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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): September 4, 1998
BREED Technologies, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 1-11474 22-2767118
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(State of incorporation) (Commission File Number) (IRS Employer
Identification No.)
5300 Old Tampa Highway
Lakeland, Florida 33811
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (941) 668-6000
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(Former name or former address, if changed since last report)
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ITEM 5. OTHER EVENTS
On September 4, 1998, Breed Technologies, Inc. (the "Company") announced that,
as a result of its previously announced discussions with the Staff of the
Securities and Exchange Commission, the Company had agreed to make certain
supplemental disclosures herein, and in previously filed documents, and to
restate its financial statements for certain prior periods. Representatives of
the Company and Ernst & Young met with the Staff of the Commission on September
2, 1998 to discuss disclosure issues and the interpretation of certain
accounting principles. As a result of the views expressed by the Staff, the
Company has agreed to restate certain financial statements as noted. The Company
expects that the restatement, which will reflect the accounting for the write-
down of goodwill and certain long-lived assets under a methodology consistent
with the Staff's views, will not have a material adverse effect on previously
reported results of operations.
At the request of the Staff, the Company is also providing the Staff
supplemental information relating to the repositioning charge, and additional
information relating to a special charge, recorded by the Company during the
quarter ended December 31, 1997. The Company expects to file the restated
financial statements and to release earnings for the quarter and fiscal year
ended June 30, 1998 as soon as practicable following the resolution of the
remaining items being discussed with the Staff.
PREVIOUSLY ANNOUNCED REPOSITIONING CHARGE
As previously announced, the Company recorded a repositioning charge during
the quarter ended December 31, 1997 aggregating $244.0 million. The
repositioning charge included (i) $77.6 million relating to the write-down of
goodwill associated with the disposal of long-lived assets (a portion of which
was required due to deteriorating business conditions at acquired businesses as
discussed below); (ii) approximately $30.8 million relating to an approximately
25% reduction of the Company's global work force by eliminating redundant and
overlapping positions resulting from recent acquisitions as well as reducing
personnel required at acquired businesses discussed below due to deteriorating
business conditions at such businesses; (iii) 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% and 33% of such facilities, respectively (which includes
certain facilities being consolidated due to deteriorating businesses conditions
at acquired businesses as discussed below); (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.
USS AND CUSTOM TRIM ACQUISITIONS
The Company provided the following information in order to provide investors
with a more detailed understanding of the background relating to the information
set forth above:
The $77.6 million write-down of goodwill included in the repositioning charge
related to, among other things, (i) the North American steering wheel
operations ("USS") of United Technologies acquired by the Company in October
1996 and (ii) the Custom Trim group of companies ("Custom Trim") (which
leather wraps steering wheels and produces other products) acquired by the
Company in February 1997 and reflected the Company's determination during the
quarter ended December 31, 1997 that a material diminution in the value of
those businesses had occurred.
When Breed acquired USS in October 1996, it was aware that USS's largest
original equipment manufacturer ("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, Breed worked to
have its airbag module
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approved by the OEM to position it to compete with respect to other platforms
manufactured by that OEM, which would put Breed 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 Breed acquired USS, and that Breed's revenue
attributable to all platforms for such OEM would be impacted by a 4% price
decrease starting January 1, 1998.
During the quarter ended December 31, 1997, it also 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.
As a result of these developments, after consultation with and the concurrence
of Ernst & Young, the Company's independent auditors, the Company recorded a
charge of $18.4 million and $33.4 million during the quarter ended December 31,
1997 to write-down the goodwill relating to the USS and Custom Trim
acquisitions, respectively. The Company accounted for the long-lived assets of
USS and Custom Trim to be disposed of after an appropriate allocation of
goodwill to those assets under APB 17 (Intangible Assets). This involved the
allocation of goodwill to long-lived assets based on the fair value of such
assets at the date of acquisition.
At its meeting with Company representatives on September 2, 1998, the SEC
Staff stated that, in its view, the appropriate analysis would have been to test
for impairment of all of the long-lived assets of USS and Custom Trim upon the
occurrence of facts indicating that the value of the assets had been impaired
and to measure such impairment using the provisions of FAS 121 (Accounting for
the Impairment of Long-Lived Assets and Assets to be Disposed Of) relating to
assets held for use. The Company has agreed to restate its financial statements
for certain prior periods in accordance with the Staff's views. Based on the
Company's preliminary analysis under FAS 121, the Company anticipates that such
restatement will not have a material adverse effect on previously reported
results of operations. However, based on the Company's preliminary analysis,
the use of FAS 121 indicates that no impairment of any goodwill or long-lived
assets of Custom Trim exists at this time. There can be no assurance that
impairment will not occur in future periods.
PREVIOUSLY ANNOUNCED OTHER SPECIAL CHARGE
As previously announced, the Company recorded a $28.4 million special charge
during the quarter ended December 31, 1997 for inventory and long-term contracts
relating to manufacturing processes that will be exited (which was reflected as
a charge to cost of sales). The Company announced the following information,
which supplements the foregoing: 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 airbags, which had not been previously manufactured by the Company. This
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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. After consultation with and the concurrence of
Ernst & Young, the Company recorded these losses during the quarter ended
December 31, 1997 because it believed they were probable and reasonably
estimable. The contract has since been terminated effective January 1999. The
SEC is reviewing the accounting treatment of these losses.
* * *
This press release included certain statements regarding, among other things,
the expected financial statement impact of the resolution of various items with
the SEC Staff, which statements 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 results to differ materially from those projected. Such statements are
subject to risks relating to, among other things, the outcome of the Company's
discussions with the SEC Staff, which is not within the Company's control. The
Company's 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.
Headquartered in Lakeland, Fla., the Company is the world's third largest
supplier of complete automotive occupant restraint systems. The Company
supports its growing list of automotive customers with advanced engineering,
testing and manufacturing facilities located in 13 countries around the world.
A complete copy of the press release is attached hereto as Exhibit 99.1
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(c) Exhibits
99.1 Text of Press Release of Breed Technologies, Inc. dated September
4, 1998.
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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 hereunto duly authorized.
Date: September 4, 1998
BREED TECHNOLOGIES, INC.
By: /s/ Frank J. Gnisci
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Frank J. Gnisci
Executive Vice President and
Chief Financial Officer
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INDEX TO EXHIBITS
EXHIBIT NUMBER AND DESCRIPTION PAGE
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99.1 Text of Press Release for BREED Technologies, Inc.
dated September 4, 1998.............................. 7
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