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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
For the quarterly period ended: December 31, 1996
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Commission File No. 1-11474
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BREED TECHNOLOGIES, INC.
(Exact name of registrant as specified in charter)
Delaware 22-2767118
(State of Incorporation) (I.R.S. Employer Identification No.)
5300 Old Tampa Highway
Lakeland, Florida 33811
(Address of principal executive offices) (Zip Code)
(941) 668-6000
(Registrant's telephone number, including area code)
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No __.
As of January 24, 1997, 31,661,714 shares of the registrant's common
stock, par value $.01 per share, were outstanding.
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<PAGE>
INDEX
PART I. FINANCIAL INFORMATION Page
Item 1. Financial Statements
Consolidated Condensed Balance Sheets - December 31, 1996
(Unaudited)and June 30, 1996 ........................... 1
Consolidated Condensed Statements of Earnings (Unaudited)
Three and six months ended December 31, 1996 and 1995 .. 2
Consolidated Condensed Statements of Cash Flows (Unaudited)
Six months ended December 31, 1996 and 1995 ............ 3
Notes to Consolidated Condensed Financial Statements
(Unaudited) ............................................ 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ...................... 5
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders............ 6
Item 6. Exhibits and Reports on Form 8-K .............................. 6
Signatures ............................................................ 7
<PAGE>
Consolidated Condensed Balance Sheets (Unaudited)
December 31, 1996 and June 30, 1996
In thousands
December 31, June 30,
1996 1996
ASSETS
Current Assets
Cash and cash equivalents $ 30,169 $ 95,830
Accounts receivable 171,327 110,656
Inventories 87,294 52,890
Prepaid expenses 19,848 7,247
--------- ---------
Total Current Assets 308,638 266,623
Net property, plant and equipment 349,901 171,653
Intangibles 131,997 45,053
Investments and other assets 12,450 20,473
--------- ---------
Total Assets $802,986 $503,802
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Short-term borrowings $195,339 $120,688
Accounts payable 106,526 33,940
Accrued expenses 57,660 21,824
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Total Current Liabilities 359,525 176,452
Long-term debt 131,433 42,123
Other long-term liabilities 30,010 10,147
--------- ---------
Total Liabilities 520,968 228,722
--------- ---------
Stockholders' Equity
Common stock 316 316
Additional paid-in capital 77,303 76,652
Retained earnings 208,547 201,981
Other (4,148) (3,869)
--------- -----------
Total Stockholders' Equity 282,018 275,080
--------- ---------
Total Liabilities and Stockholders' Equity $802,986 $503,802
========= =========
See Notes to Consolidated Condensed Financial Statements.
<PAGE>
Consolidated Condensed Statements of Earnings (Unaudited) Three and six months
ended December 31, 1996 and 1995
In thousands, except earnings per share
<TABLE>
Three Months Ended Six Months Ended
December 31, December 31,
------------------------ -------------------------
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Net sales $ 182,567 $ 105,655 $ 341,238 $ 198,256
Cost of sales 145,877 62,811 262,454 120,548
----------- ---------- ---------- ----------
Gross profit 36,690 42,844 78,784 77,708
----------- ---------- ---------- ----------
Operating expenses
Selling, general and administrative expenses 16,718 9,638 32,183 18,998
Research and development expenses 9,846 5,942 17,819 11,594
Amortization of intangibles 796 410 2,078 816
----------- ---------- ---------- ----------
Total operating expenses 27,360 15,990 52,080 31,408
----------- ---------- ---------- ----------
Operating income 9,330 26,854 26,704 46,300
Other income (expense), net (4,380) 1,688 (8,608) 2,843
----------- ---------- ---------- ----------
Earnings before income taxes 4,950 28,542 18,096 49,143
Income taxes 1,800 10,700 7,100 18,700
----------- ---------- ---------- ----------
Net earnings $ 3,150 $ 17,842 $ 10,996 $ 30,443
=========== ========== ========== ==========
Earnings per share $ .10 $ .57 $ .35 $ .97
=========== ========== ========== ==========
Average shares outstanding 31,640 31,531 31,634 31,522
=========== ========== ========== ==========
<CAPTION>
See Notes to Consolidated Condensed Financial Statements.
</TABLE>
<PAGE>
Consolidated Condensed Statements of Cash Flows (Unaudited)
Six months ended December 31, 1996 and 1995
In thousands
<TABLE>
1996 1995
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<S> <C> <C>
Cash Flows from Operating Activities
Net earnings $ 10,996 $ 30,443
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 21,532 9,197
Changes in working capital items 56,290 (26,103)
Other (16,466) (567)
------------- -----------
Net cash provided by operating activities 72,352 12,970
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Cash Flows from Investing Activities
Cost of acquisition, net of cash acquired (211,033) ---
Purchases of property, plant and equipment (41,679) (19,879)
Sales of short-term investments, net --- 5,554
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Net cash used in investing activities (252,712) (14,325)
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Cash Flows from Financing Activities
Dividends paid (4,430) (3,152)
Proceeds from (repayments of) debt, net 118,951 (2,366)
Stock options exercised 651 408
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Net cash provided by (used in) financing activities 115,172 (5,110)
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Effect of exchange rate changes on cash (473) (822)
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Net decrease in cash and cash equivalents (65,661) (7,287)
Cash and cash equivalents at beginning of period 95,830 26,355
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Cash and cash equivalents at end of period $ 30,169 $ 19,068
============= ===========
Cost of Acquisition:
Working capital, net of cash acquired $ (44,239) $ ---
Property, plant and equipment (151,234) ---
Cost in excess of net assets acquired (72,914) ---
Investments and other assets (18,994) ---
Long-term debt 33,910 ---
Other long-term liabilities 42,438 ---
------------- -----------
Net cost of acquisition $ (211,033) $ ---
============= ===========
<CAPTION>
See Notes to Consolidated Condensed Financial Statements.
</TABLE>
<PAGE>
Notes to Consolidated Condensed Financial Statements
Note 1 - Presentation
In the opinion of management, all adjustments, which include normal recurring
accruals, considered necessary for a fair presentation of the financial
position, results of operations and cash flows at December 31, 1996, and all
periods presented have been included in the accompanying consolidated condensed
financial statements. Operating results for the six months ended December 31,
1996, are not necessarily indicative of the results that may be expected for the
year ending June 30, 1997. Certain amounts in the prior year's Consolidated
Condensed Financial Statements have been reclassified to conform to the current
year's presentation.
Note 2 - Acquisition
On July 1, 1996, the Company completed the acquisition of Gallino Plasturgia,
S.r.l. and affiliates ("Gallino") from IAO Industrie Riunite S.p.A. The
aggregate purchase price for all shares and assets acquired was approximately
$131 million, comprised of cash of $79 million and liabilities assumed of $52
million. The acquisition, which was financed through borrowings on the Company's
revolving credit agreements, will be accounted for as a purchase. Gallino
manufactures steering wheels, instrument panels, bumpers and other plastic trim
components used in automotive original equipment and aftermarket applications.
On October 25, 1996, the Company completed the acquisition of certain assets and
the assumption of certain liabilities of the "North American Steering Wheels
Operation" of United Technologies and 100% of the outstanding shares of United
Technologies Automotive Clifford Limited. The purchase price cash consideration
of approximately $153.5 million included payment of $17.4 million of Clifford
intercompany financing and a $13 million post-closing purchase price adjustment
to be paid in February. The funds used by the Company for the acquisition were
obtained from borrowings under the Company's Revolving Credit Agreements. The
acquired operations which will be called United Steering Systems, Inc. (USS)
produces steering wheels, airbag covers, horn pads and related molded products.
USS is located in Grabill, Indiana; Monterrey, Mexico; and Birmingham, England.
USS has annual revenues of approximately $150 million.
For both acquisitions the purchase price adjustments have not been finalized.
The purchase price allocations are preliminary and subject to further
adjustments.
Note 3 - Inventories
The components of inventory (in thousands) consist of the following:
December 31, June 30,
1996 1996
------------------ ---------
Finished Goods $35,792 $19,439
Work-in-process 21,130 14,417
Raw Materials 30,372 19,034
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Total $87,294 $52,890
============= ===========
Note 4 - Borrowings
On October 25, 1996, the Company increased its line of credit from $200 million
to $260 million in order to finance the acquisition of USS (see Note 2).
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations (Second Quarter FY97)
Three Months Ended December 31, 1996 (FY97) Compared to Three Months Ended
December 31, 1995 (FY96) Net sales increased approximately $77 million due
principally to the results of the Gallino, MOMO and United Steering Systems
acquisitions. Sales for these operations amounted to approximately $100 million
and were comprised of steering wheels, alloy wheels, instrument panels, bumpers
and other plastic trim components. Electromechanical sensor sales decreased
approximately $18 million due primarily to a loss of volume as a major customer
shifts to "in-house" electronic sensors.
As a percent of sales, gross profit decreased from 41% to 20%. Gross profit on
sales of products related to the new acquisitions are significantly lower as a
percent of sales compared to margins on the Company's sensor products.
Additionally, plant consolidation costs and costs associated with the start-up
of certain new inflator products contributed to the decrease in gross profit.
Operating expenses increased primarily as a result of the acquisitions and to
increased R&D spending related to new product development for non-azide/reduced
sized inflators, electronic sensing (including occupant, weight and horn) and
side impact technology.
Other income (expense), net decreased primarily due to an increase in net
interest expense of $6 million. Approximately $4 million was incurred as a
result of borrowings used to purchase the new acquisitions. The remaining
interest expense is primarily related to the existing debt of the new
acquisitions. Additionally, royalty income decreased by $1,000,000.
Six Months Ended December 31, 1996 (FY97) Compared to Six Months Ended December
31, 1995 (FY96) Net sales increased approximately $143 million due principally
to the results of the Gallino, MOMO and United Steering Systems acquisitions.
Sales for these operations amounted to approximately $163 million and were
comprised of steering wheels, alloy wheels, instrument panels, bumpers and other
plastic trim components. Electro- mechanical sensor sales decreased
approximately $25 million due primarily to a loss of volume as a major customer
shifts to "in-house" electronic sensors.
As a percent of sales, gross profit decreased from 39% to 23%. Gross profit on
sales of products related to the new acquisitions are significantly lower as a
percent of sales compared to margins on the Company's sensor sales.
Additionally, plant consolidation costs contributed to the decrease in gross
profit.
Operating expenses increased primarily as a result of the acquisitions and to
increased R&D spending related to new product development for non-azide/reduced
sized inflators, electronic sensing (including occupant, weight and horn) and
side impact technology.
Other income (expense), net decreased primarily due to an increase in net
interest expense of $10.2 million. Approximately $6 million was incurred as a
result of borrowings used to purchase the new acquisitions. The remaining
interest expense is primarily related to the existing debt of the new
acquisitions. Additionally, royalty income decreased by $2 million.
Liquidity and Capital Resources
Growth has been financed through a combination of cash provided from operations
and debt financing. Cash provided from operating activities is the primary
source of liquidity and amounted to $72 million for the six months ended
December 31, 1996.
<PAGE>
The Company has relationships with domestic commercial banks that have provided
$260 million under a credit agreement, expiring through December 1998, to
finance fluctuations in working capital and acquisitions. As of December 31,
1996, $12 million was available for borrowing under the facilities. The Company
intends to restructure its worldwide credit facilities prior to March 31, 1997.
Such restructuring will most likely result in the refinancing of domestic and
international debt with a combination of short-term revolving credit lines and
longer-term debt agreements. Internally generated funds have been used primarily
to finance capital expenditures, provide working capital, support research and
development activities, and pay dividends. Bank debt has been used to finance
acquisitions since April 1996.
In January the Company announced its intent to acquire Custom Trim Group of
Companies. Custom Trim is the industry's primary supplier of leather-wrapped
steering wheels. In order to finance the acquisition the Company will obtain an
increase in its line of credit.
In 1997, the Company plans to invest $75 million in property, plant and
equipment to expand capacity and tool new products. Investments continue to be
made in new equipment throughout the Company to support productivity
improvements, cost reduction programs, and to add capacity for existing and new
products.
Management is not aware of any adverse trends that would materially affect the
Company's financial position. Should suitable investment opportunities or
working capital needs arise that would require additional financing, management
believes that the Company's strong balance sheet and history of exceptional
earnings provide a solid base for obtaining additional financial resources.
PART II
OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
At the Company's Annual Meeting of Stockholders held on November 20, 1996, the
following proposal was adopted by the votes specified below:
<TABLE>
<S> <C> <C> <C> <C> <C>
Broker
Proposal For Against Withheld Abstain Nonvotes (1)
--- ------- -------- ------- --------
Election of Directors:
Allen K. Breed 29,222,966 -- 109,057 -- --
Johnnie Breed 29,222,981 -- 109,042 -- --
Peter A. Lewis 29,225,183 -- 106,840 -- --
Larry W. McCurdy 30,226,348 -- 105,675 -- --
Daniel M. Edelman 29,224,631 -- 107,392 -- --
An increase in the number of shares of Common Stock
available for issuance underthe 1992 Director Stock
Option Plan from 50,000 to 100,000 shares 28,876,586 373,022 -- 82,415 --
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(1) Votes counted for determining whether a quorum existed at the meeting, as
to which the broker or other nominee holder was not authorized by the
beneficial owner to cast a vote on this particular proposal but was
authorized to cast (and did cast) a vote on at least one other proposal.
</TABLE>
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - None
(b) Reports on Form 8-K -The Company filed Form 8-K on November 9,
1996 to report that on October 25, 1996, the Company consummated
the acquisition of certain assets and the assumption of certain
liabilities of the "North American Steering Wheels Operation" of
United Technologies and 100% of the outstanding shares of capital
stock of United Technologies Automotive Clifford Limited, an
English company.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Breed Technologies, Inc.
(Registrant)
February 14, 1997
By: /s/ Edward H. McFadden
Edward H. McFadden
Executive Vice President and
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> DEC-31-1996
<CASH> 30,169
<SECURITIES> 0
<RECEIVABLES> 171,327
<ALLOWANCES> 0
<INVENTORY> 87,294
<CURRENT-ASSETS> 308,638
<PP&E> 349,901
<DEPRECIATION> 19,454
<TOTAL-ASSETS> 802,986
<CURRENT-LIABILITIES> 359,525
<BONDS> 0
0
0
<COMMON> 316
<OTHER-SE> 281,702
<TOTAL-LIABILITY-AND-EQUITY> 802,986
<SALES> 341,238
<TOTAL-REVENUES> 341,238
<CGS> 262,454
<TOTAL-COSTS> 262,454
<OTHER-EXPENSES> 52,080
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,106
<INCOME-PRETAX> 18,096
<INCOME-TAX> 7,100
<INCOME-CONTINUING> 10,996
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,996
<EPS-PRIMARY> 0.35
<EPS-DILUTED> 0
</TABLE>
