BREED Reports Second Quarter Results
16 February 1999
BREED Reports Second Quarter Results
LAKELAND, Fla.--Feb. 16, 1999-- BREED Technologies, Inc. one of the world's largest occupant restraints suppliers, today reported a net loss of $34.4 million, or 93 cents per share for the second quarter ended December 31, 1998.
Net sales for the three months ended December 31, 1998 were $396.2 million as compared to $339.1 million for the three months ended September 30, 1998. The quarter over quarter increase was due primarily to a rebound in North American sales following the GM strike and the seasonal effect of the European shutdown in the first quarter. In addition, sales in North America increased primarily due to a full quarter's impact of an unusually large number of product launches that occurred throughout the first quarter.
Net sales for the three months ended December 31, 1998, increased 16 percent as compared to the three months ended December 31, 1997, primarily due to the effect of the SRS acquisition, which was included for the entire quarter versus two months of the comparable prior period, offset in part by a decline in steering wheel and electronics sales.
The company reported a net loss of $34.4 million for the three months ended December 31, 1998, compared to a net loss of $28.5 million in the prior quarter ended September 30, 1998. The higher net loss is due mainly to an increase in the operating loss, which includes, among other things, an increase in material content on new products launched in the first quarter, carry-over issues associated with the first quarter launches, increased general and administrative and research and development costs, disruption costs and several one-time charges.
The net loss of $34.4 million for the three months ended December 31, 1998, compares to a net loss of $334.9 million in the same quarter last year. The decline in the net loss in the current quarter was primarily the result of $365.4 million in one-time charges incurred in the second quarter of last year relating to repositioning and impairment charges, write-off of in-process research and development costs and charges for inventory and long-term contracts relating to manufacturing processes that will be exited.
BREED management is addressing the company's margin erosion, which is largely due to loss contracts inherited with the acquisition of the former AlliedSignal Automotive safety restraints business and higher material content on more sophisticated seat belt and airbag programs. The company increased research and development costs during the second quarter to meet increasing consumer demand for enhanced occupant protection systems, requirements related to anticipated regulatory changes, and value engineering efforts to reduce material costs.
BREED's global repositioning program recovered in the second quarter and the company is on schedule to achieve its committed plant closures and headcount reductions by March 31, 1999. The company has begun to see the beneficial effects of this program and the implementation of the Toyota Production System in its steering wheel and electronics division, which has steadily improved in operating performance.
BREED Chief Financial Officer Jack Gallagher and his team from the Tatum CFO Partners have begun an extensive evaluation of the company's financial accounting and reporting systems, as well as a bottoms-up review of the company's business. BREED management expects this effort to result in a measurable improvement in financial reporting, cash management and cost reduction implementation.
"Our second quarter financial results were highly disappointing. However, we are continuing to make the changes necessary to strengthen our business through the implementation of our global repositioning program and other initiatives. We have been working in partnership with our customers and lending institutions, with both being extremely supportive during this transitional phase of our company," stated Chairman and Chief Executive Officer Johnnie Cordell Breed. "Our customers have sourced us for programs extending out into the year 2009, which reflects continuing confidence in our position as one of the world's leading suppliers of automotive occupant safety systems. We are also moving forward with the introduction of technological advancements through our joint venture with Siemens AG - BSRS Restraint Systems - that will significantly impact the safety industry. As a management team, we are totally focused on improving margins, improving our financial reporting, developing new technologies, supporting our customers and giving our shareholders the value they expect."
The company is experiencing significant growth in side impact airbag sales, which is an area industry experts predict will continue to proliferate. BREED currently supplies both head and head/thorax side impact modules to leading automobile manufacturers, and its new curtain airbag system will be featured on European vehicles in model year 2000 and in the US in 2003.
BREED also reported that it obtained two waivers relating to its credit facility. The first waiver, of the net worth covenant under the facility, was effective for the period from December 30, 1998 through February 12, 1999. The second waiver extended the period of the first waiver through March 30, 1999 and also waived an event of default under the facility that existed due to the company's inability to register certain of its securities.
Headquartered in Lakeland, Fla., BREED is one of the world's most fully integrated suppliers of complete automotive occupant safety systems. The company supports its growing list of automotive customers with advanced engineering, testing and manufacturing facilities located in 13 countries around the globe.
Caution on Forward-Looking Statements
Statements herein regarding the expected future operating performance and the company's repositioning program 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 results to differ materially from those projected. With respect to the anticipated progress under the recovery program, management has made certain assumptions regarding its ability to implement the program as well as on the expected results, which may change or be affected by, among other things, customer demands and difficulties with product launches. Statements herein regarding the expected future operating performance and the company's repositioning program are also subject to risks relating to, among other things, possible higher costs associated with product launches, difficulties in integrating acquired businesses, deterioration of relationships with material customers, possible significant product liability claims, decreases in demand for the Company's products, and adverse changes in general market and industry conditions.
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.
Breed Technologies, Inc.
Consolidated Condensed Statements of Operations (Unaudited)
In Millions, except per share data
Three Months Ended Six Months Ended
December 31, December 31,
1998 1997 1998 1997
---- ---- ---- ----
Net sales $ 396.2 $ 340.7 $ 735.2 $ 535.9
Cost of sales 349.1 312.5 640.8 479.4
Gross profit 47.1 28.2 94.4 56.5
Operating expenses:
Selling, general
and administrative
expenses 23.3 21.3 44.2 37.5
Research, development
and engineering
expenses 25.7 18.6 49.4 27.5
Repositioning and
impairment charges 259.5 259.5
In-process research
and development
expenses 77.5 77.5
Amortization of
intangibles 6.0 3.9 11.8 5.9
Total operating
expenses 55.0 380.8 105.4 407.9
Operating loss (7.9) (352.6) (11.0) (351.4)
Interest expense 20.6 27.1 42.7 35.4
Other income
(expense), net 0.4 0.4 1.3 (0.1)
Loss before income
taxes, and
distributions on
Company obligated
mandatorily redeemable
convertible preferred
securities (28.1) (379.3) (52.4) (386.9)
Income taxes
(benefit) (Note 6) 1.8 (46.5) 1.8 (49.9)
Distributions on Company
obligated mandatorily
redeemable convertible
preferred securities 4.5 1.4 8.7 1.4
Loss before
extraordinary item (34.4) (334.2) (62.9) (338.4)
Extraordinary loss net
of tax benefit of
$1.4 million -- (0.7) -- (0.7)
Net loss $ (34.4) $ (334.9) $ (62.9) $ (339.1)
Loss per share (Note 7):
BASIC LOSS PER SHARE
Loss before
extraordinary item $ (0.93) $ (10.54) $ (1.71) $ (10.68)
Extraordinary item -- (0.02) -- (0.02)
Net loss $ (0.93) $ (10.56) $ (1.71) $ (10.70)
DILUTED LOSS PER SHARE
Loss before
extraordinary item $ (0.93) $ (10.54) $ (1.71) $ (10.68)
Extraordinary item -- (0.02) -- (0.02)
Net loss $ (0.93) $ (10.56) $ (1.71) $ (10.70)
Shares used for
computation:
Basic 36.849 31.705 36.849 31.694
Diluted 36.849 31.705 36.849 31.694