the result of any revisions to these forward-looking statements
which may be made to reflect events or circumstances after the date hereof or to
reflect the occurrence of unanticipated events.
Results of Operations (Third Quarter FY97) Three Months Ended March 31,
1997 (FY97)
Compared to Three Months Ended March 31, 1996 (FY96) Net sales increased
approximately $105 million due principally to the results of the Gallino, MOMO,
United Steering SystemsUSS and Custom Trim acquisitions. Sales for these operations
amounted toduring fiscal 1997
and the acquisition of SRS in fiscal 1998. In addition, the Company incurred
approximately $125$2.8 million and were comprised$4.5 million during the quarter and six months
ended December 31, 1997 related to disruption costs associated with the closing
of steering wheels,
alloy wheels, instrument panels, bumpersthree manufacturing facilities and other plastic and leather-wrapped
trim components. Electromechanical sensor sales decreased approximately $14
million due primarilythe ongoing relocation of a facility in
North America to a loss of volumeMexico, as well as a major customer shifts$28.4 million charge related to "in-house" electronic sensors.
As a percent of sales, gross profit decreased from 34% to 18%other
special charges (see "Repositioning and Other Special Charges" above).
Gross profit on
sales of products related to the new acquisitions are lower as a percentpercentage of net sales was 8% and 10% for the three and
six months ended December 31, 1997, respectively, compared to margins on20% and 23%,
respectively, for the Company's sensor products. Additionally, plant
consolidation costs contributed tocomparable periods of the prior year. The decrease in
gross profit.margins was primarily attributable to a shift in product mix from high
margin EMS sensors to those of lower
margin products acquired in recent acquisitions and certain special charges
aggregating $28.4 million. Excluding these special charges, gross profit as a
percentage of net sales would have been 17% and 16% for three and six months
ended December 31, 1997, respectively.
Selling, general and administrative expenses for the three and six months
ended December 31, 1997 were $21.3 million and $37.6 million (6% and 7% of net
sales), respectively, compared to $16.7 million and $32.2 million (in each case
9% of net sales) for the comparable periods of the prior year. Selling, general
and administrative expenses as a percentage of net sales decreased primarily as
a result of cost improvements associated with the reduction of headcount and
reduced spending.
Research, development and engineering expenses for the quarter and six
months ended December 31, 1997 were $18.6 million and $27.5 million,
respectively, as compared to $9.9 million and $17.8 million for the comparable
periods in the prior year. These increases reflected costs associated with
acquired businesses of $9.3 million and $10.1 million for the three and six
months ended December 31, 1997, respectively.
Operating income (loss) for the three and six months ended December 31,
1997 decreased significantly from last year's comparable periods primarily due
to items mentioned above and the repositioning and other special charges
aggregating $349.9 million included in cost of sales and operating expenses increased(see
"Repositioning and Other Special Charges" above). Exclusive of the effects of
the repositioning and other special charges, operating income would have been
$12.3 million and $13.5 million for the three and six months ended December 31,
1997, respectively.
Operating income before repositioning and other special charges for the
three months ended December 31, 1997 reflected an improvement over the three
months ended September 30, 1997. Operating income was $12.3 million or 4% of net
sales in the three months ended December 31, 1997 compared to $1.2 million or 1%
of net sales in the three months ended September 30, 1997. The quarter over
quarter increase in operating income was primarily attributable to the SRS
acquisition, higher sales volumes, and personnel reductions. Excluding the SRS
acquisition, operating income would have been approximately $7.9 million or 4%
of net sales for the three months ended December 31, 1997. The operating margin
improvement from 1% of net sales in the three months ended September 30, 1997 to
4% of net sales for the three months ended December 31, 1997 was primarily
attributable to personnel reductions resulting from the repositioning program.
Interest expense for the three and six months ended December 31, 1997 was
$27.1 million and $35.4 million, an increase of $20.4 million and $24.3 million,
respectively, from the comparative prior year periods. The increase in interest
expense was primarily due to the increase in average outstanding borrowings as a
result of the acquisitions and to
increased R&D spending related to new product development for non-azide/reduced
sized inflators, electronic sensing (including occupant, weight and horn) and
side impact technology.
Net interest expense increased approximately $6 million primarily as a result of borrowings used to purchase the new acquisitions and to the existing debt of the
new acquisitions. The decrease in other income (expense), net was due primarily
to the decrease in royalty income.
Nine Months Ended March 31, 1997 (FY97) Compared to Nine Months Ended March
31, 1996 (FY96)
Net sales increased approximately $248 million due principally to the
results of the Gallino, MOMO, United Steering SystemsUSS and Custom Trim acquisitions. Sales for these operations amountedin fiscal 1997 and SRS in
fiscal 1998. In addition the fees associated with the Credit Facility
(approximately $30.0 million) are being amortized over a six month period.
The estimated fiscal 1998 annual effective tax rate has been revised from a
45% benefit estimated in the three months ended September 30, 1997 to approximately $285 million
and were compriseda 13%
benefit to reflect the impact of steering wheels, alloy wheels, instrument panels, bumperscertain repositioning and other plasticspecial charges
(i) taken in jurisdictions where the Company may not be able to recognize the
full income tax benefit due to limitations imposed by Financial Accounting
Standards Statement No. 109 (SFAS 109) and leather-wrapped trim components. Electro-mechanical sensor
sales decreased approximately $40 million due primarily to(ii) no tax benefit on write-down of
goodwill included in the repositioning charge. SFAS 109 states that a lossvaluation
allowance is recognized if, it is more likely than not, that some portion or all
of volume asthe deferred tax asset will not be realized. Because of limitations on the
utilization of net operating losses from foreign jurisdictions, a major customer shifts to "in-house" electronic sensors.
Asvaluation
allowance for a percentportion of sales, gross profit decreased from 38% to 21%. Gross profit on
sales of productsthe deferred income tax benefit related to the
new acquisitions are lower as a percent of
sales compared to margins onrepositioning and the Company's sensor sales. Additionally, plant
consolidation costs contributedother special charges has been recorded.
The extraordinary loss recorded in the three months ended December 31, 1997
related to the decrease in gross profit.
Operating expenses increased primarily as a resultwrite-off of unamortized debt costs of the acquisitions and to
increased R&D spending related to new product development for non-azide/reduced
sized inflators, electronic sensing (including occupant, weight and horn) and
side impact technology.
Net interest expense increased approximately $16 million primarily as a result
of borrowings used to purchase the new acquisitions and to the existing debt of
the new acquisitions. The decrease in other income (expense), net was due
primarily to the decrease in royalty income.previous bank credit
facility.
Liquidity and Capital Resources
Growth has been financed through a combination of
The Company's primary cash providedrequirements are for working capital, capital
expenditures and interest payments on outstanding indebtedness. The Company
believes that cash generated from operations, borrowings available under the
Credit Facility and net proceeds received in connection with the issuance of
debt and equity securities will be sufficient to meet the Company's working
capital, capital expenditures and debt financing.service needs for the foreseeable future.
Cash providedflows from operating activities isfor the primary
sourcesix months ended December 31,
1997, were a deficit of liquidity$21.0 million compared with a $72.4 million surplus for
the six months ended December 31, 1996. The decrease in cash flows was primarily
attributed to the net loss of $324.1 and amounted to $48changes in working capital items.
Capital expenditures aggregated $23.4 million for the ninesix months ended
March
31, 1997.
On April 29, 1997, the Company closed on a $450 million Revolving Credit
Facility consisting of a $250 million 364-Day Credit Agreement and a $200
million Five-Year Credit Agreement. A portion of the proceeds were used to
retire the amount outstanding under the Company's former Revolving Credit
Facility which amounted to $345 million at MarchDecember 31, 1997. The Company's
Revolving Credit Facility currently has approximately $100 million of unused
borrowing capacity. Management believes that the Company's current Revolving
Credit Facility combined with cash expected to be generated from operations will
be adequate to cover the Company's normal capital and operational needs.
Internally generated funds have been used primarily to finance capital
expenditures, provide working capital, support research and development
activities, and pay dividends. Bank debt has been used to finance acquisitions
since April 1996.
In 1997, the Company planscontinues to invest $75 million in property, plant and
equipmentcapital 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 capacityadded capability for existing and new
products. Although the Credit Facility restricts the amount of capital
expenditures the Company can incur in any given quarter, the Company does not
believe that this covenant will adversely affect the Company's capital
expenditure plans .
On October 30, 1997, in connection with the acquisition of SRS, the Company
and NationsBank entered into the Credit Facility, pursuant to which the Company
has $900 million of aggregate borrowing availability. At December 31, 1997, the
Company had an aggregate of $810 million of borrowings outstanding under the
Credit Facility (including approximately $10.0 million letters of credit), and
the weighted average interest rate on such borrowings was approximately 8.76%
per annum. The Credit Facility consists of a 366-day revolving credit facility
providing up to $300 million of availablity, including a $25 million sublimit
for the issuance of standby letters of credit and a $75 million sublimit for
multi-currency borrowings, and a 366-day $600 million term loan. The Company is
currently in negotiations with a number of financial institutions, to replace
the current credit facility with longer term credit facilities. The Company
expects to replace the existing credit facility during its third quarter.
On October 14, 1997, the Company and Siemens entered into the Stock
Purchase Agreement pursuant to which, on October 30, 1997, the Company issued
and sold 4,883,227 Series A Preference Shares to Siemens for an aggregate
purchase price of $115.0 million. The $115.0 million of proceeds was used to
fund a portion of the purchase price for the SRS acquisition. On January 20,
1998, Siemens converted 4,883,226 of its Series A Preference Shares into
4,883,226 shares of common stock.
In connection with the SRS acquisition, on October 30, 1997, the Company
issued and sold to PSCC $200 million of Series B Preference Securities. On
November 25, 1997, the Company issued and sold $250.0 million of Convertible
Debentures to BTI Capital Trust which, concurrently therewith, issued and sold
$250.0 million aggregate liquidation amount of Preferred Securities (which are
guaranteed by the Company) in a private transaction under Rule 144A under the
Securities Act of 1933. The Company used the net proceeds from the issuance and
sale of the Convertible Debentures to BTI Capital Trust to redeem all of the
outstanding Series B Preference Securities in accordance with the terms thereof
and for general corporate purposes.
Forward Looking Statements
Based on a recent assessment, the company determined that it will be
required to modify or replace portions of its software so that its computer
systems will function properly with respect to dates in the year 2000 and
thereafter. The Company presently believes that with modifications to existing
software and conversions to new software, the Year 2000 issue will not pose
significant operational problems for its computer systems. However, if such
modifications and conversions are not made, or are not timely completed, the
Year 2000 Issue could have a material impact on the operations of the
Company. Statements herein regarding estimated cost savings and the Company's
anticipated performance in future periods constitute forward-looking statements
within the meaning of the Securities Act of 1933 and the Securities Exchange Act
of 1934. Such statements are subject to certain risks and uncertainties that
could cause actual amounts to differ
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 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 material customers, possible
significant product liability claims, decreases in demand for the Company's
products and adverse changes in general market and industry conditions.
Management believes these forward-looking statements are reasonable; however,
undue reliance should not be placed on such forward-looking statements, which
are based on current expectations.
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
At the Company's Annual Meeting of Stockholders held on November 20, 1997,
the following proposal was adopted by the votes specified below:
Broker
Proposal For Against Withheld Abstain Nonvotes
Election of Directors:
Allen K. Breed 28,236,791 -- 72,118 -- --
Johnnie Breed 28,236,724 -- 72,185 -- --
Larry W. McCurdy 28,242,144 -- 66,765 -- --
Charles J. Speranzella 28,241,290 -- 67,619 -- --
Robert W. Shower 28,241,602 -- 67,307 -- --
Fred J. Musone 28,237,926 -- 70,983 -- --
Alberto Negro 28,237,622 -- 71,287 -- --
Dr. Ing. Franz Wressnigg 28,238,510 -- 70,399 -- --
An increase in the number of shares of Common Stock available for issuance under
the 1994 Stock Incentive Plan from
2,500,000 to 3,700,000 shares 27,621,781 598,656 -- 88,472 --
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
- None10.1 Stock Purchase Agreement, dated as of October 14, 1997, by and between
Breed Technologies,
Inc., a Delaware corporation and Siemens Akfiengesellschaft, a company
organized under the laws of the Federal Republic of Germany
10.1.1 Make-Whole Agreement, dated as of October 14, 1997, by and between
Breed Technologies, Inc., a Delaware corporation and Siemens Akfiengesellschaft,
a company organized under the laws of the Federal Republic of Germany
10.1.2 Registration Rights Agreement, dated as of October 14, 1997, between
Breed Technologies, Inc., a Delaware corporation, and Siemens
Akfiengesellschaft, a company organized under the laws of the Federal Republic
of Germany
10.1.3 Stockholders Agreement, dated as of October 14, 1997, among Breed
Technologies, Inc. and certain of its subsidiaries.
10.2 Credit Agreement, dated as of October 30, 1997, by and among Breed
Technologies, Inc. and certain subsidiaries designated as Borrowers herein,
NationsBank National Association as agent and as lender and the lenders party
hereto from time to time. 10.3 Warrant Agreement, dated as of October 30, 1997,
between NationsBank, N.A. and Breed Technologies, Inc.
10.4 Joint Venture Agreement, dated as of December 24, 1997, between
Siemens Akfiengesellschaft and Breed Technologies, Inc.
(b) Reports on Form 8-K -The- The Company filed Form 8-K8-K/A on March 5, 1997
to reportJanuary 13, 1998
amending the original filing that on February 25, 1997, the Company consummatedreported the acquisition of certain assets and
assumption of certain liabilities of the stock"Safety Restraints Systems" business of
BTI Investments,AlliedSignal, Inc., a holding
company which owns the Custom Trim group to include Financial Statements of companies.business acquired, Pro
Forma Financial Information and Exhibits as required under Item 7.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Breed Technologies, Inc.
(Registrant)
May 15, 1997February 12, 1998
By: /s/ Edward H. McFadden
Edward H. McFaddenFrank J. Gnisci
Frank J. Gnisci
Executive Vice President and
Chief Financial Officer
By: /s/ Thomas F. Dugan
Thomas F. Dugan
Corporate Controller and
Chief Accounting Officer