<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended August 31, 2000
[_] 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)
<TABLE>
<S> <C>
Washington 91-1744587
(State or other jurisdiction of incorporation (I.R.S. Employer Identification No.)
or organization)
</TABLE>
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 October 5, 2000, there were
34,290,723 shares outstanding of the Company's Common Stock, par value $.001 per
share.
1
<PAGE>
ITEM 1. FINANCIAL INFORMATION
Consolidated Balance Sheets - August 31, 2000 and May 31, 2000
Consolidated Statements of Operations and Comprehensive Income - First Quarters
Ended August 31, 2000 and 1999
Consolidated Statements of Cash Flow - First Quarters Ended August 31, 2000 and
1999
Management's Statement and Notes to Unaudited Consolidated Financial Statements
- First Quarter Ended August 31, 2000
2
<PAGE>
PACIFIC AEROSPACE & ELECTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
August 31, 2000 and May 31, 2000
<TABLE>
<CAPTION>
August 31, May 31,
2000 2000
ASSETS (Unaudited) (Audited)
------------------------------------------------------------------------- -------------- --------------
<S> <C> <C>
CURRENT ASSETS
Cash $ - $ 2,154,000
Accounts receivable, net 21,349,000 21,210,000
Inventories 29,223,000 27,849,000
Deferred income taxes 867,000 872,000
Prepaid expense and other current assets 2,089,000 1,668,000
-------------- --------------
Total Current Assets 53,528,000 53,753,000
-------------- --------------
PROPERTY AND EQUIPMENT, NET 42,774,000 44,076,000
-------------- --------------
OTHER ASSETS
Costs in excess of net book value of acquired subsidiaries, net 36,780,000 38,291,000
Patents, net 1,132,000 1,158,000
Deferred financing costs, net 3,528,000 3,597,000
Deferred income taxes 2,813,000 3,006,000
Other assets 395,000 404,000
-------------- --------------
Total Other Assets 44,648,000 46,456,000
-------------- --------------
TOTAL ASSETS $ 140,950,000 $ 144,285,000
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
-------------------------------------------------------------------------
CURRENT LIABILITIES
Accounts payable $ 11,797,000 $ 10,630,000
Accrued liabilities 3,894,000 4,589,000
Accrued interest 597,000 2,372,000
Current portion of long-term debt 1,088,000 1,098,000
Current portion of capital lease obligations 477,000 504,000
Line of credit 6,410,000 5,379,000
-------------- --------------
Total Current Liabilities 24,263,000 24,572,000
-------------- --------------
LONG-TERM LIABILITIES
Long-term debt, net of current portion 3,890,000 4,161,000
Capital lease obligations, net of current portion 965,000 1,065,000
Senior subordinated notes payable 63,700,000 63,700,000
Deferred income taxes 677,000 703,000
Deferred rent and other 316,000 316,000
-------------- --------------
Total Long Term Liabilities 69,548,000 69,945,000
-------------- --------------
Total Liabilities 93,811,000 94,517,000
-------------- --------------
STOCKHOLDERS' EQUITY
Convertible preferred stock - -
Common stock 34,000 30,000
Additional paid in capital 85,060,000 83,173,000
Accumulated other comprehensive income (8,516,000) (6,250,000)
Accumulated deficit (29,439,000) (27,185,000)
-------------- --------------
Total Stockholders' Equity 47,139,000 49,768,000
-------------- --------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 140,950,000 $ 144,285,000
============== ==============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
PACIFIC AEROSPACE & ELECTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
First Quarters Ended August 31, 2000 and 1999
Quarters Ended
-----------------------------------
August 31, August 31,
2000 1999
(Unaudited) (Unaudited)
------------ ------------
NET SALES $ 27,643,000 $ 28,571,000
COST OF SALES 22,721,000 22,011,000
------------ ------------
GROSS PROFIT 4,922,000 6,560,000
OPERATING EXPENSES 4,812,000 5,104,000
------------ ------------
INCOME FROM OPERATIONS 110,000 1,456,000
------------ ------------
OTHER INCOME AND EXPENSE
Interest Income - 48,000
Interest Expense (2,296,000) (2,548,000)
Other 47,000 3,000
------------ ------------
(2,249,000) (2,497,000)
------------ ------------
NET LOSS BEFORE INCOME TAX EXPENSE (2,139,000) (1,041,000)
INCOME TAX EXPENSE (113,000) (465,000)
------------ ------------
NET LOSS (2,252,000) (1,506,000)
------------ ------------
OTHER COMPREHENSIVE INCOME (LOSS):
Foreign currency translation (2,266,000) 3,000
Income tax expense - (1,000)
------------ ------------
(2,266,000) 2,000
------------ ------------
COMPREHENSIVE LOSS $ (4,518,000) $ (1,504,000)
============ ============
NET LOSS PER SHARE:
BASIC $ (0.07) $ (0.08)
DILUTED $ (0.07) $ (0.08)
SHARES USED IN COMPUTATION OF
NET LOSS PER SHARE:
BASIC 33,113,503 19,107,521
DILUTED 33,113,503 19,107,521
The accompanying notes are an integral part of these consolidated
financial statements.
4
<PAGE>
PACIFIC AEROSPACE & ELECTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
First Quarters Ended August 31, 2000 and 1999
<TABLE>
<CAPTION>
Quarters Ended
-----------------------------------------------
August 31, August 31,
2000 1999
(Unaudited) (Unaudited)
----------- -----------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Net cash used in operating activities $(3,864,000) $(2,959,000)
------------ -----------
CASH FLOW FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment (813,000) (1,200,000)
Acquisition of subsidiaries - (1,282,000)
Increase in notes receivable - (1,365,000)
------------ -----------
Net cash used in investing activities (813,000) (3,847,000)
------------ -----------
CASH FLOW FROM FINANCING ACTIVITIES
Net borrowings under line of credit 1,042,000 2,600,000
Proceeds from long-term debt 26,000 -
Payments on long term debt and capital leases (407,000)
Sale of common stock, net of issuance costs 1,891,000 27,000
------------ -----------
Net cash provided by financing activities 2,552,000 1,418,000
------------ -----------
NET CHANGE IN CASH (2,125,000) (5,388,000)
CASH AT BEGINNING OF PERIOD 2,154,000 8,134,000
EFFECT OF EXCHANGE RATES ON CASH (29,000) (138,000)
------------ -----------
CASH AT END OF PERIOD $ - $ 2,608,000
============ ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
PACIFIC AEROSPACE & ELECTRONICS, INC. AND SUBSIDIARIES
MANAGEMENT'S STATEMENT AND
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
First Quarter Ended August 31, 2000
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 August 31, 2000 and May 31, 2000, the consolidated
results of operations for the quarters ended August 31, 2000 and August 31,
1999, and the consolidated statements of cash flows for the quarters ended
August 31, 2000 and August 31, 1999. 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, 2000 and 1999.
The results of operations for the quarter August 31, 2000 are not necessarily
indicative of the results to be expected or anticipated for the full fiscal
year.
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 February 29, 2000 and
February 28, 1999, basic and diluted net loss per share are the same.
Potential amounts of shares that were not included in the computation of
weighted average diluted shares were 7,043,344, which represents warrants and
options outstanding as of August 31, 2000. This amount does not include a
currently undeterminable number of shares issuable with respect to the
adjustable warrants or the vesting warrants issued in the Company's Summer 2000
private placement, which could be material.
6
<PAGE>
Note 2: Inventories
-----------
Components of inventories are as follows:
August 31, May 31,
2000 2000
---- ----
Raw materials $ 8,303,000 $ 7,176,000
Work in progress 13,079,000 13,580,000
Finished goods 7,841,000 7,093,000
------------- ------------
Total $ 29,223,000 $ 27,849,000
============= ============
Note 3: Going Concern
-------------
The Company's consolidated financial statements have been prepared assuming the
Company will continue as a going concern.
During the quarter ended August 31, 2000, the Company's operating activities
used cash of $3,864,000. The Company's future success will depend heavily on its
ability to generate cash from operating activities and to meet its obligations
as they become due. If the Company is not sufficiently successful in increasing
cash provided by operating activities, it may need to sell additional common
stock or sell assets outside of the ordinary course of business in order to meet
its obligations. There is no assurance that the Company will be able to achieve
sufficient cash from operations, to sell additional common stock, or to sell
assets for amounts in excess of book value. The Company's ability to obtain
additional cash if and when needed could have a material adverse effect on its
financial position, results of operations and its ability to continue as a going
concern. The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
Note 4: Segment Information and Concentration of Risk
---------------------------------------------
The Company is organized into three operational segments, "U.S. Aerospace,"
"European Aerospace," and "U.S. Electronics." The Aerospace segments are
primarily comprised of machined, formed and cast metal product operations. Net
sales of the Aerospace segments include sales to customers in the aerospace,
defense and transportation industries. Net sales of the Electronics segment also
include sales to customers in the aerospace and defense industries.
Historically, these segments have been cyclical and sensitive to general
economic and industry specific conditions. In particular, the aerospace
industry, in recent years, has been adversely affected by a number of factors,
including reduced demand for commercial aircraft, a decline in military
spending, postponement of overhaul and maintenance of aircraft, increased fuel
and labor costs, increased regulations, and intense price competition, among
other factors. In addition, there is no assurance that general economic
conditions will not lead to a downturn in demand for core components and
products of the Company, in each of its operational segments.
Presented below is the Company's operational segment information. In addition,
all operational segments identified as "U.S." and Corporate are located within
the U.S. while the operations and assets of the "European Aerospace" segment are
located within the United Kingdom.
7
<PAGE>
Quarter ended August 31, 2000
<TABLE>
<CAPTION>
Corporate,
U.S. European U.S. other and
Aerospace Aerospace Electronics eliminations Total
----------- ----------- ------------- ------------- ---------
<S> <C> <C> <C> <C> <C>
Net sales to customers $ 7,250,000 12,622,000 7,771,000 27,643,000
Net sales between segments 122,000 - - (122,000) -
Income (loss) from operations (1,180,000) 370,000 2,642,000 (1,722,000) 110,000
Interest expense 96,000 1,026,000 33,000 1,141,000 2,296,000
Other income (expense) 11,000 - 36,000 - 47,000
</TABLE>
Quarter ended August 31, 1999
<TABLE>
<CAPTION>
Corporate,
U.S. European U.S. other and
Aerospace Aerospace Electronics eliminations Total
--------- --------- ----------- ------------ -----
<S> <C> <C> <C> <C> <C>
Net sales to customers $ 7,889,000 14,373,000 6,309,000 - 28,571,000
Net sales between segments 35,000 - - (35,000) -
Income (loss) from operations 380,000 967,000 1,508,000 (1,399,000) 1,456,000
Interest income - 30,000 - 18,000 48,000
Interest expense 110,000 1,100,000 35,000 1,303,000 2,548,000
Other income (expense) 11,000 - 7,000 (15,000) 3,000
</TABLE>
Note 5: 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.
8
<PAGE>
Pacific Aerospace & Electronics, Inc.
Consolidating Condensed Balance Sheet
August 31, 2000
<TABLE>
<CAPTION>
NON-
GUARANTOR GUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
------
CURRENT ASSETS
Cash $ (45,000) $ 45,000 $ - $ - $ -
Accounts receivable, net - 10,065,000 11,754,000 (470,000) 21,349,000
Inventories - 19,231,000 9,992,000 - 29,223,000
Other 2,002,000 1,375,000 584,000 (1,005,000) 2,956,000
------------- ------------- ------------ -------------- -------------
Total current assets 1,957,000 30,716,000 22,330,000 (1,475,000) 53,528,000
PROPERTY, PLANT, AND EQUIPMENT, net 6,356,000 22,602,000 13,816,000 - 42,774,000
OTHER ASSETS
Costs in excess of net book value
of acquired subsidiaries, net - 3,265,000 33,515,000 - 36,780,000
Investment in and loans to subsidiaries 104,945,000 71,744,000 - (176,689,000) -
Other 7,167,000 701,000 - 7,868,000
------------- ------------- ------------ -------------- -------------
Total other assets 112,112,000 75,710,000 33,515,000 (176,689,000) 44,648,000
------------- ------------- ------------ -------------- -------------
TOTAL ASSETS $ 120,425,000 $ 129,028,000 $ 69,661,000 $ (178,164,000) $ 140,950,000
============= ============= ============ ============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Accounts payable $ 589,000 $ 5,403,000 $ 6,275,000 $ (470,000) $ 11,797,000
Current portion of long-term debt 161,000 927,000 - - 1,088,000
Line of credit 6,300,000 - 110,000 - 6,410,000
Other 1,187,000 2,497,000 2,289,000 (1,005,000) 4,968,000
------------- ------------- ------------ -------------- -------------
Total current liabilities 8,237,000 8,827,000 8,674,000 (1,475,000) 24,263,000
LONG-TERM LIABILITIES
Long-term debt, net of current portion 64,921,000 2,669,000 - - 67,590,000
Intercompany note and loan payable - 70,401,000 35,457,000 (105,858,000) -
Other 125,000 644,000 1,189,000 - 1,958,000
------------- ------------- ------------ -------------- -------------
Total long-term liabilities 65,046,000 73,714,000 36,646,000 (105,858,000) 69,548,000
SHAREHOLDERS' EQUITY
Convertible preferred stock - - - - -
Common stock 34,000 56,139,000 33,710,000 (89,849,000) 34,000
Additional paid-in capital 85,060,000 - - - 85,060,000
Accumulated other comprehensive loss (8,516,000) - (8,516,000) 8,516,000 (8,516,000)
Accumulated deficit (29,436,000) (9,652,000) (853,000) 10,502,000 (29,439,000)
------------- ------------- ------------ -------------- -------------
Total shareholders' equity 47,142,000 46,487,000 24,341,000 (70,831,000) 47,139,000
------------- ------------- ------------ -------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 120,425,000 $ 129,028,000 $ 69,661,000 $ (178,164,000) $ 140,950,000
============= ============= ============ ============== =============
</TABLE>
9
<PAGE>
Pacific Aerospace & Electronics, Inc.
Consolidating Condensed Balance Sheet
May 31, 2000
<TABLE>
<CAPTION>
GUARANTOR NON-GUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
------
CURRENT ASSETS
Cash $ (184,000) $ 58,000 $ 2,280,000 $ - $ 2,154,000
Accounts receivable, net - 9,047,000 12,527,000 (364,000) 21,210,000
Inventories - 17,307,000 10,542,000 - 27,849,000
Other 895,000 1,145,000 500,000 - 2,540,000
------------- ------------- ------------- ------------- -------------
Total current assets 711,000 27,557,000 25,849,000 (364,000) 53,753,000
PROPERTY, PLANT, AND EQUIPMENT, net 6,340,000 22,995,000 14,741,000 - 44,076,000
OTHER ASSETS
Costs in excess of net book value
of acquired subsidiaries, net - 3,296,000 34,995,000 - 38,291,000
Investment in and loans to subsidiaries 111,792,000 72,618,000 (184,410,000) --
Other 5,183,000 2,982,000 - - 8,165,000
------------- ------------- ------------- ------------- -------------
Total other assets 116,975,000 78,896,000 34,995,000 (184,410,000) 46,456,000
------------- ------------- ------------- ------------- -------------
TOTAL ASSETS $ 124,026,000 $ 129,448,000 $ 75,585,000 $(184,774,000) $ 144,285,000
============= ============= ============= ============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Accounts payable $ 667,000 $ 3,729,000 $ 6,598,000 $ (364,000) $ 10,630,000
Current portion of long-term debt 170,000 928,000 - - 1,098,000
Line of credit 5,379,000 - - - 5,379,000
Other 2,989,000 2,898,000 1,578,000 - 7,465,000
------------- ------------- ------------- ------------- -------------
Total current liabilities 9,205,000 7,555,000 8,176,000 (364,000) 24,572,000
LONG-TERM LIABILITIES
Long-term debt, net of current portion 64,928,000 2,933,000 - - 67,861,000
Intercompany loan payable - 71,484,000 38,957,000 (110,441,000) -
Other 125,000 706,000 1,253,000 -- 2,084,000
------------- ------------- ------------- ------------- -------------
Total long-term liabilities 65,053,000 75,123,000 40,210,000 (110,441,000) 69,945,000
SHAREHOLDERS' EQUITY
Convertible preferred stock - - - - -
Common stock 30,000 56,139,000 33,710,000 (89,849,000) 30,000
Additional paid-in capital 83,173,000 -- - - 83,173,000
Accumulated other comprehensive loss (6,250,000) -- (6,250,000) 6,250,000 (6,250,000)
Accumulated deficit (27,185,000) (9,369,000) (261,000) 9,630,000 (27,185,000)
------------- ------------- ------------- ------------- -------------
Total shareholders' equity 49,768,000 46,770,000 27,199,000 (73,969,000) 49,768,000
------------- ------------- ------------- ------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 124,026,000 $ 129,448,000 $ 75,585,000 $(184,744,000) $ 144,285,000
============= ============= ============= ============= =============
</TABLE>
10
<PAGE>
Pacific Aerospace & Electronics, Inc.
Consolidating Condensed Statement of Operations and Comprehensive Income
For the Quarter Ended August 31, 2000
<TABLE>
<CAPTION>
GUARANTOR NON-GUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------ ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net Sales $ - $ 15,781,000 $ 12,622,000 $ (760,000) $ 27,643,000
Cost of Sales - 12,328,000 11,153,000 (760,000) 22,721,000
------------ ------------ ------------- ----------- --------------
Gross profit - 3,453,000 1,469,000 - 4,922,000
Operating expenses 1,726,000 3,649,000 1,099,000 (1,662,000) 4,812,000
------------ ------------ ------------- ----------- -------------
Income (loss) from operations (1,726,000) (196,000) 370,000 1,662,000 110,000
Other income (expense)
Parent's share of subsidiaries net income (875,000) - - 875,000 -
Interest expense (2,141,000) (1,139,000) (1,026,000) 2,010,000 (2,296,000)
Other 2,667,000 1,052,000 - (3,672,000) 47,000
------------ ------------ ------------- ----------- -------------
Total other expense (349,000) (87,000) (1,026,000) (787,000) (2,249,000)
------------ ------------ ------------- ----------- --------------
Income (loss) before income taxes (2,075,000) (283,000) (656,000) 875,000 (2,139,000)
Income tax benefit (expense) (177,000) - 64,000 - (113,000)
------------ ------------ ------------- ----------- --------------
Net loss (2,252,000) (283,000) (592,000) 875,000 (2,252,000)
Other comprehensive loss
Foreign currency translation, net of tax (2,266,000) - (2,266,000) 2,266,000 (2,266,000)
------------ ------------ ------------- ----------- --------------
Comprehensive loss $ (4,518,000) $ (283,000) $ (2,858,000) $ 3,141,000 $ (4,518,000)
============ ============ ============= =========== ==============
</TABLE>
11
<PAGE>
Pacific Aerospace & Electronics, Inc.
Consolidating Condensed Statement of Operations and Comprehensive Income
For the Quarter Ended August 31, 1999
<TABLE>
<CAPTION>
GUARANTOR NON-GUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net Sales $ -- $ 14,511,000 $ 14,373,000 $ (313,000) $ 28,571,000
Cost of Sales -- 10,573,000 11,751,000 (313,000) 22,011,000
------------ -------------- ------------- ------------ -------------
Gross profit -- 3,938,000 2,622,000 -- 6,560,000
Operating expenses 1,567,000 3,202,000 1,655,000 (1,320,000) 5,104,000
------------- -------------- ------------- ------------ -------------
Income (loss) from operations (1,567,000) 736,000 967,000 1,320,000 1,456,000
Other income (expense)
Parent's share of subsidiaries net loss (73,000) -- -- 73,000 --
Interest expense (2,390,000) (1,228,000) (1,100,000) 2,170,000 (2,548,000)
Other 2,413,000 1,098,000 30,000 (3,490,000) 51,000
------------- -------------- ------------- ------------ -------------
Total other expense (50,000) (130,000) (1,070,000) (1,247,000) (2,497,000)
------------- -------------- ------------- ------------ -------------
Income (loss) before income taxes (1,617,000) 606,000 (103,000) 73,000 (1,041,000)
Income tax benefit (expense) (6,000) (207,000) (252,000) -- (465,000)
------------- -------------- ------------- ------------ -------------
Net income (loss) (1,623,000) 399,000 (355,000) 73,000 (1,506,000)
Other comprehensive income (loss)
Foreign currency translation, net of tax 4,000 -- (2,000) -- 2,000
------------- -------------- ------------- ------------ -------------
Comprehensive income (loss) $ (1,619,000) $ 399,000 $ (357,000) $ 73,000 $ (1,504,000)
============= ============== ============= ============ =============
</TABLE>
12
<PAGE>
Pacific Aerospace & Electronics, Inc.
Consolidating Condensed Statement of Cash Flows
For the Quarter Ended August 31, 2000
<TABLE>
<CAPTION>
GUARANTOR NON-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 $ (3,558,000) $ (2,503,000) $ 1,359,000 $ 838,000 $ (3,864,000)
CASH FLOW FROM INVESTING ACTIVITIES:
------------------------------------
Acquisition of property, plant and equipment (144,000) (450,000) (219,000) - (813,000)
Investment in and loans to subsidiaries 1,045,000 3,500,000 - (4,545,000) -
Other changes, net - - - - -
------------ ----------- ------------- ------------ ------------
Net cash provided by (used in) investing activities 901,000 3,050,000 (219,000) (4,545,000) (813,000)
CASH FLOW FROM FINANCING ACTIVITIES:
------------------------------------
Net borrowings under line of credit 921,000 121,000 - 1,042,000
Payments on long-term debt and capital leases (42,000) (353,000) (12,000) - (407,000)
Proceeds from long-term debt 26,000 - - - 26,000
Proceeds from sale of common stock, 1,891,000 - - - 1,891,000
Other changes, net - (207,000) (3,500,000) 3,707,000 -
------------ ------------ ------------- ------------ ------------
Net cash provided by (used in) financing activities 2,796,000 (560,000) (3,391,000) 3,707,000 2,552,000
NET CHANGE IN CASH 139,000 (13,000) (2,251,000) - (2,125,000)
CASH AT BEGINNING OF PERIOD (184,000) 58,000 2,280,000 - 2,154,000
EFFECT OF EXCHANGE RATES ON CASH - - (29,000) - (29,000)
------------ ------------ ------------- ------------ ------------
CASH AT END OF PERIOD $ (45,000) $ 45,000 $ - $ - $ -
============ ============ ============= ============ ============
SUPPLEMENTAL CASH FLOW:
-----------------------
Noncash operating expenses related to:
Depreciation $ 129,000 $ 849,000 $ 614,000 $ - $ 1,592,000
Amortization - 102,000 230,000 - 332,000
Cash paid during the period for:
Interest $ 3,751,000 $ 130,000 $ 25,000 $ - $ 3,906,000
Income taxes - - - - -
</TABLE>
13
<PAGE>
Pacific Aerospace & Electronics, Inc.
Consolidating Condensed Statement of Cash Flows
For the Quarter Ended August 31, 1999
<TABLE>
<CAPTION>
GUARANTOR NON-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 $(1,614,000) $ 938,000 $(2,356,000) $ 73,000 $(2,959,000)
CASH FLOW FROM INVESTING ACTIVITIES:
-----------------------------------
Acquisition of property, plant and equipment (330,000) (369,000) (501,000) - (1,200,000)
Acquisition of subsidiaries (1,282,000) - - - (1,282,000)
Other changes, net (1,890,000) - 85,000 440,000 (1,365,000)
----------- ----------- ----------- ----------- -----------
Net cash provided by (used in) investing activities (3,502,000) (369,000) (416,000) 440,000 (3,847,000)
CASH FLOW FROM FINANCING ACTIVITIES:
-----------------------------------
Net borrowings under line of credit 2,600,000 - - - 2,600,000
Payments on long-term debt and capital leases (6,000) (1,189,000) (14,000) - (1,209,000)
Proceeds from sale of common stock, net 27,000 - - - 27,000
Other changes, net (85,000) 548,000 50,000 (513,000) -
----------- ----------- ----------- ----------- -----------
Net cash provided by (used in) financing activities 2,536,000 (641,000) 36,000 (513,000) 1,418,000
NET CHANGE IN CASH (2,580,000) (72,000) (2,736,000) - (5,388,000)
CASH AT BEGINNING OF PERIOD 1,798,000 39,000 6,297,000 - 8,134,000
EFFECT OF EXCHANGE RATES ON CASH - - (138,000) - (138,000)
----------- ----------- ----------- ----------- -----------
CASH AT END OF PERIOD $ (782,000) $ (33,000) $ 3,423,000 $ - $ 2,608,000
=========== =========== =========== =========== ===========
SUPPLEMENTAL CASH FLOW:
----------------------
Noncash operating expenses related to:
Depreciation $ 107,000 $ 759,000 $ 682,000 $ - $ 1,548,000
Amortization - 102,000 243,000 - 345,000
Cash paid during the period for:
Interest 4,368,000 144,000 (3,527,000) 3,510,000 4,529,000
Income taxes - - - - -
</TABLE>
14
<PAGE>
Inventories consist of the following:
August 31, May 31,
2000 2000
---- ----
Guarantor subsidiaries
Raw materials $ 6,577,000 $ 5,492,000
Work in progress 6,021,000 5,439,000
Finished goods 6,633,000 6,376,000
------------ ------------
$ 19,231,000 $ 17,307,000
============ ============
Non-guarantor subsidiaries
Raw materials $ 1,727,000 $ 1,712,000
Work in progress 7,058,000 8,142,000
Finished goods 1,207,000 688,000
------------ ------------
$ 9,992,000 $ 10,542,000
============ ============
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
--------
Pacific Aerospace & Electronics, Inc., is an international engineering and
manufacturing company with operations in the United States and the United
Kingdom. We design, manufacture and sell components and subassemblies used in
technically demanding environments. Products that we produce primarily for the
aerospace and transportation industry include machined, cast, and formed metal
parts and subassemblies, using aluminum, titanium, magnesium, and other metals.
Products that we produce primarily for the defense, electronics,
telecommunications and medical industries include components such as
hermetically sealed electrical connectors and instrument packages, and ceramic
capacitors, filters and feedthroughs. Our customers include global leaders in
all of these industries.
Results of Operations
---------------------
Quarter Ended August 31, 2000 Compared to Quarter Ended August 31, 1999
Net Sales. Net sales decreased by $1.0 million, or 3.1%, to $27.6 million for
the quarter ended August 31, 2000, from $28.6 million for the quarter ended
August 31, 1999. The European Aerospace Group contributed $12.6 million of net
sales during the quarter ended August 31, 2000, down $1.8 million from the $14.4
million contributed during the quarter ended August 31, 1999. This decrease was
partly due to the weakness of the British pound sterling versus the U.S. dollar.
Our customers in the European aerospace market have also been initiating lean
manufacturing methods and just-in-time inventory delivery requirements similar
to those previously initiated by our customers in the U.S. aerospace market.
These initiatives have resulted in decreased orders for our European Aerospace
Group, which we expect to continue throughout this fiscal year. We expect this
to cause the group's net sales volumes to remain flat or decrease from last year
and backlog to decrease. The U.S. Aerospace Group contributed $7.2 million
during the quarter ended August 31, 2000, down $0.7 million from the $7.9
million contributed during the quarter ended August 31, 1999. The U.S. Aerospace
Group's casting businesses experienced unanticipated revenue decline in the
first quarter of fiscal 2001 as a result of lower demand for heavy trucking
products, which was driven by higher fuel costs. We have also not achieved
adequate growth in our commercial aircraft components business. To attempt to
address these issues, we have been downsizing operations, particularly in the
U.S. Aerospace Group's Casting Division, and we are reviewing our marketing and
sales efforts with the goal of increasing effectiveness. We reduced the work
force in the Casting Division's Entiat, Washington plant from 140 to 103
employees in August 2000, and we are in the process of shutting down our casting
operations in Tacoma, Washington. We expect that net sales
16
<PAGE>
in our U.S. Aerospace Group will remain flat during the second quarter of fiscal
2001 and increase during the third and fourth quarters of fiscal 2001 due to new
orders from non-aerospace customers, primarily in our Machining Division. Our
U.S. Electronics Group contributed $7.8 million to net sales during the quarter
ended August 31, 2000, up $1.5 million from the $6.3 million contributed during
the quarter ended August 31, 1999. This increase was primarily attributable to
additional sales by our Filter Division of products for telecommunications
systems. We expect net sales volumes in our U.S. Electronics Group to remain
constant or to decrease slightly during the remainder of fiscal 2001.
Receivable collection periods, as calculated by dividing ending accounts
receivable balances by annualized sales for the quarter multiplied by 360 days,
decreased to 69.5 days for the quarter ended August 31, 2000 from 76.6 days for
the quarter ended August 31, 2000. This decrease was due primarily to a decrease
in accounts receivable in our European Aerospace Group. This decrease was due to
a concerted effort by the management of the group to increase collection
efforts.
Gross Profit. Gross profit decreased by $1.7 million, or 25.7%, to $4.9 million
for the quarter ended August 31, 2000, from $6.6 million for the quarter ended
August 31, 1999. As a percentage of net sales, gross profit decreased to 17.8%
for the quarter ended August 31, 2000, from 23.0% for the quarter ended August
31, 1999. This decrease was primarily due to lower sales volumes from our
aerospace and heavy trucking transportation products. Facilities to support the
production of these products traditionally have a high amount of fixed costs
which, when coupled with declining sales volumes, cause the gross profit to
decrease. Pricing pressure from customers has also led to lower overall gross
profit in our business from aerospace and heavy trucking customers.
Inventory turnover, as calculated by dividing annualized sales volume for the
quarter by ending inventory, decreased to 3.78 turns for the quarter ending
August 31, 2000 from 4.31 turns for the quarter ending August 31, 1999. The
decrease in the number of inventory turns was due to lower sales volumes in our
U.S. Aerospace Group coupled with higher inventory levels in our U.S. Aerospace
Group. Inventory levels increased in our U.S. Aerospace Group due to
diversification efforts. With the slowdown in commercial aerospace sales,
inventory used for those products have not been depleted. At the same time
efforts to diversify into other non-commercial aerospace products, such as
telecommunications products, has required a build up of inventory to support
production. We expect that our inventory turns will increase in future periods.
Operating Expenses. Operating expenses decreased by $0.3 million, or 5.9%, to
$4.8 million for the quarter ended August 31, 2000, from $5.1 million for the
quarter ended August 31, 1999. As a percentage of net sales, operating expenses
decreased to 17.4% for the quarter ended August 31, 2000, from 17.8% for the
quarter ended August 31, 1999. This decrease was primarily due to decreased
levels of operations, offset by higher expenditures for sales activities during
the quarter. We believe that we may have future asset impairment losses,
especially in the U.S. and European Aerospace Groups, if they do not achieve
acceptable profitability levels.
Interest Expense. Interest expense decreased by $0.2 million, or 8.0%, to $2.3
million for the quarter ended August 31, 2000, from $2.5 million for the quarter
ended August 31, 1999. This decrease was primarily due to the $11.3 million
principal reduction in the fourth quarter of fiscal 2000 on our 11 1/4% senior
subordinated notes, which was accomplished through an exchange for common stock.
The principal reduction resulted in a decrease of approximately $0.3 million in
interest expense for the quarter, which was offset by $0.1 million additional
interest expense from
17
<PAGE>
higher average revolving debt balances during the first quarter of fiscal 2001
in comparison to the first quarter of fiscal 2000.
Other Income (Expense). Other income represents non-operational income and
expense for the period. Other income increased to $47,000 during the quarter
ended August 31, 2000, from $3,000 during the quarter ended August 31, 1999. The
other income in the current quarter primarily represents rental income derived
from leasing out a building in New Jersey previously occupied by part of our
U.S. Electronics Group's Interconnect Division. This building is currently held
for sale.
Income Tax Expense. Income tax expense for the periods primarily represents
changes in the valuation allowance to adjust deferred income tax assets to
amounts determined more likely than not to be realizable in accordance with the
guidelines set forth in FAS 109, Accounting for Income Taxes. The adjustment for
the current quarter was based upon the amount of our U.S. net operating loss
(NOL) for the current quarter and carry forward amounts which will expire during
this fiscal year. We believe that we will not have sufficient taxable income
during the fiscal year to be able to derive any benefits from the expiring
NOL's. No income tax benefit was recorded for the current period NOL's, due to
the uncertainty of their realization. Deferred income tax expense will increase
in the future unless it is determined that deferred tax assets are more likely
than not to be realizable.
Net Loss. Net loss increased by $0.8 million, or 53.3%, to a net loss of $2.3
million for the quarter ended August 31, 2000, from a net loss of $1.5 million
for the quarter ended August 31, 1999, due to the factors listed above. We
believe that we will continue to experience downward pressure on earnings
throughout fiscal 2001.
Liquidity and Capital Resources
-------------------------------
Cash used in operating activities was $3.9 million during the quarter ended
August 31, 2000, compared to cash used in operating activities of $3.0 million
during the quarter ended August 31, 1999. The change in cash used in operating
activities was primarily a result of the increased net loss during the quarter
ended August 31, 2000. Our success as a company will depend heavily on our
ability to generate cash from operating activities in the future. We can offer
no assurance that we will achieve profitable operations or that any profitable
operations will be sustained. We are focusing on initiatives that specifically
address the need to increase cash provided by operating activities. Some of
these initiatives include, but are not limited to staff reductions, elimination
of unprofitable product offerings, selling of excess inventory, and general and
administrative cost controls. If we are not successful in increasing cash
provided by operating activities, we may need to sell additional equity
securities or sell assets outside of the ordinary course of business in order to
meet our obligations. There is no assurance that we will be able to sell
additional equity securities or to sell our assets for amounts in excess of book
value. In that situation, our inability to obtain sufficient cash if and when
needed could have a material adverse effect on our financial position, the
results of our operations, and our ability to continue in existence.
Cash used in investing activities decreased from $3.8 million during the quarter
ended August 31, 1999 to $0.8 million during the quarter ended August 31, 2000.
Amounts invested during the quarter ended August 31, 2000 were primarily for
production equipment. We expect to invest a similar amount into equipment during
each of the remaining quarters of fiscal 2001, but we have not committed to do
so. We currently do not expect to acquire any new businesses during fiscal 2001.
18
<PAGE>
Cash generated from financing activities increased to $2.6 million during the
quarter ended August 31, 2000, from $1.4 million during the quarter ended August
31, 1999. Financing activities during the quarter ended August 31, 2000 included
net proceeds from the issuance of common stock ($1.8 million) and borrowings
under our line of credit ($1.0 million), offset by payments on long-term debt
and capital leases ($0.4 million). Our existing cash and credit facilities may
not be sufficient to meet our obligations as they become due during fiscal 2001.
Our actual cash needs will depend primarily on the amount of cash generated from
or used by operations. We cannot predict accurately the amount or timing of our
future cash needs. If we cannot obtain additional cash if and when needed, we
may be unable to fund our operations and pay all obligations as they become due
or at all.
At May 31, 2000, our primary banking relationships included a revolving line of
credit of up to $6.3 million in the U.S. and a revolving line of credit of up to
approximately $5.0 million ((pound)3.5 million) in the U.K. As of August 31,
2000 the U.S. line was drawn $6.3 million and the U.K. line was drawn $0.1
million. Our U.S. operating line of credit expired on September 5, 2000, and has
been extended through November 5, 2000. Our senior lender in the U.S. is
currently evaluating whether and upon what terms it will renew our credit line.
Our line of credit in the U.K. expires in November 2000. We expect to request
renewal of that line. We can offer no assurance that our existing credit
facilities will be renewed or that they will remain available on acceptable
terms or at all. If we are unable to renew our credit lines, we may not have
enough cash to fund our operations.
In December 1998, we entered into an agreement giving us the option to purchase
three parcels of land that make up our Wenatchee campus from the Port of Chelan
County for $5.4 million. The purchase of the first parcel was completed in early
February 1999. If we exercise our options to purchase both of the remaining two
parcels, the purchase of the second parcel is expected to close in December 2000
and the third is expected to close in August 2001. As of August 31, 2000, we had
no other material commitments outstanding for purchases of additional capital
assets.
Our working capital as of August 31, 2000 and May 31, 2000 was $29.5 million and
$29.2 million, respectively. We have adopted initiatives directed at improving
cash provided by operating activities during fiscal 2001. If these initiatives
are successful and we are able to sell additional equity securities, we should
increase our working capital during fiscal 2001.
Our consolidated financial statements have been prepared assuming that we will
continue as a going concern. However, our independent auditors in their report
accompanying our audited consolidated financial statements for fiscal 2000
stated that we have suffered recurring losses from operations which raise
substantial doubt about our ability to continue as a going concern. Our
consolidated financial statements do not include any adjustments that might
result from the outcome of that uncertainty. If we are not sufficiently
successful in generating cash from operating activities, we may need to sell
additional common stock or other securities, or we may need to sell assets
outside the ordinary course of business. If we need to dispose of assets outside
of the ordinary course of business to generate cash, we may not be able to
realize the carrying value of those assets upon liquidation. If we are unable to
generate the necessary cash, we could be unable to continue operations.
With the acquisition of our European Aerospace Group, whose functional currency
is the British pound sterling, we translate the activity of our European
Aerospace Group into U.S. dollars on a monthly basis. The balance sheet of the
European Aerospace Group is translated using the exchange
19
<PAGE>
rate as of the date of the balance sheet, and for purposes of the statement of
operations and statement of cash flows we use the average exchange rate for the
period. The value of our assets, liabilities, revenue, and expenses may vary
materially from one reporting period to the next solely as a result of varying
exchange rates. During the quarter ended August 31, 2000, the foreign currency
translation adjustment was a loss of $2.3 million. We have not entered into any
hedging activity as of August 31, 2000.
At August 31, 2000, we had a NOL carry forward for federal income tax purposes
of approximately $20 million, the benefits of which expire in the tax year 2001
through the tax year 2020. The NOL created by our subsidiaries prior to their
acquisition and the NOL 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 $2.0
million of the $20 million NOL will never become available. We have recorded a
net deferred tax asset of approximately $3.0 million at August 31, 2000, related
primarily to these NOL's. Our ability to realize the deferred tax asset is
dependent on material increases in present levels of pre-tax income, primarily
in the U.S. We expect to achieve these increases through our continued
integration, cross selling, and other operational efficiencies, as well as other
tax strategies. Deferred income tax expense will increase in the future unless
it is determined that deferred tax assets are more likely than not to be
realizable.
Significant Events During the Quarter
-------------------------------------
Equity Financing - Sale of Common Stock. In July 2000, we issued 1,142,860
shares of common stock and warrants to purchase additional shares to two
accredited investors for gross proceeds of $2.0 million. We paid a commission of
$80,000 and issued warrants to purchase up to 79,150 shares of common stock to
the placement agent that represented us in the transaction. After taking into
consideration other expenses related to the transaction, we received net
proceeds at closing of $1,886,500, which we used to pay down our U.S. credit
line. We have filed a registration statement on Form S-3 with the Securities and
Exchange Commission to register the resale of the shares of Common Stock issued
or issuable as a result of the transaction. The registration statement has not
yet been declared effective. See "Part II - Item 2 - Changes in Securities."
Orca Technologies, Inc.
-----------------------
We currently hold promissory notes from Orca Technologies, Inc. in the principal
amount of $2,450,000, and 2,289,309 shares of Orca's common stock. We acquired
these notes and stock in connection with our 1997 plan to form an information
technology group. We terminated that effort in late 1997 and, as a result, we
wrote off $1.0 million in fiscal 1998, $7.8 million in fiscal 1999 and $0.1
million in fiscal 2000. The Orca notes and common stock have no carrying value
on our financial statements, and we do not expect them to have any value in the
future. In September 2000, at Orca's request, and in order to facilitate a
proposed sale by Orca of its assets, we signed a non-binding letter of intent to
transfer the previously written-off notes and stock to a group led by Orca's
chief executive officer, in exchange for a $20,000 note payable to us. We do not
currently know whether that transaction will go forward.
20
<PAGE>
New Accounting Pronouncements
-----------------------------
In December 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin (SAB) No. 101, as amended, Revenue Recognition in Financial
Statements. SAB No. 101 provides guidance for revenue recognition and the SEC
staff's views on the application of accounting principles to selected revenue
recognition issues. We adopted the provisions of SAB No. 101 in the first
quarter of fiscal year 2001. The impact of adopting SAB No. 101 did not have a
material impact on our consolidated financial statements.
In March 2000, the Financial Accounting Standards Board (FASB) issued
Interpretation No. 44, Accounting for Certain Transactions Involving Stock
Compensation. Interpretation No. 44 clarifies the application of APB Opinion No.
25 and is effective July 1, 2000. Interpretation No. 44 clarifies the definition
of "employee" for purposes of applying APB Opinion No. 25, the criteria for
determining whether a plan qualifies as a noncompensatory plan, the accounting
consequence of various modifications to the terms of a previously fixed stock
option or award, and the accounting for an exchange of stock compensation awards
in a business combination. We adopted the provisions of FASB interpretation No.
44 in the first quarter of fiscal year 2001. The impact of adopting
Interpretation No. 44 did not have a material impact on our consolidated
financial statements.
In June 1998, the FASB issued SFAS No. 133, as amended, 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. We will adopt the provision of
SFAS No. 133 in the first quarter of fiscal year 2002. We have not determined
the impact the adoption of SFAS No. 133 will have on our consolidated financial
statements.
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 and revolving debt issued at variable
rates. Our revolving debt, which is from our credit lines in the U.S. and U.K.,
during the period had an average outstanding balance of $5.9 million. Changes in
the variable rate of interest will not have a material effect on our net income.
For example, a change in the variable rate of interest of 1% would have had the
effect of changing our interest expense for the quarter by approximately
$15,000. Our fixed-rate debt obligations are generally not callable until
maturity and therefore market fluctuations in interest rates will not affect our
earnings for the period. Based upon these facts, we do not consider the market
risk exposure for interest rates to be material. The fair value of such
instruments approximates their face value, except for our 11 1/4% senior
subordinated notes, which, as of August 31, 2000, were trading on the open
market for approximately 50% of face value.
We are subject to foreign currency exchange rate risk relating to receipts from
and payments to suppliers in foreign currencies. Since approximately 50% of
Company transactions are conducted in foreign currency, the exchange rate risk
could be material. During the quarter ended August 31, 2000, the foreign
currency translation adjustment was a loss of $2.3 million. We have not entered
into any hedging activity as of August 31, 2000.
We are exposed to commodity price fluctuations through purchases of aluminum,
titanium, and other raw materials. We enter into certain supplier arrangements
that guarantee quantity and price of the applicable commodity to limit the
exposure to commodity price fluctuations and availability
21
<PAGE>
concerns. At August 31, 2000, the Company had purchase commitments for raw
materials aggregating approximately $3,750,000. Of the Company's $3,750,000
purchase commitments for raw materials at August 31, 2000, $1,000,000 related to
an aluminum supply purchase order with a fixed price that goes through October
2001, and the remainder relates to a titanium supply agreement with a fixed
price that goes through December 2001. These commitments at August 31, 2000
represented less than 5% of the Company's cost of goods sold for fiscal 2000.
22
<PAGE>
PART II
OTHER INFORMATION
-----------------
ITEM 1. LEGAL PROCEEDINGS
From time to time we are involved in legal proceedings relating to claims
arising out of operations in the normal course of business. We are not aware of
any material legal proceedings pending or threatened against the Company or any
of our properties.
ITEM 2. CHANGES IN SECURITIES
(a) None.
(b) Dividend Payment Restrictions
In connection with the issuance of our 11 1/4% Senior Subordinated Notes, due
2005, which have been exchanged for 11 1/4% Series B Senior Subordinated Notes
due 2005, we are subject to an Indenture that limits our ability to pay
dividends, repurchase our equity securities, make certain other kinds of
restricted payments, and incur certain indebtedness. We have never declared or
paid cash dividends on the Common Stock. We currently anticipate that we will
retain all future earnings to fund the operation of our business, and we do not
anticipate paying dividends on the Common Stock in the foreseeable future.
(c) Summer 2000 Private Placement
On July 27, 2000, we issued 1,142,860 shares of common stock and warrants to
purchase additional shares to two accredited investors, Strong River
Investments, Inc. and Bay Harbor Investments, Inc., for gross proceeds of $2.0
million. The transaction was a private placement exempt from registration under
Rule 506, promulgated under the Securities Act of 1933, as amended. We paid a
commission to Rochon Capital Group, Ltd. comprised of $80,000 in cash and
warrants to purchase 79,150 shares of common stock, at an exercise price of
$1.7688 per share, for representing us in this transaction. After taking into
consideration other expenses related to the transaction, we received net
proceeds at closing of $1,886,500, which we used to pay down our U.S. credit
line.
We also issued to the investors on July 27, 2000, warrants to purchase an
aggregate of 385,000 shares of common stock at an exercise price of $2.01 per
share (subject to certain adjustments), through July 27, 2003, and warrants to
purchase a currently indeterminate number of shares as described below. Each
investor received both adjustable warrants and vesting warrants.
The purpose of the adjustable warrants is to provide a mechanism for resetting
the price of the shares of common stock purchased by the investors in the
transaction if the market price of our common stock does not achieve and
maintain a specific level. Adjustable warrants are exercisable by the investors
at an exercise price of $.001 per share for fifteen trading days following each
of three vesting dates. The vesting dates begin on the twentieth trading day
after the effectiveness of the registration statement and end on the sixtieth
trading day after the effectiveness of the registration statement. The
adjustable warrants expire fifteen trading days after the third vesting date.
23
<PAGE>
On each vesting date, we will determine with the investors, based on a formula
contained in the adjustable warrants, whether the warrants have become
exercisable for any warrant shares. Under the formula, the number of shares
issuable would depend on the average closing price of our common stock for the
five trading days before each vesting date. Specifically, on each vesting date,
the investor will be entitled to the number of shares equal to: (1) one-third of
the shares purchased by the investor at closing, times (ii) the difference
between $1.902 and the average of the lowest five closing prices for our stock
during the 20 consecutive trading days preceding the vesting date, all divided
by such average. If the average closing price of our common stock is less than
$1.91 per share during the applicable period preceding a vesting date, the
formula will be applied to determine the number of shares that are issuable to
the investors upon exercise of the warrants as of that vesting date. If the
average closing price of our common stock is $1.91 or above during the
applicable period preceding a vesting date, no shares of common stock will be
issuable as of that vesting date. In addition, if the average closing price of
our common stock exceeds $2.19 per share for any 20 consecutive trading days, no
further vesting will occur and no more shares will become issuable.
The purpose of the vesting warrants is to provide for penalty shares to be
issued to the investors if any of several specified events occurs. The events
include, among other events, certain acquisitions, mergers or changes of control
involving Pacific Aerospace, our failure to deliver certificates to the holders
in a timely manner, our material breach under the transaction documents, the
delisting of our common stock for ten consecutive days, our failure to obtain an
effective registration statement within 180 days after the closing, or our
failure to maintain the registration statement effective for the required time
period. If any of these events occur, the investors will be entitled to receive
the number of shares equal to the product of 30% of $3,500,000 divided by the
closing price of our common stock on the trading day preceding the date of the
event.
The vesting warrants also provide for penalty shares under a different formula
if other events occur. These events include our failure to have the registration
statement effective within 60 days after the closing, other events relating to
our actions in obtaining and maintaining an effective registration statement,
and the delisting of our common stock for ten consecutive days. If any of these
events occur, the investors will be entitled to receive the number of shares
equal to the product of 3% of $3,500,000 divided by the closing price of our
common stock on the trading day preceding the date of the event. On August 28,
2000, we filed a registration statement with the Securities and Exchange
Commission to register the resale of the shares of common stock issued or
issuable as a result of the transaction. The registration statement has not yet
been declared effective by the Commission. Because the registration statement
did not become effective within the 60 days after the closing, a portion of the
vesting warrants vested and became exercisable. As of September 25, 2000, the
investors became entitled to exercise the vesting warrants for up to 101,823
shares of common stock, for an exercise price of $.001 per share. On each
monthly anniversary of September 25, 2000, the vesting warrants will vest for
additional shares, until the registration statement becomes effective. If the
registration statement is not effective 180 days after closing, the penalty
shares would accrue under the formula in the preceding paragraph. The vesting
warrants expire five business days after the expiration of the adjustable
warrants.
The vesting dates and expiration dates contained in the warrants and the numbers
of shares issuable upon exercise of the warrants are subject to anti-dilutive
adjustments under certain circumstances.
We cannot yet predict how many shares of common stock, if any, may become
issuable upon exercise of the adjustable warrants or the vesting warrants.
However, the adjustable warrants and
24
<PAGE>
the vesting warrants, by their terms, cannot be exercised for a number of shares
greater than the number we may issue without shareholder approval under
applicable Nasdaq rules. In the event that the number of shares issuable would
exceed the number of shares permitted to be issued without shareholder approval
under applicable Nasdaq rules, we would be entitled either to redeem the excess
shares (if and to the extent permitted by our lenders) or to use our best
efforts to obtain shareholder approval for the issuance of the additional
shares. The indenture governing our outstanding 11 1/4% senior subordinated
notes would not currently permit us to redeem excess shares.
The transaction documents also provided that, upon effectiveness of the
registration statement within 60 days after the first closing, a second closing
would occur, and the investors would pay an additional $1.5 million and receive
857,140 additional shares of common stock. No additional warrants would be
issued at a second closing. The effectiveness of the registration statement
within 60 days after the first closing was the only condition to the second
closing. This condition was not met, and the investors elected not to waive the
condition, so a second closing will not occur.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
We did not submit any matters to a vote of security holders during the period
covered by this report.
ITEM 5. OTHER INFORMATION
Nasdaq
Our common stock is quoted on the Nasdaq National Market System. In order to
remain listed on this market, we must meet Nasdaq's listing maintenance
standards. The minimum bid price of our common stock has been lower than $1.00
on several occasions during September and October 2000. If the minimum bid price
of our common stock were to remain below $1.00 for 30 consecutive trading days,
or if we were unable to continue to meet Nasdaq's standards for any other
reason, our common stock could be delisted from the Nasdaq National Market
System. If our common stock were delisted, the liquidity for our common stock
would be adversely affected. In addition, delisting would trigger the vesting of
penalty shares under the vesting warrants held by the investors in our Summer
2000 private placement, which would result in additional dilution.
Bylaws
At its October 10, 2000 meeting, the Board of Directors adopted amendments to
our bylaws relating to the business that can be conducted at annual or special
meetings of shareholders. For a shareholder to properly bring business before an
annual meeting or to properly nominate a person for election as a director, the
shareholder must provide the Company with notice and the information required by
the bylaws and the notice must be timely received by the Company as provided in
the bylaws. For notice by a shareholder relating to an annual meeting to be
timely, the Company must receive the notice at least 120 days before the
anniversary of the Company's first mailing of its proxy materials for its annual
shareholder meeting for the previous year. However, if the notice relates to an
annual meeting that is to be held more than 30 days before or after the
anniversary of the last annual meeting, the notice must be received by the
Company at least 120 days before the
25
<PAGE>
annual meeting. For notice by a shareholder relating to the nomination of
directors at a special meeting to be timely, the Company must receive the notice
no earlier than 90 and no later than 70 days before the special meeting, or 10
days after a public announcement is first made by the Company of the date of the
special meeting and the director nominees proposed by the Board to be elected at
the special meeting.
The bylaw amendments provide that the only business that can be conducted at a
special meeting is the business specified in the notice to shareholders for that
meeting. Compliance with these bylaw provisions is the exclusive means by which
shareholders can present proposals at annual meetings or nominate directors at
shareholder meetings. The bylaw amendments also set forth provisions about the
conduct of shareholder meetings.
The notice of the 2000 annual meeting of shareholders was first mailed to our
shareholders on September 7, 2000. Accordingly, under the new bylaw provisions,
the deadline for the required notice to be received by the Company for the 2001
annual meeting is May 10, 2001. The foregoing is a summary of the amended bylaw
provisions, and shareholders must comply with all of the requirements of the
amended bylaws provisions, which are included in sections 1.11 and 1.12 of the
bylaws filed as an exhibit to this report.
26
<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
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., as amended./(35)/
4.3 Form of specimen certificate for the Series A Convertible Preferred
Stock./(8)/
4.4 Form of specimen certificate for the Series B Convertible Preferred
Stock./(20)/
4.5 Form of Common Stock Purchase Warrant issued to holders of the
Series B Convertible Preferred Stock on May 15, 1998./(20)/
4.6 Securities Purchase Agreement among Pacific Aerospace & Electronics,
Inc., Strong River Investments, Inc., and Bay Harbor Investments,
Inc., dated as of July 27, 2000./(33)/
4.7 Registration Rights Agreement between Pacific Aerospace &
Electronics, Inc., Strong River Investments, Inc., and Bay Harbor
Investments, Inc., dated as of July 27, 2000./(33)/
4.8 Warrant between Pacific Aerospace & Electronics, Inc. and Strong
River Investments, Inc., dated as of July 27, 2000. /(33)/
4.9 Warrant between Pacific Aerospace & Electronics, Inc. and Bay Harbor
Investments, Inc., dated as of July 27, 2000. /(33)/
4.10 Warrant between Pacific Aerospace & Electronics, Inc. and Strong
River Investments, Inc., dated as of July 27, 2000. /(33)/
4.11 Warrant between Pacific Aerospace & Electronics, Inc. and Bay Harbor
Investments, Inc., dated as of July 27, 2000. /(33)/
4.12 Vesting Warrant between Pacific Aerospace & Electronics, Inc. and
Strong River Investments, Inc., dated as of July 27, 2000. /(33)/
4.13 Vesting Warrant between Pacific Aerospace & Electronics, Inc. and
Bay Harbor Investments, Inc., dated as of July 27, 2000. /(33)/
4.14 Placement Agent Warrant between Pacific Aerospace & Electronics,
Inc. and Rochon Capital Group, Ltd., dated as of July 27, 2000.
/(34)/
4.15 Common Stock Purchase Warrant between Pacific Aerospace &
Electronics, Inc. and Continental Capital & Equity Corporation,
dated April 17, 2000./(34)/
4.16 Common Stock Purchase Warrant between Pacific Aerospace &
Electronics, Inc. and Continental Capital & Equity Corporation,
dated April 17, 2000./(34)/
4.17 Common Stock Purchase Warrant between Pacific Aerospace &
Electronics, Inc. and Continental Capital & Equity Corporation,
dated April 17, 2000./(34)/
4.18 Common Stock Purchase Warrant between Pacific Aerospace &
Electronics, Inc. and Continental Capital & Equity Corporation,
dated April 17, 2000./(34)/
10.1 Amended and Restated Stock Incentive Plan./(5)/
10.2 Amendment No. 1 to the Amended and Restated Stock Incentive Plan.
/(19)/
27
<PAGE>
10.3 Amended and Restated Independent Director Stock Plan./(21)/
10.4 1999 Stock Incentive Plan /(30)/
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 Promissory Note, dated March 18, 1998, from Pacific Aerospace &
Electronics, Inc. to KeyBank National Association./(15)/
10.12 Incentive Compensation Program. /(35)/
10.13 Security Agreement, dated March 18, 1998, from Pacific Aerospace &
Electronics, Inc. to KeyBank National Association./(15)/
10.14 Loan Agreement, dated September 7, 1999, between Pacific Aerospace &
Electronics, Inc. and KeyBank National Association. /(29)/
10.15 Promissory Note, dated September 22, 1998, from Pacific Aerospace &
Electronics, Inc. to KeyBank National Association./(22)/
10.16 Modification and/or Extension Agreement, dated October 6, 1999,
between Pacific Aerospace & Electronics, Inc. and KeyBank National
Association /(29)/
10.17 Commercial Security Agreement, dated September 7, 1999, between
Pacific Aerospace & Electronics, Inc. and KeyBank National
Association./(29)/
10.18 Promissory Note, dated September 30, 1998, from Pacific Aerospace &
Electronics, Inc. to KeyBank National Association./(22)/
10.19 Deed of Trust, dated September 30, 1998, between Pacific Aerospace &
Electronics, Inc., KeyBank National Association and Land Title
Company, Chelan-Douglas County, Inc./(22)/
10.20 Modification and/or Extension Agreement, dated September 6, 2000,
between Pacific Aerospace & s, Inc. and KeyBank National
Association./(35)/
10.21 Facility Letter, dated July 30, 1998, from Barclays Bank plc to
Aeromet International plc./(20)/
10.22 General Terms Agreement No. BCA-65323-0458 dated December 20, 1999
between The Boeing Company and Pacific Aerospace & Electronics, Inc.
(U.S. Aerospace Group and European Aerospace Group). /(31)/
10.23 Special Business Provisions No. POP-65323-0519 December 20, 1999
between The Boeing Company and Pacific Aerospace & Electronics, Inc.
(U.S. Aerospace Group and European Aerospace Group)./(1)(31)/
10.24 Long Term Agreement No. 0108098 between Northrop Grumman Corporation
and Cashmere Manufacturing Co., Inc. effective as of April 6,
1998./(1)(20)/
10.25 Option to Purchase, dated January 29, 1999, between Pacific
Aerospace & Electronics, Inc. and Donald A. Wright. /(27)/
10.26 Real Estate Agreement, dated January 15, 1999, between Pacific
Aerospace & Electronics, Inc. and the Port of Chelan County. /(27)/
27.1 Financial Data Schedule. /(35)/
---------------
28
<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.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.
29
<PAGE>
/(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)/ Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarterly period ending February 29, 2000.
/(32)/ Incorporated by reference to the Company's Current Report on Form 8-K
filed on May 31, 2000.
/(33)/ Incorporated by reference to the Company's Current Report on Form 8-K
filed on August 8, 2000.
/(34)/ Incorporated by reference to the Company's Annual Report on Form 10-K
filed on August 28, 2000.
/(35)/ Previously filed with this report.
b. Reports on Form 8-K.
(i) The Company filed a Current Report on Form 8-K on August 8, 2000,
reporting the Summer 2000 private placement.
(ii) The Company filed an amended Current Report on Form 8-K/A on July
13, 2000, including financial information related to the acquisition of
Nova-Tech Engineering, Inc.
30
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this amended report to be signed on its behalf by the
undersigned, thereunto duly authorized.
PACIFIC AEROSPACE & ELECTRONICS, INC.
Date: January 18, 2001 /s/ Donald A. Wright
----------------------------------------------
Donald A. Wright
President, Chief Executive Officer, and
Chairman of the Board
(Principal Executive Officer)
Date: January 18, 2001 /s/ Nick A. Gerde
----------------------------------------------
Nick A. Gerde
Vice President Finance, Chief Financial
Officer and Treasurer
(Principal Financial and Accounting Officer)
31
<PAGE>
EXHIBIT INDEX
The following documents are filed as exhibits to this Quarterly Report:
Exhibit
Number Description
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., as amended./(35)/
4.1 Form of specimen certificate for Common Stock./(6)/
4.2 Form of specimen certificate for public warrants./(6)/
4.3 Form of specimen certificate for the Series A Convertible Preferred
Stock./(8)/
4.4 Form of specimen certificate for the Series B Convertible Preferred
Stock./(20)/
4.5 Form of Common Stock Purchase Warrant issued to holders of the Series
B Convertible Preferred Stock on May 15, 1998./(20)/
4.6 Securities Purchase Agreement among Pacific Aerospace & Electronics,
Inc., Strong River Investments, Inc., and Bay Harbor Investments,
Inc., dated as of July 27, 2000./(33)/
4.7 Registration Rights Agreement between Pacific Aerospace & Electronics,
Inc., Strong River Investments, Inc., and Bay Harbor Investments,
Inc., dated as of July 27, 2000./(33)/
4.8 Warrant between Pacific Aerospace & Electronics, Inc. and Strong River
Investments, Inc., dated as of July 27, 2000./(33)/
4.9 Warrant between Pacific Aerospace & Electronics, Inc. and Bay Harbor
Investments, Inc., dated as of July 27, 2000./(33)/
4.10 Warrant between Pacific Aerospace & Electronics, Inc. and Strong River
Investments, Inc., dated as of July 27, 2000./(33)/
4.11 Warrant between Pacific Aerospace & Electronics, Inc. and Bay Harbor
Investments, Inc., dated as of July 27, 2000./(33)/
4.12 Vesting Warrant between Pacific Aerospace & Electronics, Inc. and
Strong River Investments, Inc., dated as of July 27, 2000./(33)/
4.13 Vesting Warrant between Pacific Aerospace & Electronics, Inc. and Bay
Harbor Investments, Inc., dated as of July 27, 2000./(33)/
4.14 Placement Agent Warrant between Pacific Aerospace & Electronics, Inc.
and Rochon Capital Group, Ltd., dated as of July 27, 2000./(34)/
4.15 Common Stock Purchase Warrant between Pacific Aerospace & Electronics,
Inc. and Continental Capital & Equity Corporation, dated April 17,
2000./(34)/
4.16 Common Stock Purchase Warrant between Pacific Aerospace & Electronics,
Inc. and Continental Capital & Equity Corporation, dated April 17,
2000./(34)/
4.17 Common Stock Purchase Warrant between Pacific Aerospace & Electronics,
Inc. and Continental Capital & Equity Corporation, dated April 17,
2000./(34)/
4.18 Common Stock Purchase Warrant between Pacific Aerospace & Electronics,
Inc. and Continental Capital & Equity Corporation, dated April 17,
2000./(34)/
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 Amended and Restated Independent Director Stock Plan./(21)/
32
<PAGE>
10.4 1999 Stock Incentive Plan /(30)/
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 Promissory Note, dated March 18, 1998, from Pacific Aerospace &
Electronics, Inc. to KeyBank National Association./(15)/
10.12 Incentive Compensation Program./(35)/
10.13 Security Agreement, dated March 18, 1998, from Pacific Aerospace &
Electronics, Inc. to KeyBank National Association./(15)/
10.14 Loan Agreement, dated September 7, 1999, between Pacific Aerospace &
Electronics, Inc. and KeyBank National Association./(29)/
10.15 Promissory Note, dated September 22, 1998, from Pacific Aerospace &
Electronics, Inc. to KeyBank National Association./(22)/
10.16 Modification and/or Extension Agreement, dated October 6, 1999,
between Pacific Aerospace & Electronics, Inc. and KeyBank National
Association /(29)/
10.17 Commercial Security Agreement, dated September 7, 1999, between
Pacific Aerospace & Electronics, Inc. and KeyBank National
Association./(29)/
10.18 Promissory Note, dated September 30, 1998, from Pacific Aerospace &
Electronics, Inc. to KeyBank National Association./(22)/
10.19 Deed of Trust, dated September 30, 1998, between Pacific Aerospace &
Electronics, Inc., KeyBank National Association and Land Title
Company, Chelan-Douglas County, Inc./(22)/
10.20 Modification and/or Extension Agreement, dated September 6, 2000,
between Pacific Aerospace & Electronics, Inc. and KeyBank National
Association./(35)/
10.21 Facility Letter, dated July 30, 1998, from Barclays Bank plc to
Aeromet International plc./(20)/
10.22 General Terms Agreement No. BCA-65323-0458 dated December 20, 1999
between The Boeing Company and Pacific Aerospace & Electronics, Inc.
(U.S. Aerospace Group and European Aerospace Group)./(31)/
10.23 Special Business Provisions No. POP-65323-0519 December 20, 1999
between The Boeing Company and Pacific Aerospace & Electronics, Inc.
(U.S. Aerospace Group and European Aerospace Group)./(1)(31)/
10.24 Long Term Agreement No. 0108098 between Northrop Grumman Corporation
and Cashmere Manufacturing Co., Inc. effective as of April 6,
1998./(1)(20)/
10.25 Option to Purchase, dated January 29, 1999, between Pacific Aerospace
& Electronics, Inc. and Donald A. Wright./(27)/
10.26 Real Estate Agreement, dated January 15, 1999, between Pacific
Aerospace & Electronics, Inc. and the Port of Chelan County./(27)/
27.1 Financial Data Schedule./(35)/
_________________
33
<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.
34
<PAGE>
/(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)/ Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarterly period ending February 29, 2000.
/(32)/ Incorporated by reference to the Company's Current Report on Form 8-K
filed on May 31, 2000.
/(33)/ Incorporated by reference to the Company's Current Report on Form 8-K
filed on August 8, 2000.
/(34)/ Incorporated by reference to the Company's Annual Report on Form 10-K
filed on August 28, 2000.
/(35)/ Previously filed with this report.
35
