UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________________
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
For the quarterly period ended: September 30, 1997
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Commission File No. 1-11474
____________________
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)
____________________
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 October 31, 1997, 31,705,527 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 (Unaudited)-
September 30, 1997 and June 30, 1997................ 1
Consolidated Condensed Statements of Operations (Unaudited)-
Three months ended September 30, 1997 and 1996 ...... 2
Consolidated Condensed Statements of Cash Flows (Unaudited)-
Three months ended September 30, 1997 and 1996....... 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 6. Exhibits and Reports on Form 8-K ................................ 6
Signatures .............................................................. 7
i
<PAGE>
Consolidated Condensed Balance Sheets (Unaudited)
September 30, 1997 and June 30, 1997
In thousands
September 30,1997 June 30, 1997
ASSETS
Current Assets
Cash and cash equivalents $ 12,023 $ 18,707
Accounts receivable, principally trade 192,223 207,951
Inventories 79,332 75,347
Prepaid expenses 20,420 13,519
----------- ------------
Total Current Assets 303,998 315,524
----------- ------------
Net property, plant and equipment 272,425 276,450
Intangibles 219,360 220,956
Net assets held for sale 56,900 52,620
Investments and other assets 12,955 11,603
----------- ------------
Total Assets $ 865,638 $ 877,153
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Notes payable and current portion
of long-term debt $ 195,724 $ 191,744
Accounts payable 129,149 121,505
Accrued expenses 25,263 49,479
----------- ------------
Total Current Liabilities 350,136 362,728
----------- ------------
Long-term debt 240,849 231,700
Other long-term liabilities 15,519 16,306
----------- ------------
Total Liabilities 606,504 610,734
----------- ------------
Stockholders' Equity
Common stock 317 317
Additional paid-in capital 77,573 77,470
Retained earnings 203,737 207,964
Foreign currency translation adjustments (22,091) (18,843)
Unearned compensation (402) (489)
----------- -----------
Total Stockholders' Equity 259,134 266,419
----------- ------------
Total Liabilities and Stockholders' Equity $ 865,638 $ 877,153
=========== ============
See Notes to Consolidated Condensed Financial Statements.
1
<PAGE>
Consolidated Condensed Statements of Operations (Unaudited)
Three months ended September 30, 1997 and 1996
In thousands, except earnings (loss) per share
1997 1996
Net sales $ 195,172 $ 158,671
Cost of sales 166,885 116,577
------------ -----------
Gross profit 28,287 42,094
------------ -----------
Selling, general and administrative expenses 16,229 15,465
Engineering, research and development 8,881 7,973
Amortization of intangibles 2,017 1,282
------------ -----------
Total Operating Expenses 27,127 24,720
------------ -----------
Operating income 1,160 17,374
Interest income (expense), net (8,077) (4,208)
Other income (expense), net (710) (20)
------------ -----------
Earnings (loss) before income taxes (7,627) 13,146
Income taxes (benefit) (3,400) 5,300
------------ -----------
Net earnings (loss) $ (4,227) $ 7,846
============ ===========
Earnings (loss) per share $ (.13) $ .25
============ ===========
Average shares outstanding 31,682 31,628
============ ===========
See Notes to Consolidated Condensed Financial Statements.
2
<PAGE>
Consolidated Condensed Statements of Cash Flows (Unaudited)
Three months ended September 30, 1997 and 1996
In thousands
<TABLE>
<S> <C> <C>
1997 1996
----------- -----------
Cash Flows from Operating Activities
Net earnings (loss) $ (4,227) $ 7,846
Adjustments to reconcile net earnings (loss) to net cash
provided by operating activities:
Depreciation and amortization 12,708 10,283
Gain from sale of assets (170) ---
Changes in working capital items (9,511) 11,707
Changes in other assets and other long-term liabilities (6,840) 1,158
----------- ----------
Net cash (used in) provided by operating activities (8,040) 30,994
----------- ----------
Cash Flows from Investing Activities
Cost of acquisition, net of cash acquired --- (77,142)
Purchases of property, plant and equipment (6,853) (22,480)
Proceeds from sale of assets 363 ---
----------- ----------
Net cash used in investing activities (6,490) (99,622)
----------- ----------
Cash Flows from Financing Activities
Dividends paid (2,218) (2,214)
(Repayments) proceeds of debt, net 13,128 (13,382)
Stock options exercised and terminations of restricted shares 184 16
---------- ----------
Net cash provided by (used) in financing activities 11,094 (15,580)
---------- ----------
Effect of exchange rate changes on cash (3,248) 14
----------- ----------
Net decrease in cash and cash equivalents (6,684) (84,194)
Cash and cash equivalents at beginning of period 18,707 95,830
---------- ----------
Cash and cash equivalents at end of period $ 12,023 $ 11,636
========== ==========
Cost of Acquisition:
Working capital, net of cash acquired --- $ (18,085)
Property, plant and equipment --- (117,230)
Other assets --- (930)
Long-term debt --- 33,910
Other long-term liabilities --- 25,193
---------- ----------
Net cost of acquisition --- $ (77,142)
========== ===========
</TABLE>
See Notes to Consolidated Condensed Financial Statements.
3
<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 September 30,
1997, and all periods presented have been included in the accompanying
consolidated financial statements. Operating results for the three months ended
September 30, 1997, are not necessarily indicative of the results that may be
expected for the year ending June 30, 1998. Certain amounts in the prior year's
Consolidated Condensed Financial Statements have been reclassified to conform to
the current year's presentation.
Note 2 - Inventories
The components of inventory (in thousands) consist of the following:
September 30, June 30,
1997 1997
--------------- -------------
Finished Goods $ 24,743 $ 24,832
Work-in-process 28,230 23,385
Raw Materials 26,359 27,130
--------------- -------------
Total $ 79,332 $ 75,347
=============== =============
Note 3 - Subsequent Events On October 30, 1997, the Company completed the
acquisition of substantially all of the assets and certain liabilities of
AlliedSignal, Inc.'s worldwide automotive occupant safety restraint products and
systems ("SRS"). These products include seat belt and airbag assemblies and
components. The aggregate purchase price for all assets and liabilities acquired
was $710 million in cash and is subject to post closing adjustments based on the
net asset value of SRS as of the closing date. In conjunction with the
acquisition, AlliedSignal advanced the Company $50 million to be applied against
any potential post closing adjustments.
The company entered into a new credit agreement for borrowings of up to
$900 million. The company borrowed $800 million from the credit agreement to
retire the former credit agreement and partially finance the acquisition of SRS.
The credit agreement has a 366 day term and contains various restrictive
covenants. The Company also used proceeds from the issuance of Series A
Preference Shares of $115 million and the issuance of Series B Preferred Stock
of $200 million to finance the acquisition.
The Company has announced its intent to offer $250 million of convertible
trust preferred securities in a transaction under Rule 144A of the Securities
Act of 1933, as amended. The proceeds of the offering will be used to retire the
Series B Preferred Stock and provide additional working capital.
The Company also announced that it expects to announce restructuring and
other charges of between $250 million and $330 million pretax in the second
quarter ended December 31, 1997. These restructuring and other charges include a
reduction of the Company's global workforce; the consolidation of manufacturing,
engineering and sales facilities in North America, Europe and Asia; the
write-down of goodwill, equipment, tooling and certain other assets associated
with businesses acquired in prior years; as well as a charge for in-process
research and development at SRS.
4
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Quarterly Report on Form 10-Q contains forward-looking statements that
involve a number of risks and uncertainties. When used in this Quarterly Report
on Form 10-Q the words "believes", "anticipated" and similar expressions are
intended to identify forward-looking statements. There are a number of factors
that could cause the Company's actual results to differ materially from those
forecasted or projected in such forward-looking statements. Readers are
cautioned not to place undue reliance on these forward-looking statements which
speak only as of the date hereof. The Company undertakes no obligations to
publicly release the result of any revisions to these forward- looking
statements which may be made to reflect events or circumstances after the date
hereof or to reflect the occurrence of unanticipated events.
Results of Operations Three Months Ended September 30, 1997 (FY98) Compared
to Three Months Ended September 30, 1996 (FY97) Net Sales.
Net sales increased 23.0 % to $195.2 million in the quarter ended September
30, 1997 (FY98) from $158.7 million in the quarter ended September 30, 1996
(FY97) primarily due to growth from the acquisitions of USS and Custom Trim.
These two acquisitions account for approximately $61.5 million of the
year-over-year sales growth. The increase was partially offset by a decline in
sales of Gallino and MOMO products and a continuing decline in sales of the
Company's EMS sensor and all-mechanical airbag system products.
EMS sensor sales decreased 38.5 % to $28.5 million in the quarter ended
September 30, 1997 (FY98) from $46.4 million in the quarter ended September 30,
1996 (FY97) as major customers continue the shift to electronic sensors sourced
internally. This decline is partially offset by an increase in the sale of
auxiliary and safing sensors, which are components in electronic sensor systems.
Sales of these sensor products increased by $1.7 million from fiscal 1997 to
fiscal 1998.
Inflator and module sales decreased 36.7 % to $13.9 million in the quarter
ended September 30, 1997 (FY98) from $21.9 million in the quarter ended
September 30, 1996 (FY97) primarily due to a planned phase-out of all-mechanical
airbag systems at Fiat and Chrysler.
Cost of Sales. Cost of sales increased 43.1 % to $166.9 million in the
quarter ended September 30, 1997 (FY98) from $116.6 million in the quarter ended
September 30, 1996 (FY97). The increase primarily reflects the additional
production costs resulting from the acquisitions of USS and Custom Trim made
during fiscal 1997. In addition, the Company has incurred approximately $1.7
million related to the closing of two operations acquired in the USS
acquisition.
Gross Profit. Consolidated gross profit as a percentage of net sales
decreased to 14.5 % for the quarter ended September 30, 1997 (FY98) from 26.5 %
for the quarter ended September 30, 1996 (FY97) reflecting the declining sales
of high-margin EMS sensors and a higher percentage of net sales being generated
from lower margin products acquired in recent acquisitions, primarily steering
wheels and plastic components.
Selling, General and Administrative Expenses. Selling and administrative
expenses increased 4.9% to $16.2 million for the quarter ended September 30,
1997 (FY98) from $15.5 million for the quarter ended September 30, 1996 (FY97)
primarily reflecting costs associated with the acquired businesses ($1.5
million), partially offset by some reductions in selling and marketing expenses
associated with the existing business.
Engineering, Research and Development ("R&D") Expenses. R & D expenses
increased 11.4 % to $8.9 million for the quarter ended September 30, 1997 (FY98)
from $ 8.0 million for the quarter ended September 30, 1996 (FY97) reflecting
costs associated with the acquired businesses ($ 0.7 million) and an increase in
spending for new product development in the existing businesses, primarily
electronic sensing and intelligent systems technology.
5
<PAGE>
Interest Expense. Interest expense increased to $8.1 million for the
quarter ended September 30, 1997 (FY98) from $4.2 million for the quarter ended
September 30, 1996 (FY97) reflecting the borrowings used to finance the
acquisitions and working capital requirements.
Income Taxes. The higher effective tax rate of 46.8% for the quarter ended
September 30, 1997 (FY98) compared to 40.3% for the quarter ended September 30,
1996 (FY97) is primarily due to the absence of a current tax benefit for losses
of certain foreign entities.
Liquidity and Capital Resources
Cash provided from operations for the quarter ended September 30, 1997
(FY98) was a deficit of $8 million primarily attributable to the net loss of $4
million and changes in working capital items. The Company had a working capital
deficit of $ (44.4) million at September 30, 1997, compared to a working capital
deficit of $ (47.2) million at June 30, 1997. The lower working capital deficit
is attributable to lower levels of accounts receivable relating to lower sales
volume typical of the first quarter.
In the first quarter of FY98, the Company invested $7 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. Working capital needs included higher levels of
accounts receivable relating to higher sales volume, and increased inventory
levels to support sales growth and to maintain service levels during facility
relocations undertaken as part of the Company's restructuring actions.
On October 30, 1997, Siemens made a $115 million equity investment in the
Company and acquired 4,883,227 Series A Preference Shares. Proceeds of the
Siemens Investment were used to fund a portion of the SRS Acquisition.
The Company recently entered into a Credit Facility with NationsBank, which
provided the Company with up to $900 million to fund the SRS Acquisition (see
Item 6(b)), refinance existing indebtedness, pay transaction costs and provide
ongoing working capital availability. The NationsBank Credit Facility consists
of a 366-day revolving credit facility providing up to $300 million of
availability, including a $25 million sublimit for the issuance of standby
letters of credit and a $75 million sublimit for multi-currency borrowings, and
a 366-day $600 million term loan. Concurrently with the SRS Acquisition, the
Company borrowed $800 million under the NationsBank Credit Facility, leaving
$100 million of available borrowings.
If the Company successfully completes the sale of the $250 million of
convertible trust preferred securities as discussed in Note 3 to the
Consolidated Condensed Financial Statements, it will use the net proceeds to
retire the $200 million of Series B Preferred Stock and use the remainder for
working capital.
PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - None
(b) Reports on Form 8-K - The Company will file Form 8-K on November 14,
1997 to report that on October 30, 1997, the Company consummated the acquisition
of certain assets and the assumption of certain liabilities of the "Safety
Restraints Systems" business unit of AlliedSignal, Inc. and 100% of the
outstanding shares of capital stock of ICSRD Rueckhaltesysteme
Fahrzeugsicherheit GmbH, a German company,
6
<PAGE>
BSRD Limited, an English company, AlliedSignal India, Inc., a Delaware BSRD
Limited, an English company, AlliedSignal India, Inc., a Delaware company,
Sistemas AlliedSignal de Seguridad, S.A. de C.V., a Mexican company, and
AlliedSignal Cinturones de Seguridad, S.A. de C.V., a Mexican company.
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)
November 14, 1997
By: /s/ Frank J. Gnisci
Frank J. Gnisci
Executive Vice President and
Chief Financial Officer
7
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<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> SEP-30-1997
<CASH> 12,023
<SECURITIES> 0
<RECEIVABLES> 192,223
<ALLOWANCES> 0
<INVENTORY> 79,332
<CURRENT-ASSETS> 303,998
<PP&E> 367,721
<DEPRECIATION> 95,296
<TOTAL-ASSETS> 865,638
<CURRENT-LIABILITIES> 350,136
<BONDS> 0
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<COMMON> 317
<OTHER-SE> 258,817
<TOTAL-LIABILITY-AND-EQUITY> 865,638
<SALES> 195,172
<TOTAL-REVENUES> 195,172
<CGS> 166,885
<TOTAL-COSTS> 166,885
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