-----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, QUC/7Kkz7SKZsW++Xda5Ips8MhvJfctL8bmllbc8K+3HOvZ1siC2TlFEZmhUPwva etqiQLIbnKee6dkJ2QZ7GQ== 0000893877-99-000004.txt : 19990111 0000893877-99-000004.hdr.sgml : 19990111 ACCESSION NUMBER: 0000893877-99-000004 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19981130 FILED AS OF DATE: 19990108 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: 99503463 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, 1998 [ ] 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, 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 5, 1999, there were 18,580,265 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, 1998 and May 31, 1998 Consolidated Statements of Operations - Second Quarters and Six Months Ended November 30, 1998 and 1997 Consolidated Statements of Cash Flow - Six Months Ended November 30, 1998 and 1997 Management's Statement and Notes to Unaudited Consolidated Financial Statements - - Second Quarters and Six Months Ended November 30, 1998 and 1997 -2-
PACIFIC AEROSPACE & ELECTRONICS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS FORM 10-Q November 30, 1998 and May 31, 1998 November 30, May 31, 1998 1998 ASSETS (Unaudited) (Audited) ------------ ------------ CURRENT ASSETS Cash $ 16,392,000 $ 11,461,000 Accounts receivable 21,327,000 9,375,000 Inventories 27,065,000 16,184,000 Deferred income taxes 519,000 386,000 Prepaid expense and other 1,449,000 272,000 ------------ ------------ Total current assets 66,752,000 37,678,000 ------------ ------------ PROPERTY AND EQUIPMENT, NET 46,283,000 26,335,000 ------------ ------------ OTHER ASSETS Note receivable, net - 700,000 Investment, net 2,719,000 4,579,000 Costs in excess of NBV of acquired subsidiaries, net 42,894,000 6,515,000 Patents, net 1,178,000 1,229,000 Deferred income taxes 1,583,000 222,000 Deferred financing costs, net 5,366,000 856,000 Other assets 604,000 466,000 ------------ ------------ Total other assets 54,344,000 14,567,000 ------------ ------------ TOTAL ASSETS $167,379,000 $ 78,580,000 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 12,303,000 $ 6,748,000 Accrued liabilities 7,748,000 2,587,000 Current portion - long-term debt 886,000 1,027,000 Current portion - capital lease obligations 629,000 206,000 Line of credit - 1,511,000 ------------ ------------ Total current liabilities 21,566,000 12,079,000 ------------ ------------ LONG-TERM LIABILITIES Long-term debt, net of current portion 80,884,000 9,059,000 Capital leases, net of current portion 1,738,000 941,000 Deferred rent and other 317,000 359,000 ------------ ------------ Total long-term liabilities 82,939,000 10,359,000 ------------ ------------ TOTAL LIABILITIES 104,505,000 22,438,000 ------------ ------------ SHAREHOLDERS' EQUITY Convertible preferred stock - - Common stock 19,000 15,000 Additional paid in capital 70,781,000 57,830,000 Accumulated other comprehensive income (loss) 326,000 (436,000) Accumulated deficit (8,252,000) (1,267,000) ------------ ------------ Total shareholders' equity 62,874,000 56,142,000 ------------ ------------ TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $167,379,000 $ 78,580,000 ============ ============ 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 FORM 10-Q Second Quarters and Six Months Ended November 30, 1998 and 1997 Second Quarters Ended Six Months Ended November 30, November 30, November 30, November 30, 1998 1997 1998 1997 (Unaudited) (Unaudited) (Unaudited) (Unaudited) ----------- ----------- ----------- ----------- NET SALES $30,477,000 $12,427,000 $49,655,000 $24,203,000 COST OF SALES Inventory impairment 1,600,000 - 1,600,000 - Other cost of sales 24,055,000 9,084,000 38,559,000 17,876,000 ----------- ----------- ----------- ----------- TOTAL COST OF SALES 25,655,000 9,084,000 40,159,000 17,876,000 ----------- ----------- ----------- ----------- GROSS PROFIT 4,822,000 3,343,000 9,496,000 6,327,000 OPERATING EXPENSES 4,355,000 2,151,000 8,131,000 4,158,000 ----------- ----------- ----------- ----------- INCOME FROM OPERATIONS 467,000 1,192,000 1,365,000 2,169,000 ----------- ----------- ----------- ----------- OTHER INCOME AND EXPENSE Interest income 137,000 28,000 363,000 46,000 Interest expense (2,683,000) (199,000) (3,752,000) (329,000) Other income (expense) (196,000) 16,000 (6,917,000) 23,000 ----------- ----------- ----------- ----------- (2,742,000) (155,000) (10,306,000) (260,000) ----------- ----------- ----------- ----------- NET INCOME (LOSS) BEFORE FEDERAL INCOME TAX (2,275,000) 1,037,000 (8,941,000) 1,909,000 INCOME TAX BENEFIT (EXPENSE) (300,000) (207,000) 1,955,000 (269,000) ----------- ----------- ----------- ----------- NET INCOME (LOSS) $(2,575,000) $ 830,000 $(6,986,000) $ 1,640,000 =========== =========== =========== =========== NET INCOME (LOSS) PER SHARE: BASIC $ (0.15) $ 0.07 $ (0.43) $ 0.14 DILUTED $ (0.15) $ 0.07 $ (0.43) $ 0.14 SHARES USED IN COMPUTATION OF NET INCOME (LOSS) PER SHARE: BASIC 16,731,000 11,903,105 16,073,000 11,814,219 DILUTED 16,731,000 11,903,105 16,073,000 11,814,219 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 FLOW FORM 10-Q Six Months Ended November 30, 1998 and 1997 November 30, November 30, 1998 1997 (Unaudited) (Unaudited) ------------ ------------ CASH FLOW FROM OPERATING ACTIVITIES: Net cash from operating activities $ (184,000) $ 1,516,000 CASH FLOW FROM INVESTING ACTIVITIES: Purchase of property and (3,592,000) (4,170,000) equipment Reduction in notes receivable - 36,000 Acquisition of subsidiaries (29,012,000) - Purchase of goodwill (40,134,000) - Proceeds from certificate of deposit - 1,000,000 Purchase of short term investments - (836,000) Increase in notes receivable - (5,808,000) ------------ ------------ Net cash from investing activities (72,738,000) (9,778,000) ------------ ------------ CASH FLOW FROM FINANCING ACTIVITIES: Net borrowings (repayments) under line of credit (1,511,000) 452,000 Proceeds from long-term debt 72,622,000 5,820,000 Payments on long term debt and capital leases (4,824,000) (1,000,000) Sale of common stock, net of issuance costs 4,838,000 2,240,000 Sale of preferred stock, net of issuance costs 6,707,000 - Sale of convertible debentures, net of issuance costs - 5,426,000 Conversion of purchase warrants - 740,000 Other changes, net - (20,000) ------------ ------------ Net cash from financing activities 77,832,000 13,658,000 ------------ ------------ NET CHANGE IN CASH 4,910,000 5,396,000 CASH AT BEGINNING OF PERIOD 11,461,000 3,048,000 EFFECT OF EXCHANGE RATES ON CASH 21,000 - ------------ ------------ CASH AT END OF PERIOD $ 16,392,000 $ 8,444,000 ============ ============ SUPPLEMENTAL CASH FLOW: Cash paid during the period for: Interest $ 708,000 $ 257,000 Income taxes 411,000 246,000 Noncash investing and financing activities: Seller financed acquisition of property, 290,000 - plant and equipment
-5- PACIFIC AEROSPACE & ELECTORINCS, INC. AND SUBSIDIARIES MANAGEMENT'S STATEMENT AND NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS FORM 10-Q Second Quarters and Six Months Ended November 30, 1998 and 1997 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, 1998 and May 31, 1998, the consolidated results of operations for the quarters and six months ended November 30, 1998 and 1997, and the consolidated statements of cash flows for the six months ended November 30, 1998 and 1997. 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 financial statements should be read in conjunction with the audited financial statements and notes thereto for the years ended May 31, 1998 and 1997. The results of operations for the quarters and six months ended November 30, 1998 and 1997 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: Comprehensive Income In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income (Statement 130), which establishes standards for reporting and disclosure of comprehensive income and its components (revenues, expenses, gains and losses) in a full set of general-purpose financial statements. Statement 130 is effective for fiscal years beginning after December 15, 1997 and requires reclassification of financial statements for earlier periods to be provided for comparative purposes. The Company has not determined the manner in which it will present the information required by Statement 130 in its annual financial statements for the year ending May 31, 1999. The Company's total comprehensive income (loss) for the quarters and six months ended November 30, 1998 and 1997 was $(3,380,000), $(6,224,000), $830,000, and $1,640,000, respectively. Components of comprehensive income (loss) are as follows:
Quarters Ended November 30, Six Months Ended November 30, ---------------------------- ---------------------------- 1998 1997 1998 1997 ------------ ------------ ------------ ------------ Net income (loss) $ (2,575,000) $ 830,000 $ (6,986,000) $ 1,640,000 Other comprehensive income (loss): Foreign currency translation (1,220,000) - 494,000 - Income tax benefit (expense) 415,000 - (168,000) - Adjustment for unrealized loss on investment - - 436,000 - ------------ ------------ ------------ ------------ Total other comprehensive income (loss) (805,000) - 762,000 - ------------ ------------ ------------ ------------ Comprehensive income (loss) $ (3,380,000) $ 830,000 $ (6,224,000) $ 1,640,000 ============ ============ ============ ============
-6- Note 2: Computations of Earnings per Share The Company has adopted SFAS No. 128, Earnings Per Share (Statement 128). In accordance with Statement 128, basic earnings per share is computed using the weighted average number of common shares outstanding. Diluted earnings per share is computed using the weighted average number of common shares plus dilutive common share equivalents outstanding during the period using the treasury stock method. Due to the net loss during the quarter and six months ended November 30, 1998, the same number of shares were used to compute both basic and diluted earnings per share. Note 3: Aeromet Acquisition On July 30, 1998, the Company's indirect wholly-owned subsidiary, Pacific Aerospace and Electronics (U.K.) Limited, closed the purchase of Aeromet International PLC ("Aeromet") pursuant to a Share Acquisition Agreement. In consideration for the purchase, the Company paid the seller 42 million pounds sterling (or approximately US $69 million) in cash. Aeromet is located in the United Kingdom. At the purchase date, the total purchase price of Aeromet including capitalized costs of the acquisition was $72.7 million, including $32.6 million in net assets (current assets of $30.6 million; property plant and equipment of $18.1 million; current liabilities of $14.5 million; long term liabilities of $1.7 million) and resultant goodwill of $40.1 million. Accounting policies at Aeromet have been conformed to generally accepted accounting principles consistent with those of the Company. Goodwill is being amortized over 40 years. Step-up in the valuation of property, plant and equipment to fair market value is being amortized over the estimated useful lives of the assets, generally 7 to 10 years. For balance sheet purposes, the Company has translated UK valuations to US dollars for Aeromet using the translation at the balance sheet date. For statement of operations purposes, the revenues and expenses have been reported at average transaction rates on a monthly basis. Income tax rates have been estimated at the prevailing rates in the UK. The Company has also filed a Form 8-K with corresponding disclosures on August 14, 1998. The following summary, prepared on a pro forma basis, presents the unaudited consolidated condensed results of operations of the Company, as if the Aeromet acquisition was made as of the first day of the quarter and six months being reported and the comparable periods in the previous year.
Quarters Ended November 30, Six Months Ended November 30, ---------------------------- ---------------------------- 1998 1997 1998 1997 ------------ ------------ ------------ ------------ (in thousands, except per share amounts) Net sales $ 30,477 $ 25,581 $ 59,237 $ 49,497 Net income (loss) $ (2,575) $ 106 $ (8,044) $ (943) Net income (loss) per share: Basic $ (.15) $ .01 $ (.50) $ (.08) Diluted $ (.15) $ .01 $ (.50) $ (.08)
These pro forma results are not necessarily indicative of the actual results of operations that would have occurred had the Aeromet acquisition been consummated as of the dates indicated, nor are they intended to indicate results that may occur in the future. Note 4: Inventories Components of inventories are as follows: November 30, May 31, 1998 1998 -------------- -------------- Raw materials $ 8,009,000 $ 5,789,000 Work in progress 13,566,000 5,683,000 Finished goods 5,490,000 4,712,000 -------------- -------------- Total $ 27,065,000 $ 16,184,000 -------------- -------------- -7- Note 5: Investment At November 30, 1998, the Company's investment in the common stock of a public company, determined in accordance with Statement of Financial Accounting Standards No. 115, is shown net of a reserve for additional loss exposure related to the Company's guarantee of certain debt of the public company and other related matters. Note 6: 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, were issued by the parent corporation, Pacific Aerospace & Electronics, Inc., and have been guaranteed by all of its domestic subsidiaries, which are wholly-owned by the parent corporation. 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. -8-
Pacific Aerospace & Electronics, Inc. Consolidating Condensed Balance Sheet November 30, 1998 NON- GUARANTOR GUARANTOR PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED ------------ ------------ ------------ ------------- ------------ ASSETS - ------ CURRENT ASSETS Cash and cash equivalents $ 9,939,000 $ 3,382,000 $ 3,071,000 $ - $ 16,392,000 Accounts receivable, net - 7,565,000 14,269,000 (507,000) 21,327,000 Inventories - 14,793,000 12,272,000 - 27,065,000 Other 922,000 340,000 706,000 - 1,968,000 ------------ ------------ ------------ ------------- ------------ Total current assets 10,861,000 26,080,000 30,318,000 (507,000) 66,752,000 PROPERTY, PLANT, AND EQUIPMENT, net 4,802,000 23,623,000 17,858,000 - 46,283,000 OTHER ASSETS Costs in excess of net book value of acquired subsidiaries, net - 2,822,000 40,072,000 - 42,894,000 Investment in subsidiaries 54,128,000 - - (54,128,000) - Investment in common stock, net 2,719,000 - - - 2,719,000 Intercompany note and loan receivable 61,637,000 - 85,000 (61,722,000) - Other 9,007,000 663,000 (939,000) - 8,731,000 ------------ ------------ ------------ ------------- ------------ Total other assets 127,491,000 3,485,000 39,218,000 (115,850,000) 54,344,000 ------------ ------------ ------------ ------------- ------------ TOTAL ASSETS $143,154,000 $ 53,188,000 $ 87,394,000 $(116,357,000) $167,379,000 ============ ============ ============ ============= ============ LIABILITIES AND SHAREHOLDERS' EQUITY - ------------------------------------ CURRENT LIABILITIES Accounts payable $ 585,000 $ 3,720,000 $ 8,505,000 $ (507,000) $ 12,303,000 Current portion of long-term debt 123,000 763,000 - - 886,000 Other 3,027,000 824,000 4,526,000 - 8,377,000 ------------ ------------ ------------ ------------- ------------ Total current liabilities 3,735,000 5,307,000 13,031,000 (507,000) 21,566,000 LONG-TERM LIABILITIES Long-term debt, net of current portion 76,460,000 4,424,000 - - 80,884,000 Intercompany note and loan payable 85,000 24,137,000 37,500,000 (61,722,000) - Other - 1,170,000 885,000 - 2,055,000 ------------ ------------ ------------ ------------- ------------ Total long-term liabilities 76,545,000 28,792,000 38,385,000 (61,722,000) 82,939,000 SHAREHOLDERS' EQUITY Convertible preferred stock - - - - - Common stock 19,000 21,546,000 35,268,000 (56,814,000) 19,000 Additional paid-in capital 70,781,000 - - - 70,781,000 Accumulated other comprehensive income 326,000 - 326,000 (326,000) 326,000 Retained earnings (accumulated deficit) (8,252,000) (3,396,000) 384,000 3,012,000 (8,252,000) ------------ ------------ ------------ ------------- ------------ Total shareholders' equity 62,874,000 18,150,000 35,978,000 (54,128,000) 62,874,000 ------------ ------------ ------------ ------------- ------------ TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $143,154,000 $ 53,188,000 $ 87,394,000 $(116,357,000) $167,379,000 ============ ============ ============ ============= ============
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Pacific Aerospace & Electronics, Inc. Consolidating Condensed Balance Sheet May 31, 1998 NON- GUARANTOR GUARANTOR PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED ------------ ------------ ------------ ------------- ------------ ASSETS - ------ CURRENT ASSETS Cash and cash equivalents $ 9,398,000 $ 2,063,000 - $ - $ 11,461,000 Accounts receivable, net - 9,608,000 - (233,000) 9,375,000 Inventories - 16,184,000 - - 16,184,000 Other 12,000 646,000 - - 658,000 ------------ ------------ ------------ ------------- ------------ Total current assets 9,410,000 28,501,000 - (233,000) 37,678,000 PROPERTY, PLANT, AND EQUIPMENT, net 3,464,000 22,871,000 - - 26,335,000 OTHER ASSETS Costs in excess of net book value - 6,515,000 - - 6,515,000 of acquired subsidiaries, net Investment in subsidiaries 21,452,000 - - (21,452,000) - Investment in common stock, net 4,579,000 - - - 4,579,000 Intercompany loan receivable 19,764,000 - - (19,764,000) - Other 2,852,000 621,000 - - 3,473,000 ------------ ------------ ------------ ------------- ------------ Total other assets 48,808,000 6,975,000 - (41,216,000) 14,567,000 ------------ ------------ ------------ ------------- ------------ TOTAL ASSETS $ 61,682,000 $ 58,347,000 - $ (41,449,000) $ 78,580,000 ============ ============ ============ ============= ============ LIABILITIES AND SHAREHOLDERS' EQUITY - ------------------------------------ CURRENT LIABILITIES Accounts payable $927,000 $ 6,054,000 - $ (233,000) $ 6,748,000 Current portion of long-term debt 24,000 1,003,000 - - 1,027,000 Other 623,000 3,681,000 - - 4,304,000 ------------ ------------ ------------ ------------- ------------ Total current liabilities 1,413,000 10,899,000 - (233,000) 12,079,000 LONG-TERM LIABILITIES Long-term debt, net of current 4,127,000 4,932,000 - - 9,059,000 portion Intercompany loan payable - 19,764,000 - (19,764,000) - Other - 1,300,000 - - 1,300,000 ------------ ------------ ------------ ------------- ------------ Total long-term liabilities 4,127,000 25,996,000 - (19,764,000) 10,359,000 SHAREHOLDERS' EQUITY Convertible preferred stock - - - - - Common stock 15,000 - - - 15,000 Additional paid-in capital 57,830,000 21,546,000 - (21,546,000) 57,830,000 Accumulated other comprehensive loss (436,000) - - - (436,000) Retained earnings (accumulated deficit) (1,267,000) (94,000) - 94,000 (1,267,000) ------------ ------------ ------------ ------------- ------------ Total shareholders' equity 56,142,000 21,452,000 - (21,452,000) 56,142,000 ------------ ------------ ------------ ------------- ------------ TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 61,682,000 $ 58,347,000 - $ (41,449,000) $ 78,580,000 ============ ============ ============ ============= ============
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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 (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 (805,000) - (805,000) 805,000 (805,000) (loss) ------------ ------------ ------------ ------------- ------------ 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 quarter ended November 30, 1997 NON- GUARANTOR GUARANTOR PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED ------------ ------------ ------------ ------------- ------------ Net sales $ - $ 12,623,000 - $ (196,000) $ 12,427,000 Cost of sales - 9,280,000 - (196,000) 9,084,000 ------------ ------------ ------------ ------------- ------------ Gross profit - 3,343,000 - - 3,343,000 Operating expenses 641,000 1,961,000 - (451,000) 2,151,000 ------------ ------------ ------------ ------------- ------------ Income from operations (641,000) 1,382,000 - 451,000 1,192,000 Other income (expense) Parent's share of subsidiaries' net income 914,000 - - (914,000) - Interest expense (76,000) (123,000) - - (199,000) Other 480,000 15,000 - (451,000) 44,000 ------------ ------------ ------------ ------------- ------------ Total other income (expense) 1,318,000 (108,000) - (1,365,000) (155,000) ------------ ------------ ------------ ------------- ------------ Income before income taxes 677,000 1,274,000 - (914,000) 1,037,000 Income tax benefit (expense) 153,000 (360,000) - - (207,000) ------------ ------------ ------------ ------------- ------------ Net income 830,000 914,000 - (914,000) 830,000 Other comprehensive income (loss) - - - - - ------------ ------------ ------------ ------------- ------------ Comprehensive income $ 830,000 $ 914,000 - $ (914,000) $ 830,000 ============ ============ ============ ============= ============
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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 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) ============ ============ ============ ============= ============
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Pacific Aerospace & Electronics, Inc. Consolidating Condensed Statement of Operations For the six months ended November 30, 1997 NON- GUARANTOR GUARANTOR PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED ------------ ------------ ------------ ------------- ------------ Net sales $ - $ 24,514,000 - $ (311,000) $ 24,203,000 Cost of sales - 18,187,000 - (311,000) 17,876,000 ------------ ------------ ------------ ------------- ------------ Gross profit - 6,327,000 - - 6,327,000 Operating expenses 1,101,000 3,868,000 - (811,000) 4,158,000 ------------ ------------ ------------ ------------- ------------ Income (loss) from operations (1,101,000) 2,459,000 - 811,000 2,169,000 Other income (expense) Parent's share of subsidiaries' net income 1,867,000 - - (1,867,000) - Interest expense (100,000) (229,000) - - (329,000) Other 857,000 23,000 - (811,000) 69,000 ------------ ------------ ------------ ------------- ------------ Total other income (expense) 2,624,000 (206,000) - (2,678,000) (260,000) ------------ ------------ ------------ ------------- ------------ Income before income taxes 1,523,000 2,253,000 - (1,867,000) 1,909,000 Income tax benefit (expense) 117,000 (386,000) - - (269,000) ------------ ------------ ------------ ------------- ------------ Net income 1,640,000 1,867,000 - (1,867,000) 1,640,000 Other comprehensive income (loss) - - - - - ------------ ------------ ------------ ------------- ------------ Comprehensive income $ 1,640,000 $ 1,867,000 - $ (1,867,000) $ 1,640,000 ============ ============ ============ ============= ============
-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) $ (2,748,000) $ 1,080,000 $ 187,000 $ 1,297,000 $ (184,000) operating activities 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) - - - (69,146,000) Other changes, net (6,869,000) - 3,027,000 3,842,000 - ------------ ------------ ------------ ------------- ------------ Net cash provided by (used in) (76,794,000) (2,327,000) 2,541,000 3,842,000 (72,738,000) investing activities CASH FLOW FROM FINANCING ACTIVITIES: Payments on long-term debt and (4,084,000) (727,000) (13,000) - (4,824,000) capital leases Proceeds from long-term debt 72,622,000 - - - 72,622,000 Proceeds from sale of common stock, 4,838,000 - - - 4,838,000 net Proceeds from sale of preferred 6,707,000 - - - 6,707,000 stock, net Other changes, net 3,293,000 335,000 (5,139,000) (1,511,000) ------------ ------------ ------------ ------------- ------------ Net cash provided by (used in) 80,083,000 2,566,000 322,000 (5,139,000) 77,832,000 financing activities ------------ ------------ ------------ ------------- ------------ 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 128,000 162,000 - - 290,000 property, plant and equipment
-15-
Pacific Aerospace & Electronics, Inc. Consolidating Condensed Statement of Cash Flows For the six months ended November 30, 1997 NON- GUARANTOR GUARANTOR PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED ------------ ------------ ------------ ------------- ------------ CASH FLOW FROM OPERATING ACTIVITIES: Net cash provided by (used in) operating activities $ (99,000) $ 2,721,000 - $ (1,106,000) $ 1,516,000 CASH FLOW FROM INVESTING ACTIVITIES: Acquisition of property, plant and (1,874,000) (2,296,000) - - (4,170,000) equipment Issuance of notes receivable (5,808,000) - - - (5,808,000) Other changes, net 21,000 (650,000) 829,000 200,000 ------------ ------------ ------------ ------------- ------------ Net cash provided by (used (7,661,000) (2,946,000) - 829,000 (9,778,000) in) investing activities CASH FLOW FROM FINANCING ACTIVITIES: Payments on long-term debt and capital leases (125,000) 1,930,000 - - (1,000,000) Proceeds from long-term debt and convertible notes 9,316,000 1,943,000 - - 11,246,000 Proceeds from sale of common stock, net 2,240,000 - - - 2,240,000 Other changes, net 857,000 38,000 - 277,000 1,172,000 ------------ ------------ ------------ ------------- ------------ Net cash provided by (used 12,288,000 1,093,000 - 277,000 13,658,000 in) financing activities NET CHANGE IN CASH 4,528,000 868,000 - - 5,396,000 CASH AT BEGINNING OF PERIOD 2,063,000 985,000 - - 3,048,000 EFFECT OF EXCHANGE RATES ON CASH - - - - - ------------ ------------ ------------ ------------- ------------ CASH AT END OF PERIOD $ 6,591,000 $ 1,853,000 - $ - $ 8,444,000 ============ ============ ============ ============= ============ SUPPLEMENTAL CASH FLOW: Cash paid during the period for: Interest $ 24,000 $ 233,000 - $ - $ 257,000 Income taxes 246,000 - - - 246,000
-16- Inventories consist of the following: November 30, May 31, 1998 1998 -------------- -------------- Guarantor subsidiaries Raw materials $ 4,551,000 $ 5,789,000 Work in progress 5,447,000 5,683,000 Finished goods 4,795,000 4,712,000 -------------- -------------- $ 14,793,000 $ 16,184,000 ============== ============== Non-guarantor subsidiaries Raw materials $ 3,458,000 - Work in progress 8,119,000 - Finished goods 695,000 - -------------- -------------- $ 12,272,000 - ============== ============== -17- 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 its results of operations have been substantially affected by acquisitions. These acquisitions, as well as internal growth in the Company's existing and acquired businesses, have resulted in substantial increases in net sales. The Company's operating expenses and margins and other expenses also have been affected by certain expenses directly associated with the acquisitions and related capital raising transactions. The Company has experienced substantial increases in all other expense categories as a result of the increases in its operations. A portion of these expenses is attributable to the assimilation of acquired operations into the Company's existing businesses. In July 1998, the Company acquired Aeromet International plc ("Aeromet"), a British limited company (the "Aeromet Acquisition"). Aeromet 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 will have a significant effect on the Company's future operations and on comparisons of income, expense and balance sheet items in periods after fiscal 1998. The Company's financial results for the six months ended November 30, 1998 include only four months of operations of Aeromet. Substantially all of the Company's revenues are 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 commercial aerospace and defense industries are cyclical in nature and subject to changes based on general economic conditions and commercial airline industry, defense and government spending. The Company's operations focus on developing, manufacturing and marketing high performance electronics and metal components and assemblies. The Company's electronics products are characterized by relatively low volumes and high margins. In comparison, volumes have historically been higher and margins lower for the Company's metals products. The Company believes that margins will remain higher for electronic products than for its metals products. Assembled products incorporating both electronics and metal parts are expected to generate margins closer to, but not as high as, electronics product margins. As a result of margin differences, changes in product mix among its electronics, assembled and metals products can be expected to affect overall margins for the Company. The Company's 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. Management believes that the Company's operations for the periods discussed have not been adversely affected by inflation. -18- Results of Operations Quarter Ended November 30, 1998 Compared to Quarter Ended November 30, 1997 Net Sales. Net sales increased by $18.1 million, or 146%, to $30.5 million for the quarter ended November 30, 1998, from $12.4 million for the quarter ended November 30, 1997. This increase included increases in both its aerospace industry group net sales (a $16.0 million increase) and its electronics industry group net sales (a $2.0 million increase). The increase in the Company's net sales to the aerospace industry was attributable to the inclusion of three months of Aeromet sales which were offset slightly by slowdowns in delivery of Boeing orders. Boeing is slowing the timetable of deliveries to better match its production schedule. The Company expects that this slowdown could continue into the third and fourth quarters of this fiscal year. The increase in the Company's net sales to the electronics industry was attributable to the acquisition in February 1998 of Balo Precision Parts, Inc. ("Balo") and the acquisition effective as of March 1998 of Electronic Specialty Corporation ("ESC"). Net sales by Balo, ESC and Aeromet for the second quarter of fiscal 1999 were $1.0 million, $1.1 million, and $16.1 million, respectively. Gross Profit. Gross profit increased by $1.5 million, or 45.5%, to $4.8 million for the quarter ended November 30, 1998, from $3.3 million for the quarter ended November 30, 1997. As a percentage of net sales, gross profit decreased to 15.8% for the quarter ended November 30, 1998, from 26.9% for the quarter ended November 30, 1997. This decrease was primarily attributable to (a) the acquisitions of ESC and Aeromet, which have comparatively lower average gross profit margins, and (b) a $1.6 million non-recurring inventory write down at ESC due to discontinuation of an unprofitable product line. The impaired inventory would have been used in certain product lines that are no longer going to be produced at ESC. ESC may be able to incorporate some of the impaired material in continuing products, but only as a substitute for less expensive material. Without ESC and Aeromet, gross profit as a percentage of net sales would have decreased to 26.2% for the quarter ended November 30, 1998, primarily because of increased price competition in the electronics industry group. Gross profit (loss) attributable to Balo, ESC and Aeromet for the second quarter of fiscal 1999 was $0.3 million, $(1.7 million) and $3.0 million, respectively. Operating Expenses. Operating expenses increased by $2.2 million, or 100.0%, to $4.4 million for the quarter ended November 30, 1998, from $2.2 million for the quarter ended November 30, 1997. This increase was primarily due to increased levels of operations in the second quarter of fiscal 1999, resulting primarily from acquisitions. As a percentage of net sales, operating expenses decreased to 14.3% for the quarter ended November 30, 1998, from 17.3% for the quarter ended November 30, 1997. This decrease is primarily attributable to the acquisition of Aeromet, which has relatively low operating expenses in relation to net sales. Operating expenses attributable to Balo, ESC and Aeromet for the second quarter of fiscal 1999 were $0.3 million, $0.2 million and $1.1 million, respectively. Interest Expense. Interest expense increased by $2.5 million, or 1,250%, to $2.7 million for the quarter ended November 30, 1998, from $0.2 million for the quarter ended November 30, 1997. This increase was primarily due to (a) the debt incurred by the Company to finance the Aeromet Acquisition, (b) the Company's financing of capital equipment purchases, and (c) the bank debt incurred to finance the expansion of the Company's Wenatchee facilities. Interest expense attributable to Balo, ESC and Aeromet for the second quarter of fiscal 1999 was $0.0 million, $0.0 million and $1.4 million, respectively. Aeromet interest expense includes approximately 50% of the interest attributable to the acquisition financing, which has been allocated to Aeromet. Other Income (Expense). Other income (expense) represents non-recurring and non-operational income and expense for the period. Other income decreased $213,000 to an other expense of $197,000 for the quarter ended November 30, 1998, from other income of $16,000 for the quarter ended November 30, 1997. Other income (expense) attributable to Balo, ESC, and Aeromet for the second quarter of fiscal 1999 was $0.0 million, $(0.2) million and $0.0 million, respectively. Net Income (Loss). Net income decreased by $3.4 million, or 425%, to a net loss of $2.6 million for the quarter ended November 30, 1998, from net income of $0.8 million for the quarter -19- ended November 30, 1997, primarily as a result of losses at ESC and additional interest expense on the financing for the acquisition of Aeromet. Pre-tax net income (loss) attributable to Balo, ESC and Aeromet for the second quarter of fiscal 1999 was $0.1 million, $(2.2) million and $0.5 million, respectively. Aeromet pre-tax net income includes amortization of goodwill, and approximately 50% of the interest expense associated with the acquisition indebtedness. Six Months Ended November 30, 1998 Compared To Six Months Ended November 30, 1997 Net Sales. Net sales increased by $25.5 million, or 105.2%, to $49.7 million for the six months ended November 30, 1998, from $24.2 million for the six months ended November 30, 1997. This increase included increases in both the Company's aerospace industry group net sales (a $21.5 million increase) and its electronics industry group net sales (a $4.0 million increase). The increase in the Company's net sales to the aerospace industry was attributable to (a) the inclusion of four months of Aeromet sales, and (b) increases in the first quarter of production at Boeing which increased its demand for the Company's precision cast and machined products. However, Boeing began slowing the timetable for deliveries of product during the second quarter of fiscal 1999 to better match its production schedule. This slowdown negatively affected revenue in the aerospace industry group during the quarter ended November 30, 1998. The Company expects that the slowdown could continue to negatively affect net sales for the aerospace group in the third and fourth quarters of fiscal 1999. The increase in the Company's net sales to the electronics industry was primarily attributable to the acquisition in February 1998 of Balo and the acquisition effective as of March 1998 of ESC. Net sales by Balo, ESC and Aeromet for the first six months of fiscal 1999 were $1.9 million, $2.2 million, and $20.6 million, respectively. Gross Profit. Gross profit increased by $3.2 million, or 50.8%, to $9.5 million for the six months ended November 30, 1998, from $6.3 million for the six months ended November 30, 1997. As a percentage of net sales, gross profit decreased to 19.1% for the six months ended November 30, 1998, from 26.1% for the six months ended November 30, 1997. This decrease was primarily attributable to (a) the acquisitions of ESC and Aeromet, which have comparatively lower average gross profit margins and (b) a $1.6 million non-recurring write down of impaired inventory at ESC. The impaired inventory would have been used in certain product lines that are no longer going to be produced at ESC. ESC may be able to incorporate some of the impaired material in continuing products, but only as a substitute for less expensive material. Without ESC and Aeromet, gross profit as a percentage of net sales would have increased to 28.3% for the six months ended November 30, 1998, primarily because of improved efficiencies from the development of manufacturing processes and in-house production capabilities that had previously been purchased from outside vendors, and because of capital investments in equipment and production capabilities. Gross profit (loss) attributable to Balo, ESC and Aeromet for the first six months of fiscal 1999 was $0.4 million, $(1.9) million and $3.8 million, respectively. Operating Expenses. Operating expenses increased by $4.0 million, or 97.6%, to $8.1 million for the six months ended November 30, 1998, from $4.1 million for the six months ended November 30, 1997. This increase was primarily due to increased levels of operations in fiscal 1999 resulting primarily from acquisitions. As a percentage of net sales, operating expenses decreased to 16.4% for the six months ended November 30, 1998, from 17.2% for the six months ended November 30, 1997. This decrease is primarily attributable to the acquisition of Aeromet, which had lower than average operating expenses in relation to net sales. Operating expenses attributable to Balo, ESC and Aeromet for the first six months of fiscal 1999 were $0.8 million, $0.5 million and $1.2 million, respectively. Interest Expense. Interest expense increased by $3.4 million, or 1,042.3%, to $3.7 million for the six months ended November 30, 1998, from $0.3 million for the six months ended November 30, 1997. This increase was primarily due to (a) the debt incurred by the Company to finance the Aeromet Acquisition, (b) the Company's financing of capital equipment purchases, and (c) the debt incurred to finance the expansion of the Company's Wenatchee facilities. Interest expense attributable to Balo, ESC and Aeromet for the first six months of fiscal 1999 was $0.0 million, $0.1 million and $1.4 million, respectively. Interest expense for Aeromet includes approximately 50% of the interest associated with the acquisition financing, which has been allocated to Aeromet. -20- Other Income (Expense). Other income (expense) represents non-recurring and non-operational income and expense for the period. Other income decreased $6.9 million to an other expense of $6.9 million for the six months ended November 30, 1998. This decrease in other income was primarily due to: (a) a $3,581,000 write-down during the quarter ended August 31, 1998 in connection with ESC, and (b) a $3,103,000 write-down during the quarter ended August 31, 1998 of the Company's investment in and guarantees related to Orca Technologies, Inc. ("Orca"). The Company is presently considering its options regarding its investments in ESC and Orca, and additional losses in the future are reasonably possible. The Company is also exploring its potential remedies under the ESC purchase agreement. Other income (expense) attributable to Balo, ESC (exclusive of the write-down discussed above), and Aeromet for the first six months of fiscal 1999 was $0.1 million, $(0.3) million and $0.0 million, respectively. Net Income (Loss). Net income decreased by $8.6 million, or 537.5%, to a net loss of $7.0 million for the six months ended November 30, 1998, from net income of $1.6 million for the six months ended November 30, 1997, primarily as a result of (a) the ESC goodwill, ESC impaired inventory, and Orca write-downs, and (b) the operating losses at Balo and ESC. Pre-tax net income (loss) attributable to Balo, ESC and Aeromet for the first six months of fiscal 1999 was $(0.3) million, $(6.4) million and $0.8 million, respectively. Aeromet pre-tax net income includes amortization of goodwill and approximately 50% of the interest expense associated with the acquisition indebtedness. Deferred Tax Assets. At November 30, 1998, the Company had net deferred tax assets of $2.1 million, the realization of which is dependent on material increases over present levels of pre-tax income and capital gains, primarily in the United States. The Company expects to achieve these increases through (a) continued integration, cross selling, and operational efficiencies of its businesses, including Aeromet, and (b) future asset sales. A deferred tax asset was recognized during the quarter ended August 31, 1998, however, no deferred tax asset was recognized during the quarter ended November 30, 1998. Liquidity and Capital Resources Financing Activities. During the quarter ended November 30, 1998, the Company completed a private placement of 2,585,000 shares of common stock, generating net cash of approximately $4.8 million. See "Significant Events During Quarter -- Fall 1998 Common Stock Offering." Cash generated by this financing transaction was offset by payments on long-term debt and capital leases of $4.5 million during the quarter. The Company's primary banking relationships include a revolving line of credit up to $6.3 million for the Company's U.S. operations, a revolving line of credit up to approximately $7.5 million (4.5 million pounds sterling) for Aeromet's operations, a term loan of approximately $700,000 for building improvements, and a term loan of $1.2 million for the construction of the Company's headquarters building. Currently both revolving lines of credit are unused. Capital Expenditures and Commitments. The Company made capital expenditures of $2.0 million during the second quarter of fiscal 1999. The expenditures were for the completion of the new corporate headquarters, and for capital improvements and equipment at various manufacturing sites. The Company's Balo subsidiary closed the purchase of its manufacturing facility, which Balo had previously been renting, for a purchase price of approximately $1.1 million in early December 1998. Also in early December 1998, the Company's Aeromet America, Inc. subsidiary purchased substantially all the assets of Lyden Castparts, Inc. ("Lyden") from a related party. The purchase price consisted of approximately $642,000 of Lyden's liabilities which the Company paid off, plus approximately $300,000 in assumed liabilities consisting primarily of trade payables. The Company is currently negotiating an agreement that would give it the option to purchase three parcels of land that make up the majority of its Wenatchee campus from the Port of Chelan County for $5.4 million. Upon execution of that agreement, the Company anticipates that the purchase of the first parcel would close in January 1999. If the Company exercises its options to purchase both of the remaining two parcels, the purchase of the second parcel is expected to close by August 31, 1999 and the third is expected to close by June 10, 2000. In connection with the -21- Aeromet Acquisition, the Company entered into an Option Agreement with Charles Baynes plc, which grants the Company a one-year option to purchase three of the facilities currently leased by Aeromet. As of November 30, 1998, the Company had no other material commitments outstanding for purchases of additional capital assets. Working Capital. The Company's working capital, as of November 30, 1998 and May 31, 1998 was $45.2 million and $25.6 million, respectively. The increase in working capital at November 30, 1998 over May 31, 1998 was primarily the result of the Aeromet Acquisition and the associated financing, the sale of the Series B Convertible Preferred Stock, and the sale of common stock. Future Capital Requirements. The Company believes that the net proceeds from its fall 1998 common stock offering, plus cash from operations, will be sufficient to meet the Company's operating cash requirements and to fund budgeted capital expenditures for fiscal 1999. The Company may, however, decide to seek additional financing in the future to fund capital expenditures after fiscal 1999, fund possible acquisition opportunities, or to fund the eventual redemption or repayment of the notes used to finance the Aeromet acquisition. Foreign Currency Translation. With the acquisition of Aeromet, whose functional currency is the British Pound Sterling, the Company translates the activity of Aeromet into U.S. Dollars on a monthly basis. The balance sheet of Aeromet is translated using the exchange rate as of the date of the balance sheet. For purposes of the statement of operations and statement of cash flows, the Company uses the weighted average exchange rate for the period. The value of the Company's assets, liabilities, revenue, and expenses may vary materially from one reporting period to the next solely as a result of varying exchange rates. The Company is in the process of developing a comprehensive foreign currency hedging policy but has not entered into any hedging activity as of November 30, 1998. The Company does not expect any material changes in the results of operations or in operating procedures due to the conversion to the "Euro" by eleven countries in the European Union on January 1, 1999. The Company expects to continue to transact business using primarily the U.S. Dollar and the British Pound Sterling. Significant Events During Quarter Reduction of Long-Term Debt. During September 1998, the Company paid off a note in the amount of $4.0 million. In connection with the payoff the Company accelerated recognition of $160,000 of related loan fees, which is included in interest expense for the second quarter of fiscal 1999. Fall 1998 Common Stock Offering. In November 1998, the Company closed an offering (the "Offering") of 2,585,000 shares of Common Stock to five accredited investors for aggregate offering proceeds of $5,170,000 before expenses, in a transaction exempt from registration under Rule 506 under the Securities Act of 1933, as amended. The Company paid $310,200 in commissions in connection with the Offering. The Company has agreed to use its best efforts to file a registration statement within 180 days after the closing date to register the resale of the shares sold in the Offering. Proposed Nova-Tech Acquisition. In November 1998, the Company entered into a non-binding letter of intent to acquire NOVA-TECH Engineering, Inc. of Edmonds, Washington ("Nova-Tech") for a purchase price of approximately $7 million in cash and Common Stock. Nova-Tech is a professional engineering group that designs and manufactures specialized manufacturing equipment, primarily for the aerospace industry. Closing of the Nova-Tech acquisition is subject to a number of conditions, including the execution of a definitive agreement, receipt of a letter ruling from the IRS relating to Nova-Tech's employee stock ownership plan, and satisfactory completion of the Company's due diligence review, among other things. Due to these -22- conditions, the Company does not expect to be in a position to close the acquisition until spring or summer of 1999. Year 2000 The Company (including Aeromet) is developing and carrying out a comprehensive strategy for updating its information management and manufacturing systems for Year 2000 ("Y2K") compliance. The Company's information technology ("IT") systems include customized and standard software purchased from outside vendors. All software has been identified and is being assessed to determine the extent of renovations required in order to be Y2K compliant. The Company believes that all software will be made Y2K compliant early in the next fiscal year through vendor-provided updates or replacement with other Y2K compliant hardware and software. The Company is in the process of identifying significant non-IT systems which may be impacted by the Y2K problem, including those relating to production, processing and communication equipment and is in the process of determining through inquiries of equipment suppliers, as well as testing of such equipment, the extent of renovations required, if any. The Company believes its Y2K assessment will be completed before the end of the Company's current fiscal year, and that renovation, validation and implementation will be completed early in the next fiscal year. The Company is in the process of identifying third parties with which it has a significant relationship that, in the event of a Y2K failure, could have a material impact on the Company's financial position or operating results. The third parties include energy and utility suppliers, creditors, material and product suppliers, communication vendors and the Company's significant customers. These relationships, especially those associated with certain suppliers and customers, are material to the Company, and a Y2K failure by one or more of these parties could result in a material adverse effect on the Company's operating results and financial position. The Company is making inquiries of these third parties to assess their Y2K readiness. The Company expects that this process will continue throughout the current and subsequent fiscal year. The Company expects that costs to address Y2K issues will total approximately $250,000, of which approximately $125,000 will be spent in fiscal 1999, with the remainder being spent during fiscal 2000. Costs include salary and benefits for personnel, hardware and software costs, and consulting and travel expenses associated, directly or indirectly, with addressing Y2K issues. Y2K issues have received a high priority within the Company and, as a result, certain other IT projects have been delayed. While such non-Y2K projects are expected to enhance operational efficiencies and improve the quality of information available to management, the delay of such projects is not expected to have a material adverse impact on the Company's operations. Worst case Y2K scenarios could be as insignificant as a minor interruption in production or shipping resulting from unanticipated problems encountered in the IT systems of the Company or any of the significant third parties with whom the Company does business. The pervasiveness of the Y2K issue makes it likely that previously unidentified issues will require remediation during the normal course of business. In such a case, the Company anticipates that transactions could be processed manually while IT and other systems are repaired and that such interruptions would have a minor effect on the Company's operations. On the other hand, a worst case Y2K scenario could be as catastrophic as an extended loss of utility service resulting from interruptions at the point of power generation, long-line transmission, or local distribution to the Company's production facilities. Such an interruption could result in an inability to provide products to the Company's customers, resulting in a material adverse effect on the Company's operating results and financial position. The Company is in the process of developing a contingency plan in the event of a catastrophic Y2K problem and expects to have a plan in place early in the next fiscal year. New Accounting Pronouncements In June 1997, the Financial Accounting Standards Board ("FASB") issued Statements of Financial Accounting Standards ("SFAS") No. 130, Reporting Comprehensive Income. SFAS No. 130 establishes standards for reporting and disclosure of comprehensive income and its components (revenues, expenses, gains and losses) in a full set of general-purpose financial statements. SFAS No. 130, which is effective for fiscal years beginning after December 15, 1997, requires restatement of financial statements for earlier periods to be provided for comparative purposes. The Company anticipates that implementing the provisions of SFAS No. 130 will not have a significant -23- impact on the Company's existing disclosures. The Company has not determined the manner in which it will present the information required by SFAS No. 130 in its annual financial statements. In June 1997, the FASB issued SFAS No. 131, Disclosure About Segments of an Enterprise and Related Information. SFAS No. 131 establishes standards for the way that public business enterprises report information about operating segments. It also establishes standards for related disclosures about products and services, geographic areas and major customers. SFAS No. 131 is effective for fiscal years beginning after December 15, 1997. In the initial year of application, comparative information for earlier years must be restated. The Company anticipates that implementing the provisions of SFAS No. 131 will not have a significant impact on the Company's existing disclosures. The Company has not determined the manner in which it will present the information required by SFAS No. 131 in its annual financial statements. In June 1998, the FASB 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 is effective for fiscal years beginning after June 15, 1999. The Company has not yet determined what impact SFAS No. 133 will have on its financial position or results of operations when such statement is adopted. -24- 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, 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. (c) Fall 1998 Common Stock Offering In November 1998, the Company closed an offering (the "Offering") of 2,585,000 shares of Common Stock to five accredited investors for aggregate offering proceeds of $5,170,000 before expenses, in a transaction exempt from registration under Rule 506 under the Securities Act of 1933, as amended. The Company paid $310,200 in commissions in connection with the Offering. The Company has agreed to use its best efforts to file a registration statement with 180 days after the closing date to register the resale of the shares sold in the Offering. 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 13, 1998. 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 1999 Annual Meeting of Shareholders:
BROKER DIRECTOR FOR AGAINST ABSTAIN NON-VOTES - ------------------------------- ------------ ------------ ------------ ------------ Allen W. Dahl 14,379,985 42,397 52,590 0 Urs Diebold 14,197,593 224,789 52,590 0 Werner Hafelfinger 14,198,518 223,864 52,590 0 Dale L. Rasmussen 14,212,718 209,664 52,590 0 William A. Wheeler 14,215,718 206,664 52,590 0 Donald A. Wright 14,219,256 203,126 52,590 0
-25- (b) Approval of Amended and Restated Independent Director Stock Plan The Company's Amended and Restated Independent Director Stock Plan, as described in the Company's proxy materials for the Annual Meeting, was approved by the following vote: For 13,276,326 Against 1,079,034 Abstain 119,612 Broker Non-Votes 0 Total 14,474,972 (c) Ratification of KPMG Peat Marwick LLP as the Company's Independent Auditor The selection of KPMG Peat Marwick LLP as the Company's independent auditor was ratified by the following vote: For 14,361,317 Against 56,073 Abstain 57,582 Broker Non-Votes 0 Total 14,474,972 Item 5. Other Information None. -26- Item 6. Exhibits and Reports on Form 8-K a. Exhibits. The following documents are filed as exhibits to this Quarterly Report: Exhibit Number Document - ------- -------- 3.1 Articles of Incorporation of Pacific Aerospace & Electronics, Inc. (1) 3.2 Amendment to Articles of Incorporation containing Designation of Rights and Preferences of Series A Convertible Preferred Stock, as corrected. (2) 3.3 Amendment to Articles of Incorporation containing Designation of Rights and Preferences of Series B Convertible Preferred Stock. (3) 3.4 Bylaws of Pacific Aerospace & Electronics, Inc. (1) 4.1 Form of specimen certificate for the Series B Preferred.(3) 4.2 Form of Common Stock Purchase Warrant issued to holders of the Series B Preferred.(3) 4.3 Securities Purchase Agreement, dated May 15, 1998, between Pacific Aerospace & Electronics, Inc. and the purchasers of the Company's Series B Preferred.(3) 4.4 Registration Rights Agreement, dated May 15, 1998 between Pacific Aerospace & Electronics, Inc. and the holders of the Series B Preferred.(3) 4.5 Purchase Agreement, dated as of July 23, 1998, between Pacific Aerospace & Electronics, Inc., Balo Precision Parts, Inc., Cashmere Manufacturing Co., Inc., Ceramic Devices, Inc., Electronic Specialty Corporation, Morel Industries, Inc., Northwest Technical Industries, Inc., Pacific Coast Technologies, Inc., Seismic Safety Products, Inc., PA&E International, Inc. and Friedman, Billings, Ramsey & Co., Inc. and BancBoston Securities Inc.(4) 4.6 Indenture dated as of July 30, 1998, between Pacific Aerospace & Electronics, Inc., Balo Precision Parts, Inc., Cashmere Manufacturing Co., Inc., Ceramic Devices, Inc., Electronic Specialty Corporation, Morel Industries, Inc., Northwest Technical Industries, Inc., Pacific Coast Technologies, Inc., Seismic Safety Products, Inc., PA&E International, Inc. and IBJ Schroder Bank & Trust Company.(4) 4.7 Form of Global Note of Pacific Aerospace & Electronics, Inc.(4) 4.8 Registration Rights Agreement, dated as of July 30, 1998, between Pacific Aerospace & Electronics, Inc., Balo Precision Parts, Inc., Cashmere Manufacturing Co., Inc., Ceramic Devices, Inc., Electronic Specialty Corporation, Morel Industries, Inc., Northwest Technical Industries, Inc., Pacific Coast Technologies, Inc., Seismic Safety Products, Inc., PA&E International, Inc. and Friedman, Billings, Ramsey & Co., Inc. and BancBoston Securities Inc.(4) 10.1 Loan Agreement, dated September 22, 1998, between Pacific Aerospace & Electronics, Inc. and KeyBank National Association. (5) 10.2 Promissory Note, dated September 22, 1998, from Pacific Aerospace & Electronics, Inc. to KeyBank National Association.(5) 10.3 Security Agreement, dated September 22, 1998, between Pacific Aerospace & Electronics, Inc. and KeyBank National Association.(5) 10.4 Promissory Note, dated September 30, 1998, from Pacific Aerospace & Electronics, Inc. to KeyBank National Association.(5) 10.5 Deed of Trust, dated September 30, 1998, between Pacific Aerospace & Electronics, Inc., KeyBank National Association and Land Title Company, Chelan-Douglas County, Inc.(5) 10.6 Condominium Purchase and Sale Agreement, dated as of November 7, 1998, between Pacific Aerospace & Electronics, Inc. and Donald A. Wright. (6) 27 Financial Data Schedule. (6) -27- - -------------- (1) Incorporated by reference to the Company's Current Report on Form 8-K filed on December 12, 1996. (2) Incorporated by reference to the Company's Current Report on Form 8-K filed on March 12, 1997. (3) Incorporated by reference to the Company's Annual Report on Form 10-K filed on August 28, 1998. (4) Incorporated by reference to the Company's Current Report on Form 8-K filed on August 14, 1998 (5) Incorporated by reference to the Company's Quarterly Report on 10-Q filed on October 13, 1998. (6) Filed with this report. b. Reports on Form 8-K. The Company filed with the Commission the following Current Report on Form 8-K during the quarter ended November 30, 1998: On September 21, 1998, the Company filed Amendment No. 2 to the Current Report on Form 8-K, dated July 10, 1998, reporting the Company's acquisition of ESC, effective as of March 1998, as previously amended by an amendment on Form 8-K/A, dated August 26, 1998, filing the consolidated financial statements of ESC and its subsidiary for (1) the two years ended March 31, 1997 and March 31, 1996, and (2) the nine-month periods ended December 31, 1997 and December 31, 1996. -28- SIGNATURES Pursuant to the requirements of the Exchange Act, the registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. PACIFIC AEROSPACE & ELECTRONICS, INC. Date: January 8, 1999 /s/ DONALD A. WRIGHT ----------------------------------------- Donald A. Wright President, Chief Executive Officer, and Chairman of the Board (Principal Executive Officer) Date: January 8, 1999 /s/ NICK A. GERDE ----------------------------------------- Nick A. Gerde Vice President Finance, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer) -29- EXHIBIT INDEX The following documents are filed as exhibits to this Quarterly Report: Exhibit Number Document - ------- -------- 3.1 Articles of Incorporation of Pacific Aerospace & Electronics, Inc. (1) 3.2 Amendment to Articles of Incorporation containing Designation of Rights and Preferences of Series A Convertible Preferred Stock, as corrected. (2) 3.3 Amendment to Articles of Incorporation containing Designation of Rights and Preferences of Series B Convertible Preferred Stock. (3) 3.4 Bylaws of Pacific Aerospace & Electronics, Inc. (1) 4.1 Form of specimen certificate for the Series B Preferred.(3) 4.2 Form of Common Stock Purchase Warrant issued to holders of the Series B Preferred.(3) 4.3 Securities Purchase Agreement, dated May 15, 1998, between Pacific Aerospace & Electronics, Inc. and the purchasers of the Company's Series B Preferred.(3) 4.4 Registration Rights Agreement, dated May 15, 1998 between Pacific Aerospace & Electronics, Inc. and the holders of the Series B Preferred.(3) 4.5 Purchase Agreement, dated as of July 23, 1998, between Pacific Aerospace & Electronics, Inc., Balo Precision Parts, Inc., Cashmere Manufacturing Co., Inc., Ceramic Devices, Inc., Electronic Specialty Corporation, Morel Industries, Inc., Northwest Technical Industries, Inc., Pacific Coast Technologies, Inc., Seismic Safety Products, Inc., PA&E International, Inc. and Friedman, Billings, Ramsey & Co., Inc. and BancBoston Securities Inc.(4) 4.6 Indenture dated as of July 30, 1998, between Pacific Aerospace & Electronics, Inc., Balo Precision Parts, Inc., Cashmere Manufacturing Co., Inc., Ceramic Devices, Inc., Electronic Specialty Corporation, Morel Industries, Inc., Northwest Technical Industries, Inc., Pacific Coast Technologies, Inc., Seismic Safety Products, Inc., PA&E International, Inc. and IBJ Schroder Bank & Trust Company.(4) 4.7 Form of Global Note of Pacific Aerospace & Electronics, Inc.(4) 4.8 Registration Rights Agreement, dated as of July 30, 1998, between Pacific Aerospace & Electronics, Inc., Balo Precision Parts, Inc., Cashmere Manufacturing Co., Inc., Ceramic Devices, Inc., Electronic Specialty Corporation, Morel Industries, Inc., Northwest Technical Industries, Inc., Pacific Coast Technologies, Inc., Seismic Safety Products, Inc., PA&E International, Inc. and Friedman, Billings, Ramsey & Co., Inc. and BancBoston Securities Inc.(4) 10.1 Loan Agreement, dated September 22, 1998, between Pacific Aerospace & Electronics, Inc. and KeyBank National Association. (5) 10.2 Promissory Note, dated September 22, 1998, from Pacific Aerospace & Electronics, Inc. to KeyBank National Association.(5) 10.3 Security Agreement, dated September 22, 1998, between Pacific Aerospace & Electronics, Inc. and KeyBank National Association.(5) 10.4 Promissory Note, dated September 30, 1998, from Pacific Aerospace & Electronics, Inc. to KeyBank National Association.(5) 10.5 Deed of Trust, dated September 30, 1998, between Pacific Aerospace & Electronics, Inc., KeyBank National Association and Land Title Company, Chelan-Douglas County, Inc.(5) 10.6 Condominium Purchase and Sale Agreement, dated as of November 7, 1998, between Pacific Aerospace & Electronics, Inc. and Donald A. Wright. (6) 27 Financial Data Schedule. (6) - -------------- (1) Incorporated by reference to the Company's Current Report on Form 8-K filed on December 12, 1996. (2) Incorporated by reference to the Company's Current Report on Form 8-K filed on March 12, 1997. (3) Incorporated by reference to the Company's Annual Report on Form 10-K filed on August 28, 1998. (4) Incorporated by reference to the Company's Current Report on Form 8-K filed on August 14, 1998 (5) Incorporated by reference to the Company's Quarterly Report on 10-Q filed on October 13, 1998. (6) Filed with this report. EX-10.6 2 CONDOMINIUM PURCHASE & SALE AGREEMENT CONDOMINIUM PURCHASE AND SALE AGREEMENT THIS AGREEMENT, made and entered into this 7th day of November, 1998, by and between PACIFIC AEROSPACE & ELECTRONICS, INC., a Washington corporation, hereinafter referred to as the "Seller," and DONALD A. WRIGHT, hereinafter referred to as the "Buyer," W I T N E S S E T H: 1. Agreement of Sale. The Seller agrees to sell and the Buyer agrees to purchase Unit 4 (the "Unit") in the Confluence Park Condominium (the "Condominium"), as established by the Declaration of Covenants, Conditions, Restrictions and Reservations recorded under Document No. 2040202 in Chelan County, Washington (the "Declaration"), plus the exclusive rights to use the limited common elements identified as the two (2) parking spaces in the existing garage upon and subject to the terms of the Declaration. 2. Purchase Price. The total purchase price for the Unit is ONE HUNDRED SEVENTY-FIVE THOUSAND DOLLARS ($175,000), which purchase price shall be paid to the Seller in cash on the Closing Date. The Seller shall have no obligation to pay interest on the Deposit, but any interest which is otherwise earned thereon shall be paid to the person to whom the Deposit is paid and, if paid to the Seller, shall be credited against the purchase price. 3. Title. Title to the Unit shall be conveyed to the Buyer by statutory warranty deed subject to easements, reservations, restrictions, covenants and conditions of record, including, without limitation, the terms and provisions of the Declaration and the survey map and plans recorded in conjunction therewith; taxes and assessments, general and special, not due and payable as of the Closing Date (defined below); Condominium association assessments not due and payable on the Closing Date; rights of the public to parts, if any, lying in streets and rights-of-way; rights reserved in federal patents or state deeds; building and use restrictions general to the district in which the Condominium is located; and building and zoning regulations applicable to the Condominium. Any other liens or encumbrances may be discharged by the Seller out of the purchase price on the Closing Date. 4. Title Insurance. The Buyer shall be responsible for any title insurance he requires for this purchase. 5. Buyer's Conditions to Closing. The Buyer's obligation to close this transaction is conditioned solely upon (a) the Seller's compliance with the terms hereof in all material -1- respects, and (b) the Unit having not been materially damaged or destroyed by fire or other casualty, unless the Seller elects to restore such damage and such restoration is completed in all material respects prior to the Closing Date. If the Unit is materially damaged by fire or other casualty and is not substantially restored by the Seller at its expense by the Closing Date, or if the Buyer is unable to obtain its purchase money loan by the Closing Date after making due application therefor, this agreement shall automatically terminate, whereupon the Deposit shall be returned to the Buyer. 6. Closing Date and Procedures. This transaction shall close in the offices of Seller on the Closing Date. For the purposes of this agreement, the "Closing Date" shall mean the date of recordation of the Seller's deed to the Buyer. 7. Closing Costs and Prorations. The Seller shall be responsible for the payment of any excise tax assessed on the conveyance of title to the Unit and any sums due with respect to the discharge of any encumbrances for which the Seller is responsible. The Buyer shall pay the fees for recording the Seller's deed and for any title insurance required by the Buyer. Condominium assessments for the month which includes the Closing Date, real estate taxes and assessments, and billings for utilities not separately metered, if any, shall be prorated between the parties hereto as of the Closing Date. 8. Assessment Deposit. If the Seller so requests prior to the Closing Date, the Buyer shall deposit with the Seller at closing a sum sufficient to discharge the Buyer's estimated first two (2) months' assessments for the common expenses levied or to be levied by the Condominium owners' association. 9. Association Notice. The Buyer agrees to provide the Condominium owners' association with written notice of its name, address and the date this sale closed immediately following the Closing Date. The Buyer acknowledges that such notice is required by statute and is necessary for the association to include the Buyer as an insured under the association's insurance policies. 10. Receipt of Public Offering Statement. The Buyer acknowledges that at least seven (7) days before the execution of this Agreement he received a complete and legible copy of the Seller's public offering statement and each of the documents which were identified therein as accompanying such statement. The Buyer agrees that all of the documents which accompanied the public offering state are incorporated herein as a part of this agreement and covenants with the Seller to comply with and observe each and every term, covenant and condition therein contained. This covenant shall survive the closing of this sale. 11. Possession. The Buyer shall be entitled to possession of the Unit as of the Closing Date. -2- 12. Fixtures and Improvements. The Seller agrees that as part of the purchase price for this transaction, the Unit shall be equipped and furnished with the items specifically indicated on Exhibit A attached hereto, and that all of such items are included in the purchase price. The Buyer acknowledges that he is familiar with each of such items and has accepted and agreed to the same, and Seller shall be under no obligation to change, modify or replace any such items. If any of such items become unavailable to Seller or cost thereof significantly increases, Seller shall have the right to replace such items with new furnishings, fixtures and equipment of comparable quality and utility. 13. Condition of Property. Except as otherwise stated in the Seller's public offering statement, the Seller has made no representations and does not warrant the condition of the Property, and the Buyer, having inspected the Property, agrees to purchase the same "as is." 14. Defaults and Remedies. If the Buyer fails, without legal excuse, to close this transaction as and when required by this agreement, the Seller may terminate this agreement and all of the rights granted to the Buyer herein and Buyer shall pay Seller $500 as its sole and exclusive remedy. The parties acknowledge that this provision is intended to satisfy the requirements of RCW 64.04.005(1)(a); is not to be construed to be a limitation upon any right or remedy available to Seller in the event of any other default on the part of the Buyer under this or any other agreement; and does not affect the parties' rights to recover attorneys' fees in any action commenced with respect to this agreement. Parties' initials: [Illegible] /s/ DW ----------------- ---------------- Seller's Initials Buyer's Initials Any default by the Seller under this agreement which continues to the earlier of (a) fifteen (15) days after the Buyer's written notice thereof, or (b) the Closing Date shall enable the Buyer to terminate this agreement and recover the Deposit and its actual damages from the Seller. 15. Attorneys' Fees. The prevailing party in any litigation concerning this agreement shall be entitled to be paid its court costs and reasonable attorneys' fees by the party against whom judgment is rendered, including such costs and fees as may be incurred on appeal. 16. Real Estate Brokers. The parties agree that the commission of any real estate broker or agent employed in connection with this transaction shall be paid solely by the party contracting for such services in writing. The Buyer acknowledges that no broker or agent has made any representations or warranties regarding the Unit, the Condominium or any other matters relating to this transaction which are binding upon the Seller. -3- 17. Notices. All notices which are given in connection with this agreement shall be in writing and delivered or sent by certified mail, return receipt requested, with postage prepaid. Notices given to the Seller shall be delivered or addressed to 430 Olds Station Road, Wenatchee, Washington 98801, Attn: President, and notices given to the Buyer shall be delivered or addressed to the address listed below its signature on this agreement. The place for receipt of such notices may be changed by not less than fifteen (15) days' advance notice given by the means above described. Notices shall be deemed effective upon the date of delivery or two (2) calendar days following the date of the U.S. postmark thereon. 18. Time of Performance. Time is of the essence of each and every term, covenant and condition hereof. 19. Partial Invalidity. If any of the provisions of this agreement are ruled invalid by any court of competent jurisdiction, such ruling shall not affect, impair, or invalidate any of the other terms hereof. 20. Construction of Agreement. This agreement shall create only the relationship of seller and purchaser and no agency, employment, partnership, joint venture or other joint undertaking shall be inferred from these presents. Except to the extent stated in this agreement, neither party shall have the right to make any representations or incur any debts on behalf of the other. If either party is comprised of more than one person, such persons shall be jointly and severally liable hereunder. The Buyer acknowledges that he has read this agreement and has been given the opportunity to seek the assistance of legal counsel, and that this agreement has been mutually negotiated and shall not be construed against either party. All sums herein mentioned, including, without limitation, the purchase price and the installments thereof, shall be calculated by and payable in the lawful currency of the United States. 21. Successors. Subject to the limitations upon assignments contained herein, all rights and obligations arising out of this agreement shall inure to the benefit of and be binding upon the respective heirs, successors, assigns, administrators, and marital communities, if any, of the parties hereto. 22. Venue. The venue of any action brought to interpret or enforce this agreement shall be laid in Chelan County, Washington. 23. Controlling Law. This agreement shall be construed, interpreted and enforced in accordance with the laws of the State of Washington. -4- 24. Entire Agreement. This agreement constitutes the entire agreement of the parties hereto, it supersedes all previous oral and written agreements between the Seller and the Buyer which relate to the Buyer's purchase of the Unit, and may not be amended except by subsequent written agreement executed by the Seller and the Buyer. No waiver of any term, covenant or condition of or right or remedy under this agreement shall be effective unless and to the extent evidenced by an express written agreement signed by the waiving party in each instance. PACIFIC AEROSPACE & ELECTRONICS, INC., a Washington corporation By /s/ NICK GERDE -------------------------------------- Printed Name: Nick Gerde ------------------------ Title: VP Finance ------------------------------- "Seller" /s/ DONALD A. WRIGHT ----------------------------------------- DONALD A. WRIGHT "Buyer" Address: 430 Olds Station Road ----------------------------------------- Wenatchee, WA 98801 ----------------------------------------- ----------------------------------------- THIS AGREEMENT REQUIRES THE PARTIES TO INITIAL PARAGRAPH 14. -5- EX-27 3 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 quarter and six months ended November 30, 1998, and is qualified it its entirety by reference to such financial statements. 3-MOS 6-MOS MAY-31-1999 MAY-31-1999 NOV-30-1998 NOV-30-1998 16,392,000 16,392,000 2,719,000 2,719,000 21,746,000 21,746,000 419,000 419,000 27,065,000 27,065,000 66,752,000 66,752,000 54,048,000 54,048,000 6,485,000 6,485,000 167,379,000 167,379,000 21,566,000 21,566,000 82,622,000 82,622,000 0 0 0 0 19,000 19,000 62,855,000 62,855,000 167,379,000 167,379,000 30,477,000 49,655,000 30,477,000 49,655,000 25,655,000 40,159,000 25,655,000 40,159,000 4,355,000 8,131,000 0 700,000 2,683,000 3,752,000 (2,275,000) (8,941,000) 300,000 (1,955,000) (2,575,000) (6,986,000) 0 0 0 0 0 0 (2,575,000) (6,986,000) (0.15) (0.43) (0.15) (0.43)
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