SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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 November 30, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to _____________
Commission File Number: 0-26088
PACIFIC AEROSPACE & ELECTRONICS, INC.
(Exact name of registrant as specified in its charter)
Washington 91-1744587
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
430 Olds Station Road, Third Floor, Wenatchee, Washington 98801
(Address of Principal Executive Offices; Zip Code)
Registrant's telephone number, including area code: (509) 667-9600
Check whether the issuer (1) 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 [ ]
Applicable only to issuers involved in bankruptcy proceedings during the
preceding five years:
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by court. Yes [ ] No [ ]
Applicable only to corporate issuers:
State the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date: As of January 10, 2000, there were
20,771,759 shares outstanding of the Company's Common Stock, par value $.001 per
share.
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
Consolidated Balance Sheets - November 30, 1999 and May 31, 1999
Consolidated Statements of Operations - Second Quarters and Six Months Ended
November 30, 1999 and 1998
Consolidated Statements of Cash Flows - Six Months Ended November 30, 1999 and
1998
Management's Statement and Notes to Unaudited Consolidated Financial Statements
- - Second Quarters and Six Months Ended November 30, 1999 and 1998
2
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<TABLE>
<CAPTION>
PACIFIC AEROSPACE & ELECTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
November 30, 1999 and May 31, 1999
November 30, May 31,
1999 1999
ASSETS (Unaudited) (Audited)
- -------------------------------------------------------- -------------- --------------
<S> <C> <C>
CURRENT ASSETS
Cash $ 3,582,000 $ 8,134,000
Accounts receivable, net 23,526,000 24,992,000
Inventories 25,663,000 24,616,000
Deferred income taxes 879,000 880,000
Prepaid expense and other 2,393,000 2,316,000
-------------- --------------
Total Current Assets 56,043,000 60,938,000
-------------- --------------
PROPERTY AND EQUIPMENT, NET 45,930,000 45,279,000
-------------- --------------
OTHER ASSETS
Note receivable, net 2,500,000 1,458,000
Investment 19,000 72,000
Costs in excess of net book value of acquired
subsidiaries, net 41,973,000 41,052,000
Patents, net 1,209,000 1,255,000
Deferred income taxes 3,180,000 3,395,000
Deferred financing costs, net 4,633,000 5,029,000
Other assets 322,000 249,000
-------------- --------------
Total Other Assets 53,836,000 52,510,000
-------------- --------------
TOTAL ASSETS $ 155,809,000 $ 158,727,000
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
- --------------------------------------------------------
CURRENT LIABILITIES
Accounts payable $ 9,924,000 $ 10,484,000
Accrued liabilities 3,899,000 5,615,000
Accrued interest 2,859,000 2,813,000
Current portion of long-term debt 1,129,000 1,278,000
Current portion of capital lease obligations 208,000 297,000
Line of credit 5,648,000 0
Other current liabilities 60,000 2,122,000
-------------- --------------
Total Current Liabilities 23,727,000 22,609,000
-------------- --------------
LONG-TERM LIABILITIES
Long-term debt, net of current portion 4,855,000 5,220,000
Capital lease obligations, net of current portion 1,462,000 1,615,000
Senior subordinated notes payable 75,000,000 75,000,000
Deferred rent and other 303,000 264,000
-------------- --------------
Total Long-Term Liabilities 81,620,000 82,099,000
-------------- --------------
TOTAL LIABILITIES 105,347,000 104,708,000
-------------- --------------
STOCKHOLDERS' EQUITY
Convertible preferred stock - -
Common stock 20,000 19,000
Additional paid-in capital 69,331,000 69,276,000
Accumulated other comprehensive loss (1,232,000) (1,140,000)
Accumulated deficit (17,657,000) (14,136,000)
-------------- --------------
Total Stockholders' Equity 50,462,000 54,019,000
-------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 155,809,000 $ 158,727,000
============== ==============
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
3
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<TABLE>
<CAPTION>
PACIFIC AEROSPACE & ELECTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Second Quarters and Six Months Ended November 30, 1999 and 1998
Quarters Ended Six Months Ended
--------------------------- ---------------------------
November 30, November 30, November 30, November 30,
1999 1998 1999 1998
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
NET SALES $ 29,000,000 $ 30,477,000 $ 57,571,000 $ 49,655,000
COST OF SALES
Inventory impairment - 1,600,000 - 1,600,000
Other cost of sales 23,749,000 24,055,000 45,760,000 38,559,000
------------ ------------ ------------ ------------
TOTAL COST OF SALES 23,749,000 25,655,000 45,760,000 40,159,000
------------ ------------ ------------ ------------
GROSS PROFIT 5,251,000 4,822,000 11,811,000 9,496,000
OPERATING EXPENSES 4,582,000 4,355,000 9,686,000 8,131,000
------------ ------------ ------------ ------------
INCOME FROM OPERATIONS 669,000 467,000 2,125,000 1,365,000
------------ ------------ ------------ ------------
OTHER INCOME AND EXPENSE
Interest Income 5,000 137,000 53,000 363,000
Interest Expense (2,604,000) (2,683,000) (5,152,000) (3,752,000)
Other (14,000) (196,000) (11,000) (6,917,000)
------------ ------------ ------------ ------------
(2,613,000) (2,742,000) (5,110,000) (10,306,000)
------------ ------------ ------------ ------------
NET LOSS BEFORE INCOME TAX (1,944,000) (2,275,000) (2,985,000) (8,941,000)
PROVISION FOR INCOME TAXES (70,000) (300,000) (535,000) 1,955,000
------------ ------------ ------------ ------------
NET LOSS (2,014,000) (2,575,000) (3,520,000) (6,986,000)
------------ ------------ ------------ ------------
OTHER COMPREHENSIVE INCOME (LOSS):
Foreign currency translation (142,000) (1,220,000) (139,000) 494,000
Income tax benefit (expense) 48,000 415,000 47,000 (168,000)
Valuation of available for sale securities - - - 436,000
------------ ------------ ------------ ------------
(94,000) (805,000) (92,000) 762,000
------------ ------------ ------------ ------------
COMPREHENSIVE LOSS $ (2,108,000) $ (3,380,000) $ (3,612,000) $ (6,224,000)
============ ============ ============ ============
NET LOSS PER SHARE:
BASIC $ (0.10) $ (0.15) $ (0.18) $ (0.43)
DILUTED $ (0.10) $ (0.15) $ (0.18) $ (0.43)
SHARES USED IN COMPUTATION OF
NET LOSS PER SHARE:
BASIC 19,992,000 16,731,000 19,547,000 16,073,000
DILUTED 19,992,000 16,731,000 19,547,000 16,073,000
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
4
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<TABLE>
<CAPTION>
PACIFIC AEROSPACE & ELECTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended November 30, 1999 and 1998
Six Months Ended
-------------------------------
November 30, November 30,
1999 1998
(Unaudited) (Unaudited)
------------- -------------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Net cash provided by (used in) operating activities $ (3,251,000) $ (184,000)
------------- -------------
CASH FLOW FROM INVESTING ACTIVITIES
Purchase of property and equipment (2,509,000) (3,592,000)
Proceeds from sale of property and equipment 10,000 -
Acquisition of subsidiaries (1,282,000) (69,146,000)
Increase in notes receivable (1,505,000) -
------------- -------------
Net cash from investing activities (5,286,000) (72,738,000)
------------- -------------
CASH FLOW FROM FINANCING ACTIVITIES
Net borrowings (repayments) under line of credit 5,648,000 (1,511,000)
Proceeds from long-term debt - 72,622,000
Payments on long-term debt and capital leases (1,700,000) (4,824,000)
Sale of common stock, net of issuance costs 55,000 4,838,000
Sale of preferred stock, net of issuance costs - 6,707,000
------------- -------------
Net cash from financing activities 4,003,000 77,832,000
------------- -------------
NET CHANGE IN CASH (4,534,000) 4,910,000
CASH AT BEGINNING OF PERIOD 8,134,000 11,461,000
EFFECT OF EXCHANGE RATES ON CASH (18,000) 21,000
------------- -------------
CASH AT END OF PERIOD $ 3,582,000 $ 16,392,000
============= =============
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
Seller financed acquisition of property, plant and equipment $ - $ 290,000
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
5
<PAGE>
PACIFIC AEROSPACE & ELECTRONICS, INC. AND SUBSIDIARIES
MANAGEMENT'S STATEMENT AND
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Second Quarters and Six Months Ended November 30, 1999 and 1998
Management's Statement
- ----------------------
The accompanying unaudited consolidated financial statements have been prepared
in accordance with Form 10-Q instructions and, in the opinion of management,
contain all adjustments necessary to present fairly the Company's consolidated
financial position as of November 30, 1999 and May 31, 1999, the consolidated
results of operations for the quarters and six months ended November 30, 1999
and 1998, and the consolidated statements of cash flows for the six months ended
November 30, 1999 and 1998. All significant intercompany transactions have been
eliminated in the consolidation process. These results have been determined on
the basis of generally accepted accounting principles and practices applied
consistently with those used in the preparation of the Company's annual and
quarterly reports under the Securities Exchange Act of 1934, as amended.
Certain information and footnote disclosures normally included in audited
financial statements presented in accordance with generally accepted accounting
principles have been condensed or omitted. The consolidated financial statements
should be read in conjunction with the audited consolidated financial statements
and notes thereto for the years ended May 31, 1999 and 1998.
The results of operations for the quarter and six months ended November 30, 1999
are not necessarily indicative of the results to be expected or anticipated for
the full fiscal year.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Note 1: Net Income (Loss) Per Share:
----------------------------
Basic income (loss) per share is computed using the weighted average number of
common shares outstanding during the period. Diluted income (loss) per share is
computed using the weighted average number of common and dilutive common
equivalent shares outstanding during the period using the treasury stock method.
As the Company had a net loss for the periods ended November 30, 1999 and 1998,
basic and diluted net loss per share are the same.
Note 2: Inventories
-----------
Components of inventories are as follows:
November 30, May 31,
1999 1999
Raw materials $ 5,349,000 $ 7,374,000
Work in progress 14,396,000 11,478,000
Finished goods 5,918,000 5,764,000
------------ ------------
Total $ 25,663,000 $ 24,616,000
============ ============
6
<PAGE>
Note 3: Liquidity
---------
During the quarter and six months ended November 30, 1999, the Company's
operating activities used cash of $292,000 and $3.3 million, respectively. Cash
at November 30, 1999 was $3.6 million (compared to $8.1 million at May 31,
1999). All but $322,000 of the cash resides at subsidiaries that are not
guarantors of the Company's 11 1/4% senior subordinated notes. Remittance of
cash from non-guarantor subsidiaries may cause the Company to incur income tax
expense in the U.S. on the amount of earnings of the Company's foreign
subsidiaries. During the six months ended November 30, 1999, the Company
borrowed $5.6 million under a previously unused $6.3 million line of credit. The
Company believes that its working capital and unused lines of credit are
sufficient to meet its obligations as they become due during fiscal 2000.
However, the Company may need to obtain additional cash during or after fiscal
2000. Should the Company need to dispose of assets to generate cash, there is no
assurance that the carrying values will be realizable upon liquidation outside
of the ordinary course of business. The Company's inability to obtain additional
cash if and when needed could have a material adverse effect on its financial
position and results of operations.
Note 4: Consolidating Condensed Financial Statements
--------------------------------------------
The following financial statements present consolidating condensed financial
information of the Company for the indicated periods. The Company's senior
subordinated notes, which were used to finance the Aeromet acquisition in July
1998, have been guaranteed by all of the Company's U.S. wholly owned
subsidiaries. The guarantor subsidiaries have fully and unconditionally
guaranteed this debt on a joint and several basis. This debt is not guaranteed
by the Company's foreign subsidiaries, which consist of Aeromet and two related
holding companies. There are no significant contractual restrictions on the
distribution of funds from the guarantor subsidiaries to the parent corporation.
The consolidating condensed financial information is presented in lieu of
separate financial statements and other disclosures of the guarantor
subsidiaries, as management has determined that such information is not material
to investors.
7
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<TABLE>
<CAPTION>
Pacific Aerospace & Electronics, Inc.
Consolidating Condensed Balance Sheet
November 30, 1999
NON-
GUARANTOR GUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
CURRENT ASSETS
Cash $ 300,000 $ 22,000 $ 3,260,000 $ - $ 3,582,000
Accounts receivable, net - 9,377,000 14,458,000 (309,000) 23,526,000
Inventories - 14,150,000 11,513,000 - 25,663,000
Other 2,183,000 1,312,000 878,000 (1,101,000) 3,272,000
------------- ------------- ------------- ------------- -------------
Total current assets 2,483,000 24,861,000 30,109,000 (1,410,000) 56,043,000
PROPERTY AND EQUIPMENT, net 6,472,000 22,959,000 16,499,000 - 45,930,000
OTHER ASSETS
Costs in excess of net book value
of acquired subsidiaries, net - 4,232,000 37,741,000 - 41,973,000
Investment 19,000 - - - 19,000
Investment in and loans to subsidiaries 117,689,000 72,618,000 - (190,307,000) -
Other 9,371,000 2,587,000 (114,000) - 11,844,000
------------- ------------- ------------- ------------- -------------
Total other assets 127,079,000 79,437,000 37,627,000 (190,307,000) 53,836,000
------------- ------------- ------------- ------------- -------------
TOTAL ASSETS $ 136,034,000 $ 127,257,000 $ 84,235,000 $(191,717,000) $ 155,809,000
============= ============= ============= ============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 364,000 $ 2,772,000 $ 7,097,000 $ (309,000) $ 9,924,000
Current portion of long-term debt 165,000 964,000 - - 1,129,000
Line of credit 5,648,000 - - - 5,648,000
Other 2,983,000 1,680,000 3,464,000 (1,101,000) 7,026,000
------------- ------------- ------------- ------------- -------------
Total current liabilities 9,160,000 5,416,000 10,561,000 (1,410,000) 23,727,000
LONG-TERM LIABILITIES
Long-term debt, net of current portion 76,302,000 3,553,000 - - 79,855,000
Intercompany note and loan payable - 65,067,000 38,957,000 (104,024,000) -
Other 110,000 811,000 844,000 - 1,765,000
------------- ------------- ------------- ------------- -------------
Total long-term liabilities 76,412,000 69,431,000 39,801,000 (104,024,000) 81,620,000
STOCKHOLDERS' EQUITY
Convertible preferred stock - - - - -
Common stock 20,000 56,139,000 33,710,000 (89,849,000) 20,000
Additional paid-in capital 69,331,000 - - - 69,331,000
Accumulated other comprehensive loss (1,232,000) - (1,232,000) 1,232,000 (1,232,000)
Retained earnings (accumulated deficit) (17,657,000) (3,729,000) 1,395,000 2,334,000 (17,657,000)
------------- ------------- ------------- ------------- -------------
Total stockholders' equity 50,462,000 52,410,000 33,873,000 (86,283,000) 50,462,000
------------- ------------- ------------- ------------- -------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 136,034,000 $ 127,257,000 $ 84,235,000 $(191,717,000) $ 155,809,000
============= ============= ============= ============= =============
</TABLE>
8
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<TABLE>
<CAPTION>
Pacific Aerospace & Electronics, Inc.
Consolidating Condensed Balance Sheet
May 31, 1999
NON-
GUARANTOR GUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 1,798,000 $ 39,000 $ 6,297,000 - $ 8,134,000
Accounts receivable, net - 8,723,000 16,661,000 (392,000) 24,992,000
Inventories - 13,564,000 11,052,000 - 24,616,000
Other 4,535,000 1,517,000 660,000 (3,516,000) 3,196,000
------------- ------------- ------------- ------------- -------------
Total current assets 6,333,000 23,843,000 34,670,000 (3,908,000) 60,938,000
PROPERTY AND EQUIPMENT, net 6,151,000 21,930,000 17,198,000 - 45,279,000
OTHER ASSETS
Costs in excess of net book value
of acquired subsidiaries, net - 2,717,000 38,335,000 - 41,052,000
Investment in common stock, net 72,000 - - - 72,000
Investment in and loans to
subsidiaries 115,099,000 75,000,000 85,000 (190,184,000) -
Other 8,254,000 3,295,000 (163,000) - 11,386,000
------------- ------------- ------------- ------------- -------------
Total other assets 123,425,000 81,012,000 38,257,000 (190,184,000) 52,510,000
------------- ------------- ------------- ------------- -------------
TOTAL ASSETS $ 135,909,000 $ 126,785,000 $ 90,125,000 $(194,092,000) $ 158,727,000
============= ============= ============= ============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 180,000 $ 2,542,000 $ 8,154,000 $ (392,000) $ 10,484,000
Current portion of long-term debt 138,000 1,140,000 - - 1,278,000
Other 5,084,000 1,597,000 7,682,000 (3,516,000) 10,847,000
------------- ------------- ------------- ------------- -------------
Total current liabilities 5,402,000 5,279,000 15,836,000 (3,908,000) 22,609,000
LONG-TERM LIABILITIES
Long-term debt, net of
current portion 76,375,000 3,845,000 - - 80,220,000
Intercompany note and loan payable 85,000 61,869,000 37,500,000 (99,454,000) -
Other 28,000 1,105,000 746,000 - 1,879,000
------------- ------------- ------------- ------------- -------------
Total long-term liabilities 76,488,000 66,819,000 38,246,000 (99,454,000) 82,099,000
STOCKHOLDERS' EQUITY
Convertible preferred stock - - - - -
Common stock 19,000 58,641,000 35,117,000 (93,758,000) 19,000
Additional paid-in capital 69,276,000 - - - 69,276,000
Accumulated other comprehensive loss (1,140,000) - (1,136,000) 1,136,000 (1,140,000)
Retained earnings (accumulated
deficit) (14,136,000) (3,954,000) 2,062,000 1,892,000 (14,136,000)
------------- ------------- ------------- ------------- -------------
Total stockholders' equity 54,019,000 54,687,000 36,043,000 (90,730,000) 54,019,000
------------- ------------- ------------- ------------- -------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 135,909,000 $ 126,785,000 $ 90,125,000 $(194,092,000) $ 158,727,000
============= ============= ============= ============= =============
</TABLE>
9
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<TABLE>
<CAPTION>
Pacific Aerospace & Electronics, Inc.
Consolidating Condensed Statement of Operations
For the Quarter Ended November 30, 1999
NON-
GUARANTOR GUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Net Sales $ - $ 14,605,000 $ 14,960,000 $ (565,000) $ 29,000,000
Cost of Sales - 11,509,000 12,805,000 (565,000) 23,749,000
------------- ------------- ------------- ------------- -------------
Gross profit - 3,096,000 2,155,000 - 5,251,000
Operating expenses 1,410,000 3,219,000 1,295,000 (1,342,000) 4,582,000
------------- ------------- ------------- ------------- -------------
Income (loss) from operations (1,410,000) (123,000) 860,000 1,342,000 669,000
Other income (expense)
Parent's share of subsidiaries
net loss (465,000) - - 465,000 -
Interest expense (2,471,000) (1,192,000) (1,107,000) 2,166,000 (2,604,000)
Other 2,353,000 1,141,000 5,000 (3,508,000) (9,000)
------------- ------------- ------------- ------------- -------------
Total other income (expense) (583,000) (51,000) (1,102,000) (877,000) (2,613,000)
------------- ------------- ------------- ------------- -------------
Income (loss) before income taxes (1,993,000) (174,000) (242,000) 465,000 (1,944,000)
Income tax benefit (expense) - - (70,000) - (70,000)
------------- ------------- ------------- ------------- -------------
Net income (loss) (1,993,000) (174,000) (312,000) 465,000 (2,014,000)
Other comprehensive income (loss)
Foreign currency translation,
net of tax - - (94,000) - (94,000)
Adjustment for unrealized
loss on investment - - - - -
------------- ------------- ------------- ------------- -------------
Total other comprehensive
income (loss) - - (94,000) - (94,000)
------------- ------------- ------------- ------------- -------------
Comprehensive income (loss) $ (1,993,000) $ (174,000) $ (406,000) $ 465,000 $ (2,108,000)
============= ============= ============= ============= =============
</TABLE>
10
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<TABLE>
<CAPTION>
Pacific Aerospace & Electronics, Inc.
Consolidating Condensed Statement of Operations
For the Quarter Ended November 30, 1998
NON-
GUARANTOR GUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Net Sales $ - $ 14,925,000 $ 16,098,000 $ (546,000) $ 30,477,000
Cost of Sales - 13,099,000 13,102,000 (546,000) 25,655,000
------------- ------------- ------------- ------------- -------------
Gross profit - 1,826,000 2,996,000 - 4,822,000
Operating expenses 1,057,000 2,779,000 1,080,000 (561,000) 4,355,000
------------- ------------- ------------- ------------- -------------
Income (loss) from operations (1,057,000) (953,000) 1,916,000 561,000 467,000
Other income (expense)
Parent's share of subsidiaries net
income (loss) (1,156,000) - - 1,156,000 -
Interest expense (2,533,000) (143,000) (1,413,000) 1,406,000 (2,683,000)
Other 2,171,000 (263,000) - (1,967,000) (59,000)
------------- ------------- ------------- ------------- -------------
Total other income (expense) (1,518,000) (406,000) (1,413,000) 595,000 (2,742,000)
------------- ------------- ------------- ------------- -------------
Income (loss) before income taxes (2,575,000) (1,359,000) 503,000 1,156,000 (2,275,000)
Income tax benefit (expense) - - (300,000) - (300,000)
------------- ------------- ------------- ------------- -------------
Net income (loss) (2,575,000) (1,359,000) 203,000 1,156,000 (2,575,000)
Other comprehensive income (loss)
Foreign currency translation,
net of tax (805,000) - (805,000) 805,000 (805,000)
------------- ------------- ------------- ------------- -------------
Total other comprehensive
income (loss) (805,000) - (805,000) 805,000 (805,000)
------------- ------------- ------------- ------------- -------------
Comprehensive income (loss) $ (3,380,000) $ (1,359,000) $ (602,000) $ 1,961,000 $ (3,380,000)
============= ============= ============= ============= =============
</TABLE>
11
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<TABLE>
<CAPTION>
Pacific Aerospace & Electronics, Inc.
Consolidating Condensed Statement of Operations
For the Six Months Ended November 30, 1999
NON-
GUARANTOR GUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Net Sales $ - $ 29,116,000 $ 29,333,000 $ (878,000) $ 57,571,000
Cost of Sales - 22,082,000 24,556,000 (878,000) 45,760,000
------------- ------------- ------------- ------------- -------------
Gross profit - 7,034,000 4,777,000 - 11,811,000
Operating expenses 2,977,000 6,421,000 2,950,000 (2,662,000) 9,686,000
------------- ------------- ------------- ------------- -------------
Income (loss) from operations (2,977,000) 613,000 1,827,000 2,662,000 2,125,000
Other income (expense)
Parent's share of subsidiaries
net income (loss) (538,000) - - 538,000 -
Interest expense (4,861,000) (2,420,000) (2,207,000) 4,336,000 (5,152,000)
Other 4,766,000 2,239,000 35,000 (6,998,000) 42,000
------------- ------------- ------------- ------------- -------------
Total other income (expense) (633,000) (181,000) (2,172,000) (2,124,000) (5,110,000)
------------- ------------- ------------- ------------- -------------
Income (loss) before income taxes (3,610,000) 432,000 (345,000) 538,000 (2,985,000)
Income tax benefit (expense) (6,000) (207,000) (322,000) - (535,000)
------------- ------------- ------------- ------------- -------------
Net income (loss) (3,616,000) 225,000 (667,000) 538,000 (3,520,000)
Other comprehensive income (loss)
Foreign currency translation, net of tax 4,000 - (96,000) - (92,000)
Adjustment for unrealized loss
on investment - - - - -
------------- ------------- ------------- ------------- -------------
Total other comprehensive
income (loss) 4,000 - (96,000) - (92,000)
------------- ------------- ------------- ------------- -------------
Comprehensive income (loss) $ (3,612,000) $ 225,000 $ (763,000) $ 538,000 $ (3,612,000)
============= ============= ============= ============= =============
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
Pacific Aerospace & Electronics, Inc.
Consolidating Condensed Statement of Operations
For the Six Months Ended November 30, 1998
NON-
GUARANTOR GUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Net Sales $ - $ 30,206,000 $ 20,559,000 $ (1,110,000) $ 49,655,000
Cost of Sales - 24,503,000 16,766,000 (1,110,000) 40,159,000
------------- ------------- ------------- ------------- -------------
Gross profit - 5,703,000 3,793,000 - 9,496,000
Operating expenses 1,790,000 5,916,000 1,553,000 (1,128,000) 8,131,000
------------- ------------- ------------- ------------- -------------
Income (loss) from operations (1,790,000) (213,000) 2,240,000 1,128,000 1,365,000
Other income (expense)
Parent's share of subsidiaries
net income (loss) (2,920,000) - - 2,920,000 -
Interest expense (3,412,000) (326,000) (1,420,000) 1,406,000 (3,752,000)
Other (262,000) (3,767,000) 9,000 (2,534,000) (6,554,000)
------------- ------------- ------------- ------------- -------------
Total other income (expense) (6,594,000) (4,093,000) (1,411,000) 1,792,000 (10,306,000)
------------- ------------- ------------- ------------- -------------
Income (loss) before income taxes (8,384,000) (4,306,000) 829,000 2,920,000 (8,941,000)
Income tax benefit (expense) 1,398,000 1,002,000 (445,000) - 1,955,000
------------- ------------- ------------- ------------- -------------
Net income (loss) (6,986,000) (3,304,000) 384,000 2,920,000 (6,986,000)
Other comprehensive income (loss)
Foreign currency translation,
net of tax 326,000 - 326,000 (326,000) 326,000
Adjustment for unrealized loss
on investment 436,000 - - - 436,000
------------- ------------- ------------- ------------- -------------
Total other comprehensive
income (loss) 762,000 - 326,000 (326,000) 762,000
Comprehensive income (loss) $ (6,224,000) $ (3,304,000) $ 710,000 $ 2,594,000 $ (6,224,000)
============= ============= ============= ============= =============
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
Pacific Aerospace & Electronics, Inc.
Consolidating Condensed Statement of Cash Flows
For the Six Months Ended November 30, 1999
NON-
GUARANTOR GUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
- ------------------------------------
Net cash provided by (used in)
operating activities $ (2,818,000) $ 1,343,000 $ (2,314,000) $ 538,000 $ (3,251,000)
CASH FLOW FROM INVESTING ACTIVITIES:
- ------------------------------------
Acquisition of property, plant
and equipment (530,000) (1,264,000) (715,000) - (2,509,000)
Acquisition of subsidiaries (1,282,000) - - - (1,282,000)
Other changes, net (2,440,000) 10,000 85,000 850,000 (1,495,000)
------------- ------------- ------------- ------------- -------------
Net cash provided by (used in)
investing activities (4,252,000) (1,254,000) (630,000) 850,000 (5,286,000)
CASH FLOW FROM FINANCING ACTIVITIES:
- ------------------------------------
Net borrowings under line of credit 5,648,000 - - - 5,648,000
Payments on long-term debt and
capital leases (46,000) (1,529,000) (125,000) - (1,700,000)
Proceeds from sale of common
stock, net 55,000 - - - 55,000
Other changes, net (85,000) 1,423,000 50,000 (1,388,000) -
------------- ------------- ------------- ------------- -------------
Net cash provided by (used in)
financing activities 5,572,000 (106,000) (75,000) (1,388,000) 4,003,000
NET CHANGE IN CASH (1,498,000) (17,000) (3,019,000) - (4,534,000)
CASH AT BEGINNING OF PERIOD 1,798,000 39,000 6,297,000 - 8,134,000
EFFECT OF EXCHANGE RATES ON CASH - - (18,000) - (18,000)
------------- ------------- ------------- ------------- -------------
CASH AT END OF PERIOD $ 300,000 $ 22,000 $ 3,260,000 $ - $ 3,582,000
============= ============= ============= ============= =============
SUPPLEMENTAL CASH FLOW:
- -----------------------
Noncash operating expenses related to:
Depreciation $ 208,000 $ 1,531,000 $ 1,380,000 $ - $ 3,119,000
Amortization - 215,000 494,000 - 709,000
Cash paid during the period for:
Interest 4,504,000 252,000 4,618,000 (4,577,000) 4,797,000
Income taxes - - 1,705,000 - 1,705,000
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
Pacific Aerospace & Electronics, Inc.
Consolidating Condensed Statement of Cash Flows
For the Six Months Ended November 30, 1998
NON-
GUARANTOR GUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
- ------------------------------------
Net cash provided by (used in)
operating activities $ (2,748,000) $ 1,080,000 $ 187,000 $ 1,297,000 $ (184,000)
CASH FLOW FROM INVESTING ACTIVITIES:
- ------------------------------------
Acquisition of property,
plant and equipment (779,000) (2,327,000) (486,000) - (3,592,000)
Acquisition of subsidiaries (69,146,000) (73,617,000) (73,617,000) 147,234,000 (69,146,000)
Other changes, net (6,869,000) - 3,027,000 3,842,000 -
------------- ------------- ------------- ------------- -------------
Net cash provided by (used in)
investing activities (76,794,000) (75,944,000) (71,076,000) 151,076,000 (72,738,000)
CASH FLOW FROM FINANCING ACTIVITIES:
- ------------------------------------
Payments on long-term debt and
capital leases (4,084,000) (727,000) (13,000) - (4,824,000)
Proceeds from long-term debt 72,622,000 37,500,000 37,500,000 (75,000,000) 72,622,000
Proceeds from sale of common
stock, net 4,838,000 36,117,000 36,117,000 (72,234,000) 4,838,000
Proceeds from sale of preferred
stock, net 6,707,000 - - - 6,707,000
Other changes, net - 3,293,000 335,000 (5,139,000) (1,511,000)
------------- ------------- ------------- ------------- -------------
Net cash provided by (used in)
financing activities 80,083,000 76,183,000 73,939,000 (152,373,000) 77,832,000
------------- ------------- ------------- ------------- -------------
NET CHANGE IN CASH 541,000 1,319,000 3,050,000 - 4,910,000
CASH AT BEGINNING OF PERIOD 9,398,000 2,063,000 - - 11,461,000
EFFECT OF EXCHANGE RATES ON CASH - - 21,000 - 21,000
------------- ------------- ------------- ------------- -------------
CASH AT END OF PERIOD $ 9,939,000 $ 3,382,000 $ 3,071,000 $ - $ 16,392,000
============= ============= ============= ============= =============
SUPPLEMENTAL CASH FLOW:
- -----------------------
Cash paid during the period for:
Interest $ 360,000 $ 335,000 $ 13,000 $ - $ 708,000
Income taxes 100,000 - 311,000 - 411,000
Noncash investing and financing activities:
Seller financed acquisition of property,
plant and equipment 128,000 162,000 - - 290,000
</TABLE>
15
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Preliminary Note Regarding Forward-Looking Statements
This report contains "forward-looking statements" within the meaning of Section
27A of the Securities Act of 1933, as amended (the "Securities Act"), and
Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and is subject to the safe harbor created by those sections. Actual
results could differ materially from those projected in the forward-looking
statements set forth in this "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Overview
- --------
The Company has been an active consolidator of companies, and our results of
operations have been substantially affected by acquisitions. These acquisitions,
as well as internal growth in our existing and acquired businesses, have
resulted in substantial increases in net sales during certain periods. Our
operating expenses, margins and other expenses have also been affected by
certain expenses directly associated with the acquisitions and related capital
raising transactions. We have experienced substantial increases in other expense
categories as a result of the increases in operations. A portion of these
expenses is attributable to the assimilation of acquired operations into our
existing businesses.
In July 1998, we acquired Aeromet International PLC ("Aeromet"), a British
limited company. Aeromet, which comprises our European Aerospace Group, is a
manufacturer of magnesium and aluminum precision sand and investment castings,
and of titanium and aluminum formed sheet products, with five locations in
England. The Aeromet acquisition has had and will have a significant effect on
our future operations and on comparisons of income, expense and balance sheet
items in periods after fiscal 1998.
Substantially all of our revenue is generated by sales to customers in the
commercial aerospace, defense, electronics and transportation industries, with
commercial aerospace and defense industry sales being the most significant. The
electronics, defense, and commercial aerospace industries are cyclical in nature
and subject to changes based on general economic conditions and commercial
airline industry, defense and government spending.
Our operations focus on developing, manufacturing and marketing high performance
electronics and metal components and assemblies. Our electronics products are
characterized by relatively low volumes and high margins. In comparison, volumes
have historically been higher and margins lower for our metals products. We
believe that margins will remain higher for electronic products than for metals
products. We also believe that assembled products incorporating both electronics
and metal parts will generate margins closer to, but not as high as, electronics
product margins. As a result of margin differences, changes in product mix among
our electronics, assembled and metals products can be expected to affect overall
margins.
Our sales are not subject to significant seasonal fluctuations. However,
production and resulting sales are subject to the number of working days in any
given period. Results for various periods may vary materially due to the number
of working days available in any period. We believe that our operations for the
periods discussed have not been adversely affected by inflation.
16
<PAGE>
Results of Operations
- ---------------------
Quarter Ended November 30, 1999 Compared to Quarter Ended November 30, 1998
Net Sales. Net sales decreased by $1.5 million, or 4.9%, to $29.0 million for
the quarter ended November 30, 1999, from $30.5 million for the quarter ended
November 30, 1998. The European Aerospace Group contributed $15.0 million, down
$1.1 million from the $16.1 million contributed during the quarter ended
November 30, 1998. We believe that customer inventory evaluation and reduction
initiatives, which have also impacted our U.S. Aerospace Group operations over
the past year, are the primary cause for the decline in the European Aerospace
Group revenue. We expect that our net sales in the European Aerospace Group will
be slightly down in the third and fourth quarters of fiscal 2000 as compared to
corresponding quarters in fiscal 1999. Net sales in the U.S. Aerospace Group
were $7.8 million during the quarter ended November 30, 1999, versus $8.4
million contributed during the quarter ended November 30, 1998. Our U.S.
Aerospace Group experienced a decrease in order backlog and corresponding
slowdown of product deliveries to Boeing during fiscal 1999. This situation has
continued through the second quarter of fiscal 2000. We anticipate that sales
volume in our U.S. Aerospace Group will stabilize and may start to increase
during the third quarter of fiscal 2000, in part due to the signing of a new
multiple year supplier contract with Boeing in the third quarter. Our U.S.
Electronics Group contributed $6.2 million to net sales during the quarter ended
November 30, 1999, up $0.2 million from $6.0 million contributed during the
quarter ended November 30, 1998. This increase was primarily attributable to
additional sales of products for communications, satellite and weapons systems.
We expect the sales volume in our U.S. Electronics Group to remain at current
levels or decrease slightly during the third quarter of fiscal 2000 due to order
timing.
Gross Profit. Gross profit increased by $0.4 million, or 8.3%, to $5.2 million
for the quarter ended November 30, 1999, from $4.8 million for the quarter ended
November 30, 1998. As a percentage of net sales, gross profit increased to 18.1%
for the quarter ended November 30, 1999 from 15.8% for the quarter ended
November 30, 1998. The quarter ended November 30, 1998 included a $1.6 million
inventory impairment charge. Without that charge, gross profit would have been
$6.4 million, or 21.1% of net sales. The resulting comparative decrease in gross
profit in the second quarter of fiscal 2000 from the second quarter of fiscal
1999 was due to lower gross margins in our U.S. Aerospace Group due to customer
pricing reduction programs and lower sales volumes. We anticipate that gross
margins in our third quarter of fiscal 2000 will increase slightly over margins
achieved in the second quarter, with further improvement in the fourth quarter
of fiscal 2000 due to anticipated increases in sales volume within our U.S.
Aerospace Group as mentioned above.
Operating Expenses. Operating expenses increased by $0.2 million, or 4.5%, to
$4.6 million for the quarter ended November 30, 1999, from $4.4 million for the
quarter ended November 30, 1998. As a percentage of net sales, operating
expenses increased 1.5 percentage points, to 15.8% for the quarter ended
November 30, 1999 from 14.3% for the quarter ended November 30, 1998. The
increase in operating expenses is attributable mainly to computer system
upgrades and other "Y2K" preparations.
Interest Expense. Interest expense decreased by $0.1 million to $2.6 million for
the quarter ended November 30, 1999, from $2.7 million for the quarter ended
November 30, 1998. This decrease in interest expense was due to principal paid
down during the previous year. Of the interest expense for the quarter ended
November 30, 1999, $2.4 million related to our outstanding 11 1/4% senior
subordinated notes.
17
<PAGE>
Provision for Income Taxes. Income taxes for the quarter ended November 30, 1999
represent estimated U.K. tax on earnings in the U.K. No U.S. tax provision was
recorded during the quarter because of our pre-tax loss position.
Net Loss. Net loss decreased by $0.6 million, or 23.1%, to a net loss of $2.0
million for the quarter ended November 30, 1999, from a net loss of $2.6 million
for the quarter ended November 30, 1998, due to the factors listed above.
Six Months Ended November 30, 1999 Compared to Six Months Ended November 30,
1998
Net Sales. Net sales increased by $7.9 million, or 15.7%, to $57.6 million for
the six months ended November 30, 1999, from $49.7 million for the six months
ended November 30, 1998. The European Aerospace Group contributed $29.3 million,
up $8.8 million from the $20.5 million contributed during the six months ended
November 30, 1998. This increase was primarily due to six months of operations
of the European Aerospace Group during the six month period in 1999, compared to
four months of operations during the same period in 1998. The increase in the
European Aerospace Group net sales was partially offset by a decrease in net
sales of $1.7 million from the U.S. Aerospace Group, which contributed $15.8
million during the six months ended November 30, 1999, versus $17.5 million
contributed during the six months ended November 30, 1998. Our U.S. Aerospace
Group experienced a decrease in order backlog and corresponding slowdown of
product deliveries to Boeing during fiscal 1999. This situation has continued
through the second quarter of fiscal 2000. We anticipate that sales volume in
our U.S. Aerospace Group will stabilize and may start to increase during the
third quarter of fiscal 2000, in part due to the signing of a new multiple year
supplier contract with Boeing in the third quarter. Our U.S. Electronics Group
contributed $12.5 million to net sales during the six months ended November 30,
1999, up $0.9 million from $11.6 million contributed during the six months ended
November 30, 1998. This increase was primarily attributable to additional sales
of products for communications, satellite and weapons systems. We expect the
sales volume in our U.S. Electronics Group to remain at current levels or
decrease slightly during the second half of fiscal 2000 due to order timing.
Gross Profit. Gross profit increased by $2.3 million, or 24.2%, to $11.8 million
for the six months ended November 30, 1999, from $9.5 million for the six months
ended November 30, 1998. This increase was primarily due to six months of
operations of the European Aerospace Group in 1999 versus four months in 1998.
As a percentage of net sales, gross profit increased to 20.5% for the six months
ended November 30, 1999, from 19.1% for the six months ended November 30, 1998.
The six months ended November 30, 1998 included a $1.6 million inventory
impairment charge. Without that charge, gross profit would have been $11.1
million, or 22.3% of net sales. The resulting comparative decrease in gross
profit during the first six months of fiscal 2000 from the first six months of
fiscal 1999 was due to lower gross margins in our U.S. Aerospace group primarily
due to customer pricing reduction programs and lower sales volumes. We
anticipate that gross margins in the second half of fiscal 2000 will increase
slightly over margins achieved during the first six months of fiscal 2000 due to
anticipated increases in sales volume within our U.S. Aerospace Group as
mentioned above.
Operating Expenses. Operating expenses increased by $1.6 million, or 19.8%, to
$9.7 million for the six months ended November 30, 1999, from $8.1 million for
the six months ended November 30, 1998. As a percentage of net sales, operating
expenses increased 0.4 percentage points, to 16.8% for the six months ended
November 30, 1999, from 16.4% for the six months ended November 30, 1998. The
increase in operating expenses is primarily attributable to six months of
18
<PAGE>
operations in our European Aerospace group in 1999 versus four months of
operations in 1998. In addition, computer system upgrades and other "Y2K"
expenditures have caused an increase in operating expenses during the first six
months of fiscal 2000.
Interest Expense. Interest expense increased by $1.4 million, or 36.8%, to $5.2
million for the six months ended November 30, 1999, from $3.8 million for the
six months ended November 30, 1998. This increase was due to six months of
interest expense during 1999 on our 11 1/4% senior subordinated notes, versus
four months of interest expense on these notes in 1998, offset slightly by
principal pay down of other debt during fiscal 1999.
Other Income (Expense). Other income (expense) includes non-recurring and
non-operational income and expense for the period. Other expense decreased by
$6.9 million, to $11,000, for the six months ended November 30, 1999. Other
expense during the six months ended November 30, 1998 included non-recurring
charges of $3.6 million and $3.1 million related to goodwill and investment
valuation allowances, respectively.
Provision for Income Taxes. Income taxes for the six months ended November 30,
1999 and 1998 primarily represent changes in the valuation allowance to adjust
deferred income tax assets to amounts determined to be realizable based upon
current operating results, and U.K. tax on U.K. earnings of our European
Aerospace Group. At November 30, 1999, we had net operating loss (NOLs)
carryforwards for federal income tax purposes of approximately $14.0 million,
the benefits of which expire in the tax year 2001 through the tax year 2019. The
NOLs created by our subsidiaries prior to their acquisition, and the NOLs
created as a consolidated group or groups subsequent to a qualifying tax free
merger or acquisition, have limitations related to the amount of usage by each
subsidiary or consolidated group as described in the Internal Revenue Code. As a
result of these limitations, approximately $1.5 million of the $14.0 million of
NOLs will never become available. At November 30, 1999 we had net deferred tax
assets of $4.0 million, the realization of which is dependent on material
increases in present levels of pre-tax income, primarily in the United States.
We expect to achieve these increases by continuing to streamline operations,
reduce corporate overhead and focus our resources on higher growth and higher
margin opportunities. We are also actively evaluating strategic alternatives to
reduce debt and related interest expense. We anticipate that our effective
income tax rate will approach and may exceed the statutory rate in the future as
pre-tax income is achieved. In addition, undistributed earnings of our foreign
subsidiaries, for which a minimal amount of U.S. income taxes have been
provided, aggregated approximately $1.4 million at November 30, 1999.
Net Loss. Net loss decreased by $3.5 million, or 50.0%, to a net loss of $3.5
million for the six months ended November 30, 1999, from a net loss of $7.0
million for the six months ended November 30, 1998, due to the factors listed
above.
Liquidity and Capital Resources
- -------------------------------
Liquidity. During the quarter and six months ended November 30, 1999, our
operating activities used cash of $292,000 and $3.3 million, respectively. Cash
at November 30, 1999 was $3.6 million (compared to $8.1 million at May 31,
1999). All but $322,000 of the cash resides at subsidiaries that are not
guarantors of our 11 1/4% senior subordinated notes. Remittance of cash from
non-guarantor subsidiaries may cause us to incur income tax expense in the U.S.
on the amount of earnings of our foreign subsidiaries. During the six months
ended November 30, 1999, we borrowed $5.6 million under a previously unused $6.3
million line of credit. We believe that our working capital and unused lines of
credit are sufficient to meet our obligations as they become due during fiscal
2000. However, we may need to obtain additional cash during or after fiscal
19
<PAGE>
2000. Should we need to dispose of assets to generate cash, there is no
assurance that the carrying values will be realizable upon liquidation outside
of the ordinary course of business. Our inability to obtain additional cash if
and when needed could have a material adverse effect on our financial position
and results of operations. As part of our 11 1/4% senior subordinated notes, we
are subject to an indenture that, among other things, limits our ability to
enter into various financing transactions and to sell certain assets. We are
actively evaluating strategic alternatives to reduce debt and related interest
expense.
Financing. Our primary banking relationships include a revolving line of credit
up to $6.3 million for our U.S. operations and a revolving line of credit up to
approximately $5.6 million ((pound)3.5 million) for our European operations. As
of November 30, 1999, we had drawn $5.6 million on our U.S. line of credit, and
our European line of credit was unused. Proceeds from the U.S. line of credit
have been used to fund working capital due to losses (approximately $3.0
million), payments related to the Orca guarantee (approximately $1.0 million),
and a loan to Nova-Tech Engineering, Inc. (approximately $1.5 million).
Capital Expenditures. We made capital expenditures of $1.3 million during the
second quarter of fiscal 2000. The expenditures were primarily for manufacturing
equipment and building improvements. The expansion of the manufacturing facility
that is used by two divisions of our U.S. Electronics Group has been
rescheduled, although most of the building material needed to complete the
project was purchased prior to the decision to defer the expansion. This
expansion is expected to be completed late in fiscal 2000 or early in the next
fiscal year, for a total cost of approximately $800,000, of which approximately
$200,000 has already been expended.
We have also entered into a stock purchase agreement for the proposed
acquisition of Nova-Tech Engineering, Inc. ("Nova-Tech"). The purchase price
will consist of approximately $1.5 million in cash, and we will pay off certain
outstanding debts of Nova-Tech at closing. The stock purchase agreement contains
conditions to closing, including receipt of a letter ruling from the Internal
Revenue Service that is necessary to permit Nova-Tech's Employee Stock Ownership
Plan to sell its Nova-Tech stock on the agreed terms. The letter ruling request
was delivered to the Internal Revenue Service in November 1999, and we cannot
predict when a response will be received. We are currently providing services to
Nova-Tech under an Operating Agreement dated April 23, 1999. As of November 30,
1999, we had loaned $2.5 million to Nova-Tech for working capital. These loans
have been made under the terms of two demand notes dated April 26, 1999 and
August 5, 1999, each of which is secured by substantially all of the assets of
Nova-Tech.
As of November 30, 1999, we had no other material commitments outstanding for
the purchases of capital assets.
Orca Technologies, Inc. In July 1997 we guaranteed a $1.3 million line of credit
between Orca Technologies, Inc. and its principal lender. In June 1999, as
guarantor of Orca's line of credit, we advanced $300,000 for a partial repayment
of the line of credit required by the lender. In October 1999, we advanced an
additional $522,000 for another partial repayment required by the lender. During
the second quarter of fiscal 2000, we advanced $509,000, and early in the third
quarter of fiscal 2000 we advanced $82,000, which completely repaid the
guaranteed debt. Those advances are secured by a security interest in
substantially all of Orca's assets. We also entered into an agreement with Orca
regarding those advances that restricts Orca's ability to take certain actions
without our consent. During fiscal 1999, we recorded in other expense an
allowance for certain expenses and the guarantee of Orca's line of credit
totaling approximately $2.0 million. This allowance had the effect of writing
off the entire amount of our guarantee obligation. As a result, the payments
described above affected cash flow, but did not affect earnings during fiscal
2000. As
20
<PAGE>
of November 30, 1999, Orca was sixteen months delinquent to us in interest
payments on a $950,000 promissory note. We reserved the entire amount of this
note in other expense during fiscal 1998 and fiscal 1999. During the second and
third quarters of fiscal 2000, we negotiated with a potential investor in Orca
for the possible sale by us of certain of Orca's debt obligations to us for a
deeply discounted price. This sale did not occur, and we are continuing to
investigate our options for recovering some of the previously written off debt.
As of November 30, 1999, Orca was also sixteen months delinquent on lease
payments for premises that it subleased from us. In November 1999 we evicted
Orca from most of the space that it previously subleased from us, and we
negotiated a termination of our lease of that facility and the re-leasing of the
space to another tenant of the building. Under the termination agreement, our
rentable space was reduced from approximately 21,390 square feet to 3,808 square
feet, and the lease term was shortened from August 31, 2004 to February 28,
2000. Our obligations to the landlord have terminated with respect to the
approximately 17,500 square feet that have been delivered to the new tenant, and
will terminate with respect to the remaining space, which is currently occupied
by Orca, on or about February 28, 2000. We have notified Orca that they must
vacate that space prior to February 28, 2000.
Significant Events During The Quarter
- -------------------------------------
Year 2000
- ---------
Our comprehensive strategy for updating our information management and
manufacturing systems for Year 2000, or Y2K, compliance appears to have been
successful. Our information technology ("IT") systems appear to be working
properly, with only a few minor glitches as a result of Y2K problems. We are
continuing to monitor all of our systems for any current or future problems. We
have not to date experienced any material Y2K problems related to any of our
vendors or customers. We incurred approximately $275,000 in costs related to
addressing Y2K issues during fiscal 1999 and the first two quarters of fiscal
2000, and approximately $25,000 more during December 1999.
New Accounting Pronouncements
- -----------------------------
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133
requires the recognition of all derivatives in the consolidated balance sheet as
either assets or liabilities measured at fair value. SFAS No. 133 was effective
for fiscal years beginning after June 15, 1999. In June 1999, the FASB issued
SFAS No. 137, which delays implementation of SFAS No. 133 until fiscal years
beginning after June 15, 2000. The adoption of SFAS No. 133 is not expected to
have a material effect on the Company's financial position.
21
<PAGE>
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
We have financial instruments that are subject to interest rate risk, primarily
debt obligations issued at a fixed rate. However, fixed-rate debt obligations
issued by us are generally not callable until maturity. The fair value of such
instruments approximates their face value, except for the 11 1/4% senior
subordinated notes which, as of November 30, 1999, were trading on the open
market for approximately 50% to 60% of face value. We do not consider the market
risk exposure for interest rates to be material.
We are subject to foreign currency exchange rate risk relating to receipts from
and payments to suppliers in foreign currencies. Since approximately 50% of our
transactions are conducted in foreign currency, the exchange rate risk could be
material. We have not entered into any hedging activity as of November 30, 1999.
We are exposed to commodity price fluctuations through purchases of aluminum and
other raw materials. We enter into certain supplier agreements that guarantee
quantity and price of the applicable commodity to limit the exposure to
commodity price fluctuations and availability concerns. At November 30, 1999, we
had purchase commitments for raw materials aggregating approximately $4,000,000.
We hold an investment in the common stock of a public company. We are exposed to
risks associated with the quoted equity price of the common stock. At November
30, 1999, the reported value of the investment was $19,000.
22
<PAGE>
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time the Company is involved in legal proceedings relating to
claims arising out of operations in the normal course of business. The Company
is not aware of any material legal proceedings pending or threatened against the
Company or any of its properties.
ITEM 2. CHANGES IN SECURITIES
(a) None.
(b) Dividend Payment Restrictions
In connection with the issuance of its 11 1/4% Senior Subordinated Notes due
2005, which have been exchanged for 11 1/4% Series B Senior Subordinated Notes
due 2005, the Company is subject to an Indenture that limits the Company's
ability to pay dividends, repurchase its equity securities, make certain other
kinds of restricted payments, and incur certain indebtedness. The Company has
never declared or paid cash dividends on the Common Stock. The Company currently
anticipates that it will retain all future earnings to fund the operation of its
business and does not anticipate paying dividends on the Common Stock in the
foreseeable future.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Shareholders of the Company (the "Annual Meeting") was
held on October 12, 1999. The shareholders voted upon the following matters at
the Annual Meeting:
(a) Election of Directors
The following six directors nominated by the Board of Directors were elected to
serve as directors of the Company until the 2000 Annual Meeting of Shareholders:
BROKER
DIRECTOR FOR AGAINST ABSTAIN NON-VOTES
------------------ ---------- ------- ------- ---------
Allen W. Dahl 13,831,811 173,407 694,820 -0-
Werner Hafelfinger 13,859,317 145,901 694,820 -0-
Dale Rasmussen 13,884,140 121,078 694,820 -0-
Robert M. Stemmler 13,849,421 155,797 694,820 -0-
William A. Wheeler 13,864,221 140,997 694,820 -0-
Donald A. Wright 13,671,541 332,977 695,520 -0-
(b) Approval of 1999 Stock Incentive Plan
The Company's 1999 Stock Incentive Plan, as described in the Company's proxy
materials for the Annual Meeting, was approved by the following vote:
23
<PAGE>
For 4,422,648
Against 1,530,732
Abstain 230,088
Broker Non-Votes 8,516,570
TOTAL 14,700,038
(c) Ratification of KPMG LLP as the Company's Independent Auditor
The selection of KPMG LLP as the Company's independent auditor was ratified by
the following vote:
For 14,370,739
Against 199,504
Abstain 129,795
Broker Non-Votes -0-
TOTAL 14,700,038
Item 5. Other Information
Nasdaq
On December 20, 1999, the Company received a letter from Nasdaq raising a
concern regarding the continued listing of the Company's shares of common stock
on the Nasdaq National Market System. The letter advised the Company that its
common stock had failed to maintain a minimum bid price greater than or equal to
$1.00 over the previous thirty consecutive trading days, as required by
applicable Nasdaq rules.
The letter advised the Company that the Company would be provided 90 calendar
days, or until March 20, 2000, to regain compliance with the minimum bid price
rule. The letter further advised that if, at any time before March 20, 2000, the
bid price of the Company's shares of common stock is equal to or greater than
$1.00 for a minimum of ten consecutive trading days, Nasdaq would determine if
compliance with the requirement had been achieved. However, if the Company were
unable to demonstrate compliance with the requirement on or before March 20,
2000, the Company's common stock would be delisted at the opening of business on
March 22, 2000. In such event, the Company's common stock would trade on the
electronic bulletin board, rather than on either the Nasdaq National Market or
Small Cap Systems. This could reduce the liquidity of the market for the
Company's common stock.
As of January 10, 2000, the Company's common stock had traded above $1.00 for 10
consecutive trading days.
The Company believes that it is important to the Company and its shareholders to
continue to be listed on the Nasdaq National Market System. Accordingly, if
Nasdaq were to determine that the Company continued to be out of compliance with
the minimum bid price requirement, the Company currently intends that it would
call a special meeting of its shareholders to approve a reverse stock split or
to approve such other appropriate action as would be reasonably calculated to
bring the Company's common stock into compliance with the requirement.
24
<PAGE>
Preferred Stock
In May and August 1998, the Company issued a total of 170,000 shares of Series B
Convertible Preferred Stock (the "Preferred Stock") and issued related warrants
for a total price of $17 million in a private placement to 17 accredited
investors. As of January 10, 2000, 28,213 shares of Preferred Stock had been
converted into 2,309,021 shares of common stock, and 141,787 shares of Preferred
Stock remained outstanding.
Upon conversion of a share of Preferred Stock, the holder receives a number of
shares of common stock equal to $100 divided by the then-applicable conversion
price. The conversion price of the Preferred Stock is the lower of (a) $7.20 per
share, or (b) the average of the three lowest closing bid prices per share of
the common stock over the 22 trading days before conversion. At January 10,
2000, the conversion price was $0.78125 per share. No holder is entitled to
voluntarily convert Preferred Stock that would cause the holder to own more than
9.9% of the Company's outstanding common stock at any time.
Because of Nasdaq National Market System requirements, the Company cannot issue
more than 3,000,000 shares of common stock upon conversion of Preferred Stock
unless the Company's shareholders approve the issuance of more than 3,000,000
shares. Alternatively, the Company could redeem any Preferred Stock whose
conversion would cause the issuance of more than 3,000,000 shares of common
stock, except that the indenture governing the Company's outstanding 11 1/4%
senior subordinated notes restricts the Company's ability to redeem Preferred
Stock.
The average conversion price that would result in the issuance of 3,000,000
shares of common stock is $5.67. Because the market price of the Company's
common stock has remained less than $5.67, the Company expects that 3,000,000
shares of common stock will not be sufficient to cover all of the Preferred
Stock to be converted, and that it may need to seek shareholder approval to
issue additional shares for conversion of Preferred Stock. If the Company's
shareholders were to approve the issuance of additional shares of common stock
for this purpose, the number of additional shares actually issued would depend
on the market price of the Company's common stock at the times when Preferred
Stock is converted by the holders, and would likely result in the issuance of a
substantial number of additional shares of common stock, which the Company would
be required to register for resale by the holders. This could negatively affect
the market price of the Company's common stock.
If the Company were to receive conversion notices that would result in the need
to issue more than 3,000,000 shares of common stock, and the Company did not
either (a) redeem the Preferred Stock whose conversion would cause the issuance
of more than 3,000,00 shares, or (b) obtain shareholder approval to issue
additional shares, the Company would be unable to convert all of the Preferred
Stock. If that occurred, the Company would incur a significant monthly penalty
to the holders of Preferred Stock until the Company either redeemed the
Preferred Stock or obtained shareholder approval to issue the additional shares.
25
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits.
The following documents are filed as exhibits to this Quarterly Report:
Exhibit
Number Description
2.1 Stock Purchase Agreement, dated October 11, 1999, between
Pacific Aerospace & Electronics, Inc. and the Shareholders of
Nova-Tech Engineering, Inc.(29)
3.1 Articles of Incorporation of Pacific Aerospace & Electronics,
Inc.(6)
3.2 Amendment to Articles of Incorporation containing Designation
of Rights and Preferences of Series A Convertible Preferred
Stock, as corrected. (8)
3.3 Amendment to Articles of Incorporation containing Designation
of Rights and Preferences of Series B Convertible Preferred
Stock. (20)
3.4 Bylaws of Pacific Aerospace & Electronics, Inc.(6)
10.1 Amended and Restated Stock Incentive Plan.(5)
10.2 Amendment No. 1 to the Amended and Restated Stock Incentive
Plan. (19)
10.3 1999 Stock Incentive Plan. (30)
10.4 Amended and Restated Independent Director Stock Plan.(21)
10.5 1997 Employee Stock Purchase Plan.(11)
10.6 Employment Agreement, dated June 1, 1997, between Pacific
Aerospace & Electronics, Inc. and Donald A. Wright.(9)
10.7 Amendment No. 1 to Employment Agreement, dated January 29,
1999, between Pacific Aerospace & Electronics, Inc. and Donald
A. Wright.(27)
10.8 Employment Agreement, dated March 1, 1999, between Pacific
Aerospace & Electronics, Inc. and Werner Hafelfinger. (27)
10.9 Employment Agreement, dated June 1, 1997, between Pacific
Aerospace & Electronics, Inc. and Nick A. Gerde.(9)
10.10 Employment Agreement, dated September 1, 1997, between Pacific
Aerospace & Electronics, Inc. and Sheryl A. Symonds.(12)
10.11 Debt Restructuring Agreement, dated April 6, 1998, between
Pacific Aerospace & Electronics, Inc., Orca Technologies, Inc.,
Televar, Inc. and MONITRx, Inc.(15)
10.12 Commercial Guaranty, dated July 16, 1997, from Pacific
Aerospace & Electronics, Inc. to KeyBank National
Association.(13)
10.13 Sublease between Pacific Aerospace & Electronics, Inc. and Orca
Technologies, Inc. dated April 27, 1998.(20)
10.14 Demand Promissory Note, dated June 29, 1999, from Orca
Technologies, Inc. to Pacific Aerospace & Electronics, Inc.(29)
10.15 Security Agreement, dated June 29, 1999, from Orca
Technologies, Inc. to Pacific Aerospace & Electronics, Inc.(29)
10.16 Demand Promissory Note, dated October 5, 1999, from Orca
Technologies, Inc. to Pacific Aerospace & Electronics, Inc.(29)
10.17 Agreement Regarding Repayment Under Guarantee, dated October 5,
1999, between Pacific Aerospace & Electronics, Inc. and Orca
Technologies, Inc. (29)
10.18 Promissory Note, dated March 18, 1998, from Pacific Aerospace &
Electronics, Inc. to KeyBank National Association.(15)
26
<PAGE>
10.19 Security Agreement, dated March 18, 1998, from Pacific
Aerospace & Electronics, Inc. to KeyBank National
Association.(15)
10.20 Facility Letter, dated July 30, 1998, from Barclays Bank plc to
Aeromet International plc.(20)
10.21 Loan Agreement, dated September 7, 1999, between Pacific
Aerospace & Electronics, Inc. and KeyBank National Association.
(29)
10.22 Promissory Note, dated September 22, 1998, from Pacific
Aerospace & Electronics, Inc. to KeyBank National
Association.(22)
10.23 Modification and/or Extension Agreement, dated October 6, 1999,
between Pacific Aerospace & Electronics, Inc. and KeyBank
National Association.(29)
10.24 Commercial Security Agreement, dated September 7, 1999, between
Pacific Aerospace & Electronics, Inc. and KeyBank National
Association.(29)
10.25 Promissory Note, dated September 30, 1998, from Pacific
Aerospace & Electronics, Inc. to KeyBank National
Association.(22)
10.26 Deed of Trust, dated September 30, 1998, between Pacific
Aerospace & Electronics, Inc., KeyBank National Association and
Land Title Company, Chelan-Douglas County, Inc.(22)
10.27 General Terms Agreement No. PLR-950 Relating to Boeing Model
Aircraft between Cashmere Manufacturing Co., Inc. and Boeing
Commercial Airplane Group, effective as of February 5, 1990, as
amended.(3)
10.28 Special Business Provisions No. L-890821-8140N between The
Boeing Company and Cashmere Manufacturing Co., Inc. effective
as of December 18, 1992.(1)(3)
10.29 Special Business Provisions No. L-500660-8134N between The
Boeing Company and Cashmere Manufacturing Co., Inc. effective
as of December 31, 1991.(1)(3)
10.30 Special Business Provisions No. L-435579-8180N between The
Boeing Company and Cashmere Manufacturing Co., Inc. effective
as of August 11, 1994.(1)(3)
10.31 Special Business Provisions No. PLR-950A between The Boeing
Company and Cashmere Manufacturing Co., Inc. effective as of
February 5, 1990.(1)(3)
10.32 Administrative Agreement No. L-435579-8180N between Cashmere
Manufacturing Co., Inc. and Boeing Commercial Airplane Group
effective as of August 11, 1994.(3)
10.33 Special Business Provisions No. POP-65311-0047 between The
Boeing Company and Cashmere Manufacturing Co., Inc. effective
as of February 26, 1996.(1)(3)
10.34 General Terms Agreement No. BCA-65311-0044 between The Boeing
Company and Cashmere Manufacturing Co., Inc. effective as of
February 26, 1996.(3)
10.35 General Terms Agreement No. BCA-65311-0140 between The Boeing
Company and Cashmere Manufacturing Co., Inc. effective as of
June 11, 1997.(20)
10.36 Special Business Provisions No. POP-65311-0143 between The
Boeing Company and Cashmere Manufacturing Co., Inc. effective
as of June 11, 1997.(1)(20)
10.37 Long Term Agreement No. 0108098 between Northrop Grumman
Corporation and Cashmere Manufacturing Co., Inc. effective as
of April 6, 1998.(1)(20)
10.38 Option to Purchase, dated January 29, 1999, between Pacific
Aerospace & Electronics, Inc. and Donald A. Wright. (27)
10.39 Real Estate Agreement, dated January 15, 1999, between Pacific
Aerospace & Electronics, Inc. and the Port of Chelan County.
(27)
10.40 Operating Agreement, dated as of April 23, 1999, between
Pacific Aerospace & Electronics, Inc. and Nova-Tech
Engineering, Inc.(28)
10.41 Demand Promissory Note, dated April 26, 1999 from Nova-Tech
Engineering, Inc. to Pacific Aerospace & Electronics, Inc. (28)
10.42 Demand Promissory Note, dated August 5, 1999, from Nova-Tech
Engineering, Inc. to Pacific Aerospace & Electronics, Inc. (28)
27
<PAGE>
10.43 Security Agreement, dated April 26, 1999, from Nova-Tech
Engineering, Inc. to Pacific Aerospace & Electronics, Inc. (28)
27 Financial Data Schedule. (31)
- --------------
(1) Subject to confidential treatment. Omitted confidential information was
filed separately with the Securities and Exchange Commission.
(2) Incorporated by reference to the Company's Annual Report on Form 10-KSB for
the year ended May 31, 1995.
(3) Incorporated by reference to Amendment No. 1 to the Company's Registration
Statement on Form SB-2 filed on June 19, 1996.
(4) Incorporated by reference to the Company's Annual Report on Form 10-KSB for
the year ended May 31, 1996.
(5) Incorporated by reference to the Company's Current Report on Form 10-QSB
for the quarterly period ended November 30, 1996.
(6) Incorporated by reference to the Company's Current Report on Form 8-K filed
on December 12, 1996, reporting the reincorporation merger.
(7) Incorporated by reference to the Company's Registration Statement of
Certain Successor Issuers on Form 8-B filed on February 6, 1997.
(8) Incorporated by reference to the Company's Current Report on Form 8-K filed
on March 12, 1997, reporting the Series A Preferred Stock offering.
(9) Incorporated by reference to the Company's Annual Report on Form 10-KSB for
the fiscal year ending May 31, 1997.
(10) Incorporated by reference to the Company's Registration Statement on Form
S-8 filed on June 11, 1997.
(11) Incorporated by reference to the Company's Definitive Proxy Statement for
its 1997 Annual Shareholders Meeting, filed on August 28, 1997.
(12) Incorporated by reference to the Post-Effective Amendment No. 1 to Form
SB-2, filed on November 3, 1997.
(13) Incorporated by reference to the Company's Quarterly Report on Form 10-QSB
for the quarterly period ending November 30, 1997.
(14) Incorporated by reference to the Company's Registration Statement on Form
S-3 filed on December 3, 1997.
(15) Incorporated by reference to the Company's Quarterly Report on Form 10-QSB
for the quarterly period ending February 28, 1998.
(16) Incorporated by reference to the Company's Current Report on Form 8-K/A,
filed on May 1, 1998.
(17) Incorporated by reference to the Company's Current Report on Form 8-K filed
on July 10, 1998.
(18) Incorporated by reference to the Company's Current Report on Form 8-K filed
on August 14, 1998.
(19) Incorporated by reference to the Company's Registration Statement on Form
S-8 filed on November 7, 1997.
(20) Incorporated by reference to the Company's Annual Report on Form 10-K for
the fiscal year ending May 31, 1998.
(21) Incorporated by reference to the Company's Definitive Proxy Statement filed
on September 1, 1998.
(22) Incorporated by reference to the Company's Quarterly Report on Form 10-Q,
and Form 10-Q/A, for the quarterly period ending August 31, 1998.
(23) Incorporated by reference to the Company's Registration Statement on Form
S-1 filed on October 30, 1998.
28
<PAGE>
(24) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarterly period ending November 30, 1998.
(25) Incorporated by reference to Registration Statement on Form S-4 filed on
November 25, 1998.
(26) Incorporated by reference to Amendment No. 1 to Registration Statement on
Form S-4 filed on January 20, 1999.
(27) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarterly period ending February 28, 1999.
(28) Incorporated by reference to the Company's Annual Report on Form 10-K filed
on August 30, 1999.
(29) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarterly period ending August 31, 1999.
(30) Incorporated by reference to the Company's Definitive Proxy Statement filed
on September 1, 1999.
(31) Filed with this report.
b. Reports on Form 8-K.
None.
29
<PAGE>
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.
PACIFIC AEROSPACE & ELECTRONICS, INC.
Date: January 12, 2000 /s/ DONALD A. WRIGHT
-----------------------------------------
Donald A. Wright
President, Chief Executive Officer, and
Chairman of the Board
(Principal Executive Officer)
Date: January 12, 2000 /s/ NICK A. GERDE
-----------------------------------------
Nick A. Gerde
Vice President Finance, Chief Financial
Officer and Treasurer
(Principal Financial and Accounting
Officer)
30
<PAGE>
EXHIBIT INDEX
The following documents are filed as exhibits to this Quarterly Report:
Exhibit
Number Description
2.1 Stock Purchase Agreement, dated October 11, 1999, between
Pacific Aerospace & Electronics, Inc. and the Shareholders of
Nova-Tech Engineering, Inc.(29)
3.1 Articles of Incorporation of Pacific Aerospace & Electronics,
Inc.(6)
3.2 Amendment to Articles of Incorporation containing Designation
of Rights and Preferences of Series A Convertible Preferred
Stock, as corrected. (8)
3.3 Amendment to Articles of Incorporation containing Designation
of Rights and Preferences of Series B Convertible Preferred
Stock. (20)
3.4 Bylaws of Pacific Aerospace & Electronics, Inc.(6)
10.1 Amended and Restated Stock Incentive Plan.(5)
10.2 Amendment No. 1 to the Amended and Restated Stock Incentive
Plan. (19)
10.3 1999 Stock Incentive Plan. (30)
10.4 Amended and Restated Independent Director Stock Plan.(21)
10.5 1997 Employee Stock Purchase Plan.(11)
10.6 Employment Agreement, dated June 1, 1997, between Pacific
Aerospace & Electronics, Inc. and Donald A. Wright.(9)
10.7 Amendment No. 1 to Employment Agreement, dated January 29,
1999, between Pacific Aerospace & Electronics, Inc. and Donald
A. Wright.(27)
10.8 Employment Agreement, dated March 1, 1999, between Pacific
Aerospace & Electronics, Inc. and Werner Hafelfinger. (27)
10.9 Employment Agreement, dated June 1, 1997, between Pacific
Aerospace & Electronics, Inc. and Nick A. Gerde.(9)
10.10 Employment Agreement, dated September 1, 1997, between Pacific
Aerospace & Electronics, Inc. and Sheryl A. Symonds.(12)
10.11 Debt Restructuring Agreement, dated April 6, 1998, between
Pacific Aerospace & Electronics, Inc., Orca Technologies, Inc.,
Televar, Inc. and MONITRx, Inc.(15)
10.12 Commercial Guaranty, dated July 16, 1997, from Pacific
Aerospace & Electronics, Inc. to KeyBank National
Association.(13)
10.13 Sublease between Pacific Aerospace & Electronics, Inc. and Orca
Technologies, Inc. dated April 27, 1998.(20)
10.14 Demand Promissory Note, dated June 29, 1999, from Orca
Technologies, Inc. to Pacific Aerospace & Electronics, Inc.(29)
10.15 Security Agreement, dated June 29, 1999, from Orca
Technologies, Inc. to Pacific Aerospace & Electronics, Inc.(29)
10.16 Demand Promissory Note, dated October 5, 1999, from Orca
Technologies, Inc. to Pacific Aerospace & Electronics, Inc.(29)
10.17 Agreement Regarding Repayment Under Guarantee, dated October 5,
1999, between Pacific Aerospace & Electronics, Inc. and Orca
Technologies, Inc. (29)
10.18 Promissory Note, dated March 18, 1998, from Pacific Aerospace &
Electronics, Inc. to KeyBank National Association.(15)
10.19 Security Agreement, dated March 18, 1998, from Pacific
Aerospace & Electronics, Inc. to KeyBank National
Association.(15)
10.20 Facility Letter, dated July 30, 1998, from Barclays Bank plc to
Aeromet International plc.(20)
<PAGE>
10.21 Loan Agreement, dated September 7, 1999, between Pacific
Aerospace & Electronics, Inc. and KeyBank National Association.
(29)
10.22 Promissory Note, dated September 22, 1998, from Pacific
Aerospace & Electronics, Inc. to KeyBank National
Association.(22)
10.23 Modification and/or Extension Agreement, dated October 6, 1999,
between Pacific Aerospace & Electronics, Inc. and KeyBank
National Association.(29)
10.24 Commercial Security Agreement, dated September 7, 1999, between
Pacific Aerospace & Electronics, Inc. and KeyBank National
Association.(29)
10.25 Promissory Note, dated September 30, 1998, from Pacific
Aerospace & Electronics, Inc. to KeyBank National
Association.(22)
10.26 Deed of Trust, dated September 30, 1998, between Pacific
Aerospace & Electronics, Inc., KeyBank National Association and
Land Title Company, Chelan-Douglas County, Inc.(22)
10.27 General Terms Agreement No. PLR-950 Relating to Boeing Model
Aircraft between Cashmere Manufacturing Co., Inc. and Boeing
Commercial Airplane Group, effective as of February 5, 1990, as
amended.(3)
10.28 Special Business Provisions No. L-890821-8140N between The
Boeing Company and Cashmere Manufacturing Co., Inc. effective
as of December 18, 1992.(1)(3)
10.29 Special Business Provisions No. L-500660-8134N between The
Boeing Company and Cashmere Manufacturing Co., Inc. effective
as of December 31, 1991.(1)(3)
10.30 Special Business Provisions No. L-435579-8180N between The
Boeing Company and Cashmere Manufacturing Co., Inc. effective
as of August 11, 1994.(1)(3)
10.31 Special Business Provisions No. PLR-950A between The Boeing
Company and Cashmere Manufacturing Co., Inc. effective as of
February 5, 1990.(1)(3)
10.32 Administrative Agreement No. L-435579-8180N between Cashmere
Manufacturing Co., Inc. and Boeing Commercial Airplane Group
effective as of August 11, 1994.(3)
10.33 Special Business Provisions No. POP-65311-0047 between The
Boeing Company and Cashmere Manufacturing Co., Inc. effective
as of February 26, 1996.(1)(3)
10.34 General Terms Agreement No. BCA-65311-0044 between The Boeing
Company and Cashmere Manufacturing Co., Inc. effective as of
February 26, 1996.(3)
10.35 General Terms Agreement No. BCA-65311-0140 between The Boeing
Company and Cashmere Manufacturing Co., Inc. effective as of
June 11, 1997.(20)
10.36 Special Business Provisions No. POP-65311-0143 between The
Boeing Company and Cashmere Manufacturing Co., Inc. effective
as of June 11, 1997.(1)(20)
10.37 Long Term Agreement No. 0108098 between Northrop Grumman
Corporation and Cashmere Manufacturing Co., Inc. effective as
of April 6, 1998.(1)(20)
10.38 Option to Purchase, dated January 29, 1999, between Pacific
Aerospace & Electronics, Inc. and Donald A. Wright. (27)
10.39 Real Estate Agreement, dated January 15, 1999, between Pacific
Aerospace & Electronics, Inc. and the Port of Chelan County.
(27)
10.40 Operating Agreement, dated as of April 23, 1999, between
Pacific Aerospace & Electronics, Inc. and Nova-Tech
Engineering, Inc.(28)
10.41 Demand Promissory Note, dated April 26, 1999 from Nova-Tech
Engineering, Inc. to Pacific Aerospace & Electronics, Inc. (28)
10.42 Demand Promissory Note, dated August 5, 1999, from Nova-Tech
Engineering, Inc. to Pacific Aerospace & Electronics, Inc. (28)
10.43 Security Agreement, dated April 26, 1999, from Nova-Tech
Engineering, Inc. to Pacific Aerospace & Electronics, Inc. (28)
27 Financial Data Schedule. (31)
<PAGE>
- --------------
(1) Subject to confidential treatment. Omitted confidential information was
filed separately with the Securities and Exchange Commission.
(2) Incorporated by reference to the Company's Annual Report on Form 10-KSB for
the year ended May 31, 1995.
(3) Incorporated by reference to Amendment No. 1 to the Company's Registration
Statement on Form SB-2 filed on June 19, 1996.
(4) Incorporated by reference to the Company's Annual Report on Form 10-KSB for
the year ended May 31, 1996.
(5) Incorporated by reference to the Company's Current Report on Form 10-QSB
for the quarterly period ended November 30, 1996.
(6) Incorporated by reference to the Company's Current Report on Form 8-K filed
on December 12, 1996, reporting the reincorporation merger.
(7) Incorporated by reference to the Company's Registration Statement of
Certain Successor Issuers on Form 8-B filed on February 6, 1997.
(8) Incorporated by reference to the Company's Current Report on Form 8-K filed
on March 12, 1997, reporting the Series A Preferred Stock offering.
(9) Incorporated by reference to the Company's Annual Report on Form 10-KSB for
the fiscal year ending May 31, 1997.
(10) Incorporated by reference to the Company's Registration Statement on Form
S-8 filed on June 11, 1997.
(11) Incorporated by reference to the Company's Definitive Proxy Statement for
its 1997 Annual Shareholders Meeting, filed on August 28, 1997.
(12) Incorporated by reference to the Post-Effective Amendment No. 1 to Form
SB-2, filed on November 3, 1997.
(13) Incorporated by reference to the Company's Quarterly Report on Form 10-QSB
for the quarterly period ending November 30, 1997.
(14) Incorporated by reference to the Company's Registration Statement on Form
S-3 filed on December 3, 1997.
(15) Incorporated by reference to the Company's Quarterly Report on Form 10-QSB
for the quarterly period ending February 28, 1998.
(16) Incorporated by reference to the Company's Current Report on Form 8-K/A,
filed on May 1, 1998.
(17) Incorporated by reference to the Company's Current Report on Form 8-K filed
on July 10, 1998.
(18) Incorporated by reference to the Company's Current Report on Form 8-K filed
on August 14, 1998.
(19) Incorporated by reference to the Company's Registration Statement on Form
S-8 filed on November 7, 1997.
(20) Incorporated by reference to the Company's Annual Report on Form 10-K for
the fiscal year ending May 31, 1998.
(21) Incorporated by reference to the Company's Definitive Proxy Statement filed
on September 1, 1998.
(22) Incorporated by reference to the Company's Quarterly Report on Form 10-Q,
and Form 10-Q/A, for the quarterly period ending August 31, 1998.
(23) Incorporated by reference to the Company's Registration Statement on Form
S-1 filed on October 30, 1998.
(24) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarterly period ending November 30, 1998.
(25) Incorporated by reference to Registration Statement on Form S-4 filed on
November 25, 1998.
(26) Incorporated by reference to Amendment No. 1 to Registration Statement on
Form S-4 filed on January 20, 1999.
<PAGE>
(27) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarterly period ending February 28, 1999.
(28) Incorporated by reference to the Company's Annual Report on Form 10-K filed
on August 30, 1999.
(29) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarterly period ending August 31, 1999.
(30) Incorporated by reference to the Company's Definitive Proxy Statement filed
on September 1, 1999.
(31) Filed with this report.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
unaudited financial statements of Pacific Aerospace & Electronics, Inc., and
its subsidiaries for the six month period ended November 30, 1999 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAY-31-1999
<PERIOD-END> NOV-30-1999
<CASH> 3,582,000
<SECURITIES> 0
<RECEIVABLES> 24,082,000
<ALLOWANCES> 556,000
<INVENTORY> 25,663,000
<CURRENT-ASSETS> 56,043,000
<PP&E> 58,972,000
<DEPRECIATION> 13,042,000
<TOTAL-ASSETS> 155,809,000
<CURRENT-LIABILITIES> 23,727,000
<BONDS> 81,317,000
0
0
<COMMON> 20,000
<OTHER-SE> 50,442,000
<TOTAL-LIABILITY-AND-EQUITY> 155,809,000
<SALES> 57,571,000
<TOTAL-REVENUES> 57,571,000
<CGS> 45,760,000
<TOTAL-COSTS> 45,760,000
<OTHER-EXPENSES> 9,686,000
<LOSS-PROVISION> 60,000
<INTEREST-EXPENSE> 5,152,000
<INCOME-PRETAX> (2,985,000)
<INCOME-TAX> 535,000
<INCOME-CONTINUING> (3,520,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,520,000)
<EPS-BASIC> (0.18)
<EPS-DILUTED> (0.18)
</TABLE>
