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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): March 9, 1999
BREED Technologies, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 1-11474 22-2767118
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(State of incorporation) (Commission File Number) (IRS Employer
Identification No.)
5300 Old Tampa Highway 33811
Lakeland, Florida ----------
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(Address of principal executive offices)
Registrant's telephone number, including area code: (941) 668-6000
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(Former name or former address, if changed since last report)
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Item 5. Other Events
The following unaudited pro forma financial statements are based on the
historical financial statements of (i) the Company and (ii) SRS. The unaudited
pro forma condensed consolidated statement of earnings for the twelve months
ended June 30, 1998 gives effect to the SRS Transactions and the Refinancing of
the Bridge Credit Facility (both as defined) as if they had occurred on July 1,
1997.
On October 30, 1997, the Company acquired the safety restraints system
business ("SRS") of Allied Signal Inc. (the "SRS Acquisition"). The SRS
Acquisition was financed with (i) borrowings under a $900.0 million credit
facility (the "Bridge Credit Facility") arranged by NationsBank, N.A.
("NationsBank"), (ii) the proceeds received in connection with the issuance of
$115.0 million of Series A Preference Shares of the Company to Siemens
Aktiengesellschaft (the "Siemens Investment") and (iii) the proceeds received in
connection with the issuance and sale to Prudential Securities Credit Corp.
("PSCC") of $200.0 million of Series B Convertible Preferred Stock of the
Company (the "Series B Preferred"). On November 25, 1997, the Company sold
$257.7 million of its 6.50% Convertible Subordinated Debentures due 2027 (the
"Convertible Debentures") to BTI Capital Trust, which, concurrently therewith,
sold $250.0 million aggregate liquidation amount of its 6.50% Convertible Trust
Preferred Securities (the "Preferred Securities") (which are fully and
unconditionally guaranteed by the Company) in a private transaction under Rule
144A under the Securities Act of 1933, as amended (the "Securities Act") (the
"Preferred Securities Offering"). The Company used a portion of the net proceeds
received in connection with the Preferred Securities Offering to redeem all of
the outstanding Series B Preferred in accordance with the terms thereof.
Consummation of the Bridge Credit Facility and the initial borrowings thereunder
in connection with the SRS Acquisition, the Siemens Investment, the Preferred
Securities Offering and the application of the proceeds therefrom are referred
to herein as the "SRS Financing Transactions." The SRS Financing Transactions
and the SRS Acquisition are referred to herein collectively as the "SRS
Transactions."
On April 28, 1998, the Company entered into a new $675.0 million revolving
credit facility (the "New Credit Facility") and issued and sold $330.0 million
of 9.25% Senior Subordinated Notes (the "Notes") in a private transaction under
Rule 144A under the Securities Act (the "Offering"). The Company used the net
proceeds received in connection with the Offering, together with borrowings
under the New Credit Facility, to repay in full all borrowings outstanding under
the Bridge Credit Facility (the "Refinancing of the Bridge Credit Facility").
The SRS Acquisition has been accounted for using the purchase method of
accounting. Accordingly, under the unaudited pro forma financial statements, the
total cost of the SRS Acquisition has been allocated to the tangible and
intangible assets acquired and liabilities assumed based upon their respective
fair values at the effective date of such acquisitions.
As part of the purchase price allocation for the SRS Acquisition, the
Company evaluated the in-process research and development of SRS. Under
generally accepted accounting principles, if the technological feasibility of
the acquired technology has not been established and the technology has no
future alternative uses, such in-process research and development must be
written-off. Accordingly, the unaudited pro forma financial statements reflect a
$77.5 million charge relating to the write-off of in-process research and
development for acquired technology (the "R&D Write-Off"), which the Company
recorded during the quarter ended December 31, 1997.
In addition, during the quarter ended December 31, 1997, the Company
formulated a repositioning plan (the "Repositioning Program") which is intended
to: (i) enhance the Company's competitiveness and productivity, (ii) reduce
costs and increase asset control and (iii) improve processes and systems. In
connection with the Repositioning Program, the Company recorded a $177.0 million
charge during the quarter ended December 31, 1997 (the "Repositioning Charge"),
which included the following: (i) $30.8 million relating to planned work force
reductions; (ii) $31.4 million relating to proposed facility consolidations (not
including any SRS facilities); (iii) $10.6 million relating to the write-down of
goodwill associated with the disposal of long-lived assets; (iv) $41.3 million
relating to the write-down to net realizable value of certain long-lived assets
in connection with the Gallino Disposition (as defined herein); and (v) $62.9
million relating to the write-down
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of impaired production and other equipment and the write-off of assets used to
manufacture products being replaced by new technologies.
During the quarter ended December 31, 1997, the Company also recorded a
$82.5 million impairment charge (the "Impairment Charge") relating to the
write-down of goodwill and other long-lived assets that the Company acquired in
its October 1996 acquisition of the North American steering wheel operations
("USS") of United Technologies due to deteriorating business conditions at USS,
reflecting the Company's determination that a material diminution in the value
of USS had occurred.
In addition, during the quarter ended December 31, 1997, the Company
recorded a $28.4 million charge against cost of sales for inventory and
long-term customer contracts relating to manufacturing processes that will be
exited (the "December COS Charge" and, together with the Repositioning Charge,
the Impairment Charge and the R&D Write-Off, the "December 1997 Charges").
During the quarter ended June 30, 1998, the Company recorded a $21.7 million
charge against cost of sales relating to expected losses under 28 contracts
(with nine different automobile manufacturers) acquired in connection with the
SRS Acquisition (the "June COS Charge").
The following unaudited pro forma financial statements do not purport to
represent what the Company's results of operations or financial condition would
have been had the SRS Transactions and the Refinancing of the Bridge Credit
Facility occurred on the dates indicated or to predict the Company's results of
operations or financial condition in the future. The unaudited pro forma
financial statements give effect only to the adjustments set forth in the
accompanying notes and do not reflect any other benefits anticipated by
management as a result of the SRS Acquisition and the implementation of its
business strategy.
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Unaudited Pro Forma Condensed Consolidated Statement of Earnings
For the twelve months ended June 30, 1998
<TABLE>
<CAPTION>
Pro Forma
BREED SRS(j) Adjustments Pro Forma
----- ------ ----------- ---------
(dollars in millions, except per share data)
<S> <C> <C> <C> <C>
Net sales ...................................................... $ 1,385.3 $ 297.4 $ (19.9)(a) $1662.8
Cost of sales .................................................. 1,201.4 266.5 (17.7)(a) 1450.2
---------- ---------- -------- ---------
Gross profit ................................................... 183.9 30.9 (2.2) 212.6
Selling, general and administrative expenses ................... 78.6 11.8 (0.6)(a) 89.8
Research, development and engineering
expenses............................................... 73.2 19.9 93.1
Repositioning Charge and Impairment Charge ..................... 259.5 -- 259.5
R&D Write-Off .................................................. 77.5 -- 77.5
Amortization of intangibles .................................... 19.3 1.0 3.7(b) 24.0
---------- ---------- -------- ---------
Operating income (loss) ........................................ (324.2) (1.8) (5.3) (331.3)
Other income (expense), net .................................... 1.1 (3.9) 0.4(a) (2.4)
Interest expense ............................................... 85.7 -- (13.5)(c) 82.8
10.6(d)
---------- ---------- -------- ---------
Loss before income taxes,
distributions on Preferred Securities
and extraordinary loss................................. (408.8) (5.7) (2.0) (416.5)
Income taxes (benefit) ......................................... (60.2) (1.7) (0.4)(a) (60.2)
2.1(e)
Distributions on Preferred Securities .......................... 10.0 -- 6.3(f) 16.3
---------- ---------- -------- ---------
Loss before extraordinary loss(g) .............................. $ (358.6) $ (4.0) $ (10.0) $ (372.6)
========== ========== ========= =========
Loss per share(h):
Basic and diluted loss ....................... $ (10.73) $ (11.15)
----------- ----------
Basic and diluted weighted average number
of common shares outstanding......... 33.407 33.407
Other Data:
Depreciation and amortization ................ $ 61.5
Ratio of earnings to fixed charges(i) ........ --
</TABLE>
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Notes to Unaudited Pro Forma Condensed Consolidated Statement of Earnings
(a) Represents the exclusion of the results of operations attributable to
certain operations of SRS that were not acquired by the Company in the SRS
Acquisition, estimated by the Company as follows (in millions):
Net sales ............................................. $ 19.9
Cost of sales ......................................... 17.7
Selling, general and administrative ................... 0.6
Engineering, research and development ................. --
Other income .......................................... (0.4)
Income taxes .......................................... 0.4
Income taxes were estimated using the effective tax rate of SRS for the
twelve months ended June 30, 1997.
(b) Goodwill and allocation of purchase price to identifiable intangible assets
acquired in the SRS Acquisition are as follows (in millions):
<TABLE>
<S> <C> <C>
Purchase price ......................................................... $ 710.0
Less:
Estimated fair value of SRS net assets acquired less assumed
liabilities ...................................................... $ 301.8
Adjustment for planned closings of eight facilities ................ (13.0) 288.8
-------- --------
421.2
Involuntary employee termination costs for approximately
2,187 employees .................................................. 32.0
Acquisition costs ...................................................... 7.0
Other .................................................................. 10.2
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Excess of purchase price over fair value of net assets acquired..... $ 372.0
========
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Amortization
Value of Period in
Intangibles Years
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(in millions)
Trained workforce .............................. $ 10.3 10
Developed technology ........................... 170.0 22
In-process research and development ............ 77.5
Goodwill ....................................... 372.0 40
Independent appraisals have been used in establishing the fair market
values. The preliminary allocation of the purchase price was adjusted during the
fourth quarter of fiscal 1998 to reflect revised estimates of pre-acquisition
contingencies, liabilities and restructuring. The plant closings and involuntary
employee terminations accrued above are part of restructuring this business and
are to be substantially completed by March 31, 1999.
The amortization expense of intangibles incurred as a result of the SRS
Acquisition is as follows:
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Twelve Months
Ended
June 30, 1998
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(in millions)
Amortization of intangible assets related to
SRS Acquisition........................................... $ 18.1
Amortization of intangible assets previously recorded by SRS. (1.0)
Amortization of intangible assets recorded by SRS
post-acquisition.......................................... (13.4)
-------
Net increase in goodwill amortization ....................... $ 3.7
=======
(c) Reflects various financing and advisory fees relating to the New Credit
Facility and the Offering, which aggregated $23.9 million and were paid in
cash. Fees of $12.3 million relating to the New Credit Facility are being
amortized over the weighted average life of the facility of 5.5 years and
fees of $11.6 million relating to the Offering are being amortized over the
ten-year life of the Notes. These fees would have affected the amortization
of deferred financing costs as follows:
Twelve Months
Ended
June 30, 1998
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(in millions)
Amortization of fees relating to New Credit Facility ....... $ 2.3
Amortization of fees relating to the Offering .............. 1.2
Less amortization of fees on Bridge Credit Facility ........ (15.9)
Less amortization of fees on previous credit
facility replaced by Bridge Credit Facility............... (0.2)
Less amortization of fees on New Credit Facility
previously recorded....................................... (0.9)
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$ (13.5)
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(d) Represents the additional interest expense that would have been incurred if
the Notes and borrowings under the New Credit Facility incurred in
connection with the Refinancing of the Bridge Credit Facility had been
outstanding for the entire period.
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Twelve Months
Ended
June 30, 1998
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(in millions)
Interest expense on the New Credit Facility ................ $ 41.6
Interest expense on the Notes .............................. 30.5
Interest expense under the Bridge Credit Facility
and credit facility replaced by Bridge Credit Facility.... (41.9)
Previously recorded interest expense attributable to
PSCC Financing............................................ (1.6)
Previously recorded interest expense attributable to the
New Credit Facility....................................... (18.0)
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Net increase in interest expense ........................... $ 10.6
=======
The interest rate for the New Credit Facility is based on base interest
rates selected by the Company plus applicable margins.
For each increase or decrease of 0.25% in the base interest rates under the
New Credit Facility, assuming $525.0 million of aggregate borrowings
outstanding under the New Credit Facility, the annual interest expense
attributable to the New Credit Facility would increase or decrease by $1.3
million.
(e) As discussed in Note 4 to the consolidated financial statements in the
Company's Form 10-K/A for the year ended June 30, 1998, the income tax
benefits recorded by the Company are limited by the provisions of SFAS No.
109 Accounting for Income Taxes primarily because of the limitations on the
Company's ability to carry back net operating losses or offset the losses
against income in other taxing jurisdictions. Accordingly, the income tax
benefits that may be recorded are limited to those actually recorded in the
consolidated statement of operations for the year ended June 30, 1998. The
adjustment to pro forma income tax benefit as follows:
Twelve Months
Ended
June 30, 1998
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(in millions)
Income tax (benefit) recorded by the Company ................ $ (60.2)
Income tax (benefit) recorded by SRS ........................ (1.7)
Less income taxes attributable to certain operations
of SRS not acquired by the Company......................... (0.4)
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(62.3)
Available income tax (benefit) .............................. (60.2)
-------
Adjustment .................................................. $ (2.1)
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(f) Represents additional distributions at the annual rate of 6.50% that would
have been recorded if the Preferred Securities had been outstanding for the
entire period.
Twelve Months
Ended
June 30, 1998
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(in millions)
Distributions on the Preferred Securities .............. $ 16.3
Distributions previously recorded .................... (10.0)
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$ 6.3
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(g) Assuming that the SRS Transactions and the Refinancing of the Bridge Credit
Facility had occurred as of the first day of the respective periods,
unamortized fees relating to the Bridge Credit Facility and the credit
facility that it replaced would have been recorded as an extraordinary
loss, net of tax benefit.
In July 1996, the Company acquired Gallino Pasturguria, S.r.l. ("Gallino"),
a manufacturer of steering wheels and plastic interior and exterior parts
based in Italy, for $74 million in cash and the assumption of $52 million
of liabilities. During the quarter ended June 30, 1997, the Company
committed to a plan to dispose of the plastic interior and exterior parts
business (the "Gallino Disposition") and is currently in negotiations with
third parties relating to the sale of substantially all of this business.
Under the proposals, the Company would retain a minority interest in the
business subject to the Gallino Disposition. The following table sets forth
the adjustments necessary to exclude the results of operations attributable
to the assets being disposed of in connection with the Gallino Disposition:
<TABLE>
<CAPTION>
Twelve Months Ended June 30, 1998
----------------------------------------------------
Pro Forma
Gallino Excluding
Pro Forma Adjustments Gallino
--------- ------------ ---------
(in millions)
<S> <C> <C> <C>
Net sales ......................................... $ 1,662.8 $ (173.1) $ 1,489.7
Cost of sales ..................................... 1,450.2 (157.8) 1,292.4
----------- ---------- -----------
Gross profit ...................................... 212.6 (15.3) 197.3
Selling, general and administrative expenses ...... 89.8 (8.0) 81.8
Research, development and engineering expenses .... 93.1 (4.0) 89.1
Repositioning Charge and Impairment Charge ........ 259.5 -- 259.5
R&D Write-Off ..................................... 77.5 -- 77.5
Amortization of intangibles ....................... 24.0 -- 24.0
----------- ---------- -----------
Operating income (loss) ........................... (331.3) (3.3) (334.6)
Other income (expense), net ....................... (2.4) (3.2) (5.6)
Interest expense, net ............................. 82.8 (3.8) 79.0
----------- ---------- -----------
Loss before income taxes, distributions
on Preferred Securities and extraordinary
loss ............................................. (416.5) (2.7) (419.2)
Income taxes (benefit) ............................ (60.2) (0.4) (60.6)
Distributions on Preferred Securities ............. 16.3 -- 16.3
----------- ---------- -----------
Loss before extraordinary loss .................... $ (372.6) $ (2.3) $ (374.9)
=========== ========== ===========
</TABLE>
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(h) Earnings per share have been adjusted to conform to the provisions of SFAS
No. 128 Earnings Per Share.
(i) For purposes of computing the ratio of earnings to fixed charges, earnings
consist of earnings before income taxes plus fixed charges. Fixed charges
consist of interest expense, whether expensed or capitalized, amortization
of debt issuance costs and an estimated portion of rental expense that is
representative of the interest factor in such rentals. Pro Forma earnings
were insufficient to cover fixed charges by $416.5 million for fiscal 1998.
The ratio of earnings to fixed charges for fiscal 1998 reflects the
December 1997 Charges and the June COS Charge.
(j) Represents SRS's results of operations for the four months ended October 30,
1997, the date of acquisition.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: March 8, 1999
BREED TECHNOLOGIES, INC.
By: /s/ J. F. Gallagher
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J. F. Gallagher
Chief Financial Officer
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