-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NPHImSUOZJUIOCMwc0fy4/hLRuIJYWNxuZ72n2FpyZVlGOW/Q04kDjbrYNU4O1Yn nxoAKBQAo6YQEPY8SYYLdA== 0000893877-00-000020.txt : 20000202 0000893877-00-000020.hdr.sgml : 20000202 ACCESSION NUMBER: 0000893877-00-000020 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19991130 FILED AS OF DATE: 20000113 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PACIFIC AEROSPACE & ELECTRONICS INC CENTRAL INDEX KEY: 0000790023 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC LIGHTING & WIRING EQUIPMENT [3640] IRS NUMBER: 911744587 STATE OF INCORPORATION: WA FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-26088 FILM NUMBER: 506379 BUSINESS ADDRESS: STREET 1: 430 OLDS STATION RD CITY: WENATCHEE STATE: WA ZIP: 98801 BUSINESS PHONE: 5096679600 MAIL ADDRESS: STREET 1: 430 OLDS STATION ROAD CITY: WENATCHEE STATE: WA ZIP: 98801 FORMER COMPANY: FORMER CONFORMED NAME: PCT HOLDINGS INC /NV/ DATE OF NAME CHANGE: 19950223 FORMER COMPANY: FORMER CONFORMED NAME: VERAZZANA VENTURES LTD DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: VERAZZANA VENTURES SYSTEMS LTD DATE OF NAME CHANGE: 19890618 10-Q 1 FORM 10-Q 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 November 30, 1999 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________ to _____________ Commission File Number: 0-26088 PACIFIC AEROSPACE & ELECTRONICS, INC. (Exact name of registrant as specified in its charter) Washington 91-1744587 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 430 Olds Station Road, Third Floor, Wenatchee, Washington 98801 (Address of Principal Executive Offices; Zip Code) Registrant's telephone number, including area code: (509) 667-9600 Check whether the issuer (1) 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 [ ] Applicable only to issuers involved in bankruptcy proceedings during the preceding five years: Check whether the registrant filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by court. Yes [ ] No [ ] Applicable only to corporate issuers: State the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: As of January 10, 2000, there were 20,771,759 shares outstanding of the Company's Common Stock, par value $.001 per share. PART I - FINANCIAL INFORMATION ITEM 1: FINANCIAL STATEMENTS Consolidated Balance Sheets - November 30, 1999 and May 31, 1999 Consolidated Statements of Operations - Second Quarters and Six Months Ended November 30, 1999 and 1998 Consolidated Statements of Cash Flows - Six Months Ended November 30, 1999 and 1998 Management's Statement and Notes to Unaudited Consolidated Financial Statements - - Second Quarters and Six Months Ended November 30, 1999 and 1998 2
PACIFIC AEROSPACE & ELECTRONICS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS November 30, 1999 and May 31, 1999 November 30, May 31, 1999 1999 ASSETS (Unaudited) (Audited) - -------------------------------------------------------- -------------- -------------- CURRENT ASSETS Cash $ 3,582,000 $ 8,134,000 Accounts receivable, net 23,526,000 24,992,000 Inventories 25,663,000 24,616,000 Deferred income taxes 879,000 880,000 Prepaid expense and other 2,393,000 2,316,000 -------------- -------------- Total Current Assets 56,043,000 60,938,000 -------------- -------------- PROPERTY AND EQUIPMENT, NET 45,930,000 45,279,000 -------------- -------------- OTHER ASSETS Note receivable, net 2,500,000 1,458,000 Investment 19,000 72,000 Costs in excess of net book value of acquired subsidiaries, net 41,973,000 41,052,000 Patents, net 1,209,000 1,255,000 Deferred income taxes 3,180,000 3,395,000 Deferred financing costs, net 4,633,000 5,029,000 Other assets 322,000 249,000 -------------- -------------- Total Other Assets 53,836,000 52,510,000 -------------- -------------- TOTAL ASSETS $ 155,809,000 $ 158,727,000 ============== ============== LIABILITIES AND STOCKHOLDERS' EQUITY - -------------------------------------------------------- CURRENT LIABILITIES Accounts payable $ 9,924,000 $ 10,484,000 Accrued liabilities 3,899,000 5,615,000 Accrued interest 2,859,000 2,813,000 Current portion of long-term debt 1,129,000 1,278,000 Current portion of capital lease obligations 208,000 297,000 Line of credit 5,648,000 0 Other current liabilities 60,000 2,122,000 -------------- -------------- Total Current Liabilities 23,727,000 22,609,000 -------------- -------------- LONG-TERM LIABILITIES Long-term debt, net of current portion 4,855,000 5,220,000 Capital lease obligations, net of current portion 1,462,000 1,615,000 Senior subordinated notes payable 75,000,000 75,000,000 Deferred rent and other 303,000 264,000 -------------- -------------- Total Long-Term Liabilities 81,620,000 82,099,000 -------------- -------------- TOTAL LIABILITIES 105,347,000 104,708,000 -------------- -------------- STOCKHOLDERS' EQUITY Convertible preferred stock - - Common stock 20,000 19,000 Additional paid-in capital 69,331,000 69,276,000 Accumulated other comprehensive loss (1,232,000) (1,140,000) Accumulated deficit (17,657,000) (14,136,000) -------------- -------------- Total Stockholders' Equity 50,462,000 54,019,000 -------------- -------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 155,809,000 $ 158,727,000 ============== ============== The accompanying notes are an integral part of these consolidated financial statements.
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PACIFIC AEROSPACE & ELECTRONICS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS Second Quarters and Six Months Ended November 30, 1999 and 1998 Quarters Ended Six Months Ended --------------------------- --------------------------- November 30, November 30, November 30, November 30, 1999 1998 1999 1998 (Unaudited) (Unaudited) (Unaudited) (Unaudited) ------------ ------------ ------------ ------------ NET SALES $ 29,000,000 $ 30,477,000 $ 57,571,000 $ 49,655,000 COST OF SALES Inventory impairment - 1,600,000 - 1,600,000 Other cost of sales 23,749,000 24,055,000 45,760,000 38,559,000 ------------ ------------ ------------ ------------ TOTAL COST OF SALES 23,749,000 25,655,000 45,760,000 40,159,000 ------------ ------------ ------------ ------------ GROSS PROFIT 5,251,000 4,822,000 11,811,000 9,496,000 OPERATING EXPENSES 4,582,000 4,355,000 9,686,000 8,131,000 ------------ ------------ ------------ ------------ INCOME FROM OPERATIONS 669,000 467,000 2,125,000 1,365,000 ------------ ------------ ------------ ------------ OTHER INCOME AND EXPENSE Interest Income 5,000 137,000 53,000 363,000 Interest Expense (2,604,000) (2,683,000) (5,152,000) (3,752,000) Other (14,000) (196,000) (11,000) (6,917,000) ------------ ------------ ------------ ------------ (2,613,000) (2,742,000) (5,110,000) (10,306,000) ------------ ------------ ------------ ------------ NET LOSS BEFORE INCOME TAX (1,944,000) (2,275,000) (2,985,000) (8,941,000) PROVISION FOR INCOME TAXES (70,000) (300,000) (535,000) 1,955,000 ------------ ------------ ------------ ------------ NET LOSS (2,014,000) (2,575,000) (3,520,000) (6,986,000) ------------ ------------ ------------ ------------ OTHER COMPREHENSIVE INCOME (LOSS): Foreign currency translation (142,000) (1,220,000) (139,000) 494,000 Income tax benefit (expense) 48,000 415,000 47,000 (168,000) Valuation of available for sale securities - - - 436,000 ------------ ------------ ------------ ------------ (94,000) (805,000) (92,000) 762,000 ------------ ------------ ------------ ------------ COMPREHENSIVE LOSS $ (2,108,000) $ (3,380,000) $ (3,612,000) $ (6,224,000) ============ ============ ============ ============ NET LOSS PER SHARE: BASIC $ (0.10) $ (0.15) $ (0.18) $ (0.43) DILUTED $ (0.10) $ (0.15) $ (0.18) $ (0.43) SHARES USED IN COMPUTATION OF NET LOSS PER SHARE: BASIC 19,992,000 16,731,000 19,547,000 16,073,000 DILUTED 19,992,000 16,731,000 19,547,000 16,073,000 The accompanying notes are an integral part of these consolidated financial statements.
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PACIFIC AEROSPACE & ELECTRONICS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Six Months Ended November 30, 1999 and 1998 Six Months Ended ------------------------------- November 30, November 30, 1999 1998 (Unaudited) (Unaudited) ------------- ------------- CASH FLOW FROM OPERATING ACTIVITIES Net cash provided by (used in) operating activities $ (3,251,000) $ (184,000) ------------- ------------- CASH FLOW FROM INVESTING ACTIVITIES Purchase of property and equipment (2,509,000) (3,592,000) Proceeds from sale of property and equipment 10,000 - Acquisition of subsidiaries (1,282,000) (69,146,000) Increase in notes receivable (1,505,000) - ------------- ------------- Net cash from investing activities (5,286,000) (72,738,000) ------------- ------------- CASH FLOW FROM FINANCING ACTIVITIES Net borrowings (repayments) under line of credit 5,648,000 (1,511,000) Proceeds from long-term debt - 72,622,000 Payments on long-term debt and capital leases (1,700,000) (4,824,000) Sale of common stock, net of issuance costs 55,000 4,838,000 Sale of preferred stock, net of issuance costs - 6,707,000 ------------- ------------- Net cash from financing activities 4,003,000 77,832,000 ------------- ------------- NET CHANGE IN CASH (4,534,000) 4,910,000 CASH AT BEGINNING OF PERIOD 8,134,000 11,461,000 EFFECT OF EXCHANGE RATES ON CASH (18,000) 21,000 ------------- ------------- CASH AT END OF PERIOD $ 3,582,000 $ 16,392,000 ============= ============= SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES Seller financed acquisition of property, plant and equipment $ - $ 290,000 The accompanying notes are an integral part of these consolidated financial statements.
5 PACIFIC AEROSPACE & ELECTRONICS, INC. AND SUBSIDIARIES MANAGEMENT'S STATEMENT AND NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS Second Quarters and Six Months Ended November 30, 1999 and 1998 Management's Statement - ---------------------- The accompanying unaudited consolidated financial statements have been prepared in accordance with Form 10-Q instructions and, in the opinion of management, contain all adjustments necessary to present fairly the Company's consolidated financial position as of November 30, 1999 and May 31, 1999, the consolidated results of operations for the quarters and six months ended November 30, 1999 and 1998, and the consolidated statements of cash flows for the six months ended November 30, 1999 and 1998. All significant intercompany transactions have been eliminated in the consolidation process. These results have been determined on the basis of generally accepted accounting principles and practices applied consistently with those used in the preparation of the Company's annual and quarterly reports under the Securities Exchange Act of 1934, as amended. Certain information and footnote disclosures normally included in audited financial statements presented in accordance with generally accepted accounting principles have been condensed or omitted. The consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the years ended May 31, 1999 and 1998. The results of operations for the quarter and six months ended November 30, 1999 are not necessarily indicative of the results to be expected or anticipated for the full fiscal year. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." Note 1: Net Income (Loss) Per Share: ---------------------------- Basic income (loss) per share is computed using the weighted average number of common shares outstanding during the period. Diluted income (loss) per share is computed using the weighted average number of common and dilutive common equivalent shares outstanding during the period using the treasury stock method. As the Company had a net loss for the periods ended November 30, 1999 and 1998, basic and diluted net loss per share are the same. Note 2: Inventories ----------- Components of inventories are as follows: November 30, May 31, 1999 1999 Raw materials $ 5,349,000 $ 7,374,000 Work in progress 14,396,000 11,478,000 Finished goods 5,918,000 5,764,000 ------------ ------------ Total $ 25,663,000 $ 24,616,000 ============ ============ 6 Note 3: Liquidity --------- During the quarter and six months ended November 30, 1999, the Company's operating activities used cash of $292,000 and $3.3 million, respectively. Cash at November 30, 1999 was $3.6 million (compared to $8.1 million at May 31, 1999). All but $322,000 of the cash resides at subsidiaries that are not guarantors of the Company's 11 1/4% senior subordinated notes. Remittance of cash from non-guarantor subsidiaries may cause the Company to incur income tax expense in the U.S. on the amount of earnings of the Company's foreign subsidiaries. During the six months ended November 30, 1999, the Company borrowed $5.6 million under a previously unused $6.3 million line of credit. The Company believes that its working capital and unused lines of credit are sufficient to meet its obligations as they become due during fiscal 2000. However, the Company may need to obtain additional cash during or after fiscal 2000. Should the Company need to dispose of assets to generate cash, there is no assurance that the carrying values will be realizable upon liquidation outside of the ordinary course of business. The Company's inability to obtain additional cash if and when needed could have a material adverse effect on its financial position and results of operations. Note 4: Consolidating Condensed Financial Statements -------------------------------------------- The following financial statements present consolidating condensed financial information of the Company for the indicated periods. The Company's senior subordinated notes, which were used to finance the Aeromet acquisition in July 1998, have been guaranteed by all of the Company's U.S. wholly owned subsidiaries. The guarantor subsidiaries have fully and unconditionally guaranteed this debt on a joint and several basis. This debt is not guaranteed by the Company's foreign subsidiaries, which consist of Aeromet and two related holding companies. There are no significant contractual restrictions on the distribution of funds from the guarantor subsidiaries to the parent corporation. The consolidating condensed financial information is presented in lieu of separate financial statements and other disclosures of the guarantor subsidiaries, as management has determined that such information is not material to investors. 7
Pacific Aerospace & Electronics, Inc. Consolidating Condensed Balance Sheet November 30, 1999 NON- GUARANTOR GUARANTOR PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED ------------- ------------- ------------- ------------- ------------- CURRENT ASSETS Cash $ 300,000 $ 22,000 $ 3,260,000 $ - $ 3,582,000 Accounts receivable, net - 9,377,000 14,458,000 (309,000) 23,526,000 Inventories - 14,150,000 11,513,000 - 25,663,000 Other 2,183,000 1,312,000 878,000 (1,101,000) 3,272,000 ------------- ------------- ------------- ------------- ------------- Total current assets 2,483,000 24,861,000 30,109,000 (1,410,000) 56,043,000 PROPERTY AND EQUIPMENT, net 6,472,000 22,959,000 16,499,000 - 45,930,000 OTHER ASSETS Costs in excess of net book value of acquired subsidiaries, net - 4,232,000 37,741,000 - 41,973,000 Investment 19,000 - - - 19,000 Investment in and loans to subsidiaries 117,689,000 72,618,000 - (190,307,000) - Other 9,371,000 2,587,000 (114,000) - 11,844,000 ------------- ------------- ------------- ------------- ------------- Total other assets 127,079,000 79,437,000 37,627,000 (190,307,000) 53,836,000 ------------- ------------- ------------- ------------- ------------- TOTAL ASSETS $ 136,034,000 $ 127,257,000 $ 84,235,000 $(191,717,000) $ 155,809,000 ============= ============= ============= ============= ============= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 364,000 $ 2,772,000 $ 7,097,000 $ (309,000) $ 9,924,000 Current portion of long-term debt 165,000 964,000 - - 1,129,000 Line of credit 5,648,000 - - - 5,648,000 Other 2,983,000 1,680,000 3,464,000 (1,101,000) 7,026,000 ------------- ------------- ------------- ------------- ------------- Total current liabilities 9,160,000 5,416,000 10,561,000 (1,410,000) 23,727,000 LONG-TERM LIABILITIES Long-term debt, net of current portion 76,302,000 3,553,000 - - 79,855,000 Intercompany note and loan payable - 65,067,000 38,957,000 (104,024,000) - Other 110,000 811,000 844,000 - 1,765,000 ------------- ------------- ------------- ------------- ------------- Total long-term liabilities 76,412,000 69,431,000 39,801,000 (104,024,000) 81,620,000 STOCKHOLDERS' EQUITY Convertible preferred stock - - - - - Common stock 20,000 56,139,000 33,710,000 (89,849,000) 20,000 Additional paid-in capital 69,331,000 - - - 69,331,000 Accumulated other comprehensive loss (1,232,000) - (1,232,000) 1,232,000 (1,232,000) Retained earnings (accumulated deficit) (17,657,000) (3,729,000) 1,395,000 2,334,000 (17,657,000) ------------- ------------- ------------- ------------- ------------- Total stockholders' equity 50,462,000 52,410,000 33,873,000 (86,283,000) 50,462,000 ------------- ------------- ------------- ------------- ------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 136,034,000 $ 127,257,000 $ 84,235,000 $(191,717,000) $ 155,809,000 ============= ============= ============= ============= =============
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Pacific Aerospace & Electronics, Inc. Consolidating Condensed Balance Sheet May 31, 1999 NON- GUARANTOR GUARANTOR PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED ------------- ------------- ------------- ------------- ------------- ASSETS CURRENT ASSETS Cash $ 1,798,000 $ 39,000 $ 6,297,000 - $ 8,134,000 Accounts receivable, net - 8,723,000 16,661,000 (392,000) 24,992,000 Inventories - 13,564,000 11,052,000 - 24,616,000 Other 4,535,000 1,517,000 660,000 (3,516,000) 3,196,000 ------------- ------------- ------------- ------------- ------------- Total current assets 6,333,000 23,843,000 34,670,000 (3,908,000) 60,938,000 PROPERTY AND EQUIPMENT, net 6,151,000 21,930,000 17,198,000 - 45,279,000 OTHER ASSETS Costs in excess of net book value of acquired subsidiaries, net - 2,717,000 38,335,000 - 41,052,000 Investment in common stock, net 72,000 - - - 72,000 Investment in and loans to subsidiaries 115,099,000 75,000,000 85,000 (190,184,000) - Other 8,254,000 3,295,000 (163,000) - 11,386,000 ------------- ------------- ------------- ------------- ------------- Total other assets 123,425,000 81,012,000 38,257,000 (190,184,000) 52,510,000 ------------- ------------- ------------- ------------- ------------- TOTAL ASSETS $ 135,909,000 $ 126,785,000 $ 90,125,000 $(194,092,000) $ 158,727,000 ============= ============= ============= ============= ============= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 180,000 $ 2,542,000 $ 8,154,000 $ (392,000) $ 10,484,000 Current portion of long-term debt 138,000 1,140,000 - - 1,278,000 Other 5,084,000 1,597,000 7,682,000 (3,516,000) 10,847,000 ------------- ------------- ------------- ------------- ------------- Total current liabilities 5,402,000 5,279,000 15,836,000 (3,908,000) 22,609,000 LONG-TERM LIABILITIES Long-term debt, net of current portion 76,375,000 3,845,000 - - 80,220,000 Intercompany note and loan payable 85,000 61,869,000 37,500,000 (99,454,000) - Other 28,000 1,105,000 746,000 - 1,879,000 ------------- ------------- ------------- ------------- ------------- Total long-term liabilities 76,488,000 66,819,000 38,246,000 (99,454,000) 82,099,000 STOCKHOLDERS' EQUITY Convertible preferred stock - - - - - Common stock 19,000 58,641,000 35,117,000 (93,758,000) 19,000 Additional paid-in capital 69,276,000 - - - 69,276,000 Accumulated other comprehensive loss (1,140,000) - (1,136,000) 1,136,000 (1,140,000) Retained earnings (accumulated deficit) (14,136,000) (3,954,000) 2,062,000 1,892,000 (14,136,000) ------------- ------------- ------------- ------------- ------------- Total stockholders' equity 54,019,000 54,687,000 36,043,000 (90,730,000) 54,019,000 ------------- ------------- ------------- ------------- ------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 135,909,000 $ 126,785,000 $ 90,125,000 $(194,092,000) $ 158,727,000 ============= ============= ============= ============= =============
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Pacific Aerospace & Electronics, Inc. Consolidating Condensed Statement of Operations For the Quarter Ended November 30, 1999 NON- GUARANTOR GUARANTOR PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED ------------- ------------- ------------- ------------- ------------- Net Sales $ - $ 14,605,000 $ 14,960,000 $ (565,000) $ 29,000,000 Cost of Sales - 11,509,000 12,805,000 (565,000) 23,749,000 ------------- ------------- ------------- ------------- ------------- Gross profit - 3,096,000 2,155,000 - 5,251,000 Operating expenses 1,410,000 3,219,000 1,295,000 (1,342,000) 4,582,000 ------------- ------------- ------------- ------------- ------------- Income (loss) from operations (1,410,000) (123,000) 860,000 1,342,000 669,000 Other income (expense) Parent's share of subsidiaries net loss (465,000) - - 465,000 - Interest expense (2,471,000) (1,192,000) (1,107,000) 2,166,000 (2,604,000) Other 2,353,000 1,141,000 5,000 (3,508,000) (9,000) ------------- ------------- ------------- ------------- ------------- Total other income (expense) (583,000) (51,000) (1,102,000) (877,000) (2,613,000) ------------- ------------- ------------- ------------- ------------- Income (loss) before income taxes (1,993,000) (174,000) (242,000) 465,000 (1,944,000) Income tax benefit (expense) - - (70,000) - (70,000) ------------- ------------- ------------- ------------- ------------- Net income (loss) (1,993,000) (174,000) (312,000) 465,000 (2,014,000) Other comprehensive income (loss) Foreign currency translation, net of tax - - (94,000) - (94,000) Adjustment for unrealized loss on investment - - - - - ------------- ------------- ------------- ------------- ------------- Total other comprehensive income (loss) - - (94,000) - (94,000) ------------- ------------- ------------- ------------- ------------- Comprehensive income (loss) $ (1,993,000) $ (174,000) $ (406,000) $ 465,000 $ (2,108,000) ============= ============= ============= ============= =============
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Pacific Aerospace & Electronics, Inc. Consolidating Condensed Statement of Operations For the Quarter Ended November 30, 1998 NON- GUARANTOR GUARANTOR PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED ------------- ------------- ------------- ------------- ------------- Net Sales $ - $ 14,925,000 $ 16,098,000 $ (546,000) $ 30,477,000 Cost of Sales - 13,099,000 13,102,000 (546,000) 25,655,000 ------------- ------------- ------------- ------------- ------------- Gross profit - 1,826,000 2,996,000 - 4,822,000 Operating expenses 1,057,000 2,779,000 1,080,000 (561,000) 4,355,000 ------------- ------------- ------------- ------------- ------------- Income (loss) from operations (1,057,000) (953,000) 1,916,000 561,000 467,000 Other income (expense) Parent's share of subsidiaries net income (loss) (1,156,000) - - 1,156,000 - Interest expense (2,533,000) (143,000) (1,413,000) 1,406,000 (2,683,000) Other 2,171,000 (263,000) - (1,967,000) (59,000) ------------- ------------- ------------- ------------- ------------- Total other income (expense) (1,518,000) (406,000) (1,413,000) 595,000 (2,742,000) ------------- ------------- ------------- ------------- ------------- Income (loss) before income taxes (2,575,000) (1,359,000) 503,000 1,156,000 (2,275,000) Income tax benefit (expense) - - (300,000) - (300,000) ------------- ------------- ------------- ------------- ------------- Net income (loss) (2,575,000) (1,359,000) 203,000 1,156,000 (2,575,000) Other comprehensive income (loss) Foreign currency translation, net of tax (805,000) - (805,000) 805,000 (805,000) ------------- ------------- ------------- ------------- ------------- Total other comprehensive income (loss) (805,000) - (805,000) 805,000 (805,000) ------------- ------------- ------------- ------------- ------------- Comprehensive income (loss) $ (3,380,000) $ (1,359,000) $ (602,000) $ 1,961,000 $ (3,380,000) ============= ============= ============= ============= =============
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Pacific Aerospace & Electronics, Inc. Consolidating Condensed Statement of Operations For the Six Months Ended November 30, 1999 NON- GUARANTOR GUARANTOR PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED ------------- ------------- ------------- ------------- ------------- Net Sales $ - $ 29,116,000 $ 29,333,000 $ (878,000) $ 57,571,000 Cost of Sales - 22,082,000 24,556,000 (878,000) 45,760,000 ------------- ------------- ------------- ------------- ------------- Gross profit - 7,034,000 4,777,000 - 11,811,000 Operating expenses 2,977,000 6,421,000 2,950,000 (2,662,000) 9,686,000 ------------- ------------- ------------- ------------- ------------- Income (loss) from operations (2,977,000) 613,000 1,827,000 2,662,000 2,125,000 Other income (expense) Parent's share of subsidiaries net income (loss) (538,000) - - 538,000 - Interest expense (4,861,000) (2,420,000) (2,207,000) 4,336,000 (5,152,000) Other 4,766,000 2,239,000 35,000 (6,998,000) 42,000 ------------- ------------- ------------- ------------- ------------- Total other income (expense) (633,000) (181,000) (2,172,000) (2,124,000) (5,110,000) ------------- ------------- ------------- ------------- ------------- Income (loss) before income taxes (3,610,000) 432,000 (345,000) 538,000 (2,985,000) Income tax benefit (expense) (6,000) (207,000) (322,000) - (535,000) ------------- ------------- ------------- ------------- ------------- Net income (loss) (3,616,000) 225,000 (667,000) 538,000 (3,520,000) Other comprehensive income (loss) Foreign currency translation, net of tax 4,000 - (96,000) - (92,000) Adjustment for unrealized loss on investment - - - - - ------------- ------------- ------------- ------------- ------------- Total other comprehensive income (loss) 4,000 - (96,000) - (92,000) ------------- ------------- ------------- ------------- ------------- Comprehensive income (loss) $ (3,612,000) $ 225,000 $ (763,000) $ 538,000 $ (3,612,000) ============= ============= ============= ============= =============
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Pacific Aerospace & Electronics, Inc. Consolidating Condensed Statement of Operations For the Six Months Ended November 30, 1998 NON- GUARANTOR GUARANTOR PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED ------------- ------------- ------------- ------------- ------------- Net Sales $ - $ 30,206,000 $ 20,559,000 $ (1,110,000) $ 49,655,000 Cost of Sales - 24,503,000 16,766,000 (1,110,000) 40,159,000 ------------- ------------- ------------- ------------- ------------- Gross profit - 5,703,000 3,793,000 - 9,496,000 Operating expenses 1,790,000 5,916,000 1,553,000 (1,128,000) 8,131,000 ------------- ------------- ------------- ------------- ------------- Income (loss) from operations (1,790,000) (213,000) 2,240,000 1,128,000 1,365,000 Other income (expense) Parent's share of subsidiaries net income (loss) (2,920,000) - - 2,920,000 - Interest expense (3,412,000) (326,000) (1,420,000) 1,406,000 (3,752,000) Other (262,000) (3,767,000) 9,000 (2,534,000) (6,554,000) ------------- ------------- ------------- ------------- ------------- Total other income (expense) (6,594,000) (4,093,000) (1,411,000) 1,792,000 (10,306,000) ------------- ------------- ------------- ------------- ------------- Income (loss) before income taxes (8,384,000) (4,306,000) 829,000 2,920,000 (8,941,000) Income tax benefit (expense) 1,398,000 1,002,000 (445,000) - 1,955,000 ------------- ------------- ------------- ------------- ------------- Net income (loss) (6,986,000) (3,304,000) 384,000 2,920,000 (6,986,000) Other comprehensive income (loss) Foreign currency translation, net of tax 326,000 - 326,000 (326,000) 326,000 Adjustment for unrealized loss on investment 436,000 - - - 436,000 ------------- ------------- ------------- ------------- ------------- Total other comprehensive income (loss) 762,000 - 326,000 (326,000) 762,000 Comprehensive income (loss) $ (6,224,000) $ (3,304,000) $ 710,000 $ 2,594,000 $ (6,224,000) ============= ============= ============= ============= =============
13
Pacific Aerospace & Electronics, Inc. Consolidating Condensed Statement of Cash Flows For the Six Months Ended November 30, 1999 NON- GUARANTOR GUARANTOR PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED ------------- ------------- ------------- ------------- ------------- CASH FLOW FROM OPERATING ACTIVITIES: - ------------------------------------ Net cash provided by (used in) operating activities $ (2,818,000) $ 1,343,000 $ (2,314,000) $ 538,000 $ (3,251,000) CASH FLOW FROM INVESTING ACTIVITIES: - ------------------------------------ Acquisition of property, plant and equipment (530,000) (1,264,000) (715,000) - (2,509,000) Acquisition of subsidiaries (1,282,000) - - - (1,282,000) Other changes, net (2,440,000) 10,000 85,000 850,000 (1,495,000) ------------- ------------- ------------- ------------- ------------- Net cash provided by (used in) investing activities (4,252,000) (1,254,000) (630,000) 850,000 (5,286,000) CASH FLOW FROM FINANCING ACTIVITIES: - ------------------------------------ Net borrowings under line of credit 5,648,000 - - - 5,648,000 Payments on long-term debt and capital leases (46,000) (1,529,000) (125,000) - (1,700,000) Proceeds from sale of common stock, net 55,000 - - - 55,000 Other changes, net (85,000) 1,423,000 50,000 (1,388,000) - ------------- ------------- ------------- ------------- ------------- Net cash provided by (used in) financing activities 5,572,000 (106,000) (75,000) (1,388,000) 4,003,000 NET CHANGE IN CASH (1,498,000) (17,000) (3,019,000) - (4,534,000) CASH AT BEGINNING OF PERIOD 1,798,000 39,000 6,297,000 - 8,134,000 EFFECT OF EXCHANGE RATES ON CASH - - (18,000) - (18,000) ------------- ------------- ------------- ------------- ------------- CASH AT END OF PERIOD $ 300,000 $ 22,000 $ 3,260,000 $ - $ 3,582,000 ============= ============= ============= ============= ============= SUPPLEMENTAL CASH FLOW: - ----------------------- Noncash operating expenses related to: Depreciation $ 208,000 $ 1,531,000 $ 1,380,000 $ - $ 3,119,000 Amortization - 215,000 494,000 - 709,000 Cash paid during the period for: Interest 4,504,000 252,000 4,618,000 (4,577,000) 4,797,000 Income taxes - - 1,705,000 - 1,705,000
14
Pacific Aerospace & Electronics, Inc. Consolidating Condensed Statement of Cash Flows For the Six Months Ended November 30, 1998 NON- GUARANTOR GUARANTOR PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED ------------- ------------- ------------- ------------- ------------- CASH FLOW FROM OPERATING ACTIVITIES: - ------------------------------------ Net cash provided by (used in) operating activities $ (2,748,000) $ 1,080,000 $ 187,000 $ 1,297,000 $ (184,000) CASH FLOW FROM INVESTING ACTIVITIES: - ------------------------------------ Acquisition of property, plant and equipment (779,000) (2,327,000) (486,000) - (3,592,000) Acquisition of subsidiaries (69,146,000) (73,617,000) (73,617,000) 147,234,000 (69,146,000) Other changes, net (6,869,000) - 3,027,000 3,842,000 - ------------- ------------- ------------- ------------- ------------- Net cash provided by (used in) investing activities (76,794,000) (75,944,000) (71,076,000) 151,076,000 (72,738,000) CASH FLOW FROM FINANCING ACTIVITIES: - ------------------------------------ Payments on long-term debt and capital leases (4,084,000) (727,000) (13,000) - (4,824,000) Proceeds from long-term debt 72,622,000 37,500,000 37,500,000 (75,000,000) 72,622,000 Proceeds from sale of common stock, net 4,838,000 36,117,000 36,117,000 (72,234,000) 4,838,000 Proceeds from sale of preferred stock, net 6,707,000 - - - 6,707,000 Other changes, net - 3,293,000 335,000 (5,139,000) (1,511,000) ------------- ------------- ------------- ------------- ------------- Net cash provided by (used in) financing activities 80,083,000 76,183,000 73,939,000 (152,373,000) 77,832,000 ------------- ------------- ------------- ------------- ------------- NET CHANGE IN CASH 541,000 1,319,000 3,050,000 - 4,910,000 CASH AT BEGINNING OF PERIOD 9,398,000 2,063,000 - - 11,461,000 EFFECT OF EXCHANGE RATES ON CASH - - 21,000 - 21,000 ------------- ------------- ------------- ------------- ------------- CASH AT END OF PERIOD $ 9,939,000 $ 3,382,000 $ 3,071,000 $ - $ 16,392,000 ============= ============= ============= ============= ============= SUPPLEMENTAL CASH FLOW: - ----------------------- Cash paid during the period for: Interest $ 360,000 $ 335,000 $ 13,000 $ - $ 708,000 Income taxes 100,000 - 311,000 - 411,000 Noncash investing and financing activities: Seller financed acquisition of property, plant and equipment 128,000 162,000 - - 290,000
15 ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Preliminary Note Regarding Forward-Looking Statements This report contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and is subject to the safe harbor created by those sections. Actual results could differ materially from those projected in the forward-looking statements set forth in this "Management's Discussion and Analysis of Financial Condition and Results of Operations." Overview - -------- The Company has been an active consolidator of companies, and our results of operations have been substantially affected by acquisitions. These acquisitions, as well as internal growth in our existing and acquired businesses, have resulted in substantial increases in net sales during certain periods. Our operating expenses, margins and other expenses have also been affected by certain expenses directly associated with the acquisitions and related capital raising transactions. We have experienced substantial increases in other expense categories as a result of the increases in operations. A portion of these expenses is attributable to the assimilation of acquired operations into our existing businesses. In July 1998, we acquired Aeromet International PLC ("Aeromet"), a British limited company. Aeromet, which comprises our European Aerospace Group, is a manufacturer of magnesium and aluminum precision sand and investment castings, and of titanium and aluminum formed sheet products, with five locations in England. The Aeromet acquisition has had and will have a significant effect on our future operations and on comparisons of income, expense and balance sheet items in periods after fiscal 1998. Substantially all of our revenue is generated by sales to customers in the commercial aerospace, defense, electronics and transportation industries, with commercial aerospace and defense industry sales being the most significant. The electronics, defense, and commercial aerospace industries are cyclical in nature and subject to changes based on general economic conditions and commercial airline industry, defense and government spending. Our operations focus on developing, manufacturing and marketing high performance electronics and metal components and assemblies. Our electronics products are characterized by relatively low volumes and high margins. In comparison, volumes have historically been higher and margins lower for our metals products. We believe that margins will remain higher for electronic products than for metals products. We also believe that assembled products incorporating both electronics and metal parts will generate margins closer to, but not as high as, electronics product margins. As a result of margin differences, changes in product mix among our electronics, assembled and metals products can be expected to affect overall margins. Our sales are not subject to significant seasonal fluctuations. However, production and resulting sales are subject to the number of working days in any given period. Results for various periods may vary materially due to the number of working days available in any period. We believe that our operations for the periods discussed have not been adversely affected by inflation. 16 Results of Operations - --------------------- Quarter Ended November 30, 1999 Compared to Quarter Ended November 30, 1998 Net Sales. Net sales decreased by $1.5 million, or 4.9%, to $29.0 million for the quarter ended November 30, 1999, from $30.5 million for the quarter ended November 30, 1998. The European Aerospace Group contributed $15.0 million, down $1.1 million from the $16.1 million contributed during the quarter ended November 30, 1998. We believe that customer inventory evaluation and reduction initiatives, which have also impacted our U.S. Aerospace Group operations over the past year, are the primary cause for the decline in the European Aerospace Group revenue. We expect that our net sales in the European Aerospace Group will be slightly down in the third and fourth quarters of fiscal 2000 as compared to corresponding quarters in fiscal 1999. Net sales in the U.S. Aerospace Group were $7.8 million during the quarter ended November 30, 1999, versus $8.4 million contributed during the quarter ended November 30, 1998. Our U.S. Aerospace Group experienced a decrease in order backlog and corresponding slowdown of product deliveries to Boeing during fiscal 1999. This situation has continued through the second quarter of fiscal 2000. We anticipate that sales volume in our U.S. Aerospace Group will stabilize and may start to increase during the third quarter of fiscal 2000, in part due to the signing of a new multiple year supplier contract with Boeing in the third quarter. Our U.S. Electronics Group contributed $6.2 million to net sales during the quarter ended November 30, 1999, up $0.2 million from $6.0 million contributed during the quarter ended November 30, 1998. This increase was primarily attributable to additional sales of products for communications, satellite and weapons systems. We expect the sales volume in our U.S. Electronics Group to remain at current levels or decrease slightly during the third quarter of fiscal 2000 due to order timing. Gross Profit. Gross profit increased by $0.4 million, or 8.3%, to $5.2 million for the quarter ended November 30, 1999, from $4.8 million for the quarter ended November 30, 1998. As a percentage of net sales, gross profit increased to 18.1% for the quarter ended November 30, 1999 from 15.8% for the quarter ended November 30, 1998. The quarter ended November 30, 1998 included a $1.6 million inventory impairment charge. Without that charge, gross profit would have been $6.4 million, or 21.1% of net sales. The resulting comparative decrease in gross profit in the second quarter of fiscal 2000 from the second quarter of fiscal 1999 was due to lower gross margins in our U.S. Aerospace Group due to customer pricing reduction programs and lower sales volumes. We anticipate that gross margins in our third quarter of fiscal 2000 will increase slightly over margins achieved in the second quarter, with further improvement in the fourth quarter of fiscal 2000 due to anticipated increases in sales volume within our U.S. Aerospace Group as mentioned above. Operating Expenses. Operating expenses increased by $0.2 million, or 4.5%, to $4.6 million for the quarter ended November 30, 1999, from $4.4 million for the quarter ended November 30, 1998. As a percentage of net sales, operating expenses increased 1.5 percentage points, to 15.8% for the quarter ended November 30, 1999 from 14.3% for the quarter ended November 30, 1998. The increase in operating expenses is attributable mainly to computer system upgrades and other "Y2K" preparations. Interest Expense. Interest expense decreased by $0.1 million to $2.6 million for the quarter ended November 30, 1999, from $2.7 million for the quarter ended November 30, 1998. This decrease in interest expense was due to principal paid down during the previous year. Of the interest expense for the quarter ended November 30, 1999, $2.4 million related to our outstanding 11 1/4% senior subordinated notes. 17 Provision for Income Taxes. Income taxes for the quarter ended November 30, 1999 represent estimated U.K. tax on earnings in the U.K. No U.S. tax provision was recorded during the quarter because of our pre-tax loss position. Net Loss. Net loss decreased by $0.6 million, or 23.1%, to a net loss of $2.0 million for the quarter ended November 30, 1999, from a net loss of $2.6 million for the quarter ended November 30, 1998, due to the factors listed above. Six Months Ended November 30, 1999 Compared to Six Months Ended November 30, 1998 Net Sales. Net sales increased by $7.9 million, or 15.7%, to $57.6 million for the six months ended November 30, 1999, from $49.7 million for the six months ended November 30, 1998. The European Aerospace Group contributed $29.3 million, up $8.8 million from the $20.5 million contributed during the six months ended November 30, 1998. This increase was primarily due to six months of operations of the European Aerospace Group during the six month period in 1999, compared to four months of operations during the same period in 1998. The increase in the European Aerospace Group net sales was partially offset by a decrease in net sales of $1.7 million from the U.S. Aerospace Group, which contributed $15.8 million during the six months ended November 30, 1999, versus $17.5 million contributed during the six months ended November 30, 1998. Our U.S. Aerospace Group experienced a decrease in order backlog and corresponding slowdown of product deliveries to Boeing during fiscal 1999. This situation has continued through the second quarter of fiscal 2000. We anticipate that sales volume in our U.S. Aerospace Group will stabilize and may start to increase during the third quarter of fiscal 2000, in part due to the signing of a new multiple year supplier contract with Boeing in the third quarter. Our U.S. Electronics Group contributed $12.5 million to net sales during the six months ended November 30, 1999, up $0.9 million from $11.6 million contributed during the six months ended November 30, 1998. This increase was primarily attributable to additional sales of products for communications, satellite and weapons systems. We expect the sales volume in our U.S. Electronics Group to remain at current levels or decrease slightly during the second half of fiscal 2000 due to order timing. Gross Profit. Gross profit increased by $2.3 million, or 24.2%, to $11.8 million for the six months ended November 30, 1999, from $9.5 million for the six months ended November 30, 1998. This increase was primarily due to six months of operations of the European Aerospace Group in 1999 versus four months in 1998. As a percentage of net sales, gross profit increased to 20.5% for the six months ended November 30, 1999, from 19.1% for the six months ended November 30, 1998. The six months ended November 30, 1998 included a $1.6 million inventory impairment charge. Without that charge, gross profit would have been $11.1 million, or 22.3% of net sales. The resulting comparative decrease in gross profit during the first six months of fiscal 2000 from the first six months of fiscal 1999 was due to lower gross margins in our U.S. Aerospace group primarily due to customer pricing reduction programs and lower sales volumes. We anticipate that gross margins in the second half of fiscal 2000 will increase slightly over margins achieved during the first six months of fiscal 2000 due to anticipated increases in sales volume within our U.S. Aerospace Group as mentioned above. Operating Expenses. Operating expenses increased by $1.6 million, or 19.8%, to $9.7 million for the six months ended November 30, 1999, from $8.1 million for the six months ended November 30, 1998. As a percentage of net sales, operating expenses increased 0.4 percentage points, to 16.8% for the six months ended November 30, 1999, from 16.4% for the six months ended November 30, 1998. The increase in operating expenses is primarily attributable to six months of 18 operations in our European Aerospace group in 1999 versus four months of operations in 1998. In addition, computer system upgrades and other "Y2K" expenditures have caused an increase in operating expenses during the first six months of fiscal 2000. Interest Expense. Interest expense increased by $1.4 million, or 36.8%, to $5.2 million for the six months ended November 30, 1999, from $3.8 million for the six months ended November 30, 1998. This increase was due to six months of interest expense during 1999 on our 11 1/4% senior subordinated notes, versus four months of interest expense on these notes in 1998, offset slightly by principal pay down of other debt during fiscal 1999. Other Income (Expense). Other income (expense) includes non-recurring and non-operational income and expense for the period. Other expense decreased by $6.9 million, to $11,000, for the six months ended November 30, 1999. Other expense during the six months ended November 30, 1998 included non-recurring charges of $3.6 million and $3.1 million related to goodwill and investment valuation allowances, respectively. Provision for Income Taxes. Income taxes for the six months ended November 30, 1999 and 1998 primarily represent changes in the valuation allowance to adjust deferred income tax assets to amounts determined to be realizable based upon current operating results, and U.K. tax on U.K. earnings of our European Aerospace Group. At November 30, 1999, we had net operating loss (NOLs) carryforwards for federal income tax purposes of approximately $14.0 million, the benefits of which expire in the tax year 2001 through the tax year 2019. The NOLs created by our subsidiaries prior to their acquisition, and the NOLs created as a consolidated group or groups subsequent to a qualifying tax free merger or acquisition, have limitations related to the amount of usage by each subsidiary or consolidated group as described in the Internal Revenue Code. As a result of these limitations, approximately $1.5 million of the $14.0 million of NOLs will never become available. At November 30, 1999 we had net deferred tax assets of $4.0 million, the realization of which is dependent on material increases in present levels of pre-tax income, primarily in the United States. We expect to achieve these increases by continuing to streamline operations, reduce corporate overhead and focus our resources on higher growth and higher margin opportunities. We are also actively evaluating strategic alternatives to reduce debt and related interest expense. We anticipate that our effective income tax rate will approach and may exceed the statutory rate in the future as pre-tax income is achieved. In addition, undistributed earnings of our foreign subsidiaries, for which a minimal amount of U.S. income taxes have been provided, aggregated approximately $1.4 million at November 30, 1999. Net Loss. Net loss decreased by $3.5 million, or 50.0%, to a net loss of $3.5 million for the six months ended November 30, 1999, from a net loss of $7.0 million for the six months ended November 30, 1998, due to the factors listed above. Liquidity and Capital Resources - ------------------------------- Liquidity. During the quarter and six months ended November 30, 1999, our operating activities used cash of $292,000 and $3.3 million, respectively. Cash at November 30, 1999 was $3.6 million (compared to $8.1 million at May 31, 1999). All but $322,000 of the cash resides at subsidiaries that are not guarantors of our 11 1/4% senior subordinated notes. Remittance of cash from non-guarantor subsidiaries may cause us to incur income tax expense in the U.S. on the amount of earnings of our foreign subsidiaries. During the six months ended November 30, 1999, we borrowed $5.6 million under a previously unused $6.3 million line of credit. We believe that our working capital and unused lines of credit are sufficient to meet our obligations as they become due during fiscal 2000. However, we may need to obtain additional cash during or after fiscal 19 2000. Should we need to dispose of assets to generate cash, there is no assurance that the carrying values will be realizable upon liquidation outside of the ordinary course of business. Our inability to obtain additional cash if and when needed could have a material adverse effect on our financial position and results of operations. As part of our 11 1/4% senior subordinated notes, we are subject to an indenture that, among other things, limits our ability to enter into various financing transactions and to sell certain assets. We are actively evaluating strategic alternatives to reduce debt and related interest expense. Financing. Our primary banking relationships include a revolving line of credit up to $6.3 million for our U.S. operations and a revolving line of credit up to approximately $5.6 million ((pound)3.5 million) for our European operations. As of November 30, 1999, we had drawn $5.6 million on our U.S. line of credit, and our European line of credit was unused. Proceeds from the U.S. line of credit have been used to fund working capital due to losses (approximately $3.0 million), payments related to the Orca guarantee (approximately $1.0 million), and a loan to Nova-Tech Engineering, Inc. (approximately $1.5 million). Capital Expenditures. We made capital expenditures of $1.3 million during the second quarter of fiscal 2000. The expenditures were primarily for manufacturing equipment and building improvements. The expansion of the manufacturing facility that is used by two divisions of our U.S. Electronics Group has been rescheduled, although most of the building material needed to complete the project was purchased prior to the decision to defer the expansion. This expansion is expected to be completed late in fiscal 2000 or early in the next fiscal year, for a total cost of approximately $800,000, of which approximately $200,000 has already been expended. We have also entered into a stock purchase agreement for the proposed acquisition of Nova-Tech Engineering, Inc. ("Nova-Tech"). The purchase price will consist of approximately $1.5 million in cash, and we will pay off certain outstanding debts of Nova-Tech at closing. The stock purchase agreement contains conditions to closing, including receipt of a letter ruling from the Internal Revenue Service that is necessary to permit Nova-Tech's Employee Stock Ownership Plan to sell its Nova-Tech stock on the agreed terms. The letter ruling request was delivered to the Internal Revenue Service in November 1999, and we cannot predict when a response will be received. We are currently providing services to Nova-Tech under an Operating Agreement dated April 23, 1999. As of November 30, 1999, we had loaned $2.5 million to Nova-Tech for working capital. These loans have been made under the terms of two demand notes dated April 26, 1999 and August 5, 1999, each of which is secured by substantially all of the assets of Nova-Tech. As of November 30, 1999, we had no other material commitments outstanding for the purchases of capital assets. Orca Technologies, Inc. In July 1997 we guaranteed a $1.3 million line of credit between Orca Technologies, Inc. and its principal lender. In June 1999, as guarantor of Orca's line of credit, we advanced $300,000 for a partial repayment of the line of credit required by the lender. In October 1999, we advanced an additional $522,000 for another partial repayment required by the lender. During the second quarter of fiscal 2000, we advanced $509,000, and early in the third quarter of fiscal 2000 we advanced $82,000, which completely repaid the guaranteed debt. Those advances are secured by a security interest in substantially all of Orca's assets. We also entered into an agreement with Orca regarding those advances that restricts Orca's ability to take certain actions without our consent. During fiscal 1999, we recorded in other expense an allowance for certain expenses and the guarantee of Orca's line of credit totaling approximately $2.0 million. This allowance had the effect of writing off the entire amount of our guarantee obligation. As a result, the payments described above affected cash flow, but did not affect earnings during fiscal 2000. As 20 of November 30, 1999, Orca was sixteen months delinquent to us in interest payments on a $950,000 promissory note. We reserved the entire amount of this note in other expense during fiscal 1998 and fiscal 1999. During the second and third quarters of fiscal 2000, we negotiated with a potential investor in Orca for the possible sale by us of certain of Orca's debt obligations to us for a deeply discounted price. This sale did not occur, and we are continuing to investigate our options for recovering some of the previously written off debt. As of November 30, 1999, Orca was also sixteen months delinquent on lease payments for premises that it subleased from us. In November 1999 we evicted Orca from most of the space that it previously subleased from us, and we negotiated a termination of our lease of that facility and the re-leasing of the space to another tenant of the building. Under the termination agreement, our rentable space was reduced from approximately 21,390 square feet to 3,808 square feet, and the lease term was shortened from August 31, 2004 to February 28, 2000. Our obligations to the landlord have terminated with respect to the approximately 17,500 square feet that have been delivered to the new tenant, and will terminate with respect to the remaining space, which is currently occupied by Orca, on or about February 28, 2000. We have notified Orca that they must vacate that space prior to February 28, 2000. Significant Events During The Quarter - ------------------------------------- Year 2000 - --------- Our comprehensive strategy for updating our information management and manufacturing systems for Year 2000, or Y2K, compliance appears to have been successful. Our information technology ("IT") systems appear to be working properly, with only a few minor glitches as a result of Y2K problems. We are continuing to monitor all of our systems for any current or future problems. We have not to date experienced any material Y2K problems related to any of our vendors or customers. We incurred approximately $275,000 in costs related to addressing Y2K issues during fiscal 1999 and the first two quarters of fiscal 2000, and approximately $25,000 more during December 1999. New Accounting Pronouncements - ----------------------------- In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133 requires the recognition of all derivatives in the consolidated balance sheet as either assets or liabilities measured at fair value. SFAS No. 133 was effective for fiscal years beginning after June 15, 1999. In June 1999, the FASB issued SFAS No. 137, which delays implementation of SFAS No. 133 until fiscal years beginning after June 15, 2000. The adoption of SFAS No. 133 is not expected to have a material effect on the Company's financial position. 21 ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We have financial instruments that are subject to interest rate risk, primarily debt obligations issued at a fixed rate. However, fixed-rate debt obligations issued by us are generally not callable until maturity. The fair value of such instruments approximates their face value, except for the 11 1/4% senior subordinated notes which, as of November 30, 1999, were trading on the open market for approximately 50% to 60% of face value. We do not consider the market risk exposure for interest rates to be material. We are subject to foreign currency exchange rate risk relating to receipts from and payments to suppliers in foreign currencies. Since approximately 50% of our transactions are conducted in foreign currency, the exchange rate risk could be material. We have not entered into any hedging activity as of November 30, 1999. We are exposed to commodity price fluctuations through purchases of aluminum and other raw materials. We enter into certain supplier agreements that guarantee quantity and price of the applicable commodity to limit the exposure to commodity price fluctuations and availability concerns. At November 30, 1999, we had purchase commitments for raw materials aggregating approximately $4,000,000. We hold an investment in the common stock of a public company. We are exposed to risks associated with the quoted equity price of the common stock. At November 30, 1999, the reported value of the investment was $19,000. 22 PART II OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS From time to time the Company is involved in legal proceedings relating to claims arising out of operations in the normal course of business. The Company is not aware of any material legal proceedings pending or threatened against the Company or any of its properties. ITEM 2. CHANGES IN SECURITIES (a) None. (b) Dividend Payment Restrictions In connection with the issuance of its 11 1/4% Senior Subordinated Notes due 2005, which have been exchanged for 11 1/4% Series B Senior Subordinated Notes due 2005, the Company is subject to an Indenture that limits the Company's ability to pay dividends, repurchase its equity securities, make certain other kinds of restricted payments, and incur certain indebtedness. The Company has never declared or paid cash dividends on the Common Stock. The Company currently anticipates that it will retain all future earnings to fund the operation of its business and does not anticipate paying dividends on the Common Stock in the foreseeable future. ITEM 3. DEFAULTS UPON SENIOR SECURITIES None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Annual Meeting of Shareholders of the Company (the "Annual Meeting") was held on October 12, 1999. The shareholders voted upon the following matters at the Annual Meeting: (a) Election of Directors The following six directors nominated by the Board of Directors were elected to serve as directors of the Company until the 2000 Annual Meeting of Shareholders: BROKER DIRECTOR FOR AGAINST ABSTAIN NON-VOTES ------------------ ---------- ------- ------- --------- Allen W. Dahl 13,831,811 173,407 694,820 -0- Werner Hafelfinger 13,859,317 145,901 694,820 -0- Dale Rasmussen 13,884,140 121,078 694,820 -0- Robert M. Stemmler 13,849,421 155,797 694,820 -0- William A. Wheeler 13,864,221 140,997 694,820 -0- Donald A. Wright 13,671,541 332,977 695,520 -0- (b) Approval of 1999 Stock Incentive Plan The Company's 1999 Stock Incentive Plan, as described in the Company's proxy materials for the Annual Meeting, was approved by the following vote: 23 For 4,422,648 Against 1,530,732 Abstain 230,088 Broker Non-Votes 8,516,570 TOTAL 14,700,038 (c) Ratification of KPMG LLP as the Company's Independent Auditor The selection of KPMG LLP as the Company's independent auditor was ratified by the following vote: For 14,370,739 Against 199,504 Abstain 129,795 Broker Non-Votes -0- TOTAL 14,700,038 Item 5. Other Information Nasdaq On December 20, 1999, the Company received a letter from Nasdaq raising a concern regarding the continued listing of the Company's shares of common stock on the Nasdaq National Market System. The letter advised the Company that its common stock had failed to maintain a minimum bid price greater than or equal to $1.00 over the previous thirty consecutive trading days, as required by applicable Nasdaq rules. The letter advised the Company that the Company would be provided 90 calendar days, or until March 20, 2000, to regain compliance with the minimum bid price rule. The letter further advised that if, at any time before March 20, 2000, the bid price of the Company's shares of common stock is equal to or greater than $1.00 for a minimum of ten consecutive trading days, Nasdaq would determine if compliance with the requirement had been achieved. However, if the Company were unable to demonstrate compliance with the requirement on or before March 20, 2000, the Company's common stock would be delisted at the opening of business on March 22, 2000. In such event, the Company's common stock would trade on the electronic bulletin board, rather than on either the Nasdaq National Market or Small Cap Systems. This could reduce the liquidity of the market for the Company's common stock. As of January 10, 2000, the Company's common stock had traded above $1.00 for 10 consecutive trading days. The Company believes that it is important to the Company and its shareholders to continue to be listed on the Nasdaq National Market System. Accordingly, if Nasdaq were to determine that the Company continued to be out of compliance with the minimum bid price requirement, the Company currently intends that it would call a special meeting of its shareholders to approve a reverse stock split or to approve such other appropriate action as would be reasonably calculated to bring the Company's common stock into compliance with the requirement. 24 Preferred Stock In May and August 1998, the Company issued a total of 170,000 shares of Series B Convertible Preferred Stock (the "Preferred Stock") and issued related warrants for a total price of $17 million in a private placement to 17 accredited investors. As of January 10, 2000, 28,213 shares of Preferred Stock had been converted into 2,309,021 shares of common stock, and 141,787 shares of Preferred Stock remained outstanding. Upon conversion of a share of Preferred Stock, the holder receives a number of shares of common stock equal to $100 divided by the then-applicable conversion price. The conversion price of the Preferred Stock is the lower of (a) $7.20 per share, or (b) the average of the three lowest closing bid prices per share of the common stock over the 22 trading days before conversion. At January 10, 2000, the conversion price was $0.78125 per share. No holder is entitled to voluntarily convert Preferred Stock that would cause the holder to own more than 9.9% of the Company's outstanding common stock at any time. Because of Nasdaq National Market System requirements, the Company cannot issue more than 3,000,000 shares of common stock upon conversion of Preferred Stock unless the Company's shareholders approve the issuance of more than 3,000,000 shares. Alternatively, the Company could redeem any Preferred Stock whose conversion would cause the issuance of more than 3,000,000 shares of common stock, except that the indenture governing the Company's outstanding 11 1/4% senior subordinated notes restricts the Company's ability to redeem Preferred Stock. The average conversion price that would result in the issuance of 3,000,000 shares of common stock is $5.67. Because the market price of the Company's common stock has remained less than $5.67, the Company expects that 3,000,000 shares of common stock will not be sufficient to cover all of the Preferred Stock to be converted, and that it may need to seek shareholder approval to issue additional shares for conversion of Preferred Stock. If the Company's shareholders were to approve the issuance of additional shares of common stock for this purpose, the number of additional shares actually issued would depend on the market price of the Company's common stock at the times when Preferred Stock is converted by the holders, and would likely result in the issuance of a substantial number of additional shares of common stock, which the Company would be required to register for resale by the holders. This could negatively affect the market price of the Company's common stock. If the Company were to receive conversion notices that would result in the need to issue more than 3,000,000 shares of common stock, and the Company did not either (a) redeem the Preferred Stock whose conversion would cause the issuance of more than 3,000,00 shares, or (b) obtain shareholder approval to issue additional shares, the Company would be unable to convert all of the Preferred Stock. If that occurred, the Company would incur a significant monthly penalty to the holders of Preferred Stock until the Company either redeemed the Preferred Stock or obtained shareholder approval to issue the additional shares. 25 Item 6. Exhibits and Reports on Form 8-K a. Exhibits. The following documents are filed as exhibits to this Quarterly Report: Exhibit Number Description 2.1 Stock Purchase Agreement, dated October 11, 1999, between Pacific Aerospace & Electronics, Inc. and the Shareholders of Nova-Tech Engineering, Inc.(29) 3.1 Articles of Incorporation of Pacific Aerospace & Electronics, Inc.(6) 3.2 Amendment to Articles of Incorporation containing Designation of Rights and Preferences of Series A Convertible Preferred Stock, as corrected. (8) 3.3 Amendment to Articles of Incorporation containing Designation of Rights and Preferences of Series B Convertible Preferred Stock. (20) 3.4 Bylaws of Pacific Aerospace & Electronics, Inc.(6) 10.1 Amended and Restated Stock Incentive Plan.(5) 10.2 Amendment No. 1 to the Amended and Restated Stock Incentive Plan. (19) 10.3 1999 Stock Incentive Plan. (30) 10.4 Amended and Restated Independent Director Stock Plan.(21) 10.5 1997 Employee Stock Purchase Plan.(11) 10.6 Employment Agreement, dated June 1, 1997, between Pacific Aerospace & Electronics, Inc. and Donald A. Wright.(9) 10.7 Amendment No. 1 to Employment Agreement, dated January 29, 1999, between Pacific Aerospace & Electronics, Inc. and Donald A. Wright.(27) 10.8 Employment Agreement, dated March 1, 1999, between Pacific Aerospace & Electronics, Inc. and Werner Hafelfinger. (27) 10.9 Employment Agreement, dated June 1, 1997, between Pacific Aerospace & Electronics, Inc. and Nick A. Gerde.(9) 10.10 Employment Agreement, dated September 1, 1997, between Pacific Aerospace & Electronics, Inc. and Sheryl A. Symonds.(12) 10.11 Debt Restructuring Agreement, dated April 6, 1998, between Pacific Aerospace & Electronics, Inc., Orca Technologies, Inc., Televar, Inc. and MONITRx, Inc.(15) 10.12 Commercial Guaranty, dated July 16, 1997, from Pacific Aerospace & Electronics, Inc. to KeyBank National Association.(13) 10.13 Sublease between Pacific Aerospace & Electronics, Inc. and Orca Technologies, Inc. dated April 27, 1998.(20) 10.14 Demand Promissory Note, dated June 29, 1999, from Orca Technologies, Inc. to Pacific Aerospace & Electronics, Inc.(29) 10.15 Security Agreement, dated June 29, 1999, from Orca Technologies, Inc. to Pacific Aerospace & Electronics, Inc.(29) 10.16 Demand Promissory Note, dated October 5, 1999, from Orca Technologies, Inc. to Pacific Aerospace & Electronics, Inc.(29) 10.17 Agreement Regarding Repayment Under Guarantee, dated October 5, 1999, between Pacific Aerospace & Electronics, Inc. and Orca Technologies, Inc. (29) 10.18 Promissory Note, dated March 18, 1998, from Pacific Aerospace & Electronics, Inc. to KeyBank National Association.(15) 26 10.19 Security Agreement, dated March 18, 1998, from Pacific Aerospace & Electronics, Inc. to KeyBank National Association.(15) 10.20 Facility Letter, dated July 30, 1998, from Barclays Bank plc to Aeromet International plc.(20) 10.21 Loan Agreement, dated September 7, 1999, between Pacific Aerospace & Electronics, Inc. and KeyBank National Association. (29) 10.22 Promissory Note, dated September 22, 1998, from Pacific Aerospace & Electronics, Inc. to KeyBank National Association.(22) 10.23 Modification and/or Extension Agreement, dated October 6, 1999, between Pacific Aerospace & Electronics, Inc. and KeyBank National Association.(29) 10.24 Commercial Security Agreement, dated September 7, 1999, between Pacific Aerospace & Electronics, Inc. and KeyBank National Association.(29) 10.25 Promissory Note, dated September 30, 1998, from Pacific Aerospace & Electronics, Inc. to KeyBank National Association.(22) 10.26 Deed of Trust, dated September 30, 1998, between Pacific Aerospace & Electronics, Inc., KeyBank National Association and Land Title Company, Chelan-Douglas County, Inc.(22) 10.27 General Terms Agreement No. PLR-950 Relating to Boeing Model Aircraft between Cashmere Manufacturing Co., Inc. and Boeing Commercial Airplane Group, effective as of February 5, 1990, as amended.(3) 10.28 Special Business Provisions No. L-890821-8140N between The Boeing Company and Cashmere Manufacturing Co., Inc. effective as of December 18, 1992.(1)(3) 10.29 Special Business Provisions No. L-500660-8134N between The Boeing Company and Cashmere Manufacturing Co., Inc. effective as of December 31, 1991.(1)(3) 10.30 Special Business Provisions No. L-435579-8180N between The Boeing Company and Cashmere Manufacturing Co., Inc. effective as of August 11, 1994.(1)(3) 10.31 Special Business Provisions No. PLR-950A between The Boeing Company and Cashmere Manufacturing Co., Inc. effective as of February 5, 1990.(1)(3) 10.32 Administrative Agreement No. L-435579-8180N between Cashmere Manufacturing Co., Inc. and Boeing Commercial Airplane Group effective as of August 11, 1994.(3) 10.33 Special Business Provisions No. POP-65311-0047 between The Boeing Company and Cashmere Manufacturing Co., Inc. effective as of February 26, 1996.(1)(3) 10.34 General Terms Agreement No. BCA-65311-0044 between The Boeing Company and Cashmere Manufacturing Co., Inc. effective as of February 26, 1996.(3) 10.35 General Terms Agreement No. BCA-65311-0140 between The Boeing Company and Cashmere Manufacturing Co., Inc. effective as of June 11, 1997.(20) 10.36 Special Business Provisions No. POP-65311-0143 between The Boeing Company and Cashmere Manufacturing Co., Inc. effective as of June 11, 1997.(1)(20) 10.37 Long Term Agreement No. 0108098 between Northrop Grumman Corporation and Cashmere Manufacturing Co., Inc. effective as of April 6, 1998.(1)(20) 10.38 Option to Purchase, dated January 29, 1999, between Pacific Aerospace & Electronics, Inc. and Donald A. Wright. (27) 10.39 Real Estate Agreement, dated January 15, 1999, between Pacific Aerospace & Electronics, Inc. and the Port of Chelan County. (27) 10.40 Operating Agreement, dated as of April 23, 1999, between Pacific Aerospace & Electronics, Inc. and Nova-Tech Engineering, Inc.(28) 10.41 Demand Promissory Note, dated April 26, 1999 from Nova-Tech Engineering, Inc. to Pacific Aerospace & Electronics, Inc. (28) 10.42 Demand Promissory Note, dated August 5, 1999, from Nova-Tech Engineering, Inc. to Pacific Aerospace & Electronics, Inc. (28) 27 10.43 Security Agreement, dated April 26, 1999, from Nova-Tech Engineering, Inc. to Pacific Aerospace & Electronics, Inc. (28) 27 Financial Data Schedule. (31) - -------------- (1) Subject to confidential treatment. Omitted confidential information was filed separately with the Securities and Exchange Commission. (2) Incorporated by reference to the Company's Annual Report on Form 10-KSB for the year ended May 31, 1995. (3) Incorporated by reference to Amendment No. 1 to the Company's Registration Statement on Form SB-2 filed on June 19, 1996. (4) Incorporated by reference to the Company's Annual Report on Form 10-KSB for the year ended May 31, 1996. (5) Incorporated by reference to the Company's Current Report on Form 10-QSB for the quarterly period ended November 30, 1996. (6) Incorporated by reference to the Company's Current Report on Form 8-K filed on December 12, 1996, reporting the reincorporation merger. (7) Incorporated by reference to the Company's Registration Statement of Certain Successor Issuers on Form 8-B filed on February 6, 1997. (8) Incorporated by reference to the Company's Current Report on Form 8-K filed on March 12, 1997, reporting the Series A Preferred Stock offering. (9) Incorporated by reference to the Company's Annual Report on Form 10-KSB for the fiscal year ending May 31, 1997. (10) Incorporated by reference to the Company's Registration Statement on Form S-8 filed on June 11, 1997. (11) Incorporated by reference to the Company's Definitive Proxy Statement for its 1997 Annual Shareholders Meeting, filed on August 28, 1997. (12) Incorporated by reference to the Post-Effective Amendment No. 1 to Form SB-2, filed on November 3, 1997. (13) Incorporated by reference to the Company's Quarterly Report on Form 10-QSB for the quarterly period ending November 30, 1997. (14) Incorporated by reference to the Company's Registration Statement on Form S-3 filed on December 3, 1997. (15) Incorporated by reference to the Company's Quarterly Report on Form 10-QSB for the quarterly period ending February 28, 1998. (16) Incorporated by reference to the Company's Current Report on Form 8-K/A, filed on May 1, 1998. (17) Incorporated by reference to the Company's Current Report on Form 8-K filed on July 10, 1998. (18) Incorporated by reference to the Company's Current Report on Form 8-K filed on August 14, 1998. (19) Incorporated by reference to the Company's Registration Statement on Form S-8 filed on November 7, 1997. (20) Incorporated by reference to the Company's Annual Report on Form 10-K for the fiscal year ending May 31, 1998. (21) Incorporated by reference to the Company's Definitive Proxy Statement filed on September 1, 1998. (22) Incorporated by reference to the Company's Quarterly Report on Form 10-Q, and Form 10-Q/A, for the quarterly period ending August 31, 1998. (23) Incorporated by reference to the Company's Registration Statement on Form S-1 filed on October 30, 1998. 28 (24) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarterly period ending November 30, 1998. (25) Incorporated by reference to Registration Statement on Form S-4 filed on November 25, 1998. (26) Incorporated by reference to Amendment No. 1 to Registration Statement on Form S-4 filed on January 20, 1999. (27) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarterly period ending February 28, 1999. (28) Incorporated by reference to the Company's Annual Report on Form 10-K filed on August 30, 1999. (29) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarterly period ending August 31, 1999. (30) Incorporated by reference to the Company's Definitive Proxy Statement filed on September 1, 1999. (31) Filed with this report. b. Reports on Form 8-K. None. 29 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. PACIFIC AEROSPACE & ELECTRONICS, INC. Date: January 12, 2000 /s/ DONALD A. WRIGHT ----------------------------------------- Donald A. Wright President, Chief Executive Officer, and Chairman of the Board (Principal Executive Officer) Date: January 12, 2000 /s/ NICK A. GERDE ----------------------------------------- Nick A. Gerde Vice President Finance, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer) 30 EXHIBIT INDEX The following documents are filed as exhibits to this Quarterly Report: Exhibit Number Description 2.1 Stock Purchase Agreement, dated October 11, 1999, between Pacific Aerospace & Electronics, Inc. and the Shareholders of Nova-Tech Engineering, Inc.(29) 3.1 Articles of Incorporation of Pacific Aerospace & Electronics, Inc.(6) 3.2 Amendment to Articles of Incorporation containing Designation of Rights and Preferences of Series A Convertible Preferred Stock, as corrected. (8) 3.3 Amendment to Articles of Incorporation containing Designation of Rights and Preferences of Series B Convertible Preferred Stock. (20) 3.4 Bylaws of Pacific Aerospace & Electronics, Inc.(6) 10.1 Amended and Restated Stock Incentive Plan.(5) 10.2 Amendment No. 1 to the Amended and Restated Stock Incentive Plan. (19) 10.3 1999 Stock Incentive Plan. (30) 10.4 Amended and Restated Independent Director Stock Plan.(21) 10.5 1997 Employee Stock Purchase Plan.(11) 10.6 Employment Agreement, dated June 1, 1997, between Pacific Aerospace & Electronics, Inc. and Donald A. Wright.(9) 10.7 Amendment No. 1 to Employment Agreement, dated January 29, 1999, between Pacific Aerospace & Electronics, Inc. and Donald A. Wright.(27) 10.8 Employment Agreement, dated March 1, 1999, between Pacific Aerospace & Electronics, Inc. and Werner Hafelfinger. (27) 10.9 Employment Agreement, dated June 1, 1997, between Pacific Aerospace & Electronics, Inc. and Nick A. Gerde.(9) 10.10 Employment Agreement, dated September 1, 1997, between Pacific Aerospace & Electronics, Inc. and Sheryl A. Symonds.(12) 10.11 Debt Restructuring Agreement, dated April 6, 1998, between Pacific Aerospace & Electronics, Inc., Orca Technologies, Inc., Televar, Inc. and MONITRx, Inc.(15) 10.12 Commercial Guaranty, dated July 16, 1997, from Pacific Aerospace & Electronics, Inc. to KeyBank National Association.(13) 10.13 Sublease between Pacific Aerospace & Electronics, Inc. and Orca Technologies, Inc. dated April 27, 1998.(20) 10.14 Demand Promissory Note, dated June 29, 1999, from Orca Technologies, Inc. to Pacific Aerospace & Electronics, Inc.(29) 10.15 Security Agreement, dated June 29, 1999, from Orca Technologies, Inc. to Pacific Aerospace & Electronics, Inc.(29) 10.16 Demand Promissory Note, dated October 5, 1999, from Orca Technologies, Inc. to Pacific Aerospace & Electronics, Inc.(29) 10.17 Agreement Regarding Repayment Under Guarantee, dated October 5, 1999, between Pacific Aerospace & Electronics, Inc. and Orca Technologies, Inc. (29) 10.18 Promissory Note, dated March 18, 1998, from Pacific Aerospace & Electronics, Inc. to KeyBank National Association.(15) 10.19 Security Agreement, dated March 18, 1998, from Pacific Aerospace & Electronics, Inc. to KeyBank National Association.(15) 10.20 Facility Letter, dated July 30, 1998, from Barclays Bank plc to Aeromet International plc.(20) 10.21 Loan Agreement, dated September 7, 1999, between Pacific Aerospace & Electronics, Inc. and KeyBank National Association. (29) 10.22 Promissory Note, dated September 22, 1998, from Pacific Aerospace & Electronics, Inc. to KeyBank National Association.(22) 10.23 Modification and/or Extension Agreement, dated October 6, 1999, between Pacific Aerospace & Electronics, Inc. and KeyBank National Association.(29) 10.24 Commercial Security Agreement, dated September 7, 1999, between Pacific Aerospace & Electronics, Inc. and KeyBank National Association.(29) 10.25 Promissory Note, dated September 30, 1998, from Pacific Aerospace & Electronics, Inc. to KeyBank National Association.(22) 10.26 Deed of Trust, dated September 30, 1998, between Pacific Aerospace & Electronics, Inc., KeyBank National Association and Land Title Company, Chelan-Douglas County, Inc.(22) 10.27 General Terms Agreement No. PLR-950 Relating to Boeing Model Aircraft between Cashmere Manufacturing Co., Inc. and Boeing Commercial Airplane Group, effective as of February 5, 1990, as amended.(3) 10.28 Special Business Provisions No. L-890821-8140N between The Boeing Company and Cashmere Manufacturing Co., Inc. effective as of December 18, 1992.(1)(3) 10.29 Special Business Provisions No. L-500660-8134N between The Boeing Company and Cashmere Manufacturing Co., Inc. effective as of December 31, 1991.(1)(3) 10.30 Special Business Provisions No. L-435579-8180N between The Boeing Company and Cashmere Manufacturing Co., Inc. effective as of August 11, 1994.(1)(3) 10.31 Special Business Provisions No. PLR-950A between The Boeing Company and Cashmere Manufacturing Co., Inc. effective as of February 5, 1990.(1)(3) 10.32 Administrative Agreement No. L-435579-8180N between Cashmere Manufacturing Co., Inc. and Boeing Commercial Airplane Group effective as of August 11, 1994.(3) 10.33 Special Business Provisions No. POP-65311-0047 between The Boeing Company and Cashmere Manufacturing Co., Inc. effective as of February 26, 1996.(1)(3) 10.34 General Terms Agreement No. BCA-65311-0044 between The Boeing Company and Cashmere Manufacturing Co., Inc. effective as of February 26, 1996.(3) 10.35 General Terms Agreement No. BCA-65311-0140 between The Boeing Company and Cashmere Manufacturing Co., Inc. effective as of June 11, 1997.(20) 10.36 Special Business Provisions No. POP-65311-0143 between The Boeing Company and Cashmere Manufacturing Co., Inc. effective as of June 11, 1997.(1)(20) 10.37 Long Term Agreement No. 0108098 between Northrop Grumman Corporation and Cashmere Manufacturing Co., Inc. effective as of April 6, 1998.(1)(20) 10.38 Option to Purchase, dated January 29, 1999, between Pacific Aerospace & Electronics, Inc. and Donald A. Wright. (27) 10.39 Real Estate Agreement, dated January 15, 1999, between Pacific Aerospace & Electronics, Inc. and the Port of Chelan County. (27) 10.40 Operating Agreement, dated as of April 23, 1999, between Pacific Aerospace & Electronics, Inc. and Nova-Tech Engineering, Inc.(28) 10.41 Demand Promissory Note, dated April 26, 1999 from Nova-Tech Engineering, Inc. to Pacific Aerospace & Electronics, Inc. (28) 10.42 Demand Promissory Note, dated August 5, 1999, from Nova-Tech Engineering, Inc. to Pacific Aerospace & Electronics, Inc. (28) 10.43 Security Agreement, dated April 26, 1999, from Nova-Tech Engineering, Inc. to Pacific Aerospace & Electronics, Inc. (28) 27 Financial Data Schedule. (31) - -------------- (1) Subject to confidential treatment. Omitted confidential information was filed separately with the Securities and Exchange Commission. (2) Incorporated by reference to the Company's Annual Report on Form 10-KSB for the year ended May 31, 1995. (3) Incorporated by reference to Amendment No. 1 to the Company's Registration Statement on Form SB-2 filed on June 19, 1996. (4) Incorporated by reference to the Company's Annual Report on Form 10-KSB for the year ended May 31, 1996. (5) Incorporated by reference to the Company's Current Report on Form 10-QSB for the quarterly period ended November 30, 1996. (6) Incorporated by reference to the Company's Current Report on Form 8-K filed on December 12, 1996, reporting the reincorporation merger. (7) Incorporated by reference to the Company's Registration Statement of Certain Successor Issuers on Form 8-B filed on February 6, 1997. (8) Incorporated by reference to the Company's Current Report on Form 8-K filed on March 12, 1997, reporting the Series A Preferred Stock offering. (9) Incorporated by reference to the Company's Annual Report on Form 10-KSB for the fiscal year ending May 31, 1997. (10) Incorporated by reference to the Company's Registration Statement on Form S-8 filed on June 11, 1997. (11) Incorporated by reference to the Company's Definitive Proxy Statement for its 1997 Annual Shareholders Meeting, filed on August 28, 1997. (12) Incorporated by reference to the Post-Effective Amendment No. 1 to Form SB-2, filed on November 3, 1997. (13) Incorporated by reference to the Company's Quarterly Report on Form 10-QSB for the quarterly period ending November 30, 1997. (14) Incorporated by reference to the Company's Registration Statement on Form S-3 filed on December 3, 1997. (15) Incorporated by reference to the Company's Quarterly Report on Form 10-QSB for the quarterly period ending February 28, 1998. (16) Incorporated by reference to the Company's Current Report on Form 8-K/A, filed on May 1, 1998. (17) Incorporated by reference to the Company's Current Report on Form 8-K filed on July 10, 1998. (18) Incorporated by reference to the Company's Current Report on Form 8-K filed on August 14, 1998. (19) Incorporated by reference to the Company's Registration Statement on Form S-8 filed on November 7, 1997. (20) Incorporated by reference to the Company's Annual Report on Form 10-K for the fiscal year ending May 31, 1998. (21) Incorporated by reference to the Company's Definitive Proxy Statement filed on September 1, 1998. (22) Incorporated by reference to the Company's Quarterly Report on Form 10-Q, and Form 10-Q/A, for the quarterly period ending August 31, 1998. (23) Incorporated by reference to the Company's Registration Statement on Form S-1 filed on October 30, 1998. (24) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarterly period ending November 30, 1998. (25) Incorporated by reference to Registration Statement on Form S-4 filed on November 25, 1998. (26) Incorporated by reference to Amendment No. 1 to Registration Statement on Form S-4 filed on January 20, 1999. (27) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarterly period ending February 28, 1999. (28) Incorporated by reference to the Company's Annual Report on Form 10-K filed on August 30, 1999. (29) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarterly period ending August 31, 1999. (30) Incorporated by reference to the Company's Definitive Proxy Statement filed on September 1, 1999. (31) Filed with this report. EX-27 2 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from the unaudited financial statements of Pacific Aerospace & Electronics, Inc., and its subsidiaries for the six month period ended November 30, 1999 and is qualified in its entirety by reference to such financial statements. 6-MOS MAY-31-1999 NOV-30-1999 3,582,000 0 24,082,000 556,000 25,663,000 56,043,000 58,972,000 13,042,000 155,809,000 23,727,000 81,317,000 0 0 20,000 50,442,000 155,809,000 57,571,000 57,571,000 45,760,000 45,760,000 9,686,000 60,000 5,152,000 (2,985,000) 535,000 (3,520,000) 0 0 0 (3,520,000) (0.18) (0.18)
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