1
Unaudited Pro Forma Financial Statements
The following unaudited pro forma financial statements are based on the
historical financial statements of BREED Technologies, Inc. ("BREED" or the
"Company"), the businesses acquired in the 1997 Acquisitions (as hereinafter
defined), and the safety restraint systems business ("SRS") of AlliedSignal
Inc. (the "SRS Acquisition") as of and for the twelve-month period ended June
30, 1997 and the three-month period ended September 30, 1997. The unaudited pro
forma condensed consolidated statement of earnings for the twelve-month period
ended June 30, 1997 gives effect to the 1997 Acquisitions and the Transactions
(as hereinafter defined) and the application of the net proceeds therefrom as
if they had occurred at July 1, 1996. The unaudited pro forma condensed
consolidated statement of earnings for the three-month period ended September
30, 1997 gives effect to the Transactions and the application of the net
proceeds therefrom as if they had occurred at July 1, 1997. The unaudited pro
forma condensed consolidated balance sheet gives effect to the Transactions and
the application of the net proceeds therefrom as if they had occurred on
September 30, 1997.
The 1997 Acquisitions consist of the following: (i) the Company's acquisition
of certain assets and the assumption of certain liabilities of the North
American steering wheel operation ("USS") of United Technologies, which was
completed on October 25, 1996; and (ii) the Company's acquisition of the stock
of the holding company for the Custom Trim group of companies ("Custom Trim"),
which was completed on February 25, 1997. In addition to the 1997 Acquisitions,
the Company completed the acquisition of Gallino Plasturgia, S.r.l. ("Gallino")
on the first day of fiscal 1997. Because the results of operations of Gallino
are included in the Company's fiscal 1997 statement of earnings for the entire
year, no pro forma adjustments have been made with respect to this acquisition.
All acquisitions, including the SRS Acquisition, have been accounted for using
the purchase method of accounting.
The Transactions consist of the following: (i) the SRS Acquisition; (ii) the
issuance of Series A Preference Shares to Siemens Aktiengesellschaft
("Siemens") for $115 million in cash (these securities may be converted into
shares of common stock on a share-for-share basis); (iii) the borrowing of $800
million (the "Bank Borrowing") under a new $900 million credit facility (the
"New Credit Facility"); (iv) the issuance of $250 million of Company-obligated
Mandatorily Redeemable Preferred Securities of BTI Capital Trust holding solely
Convertible Debentures issued by the Company (the "Preferred Securities"); (v)
the repayment of the amounts outstanding under the Company's old credit
facility (the "Previous Credit Facility"); and (vi) the issuance and subsequent
redemption in full of the $200 million of Series B Convertible Preferred Stock
(the "PSCC Financing").
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 1997 Acquisitions and the Transactions and the application of
the net proceeds therefrom actually occurred on the dates indicated or to
predict the Company's results of operations or financial condition in the
future.
2
The unaudited pro forma financial statements have been prepared using the
purchase method of accounting, whereby the total cost of the SRS Acquisition
will be allocated to the tangible and intangible assets acquired and
liabilities assumed based upon their respective fair values at the effective
date of the SRS Acquisition. Such allocations will be based on studies and
valuations which have not yet been completed. Accordingly, the allocations
reflected in the unaudited pro forma financial statements are preliminary and
subject to revision. As part of the purchase price allocation, the Company is
evaluating the in-process research and development of SRS. 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 will be written-off. The Company's preliminary estimate of the
amount of the in-process research and development for SRS that will be written
off is between $70 million and $80 million, although there can he no assurance
that the amount when ultimately determined will not be less than $70 million
nor more than $80 million. The unaudited pro forma condensed consolidated
balance sheet reflects a charge of $80 million (which the Company currently
believes is the more likely amount) in the form of a reduction in retained
earnings.
During the quarter ended December 31, 1997, the Company committed to a plan to
reposition and combine certain of BREED and SRS manufacturing and distribution
facilities. The effects of repositioning and combining facilities of SRS will
generally be considered in the purchase price allocation process. The effects
of repositioning and combining facilities of the Company will be recorded as
repositioning and other special charges in its statement of earnings. The
Company has committed to the plan of repositioning but has not yet finalized
its estimate of the impact of the plan on the Company's results of operations.
The Company currently estimates the amount of these repositioning and other
special charges could range from $180 million to $260 million although the
actual amount, when ultimately determined, could be less than $180 million or
more than $260 million. The unaudited pro forma condensed balance sheet
reflects a charge of $250 million, (which the Company currently believes is the
more likely amount) net of the estimated tax effect in the form of a reduction
in retained earnings.
The unaudited pro forma financial statements give effect only to the
adjustments set forth in the accompanying notes and does not reflect any other
benefits anticipated by management as a result of the SRS Acquisition and the
1997 Acquisitions and the implementation of its business strategy.
Statements herein regarding estimated write-offs for in-process research and
development (the "R&D Write-Off") and repositioning and other special charges
(collectively, the "Repositioning Charge") constitute forward-looking
statements within the meaning of the Securities Act of 1933 and the Securities
Exchange Act of 1934. Such statements are subject to certain risks and
uncertainties that could cause actual amounts to differ materially from those
projected. With respect to the amount of the Repositioning Charge, management
has made assumptions regarding, among other things, the timing of plant
closures, the costs to be incurred in connection with labor force reductions,
the amount of any necessary write-down of long-lived assets in connection with
plant closures and the amount of any possible impairment of the value of
certain acquired assets. With respect to the R&D Write-Off, management has made
certain assumptions
3
regarding, among other things, whether or not certain technologies acquired in
the SRS Acquisition are "proven" or have alternative uses under generally
accepted accounting principles. The amount of the R&D Write-Off and
Repositioning Charge are subject to certain risks, including, among other
things, the risks that expected costs and write-downs in connection with plant
closures have been underestimated, unexpected costs and expenses will be
incurred in connection with plant closures and current expectations regarding
which SRS technology is "proven" or has alternative uses are inaccurate.
Management believes these forward looking statements are reasonable; however,
undue reliance should not be placed on such forward looking statements, which
are based on current expectations.
4
BREED Technologies, Inc.
Unaudited Pro Forma Condensed
Consolidated Statement of Earnings
For the twelve-month period ended June 30, 1997
1997 ACQUISITIONS BREED
------------------------ INCLUDING
CUSTOM TRIM 1997 PRO FORMA
BREED USS (A) (B) ACQUISITIONS SRS(C) ADJUSTMENTS PRO FORMA
----------------------------------------------------------------------------------------
(in millions except share and per share data)
Net sales $ 794.9 $50.8 $ 68.1 $ 913.8 $ 910.8 $ (70.8)(d) $ 1,753.8
Cost of sales 631.3 44.8 54.2 730.3 765.3 (61.4)(d) 1,434.2
----------------------------------------------------------------------------------------
Gross profit 163.6 6.0 13.9 183.5 145.5 (9.4) 319.6
Engineering, research and
development 36.1 1.5 - 37.6 50.6 (1.8)(d) 86.4
Selling, general and
administrative 69.9 1.4 2.0 73.3 36.7 (2.2)(d) 107.8
Amortization of goodwill 6.3 - 1.0 7.3 3.2 9.1 (e) 19.6
----------------------------------------------------------------------------------------
Operating income 51.3 3.1 10.9 65.3 55.0 (14.5) 105.8
Other income (expense), net 3.5 (0.6) 3.7 6.6 7.2 (1.6)(d) 12.2
Amortization of deferred
financing costs 0.7 - - 0.7 - 42.8 (f) 43.5
Interest expense, net 24.5 - 2.7 27.2 - 68.3 (g) 95.5
----------------------------------------------------------------------------------------
Income (loss) before income
taxes and Distributions on
Company-obligated
Mandatorily Redeemable
Convertible Preferred
Securities of BTI Capital Trust
holding solely Convertible 29.6 2.5 11.9 44.0 62.2 (127.2) (21.0)
Debentures
Income taxes (benefit) 14.8 1.3 4.6 20.7 23.3 (68.4)(h) (27.0)
(2.6)(d)
Distributions on Company-
obligated Mandatorily
Redeemable Convertible
Preferred Securities of BTI
Capital Trust holding solely
Convertible Debentures - - - - - 16.3 (i) 16.3
----------------------------------------------------------------------------------------
Net earnings (loss) $ 14.8 $ 1.2 $ 7.3 $ 23.3 $ 38.9 $ (72.5) $ (10.3)
========================================================================================
Earnings (loss) per share $ 0.47 $ (0.28)
========== ===========
Weighted average number of
common shares outstanding 31,648,249 4,883,227(j) 36,531,476
========== ========== ===========
5
BREED Technologies, Inc.
Unaudited Pro Forma Condensed
Consolidated Statement of Earnings
For the three-month period ended September 30, 1997
PRO FORMA
BREED(K) SRS (C) ADJUSTMENTS PRO FORMA
--------------------------------------------------------------------
(in millions except share and per share data)
Net sales $ 195.2 $210.0 $ (14.2)(d) $391.0
Cost of sales 166.9 182.4 (12.2)(d) 337.1
-------------------------------------------------------------------
Gross profit 28.3 27.6 (2.0) 53.9
Engineering, research and development 8.9 13.2 - 22.1
Selling, general and administrative 16.2 9.5 (0.4)(d) 25.3
Amortization of goodwill 2.0 0.8 2.3 (e) 5.1
-------------------------------------------------------------------
Operating income 1.2 4.1 (3.9) 1.4
Other income (expense), net (0.7) (3.1) 1.2 (d) (2.6)
Amortization of deferred financing costs - - 22.2 (f) 22.2
Interest expense, net 8.1 - 14.6 (g) 22.7
-------------------------------------------------------------------
Income (loss) before income taxes and
Distributions on Company-obligated
Mandatorily Redeemable Convertible
Preferred Securities of BTI Capital Trust
holding solely Convertible Debentures (7.6) 1.0 (39.5) (46.1)
Income taxes (benefit) (3.4) 0.7 (21.6)(h) (24.2)
0.1 (d)
Distributions on Company-obligated Mandatorily
Redeemable Convertible Preferred Securities
of BTI Capital Trust holding solely
Convertible Debentures - - 4.1 (i) 4.1
-------------------------------------------------------------------
Net earnings (loss) $ (4.2) $ 0.3 $ (22.1) $ (26.0)
===================================================================
Loss per share $ (0.13) $ (0.71)
=========== =============
Weighted average number of common shares
outstanding 31,681,582 4,883,227 (j) 36,564,809
=========== ========= =============
6
BREED Technologies, Inc.
Notes To Unaudited Pro Forma Condensed
Consolidated Statement of Earnings
(in millions except share and per share data)
(a) Represents USS's results of operations for the four months ended October
25, 1996, the date of acquisition.
(b) Represents Custom Trim's results of operations for the eight months ended
February 22, 1997, the date of acquisition.
(c) Represents SRS's results of operations for the twelve months ended June
30, 1997 and the three months ended September 30, 1997, as the case may be.
(d) Represents the exclusion of items related to certain SRS operations which
were not acquired by the Company in the SRS Acquisition. These items
include:
TWELVE-MONTH THREE-MONTH
PERIOD ENDED PERIOD ENDED
JUNE 30 SEPTEMBER 30 1997
1997
------------------------------------
Net sales $70.8 $14.2
Cost of sales 61.4 12.2
Engineering, research and development 1.8 -
Selling, general and administrative 2.2 0.4
Other income (expense), net 1.6 (1.2)
Income taxes (benefit) (2.6) 0.1
The income tax benefit was estimated using the effective tax rate of SRS
for the twelve months ended June 30, 1997.
(e) Represents the amortization expense of goodwill expected to be incurred as
a result of the SRS Acquisition using an estimated life of 40 years.
Management is continuing to evaluate the appropriate amortization periods
and existence of any other intangible assets.
TWELVE-MONTH THREE-MONTH
PERIOD ENDED PERIOD ENDED
JUNE 30 SEPTEMBER 30
1997 1997
------------------------------------
Goodwill amortization related to SRS Acquisition $ 12.3 $ 3.1
Goodwill amortization previously recorded by SRS (3.2) (0.8)
====================================
Increase in goodwill amortization $ 9.1 $ 2.3
====================================
7
BREED Technologies, Inc.
Notes To Unaudited Pro Forma Condensed
Consolidated Statement of Earnings (continued)
(f) Reflects various financing and advisory fees related to the SRS
Acquisition. These fees include $42.6 paid or to be paid in cash and the
value of warrants. These fees are being amortized over six months because
the Company expects to replace the New Credit Facility within six months.
The adjustment for the twelve-month period ended June 30, 1997 includes
the net of the write-off of $0.9 deferred financing costs related to the
Previous Credit Facility less the previously recorded amortization of $0.7
related to the Previous Credit Facility. The adjustment for the
three-month period ended September 30, 1997 includes the write-off of $0.9
deferred financing costs related to the Previous Credit Facility.
The estimate of the value of the warrants is based on 250,000 warrants
vesting immediately on the closing of the New Credit Facility. If the
Company provides an operating plan reasonably acceptable to the lender
within 90 days and receives $300.0 of equity capital (which the Company
has received as a result of the Siemens Investment and the PSCC Financing
and which condition continued to be met following the redemption in full
of the PSCC Securities with the proceeds of the issuance and sale of the
Preferred Securities), no other warrants will vest within the six-month
period. The Company expects to meet the condition regarding delivery of an
acceptable operating plan. However, if the Company does not meet this
condition, and the amounts due under the New Credit Facility are not paid,
up to 2,750,000 additional warrants may vest within 270 days. In that
event, the value of the additional warrants will be charged to expense.
(g) This adjustment represents the additional interest expense that would have
been incurred if the Bank Borrowing were outstanding for the entire period
rather than the Previous Credit Facility.
TWELVE-MONTH THREE-MONTH
PERIOD ENDED PERIOD ENDED
JUNE 30 SEPTEMBER 30
1997 1997
-----------------------------------
Interest expense on the Bank Borrowing $85.3 $21.3
Interest expense under the Previous Credit Facility (17.0) (6.7)
===================================
Net increase in interest expense $68.3 $14.6
===================================
8
BREED Technologies, Inc.
Notes To Unaudited Pro Forma Condensed
Consolidated Statement of Earnings (continued)
The interest rate for the New Credit Facility is based on base interest
rates selected by the Company plus applicable margins. The Company is
obligated to enter into interest rate swap agreements in notional amounts
of at least $300 as long as $300 is outstanding under the New Credit
Facility and one-half of the amount outstanding under the New Credit
Facility if the amount outstanding is less than $300.
For each increase or decrease in the base interest rates of one-quarter
percentage point on Bank Borrowing balances of $800, the annual interest
expense would increase or decrease by $2, without giving effect to any
interest rate swap agreements.
(h) Income tax benefits are estimated for net pro forma adjustments at the
Company's effective tax rate for fiscal 1997 for the following items:
TWELVE-MONTH THREE-MONTH
PERIOD ENDED PERIOD ENDED
JUNE 30 SEPTEMBER 30
1997 1997
------------------------------------
Amortization of goodwill related to SRS $ 12.2 $ 3.1
Amortization of deferred financing costs 42.8 22.2
Increase in interest expense 68.3 14.6
------------------------------------
Total decrease to net income 123.3 39.9
Distributions on the Preferred Securities 16.3 4.1
------------------------------------
Net adjustments 139.6 44.0
Company's effective tax rate 49% 49%
------------------------------------
Income tax benefits $ 68.4 $ 21.6
====================================
(i) Represents Distributions at the annual rate of 6.50% that would have been
recorded if the Preferred Securities had been outstanding for the entire
period.
(j) The pro forma weighted average number of common shares outstanding
includes the impact of converting the Series A Preferred Shares issued in
the Siemens Investment to Common Stock as of the beginning of the period.
The Preferred Securities are not dilutive.
(k) The BREED statement of earnings for the three-month period ended
September 30, 1997 includes the results of operations for the businesses
acquired in the 1997 Acquisitions for the entire period.
9
BREED Technologies, Inc.
Unaudited Pro Forma Condensed
Consolidated Balance Sheet
September 30, 1997
PRO FORMA
BREED SRS ADJUSTMENTS PRO FORMA
-------------------------------------------------------------
ASSETS (in millions except share and per share data)
Current assets:
Cash and cash equivalents $ 12.0 $ 22.4 $ 33.2 (1) $ 95.2
50.0 (2)
(17.2)(2)
(5.2)(3)
Accounts receivable, principally trade 192.2 129.9 (4.5)(3) 267.6
(50.0)(2)
Inventories 79.3 45.2 (1.7)(3) 122.8
Prepaid expenses and other current assets 20.4 26.1 (1.6)(3) 27.1
(17.8)(2)
-------------------------------------------------------------
Total current assets 303.9 223.6 (4.8) 512.7
Property, plant and equipment 367.7 154.4 (4.0)(3) 518.1
Less accumulated depreciation (95.3) - - (95.3)
-------------------------------------------------------------
272.4 154.4 (4.0) 422.8
Intangible assets, net 219.4 48.7 483.6 (4) 701.1
(48.7)(2)
(1.9)(3)
Net assets held for sale 56.9 - - 56.9
Other noncurrent assets 13.0 17.9 28.3 (5) 57.3
(1.0)(2)
(0.9)(12)
-------------------------------------------------------------
Total assets $865.6 $444.6 $ 440.6 $1,750.8
=============================================================
LIABILITIES, CONVERTIBLE PREFERRED SECURITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and current portion of long-term $195.7 $ - $(169.5)(6) $ 26.2
debt
Accounts payable 129.2 139.5 (2.4)(3) 266.3
Accrued expenses 25.2 43.9 (0.6)(3) 58.8
(4.4)(13)
(5.3)(14)
Repositioning and other charges 200.0 (15) 200.0
-------------------------------------------------------------
Total current liabilities 350.1 183.4 17.8 551.3
Long-term debt 240.9 - 800.0 (11) 840.9
(200.0)(6)
Other long-term and deferred liabilities 15.5 34.4 (14.7)(2) 24.7
(.2)(2)
(10.3)(2)
Company-obligated Mandatorily Redeemable Convertible
Preferred Securities of BTI Capital Trust holding
solely Convertible Debentures - - 250.0 (7) 250.0
Stockholders' equity:
Common stock 0.3 - - 0.3
Preferred stock--Siemens - - 115.0 (8) 115.0
Additional paid-in capital 77.6 - 1.3 (9) 78.9
Retained earnings 203.7 - (.9)(12) (87.8)
(80.0)(4)
(10.0)(7)
(4.6)(13)
(1.3)(13)
5.3 (14)
(200.0)(15)
Foreign currency translation adjustment (22.1) - - (22.1)
Unearned compensation (0.4) - - (0.4)
SRS foreign currency translation adjustment - (2.3) 2.3 (10) -
SRS equity - 229.1 (229.1)(10) -
-------------------------------------------------------------
Total stockholders' equity 259.1 226.8 (402.0) 83.9
-------------------------------------------------------------
Total liabilities, convertible preferred
securities and stockholders' equity $865.6 $444.6 $ 440.6 $1,750.8
=============================================================
10
BREED Technologies, Inc.
Notes to Unaudited Pro Forma Condensed
Consolidated Balance Sheet
(in millions except share and per share data)
(1) Reflects sources and uses of cash related to the Transactions:
Bank Borrowing $ 800.0
Preferred Stock--Siemens 115.0
Preferred Securities 250.0
Repayment of outstanding borrowings under the Previous Credit Facility (369.5)
Payment of purchase price for the SRS Acquisition (710.0)
Dividends paid on the PSCC Securities (1.3)
Fees and expenses related to the Transactions (51.0)
===================
$ 33.2
===================
(2) The following is a summary of the book value of SRS, with adjustments
for assets not acquired and liabilities not assumed by the Company in
the SRS Acquisition:
Book value of SRS at September 30, 1997 $226.8
Less assets not acquired:
Cash and cash equivalents (17.2)
Goodwill (48.7)
Long-term deferred tax assets (1.0)
Current deferred tax assets (17.8)
Net assets of the portion of the SRS business not acquired--see Note 3 (15.9)
Plus liabilities not assumed:
Net capital deficit of joint venture 10.3
Warranty reserve 0.2
Long-term deferred tax liabilities 14.7
===================
Adjusted book value of SRS at September 30, 1997--see Note 4 $151.4
===================
The above information is an estimate of the assets to be acquired and
liabilities assumed by the Company as of September 30, 1997. The actual
determination will be made subsequent to the date hereof and the amounts
may be different and the differences may be material. If the actual net
assets are greater than $175.3, the Company is required to pay the
difference to AlliedSignal and if the actual net assets are less than
$175.3, AlliedSignal is required to pay the difference to the Company.
AlliedSignal has advanced $50.0 in cash to the Company related to this
provision. This is reflected as an increase in cash and a reduction in
accounts receivable.
11
BREED Technologies, Inc.
Notes to Unaudited Pro Forma Condensed
Consolidated Balance Sheet (continued)
(3) The following is a summary of certain balance sheet items for the
portion of the SRS business not acquired by the Company that are being
used to adjust the net book value of SRS at September 30, 1997 in Note 2
above:
Cash $ (5.2)
Accounts receivable (4.5)
Inventories (1.7)
Prepaid expenses and other current assets (1.6)
Property, plant and equipment (4.0)
Patents (1.9)
Accounts payable 2.4
Other accrued expenses 0.6
-------------------
Net assets not acquired--see Note 2 $(15.9)
===================
(4) Reflects estimated goodwill from the SRS Acquisition as follows:
Purchase price $710.0
Less:
Adjusted book value of SRS (net assets acquired)--See Note 2 (151.4)
Less estimated in-process research and development (80.0)
-------------------
Excess of purchase price over net assets acquired 478.6
Capitalized acquisition costs 5.0
Goodwill -------------------
$483.6
===================
The above estimate of goodwill does not reflect any allocation of
purchase price to any identifiable intangible assets nor any potential
fair value adjustments related to property, plant and equipment, as the
Company has not yet obtained appraisals. In addition, the estimate does
not reflect any additional costs that may be incurred related to closure
of any SRS facilities or the costs related to any future termination of
SRS employees. Any such additional costs will increase the amount of
goodwill. Management expects to amortize the goodwill over a 40-year
life and is currently evaluating potential other intangible assets and
continues to evaluate the assigned lives.
(5) Reflects deferred financing costs of $28.3 paid in cash and warrants.
(6) Reflects repayment of outstanding borrowings under the Previous Credit
Facility.
12
BREED Technologies, Inc.
Notes to Unaudited Pro Forma Condensed
Consolidated Balance Sheet (continued)
(7) Reflects the Offering of Preferred Securities, including the related $10
of issuance expenses which are reflected as a reduction of retained
earnings.
(8) Reflects the issuance of Series A Preference Shares to Siemens.
(9) Reflects the fair value of warrants issued for financing costs.
(10) Eliminates equity of SRS.
(11) Reflects the Bank Borrowing.
(12) Reflects write-off of deferred financing fees related to the Previous
Credit Facility.
(13) Reflects the fees and expenses, including advisory fees, related to the
issuance of the PSCC Securities, net of $4.4 in income taxes, as well as
the assumed $1.3 in accrued dividends.
(14) Reflects the tax effect of the following:
Write-off of deferred financing fees related to the Previous Credit Facility $ 0.9
Expenses of issuing Preferred Securities 10.0
-------------------
10.9
Estimated effective income tax rate 49%
-------------------
Tax effect $ 5.3
===================
(15) To reduce retained earnings for repositioning and other special charges of
$250 million, net of the estimated income tax effect of $50 million.